STRZ

Starz Entertainment Corp. 10-Q Summary: Q2 2026

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2026, for Starz Entertainment Corp. (STRZ). The Company operates as a standalone entity following its separation from Lions Gate Entertainment Corp. in May 2025. Starz distributes premium subscription video services via direct-to-consumer OTT platforms (Starz App) and wholesale multichannel video programming distributors (MVPDs). The Company reports a single segment: Starz Networks.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenue decreased 3.7% QoQ and 5.5% YTD, driven by a 12.2% drop in linear revenue due to declining traditional linear households and a shift in Canadian operations to a content licensing model.
• Significant Restructuring Costs: "Restructuring and other" expenses surged to $151.2 million in Q2 (vs. $6.4 million prior year) and $290.3 million YTD. This was primarily due to $147.2 million in contract termination fees for live-action films under a post-pay-one output licensing agreement and $129.8 million in content impairments.
• Amortization Changes: Programming amortization decreased 29.8% QoQ due to fewer output titles following the contract termination. However, depreciation and amortization of intangible assets increased 38.2% QoQ after the Company reduced the useful life of its "Starz Traditional Affiliate" customer relationship asset from 14 to 12 years.
• Liquidity Improvement: Operating cash flow improved significantly to $45.0 million YTD 2026 compared to $1.9 million YTD 2025, aided by lower cash paid for programming content ($294.9M vs $394.3M).

Outlook, Risks, and Management Commentary

• Strategic Content Review: Management is actively rationalizing the content portfolio to right-size costs, including cancelling ordered programming and abandoning content with limited strategic value.
• Liquidity Position: The Company maintains $59.6 million in cash and an undrawn $150 million revolving credit facility. Management believes current resources are adequate for the next 12 months, including funding for programming and debt service.
• Contractual Obligations: Future cash outlays for programming restructuring and contract termination fees are estimated at approximately $205.0 million, with $61.9 million paid in the first half of 2026.
• Risks: Key risks include the unpredictability of commercial success of programming, continued decline in linear services, capital market disruptions, and the substantial investment required for content production. The Company is currently in compliance with all debt covenants.

Investor Verification Checklist

• Contract Termination Liability: Verify the final cost of the $147.2 million termination fee, as it is based on an estimate involving theatrical box office performance of unreleased films.
• Linear Revenue Trajectory: Monitor the rate of decline in linear households and the impact on the amortization of the "Starz Traditional Affiliate" intangible asset.
• Content Impairment Frequency: Assess whether the $129.8 million in content impairments represents a one-time rationalization or a recurring issue with the content library's value.
• Debt Covenants: Confirm continued compliance with the Net Total Leverage Ratio (currently capped at 4.50 to 1.00) given the elevated restructuring costs.
• Canadian Operations: Evaluate the long-term revenue impact of the shift from operational oversight to a content licensing arrangement in Canada.