STRZ

Starz Entertainment Corp. 10-Q Summary: Q1 2026

Business Context and Reporting Period

This report covers the quarterly period ended March 31, 2026. Starz Entertainment Corp. operates as a standalone entity following its separation from Lions Gate Entertainment Corp. in May 2025. The company primarily distributes premium subscription video services via the Starz App (OTT) and through multichannel video programming distributors (MVPDs). The company changed its fiscal year-end to December 31 in 2025. As of April 28, 2026, there were 16.8 million common shares outstanding.

Key Financial Metrics

Revenue Breakdown: OTT revenue was $211.1 million (down 6.4% YoY); Linear and other revenue was $95.8 million (down 8.8% YoY).

Debt Structure: Includes a $300.0 million Term Loan A and $325.1 million in 5.5% Senior Notes due 2029. The company has a $150.0 million revolving credit facility, which was undrawn as of March 31, 2026.

Material Changes vs. Prior Period

• Revenue Decline: Total revenue decreased by $23.7 million (7.2%) due to continued declines in traditional linear services and a higher mix of discounting on OTT services. International revenue dropped to zero following the transfer of India and Southeast Asia operations to New Lionsgate in April 2025.
• Increased Programming Amortization: Programming amortization rose to $138.3 million (up 16.8%) driven by higher costs for original series and increased library content amortization.
• Restructuring Costs: Restructuring and other expenses decreased to $139.1 million from $183.4 million, primarily due to lower content impairments ($128.1 million vs. $167.7 million) and reduced transaction-related legal costs.
• Cash Flow Improvement: Operating cash flow turned positive at $73.2 million, a significant improvement from a $63.5 million outflow in Q1 2025, driven by lower cash paid for programming content ($113.3 million vs. $246.0 million).

Outlook, Risks, and Unusual Items

Subsequent Events: In April 2026, Starz entered an agreement to terminate certain live-action films under a post pay-one output licensing agreement. This is expected to result in termination fees ranging from $185.0 million to $205.0 million, impacting Restructuring and Other costs in Q2 2026, with payments due in 2027 and 2028.

Liquidity: Management believes cash flow from operations, cash on hand, and the undrawn $150 million revolving credit facility are adequate to meet requirements for the next 12 months. However, the company anticipates future cash outlays of approximately $250.0 million to $270.0 million related to content impairments and termination agreements.

Risks and Contingencies:

• Legal Proceedings: A lawsuit regarding the 5.5% Senior Notes exchange transaction remains pending, though most claims were dismissed in March 2026. A single declaratory judgment claim remains.
• Market Risks: Exposure to variable interest rates on programming notes (weighted average 8.2%) and production loans (6.0%). The company utilizes interest rate swaps to hedge $150.0 million of floating-rate debt.
• Content Strategy: Ongoing strategic review of the content portfolio to right-size costs in response to declining linear services.

Investor Verification Checklist

• Termination Fees: Verify the final impact of the April 2026 film termination agreement on Q2 2026 earnings and future cash outflows ($185M-$205M range).
• Linear Decline: Assess the sustainability of the continued revenue decline in traditional linear services and the effectiveness of OTT discounting strategies.
• Debt Covenants: Confirm continued compliance with the Net Total Leverage Ratio covenant (required to be no greater than 4.25 to 1.00 as of March 31, 2026).
• Content Impairments: Monitor future quarters for additional content impairments as the company rationalizes its portfolio.
• Legal Resolution: Track the status of the remaining declaratory judgment claim regarding the 5.5% Senior Notes.