Business context and reporting period
The supplied filing is Lions Gate Entertainment Corp.’s unaudited Form 10-Q for the quarter and six months ended September 30, 2021 (fiscal 2022 Q2). It describes Lionsgate’s Motion Picture, Television Production and Media Networks businesses, including STARZ. The filing is not for an issuer named STARZ Entertainment Corp.; the company and period in the request metadata do not match the filing text.
Key financial metrics
All amounts are U.S. dollars. Quarter comparisons are against the three months ended September 30, 2020; six-month comparisons are against the six months ended September 30, 2020.
| Metric | Quarter | Six months |
|---|---|---|
| Revenue | $887.8 million, up 19.2% | $1,789.0 million, up 14.8% |
| Operating income | $29.8 million, essentially unchanged | $50.1 million, down from $119.1 million |
| Net income (loss) attributable to Lionsgate shareholders | $7.5 million ($0.03 per share), versus a loss of $18.4 million | Loss of $37.9 million ($0.17 per share), versus income of $32.7 million |
| Operating margin | Approximately 3.4%, versus 4.0% | Approximately 2.8%, versus 7.6% |
| Operating cash flow | Not separately stated for the quarter | Cash used of $332.5 million, versus cash provided of $203.5 million |
| Cash and cash equivalents | $442.6 million at September 30, 2021; $528.7 million at March 31, 2021 |
For the six months, cash used in operating activities included $1,149.7 million invested in films, television programs and program rights. Investing cash outflow was $61.8 million; financing cash inflow was $315.9 million. Cash, cash equivalents and restricted cash ended at $447.8 million.
Segments and material changes
- Motion Picture: Quarterly revenue rose 28.5% to $330.9 million and segment profit rose 22.7% to $101.8 million. For six months, revenue increased 15.6% to $622.1 million, while segment profit fell 20.6% to $146.1 million, as theatrical marketing and distribution costs rose substantially.
- Television Production: Quarterly revenue increased 70.4% to $336.0 million and segment profit rose to $28.5 million from $9.9 million. Six-month revenue grew 83.8% to $722.1 million, but segment profit declined 29.8% to $31.5 million. The six-month period included $26.6 million of content impairments and higher costs from newer program deliveries.
- Media Networks: Quarterly revenue edged down 0.9% to $384.7 million, while segment profit fell to $5.5 million from $92.9 million. Six-month revenue rose 1.5% to $767.0 million, but segment profit declined 43.1% to $93.7 million. Management cited higher original-programming and subscriber-acquisition marketing costs, alongside investment in STARZPLAY International.
- At September 30, global STARZ subscribers were 28.1 million, compared with 24.5 million a year earlier; this excludes STARZPLAY Arabia, an equity-method investee, which had 1.9 million subscribers. Domestic linear subscribers declined to 10.2 million from 11.5 million, while domestic OTT subscribers increased to 10.4 million from 9.2 million.
Debt, liquidity and significant items
Corporate debt, net of issuance costs, was $2,435.0 million, including $40.0 million current debt. Film-related and other obligations, net, were $1,258.6 million, including $546.4 million current. Cash was $442.6 million. The $1.5 billion revolving credit facility was undrawn and available at quarter-end, subject to covenants; in November 2021, the company terminated $250.0 million of commitments, leaving $1.25 billion of commitments. Current assets of $1,048.2 million were below current liabilities of $1,897.8 million.
During the period, Lionsgate refinanced its 5.875% and 6.375% notes with $1.0 billion of 5.500% notes due 2029, extended portions of its revolving facility and Term Loan A to 2026, and repurchased $96.0 million of Term Loan B principal. Six-month results included a $27.1 million loss on extinguishment of debt. Quarterly interest and other income included $20.2 million of insurance-litigation settlement proceeds; the six-month amount was $22.7 million. Management said it was in compliance with applicable debt covenants at September 30.
Outlook, risks and contingencies
Management expected Motion Picture and Television Production revenue to increase in fiscal 2022 versus fiscal 2021 if pandemic-related disruptions continued to improve. It also expected fiscal 2022 COVID-related incremental costs to decline versus fiscal 2021 if conditions improved, while cautioning that the outlook depended on theater reopening and attendance, production continuity, restrictions and variants, consumer behavior and economic conditions. Management said cash on hand, operating cash flow, credit availability and production-related financing were expected to meet foreseeable requirements; this is a forward-looking assessment, not a guarantee.
The company reported $1.6 billion of remaining performance obligations at September 30, 2021. It also disclosed $243.2 million of redeemable noncontrolling interests, with timing and amounts of any future payment uncertain. Litigation losses beyond recorded accruals were described as reasonably possible, but the company said it could not estimate a reasonable loss range. It was pursuing additional insurance recoveries for some pandemic-related costs, with the amount not estimable. COVID-19 disruptions, content performance, subscriber trends, production spending and film-cost estimates remain material risks.
Important facts for investors to verify
- Confirm the intended issuer and period: the supplied document is Lions Gate Entertainment Corp., quarter ended September 30, 2021, not a filing identified as STARZ Entertainment Corp.
- Review the drivers and sustainability of the $22.7 million six-month insurance-litigation recovery and the $27.1 million debt-extinguishment loss.
- Assess the cash-flow use from film and program investment, current-liability coverage, and availability and terms of production and revolving financing.
- Track Media Networks’ sharply lower segment profit against rising OTT subscribers and increased programming and marketing costs.
- Evaluate the $26.6 million Television Production impairment and the assumptions used to estimate future content revenue and asset recoverability.
- Check subsequent developments in theater releases, production schedules, subscriber growth, litigation and insurance recoveries against management’s conditional outlook.