Business context and reporting period
Entity clarification: The supplied filing is Lions Gate Entertainment Corp.’s Form 10-K, not a filing by STARZ Entertainment Corp. Lionsgate reports STARZ as part of its Media Networks segment. The reporting period is the fiscal year ended March 31, 2022; this is not a standalone calendar fourth-quarter report. Amounts below are U.S. dollars.
Lionsgate operates Motion Picture, Television Production and Media Networks businesses, supported by a reported library of about 17,000 titles. Its STARZ services had 21.0 million U.S. subscribers and 12.8 million international subscribers at year-end.
Financial results and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $3,604.3 million | $3,271.5 million |
| Operating income | $9.0 million | $170.6 million |
| Net loss attributable to Lionsgate shareholders | $188.2 million; $0.84 per share | $18.9 million; $0.09 per share |
| Cash used in operating activities | $660.9 million | $0.5 million |
| Cash and cash equivalents at year-end | $371.2 million | $528.7 million |
- Revenue increased 10.2%, but operating income fell sharply; operating margin was approximately 0.2%, versus 5.2% in FY2021. Shareholder net loss was approximately 5.2% of revenue, versus 0.6%.
- Operating cash use reflected higher content investment and increased receivables and other assets. Investing cash use was $80.5 million, including $161.4 million for a film library and related assets, partly offset by $123.6 million of Pantaya sale proceeds. Financing activities provided $599.4 million.
- At March 31, corporate debt was $2,482.7 million; production and related loans were $1,286.7 million; and the IP Credit Facility balance was $123.5 million. These disclosed balances total approximately $3.89 billion before considering other adjustments. The $1.25 billion revolving facility was undrawn; cash was $371.2 million.
- Current assets were $1,058.1 million and current liabilities $2,403.1 million. Management stated that available cash, operating cash flow and financing sources were expected to cover known operating and debt-service needs for the next 12 months and beyond.
- Segment profit was $499.3 million, down 23.7%. Motion Picture segment profit was $262.9 million, down 11.1%; Television Production was $83.9 million, essentially flat; Media Networks was $155.2 million, down 46.4%.
Material changes versus the prior year
- Studio Business revenue rose 42.0%, led by Television Production revenue growth of 84.1%, reflecting more episodes delivered after pandemic-related production pauses and increased licensing of STARZ originals to Media Networks. Intersegment eliminations rose to $648.2 million from $204.1 million, so segment revenue should not be added without accounting for eliminations.
- Media Networks revenue declined 1.7%. Domestic STARZ linear revenue weakened, partly offset by OTT growth; STARZPLAY International revenue increased $41.8 million. Pantaya’s prior-year contribution ended following its sale.
- STARZ domestic subscribers were 21.0 million, compared with 20.9 million; domestic OTT subscribers rose to 11.5 million from 10.0 million while linear subscribers fell to 9.5 million from 10.9 million. International subscribers increased to 12.8 million from 6.8 million, largely through OTT growth.
- Operating cash use worsened substantially from near break-even as content investment increased. Film and television program and program-rights investment was $2,211.7 million, compared with $1,616.7 million.
- The company refinanced senior notes: it redeemed $1.064 billion of 5.875% and 6.375% notes and issued $1.0 billion of 5.500% notes due 2029. It recorded a $28.2 million debt-extinguishment loss. The 2023 Term Loan A balance of $193.6 million was prepaid in April 2022, after year-end.
Outlook, commentary, risks and unusual items
- Management expected Motion Picture and Television Production segment revenues to increase in FY2023 if pandemic-related disruption improved. It also expected higher production and marketing cash requirements as activity and content investment increased. These expectations are conditional, not firm consolidated earnings guidance.
- COVID-19 continued to create production, release and theater-attendance uncertainty. The company also cited inflation, rising interest rates, Russia’s invasion of Ukraine, competitive pressure in streaming, subscriber trends, content performance, and the renewal of STARZ distribution agreements as risks.
- FY2022 included $36.9 million of charges for STARZ programming removed after a strategic review, $5.9 million of charges primarily for Russian customer receivables, and a $3.6 million net COVID-related benefit from insurance recoveries exceeding certain costs. The company also recognized $22.7 million of insurance recoveries related to prior shareholder litigation in interest and other income.
- Media Networks goodwill was identified as at risk of impairment under changes in key assumptions; estimated fair value exceeded carrying value by about 10%. No goodwill impairment was recorded in the disclosed assessment. Unreleased and in-progress theatrical films carried $500.8 million of unamortized costs at year-end, an area of significant estimation judgment highlighted by the auditor.
- Redeemable noncontrolling interests were $321.2 million, with put rights that could require cash payments beginning in 2022 for a portion of Pilgrim Media Group interests and in 2023 for 3 Arts Entertainment interests. The filing does not provide a reliable estimate of the amounts or timing of any resulting payments.
- The company reported compliance with applicable debt covenants at March 31, 2022. It disclosed pending legal matters for which an excess loss was considered reasonably possible, but said it could not reasonably estimate a possible loss range. It also reported $793.2 million of off-balance-sheet film-related commitments and $591.8 million of scheduled corporate-debt interest payments.
Important facts for investors to verify
- Confirm the issuer and reporting period: this is Lions Gate Entertainment Corp.’s FY2022 10-K, not a STARZ Entertainment Corp. quarterly filing.
- Review the drivers of the $660.9 million operating cash outflow and the sustainability and financing of content investment.
- Reconcile total debt, production financing, borrowing availability and subsequent events, including the April 2022 term-loan prepayment and $125.0 million IGR Facility funding.
- Assess STARZ subscriber mix, international OTT growth, domestic linear attrition, distribution-agreement renewals and the Media Networks goodwill cushion.
- Review the $321.2 million redeemable noncontrolling interests, contractual commitments, unquantified litigation exposure and assumptions for unreleased film valuations.