Business context and reporting period
This is Lions Gate Entertainment Corp.’s unaudited Form 10-Q for the quarter ended September 30, 2022 (fiscal 2023 second quarter), comparing the three- and six-month periods with those ended September 30, 2021. The filing describes film and television production and the STARZ subscription businesses. The request identifies STARZ Entertainment Corp.; that does not match the registrant named in the filing.
Financial performance and position
| Metric | Three months ended September 30, 2022 | Six months ended September 30, 2022 |
|---|---|---|
| Revenue | $875.2 million, down 1.4% year over year | $1,769.1 million, down 1.1% |
| Operating income (loss) | $(1,747.6) million | $(1,815.9) million |
| Net income (loss) attributable to shareholders | $(1,811.1) million; $(7.95) per share | $(1,930.1) million; $(8.51) per share |
| Cash from (used in) operating activities | Not provided separately for the quarter in the supplied text | $(139.4) million, versus $(332.5) million a year earlier |
The quarterly loss primarily reflects a $1.475 billion Media Networks goodwill impairment and $233.2 million of restructuring and other costs. Excluding those items, reported segment profit was $72.2 million for the quarter, down from $132.7 million; this is a company-defined measure, not consolidated operating income.
- Segment trends: Quarterly Motion Picture revenue fell 32.3% to $224.0 million and segment profit fell 45.5% to $55.5 million. Television Production revenue rose 28.2% to $430.9 million, while segment profit fell 52.3% to $13.6 million. Media Networks revenue rose 3.0% to $396.1 million and segment profit increased to $21.0 million from $5.5 million. For the six months, Media Networks recorded a segment loss of $16.0 million versus segment profit of $93.7 million.
- Cash and liquidity: At September 30, cash and cash equivalents were $557.1 million; cash, cash equivalents and restricted cash totaled $599.4 million. The company used $139.4 million in operating cash over six months, spent $36.0 million in investing activities and generated $395.9 million from financing activities. Operating cash flow benefited from $188.7 million of proceeds related to interest-rate-swap terminations; financing cash flow included a $134.5 million payment of the swaps’ financing component.
- Debt and obligations: Net corporate debt was $2.208 billion, including $439.3 million of Term Loan A, $837.9 million of Term Loan B and $981.4 million principal of 5.500% Senior Notes. Film-related and other financing obligations were $2.168 billion net, of which $1.182 billion was current. The $1.25 billion revolving facility was undrawn and available, subject to covenants. The company reported covenant compliance.
- Other metrics: STARZ domestic subscribers totaled 21.0 million, including 12.3 million OTT subscribers; LIONSGATE+ subscribers totaled 14.8 million. Total global subscribers, including STARZPLAY Arabia, were 37.8 million versus 30.0 million a year earlier. Remaining performance obligations were $2.1 billion.
Material changes, outlook and risks
Revenue was nearly flat overall, with growth in Television Production and LIONSGATE+ offset by weaker Motion Picture revenue and increased intersegment eliminations. Direct operating expenses rose 16.6% in the quarter, while distribution and marketing expenses fell 14.9%. Interest expense rose to $57.3 million from $44.0 million.
The company began restructuring LIONSGATE+ and plans to exit France, Germany, Italy, Spain, Benelux, the Nordics and Japan, citing subscriber-growth assumptions, competitive pressure, inflation and recessionary conditions. It recorded $213.0 million of international content impairment within restructuring costs and expects another $75–$100 million of charges over the following six months, plus approximately $75 million of future cash expenditures related to content charges already recorded. It also recorded severance and a $5.8 million lease-asset impairment. Management said it had revised domestic STARZ subscriber-growth and cash-flow forecasts and implemented cost-saving measures.
Management expected production cash needs to increase and marketing cash needs to be comparable with fiscal 2022. It stated that operating cash flow, cash on hand, credit availability and other financing sources should be adequate for known operating and debt-service needs for the next twelve months and beyond. This is management’s expectation, not a guarantee. Risks cited include streaming competition and subscriber growth, macroeconomic and market conditions, rising interest rates and foreign exchange movements, COVID-19 disruption, and Russia’s invasion of Ukraine. Further impairment is possible if forecasts or assumptions are not achieved. The filing reported no material pending legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the intended issuer: the filing is for Lions Gate Entertainment Corp., not STARZ Entertainment Corp.
- Review the assumptions and valuation sensitivity behind the $1.475 billion Media Networks goodwill impairment, including updated subscriber and cash-flow forecasts.
- Track execution costs and cash effects of the LIONSGATE+ territory exits, including the expected additional charges and future cash expenditures.
- Assess liquidity and refinancing exposure in light of six-month operating cash use, variable-rate debt, and the maturity and repayment profile of film-related obligations.
- Monitor domestic and international subscriber trends, particularly domestic linear subscriber declines and LIONSGATE+ profitability.
- Consider that management’s liquidity outlook depends in part on continued access to financing, receivables monetization and production-related facilities.