Business context and reporting period
The supplied filing is Lions Gate Entertainment Corp.’s unaudited Form 10-Q for the three months ended June 30, 2022 (its fiscal 2023 first quarter), not a filing identified as STARZ Entertainment Corp. Lionsgate operates Motion Picture, Television Production and Media Networks businesses, including the STARZ services. Amounts below are U.S. dollars in millions unless stated otherwise.
Financial performance and position
| Metric | Quarter ended June 30, 2022 | Prior-year quarter |
|---|---|---|
| Revenue | $893.9 | $901.2 |
| Operating income (loss) | $(68.2) | $20.3 |
| Net loss | $(122.6) | $(51.7) |
| Net loss attributable to Lionsgate shareholders | $(119.0); $(0.53) per share | $(45.4); $(0.20) per share |
| Cash flow from operating activities | $(0.2) | $(348.7) |
| Cash and cash equivalents at period end | $378.5 | — |
Revenue was nearly flat year over year, but expenses rose 9.2% to $962.1, driving the operating loss. Direct operating expense increased $110.3, primarily from higher Media Networks programming costs and studio costs. General and administrative expense fell $26.9, largely reflecting lower share-based compensation. Interest expense increased to $46.1 from $41.7.
Segment profit was $28.0 versus $144.1. Studio Business segment profit increased to $70.1 from $47.3, including Television Production’s increase to $19.6 from $3.0. Media Networks swung to a $37.0 segment loss from $88.2 profit as direct operating costs and marketing rose substantially while revenue was essentially flat. STARZ Networks revenue declined $8.6; STARZPLAY International revenue increased $7.5.
Period-end current assets were $1,029.4 versus current liabilities of $2,339.8. Corporate debt, net of issuance costs, was $2,232.0, including $53.4 current; film-related financing and other obligations, net, were $1,771.1, including $1,090.3 current. The $1.25 billion revolving facility was undrawn and fully available, subject to covenants. The company reported covenant compliance.
Material changes and cash flow
- Operating cash use improved by $348.5 year over year. The current quarter included $188.7 of operating cash flow from termination of interest-rate swaps, while $134.5 of the related financing component was paid in financing activities. The cash flow result should therefore not be viewed as wholly recurring.
- Cash used in investing activities was $14.8, compared with $115.7 provided in the prior-year quarter, which included $123.6 of Pantaya sale proceeds.
- Financing activities provided $39.8. Net corporate debt repayments were $196.7, partly offset by $370.3 of net proceeds from film-related financing and other obligations.
- Period-end total STARZ subscribers, including STARZPLAY Arabia, were 37.3 million versus 28.9 million a year earlier; OTT subscribers were 26.3 million versus 16.7 million, while linear subscribers declined to 11.0 million from 12.2 million.
Outlook, risks and unusual items
Management expected production cash requirements to increase in fiscal 2023 and marketing spending to be comparable with fiscal 2022. It stated that operating cash flow, cash on hand, revolver availability, receivables monetization and other financing sources were expected to cover known operating and debt-service needs for the next 12 months and beyond. This is management’s expectation, not a guarantee; the filing gives no numerical earnings or revenue guidance.
Risks highlighted include COVID-19-related production and release disruption, inflation and rising interest rates, Russia’s invasion of Ukraine, variable-rate borrowing costs, content performance and investment recovery, subscriber trends, and access to financing. Management said there were no material changes to the risk factors in its latest 10-K. It also identified Media Networks as relatively close to goodwill impairment sensitivity: its fiscal 2022 fair value estimate exceeded carrying value by about 10%, although the quarter’s review found no triggering circumstances.
Unusual and subsequent items include $8.0 of restructuring and other costs, including $4.5 of transaction-related costs, and a $1.0 net COVID-19-related benefit in direct operating expense from insurance recoveries. In July 2022, Lionsgate repurchased $18.7 principal amount of 5.5% Senior Notes for $14.6 plus accrued interest; in August it increased the Backlog Financing Facility’s maximum commitment from $125 to $175.
The filing reported no material pending claims or proceedings and no material changes to previously reported risk factors. Disclosure controls were assessed as effective at June 30, 2022.
Important facts for investors to verify
- Confirm the intended issuer: this source is Lions Gate Entertainment Corp., despite the request metadata naming STARZ Entertainment Corp.
- Assess whether the Media Networks segment can improve profitability after the quarter’s elevated original-program amortization and subscriber-acquisition spending.
- Separate recurring operating cash generation from the $188.7 swap-related cash flow classification and monitor ongoing film investment and receivables monetization.
- Track near-term funding needs and maturities, particularly current film-related obligations, alongside available revolver capacity and covenant compliance.
- Monitor STARZ linear subscriber declines, OTT growth, and the assumptions supporting Media Networks goodwill valuation.
- Review the timing and cash impact of redeemable noncontrolling-interest put rights, including Pilgrim Media Group rights beginning in November 2022.