Filing summary
Entity and period: The supplied filing is Lions Gate Entertainment Corp.’s Form 10-K, not a filing by a separately identified “STARZ Entertainment Corp.” It covers the fiscal year ended March 31, 2019; fiscal Q4 is the three months ended that date. The company reports Motion Picture, Television Production, and Media Networks segments. Figures are in U.S. dollars unless stated otherwise.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $3,680.5 million | $4,129.1 million |
| Operating income | $130.0 million | $248.7 million |
| Operating margin | 3.5% | 6.0% |
| Net income (loss) attributable to Lions Gate shareholders | $(284.2) million; $(1.33) per share | $473.6 million; $2.27 basic per share |
| Operating cash flow | $427.5 million | $386.4 million |
| Cash and cash equivalents at year-end | $184.3 million | $378.1 million |
| Total debt, net, excluding production loans | $2,904.4 million | $2,557.4 million |
| Production loans, net | $385.4 million | $352.5 million |
Fiscal Q4: Revenue was $913.7 million, versus $1,040.2 million in Q4 FY2018. Operating loss was $34.0 million, versus operating income of $48.4 million; net loss attributable to shareholders was $155.2 million, versus net income of $91.3 million.
- Revenue fell 10.9% year over year. Motion Picture revenue declined 19.6% to $1,464.4 million, Television Production revenue declined 10.9% to $920.9 million, and Media Networks revenue rose 3.5% to $1,461.0 million.
- Segment profit was $128.5 million for Motion Picture, down 28.4%; $66.1 million for Television Production, down 40.5%; and $436.3 million for Media Networks, up 1.7%.
- Operating cash flow improved by $41.1 million, but included a substantial benefit from receivables monetization: $469.2 million of net proceeds during the year. Investing cash flow was negative $121.7 million and financing cash flow negative $499.3 million. Cash decreased by $193.5 million before foreign-exchange effects.
- Year-end current assets were $1,394.4 million and current liabilities were $1,652.4 million. The company reported $1.5 billion available under its revolving credit facility and stated that it complied with applicable debt covenants.
Material changes, outlook, and risks
- Motion Picture revenue weakened mainly because of lower home entertainment and international receipts from the theatrical slate, fewer feature-film releases, and the prior-year contribution from Wonder. Television Production revenue declined with fewer episodes delivered and lower international and home entertainment revenue. Media Networks growth was driven by OTT, higher effective rates, and increased average subscriptions; STARZ ended the year with 24.7 million domestic subscribers, up from 23.5 million.
- The company recorded $114.1 million in shareholder-litigation settlement expense, including the Fiduciary Litigation settlement and the Starz merger appraisal settlement. It paid approximately $964 million to settle the appraisal claims, of which $797.3 million was previously accrued at acquisition.
- Fourth-quarter programming and content charges of $35.1 million followed management changes and a revised STARZ programming strategy. FY2019 restructuring and other costs were $78.0 million, including severance and transaction-related expenses. Investment losses totaled $87.6 million, including a $44.6 million loss on the sale of its 50% Pop interest and investment impairments.
- The board suspended the quarterly cash dividend in November 2018, citing investment in STARZ’s global growth and balance-sheet strengthening. The filing provides no specific numerical earnings or revenue guidance for FY2020. Management said available operating cash flow, cash, credit availability, receivables monetization, and production financing were expected to meet known operational and debt-service needs for the foreseeable future.
- Key risks include substantial debt and interest expense, variable-rate borrowing, dependence on distributors and content performance, ongoing decline in traditional TV subscribers, intense competition from OTT services, and significant production and programming commitments. AT&T/DIRECTV affiliation revenue exceeded 10% of total company revenue; one customer generated $401.9 million of revenue. Sony output-licensing fees through 2021 are expected to be significant, but future amounts are not estimable in the filing.
Important facts for investors to verify
- Confirm the issuer identity: this summary is based on Lions Gate Entertainment Corp.’s 10-K, despite the request metadata naming STARZ Entertainment Corp.
- Assess whether operating cash flow is sustainable without continued receivables sales; FY2019 included $469.2 million of net proceeds from monetized receivables.
- Review total debt, production loans, the $1.5 billion revolving facility, maturities, covenants, and the effect of interest-rate changes.
- Examine the drivers of the sharp annual and Q4 earnings deterioration, including litigation settlements, investment losses, tax valuation allowances, and STARZ programming charges.
- Track STARZ subscriber trends, OTT growth and costs, distributor renewals, and the concentration of revenue with major customers.
- Review commitments and contingencies, including $1.029 billion of film-obligation and production-loan commitments, $815.5 million of scheduled interest payments, and the unquantified future Sony output fees.