Business context and reporting period
The supplied filing is Lions Gate Entertainment Corp.’s Form 10-K for the fiscal year ended March 31, 2020—not a filing by a registrant named STARZ Entertainment Corp. STARZ is a major business within Lionsgate’s Media Networks segment. The filing covers fiscal 2020, including the fourth quarter ended March 31, 2020; figures are in U.S. dollars unless stated otherwise.
Lionsgate operates Motion Picture, Television Production and Media Networks businesses, supported by a film and television library of nearly 17,000 titles. Its strategy emphasizes content licensing and production, domestic and international STARZ streaming growth, and balancing production investment with financial risk.
Key financial metrics
| Metric | Fiscal 2020 | Fiscal 2019 |
|---|---|---|
| Revenue | $3,890.0 million | $3,680.5 million |
| Operating income | $2.8 million | $130.0 million |
| Operating margin | Approximately 0.1% | Approximately 3.5% |
| Net loss attributable to Lionsgate shareholders | $188.4 million; $0.86 loss per share | $284.2 million; $1.33 loss per share |
| Cash from operating activities | $614.6 million | $427.5 million |
| Cash and cash equivalents at year-end | $318.2 million | $184.3 million |
| Total debt, net, including finance leases | $2,733.0 million | $2,904.4 million |
Revenue rose 5.7%, but total expenses increased 9.5%, sharply reducing operating income. Interest expense was $191.3 million. Fiscal 2020 results included $50.2 million of COVID-related direct operating and distribution/marketing costs, $76.5 million of programming and content charges, and $24.3 million of restructuring and other costs. An accelerated amortization method for STARZ traditional-affiliate customer relationships added $38.7 million to depreciation and amortization expense and $0.17 to the reported loss per share.
Cash from operations benefited from approximately $253 million of accounts-receivable monetization proceeds. The company reported $51.7 million of cash used in investing activities and $426.1 million used in financing activities. Current assets were $1,308.1 million and current liabilities were $1,507.7 million at year-end. The $1.5 billion revolving credit facility was undrawn, and the company reported compliance with applicable debt covenants.
Segments and material changes
| Segment | Fiscal 2020 revenue | Segment profit | Change in segment profit |
|---|---|---|---|
| Motion Picture | $1,670.9 million | $208.7 million | Up 62.4% |
| Television Production | $1,001.3 million | $53.4 million | Down 19.2% |
| Media Networks | $1,486.8 million | $293.0 million | Down 32.8% |
Motion Picture revenue grew 14.1%, led by theatrical and home-entertainment performance, including Knives Out and John Wick: Chapter 3. Television Production revenue increased 8.7%, but profit declined as direct operating costs rose faster than revenue and the mix of delivered programs changed. Media Networks revenue increased 1.8%, while profit fell amid higher streaming launch and marketing costs; international STARZPLAY and other streaming services remained loss-making at the segment-product level. Domestic STARZ had 18.9 million subscribers at March 31, 2020. Total reported domestic and international subscribers were 24.6 million, versus 20.2 million on the filing’s comparable pro forma basis for March 31, 2019; the unadjusted prior-year total was 28.1 million.
Comparisons are affected by prior-year unusual items, including $114.1 million in shareholder-litigation settlements and $87.6 million in investment losses in fiscal 2019. Fiscal 2020 also included $135.5 million of write-downs in film, television program and program-rights investments, compared with $66.0 million in fiscal 2019.
Outlook, risks and unusual items
- Management expected Motion Picture segment revenue to decrease in fiscal 2021 because of delayed theatrical releases and paused productions. The filing does not provide a clear quantified company-wide fiscal 2021 forecast.
- COVID-19 disrupted theatrical exhibition, production, release schedules and location-based attractions. Management reported increased streaming viewership and OTT subscriptions, but cautioned that growth could slow and that the pandemic’s effects on results, cash flows and financial position could not be estimated.
- The company expected additional pandemic-related costs. It was seeking insurance recovery for some fiscal 2020 costs, but had not recorded an estimated recovery because the amount was unclear.
- Goodwill was $2.8 billion. Television and Media Networks reporting units were identified as at risk of goodwill impairment under relatively small changes in assumptions; no goodwill impairment was recorded for fiscal 2020.
- Debt, interest costs, restrictive covenants, variable-rate exposure, production financing needs and refinancing access are significant risks. The company had $2,741.9 million of corporate debt before finance leases and unamortized issuance costs, plus $151.4 million of production loans. Substantial contractual commitments include film and production obligations and future interest payments.
- Other material risks include traditional subscriber declines and distributor renewals, competition for content and audiences, unpredictable film and program performance, international and currency exposure, piracy and intellectual-property disputes, and uncertainty around tax positions and deferred-tax-asset realization.
- The quarterly cash dividend had been suspended in November 2018. Fiscal 2020 included $3.8 million of share repurchases; the company reported $179.9 million remaining under its authorized repurchase program.
Important facts for investors to verify
- Confirm the intended issuer and period: the supplied filing is Lions Gate Entertainment Corp.’s fiscal-year 2020 Form 10-K, not a STARZ Entertainment Corp. filing.
- Review the fiscal 2021 impact of theater closures, delayed releases and production interruptions, including subsequent revenue, cash-flow and insurance-recovery disclosures.
- Assess debt maturities and liquidity against the company’s production, programming and other contractual commitments, and confirm ongoing covenant compliance.
- Monitor domestic linear subscriber trends versus OTT growth, STARZPLAY expansion costs and the renewal terms of distributor affiliation agreements.
- Track goodwill and customer-relationship intangible valuations, particularly the Television and Media Networks impairment sensitivities and the effects of accelerated amortization.
- Evaluate the quality and sustainability of operating cash flow, including reliance on receivable monetization, and distinguish segment profit from consolidated operating income.