Filing summary
Entity and period: The supplied filing is Lions Gate Entertainment Corp.’s Form 10-Q for the quarter ended December 31, 2022 (fiscal 2023 third quarter), not a filing identified as STARZ Entertainment Corp. The financial statements are unaudited and report amounts in U.S. dollars; monetary figures below are in millions unless stated otherwise.
Financial performance
| Metric | Three months ended Dec. 31, 2022 | Nine months ended Dec. 31, 2022 |
|---|---|---|
| Revenue | $1,000.1; up 13.0% year over year | $2,769.1; up 3.5% |
| Operating income (loss) | $7.8, versus $9.3 | $(1,808.1), versus $59.4 |
| Net income (loss) attributable to Lions Gate shareholders | $16.6, versus $(45.6); diluted EPS $0.07 | $(1,913.5), versus $(83.5); diluted loss per share $(8.41) |
| Operating cash flow | Quarterly figure not provided in the supplied text | $(128.0), versus $(489.8) |
| Cash, cash equivalents and restricted cash | At Dec. 31: $471.0 total; $425.4 cash and cash equivalents | — |
Quarterly reported net income included a $38.2 gain on debt extinguishment and a $43.4 gain from selling part of the STARZPLAY Arabia investment. Nine-month results included a $1,475.0 goodwill impairment and $299.7 of content and other impairment charges, which drove the substantial reported loss. Interest expense was $59.6 for the quarter and $163.0 for the nine months.
Segments and year-over-year changes
- Third-quarter revenue: Studio Business revenue rose 25.3% to $894.2, led by Television Production, up 38.0% to $605.4. Motion Picture revenue increased 4.9% to $288.8. Media Networks revenue declined 2.2% to $380.3.
- Third-quarter segment profit: Total segment profit rose to $189.1 from $113.4. Studio Business segment profit was $148.0; Media Networks was $49.5. These are management-defined segment measures, not consolidated operating income.
- Nine-month segment profit: Total segment profit fell 25.8% to $289.5. Media Networks segment profit declined to $33.5 from $122.1, while Studio Business segment profit increased to $287.3 from $264.3.
- Subscribers: At Dec. 31, reported global subscribers were 37.2 million, versus 31.4 million a year earlier. The count includes 8.5 million LIONSGATE+ OTT subscribers in territories planned for exit and 2.1 million STARZPLAY Arabia subscribers through an equity-method investee.
Cash, debt and liquidity
- Nine-month operating cash outflow improved to $128.0 from $489.8. The current period included $188.7 of proceeds associated with terminating interest-rate swaps and an estimated net $77.0 benefit from receivables monetization; cash generation also reflects substantial film and television investment.
- Cash and cash equivalents were $425.4 at Dec. 31. The $1.25 billion revolving credit facility had no borrowings and was fully available, subject to financial covenants. The company reported compliance with applicable debt covenants.
- Corporate debt, net of issuance costs, was $2,081.8, including $2,042.6 non-current and $39.2 current. Separately, film-related obligations, net, were $2,095.2, of which $1,261.2 was current. These balances should not be conflated with corporate debt.
- Management stated it believed operating cash flow, cash on hand, revolver availability and other financing sources would cover known operating and debt-service needs for the next 12 months and beyond. This is management’s assessment, not a guarantee.
- Disclosed contractual obligations totaled $6,459.1, including $1,876.7 estimated due within 12 months. The filing separately reports $357.1 of redeemable noncontrolling interests, excluded from that obligations table.
Outlook, risks and unusual items
- The company was restructuring LIONSGATE+ and planned to exit France, Germany, Italy, Spain, Benelux, the Nordics and Japan by the end of fiscal 2023. Management expected the plan to be substantially complete by March 31, 2023.
- Management estimated additional restructuring-related charges of $100–$125 million, with net future cash outlays of $75–$100 million. It cautioned that further content impairment charges could exceed estimates.
- The Media Networks goodwill impairment followed weaker subscriber-growth and cash-flow assumptions amid competition, inflation, recessionary conditions and lower media-sector valuations. After the charge, the Media Networks reporting unit remained “at risk” of further impairment.
- Management expected higher production cash requirements in fiscal 2023 and marketing spend comparable to fiscal 2022. The filing does not provide a numerical revenue, earnings or cash-flow forecast.
- Variable-rate borrowing costs, content performance and production spending, subscriber trends, theatrical demand, foreign exchange, and the availability and cost of financing are material uncertainties. A 0.25 percentage-point rate increase was estimated to add annual interest costs on corporate variable-rate facilities and swaps, and to affect costs on variable-rate film obligations.
- The filing reported no material pending legal proceeding known to management and no material changes to the risk factors in the prior Form 10-K. Disclosure controls were reported effective at quarter-end.
Important facts for investors to verify
- Confirm the intended issuer: this document is Lions Gate Entertainment Corp.’s 10-Q, despite the request identifying STARZ Entertainment Corp.
- Review the assumptions behind the $1.475 billion Media Networks goodwill impairment and assess the remaining impairment risk.
- Track actual exit costs, cash outlays, completion timing and any further content write-downs from the LIONSGATE+ restructuring.
- Assess subscriber trends and segment economics, distinguishing reported global subscriber totals from subscribers in territories being exited and from STARZPLAY Arabia.
- Reconcile liquidity and cash generation with film-related obligations, receivables monetization, upcoming maturities and redeemable noncontrolling-interest put rights.
- Separate recurring operating performance from the quarter’s debt-repurchase and STARZPLAY Arabia sale gains, and from the nine-month impairment charges.