Business context and reporting period
The supplied filing is Lions Gate Entertainment Corp.’s Form 10-K for the fiscal year ended March 31, 2021—not a standalone STARZ Entertainment Corp. filing and not a calendar-year 2021 Q4 report. Lionsgate operates Motion Picture, Television Production and Media Networks segments, including STARZ, and reports in U.S. dollars.
COVID-19 disrupted theatrical releases and film and television production. The company shifted some titles to streaming or premium video-on-demand, while STARZ reported growth in viewership and OTT subscribers. Lionsgate sold its 75% interest in Pantaya on March 31, 2021.
Financial and operating highlights
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $3,271.5 million | $3,890.0 million |
| Operating income | $170.6 million | $2.8 million |
| Operating margin | 5.2% | 0.1% |
| Net loss attributable to Lionsgate shareholders | $18.9 million; $0.09 per share | $188.4 million; $0.86 per share |
| Cash from operating activities | $(0.5) million | $614.6 million |
| Cash and cash equivalents at year-end | $528.7 million | $318.2 million |
Revenue fell 15.9%, while operating income improved substantially; shareholders nevertheless recorded a net loss. FY2021 included a $44.1 million pretax gain on the Pantaya sale. Cash increased $206.3 million before foreign-exchange effects, supported by $237.9 million of financing cash flow, despite near break-even operating cash flow.
- Segments: Motion Picture revenue was $1,081.1 million, down 35.3%; Television Production was $831.8 million, down 16.9%; Media Networks was $1,562.7 million, up 5.1%.
- Segment profit: Motion Picture $295.6 million, up from $208.7 million; Television Production $83.6 million, up from $53.4 million; Media Networks $289.5 million, down from $293.0 million.
- Margins: Segment gross contribution margins were 37.2% for Motion Picture, 15.2% for Television Production and 24.5% for Media Networks. The filing does not provide a single consolidated gross margin measure.
- Debt and liquidity: Corporate debt was $2,676.9 million gross at March 31, 2021 ($2,630.9 million net of issuance costs); production loans were $373.5 million and the production tax credit facility had $120.0 million outstanding. The $1.5 billion revolving facility was undrawn, with $1.5 billion available, subject to covenants. The company reported covenant compliance at year-end.
- Subscribers: STARZ domestic subscribers totaled 20.9 million, up from 18.9 million; STARZPLAY International totaled 6.8 million, up from 3.2 million. Total global subscribers including STARZPLAY Arabia were 29.5 million, versus 23.9 million, excluding Pantaya in both periods for comparability.
Material changes and unusual items
Motion Picture revenue was sharply lower as theaters were largely closed: theatrical revenue declined 96.6% to $12.0 million. Home entertainment revenue also fell, although digital media revenue increased. Television Production was affected by fewer episodes delivered and fewer STARZ original-series licenses; digital home-entertainment revenue increased. Media Networks growth reflected international expansion and higher domestic OTT revenue, partly offset by declines in traditional linear revenue and higher marketing spending.
The company recorded $70.5 million of incremental COVID-19 costs in FY2021: $50.6 million in direct operating expense, $16.9 million in distribution and marketing, and $3.0 million in restructuring and other costs. It recorded $45.1 million of total film and program impairments, compared with $135.5 million in FY2020. Share-based compensation expense increased to $89.0 million from $50.6 million.
Pantaya was sold for approximately $123.6 million in cash, received April 1, 2021; the reported $44.1 million gain was net of $69.0 million of allocated goodwill. On April 1, 2021, Lionsgate redeemed $1.064 billion of 2024 notes and issued $1.0 billion of 5.500% notes due 2029, paying $32.6 million in redemption premiums, plus accrued interest. On April 6, it extended $1.25 billion of revolving commitments and $444.9 million of Term Loan A to 2026. These transactions occurred after the reporting date.
Outlook, commentary and key risks
Management expected Motion Picture and Television Production revenues to increase in FY2022 if pandemic disruptions continued to improve. It expected production and marketing cash requirements to rise as production activity and theatrical releases recovered. Management said operating cash flow, cash on hand, credit availability, receivables monetization, tax-credit financing and production financing were expected to cover foreseeable requirements, but noted substantial uncertainty around pandemic impacts and could not estimate the full near- to medium-term effects. No numerical earnings or revenue guidance was provided.
Principal risks include renewed COVID-19 disruptions, uncertain theatrical and content performance, production delays and cost overruns, dependence on distributors and expiring STARZ affiliation agreements, competition and shifts to streaming, high debt and variable-rate exposure, and potential film impairments. The company also cited international regulatory, tax, piracy, intellectual-property, cybersecurity and litigation risks. It had $219.1 million of redeemable noncontrolling interests; future settlement timing and amounts were not reliably estimable. Pending legal matters could result in losses beyond accruals, but the company said it could not estimate a possible loss range.
Important facts for investors to verify
- Confirm the issuer and period: this is Lions Gate Entertainment Corp.’s FY2021 10-K, not a STARZ Entertainment Corp. filing or a calendar Q4 report.
- Review the audited statements and notes for the quality and timing of cash flows, especially the contrast between the $528.7 million cash balance and near-zero operating cash flow.
- Assess post-year-end refinancing terms, debt maturities, covenant headroom, interest-rate exposure and the cost of the note redemptions.
- Check whether reported subscriber growth and management’s FY2022 recovery expectations translated into sustained OTT growth, production delivery and theatrical revenue.
- Monitor the remaining effects of pandemic costs, film impairments, the Pantaya divestiture, redeemable noncontrolling interests and unresolved legal contingencies.