Lionsgate Slips Past Wall Street’s Q1 Estimates As Starz Notches Subscriber Gains, Expands In Europe – Update

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UPDATED with executive comments: Lionsgate beat forecasts by Wall Street analysts for its fiscal first quarter, reporting Thursday a fully diluted loss of 4 cents per share of and total revenue of $932.7 million.

Analysts had called for a loss of 7 cents a share and revenue of $885.1 million.

The key metrics in the quarter ending June 30 represented a downturn from the year-earlier period, when the company reported earnings of 8 cents a share and revenue of $1.01 billion. That quarter had included the surprising gains from the second John Wick installment and strong ancillary business for La La Land.

Starz reported a sequential increase of 300,000 subscribers in the quarter ending June 30, recording gains in both traditional MVPD and OTT subscribers. Along with the financial results, the company also announced that it has entered agreements to launch Starz Play branded channels in France, Italy and Spain, following previous launches in the UK and Germany.

Lionsgate Entertainment City rendering Lionsgate

In a conference call with Wall Street analysts to discuss the results, Starz (acquired for $4.4 billion in 2016) proved a dominant topic. Executives confirmed plans to have Starz Play in at least 15 territories around the world by fiscal 2020. Starz chief Chris Albrecht said initial returns from the first overseas launches show strong demand for Starz originals and titles from the Lionsgate library, a plug-and-play option that he said makes Starz attractive.

“We can be in a market literally in weeks and that gives us a lot of advantages,” Albrecht said.

One event during the quarter was the acquisition of management and production outfit 3 Arts. CFO James Barge declined to offer extensive details, but described the financial impact on the quarter as “immaterial.” He advised that 3 Arts is “more important as a strategic/long-term asset rather than a driver of short-term growth.”

In the spring, Lionsgate announced it had taken control of 3 Arts, following reports by Deadline that the deal was believed to be in the range of $300 million-$350 million.

Also on the consolidation front, CEO Jon Feltheimer was asked about any impact of the Disney-Fox deal, which is expected to close in early 2019. Fox “remains a buyer, which is a positive,” he said. Even though Disney will be rolling out its branded subscription service, he said Starz will “continue to be able to stand out because of its differentiation.”

The earnings call did not feature much broader M&A discussion, but the company has in recent months appeared to pull back a bit from its vocal assertions of its viability as a player in those considerations. It has instead focused on shoring up its business units, including the film operations being guided by returning executive Joe Drake. In June, as Deadline first reported, Damon Wolf came aboard as worldwide head of marketing, replacing the formerly bulletproof Tim Palen in a sign of corporate restlessness.

Investor sentiment has reflected the cooling of M&A discussion. The company’s shares have slumped since January, when the blockbuster momentum from Wonder and the swirl of dealmaking fascination with the company’s status as an acquisition target kept them buoyed. Today, the stock closed at $23.15, more than 1% higher for the day but still 30% below the levels of that winning winter stretch.

The quarter’s film slate included solid, if not spectacular, performers such as Overboard and Uncle Drew, which fared better than the titles released theatrically in the comparable period a year ago but didn’t throw off as much overall cash. Motion Pictures segment revenues decreased by 23% in the quarter on tough comparisons with a year ago as profit decreased by 41% to $51.6 million due to higher theatrical marketing expenses.

Media Networks revenues rose 3% to $354.9 million due to OTT gains, though profits in the unit came in flat due to the cost of rolling out Starz internationally and domestic marketing spending.  With the 300,000 subscriber additions, the premium network stands at 23.8 million across platforms.

Television Production revenue increased 7% to $279.4 million, with domestic license fees and international proceeds leading the charge, but profits in the segment fell 64% to $15.6 million.

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