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Lions Gate Entertainment Catches Analysts Asleep in the Fourth Quarter

By Anders Bylund - May 26, 2016 at 12:43PM

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This looked like a quiet report, but the content production studio crushed Wall Street expectations.

Lions Gate Entertainment (LGF-A -3.97%) reported fourth-quarter results on Wednesday night. Share prices immediately rose more than 15% in after-hours trading. Let's find out why investors welcomed the earnings results with open arms.

Lions Gate results: The raw numbers

Metric 

Q4 2016 Actuals

Q4 2015 Actuals

Growth (YOY)

Revenue

$791.2 million

$646.1 million

22.4%

Adjusted EBITDA

$45.8 million

$90.4 million

(49.3%)

Net income attributable to shareholders

$10.9 million

$19.6 million

(44.3%)

Adjusted EPS

$0.27

$0.41

(34.1%)

Data source: Lions Gate.

What happened with Lions Gate this quarter?

Despite some disappointing theatrical releases, the company absolutely trounced analyst expectations in the fourth quarter -- and pointed to strong box office results as a driving factor.

  • The Wall Street consensus called for an adjusted net loss of $0.02 per share, based on sales of roughly $741 million. Lions Gate topped expectations on both counts.
  • The strong revenue stream rested on record-high television revenue and a five-film theatrical slate compared to just three in the year-ago period. With 40% more movies in circulation, the pressure to swing for the fences is reduced.
  • Full-year television sales rose 15.6% to $670 million. The international portion of this division saw revenue soaring 69% higher. The recent acquisition of Pilgrim Studios helped, as did a three-year contract extension with Netflix to produce another three seasons of the hit show, Orange Is the New Black.

Lions Gate is not fond of issuing financial guidance, other than sticking to a cumulative three-year EBITDA target. That goal, which should add up to at least $1.2 billion across fiscal years 2015, 2016, and 2017, was not updated in the press materials or SEC filings this time.

Adjusted EBITDA profits for the full year stopped at $162.3 million, down from $384.9 million in 2015. The company has about $650 million left to go before reaching the bottom end of the targeted EBITDA range with just four more quarters to get there.

What management had to say

CEO Jon Feltheimer shrugged off the soft box office results in 2016 to point at greater things ahead.

"Although last year's film slate didn't match the performance of previous years, this year's slate is bigger, more balanced, and is expected to generate greater profitability," he said in a press statement. "We also expect to continue creating long-term value by deepening our portfolio of brands and franchises and solidifying our status as a preferred partner to owners of intellectual property, 3rd-party distributors, and digital platforms worldwide."

Looking ahead

The movie production pipeline is shifting toward more titles but smaller budgets per film. Meanwhile, Lions Gate is becoming a powerhouse of high-quality TV show production. We are watching the company do a strategic makeover at the moment with the occasional hiccup along the way.

The last bit of Feltheimer's commentary indicates that he wants more Netflix-style partnerships, growing into an increasingly open global market for digital content delivery. Smart thinking, I'd say.

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