Lions Gate Entertainment (NYSE: LGF-A) (NYSE: LGF-B) reported third-quarter results after the closing bell on Wednesday. It was a tricky report, including the final signatures of the $4.4 billion merger with Starz. Let's have a look at the results from a couple of different angles.
Lions Gate's third-quarter results: The raw numbers
|
Metric |
Q4 2016 |
Q4 2015 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$752 million |
$671 million |
12.1% |
|
Net income |
($31 million) |
$33 million |
N/A |
|
GAAP EPS (diluted) |
($0.19) |
$0.26 |
N/A |
Data source: Lions Gate.
What happened with Lions Gate this quarter?
The quarter included 23 days' worth of operations after closing the Starz acquisition. The results in the table are simply comparing the resulting business figures to Lions Gate's standalone numbers in the third quarter of 2016. The company also provided adjusted figures, combining the Starz and Lions Gate results as if the merger had taken place in April 2015 for a clearer apples-to-apples comparison. That transformation changes the numerical trends significantly, as follows.
- On a combined basis, Lions Gate's revenues fell 3.5% year over year, landing at $1.06 billion.
- Total segment profits stopped at $109 million in the unadjusted presentation, a 166% increase from $41 million in the year-ago period. Combined segment profits rose 91%, from $105 million to $201 million.
- The Starz transaction also triggered a number of one-time charges and gains such as restructuring costs, fees for extinguishment of debt, and gains on Lions Gate's existing holdings in Starz stock. Backing out all of these effects, including their combined tax impact, Lions Gate's adjusted earnings fell 43% to $0.21 per diluted share.
Management declined to provide any forward guidance for the next quarter or the upcoming 2018 fiscal year. Lions Gate was never in the habit of issuing firm financial targets anyway, and the recent Starz merger can only have raised the difficulty of estimating future results.
Image source: Getty Images.
What management had to say
"We've just completed one of our busiest and most productive quarters ever as we continue to scale our global content platform and integrate Starz into our operations," said Lions Gate CEO Jon Feltheimer in a prepared statement. "Our strong film and television offerings are now complemented by our Starz premium network that is becoming a 'must-have' value proposition for the digital age."
Beyond that, the release reminded investors that award-winning blockbuster La La Land was released after the close of the third quarter and thus made no impact on this report. Lions Gate's share of the movie's $270 million in global ticket sales will be seen in the fourth quarter.
Looking ahead
The next few quarters will be complicated. Lions Gate is knee-high in the Starz integration process, and the new two-headed beast is still figuring out exactly how to make one plus one equal something more than two. Management is looking into cost-cutting efforts, more efficient content portfolio exploitation, and the strategic value of owning premium cable channels alongside an award-winning content production studio.
You may also have noticed that Lions Gate's stock has been divided into two classes. That's another merger effect. Starz traded as two classes of stock with different voting powers, and the merger included a large amount of stock-for-stock swapping. So to give Starz investors exactly what they expected, Lions Gate kicked off its own voting and non-voting share classes. Lions Gate Class A shares can vote in shareholder meetings, while Class B owners cannot.
As a reminder, here's what owners of Starz and Lions Gate shares walked away with on Dec. 8, 2016:
|
Post-Merger Holdings |
100 Pre-Merger Lions Gate Shares |
100 Pre-Merger Starz A Shares |
100 Pre-Merger Starz B Shares |
|---|---|---|---|
|
Lions Gate A Shares |
50 |
0 |
63.21 |
|
Lions Gate B Shares |
50 |
67.84 |
63.21 |
|
Cash |
N/A |
$1,800 |
$726 |
