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No Big Surprises in Lions Gate Entertainment's First-Quarter Report

By Anders Bylund - Aug 9, 2017 at 8:37PM

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Last December's Starz buyout and the more recent sale of EPIX's equity holdings made it hard to do apples-to-apples comparisons with the year-ago period.

On Tuesday night, movie and TV studio Lions Gate Entertainment (LGF-A -1.16%) (LGF-B -1.32%) reported results for the first quarter of fiscal year 2018.

Lions Gate's first-quarter results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Revenue

$1.01 billion

$554 million

81%

Net income attributable to shareholders

$174 million

$1.3 million

13,300%

GAAP earnings per share (diluted)

$0.80

$0.01

7,900%

Data source: Lions Gate Entertainment. GAAP = generally accepted accounting principles.

Boosted by the $4.4 billion acquisition of Starz, which closed in December of 2016, the studio's results aren't directly comparable to the year-ago period. Using non-GAAP figures that bake Starz's results into Lions Gate's figures for the first quarter of 2017, combined sales rose 5% and adjusted OIBDA profits increased 32% to land at $182 million. Adjusted OIBDA (operating income before depreciation and amortization) is a non-GAAP measure that backs out depreciation, amortization, and one-time expenses. Lions Gate uses this metric to reflect the company's core business without distractions from temporary or noncash line items.

What happened with Lions Gate this quarter?

  • On a combined basis, Lions Gate's motion pictures segment saw sales rising 16% year over year to $472 million, mainly driven by strong home-entertainment sales of hits like La La Land, John Wick: Chapter 2, and Power Rangers. The division's operating profits tripled, stopping at $87 million.
  • TV production revenues fell 19% over the same period, but generated operating profits of $13 million -- a 22% year-over-year increase. The production schedule was no more or less crowded than usual, but the specific timing of episode deliveries to Lions Gate's broadcasting clients led to shifts in the revenue and margin mixes.
  • The media networks segment, which accounts for the Starz network's subscription sales, delivered 9% revenue growth to $391 million. Operating profits fell 8% to $110 million. Margins were compressed by larger marketing expenses in support of high-profile launches for American Gods and The White Princess, two new Starz shows that aired mainly in the first quarter.
  • On top of the Starz deal, Lions Gate sold its equity interest in competing cable network EPIX during the first quarter. That deal boosted pre-tax earnings by $201 million.
Packed movie theater with the Lionsgate logo being projected on the silver screen

Image sources: Getty Images and Lions Gate Entertainment, edited by the author.

What management had to say

"With our second straight billion-dollar revenue quarter, combined with strong bottom line profits, the scale of our global content platform is reflected in our financial results as well as our operational achievements," said Lions Gate CEO Jon Feltheimer in a prepared statement. "We continued to grow our content business in the quarter by launching significant new premium properties, expanding the reach of current brands and adding to the Lionsgate-owned or controlled platforms across which we monetize our intellectual property."

Looking ahead

CFO Jimmy Barge doesn't expect any big surprises from the theatrical release schedule this year.

"The fiscal 2018 slate looks a lot like the 2017 slate -- diversified, balanced, and relatively low-risk with breakout opportunities," Barge said on a conference call with analysts.

In general, Lions Gate's first quarter didn't change what investors should expect in the next couple of quarters. Management remains confident in the multiyear guidance targets that were published three months ago. OIBDA profits should rise by the low to mid-teens in 2018, while content production costs should rise from $1.5 billion to $1.8 billion. Following seasonal trends in line with fiscal-year 2017, the second quarter should show the lowest OIBDA profits of the 2018 fiscal year as well.

Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Lions Gate Entertainment (Class A and Class B). The Motley Fool has a disclosure policy.

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