On Thursday night, Lions Gate Entertainment (NYSE: LGF-A) (NYSE: LGF-B) reported results for the first quarter of its 2019 fiscal year. The TV and television content producer faced some tough year-over-year comparisons, especially in the motion pictures segment. Going forward, Lions Gate aims to turn the Starz premium cable network into a global growth story.
Lions Gate's fiscal first-quarter results: The raw numbers
|
Metric |
Fiscal Q1 2019 |
Fiscal Q1 2018 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$933 million |
$1,005 million |
(7.2%) |
|
Adjusted OIBDA |
$117 million |
$182 million |
(36%) |
|
Net income attributable to shareholders |
($7.9 million) |
$174 million |
N/A |
|
GAAP earnings per share (diluted) |
($0.04) |
$0.80 |
N/A |
Data source: Lions Gate.
Lions Gate's management sees adjusted operating income before depreciation and amortization (OIBDA) as an important business metric and often mentions it in their financial reports. The metric aims to measure operating results as purely as possible, backing out unrelated items such as investment returns and the income statement's byproducts of the company's capital structure.
What happened with Lions Gate this quarter?
- Lions Gate's motion pictures division saw sales fall 23% year over year due to a difficult comparison to a previous-year period that included smash hit John Wick 2 and international box office from La La Land. The segment's operating profits decreased at a quicker 41% clip as the lower revenue met up with higher marketing costs for recent and upcoming films such as sports comedy Uncle Drew and James Franco-starring sci-fi thriller Kin.
- Media networks sales increased by 3%, mostly thanks to Lions Gate's over-the-top (OTT) video-streaming platforms posting rapid growth. Contributing $3.7 million of sales to this quarter, these services only accounted for roughly 1% of the networks division's total sales but the revenue stream nearly tripled compared to the year-ago period.
- In the television production segment, sales rose 7% year over year led by 20% stronger domestic content license sales and 69% higher international sales. Home entertainment content sold in digital distribution formats saw a 61% revenue drop due to the year-ago period's large digital distribution contract for the first two seasons of Starz-produced drug-running drama Power.
Image source: Getty Images.
What management had to say
CEO Jon Feltheimer came back to Power several times during the earnings call. The show, which is now in the middle of its fifth season, has become a fan favorite an an important piece of Starz' content catalog.
"I'm going to focus on Starz this afternoon because we are investing in a programming and international rollout strategy that is working," Feltheimer said. "The return of Power after the [reported] quarter accelerated the already-strong growth trajectory of Starz' OTT subscribers. Power has become a global brand with broad commercial appeal across most demos, and it's driving a Starz Sunday night programming block that has become dominant in the premium television space."
Feltheimer also noted that the larger cord-cutting trend continues to accelerate and has now reached a point where subscriber growth on streaming platforms such as Hulu, Netflix, and Starz Play is making up for business lost on traditional cable and satellite networks.
"As a platform with a flexible, lower-cost product, Starz is well-positioned to capitalize on this growth and benefit from the higher margins generated by virtual MVPD subscribers. ... We are bullish about overall subscriber growth for the rest of the year," he said.
Looking ahead
Management had previously said that the 2019 fiscal year would be "back-end loaded" with stronger results in the back half and predictable growth in a sequential fashion. The second half is still expected to be bigger but some license deals shifted around a bit at the front end, moving contracts that had been slated for closing in the second quarter into the just-reported first quarter instead. As a result, the next reporting period might come up a little bit lighter but the fiscal year as a whole should not be affected by these timing changes.
On a grander scale, Feltheimer thinks of the Starz network as being in the early innings of a large international expansion opportunity. Lions Gate is putting its back into that effort, mixing old-school cable partnerships with modern streaming launches around the world.
"We're doing that because the plan is working," Feltheimer said. "As we spend more, as we market more effectively, we are getting a really excellent subscriber trajectory."
