Lions Gate Swings to a Loss in Q4

Cross-platform content producer Lions Gate (LGF-A 2.59%) (LGF-B 2.79%) reported fourth-quarter results last Thursday. The company has big plans for its Starz cable network, expanding that brand's streaming video services rapidly overseas.

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

Data source: Lions Gate.

What happened with Lions Gate this quarter?

• Adjusted OIBDA, which refers to operating income before adjusted depreciation and amortization, fell 24% year over year to land at $103 million. Lions Gate's management views this non-GAAP metric as a useful measure of operating results, unencumbered by financial gymnastics such as unusual tax effects or debt -- a heavy balance sheet structure. On that note, Lions Gate does carry $2.9 billion of long-term debt versus a smaller $184 million cash account, resulting in interest payments of $47 million in the fourth quarter.
• Sales fell 16% in the motion picture segment, stopping at $358 million. Lions Gate actually recorded 39% higher box-office sales among the seven new movies it released during the quarter, compared with the year-ago period. However, the monster hit Wonder, starring Julia Roberts, ran deep into the first quarter of 2018 to set up a difficult year-over-year comparison.
• TV production revenues fell 7% year over year to $358 million. Management reminded investors that the production schedule in this division often sees dramatic changes in the timing of season premieres and new shows, resulting in unpredictable year-over-year comparisons. This time, the timing changes worked out to a significant headwind.
• Media networks, which includes results for the Starz premium cable network and Lions Gate's various streaming media platforms, saw revenues rise by 2.4% to $362 million. Starz reported 24.7 million domestic subscribers at the end of this quarter, down from 25.1 million at the end of calendar year 2018, but up 1.1 million compared with the year-ago report.

Image source: Getty Images.

What management had to say

In the earnings call, CEO Jon Feltheimer underscored the weight Lions Gate is putting on Starz and its Starzplay streaming service these days, hoping to turn the cable network into a streaming video powerhouse on a global level.

"I'm pleased to announce that Starzplay, including Starzplay Arabia, is live with active subscribers in 42 countries, and by July 1, we'll be in 51 countries, making us one of the three leading pure-play subscription video-on-demand services in the world," Feltheimer said. "With only 5% penetration of subscription video on-demand services worldwide, we believe that the international market is a $45 billion opportunity for us that will result in between 15 million and 25 million new Starzplay international subscribers by 2025."

As such, recent rumors of Lions Gate selling Starz to CBS (PARA 13.40%) didn't get much support from Feltheimer's comments. The company has big plans for this asset, and simply selling it to another content studio doesn't appear to be high on the list of priorities.

"Obviously, we don't comment on M&A, and I would say simply what you heard on the call today is that we have a plan," he said. "That plan is we're super-confident about it. We are executing on the plan. We felt that the window of opportunity was now, and you can see the results already. We are in 51 markets. Our Starzplay Arabia is really successful. We are positioning our programming to be more global."

Looking ahead

This company is not known for detailed financial guidance targets, which makes sense when you consider how unpredictable the consumer-facing TV and movie markets can be. That being said, Lions Gate provided some color commentary on the road ahead.

"Our industry is changing at the speed of light, and we're changing with it," Feltheimer said. "Over the past year we've reimagined the role of our content businesses and undertaking the exciting process of expanding Starz into one of the world's leading pure-play streaming platforms. We're well positioned to continue to grow and create value for our shareholders in the year ahead."

Beyond that, Lions Gate hopes to reach profitability for Starzplay in fiscal year 2023, serving as many as 25 million international subscribers in 51 countries. The platform's operating losses should peak in the current fiscal year due to the high costs of expanding the service to dozens of new international markets. Starzplay will become a separate reporting segment in the second quarter, increasing the financial transparency around this important operation.