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Lions Gate Entertainment Corp. Takes a Big Revenue Hit in the Third Quarter

By Anders Bylund - Feb 5, 2016 at 9:38AM

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The studio will miss Katniss, but hopes that a strong TV slate might make up for the end of the Hunger Games series.

Source: Lions Gate.

Mini-major movie studio Lions Gate Entertainment (LGF-A 2.36%) reported third-quarter earnings on Thursday night. Investors gave the report a sour reception, and Lionsgate shares fell 5% in after-hours trading. Including this slide, the stock has now fallen 38% over the last three  months.

Lionsgate results: The raw numbers

 

Q3 2016 Actuals

Q3 2015 Actuals

YOY Growth

Revenue

$670.5 million

$751.3 million

(10.8%)

Net Income Attributable to Shareholders

$40.7 million

$98.2 million

(58.6%)

GAAP EPS (diluted)

$0.27

$0.65

(58.5%)

Free Cash Flow

$73.9 million

($4.6 million)

--

Source: Yahoo! Finance.

What happened with Lionsgate this quarter?
The studio's film slate faced a daunting year-over-year comparison this time.

  • The Hunger Games: Mockingjay 2 grossed a solid $650 million in global ticket sales, but that was still far short of Mockingjay 1's $755 million worldwide take in the year-ago period. Moreover, the series-ending film had a 30% larger production budget, raising the bar for Lionsgate's profits.
  • The motion pictures division overall recorded revenues of $505.8 million, down from $590.1 million in 2014. Segment operating margins shrank from 25% to 6%.
  • The TV production segment saw sales rise 2% year over year, landing at $164.7 million. Segment operating profits for this division held steady at 5.7%.

Lionsgate doesn't give quarter-by-quarter or even annual guidance. Instead, management is sticking to a long-term plan. At the moment, that's a three-year span ending in March 2017, where Lionsgate hopes to have accumulated adjusted EBITDA profits between $1.2 billion and $1.3 billion in that window.

  • Lionsgate has been on target for that goal, albeit on the lower end. This quarter's adjusted EBITDA came in at $53.6 million, down from $146.8 million in the year-ago period.
  • Management didn't mention the 2017 goal in the earnings report or SEC filings, but should be expected to discuss it in Friday morning's earnings call with analysts.
  • Judging by the sharp drop in adjusted EBITDA profits, Lionsgate may need to lower that three-year bar a bit.

What management had to say
CEO Jon Feltheimer acknowledged weakness in the third quarter's theatrical film slate, but was optimistic.

"While the performance of our theatrical film slate resulted in softer than anticipated results, our other businesses performed strongly in the quarter," Feltheim said in a press statement. "With our television business continuing its robust topline and margin growth, a deeper and more diversified film slate with lower costs and contributions anticipated from recently launched businesses, we have a clear path to resume our strong and sustainable financial trajectory in fiscal 2017."

Looking ahead
In the next couple of quarters, Lionsgate's TV operations will hit TV stations and online video services.

The company is particularly excited about the fourth season of Orange Is the New Black, hitting Netflix (NFLX -0.69%) screens on June 17. The third season was recently nominated for two Golden Globe awards, and the fourth season will bow to a worldwide audience thanks to Netflix's rapid expansion across the globe. Lionsgate expects to record license payments for this premiere in its fourth quarter, which casts some light on the fact that Netflix pays up for its distribution rights a few months before the content actually premieres.

The second season of E! Network drama The Royals and the fifth round of ABC series Nashville were also held up as potential gold mines.

Meanwhile, the movie segment is taking a breather. Lionsgate's theatrical titles in early 2016 are all low-key romantic comedies, with none of the high-octane fantasy fare for young adults that its Summit studio is known for. So it'll be up to the TV side to hold down the fort for a while.

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