Starz Entertainment Corp(US:STRZ)2024-05-30 20:05Part I Item 1. Business Lionsgate operates through its Studio Business and Media Networks, with the Studio segment recently spun off as Lionsgate Studios - The company is structured into three reportable business segments: Motion Picture, Television Production, and Media Networks, with the first two collectively known as the Studio Business26 - On May 13, 2024, the company launched its Studio Business as a separate publicly traded entity, Lionsgate Studios Corp. (NASDAQ: LION), retaining an 87.2% ownership stake279294 FY2024 Revenue Contribution by Segment | Segment | Revenue Contribution (%) | | :--- | :--- | | Motion Picture | 41.2% | | Television Production | 33.1% | | Media Networks | 39.2% | | Intersegment Eliminations | (13.6)% | Studio Business: Motion Picture The Motion Picture segment generates revenue from theatrical and home entertainment, leveraging a 20,000+ title library and mitigating production risks - In fiscal year 2024, the company theatrically released 26 films in the U.S36 - Key theatrical releases in fiscal 2024 included The Hunger Games: The Ballad of Songbirds & Snakes, Saw X, and Expend4bles38 - The company mitigates financial risk in film production through strategies such as co-financing and pre-licensing international rights37 - The home entertainment division distributes content from a library of over 20,000 titles across various platforms, including operating 13 FAST channels4143 Studio Business: Television Production The Television Production segment develops and distributes 100 shows across 50+ networks, including key scripted and unscripted series - The company currently produces and distributes 100 television shows on over 50 networks60 - Notable scripted productions in fiscal 2024 include Ghosts (CBS), The Rookie (ABC), Yellowjackets (Showtime), and multiple series in the Power universe for Starz6061 - The unscripted programming includes popular shows such as Selling Sunset (Netflix) and Wicked Tuna (National Geographic)6162 Media Networks The Media Networks segment, centered on STARZ, serves 21.8 million North American subscribers and is winding down its international LIONSGATE+ service - As of March 31, 2024, the STARZ premium service had 21.8 million subscribers in North America69 - The company is strategically winding down its international LIONSGATE+ branded service, with completion expected in Q1 fiscal 202591 - STARZ has an exclusive multiyear output licensing agreement with Lionsgate for theatrically released titles82 - The network's strategy focuses on developing original programming for traditionally underrepresented audiences, particularly women and diverse demographics7273 Human Capital Management Lionsgate employs 1,717 full-time staff, emphasizing diversity, equity, and inclusion through various programs and employee support - The company had approximately 1,717 full-time employees as of May 24, 2024100 - Lionsgate promotes diversity and inclusion through initiatives such as targeted recruitment and bias-free job descriptions102 - The company supports several Employee Resource Groups (ERGs), including those for multicultural employees, parents, and LGBTQIA+ individuals107 Item 1A. Risk Factors The company faces significant business, financial, and tax risks, including high content costs, debt, and potential IRS challenges - The production and acquisition of film and television content require substantial capital, with risks of budget overruns and write-offs115116 - The company relies on a few major distributors, with Amazon.com, Inc. accounting for approximately 21% of revenue in fiscal 2024122 - The company has incurred significant indebtedness, requiring a substantial portion of cash flow for interest payments and potentially limiting operational flexibility190 - There is a risk the IRS may challenge the company's non-U.S. corporation status under Section 7874, potentially leading to substantially greater U.S. tax liability202204 - Labor disputes, such as the 2023 WGA and SAG-AFTRA strikes, can delay productions, increasing costs and decreasing revenue152 Item 1C. Cybersecurity Lionsgate manages cybersecurity risks through a CISO-led program, overseen by the Audit & Risk Committee, employing various mitigation strategies - The company's cybersecurity program is led by a Chief Information Security Officer (CISO) and integrated into overall risk management218221 - Cybersecurity risk management and oversight are handled by the Audit & Risk Committee of the Board of Directors225228 - The company utilizes various technical and organizational measures to mitigate cyber threats, including incident detection and response and vulnerability management219220 Item 2. Properties Lionsgate's principal executive offices are in Santa Monica, California, with additional leased properties supporting global operations - The principal executive offices are located in Santa Monica, California, in a 192,584 square foot facility with a lease expiring in August 2025230 - Other major leased properties include facilities in Greenwood Village, CO (100,119 sq ft), Toronto, Canada (94,449 sq ft), and Valley Village, CA (93,670 sq ft)231 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Lionsgate's NYSE-listed Class A and B shares underperformed market indices, with $179.9 million remaining in its share repurchase program - The company has two classes of common shares, Class A voting (LGF.A) and Class B non-voting (LGF.B), both listed on the New York Stock Exchange237 - The company's share repurchase plan has approximately $179.9 million of authorized potential purchases remaining, with no common shares purchased during the three months ended March 31, 2024249250 Stock Performance Comparison (Value of $100 Invested on 3/19) | Security/Index | 3/19 Value ($) | 3/24 Value ($) | | :--- | :--- | :--- | | Lions Gate Entertainment Corp-Class A | $100.00 | $63.62 | | Lions Gate Entertainment Corp-Class B | $100.00 | $61.66 | | NYSE Composite | $100.00 | $162.54 | | Dow Jones US Media Sector | $100.00 | $101.66 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations FY2024 consolidated revenues rose to $4.02 billion, with net loss narrowing due to strong Motion Picture and Media Networks performance - On December 27, 2023, the company acquired eOne for approximately $385.1 million, which contributed $113.8 million in revenue through March 31, 2024268269 - The company continued Media Networks restructuring, winding down LIONSGATE+ in Latin America and the U.K., resulting in $364.5 million in content impairment charges in fiscal 2024272273 - The 2023 WGA and SAG-AFTRA strikes caused temporary production shutdowns, leading to lower content spending and reduced revenues276 Consolidated Results of Operations (FY2024 vs. FY2023) | Metric | FY 2024 ($ millions) | FY 2023 ($ millions) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | 4,016.9 | 3,854.8 | 4.2% | | Operating Loss | (938.8) | (1,857.7) | (49.5)% | | Net Loss Attributable to Shareholders | (1,102.9) | (2,010.2) | (45.1)% | Results of Operations FY2024 total segment profit increased 35.9% to $653.7 million, driven by strong Motion Picture and Media Networks performance Segment Profit (FY2024 vs. FY2023) | Segment | FY 2024 Profit ($ millions) | FY 2023 Profit ($ millions) | Change (%) | | :--- | :--- | :--- | :--- | | Motion Picture | 319.4 | 276.5 | 15.5% | | Television Production | 146.8 | 133.4 | 10.0% | | Total Studio Business | 466.2 | 409.9 | 13.7% | | Media Networks | 236.4 | 106.8 | 121.3% | | Total Segment Profit | 653.7 | 481.0 | 35.9% | - Motion Picture revenue increased by $332.6 million (25.1%), driven by home entertainment revenue from John Wick: Chapter 4 and strong theatrical performance of The Hunger Games: The Ballad of Songbirds & Snakes338 - Television Production revenue decreased by $430.0 million (24.4%), primarily due to lower intersegment licensing and reduced third-party domestic revenue, partially impacted by industry strikes339 - Media Networks revenue increased by $29.9 million (1.9%), with a $60.3 million increase at LIONSGATE+ offsetting a $30.4 million decrease at Starz Networks341405 Media Networks Subscribers (as of March 31) | Category | 2024 (Millions) | 2023 (Millions) | | :--- | :--- | :--- | | Total Starz (Global) | 24.89 | 27.72 | | STARZPLAY Arabia | 3.22 | 2.55 | | Total Global Subscribers | 28.11 | 30.27 | Liquidity and Capital Resources Lionsgate's liquidity improved in FY2024 with positive operating cash flow and $350 million from the Studio spin-off for debt reduction - Cash flow from operating activities was $396.8 million in fiscal 2024, a significant improvement from a cash use of $114.3 million in fiscal 2023442 - The May 2024 business combination for Lionsgate Studios resulted in gross proceeds of approximately $350.0 million, intended for debt reduction413 - The company has material cash requirements for debt repayment, with $2.50 billion due in the next 12 months and $2.63 billion due beyond 12 months432 Debt and Film Obligations (as of March 31, 2024) | Category | Amount ($ millions) | | :--- | :--- | | Corporate Debt | 2,508.5 | | Film Related Obligations | 1,949.4 | | Total | 4,457.9 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk Lionsgate manages foreign currency and interest rate risks through hedging and swaps, with a 0.25% rate change impacting annual interest by $1.9 million - The company is exposed to interest rate risk from its variable-rate Senior Credit Facilities and film-related obligations453 - As of March 31, 2024, the company had interest rate swap agreements to fix the interest rate on $1.7 billion of its variable rate SOFR-based debt452 - A 0.25% change in interest rates would result in a $1.9 million change in annual net interest expense on corporate debt and interest rate swaps453 Item 9A. Controls and Procedures Management and auditors concluded disclosure controls and internal financial reporting controls were effective, excluding eOne due to recent acquisition - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024465 - Management's assessment of internal control over financial reporting concluded it was effective as of March 31, 2024, excluding eOne due to its recent acquisition467469 - The independent registered public accounting firm, Ernst & Young LLP, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of March 31, 2024474 Part III Items 10-14 Information for Items 10-14, covering governance, compensation, and ownership, is incorporated by reference from the 2024 Proxy Statement - Information for Items 10-14, covering governance, compensation, and ownership, is incorporated by reference from the forthcoming 2024 Proxy Statement485487488489490 Part IV Item 15. Exhibits, Financial Statement Schedules This section provides an index to consolidated financial statements, schedules, and exhibits, including key corporate agreements - This section provides an index to the financial statements, which begin on page F-1 of the report492493 - Schedule II, Valuation and Qualifying Accounts, is included, detailing reserves for returns, doubtful accounts, and deferred tax valuation allowance for fiscal years 2022-2024494496