Starz Entertainment Corp(STRZ) - 2025 Q2 - Quarterly Report

markdown [PART I — FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, for the period ended September 30, 2024 [Unaudited Condensed Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Presents the company's financial position with total assets of **$7.15 billion** and an improved equity deficit as of September 30, 2024 Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | Sep 30, 2024 | Mar 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $229.6 | $314.0 | | Investment in films and television programs, net | $3,284.8 | $2,762.2 | | Total Assets | **$7,146.8** | **$7,092.7** | | **Liabilities & Equity** | | | | Total Debt (Short & Long Term) | $2,460.3 | $2,480.0 | | Total Liabilities | $7,271.7 | $7,279.9 | | Total Equity (Deficit) | **$(224.6)** | **$(310.5)** | [Unaudited Condensed Consolidated Statements of Operations](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) Presents revenues and a significantly reduced net loss for the three months ended September 30, 2024, driven by the absence of prior-year impairment charges Consolidated Statement of Operations Summary (in millions, except per share data) | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $948.6 | $1,015.5 | $1,783.3 | $1,924.1 | | Operating Loss | $(88.6) | $(817.5) | $(69.8) | $(834.3) | | Net Loss | $(177.8) | $(887.9) | $(240.9) | $(959.4) | | Net Loss Attributable to Shareholders | $(163.3) | $(886.2) | $(222.7) | $(956.9) | | Basic & Diluted EPS | $(0.68) | $(3.79) | $(0.94) | $(4.12) | - The significant reduction in operating and net loss year-over-year is primarily attributable to a **$663.9 million** goodwill and intangible asset impairment charge and a **$222.1 million** restructuring charge recorded in the three months ended September 30, 2023, which were not repeated in the current period[18](index=18&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Details cash flows for the six months ended September 30, 2024, showing net cash used in operations and cash provided by financing activities Consolidated Cash Flow Summary (Six Months Ended, in millions) | Cash Flow Activity | Sep 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | | Net Cash Provided By (Used In) Operating Activities | $(240.9) | $330.3 | | Net Cash Flows Used In Investing Activities | $(43.2) | $(31.5) | | Net Cash Flows Provided By (Used In) Financing Activities | $199.7 | $(341.9) | | **Net Change In Cash, Cash Equivalents and Restricted Cash** | **$(84.4)** | **$(43.1)** | - A key financing event was the sale of a noncontrolling interest in Lionsgate Studios Corp., which generated **$283.1 million** in cash proceeds[29](index=29&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Details significant accounting policies, key business events, debt composition, and segment performance for the reporting period [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=45&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, key business developments, and liquidity, focusing on the proposed Studio and STARZ business separation [Overview](index=45&type=section&id=Overview) Outlines core operations and strategic initiatives, including the proposed separation of Lionsgate Studios and STARZ, and Media Networks restructuring - The company is pursuing a separation of its Studio Business (Lionsgate Studios) from its STARZ business to create two distinct publicly traded companies[242](index=242&type=chunk) - On May 13, 2024, the Studio Business combined with Screaming Eagle Acquisition Corp. (SEAC), resulting in Lionsgate Studios Corp. becoming a separate publicly traded company (NASDAQ: LION) This transaction generated approximately **$330.0 million** in gross proceeds for Lionsgate[243](index=243&type=chunk)[245](index=245&type=chunk) - The Media Networks restructuring plan continued, involving the exit from all international territories except Canada and India This resulted in net recoveries of content impairment charges of **$4.3 million** in Q2 2024, compared to charges of **$211.6 million** in Q2 2023[248](index=248&type=chunk)[249](index=249&type=chunk) [Results of Operations](index=53&type=section&id=Results%20of%20Operations) Compares financial results for the three and six-month periods, highlighting decreased consolidated revenue, mixed Studio Business performance, and a narrowed net loss Consolidated Revenue and Operating Loss (Three Months Ended) | Metric | Q2 2024 (in millions) | Q2 2023 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $948.6 | $1,015.5 | (6.6)% | | Operating Loss | $(88.6) | $(817.5) | 89.2% improvement | Segment Profit (Three Months Ended) | Segment | Q2 2024 (in millions) | Q2 2023 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Studio Business | $27.0 | $130.7 | (79.3)% | | Media Networks | $27.2 | $66.6 | (59.2)% | | **Total Segment Profit** | **$15.6** | **$173.5** | **(91.0)%** | - Motion Picture segment profit fell **96.1%** to **$2.6 million**, driven by the negative contribution from the theatrical slate, including *Borderlands*, which had higher relative costs[344](index=344&type=chunk)[354](index=354&type=chunk) - Television Production revenue grew **5.8%**, boosted by **$111.1 million** from the eOne acquisition, but segment profit declined **61.4%** due to a less favorable content mix compared to the prior year[309](index=309&type=chunk)[357](index=357&type=chunk) - Media Networks revenue decreased **16.7%**, primarily due to exiting international territories Total Starz subscribers were **23.20 million**, down from **26.58 million** in the prior year[311](index=311&type=chunk)[371](index=371&type=chunk) [Liquidity and Capital Resources](index=83&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses liquidity sources, cash position, and capital resources, including proceeds from the Business Combination and total contractual obligations - Primary sources of cash include operations, corporate debt, film financing, and accounts receivable monetization Cash and cash equivalents stood at **$229.6 million** as of September 30, 2024[449](index=449&type=chunk) - The Business Combination that formed Lionsgate Studios provided gross proceeds of approximately **$330.0 million**, which were used to partially repay Term Loan A and Term Loan B[450](index=450&type=chunk) Cash Flow Summary (Six Months Ended, in millions) | Cash Flow Activity | Sep 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | | Net Cash From Operating Activities | $(240.9) | $330.3 | | Net Cash From Investing Activities | $(43.2) | $(31.5) | | Net Cash From Financing Activities | $199.7 | $(341.9) | Material Cash Requirements from Contractual Obligations (as of Sep 30, 2024, in millions) | Obligation Category | Total | Next 12 Months | Beyond 12 Months | | :--- | :--- | :--- | :--- | | On-Balance Sheet Arrangements | $5,034.4 | $2,276.4 | $2,758.0 | | Off-Balance Sheet Arrangements | $1,532.2 | $645.3 | $886.9 | | **Total** | **$6,566.6** | **$2,921.7** | **$3,644.9** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=89&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Details market risks from interest rate and foreign currency fluctuations, and the use of derivative instruments to manage these exposures - The company is exposed to interest rate risk through its variable-rate debt, including Senior Credit Facilities and film-related obligations[484](index=484&type=chunk) - A **0.25%** change in interest rates would impact annual net interest expense on corporate debt by **$1.7 million** and costs related to film obligations by **$4.9 million**[484](index=484&type=chunk)[485](index=485&type=chunk) - The company utilizes interest rate swaps to convert a portion of its variable-rate debt to fixed-rate, with a total notional amount of **$1.92 billion** in swaps outstanding as of September 30, 2024[487](index=487&type=chunk)[489](index=489&type=chunk) [Item 4. Controls and Procedures](index=91&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective, with ongoing integration of the eOne business's internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[492](index=492&type=chunk) - The company is integrating the internal controls of the acquired eOne business, which began on December 27, 2023 No other material changes to internal control over financial reporting occurred during the quarter[493](index=493&type=chunk) [PART II — OTHER INFORMATION](index=92&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=92&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, none of which are expected to have a material adverse effect on its financial position or results - The company states it is not a party to any material pending legal proceedings that would have a material adverse effect on its financial condition[203](index=203&type=chunk)[496](index=496&type=chunk) [Item 1A. Risk Factors](index=92&type=section&id=Item%201A.%20Risk%20Factors) Highlights new material risks, primarily related to the proposed separation of Studio and STARZ businesses and a noteholder lawsuit challenging a prior transaction - A new risk factor concerns the proposed separation of the Studio and STARZ businesses, which is complex and may be delayed, not completed, or occur on less favorable terms than expected[499](index=499&type=chunk) - The company faces a lawsuit from holders of its 5.500% Senior Notes who allege a breach of the indenture following a note exchange The plaintiffs are seeking to nullify the transaction and obtain an injunction against the proposed separation[501](index=501&type=chunk)[502](index=502&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=93&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports no common share repurchases during the quarter, with a remaining authorized amount under the share repurchase program - No common shares were repurchased by the company during the third quarter of 2024[505](index=505&type=chunk) - There is approximately **$179.9 million** remaining under the authorized share repurchase plan[504](index=504&type=chunk)