Starz Entertainment Corp(US:STRZ)2025-02-10 21:06PART I — FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for the nine months ended December 31, 2024, report a net loss of $259.5 million and total assets of $7.17 billion, reflecting key strategic transactions Condensed Consolidated Statements of Operations Highlights (Nine Months Ended Dec 31) | Metric | 2024 (in millions) | 2023 (in millions) | | :--- | :--- | :--- | | Revenues | $2,753.8 | $2,899.1 | | Operating Loss | $(34.1) | $(877.9) | | Net Loss | $(259.5) | $(1,066.8) | | Net Loss Attributable to Shareholders | $(244.7) | $(1,063.5) | | Diluted Net Loss Per Share | $(1.03) | $(4.56) | Condensed Consolidated Balance Sheets Highlights | Metric | Dec 31, 2024 (in millions) | Mar 31, 2024 (in millions) | | :--- | :--- | :--- | | Total Current Assets | $1,070.9 | $1,463.5 | | Total Assets | $7,167.3 | $7,092.7 | | Total Current Liabilities | $3,399.6 | $3,992.1 | | Total Liabilities | $7,323.7 | $7,279.9 | | Total Equity (Deficit) | $(256.1) | $(310.5) | Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended Dec 31) | Metric | 2024 (in millions) | 2023 (in millions) | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | $(359.7) | $401.4 (Provided) | | Net Cash Used In Investing Activities | $(46.3) | $(365.5) | | Net Cash Provided By (Used In) Financing Activities | $292.4 | $(17.4) | Note 2. Acquisitions The company completed a business combination with SEAC on May 13, 2024, establishing Lionsgate Studios and generating $330.0 million, in addition to other film library and eOne acquisitions - On May 13, 2024, the Studio Business combined with SEAC, creating the publicly traded 'Lionsgate Studios Corp.' (Nasdaq: LION), with Lionsgate retaining an 87.8% ownership stake45 - The business combination generated gross proceeds of approximately $330.0 million, with net proceeds of $278.2 million used to partially pay down Term Loan A and Term Loan B474950 - On December 27, 2023, the company acquired the Entertainment One (eOne) television and film business from Hasbro for approximately $373.1 million in cash55 - On June 5, 2024, the company invested $35.0 million for a 51% interest in CP LG Library Holdings, LLC, which acquired a library of 46 films, and will consolidate this entity41 Note 6. Debt Total corporate debt increased to $2.60 billion as of December 31, 2024, reflecting the payoff of Term Loan B and the establishment of new IP-backed credit facilities Corporate Debt Summary (in millions) | Debt Instrument | Dec 31, 2024 (in millions) | Mar 31, 2024 (in millions) | | :--- | :--- | :--- | | Revolving Credit Facility | $390.0 | $575.0 | | Term Loan A | $314.4 | $399.3 | | Term Loan B | $— | $819.2 | | 5.5% Senior Notes | $715.0 | $715.0 | | eOne IP Credit Facility | $331.5 | $— | | LG IP Credit Facility | $850.0 | $— | | Total Corporate Debt | $2,600.9 | $2,508.5 | - In November 2024, the company fully paid off the Term Loan B facility, due in March 202590107 - The company entered into two new IP-backed credit facilities: the eOne IP Credit Facility (max $340.0 million) maturing in July 2029, and the LG IP Credit Facility (max $850.0 million) maturing in September 2029103104 Note 10. Revenue Total revenues for the nine months ended December 31, 2024, decreased to $2.75 billion, primarily due to a decline in Media Networks revenue, with remaining performance obligations at $1.76 billion Revenue by Segment (Nine Months Ended Dec 31, in millions) | Segment | 2024 (in millions) | 2023 (in millions) | | :--- | :--- | :--- | | Motion Picture | $1,063.3 | $1,245.6 | | Television Production | $1,062.5 | $860.7 | | Media Networks | $1,041.5 | $1,214.9 | | Intersegment eliminations | $(413.5) | $(422.1) | | Total Revenues | $2,753.8 | $2,899.1 | - Remaining performance obligations, including deferred revenue and backlog, totaled $1.76 billion as of December 31, 2024147 Note 14. Restructuring and Other Restructuring and other costs significantly decreased to $71.9 million for the nine months ended December 31, 2024, primarily due to lower content impairment charges from Media Networks restructuring Restructuring and Other Costs (Nine Months Ended Dec 31, in millions) | Category | 2024 (in millions) | 2023 (in millions) | | :--- | :--- | :--- | | Content and other impairments | $17.1 | $317.4 | | Severance | $26.2 | $41.3 | | Transaction and other costs | $28.6 | $12.3 | | Total | $71.9 | $371.0 | - The Media Networks restructuring plan, involving exiting most international territories, has resulted in cumulative impairment charges of $735.1 million through December 31, 2024176 - Subsequent to quarter-end, the company removed additional programming from its domestic Starz platform with a carrying value of approximately $77.4 million, expected to result in a charge in Q4 fiscal 2025178 Note 15. Segment Information Total segment profit for the nine months ended December 31, 2024, decreased to $335.5 million, primarily driven by lower profitability in the Media Networks segment Segment Profit (Nine Months Ended Dec 31, in millions) | Segment | 2024 (in millions) | 2023 (in millions) | | :--- | :--- | :--- | | Motion Picture | $172.5 | $237.1 | | Television Production | $96.0 | $94.1 | | Total Studio Business | $268.5 | $331.2 | | Media Networks | $109.5 | $184.1 | | Intersegment eliminations | $(42.5) | $(43.8) | | Total Segment Profit | $335.5 | $471.5 | - Total segment profit of $335.5 million is reconciled to a loss before income taxes of $243.5 million, after deducting items including corporate G&A ($89.9 million), restructuring ($71.9 million), and adjusted share-based compensation ($54.1 million)198 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the ongoing separation of Studio and STARZ businesses, the Lionsgate Studios business combination, and Media Networks restructuring, noting a 5.0% consolidated revenue decrease for the nine-month period Overview The company is advancing its plan to separate the Studio Business from STARZ, following the May 2024 Lionsgate Studios business combination, while Media Networks undergoes significant international restructuring - The company is proceeding with a plan to fully separate its Studio Business (Lionsgate Studios Corp.) from its STARZ business, subject to board approval and other conditions253 - The Media Networks restructuring plan, involving exiting all international territories except Canada and India, has resulted in cumulative impairment charges of $735.1 million through December 31, 2024259 Results of Operations Q3 consolidated revenues were flat at $970.5 million, with Television Production growth offsetting declines in Motion Picture and Media Networks, leading to a 5.0% nine-month revenue decrease Q3 FY25 vs Q3 FY24 Revenue by Segment (in millions) | Segment | Q3 FY25 (in millions) | Q3 FY24 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Motion Picture | $309.2 | $443.2 | (30.2)% | | Television Production | $404.6 | $248.4 | 62.9% | | Media Networks | $344.5 | $417.2 | (17.4)% | | Total Revenues | $970.5 | $975.1 | (0.5)% | Q3 FY25 vs Q3 FY24 Segment Profit (in millions) | Segment | Q3 FY25 (in millions) | Q3 FY24 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Motion Picture | $83.6 | $100.4 | (16.7)% | | Television Production | $60.9 | $8.1 | 651.9% | | Media Networks | $24.9 | $85.5 | (70.9)% | | Total Segment Profit | $176.7 | $182.0 | (2.9)% | - Motion Picture revenue declined due to a difficult comparison with the prior year's quarter, which included the successful theatrical release of The Hunger Games: The Ballad of Songbirds & Snakes319355 - Television Production revenue surged primarily due to the inclusion of approximately $114.3 million in revenue from the recently acquired eOne business320 - Media Networks revenue and profit fell sharply due to the exit from most international territories and a decline in domestic linear subscribers, partially offset by OTT price increases321380384 Liquidity and Capital Resources The company's liquidity is supported by operations, debt, and business combination proceeds, with $200.5 million in cash and sufficient resources to meet obligations for the next 12 months - Primary sources of cash include operations, corporate debt, film obligations, and the recent business combination which provided gross proceeds of approximately $330.0 million455456 - The company had $200.5 million in cash and cash equivalents and $860.0 million available under its $1.25 billion Revolving Credit Facility as of December 31, 202445588 - For the nine months ended December 31, 2024, cash used in operating activities was $359.7 million, a significant shift from $401.4 million provided by operations in the prior year, driven by higher investment in film and television programs484 - Total material cash requirements from contractual obligations are estimated at $6.68 billion, with $2.44 billion due in the next 12 months475 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and foreign currency fluctuations, with a 0.25% interest rate change impacting annual net interest expense by $6.0 million on corporate debt - The company is exposed to interest rate risk through its variable-rate debt, including the Senior Credit Facilities and new IP Credit Facilities490 - A 0.25% change in interest rates would result in a $6.0 million change in annual net interest expense on corporate debt and a $1.6 million change on film-related obligations490491 Controls and Procedures As of December 31, 2024, management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2024499 - No material changes to the company's internal control over financial reporting occurred during the quarter ended December 31, 2024500 PART II — OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, none of which are expected to have a material adverse effect on its financial condition or results - The company is not a party to any material pending legal proceedings expected to have a material adverse effect on its financial condition208503 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2024 - No material changes to risk factors were reported since the last Annual Report on Form 10-K505 Unregistered Sales of Equity Securities and Use of Proceeds No common shares were repurchased during the three months ended December 31, 2024, with $179.9 million remaining authorized for future repurchases - No common shares were repurchased during the three months ended December 31, 2024507 - Approximately $179.9 million remains available for future repurchases under the company's authorized share repurchase plan506 Exhibits This section lists the exhibits filed with the Form 10-Q, including supplemental indentures, credit agreements, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Exhibits filed include supplemental indentures for debt, various credit agreements, and CEO/CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906512