Lions Gate Entertainment(LGF_B) - 2025 Q4 - Annual Report

Part I Business Overview Starz Entertainment Corp. provides premium subscription video programming in North America, focusing on original content for diverse audiences through its various distribution channels - On May 6, 2025, Starz completed its separation from Old Lionsgate, becoming a standalone public company, with historical financials prepared on a carve-out basis[26][27][195] - The company's flagship service, STARZ, had 19.60 million total North American subscribers as of March 31, 2025[29] - Starz's corporate strategy focuses on developing and distributing original programming for underrepresented audiences in premium television[33][34][41] - The content mix on Starz services consists of approximately 20% original programming and 80% acquired content, primarily theatrical movies[41][44] Key Content Licensing Agreements (as of June 16, 2025) | Agreement Type | Studio Partner | Agreement Details | | :--- | :--- | :--- | | Output Agreements | New Lionsgate | Exclusive rights for titles released from Jan 2022/2023, with windows through at least 2030 | | | Universal | Exclusive rights for live-action films released from Jan 2022, with windows through at least 2029 | | Library Agreements | Various (Lionsgate, Universal, Paramount, Sony, etc.) | Agreements for older theatrical movies with windows extending from 2025 to 2028 | - As of June 16, 2025, Starz employs 541 individuals and has established various Employee Resource Groups (ERGs) to foster an inclusive workplace[59][60][61] Risk Factors The company faces significant risks across business operations, indebtedness, and tax regulations, including post-separation scale, subscriber retention, competition, debt, and tax law changes Risks Related to our Business Starz faces operational risks including reduced scale post-separation, subscriber retention challenges, intense competition, reliance on major distributors, and pending legal claims - As a smaller, less diversified company post-separation from Lionsgate, Starz is more vulnerable to market changes and has diminished diversification of revenue and cash flows[74] - The restructuring of the international LIONSGATE+ business led to significant asset write-downs, with the company incurring approximately $457.0 million impairment charges from continuing operations through March 31, 2025[80] - Starz has a high concentration of revenue from a few major distributors, with Amazon.com, Inc. accounting for 29.7% of total revenue in fiscal year 2025[95] - The company faces intense competition from other streaming services and traditional media, with evolving technologies like Artificial Intelligence (AI) and piracy posing significant threats[98][107] - A lawsuit has been filed by purported noteholders alleging a breach related to the 5.5% senior notes due 2029, with an adverse outcome potentially having a material impact on the company's financial condition[141][142] Risks related to Starz's Indebtedness The company faces financial risks from its significant debt of $625.1 million as of June 16, 2025, which includes restrictive covenants and financial ratio requirements - As of June 16, 2025, Starz carries significant debt, with $625.1 million of indebtedness and an additional $90.1 million in programming-related obligations[143] - The company's debt agreements contain restrictive covenants that limit its ability to incur more debt, pay dividends, sell assets, or merge with other entities[151][152] - A breach of covenants or failure to meet financial ratios could result in a default, allowing creditors to accelerate debt repayment[153][154] Risks related to Tax Rules and Regulations Starz faces tax risks from potential changes to U.S. tax laws affecting its Canadian corporate status and from reliance on tax incentives for original programming production - As a corporation Canadian-incorporated, Starz's tax status could be adversely affected by changes in U.S. tax laws, particularly Section 7874 of the IRC, which could lead to it being treated as a U.S. corporation for tax purposes[155][156] - The production of original programming relies on foreign, state, or local tax incentives, and their reduction or elimination could significantly increase production costs[157] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - The company has no unresolved staff comments from the SEC[159] Cybersecurity Starz maintains a cybersecurity risk management program overseen by its Audit & Risk Committee, with no material incidents reported to date - The Board's Audit & Risk Committee is responsible for overseeing cybersecurity risk management processes[167] - The company has implemented various processes to manage cybersecurity threats, including incident detection and response, vulnerability management, and disaster recovery plans[163] - Starz utilizes third-party service providers for assistance with cybersecurity and maintains a vendor management program to assess associated risks[165][166] - As of the report date, the company has not been subject to any cybersecurity threats that have materially affected or are reasonably likely to materially affect its business[171] Properties Starz's principal executive office is in Santa Monica, California, with additional leased office spaces in Colorado and New York, deemed adequate for operations Key Leased Properties | Location | Size (sq. ft.) | Lease Expiration | | :--- | :--- | :--- | | Santa Monica, CA (Principal Exec. Office) | 60,116 | Dec 2028 | | Greenwood Village, CO | 100,119 | Jun 2034 | | New York, NY (530 Fifth Ave) | ~18,000 | Aug 2025 | | New York, NY (100 Park Ave) | ~20,269 | May 2038 | Legal Proceedings The company is involved in various legal claims, none of which are expected to have a material adverse effect on its financial position, including a referenced noteholder lawsuit - Starz does not believe that any currently pending legal proceedings will have a material adverse effect on its financial position, results of operations, or cash flow[175] - The company specifically references the ongoing lawsuit from purported noteholders related to the 5.5% senior notes due 2029, which is detailed in the Risk Factors section[175] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[176] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Starz common shares trade on Nasdaq under 'STRZ', with 293 shareholders as of June 16, 2025, and no dividends or share repurchases reported for the quarter - The company's common stock is listed on the Nasdaq Stock Market under the trading symbol 'STRZ'[179] - As of June 16, 2025, there were approximately 293 shareholders of record[179] - The company did not purchase any of its common shares during the three months ended March 31, 2025[190] Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Starz's financial condition and results, highlighting the impact of its separation, restructuring, and fiscal year-end change, with a focus on revenue trends, net loss reduction, and liquidity Results of Operations Fiscal year 2025 saw a slight revenue decrease to $1.37 billion, but operating loss significantly narrowed to $(170.4) million due to lower impairment charges, while Adjusted OIBDA improved to $201.5 million Financial Performance Summary (FY2025 vs. FY2024) | Metric | FY 2025 (in millions) | FY 2024 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $1,369.6 | $1,392.4 | (1.6)% | | Operating Loss | $(170.4) | $(903.5) | (81.1)% | | Net Loss from Continuing Operations | $(215.3) | $(804.6) | (73.2)% | | Adjusted OIBDA | $201.5 | $170.2 | 18.4% | Subscriber Data (as of March 31) | Subscriber Type | 2025 (in millions) | 2024 (in millions) | | :--- | :--- | :--- | | Total OTT Subscribers | 16.33 | 15.90 | | Total Linear Subscribers | 6.56 | 8.42 | | Total Starz Subscribers | 22.89 | 24.32 | - The decrease in Starz Networks revenue in FY2025 was driven by a $58.7 million decline from traditional linear services, partially offset by a $32.1 million increase in OTT revenue from price increases[254] - Restructuring and other costs decreased to $184.1 million in FY2025 from $224.8 million in FY2024, including $156.4 million content impairment charges in FY2025[263] Financial Performance Summary (FY2024 vs. FY2023) | Metric | FY 2024 (in millions) | FY 2023 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $1,392.4 | $1,422.5 | (2.1)% | | Operating Loss | $(903.5) | $(1,348.2) | (33.0)% | | Net Loss from Continuing Operations | $(804.6) | $(1,335.9) | (39.8)% | | Adjusted OIBDA | $170.2 | $184.8 | (7.9)% | Liquidity and Capital Resources Starz's liquidity, supported by $17.8 million cash as of March 31, 2025, and a new $300 million term loan, faces $1.69 billion in contractual obligations, primarily for senior notes and programming rights - As of March 31, 2025, the company had cash and cash equivalents of $17.8 million, down from $23.0 million a year prior[305] - In connection with the separation, Starz entered into a new credit agreement for a $300.0 million senior secured term loan and a $150.0 million senior secured revolving credit facility[307][625] Material Cash Requirements from Contractual Obligations (as of March 31, 2025) | Obligation Category | Total (in millions) | Due in Next 12 Months (in millions) | | :--- | :--- | :--- | | 5.5% Senior Notes | $715.0 | $0 | | Programming related obligations & payables | $552.3 | $383.2 | | Interest payments | $158.8 | $39.3 | | Operating lease obligations | $55.5 | $9.8 | | Total | $1,686.6 | $597.6 | - Net cash used in operating activities for continuing operations was $39.4 million in fiscal 2025, a significant increase in cash usage compared to the $5.9 million provided by operating activities in fiscal 2024[333] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and foreign currency exchange, with a 0.25% interest rate increase potentially raising annual interest expense by $0.2 million - The company's primary market risks stem from changes in interest rates and foreign currency exchange rates[343] - A 0.25% increase in interest rates on the outstanding variable-rate programming notes ($90.7 million at March 31, 2025) would result in a $0.2 million increase in annual interest expense[346] - The fair value of the fixed-rate 5.5% Senior Notes is sensitive to interest rate changes, with a carrying value of $699.9 million and an estimated fair value of $623.7 million at March 31, 2025[347] Financial Statements and Supplementary Data This section presents the audited combined financial statements for fiscal years 2023-2025, including the auditor's report and detailed notes on accounting policies and financial figures Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on the financial statements, identifying the amortization of the customer relationship intangible asset as a Critical Audit Matter due to complex judgments - The auditor, Ernst & Young LLP, provided an unqualified (clean) opinion on the combined financial statements[383] - A Critical Audit Matter was identified concerning the amortization of the Starz Traditional Affiliate customer relationship intangible asset, which was complex due to significant management judgment required to forecast future revenue[387][388] Notes to Audited Combined Financial Statements These notes detail the financial statements' carve-out basis, discontinued operations, asset impairments, new debt structure, revenue concentration, and material contractual commitments - Note 1 explains that the financial statements are prepared on a carve-out basis from Old Lionsgate's records and may not be indicative of future performance as a standalone company[408][411] - Note 2 details the discontinued operations of the LIONSGATE+ business, which resulted in net income of $4.1 million in FY2025, compared to a net loss of $110.6 million in FY2024[488] - Note 5 discloses that the company recorded a goodwill impairment charge of $494.0 million in FY2024, writing off the entire remaining balance, and Trademarks impaired by $170.0 million in FY2024 were reclassified from indefinite-lived to finite-lived assets[465][469][498] - Note 14 reveals that for fiscal year 2025, one customer (Amazon) represented greater than 10% of combined revenue, amounting to $406.5 million[573] - Note 18 (Subsequent Events) confirms that on May 6, 2025, Starz entered into a new Credit Agreement for a $300M term loan and a $150M revolving facility and changed its fiscal year-end to December 31[619][624][635] Controls and Procedures Management concluded its disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal controls during the fourth fiscal quarter - Based on an evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[352] - The annual report does not include a management assessment or auditor attestation on internal control over financial reporting, which is permissible under SEC rules for newly public companies[353] - No changes in internal control over financial reporting occurred during the fourth quarter of fiscal 2025 that materially affected, or are reasonably likely to materially affect, these controls[354] Other Information The company reports no information under this item - No information was reported under this item[355] Part III Information for Part III, covering directors, executive compensation, and security ownership, will be incorporated by reference from a Form 10-K/A amendment to be filed by July 29, 2025 Items 10-14 (Directors, Executive Compensation, etc.) Information for Items 10-14, including directors, executive compensation, and security ownership, will be provided in a Form 10-K/A amendment by July 29, 2025 - The information for Items 10, 11, 12, 13, and 14 will be incorporated by reference from a Form 10-K/A amendment to be filed by July 29, 2025[358][359][362] Part IV This part lists exhibits filed with the Form 10-K, including agreements related to the company's separation, new credit facility, and executive employment Exhibits, Financial Statement Schedules This section lists all Form 10-K exhibits, including foundational documents for the company's separation, new credit structure, and executive employment agreements - The exhibits include the Arrangement Agreement (Exhibit 2.1) and Separation Agreement (Exhibit 10.1) detailing the separation from Lionsgate[366] - The new Credit and Guarantee Agreement, dated May 6, 2025, is filed as Exhibit 10.14[368] - Employment agreements for key executives, including CEO Jeffrey Hirsch, are included as exhibits[368] Form 10-K Summary The company provides no summary for this item - No information was reported under this item[371]