Starz Entertainment Corp(STRZ) - 2026 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - STARZ ended the year with an all-time high of 12.7 million OTT subscribers, growing year-over-year by 7.6% and adding 370,000 in Q4 alone [5][15] - Total revenue for Q4 was $323 million, up 60 basis points sequentially, driven by an increase in distribution revenue [16] - Adjusted OIBDA for the quarter was $56 million, up over 100% sequentially, with total adjusted OIBDA for the year reaching $204 million, exceeding the $200 million outlook [17][18] - The company ended the year with a leverage ratio of 2.9x, better than the previous guidance of 3.1x [18] Business Line Data and Key Metrics Changes - The increase in OTT subscribers was partially offset by a decline in linear customers, with total U.S. subscribers growing to 17.6 million [15] - The growth in subscribers was driven by demand for scripted originals, including "Force" and "Spartacus" [16] Market Data and Key Metrics Changes - The company is focusing on the U.S. market after restructuring its Canadian business into a licensing revenue stream [9] - The company anticipates generating between $80 million to $120 million of positive unlevered free cash flow in 2026, marking a significant improvement year-over-year [18] Company Strategy and Development Direction - STARZ aims to increase margins to 20% by 2028, with a slight improvement expected in 2026 [22] - The company is de-emphasizing the need to manage the business around quarterly subscriber levels, focusing instead on OTT revenue growth and profitability [12] - STARZ is positioned to capitalize on potential M&A opportunities due to increased consolidation across the media landscape [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong start to 2026, driven by a compelling lineup of originals [7] - The company believes it is uniquely positioned to capitalize on potential M&A opportunities due to its track record of profitably converting from linear to digital [12] - Management noted that 2026 is expected to be an inflection point for cash flow generation [11] Other Important Information - The company will not disclose subscriber numbers starting with the March 2026 quarter, focusing instead on revenue growth and profitability [12] - STARZ has made significant strides in de-aging its content slate while expanding its network-defining franchises [10] Q&A Session Summary Question: Can you walk us through some of the moving pieces regarding OTT revenue and total revenue? - Management indicated that they are on track to exceed the 20% margin target by 2028, with slight improvements expected in 2026 [22][24] Question: What kind of assets would you be interested in for potential M&A? - Management stated they are looking for linear networks with great brands that complement their core demos, while maintaining a leverage constraint of around 2.5x [27] Question: How do you rank order your capital allocation priorities as free cash flow improves? - Management noted that as free cash flow improves, they would consider returning cash to shareholders while continuing to invest in the business [28] Question: Can you discuss the retention patterns for subscribers? - Management highlighted that the programming slate is designed to maintain strong retention throughout the year, supported by longer-term offers [34] Question: How do you view the demand environment for your programming internationally? - Management expressed confidence in the international market, particularly in the U.K. and France, and noted a strong appetite for their content [48] Question: How do you think about relying on spin-offs versus new originals? - Management emphasized the importance of franchising successful shows like "Power" and "Outlander" to drive engagement and acquisition [54]