Lionsgate Studios Corp. (LION) Q3 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call presents a mixed but mostly positive outlook. Strong revenue growth in Motion Picture and library revenue, new partnerships, and AI integration are promising. Despite some segment profit declines and high net debt, optimistic guidance and strategic initiatives like AI and partnerships suggest a positive market reaction. The Q&A added confidence in growth sustainability and highlighted significant carryover benefits, enhancing the positive sentiment.

Key Financial Performance

Revenue Lionsgate Studios revenue was up 1% year-over-year to $724 million. The increase was driven by the release of successful films and television series.

Adjusted OIBDA Adjusted OIBDA was $85 million. This reflects the back-end loaded fiscal year and investments in production and marketing.

Operating Income Operating income was $36 million. This was influenced by the timing of production and marketing expenses.

Fully Diluted Loss Per Share Reported fully diluted loss per share was $0.16. This reflects the impact of production and marketing costs.

Fully Diluted Adjusted Earnings Per Share Fully diluted adjusted earnings was $0.01 per share. This was supported by strong library revenue and cost management.

Net Cash Flow Used in Operating Activities Net cash flow used in operating activities was $109 million. This was due to investments in production and marketing.

Adjusted Free Cash Flow Use of adjusted free cash flow for the quarter was $58 million. This reflects ongoing investments in content production.

Trailing 12-Month Library Revenue Trailing 12-month library revenue grew 10% year-over-year to $1.050 billion, reaching record levels for the fifth consecutive quarter. Growth was driven by monetization across new buyers and platforms.

Motion Picture Revenue Motion Picture revenue grew 35% year-over-year to $421 million. This was driven by the release of successful films like Now You See Me: Now You Don't and The Housemaid.

Motion Picture Segment Profit Segment profit for Motion Picture declined year-over-year to $59 million, primarily due to the timing of P&A spend to support theatrical titles.

Television Revenue Television revenue was $303 million. Revenue was down year-over-year due to the timing of episodic deliveries.

Television Segment Profit Television segment profit was $56 million. This was down year-over-year due to timing of episodic deliveries but partially offset by strong library revenue.

Net Debt Net debt was $1.75 billion, with leverage at 7.4x due to lower trailing 12-month adjusted EBITDA.

Backlog Backlog was $1.5 billion, up 26% year-over-year, indicating strong future revenue and cash flow visibility.

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Operating Highlights

New Franchise Launch: Launched a new franchise with the worldwide box office success of Paul Feig's thriller, The Housemaid. Sequel, The Housemaid Secret, to begin production later this year.

Upcoming Productions: Production began on John Rambo and plans announced for Dirty Dancing sequel. Expanding portfolio with over 40 active franchise properties.

Major Tentpoles: Three major tentpoles anchoring fiscal '27 slate: Michael, Hunger Games: Sunrise on the Reaping, and Resurrection of the Christ Parts 1 and 2.

International Box Office Performance: Strong international box office results for The Housemaid and Now You See Me: Now You Don't, particularly in self-distributed markets like the U.K. and Latin America.

Television Series Renewals: Renewals for 12 of 13 scripted series, spread across 12 different buyers, showcasing strong market demand.

Record Library Revenue: Achieved fifth straight record quarter with trailing 12-month revenue reaching $1.05 billion.

Cost Management: Lowered costs and restructured businesses to improve efficiency.

Content Expansion: Expanding the largest portfolio of franchises and branded IP outside the 5 major studios.

Shareholder Alignment: Added Steven Mnuchin to the Board, converted dual share structure to single class, and allowed shareholder rights plan to lapse.

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Risk or Challenges

Market Conditions: The company acknowledges disruptive forces reshaping the industry, such as the rise of AI, the power of social platforms, and increased M&A activity. These factors could impact the company's ability to adapt and compete effectively.

Regulatory Hurdles: No explicit mention of regulatory challenges was made in the transcript.

Supply Chain Disruptions: No explicit mention of supply chain disruptions was made in the transcript.

Economic Uncertainties: The company reported a net cash flow used in operating activities of $109 million and leverage increased to 7.4x due to lower trailing 12-month adjusted EBITDA. These financial pressures could pose risks to operational flexibility.

Strategic Execution Risks: The company is heavily reliant on the success of its upcoming tentpole releases and scripted episodic deliveries to achieve fiscal '27 growth targets. Any delays or underperformance in these areas could adversely impact financial results.

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Guidance & Outlook

Fiscal '27 Growth Expectations: The company anticipates significant growth in fiscal '27, driven by investments in intellectual property and a strong slate of upcoming projects.

Film Slate Projections: Three major tentpole films, including 'Michael,' 'Hunger Games: Sunrise on the Reaping,' and 'Resurrection of the Christ Parts 1 and 2,' are expected to anchor fiscal '27. Additional projects like 'The Housemaid Secret,' 'John Rambo,' 'Dirty Dancing,' and others are in production or development.

Television Segment Outlook: The television group aims to double scripted episodic deliveries in fiscal '27, supported by renewals of 12 out of 13 current scripted series.

Library Revenue Growth: The company expects continued growth in library revenue, which has already achieved record levels for five consecutive quarters.

Motion Picture Business: The Motion Picture segment is projected to end fiscal '26 strong, with significant carryover box office revenue and an increase in titles entering their pay-one window in Q4. Fiscal '27 is expected to see robust growth driven by key tentpole theatrical releases.

Balance Sheet and Financial Metrics: Leverage is expected to decline as adjusted OIBDA and free cash flow improve. The company anticipates exiting fiscal '26 with momentum leading into fiscal '27.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What can give confidence in the sustainability of volumes and profitability of the business model given industry consolidation?

A:Kevin Beggs highlighted new partnerships, such as The Rainmaker on USA and Robin Hood with MGM+, and the reopening of commissions by buyers. Jim Packer mentioned the flexibility of not being tied to a specific streamer and the strength of their film slate, including franchises like Now You See Me and Hunger Games. Michael Burns emphasized the positive impact of scaled streamers and the macro environment favoring more movies.

Q:How should we think about the carryover benefits of a success like Housemaid in the context of pay-one monetization and the home video rental market?

A:James Barge noted significant carryover benefits into Q4 and fiscal '27. Jim Packer emphasized the value of pay-one deals, such as those with Starz and Amazon, and the potential for open market bidding after pay-one windows. Michael Burns discussed the appointment of Kathleen Grace as Chief AI Officer to integrate AI into the business, including partnerships with major AI companies.

Q:What are the broad initiatives for AI integration into the business?

A:Michael Burns mentioned using AI for scheduling FAST channels, postproduction, visual effects, script revisions, and technical operations. Kathleen Grace, the new Chief AI Officer, will lead AI integration and partnerships, including with Runway.

Q:What are the opportunities in the mid-budget film space?

A:Adam Fogelson highlighted successes like The Housemaid and The Long Walk, and upcoming projects like Strangers and I Can Only Imagine. He emphasized working with the right creative partners and making films at responsible prices to ensure strong returns.

Q:Why is there significant interest in studio assets like Warner Bros., and why might now be a good time for Lionsgate to participate in M&A?

A:Michael Burns stated that world-class IP is highly valuable, as evidenced by interest in Warner Bros. He suggested that this could be the first domino to fall in the industry.

Q:How does Lionsgate manage film financing costs above the line that hit OIBDA?

A:James Barge explained that interest on production loans is capitalized above the line and amortized through production costs. This aligns cash flows and is a standard financial practice.

Q:What is the reception to the marketing efforts for the film Michael, and how is Lionsgate extending the value of its IP?

A:Adam Fogelson reported strong responses to the film Michael, with record-breaking trailer views and positive audience sentiment. He also mentioned successful live events like Hunger Games Live and Now You See Live, and upcoming projects in video games and live experiences.

Q:What are the sources of growth for Lionsgate's library revenues and the contribution from FAST services?

A:Jim Packer cited strong contributions from film and TV, including Hunger Games and Mad Men. He noted that FAST, AVOD, and transactional revenues are growing and expected to contribute significantly in the future.

Q:How is Lionsgate managing to double TV scripted deliveries while keeping costs under control?

A:Kevin Beggs attributed this to the end of the strike, economic production methods, and strong international distribution. He emphasized the importance of being nimble and having a talented team.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the question about why now is a good time for Lionsgate to participate in M&A, providing only general statements about the value of IP and industry trends.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

LION Transcript

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Frequently Asked Questions

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