Lionsgate Studios Corp. 2027 Q1 Earnings Call

Thank you for joining us for the Lionsgate Studios Corporation's fiscal 2027 first quarter conference call. We'll begin with opening remarks from our CEO, Jon Feltheimer, followed by remarks from our CFO, Jimmy Barge. After their remarks, we'll open the call for questions. Also joining us on the call today are Vice Chairman Michael Burns, COO Brian Goldsmith, Chairman of the TV Group Kevin Beggs, Chairman of the Motion Picture Group Adam Fogelson, Chief Revenue Officer Jim Packer, and Senior Advisor to the Office of the CEO at Lionsgate and Co-CEO of 3 Arts, Brian Weinstein. The matters discussed on the call also include forward-looking statements, including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors.

This includes the risk factors set forth in our public filings for Lionsgate Studios Corp. The company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. I'll now turn the call over to Jon.

Thank you, Nilay, and good afternoon, everyone. I'm pleased to report another quarter with strong financial results and growing momentum across our business. Our pure-play content strategy is working. The balance sheet is strengthening faster than anticipated. Our portfolio of intellectual property is becoming ever more franchise-driven and valuable. Library monetization remains a significant competitive advantage, and our company is increasing strategic optionality in a media landscape that continues to place growing value on scaled content assets. In our film business, we've launched two new marquee-branded properties, "Michael" and "The Housemaid," in a span of just four months, ending the first half of the calendar year with domestic box office market share over 10%. Driven by these films and our strong library, our Motion Picture Group reported its best first quarter results ever.

Beyond the box office results, both our performance and the type of content driving this performance, bold, original, and provocative, are reinforcing the Lionsgate brand in real and tangible ways, attracting new creative projects, expanding our filmmaker relationships, and paving the way for new partnerships that will continue to drive us forward. We've lined up a slate that includes more than a dozen branded, repeatable properties over the next three years. Four of these films have wrapped production and are being readied for release. Early indicators for "The Hunger Games: Sunrise on the Reaping" show that it has the potential to become one of the biggest Hunger Games movies ever. The marketing campaign for Mel Gibson's epic two-part "The Resurrection of the Christ" will kick off next month with the theatrical re-release of "The Passion of the Christ" in Dolby and 4K.

We wrapped production on "John Rambo," directed by Jalmari Helander and starring breakout talent Noah Centineo, as we rebuild the Rambo property into an important Lionsgate film and television franchise. It's set for release next June. We also wrapped production on "Caine," with Donnie Yen directing and starring in a movie featuring one of the most talked-about characters in the John Wick universe, also set for release next year. We're preparing to start production on three others. We just announced the addition of Brittany Snow, co-star of our Netflix hit series "The Hunting Wives," to a "Housemaid Secrets" cast that also includes Sydney Sweeney, Kirsten Dunst, and Paul Anthony Kelly. Production is slated to begin in October for a December 2027 release.

Writer Chris Thomas Devlin has turned in an incredible script for our groundbreaking new chapter of "Blair Witch" in partnership with Blumhouse and James Wan's Atomic Monster, to be directed by rising star and 3 Arts client Dylan Clark. We're out to cast on "Naruto," which is shaping up to be a major tentpole, the next movie from record-breaking "Spider-Man: Brand New Day" filmmaker Destin Daniel Cretton, based on the top-ranked manga property in the world. With our diversified slate strategy, we're balancing this trove of IP with great original storytelling driven by incredible talent in front of and behind the camera. All of this is happening against the backdrop of a resurgent domestic box office heading for its first $10 billion year since before the pandemic. Turning to television, there has been a paradigm shift that we believe plays to our strengths.

The name of the game in television used to be deep relationships with a handful of major buyers, first the broadcast networks, then the leading cable platforms, and more recently, the streamers. Today, there are many new players throughout the television ecosystem, and our strategy is focused on diversification, having the creative strengths, pricing flexibility, and innovative business models to play across a wide range of different platforms and different types of series in an increasingly fragmented world. We're on the cusp of going perfect 13 for 13 in current scripted series renewals, and notably, that success is spread across 12 different buyers. Our ability to cast a wide net was evident in the two series pickups we secured this week.

Amazon's pickup of "Friends" co-creator Marta Kauffman's improvisational comedy, "DINKS," which if you didn't know, means dual income, no kids, driven by an innovative partnership with media giant Publicis Groupe. The pickup of the medical action thriller, "Trauma," think "Die Hard" in a hospital, starring Richard Madden with Prime Video streaming in the U.K., Paramount+ streaming in the U.S. and the rest of the world. One thing in the television landscape hasn't changed, the rewards of playing the long game. When we bought Starz in 2016, the original "Power" series had just finished its third season.

Lionsgate and Starz collaborated on growing "Power" through a total of six hit seasons, extending it into three hit spin-offs, "Ghost," "Raising Kanan," and "Force," expanding the "Power" universe with the upcoming new pickups, "Power: Origins" and "Power: Legacy." Together, we've built a strong, enduring, and immensely valuable franchise spanning at least six different series and more than 200 episodes. That value was evident last week when we licensed the first four "Power" series to Netflix, all four internationally, and the original "Power" worldwide for the next three years, beginning in November. The deal proved three things. Streamers need a lot of content, we have a lot of content, and that content becomes more and more valuable as it plays everywhere in the world. Turning to the library, we reported another strong quarter of trailing 12-month revenue.

What's interesting to note, because it speaks to the depth and diversity of our library, is that the biggest individual contributor in the quarter was a 38-year-old movie, "Dirty Dancing." It's also worth mentioning that our film and television backlog grew to a robust $1.5 billion in the quarter. We expect this strong backlog to translate into growth in upcoming library quarters. In closing, we continue to see encouraging signs in our operating environment. The domestic box office is strengthening as a new generation of moviegoers embraces the theatrical experience. New buyers and partners are emerging throughout the television ecosystem for those companies willing to look outside the usual places. Streamer demand for film and television series is helping to keep our library business strong. Our 3 Arts business continues to scale and diversify at a time when management companies have become increasingly valuable gateways to the media ecosystem. AI, properly harnessed, is creating new opportunities to reduce cost, enhance revenue, and accelerate the production process.

That's the environment to which we're continuing to adapt our studio, becoming a little leaner, ever more focused, collaborating with digital and traditional storytellers alike, maintaining an entrepreneurial approach to both content and culture, and above all, continuing to grow our incredibly valuable portfolio of branded intellectual properties. Now, I'll turn things over to Jimmy.

Thanks, John, and good afternoon, everyone. I'll briefly discuss our fiscal first quarter 2027 Studio financial results and provide an update on the balance sheet. For the quarter, Lionsgate Studios revenue grew 48% year-over-year to $777 million, while adjusted OIBDA improved to $79 million. Operating income was $26 million. Reported diluted loss per share was $0.10, and diluted adjusted earnings per share was $0.06. Free cash flow was $129 million in the period, reflecting strong operating performance, including the April release of "Michael." Trailing 12-month library revenue was $987 million, roughly in line with the prior year, and our backlog of $1.5 billion was up 21% year-over-year. The continued strength of the library and our growing backlog demonstrate the enduring value of our intellectual property portfolio and provide an important source of recurring revenue and cash flow across market cycles.

Studio segment profit, which reflects our motion picture and television segment profits before corporate overhead expense, increased significantly year-over-year to $115 million. We began highlighting our Studio segment profit a few quarters ago because this important metric is generally more comparable to the studio-adjusted OIBDA figures reported by many of our peers. The increase in Studio segment profit was driven by strong motion picture performance. Looking further into motion picture, we saw revenue more than double year-over-year to $587 million, while segment profit reached $105 million, the highest first quarter motion picture segment profit in the company's history. Results were driven primarily by the exceptional performance of "Michael," as well as the continued strength in ancillary contributions from "The Housemaid." Turning to television. Revenue was $189 million, and segment profit was $10 million.