Lionsgate Q2 beats estimates despite strike impact, Starz separation charges

Despite negative impacts from both the Hollywood strikes and its spinoff of Starz, Lionsgate reported a stronger-than-forecasted second quarter for its fiscal 2024 with just over $1 billion in revenue, up 14%,and $886 million in net losses (less than half of its losses from Q2 in 2023).

Adjusted net income was $48.6 million in the quarter.

The company attributed revenue growth to its motion picture segment, which grew 77% year over year to $396 million, as it was able to “pick up a lot of really good high-profile, third-party content,” CEO Jon Feltheimer said on the earnings call — though its TV production segment struggled from the Hollywood strikes.

It pinned quarterly losses largely on charges from its separation with Starz — which clocked in cumulatively at $876 million.

In preparing to become a standalone company, Starz recently cut over 10% of its workforce and plans to end business operations in the U.K. by March 31, 2024  —not long after announcing its plans to exit the Latin American market as well.

According to the Q2 earnings call, the exit from those markets resulted in a $212 million restructuring charge. The company also received a non-cash goodwill and trade name impairment charge totaling $664 million. “As of September 30, we're no longer carrying any goodwill from the Starz acquisition on our balance sheet,” Lionsgate CFO James Bargesaid stated on the call.

Lionsgate bought up Starz in 2016 for $4.4 billion in stock and assets, and despite lucrative analyst predictions and strong initial TV production profits, the parent company began deliberating on spinning off Starz to shoulder some of its debt in 2019. Then last year, the divorce plans were finalized, along with a rebranding of its international SVOD service to Lionsgate+ as well as plans to pull its direct-to-consumer streaming service in seven international markets.

Starz was slated to separate from Lionsgate earlier this September but was delayed by Lionsgate’s acquisition of eOne, Hollywood strikes and — according to Feltheimer — a “disruptive marketplace.” Fletheimer said hefty charges and layoffs for overhead reduction were ultimately part of Lionsgate’s focus to prepare the service to succeed as a standalone company.   

Starz did gain 200,000 domestic OTT subscribers in the quarter putting its total domestic OTT subscriber base at just over 12 million (down from 12.25 million last year). Separately, Lionsgate+ OTT subscribers clocked in at 3.7 million — up a little over a million from Q2 last year.

Lionsgate’s media networks segment showed 5% year-over-year growth to $417 million, which it acknowledged was driven significantly by Lionsgate+ profit from its bundling partner in Latin America. Bargesaid explained on the call, “Continued growth of domestic OTT and international OTT revenue more than offset domestic linear revenue pressure. Domestic revenue was down 5% year over year. While international revenue was up nearly 100%.” 

The company’s television production segment revenue decreased 9% to $394 million which it attributed to losses from the actors' and writers' strikes. Bargesaid said the company now estimates the “cumulative impact of the strike for all fiscal 2024” to be approximately $30 million. Feltheimer did note the $30 million to be “a little less than originally forecasted” on the earnings call. Bargesaid added that most of the impact “occurred in the September quarter.”

Next year they predict another $15-20 million of carryover impact “on episodic deliveries and increased cost on continuing productions that were put on hold during the overall industry work stoppage.”