Lions Gate Entertainment Corp. (NYSE: LGF-A) is a diversified global media company that encompasses world-class motion picture and television studio operations aligned with the STARZ premium global subscription platform. The company's film, television, subscription, and location-based entertainment businesses are backed by a vast library of over 20,000 titles and a valuable collection of iconic franchises.

Business Overview

Lions Gate's operations are organized into three reportable segments: Motion Picture, Television Production, and Media Networks. The Motion Picture segment includes the development, production, and distribution of feature films, both domestically and internationally. The Television Production segment focuses on the development, production, and distribution of television series, movies, and non-fiction programming. The Media Networks segment consists of the Starz and LIONSGATE+ premium subscription video services.

Financials

For the fiscal year ended March 31, 2023, Lions Gate reported annual revenue of $4,016.9 million, annual net loss of $1,102.9 million, annual operating cash flow of $396.8 million, and annual free cash flow of $362.1 million.

In the third quarter of fiscal 2024, which ended on December 31, 2023, the company generated revenue of $975.1 million, a net loss of $107.4 million, operating cash flow of $401.4 million, and free cash flow of $365.5 million. The Motion Picture segment reported revenue of $443.2 million, with strong performance from the theatrical release of "The Hunger Games: The Ballad of Songbirds & Snakes" and higher home entertainment and television revenues. The Television Production segment generated revenue of $248.4 million, reflecting decreased domestic and international television revenues due to lower intersegment licensing of Starz original series. The Media Networks segment reported revenue of $417.2 million, with increased revenue at LIONSGATE+ offsetting a slight decline at Starz Networks.

Liquidity

As of December 31, 2023, Lions Gate had cash and cash equivalents of $283.0 million. The company's liquidity and capital requirements are primarily funded through cash generated from operations, corporate debt, film-related obligations, and the monetization of trade accounts receivable.

The company's corporate debt consists of a $1.25 billion revolving credit facility, a $407.1 million term loan A, an $822.3 million term loan B, and $715.0 million of 5.500% senior notes due 2029. The company also utilizes various film-related obligations, including production loans, programming notes, a $250.0 million production tax credit facility, and other credit facilities, to fund its film and television productions.

Recent Developments

Acquisition of eOne

In December 2023, Lions Gate completed the acquisition of the Entertainment One (eOne) television and film business from Hasbro, Inc. for approximately $375.0 million, net of cash acquired. The acquisition of eOne, a film and television production and distribution company, strengthens Lions Gate's film and television library, expands its scripted and unscripted television business, and enhances the company's presence in Canada and the U.K.

Business Combination with Screaming Eagle

On December 22, 2023, Lions Gate entered into a business combination agreement with Screaming Eagle Acquisition Corp., a Cayman Islands-based special purpose acquisition company (SPAC). Pursuant to the agreement, the company's Studio Business, which consists of the Motion Picture and Television Production segments, will be combined with Screaming Eagle to form a new publicly traded company. Upon completion of the transaction, Lions Gate is expected to own approximately 87.2% of the combined company, with the remaining shares held by the public.

The transaction is expected to deliver approximately $350.0 million of gross proceeds to Lions Gate, including $175.0 million in private investment in public equity (PIPE) financing. The transaction is subject to regulatory approvals, shareholder approvals, and other customary closing conditions, and is expected to close in the spring of 2024.

Media Networks Restructuring

In fiscal 2023, Lions Gate began a restructuring plan for its LIONSGATE+ international business, which initially included exiting the service in seven international territories and identifying additional cost-saving initiatives. As part of this plan, the company has recorded content impairment charges related to the Media Networks segment of $317.4 million in the nine months ended December 31, 2023.

The company estimates it will incur additional charges ranging from approximately $30 million to $55 million related to certain contractual content commitments or programming content impairment charges, among other items, related to territories exited or to be exited and content to be removed from its services. The net future cash outlay is estimated to range from approximately $145 million to $170 million.

Risks and Challenges

Lions Gate faces several risks and challenges, including the substantial investment of capital required to produce and market films and television series, budget overruns, limitations imposed by its credit facilities and notes, the unpredictability of the commercial success of its motion pictures and television programming, and the impact of global pandemics, macroeconomic conditions, and geopolitical events on its business.

The company also faces risks related to the integration of acquired businesses, the effects of dispositions of businesses or assets, the cost of defending its intellectual property, and technological changes and other trends affecting the entertainment industry. Additionally, the company is subject to labor disruptions or strikes, which can cause significant delays and additional costs.

Outlook

Lions Gate has not provided specific financial guidance for the upcoming fiscal year. However, the company has indicated that it expects its cash requirements for productions to decrease and its cash requirements for marketing spend to increase in fiscal 2024 compared to fiscal 2023.

The successful completion of the business combination with Screaming Eagle and the ongoing restructuring of the Media Networks segment are expected to be key focus areas for the company in the near term. Additionally, the integration of the recently acquired eOne business will be a priority for management.

Conclusion

Lions Gate Entertainment Corp. is a diversified global media company with a strong portfolio of film, television, and subscription video assets. The company is navigating a challenging macroeconomic environment, including the impact of the Media Networks restructuring and the pending business combination with Screaming Eagle. While the company faces several risks, its diverse operations, valuable content library, and strategic initiatives provide a foundation for long-term growth and value creation.