Lionsgate Posts Reduced Second-Quarter Loss Ahead of Merger With Starz

Jon Feltheimer Getty H 2016
Mike Pont/FilmMagic

The studio, led by CEO Jon Feltheimer, beat analyst profit estimates as company stock rose 9 percent in after-hours trading.

Lionsgate on Thursday reported it shrunk its second-quarter loss on sharply higher overall revenues as the studio gets set to merge with Starz.

Lionsgate, led by CEO Jon Feltheimer, recorded a loss of $17.4 million for the three months ending Sept. 30, or a loss of 12 cents a share, on overall revenues up 34 percent to $639.5 million as both TV production and motion picture group revenues rose.

That compares to a loss of $42.1 million for the second quarter of fiscal 2016, or a loss of 28 cents a share, when the studio took a $7.2 million write-down on the Last Witch Hunter release.

The studio beat an analyst estimate of 24 cents per share. That had shares in Lionsgate jumping by $1.74, or 9 percent, to $20.75 in after-hour trading.

Motion picture group revenues rose 31 percent to $464.4 million, as Lionsgate had seven wide releases during the latest quarter, compared to three in the year-ago period.

International motion picture revenue rose 56 percent to $168.3 million, helped by Now You See Me 2 grossing nearly $350 million worldwide, and Nerve and Deepwater Horizon also adding revenue. And TV production revenue jumped 43 percent to $175 million, as higher domestic TV revenue offset reduced international TV and TV home entertainment revenues.

"We achieved solid revenue gains across our core businesses, highlighted by another strong performance from our television group, in what we expect to be the last quarter for which we report Lionsgate financial results on a stand-alone basis," Feltheimer said in a statement, as he looks to the studio's $4.4 billion merger with Starz expected to close by the end of the year.  

The second-quarter results follow Lionsgate shares coming under pressure this year after a series of box-office stumbles, the latest of which includes the Blair Witch Project sequel, and after the successful Twilight and Hunger Games franchises ran their course. The studio's expanding TV business leaves investors more optimistic, and the pending Starz deal aims to diversify Lionsgate and make it more of a TV powerhouse.

In the near term, analysts expect the Starz combination to deliver strong cash flow and raised over-the-top online streaming and TV production revenues. Lionsgate has the newly launched Tribeca Shortlist and Comic-Con HQ streaming services, and is set to launch Kevin Hart's Laugh Out Loud, a millennial comedy destination, and a Spanish-language movie service.

On Thursday, Lionsgate said it was partnering with Hemisphere Media Group to launch a Spanish-language SVOD service targeting Hispanic viewers in the U.S.

Feltheimer also reiterated to analysts a possible sale of Epix in the wake of its merger with Starz. "We have tremendous optionality with Epix. But it's a very valuable platform. We'll be having those conversations with Viacom ... and we have a great partner in MGM," he said during a conference call after the release of the company's second-quarter results. 

Kevin Beggs, chairman of the Lionsgate TV group, also told analysts that major streaming services like Netflix and Amazon, while eager to produce more of their own TV shows to control escalating costs, still wanted TV product from Lionsgate. "It feels to us like there's no slowing of demand from third parties," he said.  

Execs also touted the upcoming movie release slate from Lionsgate, which includes Hacksaw Ridge this weekend and Patriots Day and La La Land in the pipeline. "Franchises do come in different sizes," Feltheimer told analysts, pointing to upcoming releases like Power Rangers, Chaos Walking and Kingkiller Chronicles as possible candidates.

"When we develop a franchise property, we can really move the needle," he added after announcing Lionsgate will produce two more movies with Tyler Perry after the recent success of Boo! A Madea Halloween.

The box-office misses at Lionsgate have prompted an executive turnover at the embattled film division, including Rob Friedman leaving as co-chair of the motion picture group, while remaining a consultant to the office of the CEO, and Bobby Cohen stepping down as Lionsgate’s co-president of production.