Lionsgate Studios Corp. (LION) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial performance, optimistic guidance, and high engagement in key projects like 'Resurrection' and 'Michael.' The management's strategic focus on mid and small-budget films, along with strong library performance and efficient marketing, suggests positive market sentiment. Although there is some uncertainty in M&A and lack of specific financial guidance, the overall tone is positive, supported by strong backlog and international demand.
Key Financial Performance
Lionsgate Studios revenue $475 million, adjusted OIBDA was $14 million and operating loss was $46 million. Reported fully diluted loss per share was $0.39 and fully diluted adjusted loss per share was $0.20.
Net cash flow used in operating activities $104 million, while use of adjusted free cash flow for the quarter was $129 million.
Trailing 12-month library revenue Grew 13% year-over-year to just over $1 billion, reaching record levels for the fourth consecutive quarter.
Motion Picture revenue $276 million and segment profit was $31 million. Revenue was expectedly down year-over-year due to a difficult comparison with last year's second quarter, which had 5 wide theatrical releases in the period relative to just 2 releases this quarter. Segment profit was up significantly year-over-year as we rebounded off of last year's underperformance of Borderlands.
TV revenue $199 million and segment profit was $13 million. Revenue and segment profit were expectedly down year-over-year due to the timing of episodic deliveries in the quarter.
Net debt $1.7 billion, expectedly reflecting a modest sequential increase in leverage to 6.4x on the timing of content spend.
Backlog Ending the quarter at approximately $1.6 billion, up $379 million or 31% sequentially.
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Operating Highlights
New Film Productions: Lionsgate wrapped production on 'Michael' and is shooting 'Hunger Games' and two 'Resurrection' films. They also announced acquiring future film and TV rights to the 'Expendables' franchise and worldwide distribution rights to the next 'Rambo' movie.
Stage Play Launch: The first-ever 'Hunger Games' stage play launched in London with strong ticket sales, extended to October 2026.
Film Slate: Upcoming releases include 'Now You See Me: Now You Don’t,' 'The Housemaid,' and Quentin Tarantino's 'Kill Bill: The Whole Bloody Affair.' Future projects include 'Saw,' 'Blair Witch,' 'American Psycho,' and 'John Wick' universe films.
International Licensing: Lionsgate renegotiated international licensing deals for 'The Hunting Wives,' paving the way for a second season renewal on Netflix.
Stage Play Expansion: Lionsgate is expanding into stage plays with titles like 'La La Land,' 'Dirty Dancing,' and 'Silver Linings Playbook.'
Sports Talent Management: 3 Arts expanded into sports talent management, acquiring A&A Management and hiring a leading sports manager, adding NFL stars like Travis Kelce and Miles Garrett.
Headcount Reduction: Lionsgate reduced its workforce by 5% this quarter, totaling a 20% reduction over 18 months to align with market realities.
AI Integration: AI is being applied to increase productivity, generate cost savings, and expand creative capabilities while protecting intellectual property.
Content Library Growth: Trailing 12-month library revenue reached $1 billion for the first time, highlighting the value of Lionsgate's intellectual property.
Scripted TV Growth: Anticipated doubling of scripted series deliveries from fiscal '26 to fiscal '27, with key renewals and new shows like 'Robinhood' and 'Spartacus House of Ashur.'
Financial Strategy: Upsized IP facility by $320 million, early paid Spyglass library acquisition facility, and reduced revolver draw to $0, strengthening the balance sheet.
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Risk or Challenges
Economic uncertainties: The company faces challenges in an unpredictable box office environment, which could impact the performance of its tentpole films and overall revenue.
Operational cost management: The company has reduced its headcount by 5% in September, bringing the total reduction to over 20% in the past 18 months, indicating ongoing cost pressures and the need to align with market realities.
AI and intellectual property risks: While the company is leveraging AI for productivity and cost savings, it is also facing challenges in protecting its intellectual property from unauthorized use of AI, which could impact its core business.
Competitive pressures: The entertainment industry is described as ultra-competitive, requiring the company to work overtime and entrepreneurially for every win, which could strain resources and impact operational efficiency.
Revenue timing and dependency: Revenue and segment profits in both Motion Picture and TV segments were down year-over-year due to timing of episodic deliveries and fewer theatrical releases, highlighting dependency on specific release schedules.
Debt and financial leverage: The company ended the quarter with $1.7 billion in net debt and a leverage ratio of 6.4x, reflecting financial pressures and the need for careful debt management.
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Guidance & Outlook
Revenue and Profit Growth: The company anticipates significant growth in revenue and adjusted OIBDA in fiscal '27 compared to fiscal '25, driven by a strong slate of tentpole films and increased scripted television deliveries.
Motion Picture Segment: The company expects motion picture segment profit to grow in fiscal '27, supported by a slate of tentpole films including 'Michael' (April 2027), 'Hunger Games: Sunrise on the Reaping' (November 2027), and 'Resurrection Part 1' (March 2027).
Television Segment: The television segment is forecasted to experience significant growth in fiscal '27, with a doubling of scripted series deliveries compared to fiscal '26 and incremental licensing revenue from international markets.
Content Pipeline and Backlog: The company reported a backlog of $1.6 billion, up 31% sequentially, indicating strong future revenues and cash flows.
Market Trends and Strategic Focus: The company is focusing on leveraging its intellectual property portfolio, efficient production models, and entrepreneurial spirit to navigate a competitive and evolving market environment.
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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 gives you confidence for the back half of this year in 2027 and beyond with your slate?
A:Adam Fogelson highlighted significant excitement and traction online for their films, including high social media engagement for 'Now You See Me' and 'The Housemaid,' and the Michael trailer receiving over 30 million views in 6 hours. He also mentioned strong global demand for 'Resurrection' and confidence in their portfolio of mid and small-budget films.
Q:What are your views on the M&A optionality and the broader industry environment?
A:Jon Feltheimer noted the disruptive and uncertain M&A environment but emphasized their focus on building a strong TV and film slate and leveraging their library, which has been a 25-year investment.
Q:Can you update us on the potential for a second Michael film?
A:Adam Fogelson stated that while plans for a second film are not confirmed, the creative team is working to ensure they can deliver more Michael content soon after the release of the first film.
Q:What is the general sense of tracking for 'Now You See Me: Now You Don’t' and its international revenue potential?
A:Adam Fogelson mentioned that the movie is tracking closer to the first film, with potential to perform in line with or ahead of the second film. He noted strong international demand and licensing deals, which have already been accounted for in the film's economics.
Q:Can you provide details on the growth at 3 Arts in terms of revenue and EBITDA?
A:James Barge did not disclose specific revenue or EBITDA figures but mentioned strong growth in the second half and into fiscal 2027. Brian Goldsmith added that 3 Arts is seeing positive momentum in production and innovative deals in sports and corporate relationships.
Q:What is the impact of industry M&A on series orders and pickups?
A:Kevin Beggs noted that uncertainty in the market can reduce buying activity but highlighted positive developments like Paramount's increased appetite for scripted content. He also mentioned a strong cadence of renewals and new launches, giving confidence in the market.
Q:What is the ancillary revenue opportunity from stage play adaptations and IP monetization?
A:Adam Fogelson explained that opportunities vary, with some being no-risk licensing deals and others involving investment. He highlighted strong attendance for the John Wick Live experience and growing interest in gaming opportunities around John Wick and Saw.
Q:What is driving the $1.6 billion backlog and its implications for TV and motion picture?
A:James Barge attributed the backlog growth to strength in both TV and motion picture, with significant contributions from franchises like John Wick and Hunger Games. He noted that 85% of the backlog will materialize within 18 months, reflecting future revenue and cash flow.
Q:How do you plan to bring down leverage, and what is the update on 3 Arts' potential partnership?
A:James Barge stated that leverage will naturally decline as EBITDA ramps up in fiscal 2027 and 2028. Jon Feltheimer added that they are in discussions with potential partners for 3 Arts and expect to provide updates in the first quarter.
Q:What is the early feedback on the Michael trailer and its global potential?
A:Adam Fogelson reported overwhelmingly positive feedback, with high enthusiasm for Jaafar's performance and the production values. He compared its potential to top-tier musical biopics, indicating a broad range of success.
Q:What is the status of the Resurrection movie and its potential as a two-part film?
A:Michael Burns confirmed that Resurrection will be a two-part film, with each part under two hours. He noted that the movie is on time, on budget, and generating significant interest in the market.
Q:What are the costs and marketing strategies for 'Now You See Me' and other films?
A:Adam Fogelson emphasized efficient marketing strategies, spending 30-50% less than competitors while generating significant awareness through creative digital and social media campaigns.
Q:How do you balance investment in small/mid-sized films versus tentpoles?
A:Adam Fogelson stated that they aim for 2-4 tentpoles annually while maintaining a strong slate of mid and small-budget films with great talent and IP. He highlighted progress on major projects like Naruto and Monopoly.
Q:What is driving the strength in the library, and how sustainable is it?
A:The library's strength is attributed to self-directed channels, increased series licensing, and the halo effect from new IP-driven films. Jon Feltheimer emphasized the long-term benefits of retaining rights and taking deficits on TV shows.
Q:Review of Unclear Management Responses
A:Management avoided providing specific revenue and EBITDA figures for 3 Arts, citing confidentiality. Additionally, they did not confirm plans for a second Michael film, stating only that the creative team is preparing for future opportunities. Similarly, they did not provide detailed ancillary revenue projections for stage play adaptations and IP monetization, describing the opportunities as varied and dependent on individual projects.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AA world
AI area
AI property
AI value
Affair
Fathom
Games Resurrection
Head Investor
Hunting Wives
La
NFL
Nilay
PA
Picture segment
Rambo
Resurrection film
Studio
acquisition
backlog
box office
broadcast
debut
film slate
home
licensing
marketing campaign
movie theater
novel
order
play
revenue
right
roster
sale
sport
syndication
tentpoles
trailer
visibility
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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.
Lionsgate Studios Corp. (LION) Q2 2026 Earnings Call Transcript
Positive11-6
The earnings call summary indicates strong financial performance, optimistic guidance, and high engagement in key projects like 'Resurrection' and 'Michael.' The management's strategic focus on mid and small-budget films, along with strong library performance and efficient marketing, suggests positive market sentiment. Although there is some uncertainty in M&A and lack of specific financial guidance, the overall tone is positive, supported by strong backlog and international demand.
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