Lions Gate Entertainment's LGF A CEO Jon Feltheimer on Q4 2020 Results

John, good afternoon. Thank you James, and thank you all for joining us in these extraordinary times. I hope you're staying safe and healthy. A few months ago, I could never have imagined some of the things we'd be talking about on this call: our employees working from home, film and television production suspended, movie theaters closed, and all of the other emergency adjustments we've made due to the pandemic. But as we report a strong quarter to end a fiscal year in line with our forecast, I'm also struck by how much we're continuing to accomplish, moving the company forward on all fronts despite all of the challenges around them, and generating a lot of momentum heading into our new fiscal year. Let me share a few recent highlights, and then I'll drill down on each of our businesses and talk about how we're transforming them to continue to operate successfully in this new normal. Stars streaming business is thriving in the at-home environment as we reach 6.8 million paid domestic over-the-top subscribers in the quarter, well in excess of our projections, and it has continued strong growth since then. Our Stars Play international platform is showing strong gains as well, with viewership up 20% since the pandemic began, driving international subscribers, including the Stars Play Arabia platform and Canada, past the 5 million mark at fiscal year-end. Pantalla more than doubled its subscriber base from 315,000 to nearly 700,000 paid subs in the fiscal year as it continues to deliver on its promise as the premium over-the-top destination for Spanish-language movies and original programming. We extended some of our biggest franchises, announcing the big-screen adaptation of Suzanne Collins' Hunger Games prequel, 'The Ballad of Songbirds and Snakes,' to be directed by Francis Lawrence. The new book is already driving triple-digit sales growth of The Hunger Games titles in our catalogue. American Hustle's Eric Warren Singer is writing '90 C3,' and we're preparing to begin production on John Wick 4. 'Spiral,' our reimagining of Saw teaming Chris Rock and Samuel L. Jackson, opens next May. In television, we remain a supplier of choice for new buyers, with the romantic comedy 'Love Life' starring Anna Kendrick debuting on HBO Max next week. They've already announced that the series will be a centerpiece of their first Emmy campaign. As the global pandemic accelerates secular changes already in progress, our businesses are already well positioned to weather the current disruption and emerge stronger than ever in the new normal. To start, we have a great subscription platform at Stars that is profitable, growing, and a major contributor to earnings in this current environment. Our content that has already been produced is more valuable than ever, with library revenue hitting a record $600 million in the fiscal year, and our key brands generating higher license fees as we continue to extend them. We have full film and television pipelines poised to resume production, and a slate of movies ready to distribute when theaters reopen. And we have plenty of financial flexibility and liquidity with over $300 million in available cash at the end of the quarter and an undrawn revolver of $1.5 billion. The goal of combining Lions Gate and Stars was to build a premium global subscription platform backed by the full resources of our companies. Today, that effort is achieving results. Our global streaming business reached more than 10 million worldwide over-the-top subs at the end of the quarter and will continue to grow to between 13 and 15 million paid subs by the end of the fiscal year. In a world where the value of making great content is matched only by the importance of determining how it's monetized, we're increasingly able to control our destiny through the continued rapid growth of the direct-to-consumer Stars app, which is now our third largest distribution platform in the United States. We continue to apply a consumer-facing, data-driven strategy to the benefit of our over-the-top and MVPD partners alike. Our success in transitioning our shared Comcast customers to Alucard efficiently and effectively in the quarter allows us to continue to build on our long-standing partnership. On the programming front, we've established ourselves domestically as a premium destination for women and diverse audiences with a mix of proven hits like 'Outlander,' which completed its fifth season outperforming season four and earning rave reviews; returning favorites such as Steven Soderbergh's 'The Girlfriend Experience' and a second installment of 'The Spanish Princess'; and exciting new series like the recently debuted crime drama 'Hightown' from producer Jerry Bruckheimer that is resonating with our subscribers. These will be followed by the sexy and spirited comedy series 'Run the World' from 'Dear White People''s executive producer Lee Bowser; the family drama 'Heels' set in the world of small-town wrestling; and the next two highly anticipated series in our expanding Power universe franchise, 'Ghost' and 'Raising Kanan.' As we end the first full year of our international expansion, I'm pleased to report that we have launched in 50 countries ahead of schedule and exceeding our subscriber targets. That growth is driven by a blend of Stars originals, first-run library features, and best-in-class acquisitions that make up an attractively priced, best-of-global premium content offering for consumers. This positions us as a complementary premium tier to other OTT services and allows us to align ourselves with top distributors from Amazon to Apple, Roku to Orange, Airtel to Total Play, augmented by the Stars Play app already live in eight countries as we continue our march towards our target of 15 to 25 million international subscribers by 2025. Recent additions like Tony McNamara's 'The Great' starring Elle Fanning and Nicholas Hoult, 'Normal People' based on the best-selling book, and the award-winning anthology series 'The Act,' combined with an anticipated ramp-up of our local productions, will continue to diversify our slate and differentiate our platforms. We've charted this course, funded it out of our own free cash flow. Our growth is on schedule, and value creation is within our sight. Turning to our Motion Picture Group, we pivoted quickly during the quarter, showing the kind of strength and agility that has transformed us into a top five domestic box office market share leader. When theaters shut down two days into the release of the Irwin Brothers' 'I Still Believe,' we immediately repositioned the film to launch in an exclusive premium video-on-demand window with structured price points, including a special Easter promotion, followed by an early debut on packaged media, electronic sell-through, and traditional video-on-demand to mitigate its lost theatrical revenue. When theaters reopen, we'll be ready. Our slate is stocked with big brands and properties like 'Spiral'; 'The Hitman's Bodyguard 2' starring Ryan Reynolds, Samuel L. Jackson, and Salma Hayek; and John Wick 4. It's deep in comedies like 'The Unbearable Weight of Massive Talent' starring Nicolas Cage and 'Barb and Star Go to Vista Del Mar' starring Kristen Wiig. It includes the horror thriller 'Antebellum' starring Janelle Monáe, the Dean Taylor-directed Hilary Swank thriller 'PayPal,' and the Neil Burger-directed sci-fi feature 'Voyagers.' And it has uplifting stories for our times like the Irwin Brothers' inspiring 'American Underdog: The Kurt Warner Story.' Though our feature film production operations have been paused, the process of refilling our pipeline with exciting blue-chip properties has not. During the quarter, we launched—landed, excuse me—the movie rights to Judy Blume's iconic bestseller 'Are You There God? It's Me, Margaret,' the first time one of her books has been brought to the screen, and added two-time Academy Award winner Cate Blanchett to the cast of 'Borderlands.' We won an auction for '16 States,' the zombie thriller to be directed by 'Evil Dead''s Fede Alvarez. Obviously, our theatrical production and release schedules are caveated by the uncertainties in the movie business right now: questions about when production will resume, what kind of protocols we will need to put in place, when theaters will reopen, and how moviegoing habits will change. But we address all of these issues with an agile, data-driven, and forward-looking film business that continues to extend and expand our biggest franchises, collaborates with our talent to create bold original new properties, and brings to all of our distributors a uniquely diverse and flexible slate. Turning to Television, we shut down nearly 20 series and pilots virtually overnight when the pandemic hit. But we repositioned ourselves quickly, keeping cast and crew safe, shifting our focus from production to development, and setting up over a dozen virtual writers' rooms to keep talent engaged. We've already seen an uptick in backup script orders for pilots and current series, paving the way for our production to shift into high gear when it's time to restart. The resonance of our premium content continues to open doors with new buyers. On the heels of our partnership with HBO Max on 'Love Life,' they will launch our docusoap 'The House of Ho' on July 16th, ordered two more production pilots, and picked up the first television series from that partnership, the Christmas-themed adult animated comedy 'Santa Inc' featuring the voices of Seth Rogen and Sarah Silverman. Our Television Group's emphasis on creating great programming for Stars continues. A year ago, we had no Lionsgate television series on the air at Stars and a few in development. Today, we have over 20 Lionsgate television series either in production, post-production, or development for our platforms. Exciting properties like 'Heel,' 'Dangerously Yours,' 'Run the World,' and the next three Power-inspired series are just a few of the shows ready to resume or begin production when production can resume safely. Against the backdrop of economic disruption, we are the beneficiaries of diversification across our businesses and within each of our groups. In the TV group, Pilgrim will be one of the first companies going to camera on the competition reality series 'Most Likely' in late June. Debmar-Mercury transitioned its long-running hit daytime talk show 'Wendy Williams' to a fully remote production filming from her living room. And 3 Arts executed a quarantine episode of 'Mythic Quest: Raven's Banquet' filmed entirely on cast members' iPhones that debuts tomorrow. In closing, I want to say how proud I am of our employees for rising to the challenge of these unprecedented times with optimism, a can-do attitude, and the collaborative team spirit that is our trademark. We often talk about our culture being our secret sauce, and during these past few months, it has driven our company forward. We responded to the global pandemic with a simple four-point plan: first, protecting our people by making sure that everything was safe and could work effectively from home; second, returning to the old normal by making plans to allow people to come back to the office and get our films and television shows up and running again under new protocols; third, defining the new normal by reimagining our businesses and how they'll operate going forward; and finally, identifying the opportunities that are emerging all around us. Everything in our plan is centered around our employees, our talent, and our production and distribution partners as we continue to navigate uncharted waters. The view is towards emerging from the current crisis even stronger than we were before. And in this process, we're guided by the same north star principles that have always guided us: being financially and strategically diversified, creating and owning iconic intellectual property with tremendous evergreen value, positioning ourselves where the puck is going not where it has already been, and reaping the benefits of our collaborative and entrepreneurial culture. Thank you all very much. And now, I'll turn things over to Jimmy.

Yeah, just from the way our employees work, I think we certainly have learned that we can operate in a more modern fashion using technology. I can tell you I've never been busier in my life. I'm too busy. I have about ten conference WebEx's. I have a one-star start every single day that's a crisis group that we have together, and then we communicate with the employees a little during the day. So just from the overall way we operate, looking at how much money we spend on travel, looking at the conferences we go to that we have to be there from an expense perspective. I can tell you we're pulling money out of our business constantly. We're up to over a million and a half dollars a month just run rate on things that we normally would have considered normal expense. In terms of all of our operations, our businesses are number one again in this environment and going forward. I'm super happy to be diversified. Diversified again financially is important from year to year. Sometimes one group outperforms, others might not. But at the end of the day, strategically, the way that our three core businesses operate together, the priority that Stars has for Lionsgate television, the ability to build our business on a global basis, to be able to provide our first-run movies to Stars Play International in the UK and India and some other territories we're looking at including the US, I think that diversification both financially and strategically will put us in a very, very good place. Clearly, having Stars turns out to have been a really smart investment that we made a couple years ago, and in this at-home environment, I think we're going to continue to build that business. It's doing exactly what we hoped it would do. Great partnerships we create every single day with partners that understand the value of it. So that's working out really well. In terms of television, it's going to be interesting. The buyers are all now looking a little different. If you look at NBC right now, I think you have to look at NBC and Peacock together. If you look at who you're looking at Hulu and I think ABC together. So TV is going to have to have some new kinds of deals, new calculus that makes sense for the buyers and for us as we look at the back end value of those businesses, whether we need to take more money up front and give up some of the backend. So I think pretty much every

Business is going to be a little bit different. I think certainly the experiment that we did, Joe and his team did a fantastic job pivoting. I still believe, I mean we were out in the marketplace for three or four days and all the theaters shut down, and we're going to pretty much get back to even on that and not make it a huge hole in our 2020 financials and the rollover in 2021 that we expected. So what we found obviously is there's an at-home audience for movies as well. We still believe entirely in the partnership with exhibition, but we do see that these models could potentially change, and hopefully we can find a smart way to do that with all of the various constituencies. And the last thing I would say is the one thing for sure that this whole thing proves is that library has incredible value, growing value. It's something we've talked about a lot. We call here a creep, which is every time we do an ultimate it goes up in value the next time we do the ultimate. And you've seen spectacular increases in the value of evergreen library content. I believe having so many distribution outlets, having so many, basically the audience is watching more and more content than ever before with a better technology that allows them to view it in a better way. I think overall we're pretty well positioned for this new world, but look, we're watching it every day and we're trying to adapt with it. Thanks for your thoughts.

Thank you. I know the next question will come from... Thank you.

Great. On production, I'm going to have Kevin and Joe start, and then Jeff can answer your second question.

All right, Kevin first, and then Jeff.

Sure. They're all kind of models that we look at. One of the things that this company prides itself on is being flexible and agile. We still believe that theatrical is a big driver of our business and are going to continue to play aggressively in that space. And yet, when we see opportunity for direct-to-home, and if there's an opportunity there, I don't think any company's done a better job of exploiting niches and opportunities with audiences, and we'll continue to do that. So it's certainly a possibility in the future.

So I think what you'll see... I think you may notice that we delivered a really strong large in this year, and that's a result of a lot of very strategic decisions that were made by a leadership team that is special and hitting on all cylinders. And that was driven a lot by data, data-driven decision-making. We brought data into the equation, and in addition to restructuring the organization and a content strategy that really identifies specific movies for audiences, it continually informed how we geared our spend and will continue to do so. We think that's part of the secret sauce.

Jay, so on the theatrical question, obviously as a result of the theater shutdown, our lineup or our slate pushed to the right. And so we will have less films this year, but also as a result of that, have less expenditure this year, and we'll book less expense. And so the impact on the year shouldn't be significant other than revenue will be down, but so will expense. And yet in our planning, as soon as this is over, we plan to gear up. And as I said before, we're still very bullish on the theatrical marketplace and just paying very close attention to how it's going to open up and the data that that gets us. As it relates to the windowing question, we're in contact with our exhibitors every single day. We believe in that business, and we're going to continue to make movies and participate in that business at the absolute highest level. And so nothing's changing there. As you talk about windowing for us, we're obviously going to at the same time, if other opportunities direct-to-consumer open up that could potentially be an extra leg of our business, that is a business that we traditionally looked at as a segment of business. We today are releasing 30 films a year out of that business. That may not be the noise you hear about, but a very consistent, very high margin, very low risk piece of our business that will continue to do great business. We had a record year this year, and we certainly see opportunity to grow it going forward, but not at the expense of our theatrical business or our exhibition partners.

What I would add one more thing, which is the fact that Lionsgate Television is so proactive and so prolific in the television business, applying at any one time 20, 30 shows, and that's not even including our Pilgrim shows, that we attract a tremendous amount of talent. And as Kevin has said over and over, his most important buyers, obviously Starz is a critical component of our company. The fact that he has such significant access to talent because we have so many buyers gives Starz the opportunity to see things early, a tremendous amount of things, and then buy the things that are right for their brand, right for their audience. That is an incredibly focused and curated brand.

Yeah, yeah, great question. You've kind of answered it because there are two criteria to that raise we've talked about before. One is clearly our emphasis on deleveraging, but the second is unlocking value. And any transaction that we do should do both of those things, and frankly should be with great partners, particularly if they can be strategic partners. We are having a lot of really interesting conversations. I would say COVID, in terms of actually completing any transaction, probably from a timing perspective does push things that we keep saying off to the right. But again, absolutely no urgency. We're throwing off cash, we're funding our own businesses, and we are continuing to look at a transaction or transactions that actually fulfill those three criteria. Thanks.