Lions Gate (LGF) Reports Q2 Loss, Starz Merger On Track

Lions Gate Entertainment Corp. (NYSE:LGF) posted second-quarter fiscal 2017 quarterly numbers, wherein it reported loss per share of 12 cents. In the year-ago quarter, the company had reported loss per share of 28 cents. On the other hand, the company’s adjusted net income in the reported quarter came in at 11 cents per share.

On the revenue front, Lions Gate witnessed a 34% year-over-year increase to $639.5 million, mainly due to a surge in Television Production and Motion Pictures revenues.

The company’s adjusted EBITDA came in at $2.6 million. In the prior-year quarter, the company had reported adjusted EBITDA loss of $8.1 million. Higher adjusted EBITDA came on account of increased profitability in the television group and a surge in revenues from Motion Pictures group.

The company’s filmed entertainment backlog was nearly $1.5 billion at the end of the fiscal second quarter.

Lions Gate to Acquire Starz

Earlier, Lions Gate Entertainment announced the acquisition of media and entertainment company Starz (NASDAQ:STRZA) . The cash and stock deal is valued at $4.4 billion or $32.73 per share. Board of Directors of both the companies has approved the deal. However, the deal is pending approval from shareholders of the companies as well as regulatory authorities.

Lions Gate Entertainment stated that in the upcoming quarter it is likely to report combined quarterly numbers. Management has made significant progress in planning the amalgamation of both the companies. This acquisition will help the company to generate robust free cash flow. Further, it will have more diversified income stream.

After the completion of the deal, the company anticipates more than $200 million in annual cash savings.

Segmental Performance

During the reported quarter, Motion Pictures’ revenues of $464.4 million jumped 31.2% year over year. The upside was attributable to more than a double rise in Theatrical revenues to $62 million, a 5% increase in Home Entertainment revenues to $160.7 million and a 16% gain in Television revenues to $69.3 million.

On the other hand, International revenues surged 56% to $168.3 million buoyed by the worldwide box office performance of Now You See Me 2. The movie has already collected above $350 million at the international box office.

Television Production revenues jumped 43% to $175.1 million, largely on the strength of domestic revenues that soared 76%. However, international television and home entertainment revenues declined in the quarter.

Financial Details

Lions Gate ended the second quarter with cash and cash equivalents of $106 million, film obligations and production loans of $512.7 million and shareholders’ equity of $857.1 million. The company generated free cash flow of negative $14.1 million. In the prior-year quarter, it had generated negative free cash flow of $11.7 million.

Lions Gate, which shares space with major studios like Twenty-First Century Fox, Inc. (NASDAQ:FOXA) , is a film studio engaged in the production and distribution of motion pictures for theater and straight-to-video release as well as television programming for cable and broadcast networks.

Zacks Rank & Other Stocks to Consider

Lions Gate currently carries a Zacks Rank #5 (Strong Sell). A better-ranked stock worth considering is Nexstar Broadcasting Group, Inc. (NASDAQ:NXST) , which has a long-term earnings growth rate of 6.5% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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