Okay, great. I am Doug Creutz, Senior Media and Entertainment Analyst here at TD Cowan. As a PSA, I'm sure you've seen there are vote TD Cowan and Extel, and I would really appreciate your vote in the media sector. With that, I'm very pleased to have with us here today Jimmy Barge, CFO of Lionsgate.

Welcome. Great to be back, Doug. Appreciate it.

Yeah. So let's just start by talking a little bit about the overall health theatrical window. It's been a pretty good year so far, in part thanks to one of your films. But, you know, we've been still kind of stuck well below pre-COVID levels now for several years. And the market, I would say, continues to seem very barbell-shaped. I would say the top 20, 25 movies every year are still doing as well as they did pre-COVID. But down the market, it's been a little bit tougher. So can you talk about, you know, you're a studio that tends not to make a lot of expensive movies. How do you compete and prosper in the current theatrical environment?

Yeah, well, look, we are glad to see the market coming back for the right films and the right entertainment. So I think we're up in mid-teens year to date. And we're certainly proud to be playing our part of that. So I think, you know, again, the right genre, bringing people back to the theater. I mean, you look at Housemaids, I mean, it just killed it, no pun intended. You know, it's a $55 million film that did $400 million in global box office. It was based off of books and three, by the way, three books. So at least three films, right? We've already greenlit the second one. So it's a new franchise. And, you know, it predominantly played to women audience. And this was before Devil Wears Prada 2. Uh, which by the way, Michael beat out and then displaced again as the number one, but you know, that did great. You knew that was going to play, but it was also nice for a housemate, right? Prior to that and around the holiday season and just did fantastic. So look, I think our models, you know, eight to 12 wide releases, we're just as happy with eight as 12. It depends on what's in the development pipeline and what's ready. And you know, there'll be two or three tent poles in that. And then the rest is going to have a specific audience we're targeting, specific genres. We do a lot of horror, faith-based, action. And as you know, we have a de-risk model and pre-license internationally. So that's our bread and butter. So I think, you know, we fare pretty well in a market like this. And we're very happy to be, you know, part of bringing the market back.

You mentioned both Housemaid and Michael, which have been two of your biggest hits in a while. and obviously both films that didn't necessarily hit the they weren't necessarily the action market or the kids market it was sort of hitting some areas of the market that maybe have been underserved for a while can you talk about obviously there's the box office but then I know there's benefits for you from a hit film like that for several years can you talk about how that impacts the earnings power of the company both for those films themselves and then as you said potential for follow-ups down the road.

Yeah, and look, kudos to Adam Fogelson and his team, Aaron Wasserman, Manna Kozlowski, seeing these properties come through and realizing that something like Housemade can come from largely unknown to something so significantly popular. And then the same thing with Michael, having a conviction to serve the fan base right, and deliver the right kind of movie. So it drives earnings power significantly, and you can see it. I mean, Housemaid was the number one pay-one movie ever on Starz, okay? It was also the number one highest ever PVOD title for any film that was $150 million or less of domestic box office. It did 126, okay, 400 worldwide. So, you know, those downstream windows, and then there's a split pay one window, right? The first window was Q4 that goes to stars. There's a second window coming to HBO, okay? And then Michael, same thing. I mean, you see the success of that. You know that, first of all, it's still holding incredibly well. I think it was down 29%, like on the fifth weekend down, that's not counting the Memorial Day weekend, so that's really three days against three days. So really going to play right on into the summer in a huge ancillary. That's a pay one split window as well. Stars first, it'll, no pun intended, it'll kill it on stars. And you've got a split window there and a split window there. We start our new pay one split deal, as you probably know with Amazon, starting with calendar year 26, which is why we're making the shift, if you will, in that pay one window. So really nice. And look, we'll have sequels on both of those. We've not announced a date on Michael 2, so I'm not here to announce a date, but there's going to be one. Okay, and Housemade 2 is already moving into production later this year, and the date is December 17th so mark your calendar how did you how did you get the rights to Michael you know you would think that maybe Sony who distributes his music would have been all over putting out a biopic about you know one of their biggest stars and yeah you wound up with it well look I'm not going to trash talk competitor and we love Sony and our partners in the industry but look I'll go back to our our conviction of our team and uh the competitiveness and and John and as our CEO and supporting, I think we've always been, you know, very astute and scrappy when it comes to projects. So look at John Wick. I mean, John Wick didn't have distribution, came to us. We said, we can make that happen. We can make it happen fast. We can get that in the summer where the window, and there wasn't a lot of time to do that. And there we born the John Wick franchise, Hunger Games. I mean, famously that was passed by everybody who can take this kids killing kids in a game. Look at the Long Walk, R.L. Stein property. Nobody else, if we could possibly do this, Adam Fogelson and his team, they did it and it was very successful. So I think that you look at Michael, a lot of people pass on it by just some of the things that the critics were pointing to and we said we can make this happen. It's going to be entertaining. We're going to entertain the fans, and here's what we're going to do. And, you know, it wasn't critically acclaimed, but the fan base spoke. And we're in the entertainment business, and that's what we do. We entertain.

With a potential second Michael film, will you have a chance to have a new set of international distribution deals with that film?

Well, Universal is our partner on the first film, and I would like to think they're going to be our partner on the second film, But I would just say there's huge demand for that property and interest in that property. So we'll let that play out. I'm looking forward to it, though.

I know one of the really important parts of the business is the library, obviously. Can you talk about the revenue and the cash flow generation of the library, how important that is to the sustainability of the overall business? And can you talk about having a healthy slate of new content supports the health of the library?

Well, look, always replenishing your library is, you know, great. And that's what we're in. Like I have to say, you know, John and Michael started this business 20 years ago focused on content. You've heard the story, right? Let's don't bet on the technology. That's going to change the delivery capability. Let's entertain, let's build content, and let's retain those rights. And that's what we've been doing for 20 years. So you don't end up with a library like this unless you've been at it a long time. It's a scarce asset. It's irreplaceable. Okay, one of a kind. It's fresh. 85% of our titles are produced from 2000 on and current. So it's a fresh library. It is being replenished. If you look at it, we're getting a significant portion of our revenues are coming from titles that are outside the top 50 titles, okay? So it's very deep, and so it's a consistent theme and contributor, right? We've had three quarters now at a billion dollars, okay? We've been setting records on trailing 12 months. is about 50% plus cash margins, you know, so very incredibly valuable asset. And every time you have another John Wick or a spinoff or another Hunger Games, it just refreshes all the other titles. So while most people are looking at the profitability on a title by title, and we look at it that way too, it's also the tide that raises all ships.

And so it refreshes your library and it brings it back there's been some interesting developments in the theatrical window Amazon has become much more active, I think they have 11 films this year, previously they had 2, 3 or 4 year Paramount is talking about going to a 30 year film slate if the Warner merger is approved, which is a lot of movies and I always think it's one thing to have the capital to make 30 films, it's another thing to have 30 good ideas right right um does that does that level of extra industry output or potential industry output does that concern you at all do you do you feel like that's a that makes it harder to stand

out in the theatrical window or or do you feel like you're doing your own thing and you'll be okay no i think we have our own model we're doing our own thing uh and i think the more strong films you have out there and bringing the audience back right getting back to those pre-covid levels okay uh is you know because you're running trailers so you you going to the theaters a bit habitual okay there's people who haven't gone since covid okay but then there's people who are back and then all of a sudden they see the trailer and they say well i want to go see this and i want to go see that and all of a sudden you're back a little in the habit of going out to the theater and still a great form of entertainment and great night out. Not that expensive relative to live events and so I think we're very good there and I think the more that you can draw people back into the theater is going to serve us very well and again we're going to stick to our focus model on certain genres and then tent poles that have some known IP with a marketing hook, the right director, the right cast. This is exactly what Adam would say. That's what we're looking for, and we really aren't competing head-to-head with $250 million tentpole films. It doesn't mean we don't have tentpole films, but we're not competing head-to-head with those, so I think we're in a good position.

I think people may not be aware of this, but before COVID, your theatrical margins tend to be in the 10% range. Since COVID, they've been closer to 20, which is a pretty big inflection. Can you talk about what's driven that margin expansion and the sustainability of it and where you think things can go in the future?

Well, look, I think the pre-COVID era was maybe a little lower margin than I would typically anticipate. I think 2018, 20% margins is more kind of traditional and what's very achievable. But I will say the downstream windows have become even more profitable. And at that point, you've recouped all your P&A, so you're into the higher margin. Certainly our library, we talked about high margins in our library and replenishment of libraries was deeper and deeper and deeper, which helps our, obviously, about 70% of our titles, our revenue is coming through motion picture. sure, the other 33% or so going through TV, but, you know, those high margins help as well. The longer you've built that, then the more your margin's going to naturally rise as that mix changes, but I'll also say, you know, Peabod, you know, the same person who hasn't been back to the theater, okay, since COVID, all right, they're paying $20 to rent it and watch it, you know, prior to pay one you know right after the theatrical and so that's a great that's a great window for us that's very very high margin so I think those downstream windows have gotten better and better and we've seen the let's just say not only as you referenced earlier Amazon's focus on some theatrical releases that's a validation of the importance of theatrical releases in general but also the zeitgeist of the broader P&A value which spills over in the library. And they bid very aggressively with us. And we're very happy to have a pay one split window with Amazon. So I think, again, that's another example of improved margins and visibility in that downstream market, which we didn't necessarily have pre-COVID.

Has AVOD been an important factor too, especially with maybe some of the deep library titles?

It has been absolutely in library. And we could talk forever about library because there's so many good things happening there including using AI and actually mining our deeper catalog with with self-directed channels that where we're taking ad share not just your traditional avod channels which obviously have grown significantly but even our self-directed channels where we take a cut of the advertising or cut of the subscription fees and a lot of this is being done with deep catalog that that might not otherwise have found a place or licensed on its own. But when you can monetize it that way on effectively most of it free advertising-based channels, take a piece, some of it can be very lower cost, you know, SVOD-branded channels, okay, and take a piece of that, it doesn't cannibalize your licensing, your traditional licensing. And so that's becoming also a major margin improvement in library in general, which then goes back to both TV and motion picture depending upon the product you're licensing I want to talk about the film slate going forward for the next couple years what are you most excited about and where do you think there might be some more franchise opportunities wow that's a tough one because there's a lot to be excited about just laying out the sequels that we've already talked about Housemaid super excited by the way my wife's read all three books she says the second one is the best one. There's a lot of twists and turns coming. Have you seen the first movie? It had a lot of twists and turns. There's definitely some big twists and turns coming in the future films in that series. Of course, Michael, super anticipated. Resurrection, part one and two. I mean, this is a sequel to Mel Gibson's Passion of the Christ, which did $370 million domestic box office, $600 and something million worldwide global 24 years ago. So as Adam would say, yeah, this is, you know what, and I bet a lot of people will be catching up on Passion of Christ too before Resurrection comes out, and you've got two parts. So that's in our fiscal 28 and fiscal 29. I mean, when you look at that visibility. More near term, we have Rambo coming up, super excited about that. We have, you know, rebooting the Saw franchise, as well as we've got Blair Witch working with Blumhouse and James Wan on that. So really, you know, a lot of things to look forward to. We've got Power Ballad coming out, narrow release this weekend and broader release the weekend after. So that's got Nick Jonas and Paul Rudd screening great. So very excited about that. So, yeah, it's hard to say. You love it when you have these films that maybe aren't as big a tentpole, but then can then find your way to break out. So that's all exciting.

Are we going to see John Wick again?

Oh, yes. Well, definitely excited about that. Kane is a spinoff. Donnie Yen, who plays the blind Asian assassin, is both directing and starring. So super excited about that. And look, in development with Chad Stahelski, the director of the John Wicks, as well as the Ken O'Reeves, are working on Chapter 5. That's in development. So excited about that. And believe it or not, there's an animated prequel for TV that's being worked on. And then we have the, hey, if you're in Las Vegas, go see the John Wick experience. That's doing nice. And then we've got a video game, AAA video game in development. So, yeah.

That's exciting. Let's talk about TV for a bit. So you had, in fiscal 26, you sold fewer episodes, new episodes, than you normally do. Can you talk about what drove that and how that potentially impacts downstream revenue for television?

Well, look, we have, I would say, 26 was a reset year across the board, even on the film side, rebuilding the pipeline both in TV and motion picture, but particularly in TV, right? You know, coming out of, there were some self-inflicted wounds, I mean, as an industry, right, all of us. in the context of the strikes and rebuilding and bouncing. It took longer to bounce back. You had a lot of consolidation happening in the industry, so there was a lot of uncertainty with some of the streaming buyers, right, and particularly as they shifted from market share to profitability, which is a smart move, okay? But, you know, there was that uncertainty in budgets, and so we're starting to see that come back. A lot of that has resolved itself, and we're seeing more than just green shoots. And that's why we had 12 of our 13 scripted series renewed. That's just a huge, you know, percentage. And the 13th, by the way, may well happen. So that's not out of the cards to have perfect batting score on renewals. And that's scripted series. So that's where your money is and you go into these sophomore seasons, et cetera, you know, helps drive your margins, helps drive that value, replenishes libraries, season one becomes worth more. So, you know, TV feels really good coming back. And we said we'd double the episodic deliveries. I commented on our earnings call that 90% of those deliver in Q2, 3, and 4. So, you know, it's just coming out and moving upward in the right direction and really feels Kevin and his team have done a fantastic job with that development pipeline. And again, it took a while because the industry is going through this. We're not the only one experiencing that in fiscal 25 and fiscal 26. So it's good to see it coming back strong with a lot more buyers and a lot higher demand.

If Warner and Paramount do merge, do you think that affects both on the demand side for your shows, but then also on the supply side? If they're big television producers, does that create opportunities?

I think it does create opportunities. I think it's a net positive. First of all, there's some uncertainty that is kind of all of a sudden budgets free up. Everybody knows their objectives. is, you know, look, Skydance isn't moving into this with Paramount and Acquire Warner to do anything other than grow. And if you talk about the investment cycle to make that happen, and generally people have the walled garden doesn't work 100%, right? You need to fill that pipeline. And we're that agnostic arms dealer, so to speak, in the content world. And so I think it just opens up, one, I think there'll be a better buyer. And then secondly, you've got everybody else who has to compete with that. And obviously, they're competing with Netflix and ABC, Hulu, and everybody else. So it's viewership, and I think that competition is just excellent for a pure play content company like us, who not only on the film side we talked a lot about, but particularly on the TV, right, with scripted series, the ability to do cost plus, the ability to take back end and play the long-term rights, and the ability to develop, you know, whether it be $10 million an episode or whether it be a million dollars an episode, but, you know, be able to provide that right programming. Kevin and his team do it day in and day out. They're the best.

If we look at the TV segment, the margins have historically been around 10% plus or minus, depending on what the mix is of new content versus sales of older content, which tend to be much higher margin. Is earnings growth in the TV segment just a function of revenue growth and episode delivery, or are there opportunities to expand margins there in other ways? I think it's more the mix, right?

Because you get into that, you know, you'll produce a first-year show. You may be doing, like, broadcast. We don't usually do that without a partner. But that's deficit financing. So you're going to lose a little bit of money the first year. With a partner and the right partner, you've got a really strong chance, but not guaranteed for season two and three renewals right where you start to okay or but at any time season one is just less profitable than the subsequent series and you get into season seven then it can turn around a little bit right you get back some of that margin because it gets too expensive I mean that's why friends didn't go on and on and on one the cast decides they want to do more and secondly they want more and they deserve more and and can the network pay for it or not up to a certain point you can so economics take in effect. But I think it's that mix and getting, and that's what I really love about the 12 or 13, okay, by definition, they're all sophomores or deeper. Like, well, Rookie is in season nine, okay, which is fantastic. And we acquired that and picked it up through E1, and it was like in season five then. So, you know, that's been great, a procedural. There's no reason to think Hunting Wives and the studio don't go on and on and on. So, we're excited about that. We got Robin Hood picked up for season two on MGM Plus. We've got Rainmaker on USA. They've gotten back into the scripted game. So those are some of those kind of green shoots. And I think those things, as they go deeper, and more importantly, as they work, it's not just about working for Lionsgate. It's about working for the platform. And that's what I think the team's really great at doing, because we're in this together. And when you see something working the way Robinhood worked, the way Rainmaker work the way rookies working you know then you build that relationship with your suppliers and your platforms that go much further and and serves everybody well um so that's our model you've been separated from stars for a year but obviously that's a really important partnership what is it already a year it's been a year it is a great partnership love jeff and the team over there scott mcdonald and ally and uh it's a great team and i think look i think strategically the Separation has been good for STARS and good for Landsgate as a pure play standalone content company, but also the opportunity it unlocks for STARS. And you can see the stock prices on both companies and shareholders have been rewarded for that. And so we're glad that's worked very well. But, yeah, they're a very important buyer. The Powerverse, we've got Origins out there, which is great, renewed for 18 episodes. So that's a big order. And there's a lot more of the Powerverse stories to be told. So stay tuned. There's a lot to happen there. And, no, they're great partners. And, you know, they're managing their way through very successfully in their first year as a standalone public company. So it's exciting to see.

I get, you know, questions from investors about leverage. So maybe you talk a little bit about your current leverage situation, what the path is going forward, and maybe talk a little bit about three arts and how that might or might not fit into that.

Down, down, down leverage. We're delevering. So look, we said on earlier earnings calls this year, when you looked at the shape of our earnings and performance in fiscal 26, that the third quarter would be the peak. And so we naturally delevered. We're 6.1. We want to be lower levered than that, and it'll just happen. So a lot of it's just math, right? We got more visibility than ever into the pipeline, okay, and where we're going and significant growth going into 27 and 28, okay, and kind of really stack the deck with regards to visibility in our pipeline, TV and motion picture, okay? So when you look at that, you know, what I've said on our earnings calls, I'd look to be four, four and a half times leveraged. So call it mid-fours, mid to low four, by mid-fiscal 27. So that's our September or December quarter. Okay, so we're just naturally delevering this in the trailing 12 months, right, is the powerful and the free cash flow generation of going from an investment year into a cash producing year. And you can just see, you can see it in Q4. I mean, you can see those revenues turning into cash and coming in the door, okay, which is why we delevered in the fourth quarter by more than a full turn, okay. Don't expect that next quarter. but you know that's the the earnings power and capability and the cash flow generation power once you've replenished the pipeline and you start to get that visibility so it's that visibility that I'm talking about when I say hey we're talking about low to mid fours and then I think we get into fiscal 28 you know it's more three three and a half times okay and then we can stop talking about leverage maybe but which is okay I don't mind talking about it and actually I'm glad you asked, because I think it's appropriate to explain, because I think when people understand the dynamics, they feel a lot more comfortable, not to say we're real comfortable, I am, but still, we want to move that down, and that will happen. Three Arts, look, we're in a position of power, we're delivering with or without a Three Arts, it's always been about what's right for the Three Arts business, we love the business, we love our partners, we both all want to grow that and diversify that, we did it, we We moved in and had some niche acquisitions in sports and in news. So some nice, smaller acquisitions. The Three Arts, if you don't know, it's a preeminent talent management company, bar none. And we own 76%. There's a put for the other 24%. And so if that's put to us, we're fine with that. That's $185 million. It's in our SEC documents. You can see it. That's about a half turn. Okay, fine. We're at four, four and a half times, and we bump back to four and a half and five times in Q4. That's fine. We'll just naturally deliver from there because, again, it's that trailing 12 months earnings coming through in addition to the positive cash flow. So, again, a lot of visibility to kind of stay the course, do the right thing for the business.

Because I get this question from people, too. Can you talk a little bit about why film financing is different from, you know, bank debt, bonds? Great question.

You know what? This is working capital management. And so it's interesting. You know, in our business, right, we're famous for cash out up front. And, you know, you recoup forever and, you know, cash long tails to it. But we're in 12 to 18-month production cycles of cash out before even a theatrical release or episodic deliveries, which is generally when the cash starts to come in. So bridging that gap with a production loan is just ideal. Keep your revolver dry. It's really working capital management. You're lining up the cash flows. And to keep in mind, you've got an asset. By definition, we're profitable. We're always profitable. Well, that doesn't mean every project's profitable, but on a portfolio basis, we're profitable, nicely profitable, okay? So by definition, those assets being produced are worth a lot more than you spend on them, and what you spend on them is really the production cost, okay? So by definition, on your balance sheet, you've got an obligation that will be repaid. I don't think of it as debt because it's not a reduction of enterprise value, okay? This is the kind of thing you should always do and manage your working capital. When I was at VICOM, prior to that I was a senior executive at Time Warner, you know, if your investment grade rating, your A1P to borrow in commercial paper at 25 basis points, maybe you don't have to manage your working capital as tightly. Doesn't mean it's not smart. Anybody ever been in school and they suggest that managing working capital wasn't a good idea? you know but you know when you're not investment grade okay and with our capital structure managing working capital is more important than ever and so you see see us do that and I think we're very good at it and that's something that's sustainable and continuous and I think's best practice and the way that you manage risk around your films I think it plays a part of that too well exactly you know what if you look at it we don't green light any tv project until we already have what I call our anchor tenant. All right, somebody's already contracted to pay 80 percent plus, maybe it's even 100 percent plus, okay, and we don't start production until then. We may start, and we do start, writer's rooms and development, but that's small dollars, okay, and then on the television side, you have the film side, you have the pay one windows. Again, we have the pre-licensing international, so, and you got tax credits on both film and TV, so you have a lot of visibility in those cash flows in the context of not putting anything at risk.

Okay.

Well, we're out of time.

Thank you so much.

Well, thank you very much. Appreciate it. Thanks, everybody.