Starz (NASDAQ: STRZA, STRZB) today reported second quarter 2016
results.
Highlights include (1):
- Reached $4.4 billion cash and stock
deal to merge with Lions Gate
Financial Highlights:
- Reported consolidated revenue of $402.6
million; operating income of $105.4 million; fully diluted earnings
per share of $0.54 and Adjusted OIBDA (2) of $127.4 million
- Starz Networks reported revenue of
$343.1 million; operating income of $121.1 million and Adjusted
OIBDA of $132.1 million
Operating Highlights:
- Increased STARZ subscriptions by
200,000 since March 31, 2016 to a new high of 24.2 million;
combined STARZ and STARZ ENCORE subscriptions of 56.0 million
- Starz Digital licensed “The Girlfriend
Experience” to Amazon in the UK, Germany, Austria and Japan
- Launched STARZ app on Roku and Android
TV platforms
- STARZ PLAY Arabia officially launched
in Egypt and Saudi Arabia, now serving 19 Middle East/North Africa
countries
Programming Highlights:
- “Power” third season premiere episode
telecast set new record viewership for STARZ Original series (3);
renewed for seasons four and five
- “Outlander” concluded successful second
book; renewed series for books three and four
Chris Albrecht, Starz President and Chief Executive Officer,
added, “We performed very well in the second quarter, delivering
strong financial results at Starz Networks and establishing a new
record high of 24.2 million subscribers for STARZ. ‘Outlander’ and
‘The Girlfriend Experience’ grew viewership across multiple
platforms demonstrating that our original programming continues to
make Starz a ‘must-have’ service for consumers. We are thrilled
with the record-setting viewership for the third season premiere
episode telecast of “Power” and look forward to a strong third
season from the critically-acclaimed “Survivor’s Remorse.” The new
STARZ app is proving to be an enormous value proposition for
consumers, as people look for additional ways to access our
highly-rated, award-winning and diverse original programming and
vast library of movies. We were excited to announce the planned
merger with Lions Gate, which will enable the combined company to
capitalize on content opportunities across multiple platforms. As
we move forward, we are confident in the prospects for Starz and
believe that we can be even stronger in combination with Lions
Gate.”
Consolidated
Revenue decreased 4% to $402.6 million, operating income
decreased 5% to $105.4 million and Adjusted OIBDA increased 3% to
$127.4 million.
Starz Networks
Revenue increased 3% to $343.1 million as a result of rate
increases from various distributors partially offset by lower
average subscriptions. Operating income increased 9% to $121.1
million and Adjusted OIBDA increased 8% to $132.1 million due to
higher revenue and lower programming costs partially offset by
higher selling, general and administrative expenses, including
marketing costs associated with the launch of our new STARZ app and
increased litigation costs. Cash paid for investment in films and
television programs decreased $9.7 million to $61.5 million.
Starz Distribution
Revenue decreased 23% to $60.0 million, operating income
decreased $6.5 million to a loss of $5.4 million and Adjusted OIBDA
decreased $6.6 million to a loss of $4.6 million. These decreases
were primarily a result of fewer significant new release titles
from The Weinstein Company. Also contributing to the decrease in
operating income and Adjusted OIBDA was an increase in bad debt.
Cash paid for investment in films and television programs decreased
$50.9 million to $2.8 million due to timing of payments under our
distribution agreement with The Weinstein Company.
Eliminations/Other
Operating loss increased $9.5 million to $10.3 million due to
merger related costs.
Share Repurchases
From May 1, 2016 through June 30, 2016, 0.9 million
shares of common stock were purchased at an average cost per share
of $26.75 for total cash consideration of $23.7 million. Since
trading began on January 14, 2013, Starz has repurchased 29.8
million shares at an average cost per share of $28.29 for aggregate
cash consideration of $843.3 million. These repurchases represent
24.5% of the shares outstanding as of January 14, 2013. Starz
currently has $356.7 million remaining under its share repurchase
authorization. Under the merger agreement with Lions Gate, Starz is
prohibited from repurchasing its common stock. Accordingly, there
will be no repurchases of common stock through the closing of the
merger.
FOOTNOTES
(1) Starz’s President and CEO Chris
Albrecht and CFO Scott Macdonald will discuss these highlights and
other matters during the Starz earnings conference call, which will
begin at 5:00 p.m. (ET) on July 28, 2016. For information regarding
how to access the call, please see “Important Notice” later in this
document. (2) For a definition of Adjusted OIBDA and applicable
reconciliations see Non-GAAP Financial Measures and Reconciling
Schedule below. (3) Source: Nielsen NPower, July 17, 2017 9PM
airing of “Power’s” season premiere, Live +3 P2+ Projections (000s)
NOTES
- Unless otherwise noted, the foregoing
discussion compares financial information for the three months
ended June 30, 2016 to the same period in 2015.
SUPPLEMENTAL INFORMATION
As a supplement to Starz’s consolidated statements of
operations, included in its Form 10-Q, the following is a
presentation of quarterly financial information and operating
metrics for the periods indicated.
Please see the definition of Adjusted OIBDA below and a
discussion of why management believes the presentation of Adjusted
OIBDA provides useful information for investors. The Reconciling
Schedule below provides a reconciliation of Adjusted OIBDA to
operating income for the same periods, as determined under
GAAP.
QUARTERLY SUMMARY
(amounts in millions, except per share data)
2Q15 3Q15 4Q15 1Q16 2Q16
Starz Networks $ 333.3 $ 329.3 $ 327.8 $ 339.9
$ 343.1 Starz Distribution (1) 78.4 65.6 100.1 92.7 60.0
Starz Animation 6.5 9.3 1.5 - - Eliminations (0.5 )
(0.1 ) (1.8 ) (0.7 )
(0.5 ) Revenue $ 417.7 $ 404.1 $
427.6 $ 431.9 $ 402.6
Starz Networks $ 110.9 $ 101.6 $ 52.0 $ 105.3 $ 121.1 Starz
Distribution 1.1 0.9 5.0 9.7 (5.4 ) Starz Animation (0.7 ) (0.2 ) -
- - Eliminations/Other (0.8 ) (0.5 )
(2.1 ) (0.9 ) (10.3 ) Operating
income $ 110.5 $ 101.8 $ 54.9
$ 114.1 $ 105.4 Starz Networks $
122.2 $ 113.1 $ 63.6 $ 116.8 $ 132.1 Starz Distribution 2.0 1.8 5.9
10.6 (4.6 ) Starz Animation (0.7 ) (0.1 ) (0.1 ) - - Eliminations
(0.1 ) (0.1 ) (1.4 )
(0.3 ) (0.1 ) Adjusted OIBDA $ 123.4
$ 114.7 $ 68.0 $ 127.1
$ 127.4 Net income $ 63.0 $ 59.5 $ 27.9 $ 67.0
$ 54.4 Earnings per share (diluted) $ 0.59 $ 0.57 $ 0.26 $ 0.65 $
0.54 Starz Networks $ 71.2 $ 48.6 $ 57.9 $ 81.1 $ 61.5 Starz
Distribution 53.7 2.8
6.2 15.1 2.8
Total IFT (2) $ 124.9 $ 51.4 $
64.1 $ 96.2 $ 64.3
Subscription units - STARZ 23.5 23.3 23.6 24.0 24.2 Subscription
units - STARZ ENCORE 33.3 32.5
32.2 32.4
31.8 Total subscription units 56.8
55.8 55.8 56.4
56.0
(1) Includes the
following home video net sales $ 37.4 $
34.3 $ 56.8 $ 34.5 $ 16.0
(2) Cash paid for investment in films and television
programs
CASH AND DEBT
The following presentation is provided to separately identify
cash and debt information.
(amounts in millions)
6/30/15 9/30/15 12/31/15
3/31/16 6/30/16
Cash $ 20.3 $ 17.0 $ 10.7
$ 9.8 $ 12.9 Debt:
Revolving credit facility $ 506.0 $ 425.0 $ 308.0 $ 391.0 $ 352.0
5% senior notes 677.2 677.1 676.9 676.8 676.7 Debt issuance costs,
net (13.4 ) (12.6 ) (11.9 ) (11.1 ) (10.4 ) Transponder capital
lease 23.9 22.8 21.6 20.4 19.1 Building capital lease 43.5
43.3 43.2
43.0 42.9 Total debt $ 1,237.2
$ 1,155.6 $ 1,037.8 $
1,120.1 $ 1,080.3
NON-GAAP FINANCIAL MEASURES
This press release includes a presentation of Adjusted OIBDA,
which is a non-GAAP financial measure, together with a
reconciliation to operating income, as determined under GAAP. We
evaluate performance and make decisions about allocating resources
to our operating segments based on financial measures such as
Adjusted OIBDA. We define Adjusted OIBDA as revenue less
programming costs, production and acquisition costs, home video
cost of sales, operating expenses and selling, general and
administrative expenses, but excluding all stock compensation
expense. Our chief operating decision maker uses this measure of
performance in conjunction with other measures to evaluate our
operating segments’ performance and make decisions about allocating
resources among our operating segments. We believe that Adjusted
OIBDA is an important indicator of the operational strength and
performance of our operating segments, including each operating
segment’s ability to assist in servicing our debt and to fund
investments in films and television programs. In addition, this
measure allows management to view operating results and perform
analytical comparisons and benchmarking between operating segments
and identify strategies to improve performance.
This measure of performance excludes stock compensation, merger
related costs and depreciation and amortization that are included
in the measurement of operating income pursuant to GAAP. The
primary material limitations associated with the use of Adjusted
OIBDA as compared to GAAP results are (i) it may not be
comparable to similarly titled measures used by other companies in
our industry, and (ii) it excludes financial information that
some may consider important in evaluating our performance. We
compensate for these limitations by providing a reconciliation of
Adjusted OIBDA to GAAP results to enable investors to perform their
own analysis of our operating results. Accordingly, Adjusted OIBDA
should be considered in addition to, but not as a substitute for,
operating income, income before income taxes, net income, net cash
provided by (used in) operating activities and other measures of
financial performance prepared in accordance with GAAP. Please see
the Reconciling Schedule below for the applicable
reconciliation.
RECONCILING SCHEDULE
The following table provides a reconciliation of Adjusted OIBDA
for Starz Consolidated, Starz Networks, Starz Distribution and
Eliminations/Other to operating income calculated in accordance
with GAAP for the three months ended June 30, 2015, September 30,
2015, December 31, 2015, March 31, 2016 and June 30, 2016,
respectively.
Starz Consolidated
(amounts in
millions) 2Q15 3Q15 4Q15 1Q16
2Q16 Adjusted OIBDA $ 123.4 $ 114.7 $ 68.0
$ 127.1 $ 127.4 Stock compensation (8.1 ) (8.1 ) (8.4
) (8.3 ) (7.3 ) Merger related costs - - - - (9.5 ) Depreciation
and amortization (4.8 ) (4.8 )
(4.7 ) (4.7 ) (5.2 ) Operating income $
110.5 $ 101.8 $ 54.9 $
114.1 $ 105.4
Starz Networks
(amounts in millions)
2Q15 3Q15 4Q15 1Q16 2Q16 Adjusted OIBDA
$ 122.2 $ 113.1 $ 63.6 $ 116.8 $ 132.1 Stock compensation (7.3 )
(7.4 ) (7.6 ) (7.5 ) (6.6 ) Depreciation and amortization
(4.0 ) (4.1 ) (4.0 ) (4.0
) (4.4 ) Operating income $ 110.9 $
101.6 $ 52.0 $ 105.3 $
121.1
Starz
Distribution
(amounts in millions) 2Q15 3Q15
4Q15 1Q16 2Q16 Adjusted OIBDA $ 2.0 $ 1.8 $
5.9 $ 10.6 $ (4.6 ) Stock compensation (0.5 ) (0.5 ) (0.6 ) (0.6 )
(0.5 ) Depreciation and amortization (0.4 )
(0.4 ) (0.3 ) (0.3 ) (0.3
) Operating income (loss) $ 1.1 $ 0.9 $
5.0 $ 9.7 $ (5.4 )
Eliminations/Other
(amounts in
millions) 2Q15 3Q15 4Q15 1Q16 2Q16
Adjusted OIBDA $ (0.1 ) $ (0.1 ) $ (1.4 ) $ (0.3 ) $ (0.1 ) Stock
compensation (0.2 ) (0.1 ) (0.2 ) (0.2 ) (0.2 ) Merger related
costs - - - - (9.5 ) Depreciation and amortization (0.5 )
(0.3 ) (0.5 ) (0.4 )
(0.5 ) Operating loss $ (0.8 ) $ (0.5 )
$ (2.1 ) $ (0.9 ) $ (10.3 )
StarzConsolidated Balance
Sheets(Amounts in millions, except share and per share
amounts)(Unaudited)
June 30,2016 December 31,2015 Assets Current assets: Cash
and cash equivalents $ 12.9 $ 10.7 Trade accounts receivable, net
of allowances of $18.4 and $35.2 289.8 252.9 Program rights, net
375.6 316.1 Other current assets 60.5 90.1 Total
current assets 738.8 669.8 Program rights 326.1 335.9 Investment in
films and television programs, net 223.2 215.6 Property and
equipment, net of accumulated depreciation of $142.3 and $134.5
87.8 89.2 Deferred income taxes 21.5 21.2 Goodwill 131.8 131.8
Other assets, net 111.3 100.7 Total assets $ 1,640.5
$ 1,564.2 Liabilities and Equity Current
liabilities: Current portion of debt $ 5.8 $ 5.6 Trade accounts
payable 5.5 8.0 Accrued liabilities 272.8 267.7 Deferred revenue
12.2 10.3 Total current liabilities 296.3 291.6 Debt
1,074.5 1,032.2 Other liabilities 34.1 22.7 Total
liabilities 1,404.9 1,346.5 Stockholders’
equity: Preferred stock, $.01 par value. Authorized 50,000,000
shares; no shares issued — —
Series A common stock, $.01 par value.
Authorized 2,000,000,000 shares; issued and outstanding
87,217,109and 91,468,763 shares at June 30, 2016 and December 31,
2015, respectively
0.9 0.9
Series B common stock, $.01 par value.
Authorized 75,000,000 shares; issued and outstanding 9,858,316
and9,861,294 shares at June 30, 2016 and December 31, 2015,
respectively
0.1 0.1 Additional paid-in capital — — Accumulated other
comprehensive loss, net of taxes (2.5 ) (1.5 ) Retained earnings
237.1 218.2
Total equity
235.6 217.7 Commitments and contingencies Total
liabilities and equity $ 1,640.5 $ 1,564.2
StarzConsolidated Statements of
Operations(Amounts in millions, except per share
amounts)(Unaudited)
Three Months Ended June 30, Six Months Ended June 30, 2016
2015 2016 2015 Revenue: Programming networks and
other services $ 386.6 $ 380.3 $ 784.0 $ 796.1 Home video net sales
16.0 37.4 50.5 72.3 Total revenue 402.6
417.7 834.5 868.4 Costs and expenses: Programming (including
amortization) 148.1 154.5 298.8 300.5 Production and acquisition
(including amortization) 43.2 50.0 101.3 106.6 Home video cost of
sales 5.1 10.0 12.5 20.4 Operating 7.1 12.4 13.1 25.7 Selling,
general and administrative 79.0 75.5 169.9 152.7 Merger related 9.5
— 9.5 — Depreciation and amortization 5.2 4.8 9.9
9.5 Total costs and expenses 297.2 307.2
615.0 615.4 Operating income 105.4
110.5 219.5 253.0 Other expense: Interest expense, net of
amounts capitalized (11.5 ) (11.3 ) (23.4 ) (22.5 ) Other expense,
net (6.7 ) (2.1 ) (6.3 ) (4.3 ) Income before income taxes 87.2
97.1 189.8 226.2 Income tax expense (32.8 ) (34.1 ) (68.4 )
(77.1 ) Net income 54.4 63.0 121.4 149.1 Net loss
(income) attributable to noncontrolling interest — 0.4
— (1.1 ) Net income attributable to
stockholders $ 54.4 $ 63.4 $ 121.4 $ 148.0
Basic net income per common share $ 0.56 $
0.63 $ 1.24 $ 1.46 Diluted net income per
common share $ 0.54 $ 0.59 $ 1.20 $ 1.39
Weighted average number of common shares outstanding: Basic
96.9 101.4 98.0 101.3 Diluted 100.0
106.9 101.4 106.6
StarzConsolidated Statements of
Cash Flows(Amounts in millions)(Unaudited)
Six Months Ended June 30, 2016 2015 Operating
activities: Net income $ 121.4 $ 149.1 Adjustments to reconcile net
income to net cash provided by (used in) operating activities:
Depreciation and amortization 9.9 9.5 Amortization of program
rights 275.4 281.1 Program rights payments (217.2 ) (253.5 )
Amortization of investment in films and television programs 74.2
80.1 Investment in films and television programs (160.5 ) (233.6 )
Stock compensation 15.6 16.4 Deferred income taxes (0.3 ) (10.2 )
Other non-operating and non-cash items (5.8 ) (7.2 ) Changes in
assets and liabilities: Current and other assets 0.9 (23.3 )
Payables and other liabilities (12.6 ) (34.4 ) Net cash provided by
(used in) operating activities 101.0 (26.0 )
Investing activities: Purchases of property and equipment (7.8 )
(5.8 ) Investment in and advances to equity investee (13.5 ) —
Net cash used in investing activities (21.3 ) (5.8 )
Financing activities: Borrowings of debt 260.0 734.0 Payments of
debt (218.7 ) (662.6 ) Debt issuance costs — (5.0 ) Repurchases of
common stock (120.7 ) (32.8 ) Exercise of stock options 2.3 7.7
Minimum withholding of taxes related to stock compensation (1.7 )
(15.3 ) Excess tax benefit from stock compensation 1.3 12.7
Net cash provided by (used in) financing activities (77.5 )
38.7 Net increase in cash and cash equivalents 2.2
6.9 Cash and cash equivalents: Beginning of period 10.7 13.4
End of period $ 12.9 $ 20.3
IMPORTANT NOTICE
- Starz (NASDAQ: STRZA, STRZB) President
and CEO Chris Albrecht and CFO Scott Macdonald, will discuss
Starz’s financial performance, and may discuss future opportunities
in a conference call which will begin at 5:00 p.m. (ET) on July 28,
2016. Participants in the United States/Canada may join the event
by calling ReadyTalk at (877) 395-6218 and other international
participants may dial (281) 973-6124 with the passcode 24769619 at
least 10 minutes prior to the call. Replays of the conference call
can be accessed through August 28, 2016 at 8:00 PM ET, by dialing
(855) 859-2056 or (404) 537-3406 plus the passcode 24769619. The
call will also be broadcast live via the Internet and archived on
our website. To access the webcast go to
http://ir.starz.com/events.cfm. Links to this press release will
also be available on the Starz website.
- This press release includes certain
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements
about the proposed transaction with Lions Gate, statements about
the anticipated synergies and benefits of the proposed transaction,
business strategies, market potential, future financial prospects,
new service and product launches including original content
programming, new packaging and new distribution platforms for our
programming, subscriber growth, international distribution
opportunities, the suspension of our stock repurchase plan and
other matters that are not historical fact. These forward-looking
statements involve many risks and uncertainties that could cause
actual results to differ materially from those expressed or implied
by such statements, including, without limitation, market
acceptance of new products or services, the timely launch of our
original programming, ongoing relationships with our distributors,
competitive issues, regulatory matters affecting our businesses,
continued access to capital on terms acceptable to Starz, changes
in law, and the ability to enter into transactions for
international expansion, and satisfaction of conditions to the
proposed transaction with Lions Gate. These forward-looking
statements speak only as of the date of this press release, and
Starz expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking
statement contained herein to reflect any change in Starz’s
expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
Please refer to the publicly filed documents of Starz, including
the most recent Forms 10-K and 10-Q, for additional information
about Starz and about the risks and uncertainties related to
Starz’s business which may affect the statements made in this press
release.
Additional Information
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval. In connection with the proposed transaction,
a Registration Statement on Form S-4 that includes a Joint Proxy
Statement of Lions Gate and Starz and a Prospectus of Lions Gate is
being filed with the SEC, as well as other relevant documents
concerning the proposed transaction. The proposed transaction
involving Lions Gate and Starz will be submitted to Starz’s
stockholders and Lions Gate’s stockholders for their consideration.
Stockholders of Lions Gate and stockholders of Starz are urged to
read the registration statement and the joint proxy
statement/prospectus regarding the transaction (a preliminary
filing of which has been made with the SEC) and any other relevant
documents filed with the SEC, as well as any amendments or
supplements to those documents, because they will contain important
information. Stockholders will be able to obtain a free copy of the
definitive joint proxy statement/prospectus, as well as other
filings containing information about Lions Gate and Starz, without
charge, at the SEC’s website (http://www.sec.gov). Copies of the
joint proxy statement/prospectus and the filings with the SEC that
will be incorporated by reference in the joint proxy
statement/prospectus can also be obtained, without charge, by
directing a request to James Marsh, Senior Vice President of Lions
Gate Investor Relations, 2700 Colorado Avenue, Santa Monica,
California, 90404, or at (310) 255-3651, or to Starz, 8900 Liberty
Circle, Englewood, Colorado 80112, or at (855) 807-2929.
Participants in the Solicitation
Lions Gate, Starz and certain of their respective directors,
executive officers, and employees may be deemed to be participants
in the solicitation of proxies in respect of the proposed
transaction. Information regarding Lions Gate’s directors and
executive officers is available in its definitive proxy statement,
which was filed with the SEC on July 29, 2015, and certain of its
Current Reports on Form 8-K. Information regarding Starz’s
directors and executive officers is available in its definitive
proxy statement, which was filed with SEC on April 29, 2016, and
certain of its Current Reports on Form 8-K. For other information
regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security
holdings or otherwise, see the joint proxy
statement/prospectus.
Free copies of this document may be obtained as described in the
preceding paragraph.
About Starz
Starz (NASDAQ: STRZA, STRZB) is a leading integrated global
media and entertainment company with operating units that provide
premium subscription video programming on domestic U.S. pay
television networks (Starz Networks) and global content
distribution (Starz Distribution), www.starz.com. The Starz
Networks operating unit is home to the flagship STARZ® brand with
24.2 million subscribers in the United States as of June 30, 2016,
with the STARZ ENCORESM network at 31.8 million subscribers.
Through STARZ, the company provides high quality, entertaining
premium subscription video programming with 17 premium pay TV
channels and associated on-demand and online services. STARZ is
sold through U.S. multichannel video distributors, including cable
operators, satellite television providers, telecommunications
companies, and other online and digital platforms. Starz offers
subscribers more than 5,000 distinct premium television episodes
and feature films every year and up to 1,500 every month, including
STARZ Original series, first-run movies and other popular movie and
television programming. The Starz Distribution operating unit is
home to the Anchor Bay Entertainment, Starz Digital, and Starz
Worldwide Distribution divisions. In addition to STARZ Original
series, Starz Distribution develops, produces and acquires movies,
television and other entertainment content for worldwide home
video, digital, and television licensing and sales.
View source
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StarzCourtnee Chun, 720-875-5420Investor
Relationscourtnee.chun@starz.comorTheano Apostolou,
424-204-4052Corporate Communicationstheano@starz.com
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