Lionsgate Studios Corp. (LION) Earnings

Management highlights

### Pure Play Content & IP Strategy - The company's pure play content strategy is delivering strong results, with the balance sheet strengthening faster than anticipated, franchise-driven IP growing in value, and library monetization remaining a core competitive advantage - Management is increasing strategic optionality amid growing market demand for scaled content assets ### Motion Picture Operations - Two new marquee properties (*Michael* and *The Housemaid*) were launched in the first four months of the calendar year, pushing domestic box office market share above 10% in H1 - Over a dozen branded, repeatable franchise properties are scheduled for release over the next three years; four have wrapped production, including *The Hunger Games: Sunrise on the Reaping*, *Resurrection of the Christ*, *John Rambo*, and *Kane* - Production is scheduled to begin on three additional projects in the near term: *Housemaid's Secrets*, a new *Blair Witch* installment, and the tentpole *Naruto* directed by Destin Daniel Cretton - The domestic box office is tracking for its first $10 billion year since the COVID-19 pandemic ### Television Operations - A paradigm shift toward a more fragmented ecosystem with many new buyers plays to Lionsgate's diversification strategy, which leverages creative strength, pricing flexibility, and innovative business models across platforms - The company is 13 for 13 in current scripted series renewals, with success spread across 12 different buyers; two new series (*Dinks* and *Trauma*) were recently picked up via non-traditional partnership structures - The *Power* Universe has grown into an enduring, valuable franchise spanning 6 series and over 200 episodes; a multi-year licensing deal for the first four *Power* series was signed with Netflix, highlighting strong global streamer demand for established library content ### Library Business - The quarter posted another strong quarter of trailing 12-month library revenue, with the 38-year-old *Dirty Dancing* as the largest individual contributor, demonstrating the depth and enduring value of the portfolio - The growing $1.5 billion backlog is expected to drive library revenue growth in upcoming quarters ### 3Arts Business - 3Arts continues to scale and diversify, with strong growth in new verticals including sports and creator representation, and roughly 30 shared development projects with Lionsgate ### AI Adoption - Properly harnessed AI is creating new opportunities to reduce costs, enhance revenue, and speed up production across the business

Guidance

- Management maintains its prior full fiscal 2027 outlook, and expects significant growth in adjusted EBITDA and free cash flow this fiscal year and beyond - Television is expected to deliver meaningful year-over-year revenue and profit growth in fiscal 2027, supported by doubling episodic deliveries and the recent Netflix *Power* licensing deal; TV segment profit is projected to improve sequentially in Q2 and accelerate in the second half of the year - Deleveraging reached the mid-4x net leverage target earlier than expected, ending Q1 at 4.3x. Leverage is expected to stay in the low-to-mid 4x range through fiscal 2027, fall to 3-3.5x in fiscal 2028, and drop below 3x after that. A potential 3Arts transaction in Q4 would cause a 0.5x temporary leverage increase, followed by quick deleveraging after the transaction - Earnings growth momentum is expected to continue into fiscal 2028, with upside potential if core content outperforms base case expectations - *Michael* sequel production is targeted to start by early 2025, with release planned between late calendar 2027 and first half of calendar 2028

Segment performance

Overall company revenue grew 48% year-over-year to $777 million, with adjusted EBITDA of $79 million, operating income of $26 million, diluted adjusted earnings per share of $0.06, and free cash flow of $129 million. Trailing 12-month library revenue was $987 million, flat year-over-year, and content backlog grew 21% year-over-year to $1.5 billion. Total studio segment profit (before corporate overhead) increased significantly year-over-year to $115 million. 1. Motion Picture Segment: Revenue more than doubled year-over-year to $587 million, accounting for 75.5% of total quarterly revenue. Segment profit reached $105 million, which is the highest first quarter motion picture segment profit in company history. Results were driven by the strong performance of *Michael* and ongoing ancillary contributions from *The Housemaid*. 2. Television Segment: Revenue was $189 million, accounting for 24.3% of total quarterly revenue. Segment profit was $10 million. Revenue and profit were lower year-over-year due to the timing of episodic content deliveries, which was within management expectations.

Risks & headwinds

- Forward-looking results are subject to material uncertainty, and actual performance could differ materially from guidance due to various unstated risk factors outlined in the company's public filings - Content success is inherently uncertain; even planned franchise releases have no guarantee of commercial performance - Ongoing industry uncertainty around the paused Paramount-Warner Bros. transaction has created negative market limbo, with uncertainty and delay noted as bad for the broader media industry - AI deployment requires responsible collaboration with creative talent to avoid industry and content risks

Analyst Q&A

• Q: What factors inform Lionsgate's confidence in its slate of existing IP revivals amid mixed industry performance for proven IP, and how is the slate positioned for current market trends? /

  A: Lionsgate greenlights IP projects that answer clear existing audience demand for specific characters and storylines. The company maintains constant, direct communication with fan bases via its top-tier digital team to measure interest. All projects are produced at appropriate budgets with qualified filmmakers, which exponentially increases the odds of success, and every project on the slate meets the company's strict threshold criteria. (212 characters)

• Q: What is the strategic impact of the Netflix *Power* licensing deal for library value, and how will library revenue trend going forward? /

  A: The deal will be transformative for the *Power* franchise globally, leveraging Netflix's massive international footprint to grow the brand significantly. The short 3-year term sets Lionsgate up for a larger global re-licensing opportunity when the deal expires, as the franchise hits new peaks with new series. Several high-profile library series including *Orange is the New Black*, *Mythic Quest*, and *Mad Men* will return to Lionsgate's distribution portfolio over the next two years, creating additional upside. (345 characters)

• Q: Can you provide an update on M&A interest and strategic options for Lionsgate amid recent consolidation rumors? /

  A: Lionsgate has not engaged in any substantive M&A discussions, and the company does not comment on speculation. The company notes that its broad, high-value IP portfolio makes it one of the most compelling standalone assets in a rapidly consolidating media market. Scale is increasingly valuable, so Lionsgate's IP portfolio grows more relevant over time, and the company maintains strong strategic optionality, which is its current core focus. (308 characters)

• Q: What is Lionsgate's secret sauce for TV success amid the shifting market paradigm, and how is AI being utilized across the business? /

  A: Lionsgate succeeds by using non-traditional go-to-market structures for series, such as the sponsored model for *Dinks* with Amazon and Publicis, and split-regional distribution for *Trauma*. The company also benefits from its large catalog of long-running series that generate consistent recurring library revenue. Management views AI as a tool to both lower costs and boost revenue, deployed responsibly in partnership with creative talent. AI is already adopted by 95% of employees, delivering cost savings and efficiency gains across pre-production, post-production, and operations, with new use cases being developed regularly. (477 characters)

• Q: What is the current outlook for *The Hunger Games: Sunrise on the Reaping*, and how does it impact existing library revenue? /

  A: The first trailer for the film is the second most-viewed trailer in Lionsgate history, and the film has posted extremely strong test screening scores. Fan interest is very high, as the film centers on a fan-favorite storyline that audiences have requested for years, and it is drawing in new younger audience members. The company has a months-long coordinated rollout plan that leverages existing library content on streaming platforms to build fandom ahead of release, which will drive incremental library revenue in advance of the film's launch. (370 characters)