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Lions Gate Entertainment Corp. Message Board

  • wanna_million wanna_million Nov 8, 2012 8:44 PM Flag

    2 Quarter 2013 comments

    Monster quarter!!!! I have been away most of the day and was cringing to see what the report would be.....I admit I was not surprised as I had expected that this is what it SHOULD be, but then again the recent stock price decline and the lumpiness of movie accounting had me bumming to brace myself for another puzzling report.

    To the contrary, this is the most straightforward report we have had in a long while. Revenues of $707M beat expectations of $622---a 14% beat and earnings of $.56 beat expectations by 331% with nine analysts estimating a mean EPS of .13. AWESOME, to say the least.

    Analysts will be concentrating on FCF (Free Cash Flow) and Debt/EBITDA ratio. FCF improved 45% from last quarter, generating 6 million more than the $13M from Q1---This is the second consecutive quarter that free cash flow has been positive......last time it was positive was 2010 (2011fiscal year). This will show that the company truly is transitioning into a Mega Studio with stability.

    EBITDA YTD surpassed prior year by 9x and 6.4x prior quarter. It will be key for LGF to manage their quarters so that they are all Ebitda positive. Caris Miller projected a Debt/Ebitda ratio of 3.28 in April 2012. My calculation using $300 full year Ebitda based on Net debt of $723 (after paying Summit Loan) is 2.41----a 27% improvement!!!

    Operating margins have significantly improved.......Direct costs as a percentage of sales 45.75% improved 11.75% compared to last year quarter and at 48%of sales YTD, it improved 8points YTD. Distibution and marketing costs improved 2%YTD and G&A improved 1% YTD. This shows a consistent trend in successful management of costs.

    Interest expense savings from the prior quarter amounted to $4M or 16.8%.......this amounts to a .03/share savings for the quarter and at an 15multiple gives us almost 2 dollars in stock price appreciation. .03*4quarters*15multiple =1.8/share

    I believe we will see price targets increased to $20-25 in the near future. Hopefully, the stock will not be manipulated in advance of these upgrades.

    This analysis is my opinion...please do your own DD, or check my numbers and comment for further discussion. Glad to hear all your own calculations and reasoning.

    Billy Shelby.....you were so kind to supply analyst comments last quarter. If you can, I would great appreciate if you can post again. I would like to see their assessment and match it to my own analysis.

    GLTA.....this is definitely a long term investment for me, but I suspect with the economy and the stock manipulations that we may be in for a bumpy ride up.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Just wanted to highlight some of the main points from last quarter:

      Cash Flow Topics:
      -------------------------------
      Analysts will be concentrating on FCF (Free Cash Flow) and Debt/EBITDA ratio. FCF improved 45% from last quarter, generating 6 million more than the $13M from Q1---This is the second consecutive quarter that free cash flow has been positive......last time it was positive was 2010 (2011fiscal year). This will show that the company truly is transitioning into a Mega Studio with stability.

      Cash is going to increase by over $100 million in Free Cash Flow this December quarter due to the timing of the shipment of HG dvds.....revenues were recorded in Q2, but cash receipt will be in Q3. FCF already increased 45% or 6million from prior quarter, so next quarter we will see FCF exceed this quarter by over 400% or 5x based on $19million FCF this quarter to at least $100 next quarter.

      Cost Improvements:
      ---------------------------------
      Operating margins have significantly improved.......Direct costs as a percentage of sales 45.75% improved 11.75% compared to last year quarter and at 48%of sales YTD, it improved 8points YTD. Distibution and marketing costs improved 2%YTD and G&A improved 1% YTD. This shows a consistent trend in successful management of costs.

      I will be looking to see that the margins continue to improve or remain stable as well as improvements in the following areas:

      P&A will be less of a drag on EBITDA due to creative cost effective measures of advertising discussed at the last conference call.

      Growing Revenues:
      ------------------------------
      Fiscal cliff will have little effect on LGF due to pre-negotiated deals, maximizing revenues on lucrative back end deals, US dollar deals (mitigating risk of foreign currency) and effective cost management strategies on low budget films. So we should see better revenues if this back end maximization is working.

      International growth is going to skyrocket in the near term!
      Per Feltheimer:
      I think we’re starting just to hit the tip of the iceberg in terms of China, and we haven’t really even scratched the surface in India. We had seen on a couple of our pictures Japan starting to come back, but we actually believe obviously absent some huge worldwide recession, Latin America obviously with our partnership with IDC, if you start comparing—I’ve said this before, the numbers we got from the first Hunger Games to what the numbers that Summit has been getting from the partnership on all the Twilights, we see some tremendous upside there, and I think Brazil and Latin America are going to be very, very robust growth territories going forward.
      I think the way we’re looking at India, not dissimilar from China, is you’ve got 1.1 billion, 1.2 billion people of which probably half of them—in a sense, it might be the largest English-speaking country in the world right now. They love entertainment. I did help years ago to build Sony Entertainment Television in India and recognized the incredible value that we can get there, and I’m sure there’s a lot of different reasons why it hasn’t been as open to U.S. content as it could be, but I can tell you we’re concentrating on them significantly right now

      The UK arm is like owning a separate business that is firing on all cylinders:So I think you’re going to continue to see over the next two or three years some significant, frankly, revenue and we believe a margin contribution from the U.K

      Interest Expense:
      --------------------------
      Interest expense savings from the prior quarter amounted to $4M or 16.8%.......this amounts to a .03/share savings for the quarter and at an 15multiple gives us almost 2 dollars in stock price appreciation. .03*4quarters*15multiple =1.8/share

      If LGF calls in the convertible debt in 11.5month as they mentioned, then they will save at least 28million in interest expense or 28M/138Mshares = .21/Share adding $3 to price appreciation assuming a 15xmultiple.

      I will be listening to see if they are on target to call in this convertible debt and continue their debt reduction efforts. This is from Evercore on debt levels:
      We are projecting massive deleveraging from $1.1 billion of pro-forma debt at December 31 to approximately $230
      million by March of 2015.

      Reversal of Deferred Tax Asset Reserve:
      -------------------------------------------------------------
      Reversing this tax reserve will have a $1 positive effect on EPS....not sure how this gets accounted for in price targets since it is a one time adjustment....but based on a 15 multiple, it can translate to $15 increase in price LOL! Even if we get 3 points appreciation....this signals that the company has been transformed from a loss producer to an income generator!
      year.

      • 1 Reply to wanna_million
      • On a note of concern:

        Nashville:
        Nashville is a stable cash cow, it is evident after only 4.5 weeks of airing.

        I am not sure if this is still the case as ratings are not currently doing very well. Perhaps they will discuss a different timeslot. I think it is also time to get some big stars like Taylor Swift on the story line to get an increase in viewership. I will be listening to what the international viewings are as offered by Beggs in the last conference call.

        Per Beggs: We’re really bullish on our international prospects, and we’re not presenting it or marketing it as a country show. Country, in essence, has been eclipsed by pop, so if you think about Taylor Swift and who she is, she started as a country artist and is now a crossover mainstream artist. So really, it’s in the 10:00 ABC kind of genre of prime time serials like Revenge, Once Upon a Time, Grey’s Anatomy, Private Practice. That’s how we’re marketing it internationally and the response has been really terrific, even early on.

        So we’re going to expand our guest star roster, especially now that we’ve established our regulars, so you’ll see bigger names coming in and out of it, and that is a priority for both us and ABC.

    • International growth is going to skyrocket in the near term!

      Jon Feltheimer - Chief Executive Officer
      Yeah. I’m not sure if your next question was if we see all the upside already built into the international market, and I think the answer there would be no. I think we’re starting just to hit the tip of the iceberg in terms of China, and we haven’t really even scratched the surface in India. We had seen on a couple of our pictures Japan starting to come back, but we actually believe obviously absent some huge worldwide recession, Latin America obviously with our partnership with IDC, if you start comparing—I’ve said this before, the numbers we got from the first Hunger Games to what the numbers that Summit has been getting from the partnership on all the Twilights, we see some tremendous upside there, and I think Brazil and Latin America are going to be very, very robust growth territories going forward.

      So again, I would say we’re not even halfway there in terms of my expectations of where the international market is going.

      And to move on to the India question, I think the way we’re looking at India, not dissimilar from China, is you’ve got 1.1 billion, 1.2 billion people of which probably half of them—in a sense, it might be the largest English-speaking country in the world right now. They love entertainment. I did help years ago to build Sony Entertainment Television in India and recognized the incredible value that we can get there, and I’m sure there’s a lot of different reasons why it hasn’t been as open to U.S. content as it could be, but I can tell you we’re concentrating on them significantly right now. Jim Packer just came back from a trip there and I think you can see in the next year some significant revenue benefits from our concentration that territory.

    • Fiscal cliff will have little effect on LGF due to pre-negotiated deals, maximizing revenues on lucrative back end deals, US dollar deals (mitigating risk of foreign currency) and effective cost management strategies on low budget films.

      Jon Feltheimer - Chief Executive Officer
      Look, on the economy, Matthew, obviously we believe, like I think most people do, that entertainment media has been somewhat recession-proof. I do think actually the way that we do our business with less exposure in most of our businesses, and particularly sort of what Patrick’s gone off and done, I think he can speak a little bit more about this. But I would say that given some of the shakiness around the world, the fact that we went out early and with major strong obligors, went and made output deals so that we actually have tremendous visibility and predictability in terms of the majority of the costs on each of our productions, the fact that we have businesses like Arbitrage, Margin Call, Friends with Kids were actually very significant contributions coming from movies that we can put out on a platform basis where we only put 2, 3, $4 million into marketing it at first instead of 30, 40, $50 million going into a wide release. I think all of it gives us some flexibility that frankly some of the major conglomerates don’t have if the economy were to worsen.

      So I guess I would say the long answer to a short question is we’re not particularly concerned about it. Patrick, I don’t know if you want to expand a little bit more on the international front.

      Patrick Wachsberger - Co-Chair, Motion Picture Group
      Well as Jon noticed, our output deals definitely—first of all, they are made in dollar currency so we don’t take any risk in terms of currency. They are here to lower our risk capital but also we have some very, very strong back end for movies that will perform in individual territories. We are not crossed, so if one movie works in one country and doesn’t work in the other one, we’re going to get the benefit of the (inaudible) on the country where the movie works. So I think we are in very, very good shape, and to add to what Rob said earlier, to give you an example – Divergent was—we started selling at the American free market. We did extremely well, and I think we’re probably going to cover about 80% of our projected budgets.

    • If LGF calls in the convertible debt in 11.5month as they mentioned, then they will save at least 28million in interest expense or 28M/138Mshares = .21/Share adding $3 to price appreciation assuming a 15xmultiple.

      Michael Burns - Vice Chairman
      Well, our plan is to do exactly that, is to quickly de-lever. There were two separate transactions but obviously the money on our credit facility was cheaper than the money on the Summit side, so we ended up drawing our own facility later on to pay off the Summit facility. So that $300 million that was remaining on our Summit term loan is now paid off, and we have—as Jim just mentioned, with the balance on our current credit facility on the Lionsgate side, obviously cheaper money – LIBOR plus 2.5. I think as Jon mentioned, he talked about significant interest-saving moves in the future. You’ll see us, as you know from the public filings, our high yield bonds, call it 10% money, we’ll be able to call those for the first time in about 11.5 months at 105 ¼, and if interest rates stay approximately the same, that will be about a 700 basis point savings. And when you’re talking about, call it 300 to $400 million, that adds up to a lot of money.

    • Nashville is a stable cash cow, it is evident after only 4.5 weeks of airing:

      continue.

      James Marsh - Piper Jaffray
      That’s interesting. Thank you. And then I had a follow-up on the success of the Nashville show. Obviously the buzz has been great and you’ve had some success at the broadcast network level here. Could you talk just a little bit about the monetization – are there potential challenges, you think, with the drama genre, and maybe even with the country theme as you think about moving this abroad? Is that, number one, a fair characterization? And then two, can the music sales and the touring and the other things that you mentioned in your prepared remarks, can that make up for any potential shortfall abroad?

      Jon Feltheimer - Chief Executive Officer
      Okay, good. I’ll have Kevin answer that question.

      Kevin Beggs - President, Television Group
      We’re really bullish on our international prospects, and we’re not presenting it or marketing it as a country show. Country, in essence, has been eclipsed by pop, so if you think about Taylor Swift and who she is, she started as a country artist and is now a crossover mainstream artist. So really, it’s in the 10:00 ABC kind of genre of prime time serials like Revenge, Once Upon a Time, Grey’s Anatomy, Private Practice. That’s how we’re marketing it internationally and the response has been really terrific, even early on.

      The music – you know, it’s twofold. It’s an added ancillary benefit, and as Jon mentioned we’re at half a million downloads in only 4.5 weeks of airing, which is fantastic. We have the whole season in front of us if we get additional episodes. That will become meaningful money. It’s not making up against shortfall; it’s just added to the pot, but it really works as a marketing tool as much as anything. The music is infectious, people listen to that, they want to go back to the show, and it has those same kind of circular and viral marketing hook of something like Glee, which is why ABC was so excited about it when we brought it in. They are doing an amazing job on the marketing side.

      We have a soundtrack deal which was announced with Big Machine Records, which is part of the Universal family, and will be in stores as early as December 11 on the first soundtrack to complement the digital strategy.

      Jon Feltheimer - Chief Executive Officer
      I think I would add to what Kevin just said. This year alone in the first year of the show, we expect to make our share from this about $1 million from the music. So it’s not insignificant money, and frankly if you know about the touring of some of these big shows, actually the money is extremely significant. So I think you kind of hit the nail on the head that there is significant money to be made from the ancillary sales of this on the music side, but going in actually we have a pretty good economic model to start with.

      James Marsh - Piper Jaffray
      Okay, excellent. Thanks very much.

      • 1 Reply to wanna_million
      • Guest stars will only add to the excitement and longevity of the Nashville series:

        Jim Goss - Barrington Research
        Okay, thank you. Actually just one follow up on what you were just talking about with Nashville – does that also provide a platform for high profile guest stars, so that will be part of the issue? I suppose it would raise costs, but it would raise the potential ratings and that sort of thing.

        Kevin Beggs - President, Television Group
        High profile guest stars usually on an ongoing series aren’t really a cost issue because it’s a bit of a stunt and you have an allowance in every budget for guest stars. But for sure, this is a great platform. We were all in Nashville last week to watch the CMAs, which broadcast on ABC, and spent a lot of time with a bunch of huge music artists, all of whom love this show, are addicted to it, and have offered to be in it. So we’re going to expand our guest star roster, especially now that we’ve established our regulars, so you’ll see bigger names coming in and out of it, and that is a priority for both us and ABC.

    • P&A will be less of a drag on EBITDA due to creative cost effective measures of advertising:

      Jon Feltheimer - Chief Executive Officer
      Yeah, the only other thing, again, that I would add is—I’ve mentioned this publicly a couple of times recently, there’s no question that we are seeing significant amounts of awareness, particularly on our frankly more targeted movies from social media, from the Internet, and I think that’s going to give us a tremendous opportunity, again, with the more targeted movies for sure to potentially reduce our overall marketing spend. I think you’re even seeing some of that in this quarter where we had five releases, but the P&A didn’t significantly impact negatively our EBITDA. I think that we’re going to be able to—certainly with the horror movies, some other movies that we see, to continue to lower our and be very creative about lowering our P&A costs. I think that trend will continue.

    • The UK arm is like owning a separate business that is firing on all cylinders:

      Jon Feltheimer - Chief Executive Officer
      While Jim looks, I’d like to make an interesting point, though, about particularly the U.K., which is the way we’re structured there—again, it’s a very full-service business in terms of feature film business, and because on the Lionsgate side we actually aren’t delivering that many pictures for the U.K., three or four a year at this point, Zygi Kamasa and his team have actually built a really significant business there. I would say they’ll have probably this coming year about 20 releases, of which only three or four are going to be supplied by Lionsgate. The Summit side actually has an output deal there with E1. And so these guys have really—they’re kind of knocking the cover off the ball, and I think you can expect for the next two or three years, based upon what they already have in their pipeline, which is movies like Magic Mike, for example this year that performed very well, which is a totally independent buy by the U.K. team.

      So I think you’re going to continue to see over the next two or three years some significant, frankly, revenue and we believe a margin contribution from the U.K. I don’t know, Jim, if you want to add a couple titles, but that’s kind of the overview, Ben, of what’s going on there—or Doug, I’m sorry.

    • Theatrical revenues from all line item components indicates SOLID growth from various revenue sources both dometically and internationally:

      Jim Keegan - Chief Financial Officer
      Well, the enormous revenue growth that you’re (inaudible), the second part that is in the quarter, it is the release of The Hunger Games on—the video is huge. But we also had, as you indicated, the significant revenues coming from our theatrical releases, but then we also had quite a bit of revenue in my international line item. It’s jumped significantly, and that’s international revenue for a lot of the other titles that are now hitting the international window. So international has gone strong, home entertainment has gone strong, and with five theatrical releases in the quarter, that grew the theatrical revenue line. We’re really firing on all cylinders with revenue coming from all sources.

    • Cash is going to increase by over $100 million in Free Cash Flow next quarter due to the timing of the shipment of HG dvds.....revenues were recorded in Q2, but cash receipt will be in Q3. FCF already increased 45% or 6million from prior quarter, so next quarter we will see FCF exceed this quarter by over 400% or 5x based on $19million FCF this quarter to at least $100 next quarter.

      See CC details:

      David Miller - Caris & Co.
      Okay, wonderful. And then Jim, on net cash from operating activities, that came in as a net cash use, so obviously free cash flow trailed net income. I would assume that reverses itself as we get into Q3 and Q4. Was the dynamic just simply that investment in film and PD just eclipsed amortization, or were there other sort of components there that you want to share with us? Thanks.

      Jim Keegan - Chief Financial Officer
      The big component would be the fact that we shipped Hunger Games in this quarter, in our second quarter, and the cash is going to come in our third quarter. You’ll see a huge—that’s the movement.

      David Miller - Caris & Co.
      Wonderful, okay. Thank you very much.

    • This tax reserve will have a $1 positive effect on EPS....not sure how this gets accounted for in price targets since it is a one time adjustment....but based on a 15 mulitiple, it can translate to $15 increase in price LOL! Even if we get 3 points appreciation....this signals that the company has been transformed from a loss producer to an income generator!
      year.

      Alan Gould - Evercore Partners
      Okay. And my last one is for Jim or Rick, an accounting question – particularly in light of how strong the current quarter was and what looks like a pretty clear path to predictability, will you reverse your tax valuation allowance? And could you remind me of the mechanics – it looks like you could recognize almost $1 a share of non-cash earnings but then would begin recording taxes at a more normal rate for book purposes.

      Jim Keegan - Chief Financial Officer
      Well you’re right, Alan. We have to follow the accounting rules under the—you know, for the reserve. We do have a significant reserve there. But what we’re going to do is as we go along, we’re going to review and look how our current performance is and to future performance, but if we continue to perform as we’re performing, we will reverse the reserve, and what that will do, that’s going to result in a one-time significant positive non-cash contribution to net income at that time.

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LGF
26.69-0.28(-1.04%)Apr 17 4:00 PMEDT

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