Starz Entertainment Corp (STRZ) 2015 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Lionsgate's FY15 third quarter earnings conference call.

(Operator Instructions)

As a reminder, today's conference is being recorded. And I would now like to turn the conference over to your host, Mr. Peter Wilkes. Please go ahead, sir. Good morning. Thank you for joining us for FY15 third quarter analyst call. We will begin with opening remarks from our CEO, Jon Feltheimer. Following his remarks, we will open the call up to your questions. Joining us on the call today are Vice Chairman, Michael Burns; Motion Picture Group Co-Chairman, Rob Friedman; Chairman of the Lionsgate Television Group, Kevin Beggs; Steve Beeks, Co-COO and President of the Motion Picture Group; Brian Goldsmith, Co-COO; Jimmy Barge, our CFO; and Rick Prell, our Chief Accounting Officer.

The matters discussed on this call include forward-looking statements, including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially and adversely from those described in the forward-looking statements, as a result of various factors, including the risk factors set forth in Lionsgate's 10-K, filed with the SEC on May 29. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. Jon?

Thank you, Peter, and thank you all for joining us this morning. We reported a strong quarter yesterday, with financial results driven by increased contributions from our television operations, record margins in our home entertainment business, strength and profitability in our film division, and continued aggressive cost management. Our strong performance was also bolstered by a number of positive trends in our overall business environment. Key international markets continue to grow.

Technological innovations are paving the way for new directions in storytelling. And the rollout of digital platforms is driving higher box office to home entertainment conversion rates, and expanding consumer access to our content. Underscoring the globalization of our business, Mockingjay opens on over 4,000 3D and 2D screens across China this weekend, and its performance there should enable it to finish its run with around $750 million at the global box office. Adjusting for the currency devaluation in territories like Russia and Brazil, Mockingjay will have outperformed Catching Fire internationally. And while delivering somewhat lower returns domestically, was still the number one domestic title of 2014.

The film arrives on electronic sell-through in less than two weeks, and will roll out on packaged media and on-demand platforms on March 6. Responding to the growing migration of entertainment dollars to higher-margin online consumption, we expect to release the film to 17 different digital platforms, up from 12 for the first Hunger Games film. I'm very pleased to announce today that Mockingjay 2 will be released in both IMAX and 3D in November.

Earlier this year, when director Francis Lawrence and producers Nina Jacobson and Jon Killik prepared the 3D versions of Mockingjay 1 for China. They were so pleased with the results that we all decided to release Mockingjay 2 in all formats around the world. We expect that, just like Harry Potter and Twilight, the Mockingjay storyline is going to conclude with a blockbuster finale at the box office.

We also continue to take steps to expand the Hunger Games franchise beyond the theatrical arena. On July 1, we will be launching the Hunger Games exhibition, complete with high-tech interactive galleries, never before seen content, hundreds of costumes and props and a retail store, and I am pleased to announce that it will start with a six-month run at Discovery Times Square in Midtown Manhattan.

With over 0.5 million visitors to Times Square every day, we believe that it's the perfect first stop as we roll out to this, and other interactive fan experiences, in high profile venues around the world, as part of our location-based entertainment initiatives. Our slate for the rest of this year and FY16 is robust.

We're encouraged by the industry's fast start at the domestic box office this year, up 8% for the month of January. The current resurgence at the box office, driven by the performance of American Sniper, seems to indicate that those who said last year's decline was product-driven were right.

But even more importantly, the message is that potential blockbusters can be released in any category, at any time of the year, and with nontraditional release patterns. We're excited to begin our new CBS theatrical distribution partnership with teen comedy The Duff on February 20, a film that we expect to resonate with teen girls. We closed the deal a CBS just last month, to gather efficiently [gauged] and targeted the first film, and early tracking looks great.

Anticipation is building for Insurgent, the next film in our Divergent franchise. And the new Insurgent trailer launched, with over 40 million views across all platforms, leading into be the most-watched Super Bowl in history. Divergent series book sales also continue at a tremendous pace, and have nearly doubled their total from last March, attracting new fans across all demographics. Combined with Insurgent's release in IMAX and 3D, and the increased global profile of stars Shailene Woodley, Ansel Elgort and Miles Teller. We expect a big opening, as the Divergent series continues to grow and evolve into one of Lionsgate's premier franchises.

As part of the film's rollout, our marketing campaign will also incorporate an immersive state-of-the-art virtual reality experience. In addition to the excitement that it brings to the Insurgent campaign, the VR experience underscores our focus on cutting-edge technologies that have the potential to reshape our marketing, expand the worlds of our franchises, and add premium value to our content.

We're also looking forward to the April 24 release of Age of Adaline, a romance with a twist about a woman who stops aging while still in her 20s. Age of Adaline continues our partnership with Lakeshore Entertainment, and stars Blake Lively, Harrison Ford and Game of Thrones' Michiel Huisman.

This fall, we start rolling out six franchise or potential franchise properties in a nine-month period, beginning with The Last Witch Hunter, starring Vin Diesel, which just wrapped principal photography, and will be released in October. Followed by Mockingjay 2 in November, Gods of Egypt in February, Allegiant Part 1, the third film in our Divergent franchise in March. The sequel to Now You See Me, which is finishing production in London and Macau in June, and the first live-action Power Rangers film in July.

We're also excited to announce the launch of a budding new action franchise, as we begin developing the sequel to last fall's surprise hit John Wick. John Wick has been a strong performer at the domestic and international box office, stormed the gaming world through our partnership with Starbreeze Studios, just became the third biggest selling EST title in Lionsgate history, behind Divergent and Catching Fire, and is significantly over-performing on packaged media, as well. We see this as a multiple movie action franchise, built around a smart Lionsgate financial model.

Next August, we will also release Deepwater Horizon, the adventure thriller about the Gulf of Mexico oil rig disaster, starring Mark Wahlberg and directed by Lone Survivor's Peter Berg. Think The Perfect Storm meets The Towering Inferno.

During the quarter, we also continued to expand the world of Twilight, completing the first 2 phases of the Storytellers digital shorts project, with a Tongal platform reporting record story submissions and fan votes for a single project. We just announced the top six screenplays that will be pitched to aspiring female filmmakers, and Stephanie Meyer and our partners at Facebook are thrilled with the level of Twilight fan engagement heading into the next round, which will focus on producing the digital shorts themselves.

Obviously, not all of our films work, and last month's Mortdecai was clearly a disappointment. However given the number of ways we limited our exposure, including pre-licensing international rights, curtailing the marketing spend, and taking on a production partner, we will have incurred a very manageable loss.

Turning to our television business, it's clear that audiences today are viewing content on multiple platforms: broadcast, cable and, in some cases, migrating to digital. This is actually serving us very well, as we sell our premium shows to a more diverse array of buyers than ever before. And the new calculus of multiple window deals, with which they are financed, plays to the strength of the business model we've employed, from Mad Men to Manhattan.

In fact, we're poised to deliver our strongest roster of new scripted series, as we continue to expand and diversify our television slate. And by next year, we expect to have up to 16 scripted series entering their first or second seasons on the air. Some of you may have seen the 32nd Super Bowl spot for The Royals, reflecting the big marketing push that NBC Universal and E Network are giving E's first scripted drama. This series debuts on March 15. The early buzz is tremendous, and E has already renewed it for a second season, before the first season, or episode, has even aired.

During the quarter, we continue to expand our pipeline of content for online audiences. Following on the heels of an order for the Jason Reitman series Casual, Hulu has made an eight-episode straight-to-series order for the first long-form television series from our collaboration with Freddie Wong and the team at RocketJump. The quarter was also marked by a continued high renewal rate of our series that are already on the air. In addition to The Royals, Chasing Life on ABC Family, Deadbeat on Hulu, and Manhattan on WGN America have all been picked up for their second seasons, as networks establish their brands by making longer-term commitments to programming from trusted suppliers like Lionsgate.

Our very first series for a digital network, Orange is the New Black, continues to gain momentum as its enters its third season. It recently won a Producers Guild and two Screen Actors Guild Awards, and continues to evolve into one of the most critically acclaimed and popular shows on any television platform.

Nashville continues to build its ratings in its third season on ABC, and as one of the most recorded dramas on broadcast television, continues to expand its viewers, with nearly two-thirds of its female 18 to 34 audience watching via DVR.

The momentum of our game and talk shows continues to grow. Wendy Williams just celebrated its 1,000th episode with record ratings. And Family Feud, which we syndicate, is consistently challenging iconic game shows, like Wheel of Fortune and Jeopardy, in its key demos. Our latest entry in the space, Celebrity Name Game, hosted by Craig Ferguson, continues to gain traction in its second season, with ratings growing among its core demo of women 25 to 54. With the same patient approach we used to build Wendy Williams into a success, it has the potential to become another long-term annuity for the Company.

The success of our premium scripted series, shows already in syndication, and first-run game and talk shows, resulted in a second consecutive very strong quarter for our television business that puts us on track for 30% revenue growth for the year, with margins climbing into the low double digits. And today, I'm pleased to announce the latest addition to our pipeline.

We couldn't be more excited to be partnering with Oprah Winfrey, and the OWN network, to produce the original drama series Queen Sugar, based on the acclaimed novel. Written, directed and executive produced by Ava DuVernay, director of the Academy Award nominated Selma, and executive produced by Oprah, who will be featured in a recurring role, the show continues our partnership that began with the Academy award-winning film Precious, and represents the kind of premium content that defines both of our brands.

During the quarter, we also continued to grow our business around the world, with particular focus on growth markets such as China and India. As you read last week, we're in advanced discussions with Hunan TV and Broadcast Intermediary Limited, on a number of strategic initiatives.

These include a slate financing deal, as well as film production and distribution opportunities, with Hunan's TIK films, with whom we previously partnered on the distribution of Now You See Me and Escape Plan. We're also discussing opportunities for television production and format development with parent company Hunan Broadcast.

The globalization of our business isn't without its challenges. As you have been hearing, the strong dollar has recently impacted currency exchange rates, especially in Russia, where a variety of factors have contributed to the ruble's decline. However, it's worth noting that all of our theatrical output agreements provide for minimum guarantees calculated in US dollars, reducing our exposure to currency fluctuations.

In closing, our balance sheet is strong, and we continue to reinvest in all of our businesses. In spite of a few recent theatrical misses, our Company's overall performance is strong. We continue to benefit from the diversification of our portfolio of businesses. And we are reaffirming our three-year guidance, within the range we previously discussed.

We head into the final quarter of the fiscal year with strong momentum in our television division, robust margins and expanding opportunities in our home entertainment business, and a film slate dominated by franchises, potential franchises, and other branded properties with tremendous commercial potential.

Just as importantly, we're launching digital content initiatives that include producing long-form programming for online audiences, creating SVOD platforms in markets around the world, forming partnerships with cutting-edge game developers, such as Next Games and Kabam, to extend our brands into the gaming space, and rolling out a series of interactive location-based entertainment and virtual reality experiences.

And now, I'd like to open the call to your questions.

(Operator Instructions)

Ben Mogil, Stifel.

Hi, guys, good morning, and thanks for taking my question. So I think one for Jimmy, and one for Jon. Jon, so you talked about 17 digital platforms being out there in the market for Mockingjay. And I'm presuming that's globally. Maybe not for a title of that level, but for some smaller titles, any thoughts about going exclusive? Either by one operating system, or by one -- or in certain regions, going exclusive with any digital provider? And getting a much bigger minimum guarantee out of them for that exclusivity?

I'm not sure in terms of which window you are talking about, Ben? Can you ask that a different --

Sure. Like for the EST, window, right? Any thoughts, not on a title like Mockingjay, but with so many digital platforms out there, any thoughts for some smaller titles on opting for, maybe, an exclusive with one of the providers? In return for a pretty high minimum guarantee, or a pretty good split?

I would say typically, the great part about our business right now, where things are going, is that we have so many multiple buyers, and new buyers joining every market, that I think I'd typically be reluctant, on an on-demand basis, to do that. Unless we were to get really a tremendous premium offer. Obviously, in the SVOD space, it's been a little bit different. And exclusivity, as in our overall deal in the UK, is something that we've taken advantage of. But in general, from my point of view - I'm going to let Steve jump in, as well. But from my point of view, again, with so many new players, and big, deep pocketed players joining the on-demand fray, I'd be reluctant to limit the diverse opportunities.

Ben, you've seen a little -- this is Steve. You've seen a little bit of that in the market, but it tends to be with the smaller pictures that generally don't have a theatrical release. There's definitely a potential opportunity, but it tends to be with the smaller titles there.

Okay, that's great. Thanks, Jon and Steve. And then Jon -- or Jon or for Jimmy, one on tax. Much lower rate. So is this structural going forward? Or are there any aberrations in the quarter? And then on the minimum guarantee front, get that you're getting paid in dollars. Are you seeing -- as you enter in some new deals, are you seeing any pushback at all, from some of the international distributors, given where currency is at?

Yes, I will take it. Certainly, as you note, one of the major advantages -- or a major advantage, with regards to our international theatrical output deals, is the minimum guarantees, as you note, and as Jon mentioned, are denominated in US dollars. So as a result, we generally don't have significant foreign currency exposure. Certainly, in countries such as Russia, where the ruble has had a significant change, obviously, it affects our partners' business models.

And we're very happy with that market, but yes, there could be some risk there, but it would be minimal. And we continue to work with our partners in territories like that. With regards to the tax rate, this is certainly a sustainable tax rate. We are confident of our corporate structure, and the strategy. And frankly, in a number of ways, being a Canadian multinational company gives us a competitive advantage. And we will continue to structure our deals, and our infrastructure, in a way that builds on this opportunity.

Yes, I'd go back to your last question, as well. We renewed a bunch of our output deals recently. Again, they were all virtually renewed in same dollar terms. Again, as Jimmy said, when any partner of ours around the world is having an issue, we try to work with them. But again, there hasn't been, in terms of any negotiation of any of our output deals, a pushback on setting those deals in US currency.

That's great. Thank you very much, guys.

Alexia Quadrani, JPMorgan.

Thank you. Just a couple questions. It appears you have a lot more high profile franchise films coming out, at least titles that seem to include more high profile talent in them. Can you talk about how you can continue your unique model, in terms of the cost structure? And mitigating the downside risk? And then I have a follow-up.

Yes. I'd answer that, to start with, just to make sure that you and everybody remember. Even a John Wick, which is a project that we got with -- originally, with no minimum guarantee, we are still in the opportunistic business, in many ways. And many of our movies in our core line, via pipeline, will look the same. I'd also remind everybody about our ancillary-driven slate, all the movies that we put through Pantelion and through Roadside, terrific movies, and profitable movies, like Mud and Arbitrage. And All is Lost goes through a series of them. Steve, I don't know if you want to expand on that. So we haven't changed. In terms of our mix of product, we continue to have a very diverse mix.

I would say, both smaller movies that we produce and the larger movies, benefit from all of the benefits that we've always mentioned before. From tax incentives from various regions, co-production partners, as we had on Mortdecai. And overall, pretty efficient, both production and marketing spends that -- taking advantage of digital -- both digital production and marketing opportunities, that we see.

So I don't think the model has changed. We talked before about Gods of Egypt, which is a well over $100 million movie, that we have a GAAP in the range of $10 million. Again, using all kinds of tax benefits, international presales, and a number of other production initiatives. So I would actually say our model hasn't changed.

And then just a -- if I may, a bigger strategic question. I know you also partner with others. You've mentioned a few of the partnerships on this call. Do you think there are any benefits in having bigger scale in this industry? Taking any obvious advantages of being part of a -- either a bigger studio or part of a network group?

I think obviously, any time that you have leverage in any market, there's always some potential benefits. We like our model. We would hate to think that any kind of partnership, merger, acquisition, in either direction would change that model too significantly. But one has to recognize the value of leverage. And obviously, in every acquisition and every strategic imperative that we look at, we're thinking about all of those potential advantages.

Thank you so much.

David Miller, Topeka Capital Markets.

Guys, I have three questions, one for Jimmy, two for Felt. So Jimmy, I -- correct me if I'm wrong on these numbers. But I have -- or had, you guys doing $100 million in buybacks in fiscal Q1. That slowed to $17 million in the second quarter. And then I think you guys did roughly $5.5 million of buybacks in the third quarter. So are you saving the cash for something else? Or should we expect this to pick back up, and at what pace? Or did it just have to do with paying off the production loan for MJ 1 in the December quarter? And then I have a couple follow-ups. Thanks.

It's not related to the production loan. We generate significant free cash flow, and have significant financial capacity. So we have plenty of firepower for building shareholder value, and share buyback is clearly one of those. So we're very positive on share buyback, at any given period of time. We have blackout periods, from time to time, within a quarter. That can affect the pace, as well.

I'm not going to project the future pace out there, but we clearly like our stock at this value -- or where it's trading now. Think it's a great value. And also, remember that we likewise, as disclosed in the 10-Q, we made some share repurchases, about 12 million, subsequent to the end of the quarter. I know that, combined with the current quarter pace, is not as significant as you probably would have liked to have seen. But just acknowledging the things I've said. We are still very high on share repurchase.

Yes, there are times I would add, David, that we are blacked out. And it's not a typical blackout [period]; we are blacked out because of discussions, obviously, that we may be having. And I would mention that, as well.

Great, okay. Also -- and then on TV, could you just -- Jon, could you just touch on maybe the timing of syndication and television licensing over the next 12 months? I know Anger Management is going to be a big deal for you guys in this calendar year. A lot of us are modeling a much heavier television syndication year in FY16 and FY17. If you could just go over the cadence of that? And what shows you expect to hit the domestic first-run syndication window, over the next four to five quarters, just topically? I'd appreciate it.

I would say in general, some of the shows aren't typical syndication shows. So for example, Orange is the New Black. We're already looking at what we would call, call it second cycle revenue, I would say. And that's going to be a strong contributor, but I would say you should focus on it more in 2017 than 2016.

Got it.

And David, I'll take Anger Management. Recognizing that it does go into syndication, we recognize that barter over the period of the licensing period. And we've also included that in our ultimates early on, once it went from 10 [episodes] to, in the backend, 90 got picked up. So that's why you're not seeing a pop, if you will, in the third quarter, when you think otherwise, it would be coming into syndication. But we're very happy with that property. It sold well. And again, the benefits will be recognized over the licensing period.

Okay. And then just finally, why was there such a big delay with the release date of MJ 1 in China? It just seemed like, for a while there, throughout the December quarter, all of us were waiting around for a date. Most of us thought it would be early January. Instead, it's early February. I guess it's not that big of a deal. It's just more of a timing difference. But is this the way it's going to go down with Mockingjay 2? Do you have to -- is it just entanglements with the Chinese government? Why was there such a delay? And do you have to play this game with the Chinese government for the second film? Any color on that would be great, thanks.

Hi, this is Rob, David. We have an excellent relationship with SARFT. And SARFT, as you know, they are busy managing all of the product flow into China. Historically, they have a blackout period over the holidays. And just because of the timing of our domestic release, we ended up being moved out of that holiday period into the new year. And we're very happy with this date. We feel very, very well aligned with the number of theatres available, and so we're excited about it.

Should we expect the same kind of time delta between the domestic release and the Chinese release for MJ 2? Or is it just too early to tell, at this point?

Too early to tell.

All right. Fair enough. Thank you.

Thank you, David.

James Marsh, Piper Jaffray.

Great, thanks very much. Two quick questions here. First, I was hoping you guys could remind us what the business model looks like for these location-based initiatives? Is this simply, you're just licensing out the IP, and have limited upfront costs? Or are you guys putting in some capital, as well? And then secondly, I was hoping to circle back on the comments about partnering with Hunan TV. There's some press reports that you might be committing up to $1.2 billion of capital or -- the joint venture might be. Can you just talk about what your potential capital contributions to that partnership might look like?

Okay. Good questions. The answer, in all of the location-based game, VR, all of those initiatives are going to have a different model. In general, what we are finding is that the deals we're cutting will involve a very nice upfront guarantee, with a significant back-end piece for us. The Hunger Games experience, we've gone a little different way. We had a great opportunity, and knew we would get significant sponsorship, which I haven't announced yet, but we will have at least two major sponsors for that. Knew that we had the Times Square location, or felt we did. And it's a very modest investment, but it's basically something that we will own, and partner together with a tour operator, if you will.

So we preserved a lot of the upside. We think it's something that we can have -- once we've built it once, that we could actually have two or three of them running at the same time. And I would say it's well over 100% IRR, as kind of a no-brainer. Most of the others, we're in the process right now of starting to build, in Wembley, a really amazing interactive show in a stadium that will seat about 1,300 or 1,400 people on a revolving stage. Something, I think, we announced before. It was called SceneAround before, and it's now called StageAround.

We think this is the first -- we have been contacted by a number of other venues around the world about doing this. People are very excited about this essentially Hunger Games show. And that, we are not financing at all. We have an opportunity in that, and in other situations similar, where we can come up later on for an equity piece. But at this point, we're just taking upfront MGs, and a piece of the back end on almost all of these.

I would add, we're in significant conversations, as well, with at least one theme park, right now, to put in an installation for Lionsgate. And again, in that case, we will get a big upfront guarantee, and a piece of the ongoing proceeds -- royalties. So again, it's a mix of things. But in general, we've limited our upfront exposure.

And Brian, why don't you talk about the $1.25 billion headline?

Thanks, Michael. The $1.5 billion headline is really money that we would have spent regardless, over the next few years, as part of our planned investment in film. This would just be Hunan's participation in a portion of that already-planned investment.

Okay. All right, that's helpful. Thanks very much.

Barton Crockett, FBR Capital Markets.

Thanks for taking the question. I wanted to ask something else about Hunan. If this does go through, is there some potential here for a lift to your Chinese business? Perhaps from getting around some of the import quotas, improving the film slate, having your movies treated as local productions, with a local Chinese financing partner?

I think there's all kinds of possibilities. This is a company that -- and the related companies -- obviously, Hunan, number two broadcaster. We've already had a number of meetings with them to discuss co-production of television format, production format, development. We are in business with TIK Films. In a number of ways, we have an opportunity to invest in local content. They clearly have an opportunity to invest in our content.

We will be, obviously, closer on the ground, with our partners, working on all of these possibilities. Co-production, obviously, of our tent poles, with the possibility of some local elements. So I think it's a great opportunity for us, in a number of ways.

Okay. And then switching gears a little bit. I was wondering if you could talk about your current feelings about the ability to extend the life, beyond what we know, in terms of released film slates of some your current tent pole theatrical franchises that are currently playing? Some that have stopped playing? Obviously, you have some IPs attached to these things, with theme parks and Facebook, et cetera. What is the ability to keep these things in the theaters longer than what we see right now? What is your current feeling about that?

It's Rob. As Jon mentioned, our brand extension activities on the Hunger Games franchise, our Twilight Storyteller activities, the trajectory of the Divergent series, is just all stuff that we feel very, very positive about. And our aggressive development and production of movies like Now You See Me 2, that is currently shooting, Power Rangers, Gods of Egypt. We feel really confident that we have a long-term view to keep our franchise business very robust.

We're very interested in what Warner Brothers in doing with the reintroduction in the Harry Potter series. So we think that things like that are very smart.

Okay, great. Thank you

David Joyce, Evercore ISI.

Thank you. A couple questions. First, I was wondering if you could provide any update -- color on the Alibaba streaming deal? Any idea of, when the boxes are being sold, what your revenue or cost exposure might be? And then secondly, if we could just go back to the TV in production business, help us think about the phasing or seasonality of your episode deliveries for the next year? Thank you.

Sure. Hi, this is Brian. I'll speak to Alibaba. As you know, the platform launched just a couple of months ago. So it's a little early to provide you with any substantive color, at this point. But the platform is rolling out nicely, and our relationship with Alibaba is very positive. Just as a note, our costs in this venture are fairly limited in scope. So you shouldn't be as focused on the cost side of the equation, in this particular initiative.

Kevin?

And on the TV question, as Jon mentioned in his remarks, we have a really robust slate of new series, first and second season renewals, Chasing Life, Manhattan, The Royals -- which has picked up two months before it airs. The OWN series that Jon just announced. So we're continually refreshing our long-running series with new potential long-running series. So -- and in this seller's market, as so many buyers and new networks jumping in, we feel quite bullish.

We've got a great relationship going with Hulu. Joe referenced we have three series with them, including Deadbeat, which was renewed for a second season, which we are shooting. And it just feels really timely an opportunity for us to be calling on new buyers, and getting new series commitments. And we feel the trajectory will continue to be upward.

And since you have so many buyers, is it becoming more of a year-round kind of revenue stream? Or is there some seasonality to the deliveries?

It's always been a year-round business for us. When we really got into the TV business, our focus was cable. It continues to be where the bulk of our business is. The network broadcasters are now buying on a year-round basis, and we're constantly out there pitching. So there really is no more seasonality, except for broadcast. We've got some exciting things going in the broadcast space, as well. But we pitch when the shows are ready, not based on a calendar.

Thank you very much.

Matthew Harrigan, Wunderlich Securities.

Thank you. I think Insurgent is probably your first 3D release since the immortal Saw 3D, and I know that in IMAX really helps you, particularly internationally. But can you talk about how maybe some of the in-theater technology is getting a little better? And how you are playing for that? And how some things, like maybe Gods of Egypt, could also resonate in that regard? And then on Deepwater Horizon -- this is probably a stupid softball question - but it almost feels so topical, dramatic, almost an American Sniper-type thing.

I know those Hollywood Stock Exchange numbers are not that accurate early. But it's only like a $30 million expectation. What sort of budget envelope do you have wrapped around that? Mark Wahlberg, you have Bradley Cooper, everyone knows the Gulf of Mexico is still there. But is that something that you think could have some interesting upside? I know you're cautious on it; you don't like to overplay things, other than Hunger Games, and you were right in that instance. But I'd love to get some more comments.

Hi, it's Rob. I'll start with the Deepwater question. We're very excited about the prospects of Deepwater. As you know, it's based on a true story. But the -- what we've discovered in our research, and ultimately, through the development of our script, is it was an unbelievable series of events and heroism that occurred in this event. And we feel cinematically, as well as the dramatic portrayal of the individuals involved, is going to be a very, very compelling and exciting film. So we're very, very excited about it, and feel very, very positive about it.

On the Insurgent front, again, the -- as you've seen, hopefully, in the materials, this is a much, much bigger film than the first one. Our director and producers have really grown this. And we're very excited about this. And the aspect that it's going to be in 3D and IMAX just adds to what we believe is going to be the overall scope of the film, and then the future of the franchise.

Yes, I would go back, actually, just mention on Deepwater, the budget is fairly high. But I should mention, again, we have a terrific co-production partner, on a 50/50 basis with us. We have -- the international sales have been extremely high. And so again, based on an earlier question, I would note that we're able to do a really big movie, with a really Lionsgate calculus, in terms of the financing.

And actually, just one quick follow-on. Are you seeing any improvement in the film splits for the industry, and for yourselves, specifically over in China?

For us -- again, it's Rob. For us, the film splits around our world are continuing to be very strong. Obviously, as we deliver more commercial product, our splits stay strong and grow. In China, specifically, we enjoy a very robust MG strategy for our films. And then, as it relates to overages and over-performance, we get a very, very strong percentage of incremental revenue.

Thanks, Jon. Thanks, Rob.

Doug Creutz, Cowen.

Thanks. One of the hot topics right now in the media is the incremental pressure networks -- or TV networks are coming under, from the shift of advertising to digital. And just obviously, you guys are in a good position, not having a lot of exposure to that. But I'm just wondering, in some of your recent conversations with TV networks, have you seen any incremental change in their interest in buying new TV content? Either in a positive or a negative direction? Thanks.

It's Kevin. They're all looking for hits. The ratings pressure, some of the migration to other platforms, is pushing them to focus on quality. And that really becomes an opportunity for us to do even more business, given our fantastic scripted brand. You're seeing this in previously nonfiction-only network turning to scripted. The Royals, perhaps, is our best example of that. A network that has been completely branded by The Kardashians and other series, and strategically shifting to do scripted.

Many other networks are following suit, and we're finding great opportunities to be there. So for us, we feel any time that quality becomes the focus, we become an even more competitive player and subset. So it's strong. We think they're spending more targeted, and we want to be part of that spend.

Thanks, that's super helpful.

David Bank, RBC Capital Markets.

Okay, thanks, and good morning. Two questions. One -- first one, I guess, for Jimmy. Second one for Jon. First, can you remind us of the filmed entertainment backlog, as well as trailing [library] cash flow for TV and film? For Jimmy. And for Jon, when we think about what you've accomplished since you first started giving the multi-year guidance, that kind of average EBITDA in the $400 million range, we've written pretty extensively about how we think you expanded the TV business in a way that has just astounded us. And your record on the theatrical side, outside of tent poles, even big ones like Now You See Me -- been really better than we'd seen in the previous decade we covered the Company, with mitigated risk, good returns. But all of that is limited in relative scale, compared to something like a Hunger Games.

So from the outside -- and this is probably the number one question we're getting right now from investors, with respect to Lionsgate -- it's hard to know exactly how you can maintain this level of earnings without another enormous needle mover like Hunger Games or Twilight. And we're getting to the point where those things are running out. So can you walk us through the physics of how you can maintain the earnings in that context? You may get another one, you may continue to franchise. But can you walk us through the physics of how it works in 2017, 2018, 2019?

That would be a really, really long conversation (laughter) that I'm not sure we all have time for. And I could tell you, it's so hard to do your three-year guidance. Again, we think it's the right way, if you look at sort of revenue in this quarter, and people are writing -- instead of writing record adjusted income, you are talking about revenue. Well again, the reason we do three-year guidance is because this is a very lumpy business, and we want people to focus on the overall growth, and the overall value, that we are putting together. So it's awfully hard to be out here, with confidence, about something three years out, meaning that we're talking about 2015, 2016, and 2017. So I'm sure not going to start talking about 2018 and 2019.

I can say overall, the way we look at it, that our -- we are -- our financials are based upon a lot of components parts, which we keep adding to and adding to. And the [tails] of all those component parts, the tails of our library, the tails of our shows, the tails of our syndication shows, the ongoing licensing, merchandising, location-based of just the current franchise. Obviously, the creation of new franchises, and the ongoing exploitation of the existing franchise, in terms of potential spinoffs, prequel, sequel, make us very confident. Not only in our current guidance, but obviously, in where this Company is going beyond that.

Obviously, we've also been blessed with having very good results from M&A activity, where we found companies, big and small, that we were able to put together, with a significant amount of below the line and above the line synergies. We continue to look at that. But we -- obviously, if we were really concerned about 2018, 2019, 2020, you'd be -- see us even more aggressive. And not being frankly as diligent about the kinds of companies, and the kind of assets, that we get to combine with us. I see some companies out there buying some things, frankly, in multiples that I'm not compelled to do. Because we are confident in the growth of our business.

So I would say, again, look at the component parts, look at the strategic advantages that we have, look at the benefit that we have as being a Canadian multinational, in terms of a tax. Look at what that advantage can bring with the right M&A transactions. And again, to take you through a longer-term discussion about the calculus of our long-term trajectory is something that we could have in a much longer session. But I think that's the right way to look at our Company.

And David, relative to your other questions, the library free cash flow continues to be strong, revenues were up sequentially in the quarter. And free cash flow continues to be in line with the strong performance that you've seen in the past. And with regards to backlog, there was a slight decline in the quarter, but backlog continues to be strong, just over $1.1 billion. And this really represents a decline of about $120 million from the prior-year quarter, which is all coming from the delivery of television episodes. And it's -- as you'll recall, it is consistent with the nearly doubling of revenue that we achieved in the television segment this quarter

And Jimmy -- I'm sorry, just the order -- can you give us a free cash flow and the actual trailing free cash flow number?

I've got the -- I don't have the trailing number in front of me. But with regards to the quarter, from a revenue perspective, it was $138 million.

Okay. Thank you very much, guys.

Jim Goss, Barrington Research.

Hi, I've got a couple, also. One, I was interested in the fact that the Hunger Games franchise started out with a much different domestic/international mix than the film industry in general, because of the lack of visibility of the book series internationally. And you've grown into a much bigger share internationally, as the franchise has established its presence. I'm wondering if there were any take-aways you have able to get from that experience that you been able to apply to the Divergent series and Insurgent? To try to accelerate that visibility internationally? And maybe be able to monetize that effort a little better in your international splits?

It's Rob. Thanks for the question. It's something that we pay attention to regularly. We are in constant communication through -- with our international distributors, and they, in turn, with their local publishing groups. We spend a lot of time working with the publishing groups, and with the local territories, to build readership, because we think they are hand in glove. We do that at the very, very beginning, when we look at a project.

Additionally, when we even acquire books, we are acquiring them based on not only their domestic performance, but also their international footprint. And we start that process at the very, very beginning, to continue to grow that. And that's, I think, why you see that trajectory changing. I think you'll see that, also, on Divergent or Insurgent, and in many of our other properties.

Okay. And have you been able to capture some of that in the split for Insurgent, relative to what you got with the earlier series?

When you say split, I'm not quite --

In terms of the deal you were able to strike with international distribution? Were you -- were the terms better because of some of those efforts you are describing?

Most of our deals, Jim, as we mentioned, are overall output deals. And so those terms are prescribed. But obviously, we are trying to push the overall international growth, so that we can take advantage of the overages. Which again, we are very aggressive working with their international distributors on.

And again, another reason why we are going with 3D and IMAX, because that will just help us to grow the franchise on a worldwide basis.

Absolutely. Also, with Hunger Games, as we come to the grand finale, and the [sake of] striking while the iron is hot. Are you more likely to go with a film or TV type follow-through? If you are able to do something like that in the theatrical vein?

We're constantly exploring the opportunities of the Hunger Games universe. But we won't do anything that we don't think is going to be really great for the fan base, as well as for the film-goers.

Yes. That notwithstanding, I can tell you that we are actively looking at some development, and thinking about prequel and sequel possibilities.

Okay. And one final thing. What sort of window did you have with Netflix, for the first series, with Orange is the New Black? And how do you take something that turned out to be that successful, and take [it through] subsequent windows?

The interesting thing about Orange has been that we've had an ongoing discussion with Netflix, as they grow. We've changed the model with them a couple of times already, and continue to do that. And I think that's going to happen with a lot of the digital players, as they expand their business and seek possibilities, not only in the US but outside of it. And so we've had, already, a number of discussions [with them], changing their accessibility in different regions, from second windows, and some to first window. Looking at second cycle with them, all around the world. And I, again, think that's going to start happening with all of the other digital players, as well.

All right, thank you.

Tuna Amobi, S&P Capital.

Hi, thank you. First for Jimmy, in terms of the NOL and tax attributes, how much runway do you have on that front?

Yes, Tuna, we would -- we've got substantial NOLs and foreign tax credits, as well. And would not expect to be a US cash taxpayer into well into FY17.

What's the number?

There's about $150 million to $180 million

All right, great. And for Jon, so I think it's pretty clear to us that you have got great visibility on the television business. I'm going to try to not go farther out, in terms of my question. I'm going to maybe look to the next fiscal year, FY16. Can you talk about your expectations, in terms of the trajectory that you've talked about in the past for this business, in terms of revenues and margins? And I would also imagine, at this point, that you would probably have concluded your plans, in terms of your delivery plans, the episodes and programming hours, things of that nature.

So of you can provide a little bit more color, quantitatively, of your plans for that business for the next fiscal year? Just to get a sense of the trajectory that you're on? I would imagine the 30% you've talked about for the current year, it seems like that should at least be achievable, if not more, for FY16. So any kind of color you can provide around your plans, just to get a better handle, would be helpful. Thank you.

Tuna, I think we gave you guys a lot of color on the potential deliveries, what the overall pipeline looks like. I'm certainly not going to get into, not only not projecting or guiding to the overall 2016, obviously. That's why I do a three-year guidance. But definitely not guiding too much to just one component part of it. But Jimmy, can you give Tuna any color beyond what we've already [said]?

Yes, we're giving -- we're moving into our budgeting cycle for this year, but we feel great about our pipeline for TV, and the growth opportunities there. And with regards to all of our series, and Orange is the New Black, et cetera. So we feel very good, but not going to provide specific guidance.

Yes. I think I would say, actually, next call, Tuna, we'll be able to, after we've done -- looked where all the deliveries land. And have done our budget. We will maybe try to give you a little bit more color.

Okay, fair enough. And lastly, with regard to Hunan, just a clarification. What do you view as the greatest expertise that they bring to the table here? It sounds to me that their core competency is on the television side. But the deal that you've talked about is -- also includes motion pictures and -- et cetera. So I'm just wondering, what should we take away here, in terms of their expertise, and the potential strategic initiatives that you're looking to get out of this? Thank you.

Yes. Brian, why don't you talk about their distribution in China -- film distribution? We can talk a little bit more about some of the TV ideas.

Sure. So Hunan's TV -- films subsidiary, TIK Films, is a distributor, financier and producer of both local and imported product from the West. We've worked with them previously on a couple of movies. And they did a -- really, a great job. So we look forward to them participating in the distribution of some of our movies in the future, as well as the opportunity to be more involved in local product in China. As you probably already know, the Chinese theatrical box office was $5 billion last -- approximately $5 billion last calendar year, of which half of that was local product alone. So that's obviously an interesting and growing opportunity for us, on the film side.

Yes. And on TV, I would basically say -- and Kevin and his team have spent, as I say, already a fair amount of time with Hunan Broadcasting, which I mentioned is the number two broadcaster in China. We see the possibilities of not only looking at their formats for remakes in the US. But we love the idea of having a laboratory where we can take our formats, and get them on the air in China, and try them out and bring them back to the US. So again, we think there are a tremendous opportunities with this partnership.

And Tuna, it's Michael. I want to say one thing, besides Hunan. I was going to say that, as we continue to produce an enormous amount of content, okay? And obviously, our existing library, we see this as a worldwide opportunity to align ourselves as the pure content provider to a -- potentially, a global strategic partners. And those opportunities around the world are very exciting to us.

Okay, thanks for all the color.

Thank you. Tuna.

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