Starz Entertainment Corp (STRZ) 2016 Q4 法說會逐字稿

Welcome to the Lions Gate FY16 fourth-quarter and full-year earnings conference call.

(Operator Instructions)

As a reminder, today's conference call is being recorded. I would now like to turn the conference over to the Senior Vice President of Investor Relations, James Marsh. Please go ahead.

Thanks, operator, and good morning to everyone. Thanks for joining us today on our FY16 fourth quarter and full-year earnings conference call. We are going to begin with opening remarks from our CEO, Jon Feltheimer followed by remarks from our CFO, Jimmy Barge. We'll open the call for your questions after those remarks.

Joining us on the call today are Vice Chairman, Michael Burns who is dialing in from the East Coast; Motion Picture Group Cochair, Rob Friedman; Chairman of the Lions Gate TV Group, Kevin Beggs; Steve Beeks, co-CEO and President of the Motion Picture Group; Brian Goldsmith co-COO; Rick Prell, our Accounting Officer; and Laura Kennedy, EVP of Corporate Development.

I just want to point out that these 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 our forward-looking statements and as a result of various factors including the risk factors set forth in our 10-K filed with the SEC on May 25.

The Company undertakes no obligations to publicly release the results of any revisions to these forward-looking statements that may reflect future events or circumstances. With that, let me turn it over to Jon. Jon?

Thanks James and thank you all for joining us this mining. Though we had a solid fourth quarter, our year-end numbers don't reflect the financial performance we expect and have consistently delivered in recent years. Jimmy will take you through the specifics in a few minutes.

However it was a great year in terms of value creation. We achieved a record year in our television business with strong growth across our scripted, reality and syndication operations; built a film slate for 2017 that is bigger, more balanced and more cost efficient than last year's; and moved the ball forward on franchise development for the future; added nearly 600 titles to a 16,000 title film and television library that is already one of the biggest content libraries in the world; solidified our status as a partner of choice for owners of great IP as we continue to amass a portfolio of brands driving our film and television businesses.

We showed the ability to move quickly in forming partnerships with all the major digital platforms; establish ourselves as a preferred global distribution partner through alliances with New Regency, Sky Dance, Lei Echo in China and the creation of our Global Gate consortium for local language film production. And we leveraged our intellectual property into additional revenue streams including current and projected licensing opportunities to seven theme parks and more than 20 mobile and VR games, market categories that we expect to represent an increasing share of consumer entertainment spend.

Nowhere is the scope of our value creation more evident than our television business. I would like to lead with our unscripted division this morning because it shows how businesses that we have been cultivating are now beginning to hit their stride. Or nonfiction slate has grown to nearly 50 series including our new show, Douglas Family Gold, which debuted last night on Oxygen and was featured in the Washington Post last week.

Kicking and Screaming, the survival competition series executive produced by Fear Factor creator, Matt Kunitz and hosted by New Girl's Hannah Simone is currently shooting in Fiji for a January 2017 premiere on Fox. We retain all international format and distribution rights to what we view as the first in a series of major reality brands.

As you will recall, just six months ago we made a deal with major reality company Pilgrim Studios, headed by one of the best television executives in the business, CEO Craig Piligian. We are already collaborating with Craig and his team on several new shows achieving synergies and international distribution and exploring several strategic opportunities together.

We recently brokered a deal between Pilgrim and eSports leader, ESL, to create and distribute original content for television and digital platforms. Hundreds of millions of viewers for eSports around the world, this represents and enormous cross-platform opportunity.

Pilgrim has also teamed with Matt Damon, Ben Affleck and Adaptive Studios to produce The Runner for Verizon's Go90, representing yet another new and powerful customer for Lions Gate programming. The Runner is the first broadcast quality, reality competition series for a mobile platform.

Our scripted business is coming off one of its best years deepening its content pipeline with another 15 new series this year including series for Netflix, Hulu, Amazon, Freeform, OWN and EPIX. As I noted, our ability to move quickly and customize deals for each network is making us a preferred partner for many of these fast-growing digital platforms. And in nearly every case, we are engaging with these platforms on multiple business opportunities.

In addition to collaborating with Amazon on the development of Time Out of Mind, the drama series based on the characters and music of Bob Dylan, we've also partnered with them on distribution of the film Chi-Raq and the upcoming July 29 release of Woody Allen's Cafe Society. We are teaming with Hulu on three original series and the new pilot we just finished shooting, Crushed, as well is licensing a number of our titles including Nashville to their platform. Last year they also became one of our content distribution partners in EPIX.

And we now have two original series on Netflix, Orange Is the New Black, and the upcoming Dear White People adapted from the critically acclaimed film on which we collaborated with sister company, Roadside Attractions. We're also continuing to deepen our relationships with our traditional partners, Clyde Philips' drama series Feed the Beast, starring David Schwimmer and Jim Sturgess debuts on AMC on June 5.

Our Dirty Dancing three-hour film the musical event for ABC based on one of the most iconic properties in our library wraps production this week. And a new drama series, Guilt, starring Billy Zane and Daisy Head premieres on Freeform next month becoming the fourth show on which we have collaborated with the network. With a booming unscripted business, one of our strongest scripted slates ever, key series moving toward syndication and our game and talk shows continuing to achieve near record ratings, our television group now accounts for one-third of our revenue and is poised for continued strong growth.

Turning to our film slate, it remains a key driver of our new platforms international output deals, the growth of EPIX and our ancillary businesses. So I'm pleased to report that we've assembled a great FY17 lineup that will build momentum during the year. This year's slate is deeper and more diversified than last year's with Now You See Me 2 and Saban's Power Rangers surrounded by a powerful supporting cast in areas of proved strength.

In two weeks, we will release Now You See Me 2 which brings back nearly the entire cast from the original film. While there is significant competition in the marketplace, it is tracking ahead of the first film and it has generated three times the number of trailer views at a comparable stage.

Reflecting the ability of our tent pole to drive our ancillary and emerging businesses, it has also generated two mobile games in collaboration with our friends at Starbreeze. We moved the edgy thriller Nerve up to the summer when it tested through the roof with young audiences. The story of an online game of Truth Or Dare gone awry, Nerve stars Emma Roberts and Dave Franco and opens July 27. I should note that, as of today, the trailer has been viewed over 20 million times since its debut May 11.

The high thriller Hell Or High Water opening in August from our partners at CBS films was a sensation at this year's Cannes Film Festival earning rave reviews for its cast of Jeff Bridges, Chris Pine and Ben Foster. Excitement is also building for the September 16 release of The Woods, which returns is to our horror roots and is already being called one of the scariest movies ever.

On September 30, we will release the action drama, Deepwater Horizon, with an all-star cast in the heroic story of men and women facing one of the biggest man-made disasters in history. It wrapped production in Louisiana and its new trailer debuts today on Good Morning America. And there is no better way to return to the Tyler Perry business than with Madea at Halloween.

We enter the holiday season with a number of critically acclaimed releases. Academy award-winning director Mel Gibson's war drama, Hacksaw Ridge, which had a phenomenal first test screening, opens in November. Lala Land, Oscar-nominated writer-director Damien Chazelle lyrical love letter to Hollywood starring Emma Stone and Ryan Gosling debuts December 16.

And in January 2017, the action thriller Patriot's Day, in partnership with CBS films reunites director Pete Berg with Academy Award nominee Mark Wahlberg in the story of the man hunt for the Boston Marathon bombers. In February, Keanu Reeves reprises his role as the former hitman bent on revenge in another of our big action brands, Jon Wick chapter 2, accompanied by an exciting virtual reality game.

About three weeks ago, our first costume reveal on Saban's Power Rangers took the internet by storm trending worldwide on Twitter, Facebook and Reddit. One of the biggest and most exciting brands in our family, the film opens on March 24, 2017, in theaters all over the world.

We are teaming with Black Label Media, on Granite Mountain, an action thriller starring Josh Brolin, Jeff Bridges, Miles Teller and Taylor Kitsch. The film tells the tragic and heroic real-life story of the Granite Mountain hotshot firefighters who battled one of the deadliest wildfires in history to save a small town in Arizona. It opens in September, 2017.

The momentum of our Slate continues building through FY18 and FY19 driven by a portfolio of top properties from leading IP owners that includes Monopoly and My Little Pony from Hasbro, Robin Hood, MacGyver, the Kingkiller Chronicles, Highlander, Borderland, Chaos Walking and the Magic Tree House. Whether the underlying IP is a board game, an iconic television show, or a best-selling book series, we are developing our brands not within silos but across our film, television and game divisions as part of an integrated content machine serving all platforms.

The depth of our content pipeline is driving our ability to collaborate with a new generation of buyers through digital platforms investing in content to fuel their growth. As these platforms grow and scale in stature, our first mover relationships are positioned to grow with them.

A number of these are platforms that people aren't thinking about as content partners. We recently became the first studio to offer hundreds of film titles for EST and BOD on the Steam platform which reaches 125 million users around the world. Last week we also became the first studio to collaborate with Google on its new Daydream VR initiative. And a few days ago, we announced our collaboration with Starbreeze and IMAX and deliver location-based VR content to multiplexes.

We are also continuing to introduce new digital platforms of our own. Our Adam tickets app, with partners Disney and Fox, continues to gain traction. We brought aboard two of the nation's biggest theater chains, Regal Cinemas and AMC theaters, along with Landmark Theaters in Canada. Adam expects to reach 15,000 screens by the end of the year and will soon begin its North American rollout.

In July, we will officially begin the global rollout of our Comic-Con HQ over-the-top channel with a slate of original scripted and unscripted series, daily and weekly entertainment commentary and unique access to a library of live and archived programming. We are developing several original series in preparation for the launch of superstar Kevin Hart's Laugh Out Loud comedy platform including series featuring Kevin himself. Our multifaceted relationship with Kevin also includes a social adventure game in partnership with leading game developer Fifth Journey. Our third over-the-top platform Tribeca shortlist continues to gain subscribers along with celebrities who provide expert online commentary for movie lovers.

In closing, we believe that the environment for content owners has never been stronger and recent valuations within our industry support this view. We bring to this environment a diverse portfolio of content driven by our brands and franchises, relationships with leading IP owners and major digital platforms and the ability to move quickly to capitalize on market developments. Looking at FY17, we expect this combination of factors to fuel the continued strong growth of our television business, generate strong and sustainable profitability from our film slate and create exciting opportunities in our ancillary and emerging businesses.

Now Jimmy will discuss our financial results before we open the call to your questions.

Thanks Jon and good morning, everyone. I'll briefly discuss our FY16 financial results and then move on to FY17. We reported FY16 net revenues of $2.3 billion which were down slightly from the prior year.

Adjusted EBITDA was $152 billion as the decline in motion picture performance more than offset growth in TV. TV continued to deliver strong results in FY16 as revenue grew 16% to $670 million while contributions grew 89% to $104 million. Adjusted earnings per share came in at $0.86 a share for 2016 and we finished the year with $1.5 billion in backlog.

Looking forward to FY17, we believe we are poised for a rebound in performance for our motion picture group and continued strong growth in TV. For FY17, we are estimating adjusted EBITDA in the range of $200 million to $300 million. We are providing this range of adjusted EBITDA to better accommodate different levels of box office performance as well as to provide for other risk and opportunity.

With regard to the timing of FY17 adjusted EBITDA, we see the third and fourth quarters as the largest contributors with the first quarter being the smallest contributor. Included in our range are expectations for gains of $20 million to $30 million as we harvest a number of non-core assets that have grown in value. These gains are expected to offset a decline in our share of fiscal year profits attributable to EPIX as the paid channel invest in new original programming ahead of an anticipated uplift in subscriber revenues.

Now I will turn the call back over to James for Q&A.

Great, operator, if you could open up for questions now, thank you.

(Operator Instructions)

Alexia Quadrani with JPMorgan.

Thank you. Just two questions please. First, on your updated guidance, it seems like quite a wide range there in terms of what you're looking for, for EBITDA. I assume the biggest variability is the unpredictability of the film business. But any other factors we should be considering that may cause you guys to come in at one end or the other end of that guidance? And then I have a follow-up.

Sure Alexia, thanks. Look, with 15 new TV series launching during the year, Nashville, in search for a new home and 16 films still scheduled for release throughout the year, we thought it was appropriate to provide a wider range of guidance. Obviously strong performance from the actual releases will continue with better performance within that range, particularly with production titles released earlier in the year where more of the upside will fall into FY17.

And then just to follow-up on the TV side. The TV margins came in nicely ahead of our expectations. Any update on how we should continue to see profitability trending on the TV side and specifically other big swing factors in terms of how much does any one title, whether Nashville does find another home or not, ultimately impact your TV profitability or change the outlook for TV profitability for the year?

Sure. We certainly had a strong quarter and a strong year in TV. Look, we are still tracking close to our previous FY17 television forecast. And with regards to the TV margins, the ultimate outcome will be determined by the mix of programming and including returning series, syndicated programming and of course the new series.

As I noted, we anticipate launching 15 new scripted series in FY17, which suppresses near-term margins as we build value for the future. However, even with the significant launch of new series, I would expect that our margins would be double-digit to mid-teens in FY17. I will turn it over to Kevin to tell you more about our program lineup.

Thanks Jimmy. Just further to that on the TV side, it is a really diverse portfolio this year, a lot of new scripted series launching several, four or five, launching over the next five weeks. Shows getting closer with multiple seasons, the Royals is heading into its third season; obviously we are hoping that goes four, five and six. Casual on Hulu which has been picked up for a second season and it is quickly becoming kind of a darling of the awards and creative circles in critic circles for Hulu; things like that we see having a lot of back-in value as they continue to mature and grow. We are quite positive and confident about finding a new home for Nashville as well.

Thank you very much.

Todd Juenger with Sanford Bernstein.

Hi, good morning. Like Alexia, I have two questions. I will go with my TV question first. Among all of the diverse lineup that you mentioned, particularly in some of the new series you announced with SVOD partners like Netflix and Amazon, just wondering if you might comment on what those deals look like generally. Are they international in scope? What sorts of syndications or backend rights do you retain? And any other parameters of the deals of different buyers like that, from the traditional TV deals that we are accustomed to, that you might share.

The key thing with all of these platforms, and really the emerging cable platforms as well, is every deal is different. Each model is crafted over many months; usually we sell a show and then spend several months figuring out the template of how we are going to work together. So a Hulu deal is very different than a Netflix deal or an Amazon deal and so on.

Some are more rights than others. We balance and weigh the long-term value of the show itself, based on what we think it will do and perform and make a determination on what kind of deals we would like to make. Obviously as a studio, we are focused on rights retention and library growth.

But in some instances there are pretty compelling financial opportunities on an all-rights basis in much the same way as you sometimes look at film titles, and if it makes more sense to monetize it up front, then we will do that. But within our wide range of shows, there's usually one or two in the portfolio that we might take a chance on in that regard. And others that we hold onto the rights and look for long-term value.

I would add, Todd, that it's very, very rare, if ever, that we don't retain some rights long-term to add to our library.

Thank you, very helpful. Turning to the [theatrical] side, just wondering if you might comment, given the way the slate performed as [we] ended out of last year? Just on the health of your international distribution relationships and the output deals you have there, especially if some of the films underperform versus what we all had hoped. And any comment you'd make on the pacing of how those deals tend to get renewed over time and whether the terms you think should be able to get similar to what you have been getting in recent years? Thanks.

Todd it is Rob. Listen, at the end of the day, our international partners and cofinanciers are happier when the movies are overperforming, as are we. We felt the pain recently and obviously so did they. But we are the only studio that can supply them with a portfolio of big production value pictures on a consistent basis. We are in constant conversations with them. We had a good Cannes where we spent a lot of time together. Our deals still have a long way to run and obviously we're looking forward to renewals at similar levels.

Stan Myers with Piper Jaffray.

Good morning. Thank you for taking my questions. I have one for Jon and one for Jim. Jon, going back to TV, business continues to deliver. And now we are starting to see Pilgrims meaningfully contribute. Maybe you can talk a bit about the integration and what you guys learned here over the past six months into the acquisition. And then for Jimmy, a little more color on the guidance if you can provide some pieces of that $200 million to $300 million TV versus studio versus a few other pieces that are baked in there. Thanks.

Stan, thanks for your question; I'm going to have Kevin Beggs answer the Pilgrim question.

Thanks Jon. With regard to Pilgrim, it is really working out great. I think better than even we all expected. They have an amazing stand-alone business. Our role as an investor and collaborator is to see if we can be additive.

Where we are finding a lot of common ground is in distribution and business expertise. Traditionally, the nonfiction standalone production companies are on a service basis and a work-for-hire basis, hoping that they can retain more rights and get more distribution; they get jammed a little bit if they are not a distribution company by networks that want to hold onto those rights because we have a really robust distribution infrastructure. We give them the ability to hold onto those rights and, in many cases, we are working hand in hand with them to negotiate those deals.

But in addition to that, they hold onto certain domestic rights which they don't have the infrastructure to exploit. Jim Packer and his group have met weekly with Craig and his team about SVOD and OTT and EST opportunities on things that they do control. And they are actually jumping into business with us on the film side, on one of their more successful series titles, that they presented to Rob and Eric and the team that we are developing.

So it is really quite collaborative and one other partnership that we are excited about is in the eSports area. We've been working closely with ESL, which is the largest eSports sanctioning body and organizing entity in the world owned by MTG. And we partnered them with Craig -- are introducing Craig and they are developing a series built around the eSports business. And Craig has really had a huge success with Ultimate Fighter in the mixed martial arts arena with USC. So we hope to replicate that kind of success. Those kinds of things are happening all the time and we are quite excited about that.

I'd add one other which is, Craig Piligian, very much like us, is an entrepreneur. Don't be surprised if you see him joining us in actually doing some M&A activity acquisitions in terms of some companies that could be tucked into his company where we can get the benefit of the scale and of his management expertise.

Great.

And Stan, to your question in terms of guidance, look, we expect strong contribution from both Motion Picture Group and TV group as I mentioned. TV tracking close to the 2017 forecast that we'd previously talked about. We feel good about that, a lot of contributions.

I would also add that we've got a number of non-core assets that are actually creating a lot of hidden asset value. Six to seven investments if you exclude EPIX, we have six to seven investments that are not currently contributing to EBITDA at all. So over the next 12 to 24 months, several of these assets will either be monetized or will be contributing to adjusted EBITDA. And interestingly, we see these assets as having significant value that is not reflected in our share price; and coincidentally, I think it approximates our corporate debt.

Great, thanks guys.

Ben Mogil with Stifel Nicolaus.

Hi, good morning and thanks for taking my question. So from a balance sheet perspective, Jimmy, where do you think cash programming and production cash outflow looks like in 2017 against the 2016 number?

Sure, Ben. Look, the free cash flow is going to ultimately be an impact of our trailing 12-month EBITDA as well as working capital changes. So as we ramp-up our film and TV investment going into a slate of 2017 films, that certainly has an effect. We feel very good about our free cash flow generation capability.

Sure, I apologize. I didn't mean free cash flow. I meant just the actual cash for programming investment; do you think it is up from 2016's number?

Yes, there is probably an increase going from 2016 to 2017 as we ramp up; we have 17 films in this year's slate. Actually, from an investment, if you're asking investment in film for our motion pictures?

It can be both. It can be the combined consolidated numbers if you want to break it out sort roughly thinking TV, roughly thinking film would be. That would be great too.

I don't have the TV numbers in front of me, but we've been out there saying that our investment in film is about $100 million less in 2017 than 2016 for a larger slate.

The slate itself, the overall cost is down about $100 million.

Okay. And then just back to guidance, I certainly appreciate the need you have to give a wide range just given the underlying business and the volatility around that. Is the $20 million or $30 million, so you've got probably $20 million to $30 million less of EPIX contribution and then offset by these $20 million to $30 million of gains. Are these gains a combination, in your mind, of both companies that are losing money turning positive and actual asset sales?

Look, we know we are not going to get specific on the assets; but again they are not currently contributing to EBITDA. In some cases it may be a small negative EBITDA, but they clearly have significant value that is been created over the years.

Okay. That's great, thank you very much.

Barton Crockett with FBR Capital Markets.

Okay great, thank you. I was curious about one of the comments that you made earlier about the value of your investments. And, if I heard you correctly, were you saying that you see the value of your investments at approximating your corporate debt; was that correct that I heard that?

Yes, if you are excluding EPIX.

All right. And you're saying that six to seven of them will either turn into contributors to EBITDA or be sold? Is that correct? Is that what I am hearing?

I said several of those six to seven during the next 12 to 24 months we would expect that they would either be monetized or they will be contributing to adjusted EBITDA.

Okay, all right. One of the things that you guys had mentioned [that's clear] in the sector is that there is a lot of consolidation going on. I was wondering if you could give us a sense of your appetite to make acquisitions in the context of, your stock is now at a lower price than it was perhaps a year ago. Does that impact your appetite to make acquisitions at this point?

Hi, Barton. I would say this that obviously we have a very strong balance sheet, so any acquisition that we decided to pursue could be a combination of stock and cash. Obviously, if you're going to use the stock component in that, it has to be accretive to all of the shareholders. So we have plenty of capacity to do a lot of deals; our stock has come down as you said. And so that means that we are less likely to use a tremendous amount of stock on any deal, but again, if it is accretive we will look at any transaction.

Okay great. And just one final thing here. Could you just update us, the government has put out some new kind of thoughts about tax, international tax, in terms of sweeps and inversions. Just give us a statement about what impact you see that having on your effective tax rate and your ability to potentially be party to doing acquisitions or being party to an inversion in the future.

Look, we don't expect the treasury announcement as currently written to impact our current effective tax rate or how we view our M&A initiatives.

Okay. Fair enough. Thank you very much.

Jon Janedis with Jefferies.

Hi, thank you. Two questions as well. As you know, there's been a lot of talk in the market about franchise films taking an increasingly large share of the domestic box office at the expense of the rest of the market. So, given what you're seeing for your slate, can you share your views on the marketplace and to what extent you reject that narrative?

Hi, Jon, it is Rob. If you look at the box office history for the last four years, domestic I'm referring to right now, for the last four years and projecting for the fifth year, the top-ten movies have historically taken anywhere from 26% to 36% of the overall box office pie. That leaves close to $7 billion or $8 billion of box office annually and we plan to take a pretty healthy piece of that.

We believe very much in our strategy of offering more product for wider audiences and clearly at a more efficient price. We like the doubles area. Interestingly enough, if you look at the first Twilight and the first Hunger Games and then you compare it similarly to Deadpool, from a price perspective, we were all shooting for doubles at that point and ended up with grand slams. We think there are plenty of those still available and we're going to share a bunch of those.

Okay, thanks for that. And maybe separately, I think investors sometimes think about your business in terms of contributions from your various revenue streams, the library being one of them. So are you seeing any change in the level of cash flow contributed by the library as you contemplate the guidance for this year? I think in the past you have talked about a $200 million contribution.

Jon, interesting our library continues to grow. As a matter fact, FY16 we generated $520 million of revenue in our library. And the contribution approaching $200 million still actually growing; that's the largest year of contribution over the last ten years. And cash flow was approaching $300 million. So the truth is, library business is still very robust for us.

So, no change for the outlook?

No, as a matter fact, we continue to add libraries. Jon mentioned in his comments, we added 600 titles to the library in the past year and third-party companies continue to come to us to have us manage the libraries for them just because of our success in that area.

Okay, thanks.

David Miller with Topeka Capital Markets.

Hi, guys. I have two questions. Steve Beeks, can you update us on the 4K opportunity? I think I asked you this question maybe a year ago and, at that point, 4K was in its infancy. Is the market expanding at the rate that you had thought would be the case roughly a year ago; and how are you guys doing just in general with the 4k opportunity? It seems like a hidden opportunity that the Street doesn't really talk about all that much.

And then Jimmy, there is a balance sheet item in the liability column; participations as residuals is up fairly substantially year over year, roughly 30%. Is that because you are producing more product or is that because above the line Talon is asking for more back-end economics? Just curious your thoughts. Thanks a lot.

I will take that one quickly. It's really timing and clearly producing a lot more product and great success at that.

Got it.

David, your 4K comment is appropriate. I would say, the launch of 4K ultra high def is still in its infancy. But we are continuing on our course of remastering a lot of our product and releasing it. I think that it is ahead of the industry's projections as you see other studios jump in. And it is an opportunity for us to continue to release not only new product, but to go back to the library and release key titles once again. So I think you're going to see that determine its course over the next several months definitely in the holiday season we expect to be pretty big for 4K.

Great, thank you very much.

David Joyce with Evercore ISI.

Thank you. A couple questions. I was wondering if, related to the EBITDA guidance, is there any change in your ownership stakes of the films that have any impact on that? And then secondarily, the international revenue growth was strong. You had some reasonable specific releases. I was just wondering if that is a trend that might be continuing. Thank you.

Nothing with regards to our guidance is really significantly affected by the change in deals or international deals. I would say, as you have seen, we have very strong performance in international across all of our businesses. Our international revenue is very strong; that is really reflective of the growing number of platforms and strength of globalization.

Thank you.

Stephen Kajal with Royal Bank of Canada.

Thank you very much. Maybe two questions. First on your four biggest movies of the year, Now You See Me, Deepwater, Patriot's Day, Power Rangers -- first, can you give us a sense of what your expectations are, even if that's a big range in the domestic box office? And also give us a sense of how much those four are a contributor to your EBITDA guidance. And then I've got a follow-up, if that's all right.

Yes I don't think we are going to drill down that way for you for a lot of reasons, including contribution for the year is very dependent, as Jimmy said before, on when in the year they come in. And again, when you say the biggest films, I don't know if you are talking about budget or the name is longer or I'm not exactly sure what. I think that our history has been, and I would say this is to Rob's point before, Deadpool swung for a double, it's been a $67 million budget, and it's one of the biggest movies of the year.

We've had tremendous profitability revenue, but particularly profitability (inaudible) but lower-priced movies that we have ever had. Breakout this year, as I said -- Nerve is really hitting the nerve of the young audiences with over 20 million trailer views right now. That was not an expensive picture; it is early in the year, it could be very profitable. Lala Land could be breakout, but it is a little bit later in the air. So I don't necessarily accept that characterization.

But obviously, for Now You See Me, it is a sequel, we see it as a franchise; we would obviously like this one to perform. And Power Rangers, we are really, really excited about. It is looking great; we will be releasing materials too. You will be seeing them shortly; the reveal of the costumes, as I mentioned, really came out great. And obviously, that's a movie that we are really concentrating on, because we could see doing five or six or seven of them. That's about all I can say specific to the numbers.

Okay, fair enough. And then, as a follow-up on the TV side of things, first can you talk about for your revenue expectation for the television segment, how much of that revenue today is already contracted and what is out there still to be contracted? And also on Nashville, it seems very likely that you will get that picked up somewhere else; how many seasons do you think that, that series can ultimately run? Thank you very much.

This is Kevin. I will speak to the Nashville part and Jimmy will talk about the visibility, although the visibility is really quite good on all of our TV products. But on Nashville, the fans and everyone else is clamoring for many more seasons. We go one season at a time in our thinking, so our near-term plan is to get another full season; we are in discussions with four or five platforms. Most of those have been inbound inquiries coming directly to us asking about the possibility of moving the show.

Bringing on Ed Zwick and Marshall Herskovitz to be the show runners in a fifth season, which was already something we were planning with ABC, suggests a long-term viability for the show and we have long-term deals with the cast. These kind of shows can go forever and ever. Obviously that's our hope and expectation, but we have got to do it one season at a time. So right now, we're all about season five, but we hope to land season five and keep talking about this show for years to come.

And I think the simple answer to visibility is we have a tremendous amount of it. Most of the shows that we expect to generate revenues for the year are already contracted.

I would also add that with regard to our backlog, probably over 40% of that is represented by TV.

Matthew Harrigan with Wunderlich Securities.

Thank you for taking my question. I think in the past you've said that normalized ultimate profit on a new show could be $200 billion to $300 billion. Do you have some issues with timing in terms of realization? Even apart from the absolute level of performance which you probably have said, in terms of the number of --

Could you repeat the question, Matt? We missed the beginning of it, so if you could repeat it again, I would appreciate it.

Sure. I think you said in the past that you expected ultimate profitability on new releases of $200 billion to $300 million normalized. Even apart from the absolute level of performance this year, are you having some timing issues because you are recranking the production pipeline and then some of the issues with the product last year?

And then secondarily, Jon, you are on the Board of Televisa, I think you just announced another venture the other day with a number of European and Asian companies for more local production, which is clearly unmet need. I know that's not going to be a big financial number for a while, but still seems interesting, strategically, in terms of how you think about the world. Thank you.

The first, I'm not really sure what you are referring to. I don't believe that -- I've don't believe I've given you that range for profitability.

I will take the second question and let Jon take the Global Gate question.

I think with regards to the slate, it's a very well-balanced slate for FY17 right? And as we have noted, approximately $100 million less in cost. You have got 17 films versus 14 in the prior-year. So we feel good about that.

Likewise remember from a timing standpoint, that we had five major wide releases in the fourth quarter of 2016. So the P&A has been put behind us with regards to those films and there is really strong carryover coming into FY17 from a timing standpoint. So we feel good about our bounce back and our film business in 2017.

So clearly we are paying attention in terms of your question about Global Gate. We are paying attention to the growth of the international market. Obviously, we have our specific approach a little different than most of the Studios to a number of the countries in terms of our output deals. And we are thinking about the local language piece of this a little bit differently as well.

It's quite expensive to set up, as some studios have in certain territories, to set up local production units and distribution units. And our approach was a little bit different. We have, Instructions Not Included, which was a Pantelion-owned title, our partnership with Televisa. And we watched how, when it was the right kind of a title, it being reproduced local, in local language, in France, in India, in China, potentially in Brazil.

And so, we thought an interesting way for us to play in this market was to bring in some of the best producers and distributors in the world, make them our partners in a venture, so that we are all out looking for these great film formats that could be remade. And so we created Global Gate; we're about a 30% partner in it. We have the first right to distribute in our territories; and we're going to build a production fund around it. But we have again, Televisa as a partner; Lotte in Korea, and by the way, that is South Korea not North Korea; Gaumont in France; Tobis in Germany; some of the best partners in the world. And we thought this was a great Lions Gate way to look at local production on a global basis.

Some of those Hunger Games sets would look really good in North Korean propaganda films. Maybe you should look at North Korea as well. Thank you.

Thank you for that comment.

Doug Creutz with Cowen and Company

A quick question on the guide. I think you guys exclude new business initiative investments from your adjusted EBITDA guide. I'm just wondering, how much do you have budgeted for that in 2017?

We're not going to give specific numbers on the direct-to-consumer initiative, but clearly it includes our SVOD initiatives that we are excited about -- also Adam films, which I know you have heard a lot about, which is direct-to- consumer. So we really feel good about those and expect them to be contributing to our adjusted EBITDA in future years.

Can you at least give a sense of it's going to be up or down?

Well look, you would expect it to be up because we are launching and we are rolling into those, but also that is absent us bringing in other partners and things like that with regards to this. These are highly sought after assets; we have got great partners; we have got a great start. And so there's a lot of flexibility there and optionality on our part. So I wouldn't get locked in on any one particular number which is one reason we carved it out. We'll see the amount of spend as we roll out through the year.

It is Michael; I just want to add one thing. As far as Adam is concerned, Adam is in the process of closing a fairly significant round. So, as far as us or other partners writing other checks over the course of the year, I think that is highly unlikely because they have money in the back. Jimmy is really referring, for the most part, to the SVOD ventures.

Okay, thank you.

Evan Wingren with Pacific Crest Securities.

Thanks. How big is TV production right now as a part of your library revenues? I'm curious how quickly is that growing and where do you see that going over time?

The TV piece of our library is a smaller portion of that, because we don't put it in library until the shows are no longer airing. A lot of the TV programs that are currently airing have prior seasons that is not factored into the library. So I would say, 10% TV, 90% motion picture.

Okay. Just in terms of the TV landscape, how sustainable do you believe the current growth rate of scripted original shows on TV is? And the follow-up question to that is, where is the incremental buyer coming from right now for you? Is it linear or SVOD?

It's really a mix. As we talked a lot before, 15 years ago cable started applying pressure to broadcast by proliferating. The streamers are applying pressure to cable; everybody's in search of their defining hit series. We've been fortunate enough to be the supplier to several platforms for their defining hit series. So while we are doing a lot of business at places like Hulu and Netflix and Amazon, we also have some very high-profile business with emerging cable outlets that are jumping into higher profile scripted programming.

And Green Leaf, as an example, that we do for OWN, which will premiere later in the end of June, is a really substantial one-hour drama. Oprah Winfrey is not only executive producing, she has a recurring role on the series; it is a high-budget drama, a big soap opera set in a May church in the South, and that's an exciting place. We did Manhattan for two seasons with WGN America, who is a big new player in cable, and there is new streaming partners popping up all the time.

YouTube Red has obviously announced a lot of initiatives; they are a new significant player on the scene. And I expect others to follow suit, and as they do, the cable networks are going to jump in as well. The Royals has been a big defining series on the scripted side for E; and E has announced other series and we are very excited about pitching them new material as well.

And even Pop, our investment, our network with CBS is jumping into scripted. Up until now, they have done nonfiction and acquired lower cost comedies like, Goshen Creek, from Canada. But we are really excited about Night Cap, which is a show we are financing and they're licensing which our international buyers have really jumped at. That is coming in November and that is a lower cost model. On the high end, you've got Orange is the New Black, which is a very high-end drama. And on the lower end, you've got Night Cap. Both, I think, are going to be -- well, one is already a breakout hit for Netflix and we think Night Cap will be the same for Pop.

Okay thanks.

Tuna Amobi with S&P Global.

Hi, thank you very much. Jon, in your prepared remarks, I'm trying to understand as you went through the film slate whether there has been a major change in your philosophy. So you alluded to bigger balance that is cost-efficient. Clearly, you guys have been always cost-efficient, but as I think about your upcoming slate, has there been any underlying major change in terms of your film releases? Perhaps any lesson from some of the films that you released that maybe didn't do so well and this year could actually have resulted in some type of major change in how you view the green lighting process?

And also, Jon, you alluded to separately the value of content. You didn't specifically mention the DreamWorks Animation deal, but I'm wondering how that deal has influenced your perception of the M&A landscape perhaps on both sides of the table as a potential buyer or seller. And then I have a follow-up.

Okay. That was a mouthful, Tuna. I will even let you have your follow-up. The thing that I would certainly say, it's pretty obvious whether it is Legendary or whether it is DreamWorks Animation. I think it is pretty obvious that content is critically important right now for all of the existing and new platforms, in terms of getting their market share, of attracting consumers, of retaining consumers and differentiating their platform and package.

So I think certainly there is an affirmation of the thesis that we have been saying for 16 years, which is content is really important. Getting great content, building libraries that can be sold and resold to every emerging revenue stream that is created by new technology. I think animation is something that we played with a little bit. I think it falls into the category of, we are not going to do it unless we can figure out a way that it makes sense for us with our model.

But I think interestingly what, at the DreamWorks deal really speaks to, and I think Legendary as well, is that the value of those companies was not necessarily the revenue stream or the profitability from those businesses, but the development of franchises -- brands that can play across multiple platforms and revenue streams. And I think that is what we are concentrating on. And if you go back to my remarks today and there are some, frankly, very important titles that we didn't mention and hope to in the near future.

I think that you could see that we continue to and perhaps are doing even a better job of developing, acquiring and mining great franchises and great brands. And I think you could also note that IP owners of important properties continue to come to us. So we did take a couple of big swings. I clearly thought that Egypt was one of those; it did a lot better internationally than it did here.

I think we have learned lessons when we misfire in any of our business. And I think one is particular in the Divergent franchise, maybe we rushed the third movie a little bit instead of taking our time with it. We wanted to hit a date, but we are always learning things.

I think that it has been made clear in the last call and this call that we continue to focus on the verticals where we have had great success. Young adult, Nerve, a great opportunity to reach a young audience. Tyler Perry, obviously delighted to be back in business with him. And Boo, as we're calling it, the Madea movie for Halloween, we think it's -- I don't want to jinx myself -- kind of a slam dunk. We have a great horror picture that I think everyone is going to be very excited about when they see it. And then we have another one right behind it that we're not ready to announce yet, but I think everyone is also going to be excited about. Going a little bit back to our roots continuing to mine franchises, doing it with our model, being a little edgier, a little more innovative; I think those are the things that have made it work for us. I think you'll certainly see that in 2017 and 2018.

Just housekeeping with regard to your China initiatives. Whether it's the Ali Baba streaming or the Hunan TV, I'm wondering if we should expect any type of milestones this year and whether there might be any result in cash flow ramifications as a result of those. If you can update us on the milestones from those partnerships that you expect to hit this year and any cash flow implications. That would be helpful. Thank you.

Brian Goldsmith spent a lot of time this year in China; we will let him answer that question.

Hi, Tuna. Our China business continues to be very robust. We had a great year last year getting five of our films released there. And we have had great success licensing both our cash flow as well as our television (inaudible) content and digital platforms there. Platforms there keeps growing nicely. And digital platforms keep growing nicely both at the core and on subscription.

So we think that our business in China will continue to grow at a nice pace over the course of the year. We are not prepared to announce on this call any partnerships but obviously, our existing deals that you mentioned ought to continue to do nicely for us.

Thank you, Tuna. Liea, why don't we wrap it up at this stage? I will read one final remark here. Everyone should refer to the Reports and Presentation tab under the Corporate section of the Company's website which is www.LionsGate.com for a discussion of certain non-GAAP forward-looking measures that we've discussed in this call. With that, we will wrap it up. Thank you.

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