Final Transcript
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Final Transcript LIONSGATE ENTERTAINMENT: Fiscal 2012 4th Quarter Earnings Call May 31, 2012/6:00 a.m. PDT SPEAKERS Peter Wilkes – Senior Vice President of Investor Relations Jon Feltheimer – Chief Executive Officer Michael Burns – Vice Chairman Rob Friedman – Co-Chair, Motion Picture Group Patrick Wachsberger – Co-Chair, Motion Picture Group Steve Beeks – Co-COO and President, Motion Picture Group Kevin Beggs – President, Lionsgate’s Television Group Jim Keegan – Chief Financial Officer Rick Crowell – Chief Accounting Officer ANALYSTS Alan Gould – Evercore Partners Caroline Anastasi – JP Morgan Ben Mogil – Stifel Nicolaus James Marsh – Piper Jaffray David Miller – Caris & Company Doug Creutz – Cowen & Company Matt Harrigan – Wunderlich Securities David Joyce – Miller Tabak & Company Marla Backer – Hudson Square David Bank – RBC Capital Markets LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 2 PRESENTATION Moderator Ladies and gentlemen, thank you for standing by and welcome to the Lionsgate Fiscal 2012 Fourth Quarter Earnings Call. For the conference all the participants are in a listen-only mode. There will be an opportunity for your questions. As a reminder, today’s call is being recorded. I’ll now turn the conference over to the Senior Vice President of Investor Relations, Mr. Peter Wilkes. Please go ahead, sir. P. Wilkes Thank you for joining us on the call this morning. Jon Feltheimer, our CEO, will lead off with opening remarks. We’ll then open the call to Q&A. Joining us for Q&A will be Michael Burns, our Vice Chairman; Rob Friedman and Patrick Wachsberger, Co-Chairs of our Motion Picture Group; Steve Beeks, Co-COO and President of the Motion Picture Group; Kevin Beggs, President of Lionsgate’s Television Group; Jim Keegan, our CFO; and Rick Crowell, our Chief Accounting Officer. The matters discussed on this call include forward-looking statements, including those regarding 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 important factors, including risk factors as set forth in Lionsgate’s 10-K LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 3 filed with the SEC on May 30, 2012. The Company undertakes no obligation to publicly release ... any revisions to the forward-looking statements that may be made to reflect any future events or circumstances. Jon? J. Feltheimer Thank you, Peter. Thank you all for joining us on the call this morning. Fiscal 2012 was a milestone year for Lionsgate. We acquired Summit Entertainment and significantly increased the scope of our business and the depth of our content portfolio. We saw our strategy of building brands and franchises reach fruition with the launch of The Hunger Games worldwide, and we continue to increase the diversification and enhance the profitability of our Television business. We’ve had a very productive four months since our last call. First, we’ve begun to achieve significant benefits from our acquisition of Summit Entertainment, bringing to our buyers, partners, and consumers a business whose scale has increased dramatically in the past year. Our theatrical slate is positioned to generate more than $1 billion to the North American box office this calendar year, leading off with The Hunger Games, finishing up with Twilight: Breaking Dawn – 2, and anchored by The Expendables 2 in the middle. LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 4 Our Theatrical and Home Entertainment businesses are on pace to achieve double-digit market share throughout the year, ranking among the industry leaders. We continue to strengthen our 13,000 title library, not only with the addition of the number of valuable titles from our Summit acquisition, but with our renewal last week of our long term distribution deal with Studio Canal, whose titles include such blockbuster hits as Terminator 2: Total Recall, Basic Instinct, and Rambo. Our library achieved a record $416 million in revenue last year, and with increasing margins it generated close to $150 million in cash flow. In the four and a half months since the Summit acquisition we’ve taken several specific steps to translate our increased scale into margin improvement and a stronger position in the marketplace. We’ve revisited our theatrical exhibition, retail, and vendor relationships across our motion picture companies to take advantage of new economies of scale and new opportunities reflecting the scope of our combined Lionsgate and Summit ... In January we pointed out that one of the major benefits of the Summit acquisition was strengthening our international licensing business, and our focus on this year is already achieving results. We have just extended and LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 5 expanded our output deal with Nordisk in Scandinavia to encompass Lionsgate as well as Summit titles, and we strengthened our multi-faceted relationship with our valued Studio Canal partner with last week’s announcement that they will distribute The Hunger Games: Catching Fire in Germany. We’re also finalizing plans to extend the IDC Summit partnership in Latin America to the Lionsgate brand as well. These deals increase our long term visibility and retain our upside while continuing to mitigate risk because of our up front minimum guarantees. With The Hunger Games and Twilight we’ve established ourselves as the number one studio in young adult franchises, and we’ll continue to leverage our market leadership to serve as a magnet for the most compelling new properties in the marketplace. Our next wave of young adult films includes Ender’s Game, a book series which has a passionate and long standing fanbase of its own, and is scheduled for a November 2013 release, three weeks ahead of Catching Fire. We also have a number of very promising development properties, including the first book in our Chaos Walking trilogy, The Knife of Never Letting Go; Veronica Roth’s Divergent, the first book, and another New York Times bestselling young adult trilogy of books; and Erin LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 6 Morgenstern’s highly acclaimed The Night Circus, to be produced by Harry Potter Producer, David Heyman. We’re already exploring ways to extend some of the properties we acquired in the Summit deal across all of our businesses, including potential TV series based on the Red and Step Up film franchises. We’ve completed the bulk of the integration of Lionsgate and Summit on schedule, eliminating 80 positions, or approximately 12% of our combined workforce, and our divisions are headed by executives who represent the best-in-class from our two companies. Our overhead to revenue percentage remains the best in the media sector. It’s important to note that we’ve already paid down more than $100 million of our $500 million Summit term loan, leaving a balance of less than $400 million. Turning to our second area of focus, we’re positioning ourselves to take full advantage of the continued rollout of The Hunger Games franchise in the years ahead. As you know, the first Hunger Games film is nearing $400 million at the North American box office and already approaching $650 million worldwide. We will open The Hunger Games in China next month, with a launch that includes 67 IMAX screens, and its performance there should drive its worldwide box office significantly higher. LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 7 The Hunger Games will have the biggest home entertainment launch in Lionsgate’s history on August 18th. Like our theatrical marketing campaign our home entertainment rollout of The Hunger Games will take an integrated approach to digital and traditional media, with significant utilization of social networks. We’ll kick off the launch with midnight retail events across the country that we expect to recapture the excitement and fan frenzy of its theatrical debut. And we’re already setting in place all the elements to make the next installment of the franchise Hunger Games: Catching Fire an even bigger success. We secured a very talented director in I Am Legend’s Francis Lawrence and we’ll begin production in September for a scheduled November 22, 2013 theatrical release. We began licensing Catching Fire as well as Red 2 and a number of other significant titles at the Cannes Film Festival last week. I’m pleased to report that our newly combined sales force achieved a record $170 million in sales. Turning to our other young adult franchise, Twilight: Breaking Dawn 2, it’s completing post-production for its November 16th release. Director Bill Condon has done a terrific job and we believe that Breaking Dawn 2 will be the strongest Twilight film to date. A special 60 second Breaking LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 8 Dawn 2 teaser will be included on The Hunger Games DVD in August, as we capitalize on our dominant young adult presence. Continuing our emphasis on repeatable franchises, our next three releases, Medea’s Witness Protection, Step Up Revolution, and Expendables 2 are all proven brands. In fact, more than half of our upcoming release slate is comprised of franchise properties. In addition to the titles that I just mentioned, these include Hunger Games Catching Fire, Twilight Breaking Dawn 2, Red 2, and Texas Chainsaw 3D. Turning to our third area of focus, the successful diversification of our television business continues, as our core cable shows continue to move through or towards their syndication windows.