Lions Gate Entertainment Corporation (LGF) recently delivered second-quarter 2011 results, with its bottom line swinging to a loss hurt by the rise in theatrical marketing costs. Distribution of four theatrical releases compared with two in the prior-year quarter led to an increased expenditure on marketing.
The company posted a quarterly loss of 11 cents a share, reflecting a sharp drop from the earnings of 26 cents in the prior-year quarter. The quarter under review excludes a loss on extinguishment of debt. The analysts covered by Zacks had expected Lions Gate to deliver a loss of 10 cents a share. On a reported basis, including one-time items, the quarterly loss came in at 22 cents a share.
Total revenue for the quarter climbed 24.7% to $456.3 million from the prior-year quarter, reflecting an increase in Theatrical, International and Television Production revenues. Total revenue also outpaced the Zacks Consensus Revenue Estimate of $422 million.
Lions Gate hinted that adjusted EBITDA plunged 55% to $24.3 million from the prior-year quarter. However, it reflected a sharp improvement from an EBITDA loss of $13.7 million in first-quarter 2011. EBITDA margin for the quarter contracted to 5.3% from 14.7% in the year-ago quarter.
By segment, Motion Pictures revenue of $341 million climbed 23.1% from the prior-year quarter. Within Motion Pictures, revenues increased across Theatrical (up 150.8% to $76 million), Home Entertainment (up 0.5% to $124 million), Television (up 14.8% to $78.3 million), International (up 166% to $37.5 million) and Lions Gate UK (up 16.4% to $15.6 million), offset by Mandate Pictures (down 66.9% to $8.5 million).
Television Production revenue surged 29.7% year over year to $115.3 million, reflecting a 52.1% increase in domestic series licensing revenues of $98.7 million. However, Home Entertainment revenue from television production fell 45.6% year over year to $8.1 million.
Lions Gate ended the quarter with cash and cash equivalents of $78.1 million with film obligations and production loans of $329 million, and shareholders’ equity of $79.2 million. During the quarter, the company generated free cash flow of $18 million, reflecting a drastic improvement from a negative free cash flow of $4.9 million reported in the prior-year quarter.
Lions Gate is a film studio, which produces and distributes motion pictures for theater and straight-to-video release, and television programming for cable and broadcast networks. The company has a strong track record of producing small and mid-budget specialty films.
However, Lions Gate is currently the subject to a hostile takeover bid from billionaire investor Carl Icahn, who has a 33.5% stake in the company. The investor has made an offer to acquire the remaining shares of the company for $7.50 per share. The renewed offer will expire on November 12, 2010. The company notified that it will discuss Icahn’s offer during its annual shareholders’ meeting on December 14, 2010. Carl Icahn has been also advocating a merger between Lions Gate and Metro-Goldwyn-Mayer (“MGM”).
Last week, on November 3, MGM filed for bankruptcy after grappling for years to lower its debt burden. The control of the film studio would be assumed by the founders of Spyglass Entertainment, Gary Barber and Roger Birnbaum.
Currently, we have an Underperform rating on the stock. Lions Gate holds a Zacks #3 Rank, which translates into a short-term Hold recommendation.
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