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Driven by strong operating performance, success of its blockbuster release of The Hunger Games: Catching Fire, robust results from its filmed entertainment library and a fall in interest costs, Lions Gate Entertainment Corp. (LGF - Analyst Report) reported record third-quarter fiscal 2014 results. The company’s adjusted earnings of 70 cents per share surged 55.6% year over year.

The quarterly earnings, which include stock-based compensation but exclude loss on extinguishment of debt and valuation allowance, fared far better than the Zacks Consensus Estimate of 51 cents a share. Including one-time items, the company delivered earnings per share of 64 cents.

Delving Deeper

Total revenue of this Zacks Rank #3 (Hold) stock advanced 13.0% during the quarter to $839.9 million, surpassing the Zacks Consensus Estimate of $832.0 million. Improvement in revenues was mainly attributable to the domestic and global success of The Hunger Games: Catching Fire, apart from delivering other theatrical hits like Ender's Game, A Madea Christmas, Escape Plan, Red 2 and Now You See Me.

Going forward, management remains optimistic about its future performance due to the worldwide launch of the next installments of the Hunger Games franchise. The Hunger Games: Mockingjay I and The Hunger Games: Mockingjay II, are slated to be released globally on Nov 21, 2014 and Nov 20, 2015, respectively.

During the quarter, Lions Gate reported adjusted EBITDA of $154.1 million, rising significantly from $87.2 million in the year-ago quarter.

Segmental Performance

Motion Pictures’ revenue of $757.6 million shot up by 12% year over year, reflecting strong performances across Theatrical (up 44% to a quarterly record of $277.6 million), Television (up 7.1% to $105.8 million), Lionsgate U.K. (up 52.7% to $55.9 million) and International operations (up 30.8% to $88.7 million), partly offset by softness in the Home Entertainment segment (down 12.9% to $193.4 million) and other revenue (down 76.9%).

The decline in Home Entertainment segment revenue was driven by a decrease in the worldwide releases in the quarter compared to last year. While there were only 3 releases this year, the segment had coped 6 releases last year. However, this was partly offset by greater revenues from Other Product Category and Managed brands.

Television revenue was augmented by the release of Snitch and Temptation: Confessions of a Marriage Counselor, The Twilight Saga: Breaking Dawn – Part 2, Warm Bodies and Sinister. International segment benefitted from The Hunger Games: Catching Fire, Red 2, Now You See Me and Escape Plan. Lionsgate U.K.’s revenues were also driven by The Hunger Games: Catching Fire along with Olympus Has Fallen.

Television Production revenue jumped 17% to $82.3 million mainly attributable to a rise in revenue from domestic television (up 29%), higher international (up 17.8%) and other revenue (up 92.3%), partly offset by a dip in home entertainment category (down 34.2%). Television Production sales were boosted by shows like Nashville, Orange is the New Black and Anger Management.

Revenues at Lions Gate’s Film Entertainment Library segment increased 10% to $148.6 million, marking it as one of the best quarterly performances for the company.

Financial and Other Details

Lions Gate ended the quarter with cash and cash equivalents of $75.4 million with film obligations and production loans of $573.9 million and shareholders’ equity of $518.5 million. The company in the trailing four quarters has lowered its debt burden by $373.0 million, post which the principal outstanding amount under its revolving credit facility worth $800 million stands at $194.1 million,

During the quarter, contractual cash-based interest expense dipped to $11.5 million from $18.2 million in the year-ago quarter.

The company generated free cash flow of $117.4 million, representing a decline from $125.7 million in the year-ago period.

The company’s filmed entertainment backlog rose to $1.2 billion at the end of the quarter, reflecting strong future revenues, which is encouraging.

For the first time during third quarter, Lions Gate announced a dividend payment of 5 cents per share to stockholders of record as of Dec 31, 2013, payable on Feb 7, 2014.  

Lions Gate is a film studio engaged in the production and distribution of motion pictures for theater and straight-to-video release as well as television programming for cable and broadcast networks. Competing with major studios like Twenty-First Century Fox, Inc. (FOXA - Analyst Report), The Walt Disney Company (DIS - Analyst Report) and Time Warner Inc. (TWX - Analyst Report), the company performed well in this quarter, benefiting from a healthy balance sheet and the content-friendly environment.
 

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