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Lions Gate's Loss Narrows

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Lions Gate Entertainment Corp. (LGF - Analyst Report) recently announced its financial results for third-quarter 2012, reporting net loss of a cent per share. The result reflected an improvement from prior-year quarter’s net loss of 4 cents. The reported loss was substantially worse than the Zacks Consensus Estimate of earnings of 9 cents per share.

As per the company, a notable rise in equity interest income facilitated Lions Gate to narrow down the losses.

Total revenue in the quarter plummeted 23.6% year over year to $323 million, reflecting lack of theatrical releases in the quarter. Moreover, the reported revenue also lagged behind the Zacks Consensus Revenue Estimate of $362 million.

Segments Details

Motion Pictures’ revenue slid 28.6% to $233.3 million compared with $326.7 million in the prior-year quarter. Within Motion Pictures, Theatrical revenue plunged 84.4% to $8.4 million on account of no wide theatrical releases. Home Entertainment revenue went down 28.8% to $128.9 million as the prior-year quarter’s revenue was boosted by strong theatrical titles.

International Film revenue declined 31.8% to $14.6 million, reflecting the release of only one theatrical title internationally compared with the three theatrical titles in the prior-year quarter. Television revenue decreased 15.7% to $22.6 million on account of lower pay TV licensing revenue. Lions Gate UK revenue decreased 44.7% to $16.6 million due to less number of titles.

Amid the gloom, Mandate Pictures revenue jumped approximately 4 times to $40.1 million, reflecting strong revenues from A Very Harold & Kumar 3D Christmas and Young Adult.

Television Production revenue decreased 6.8% to $89.7 million, reflecting lower television episodes, both domestically and internationally, which more than offset the strong performance of home entertainment releases of television programming.

Domestic series licensing revenue from the television distribution and syndication business decreased 25.8% year over year to $49.4 million, while International television segment revenue plunged 49.2% year over year to $6.1 million.

Home Entertainment revenue for the television production more than doubled to $34 million, reflecting strong electronic media revenue.

During the quarter, the company reported adjusted EBITDA of $22.7 million compared with $28.9 million in the prior-year period. However, including one time items, EBITDA spiked 60.4% to $16.3 million compared with $10.2 million in the prior-year quarter, driven by strong performance of EPIX.

What to Cheer?

Lions Gaterecently acquired Summit Entertainment which further expands its filmed entertainment library while boosting its feature film and home entertainment offerings.

Further, the company added that the company’s production and distribution capacity will be supplemented by the integration of Summit's film operations. In addition, it will also facilitate Lions Gate to emerge as a leading international sales group by broadening its global reach.

In addition, the acquisition will bring in noteworthy monetary benefits for the company including Summit’s rich cash flow and revenue. The company added that the buyout strengthens Lions Gate's position and is expected to be notably accretive to its earnings in fiscal 2013.

Moreover, the company’s filmed entertainment backlog increased for the fifth consecutive quarter to $607.5 million, representing strong future revenues, which is not yet recorded from the licensing of films and television products.

Other Financial Details

Lions Gate ended the quarter with cash and cash equivalents of $52.9 million with film obligations and production loans of $463.4 million and shareholders’ equity of $37.9 million. 

During the reported quarter, the company generated a negative free cash flow of $37 million, which improved significantly from the negative free cash flow of $62.7 million in the prior-year quarter.

Lions Gate is a film studio engaged in the production and distribution of motion pictures for theater and straight-to-video release and also television programming for cable and broadcast networks. The company has a strong track record of producing small and mid-budget specialty films.

In order to grab its share of box office receipts, Lions Gate competes with other major studios, such as Fox Entertainment Group, Paramount Motion Pictures Group and Time Warner Inc. (TWX - Analyst Report).

Currently, Lions Gate retains a Zacks #5 Rank, which translates into a short-term ‘Strong Sell’ rating and reflects the company’s sluggish performance. However, considering the fundamentals, we have a long-term ‘Neutral’ recommendation on the stock.

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