Lionsgate Studios Q2 2027 Earnings Call Transcript

Lionsgate Studios (NASDAQ:LION) reported second-quarter financial results on Thursday. The transcript from the company’s second-quarter earnings call has been provided below.

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Summary

Lionsgate Studios Corporation reported a 41% increase in revenue year-over-year to $669 million, with adjusted OIBDA improving to $72 million.

The company is leveraging its portfolio of franchises like ‘The Hunger Games’ and ‘The Rookie,’ driving growth across theatrical releases and television, alongside strategic expansions into live experiences and gaming.

Lionsgate reported a significant increase in library revenue, reaching approximately $1.04 billion in trailing 12-months, reflecting strong cash flow margins.

The company is actively expanding its IP into new areas, including stage musicals, live experiences, and video games, expecting to have a robust lineup by fiscal 2028.

Management expressed confidence in the fiscal 2027 outlook, driven by a promising theatrical slate and strong TV deliveries, projecting significant growth in adjusted OIBDA and free cash flow.

Lionsgate is focusing on deleveraging, with plans to reduce net debt and explore strategic capital allocation, including further investment in content.

The company is exploring innovative partnerships, such as with Meta for VR and 3D content, highlighting opportunities at the intersection of entertainment and technology.

Full Transcript

OPERATOR (Conference Operator)

Hello everyone. This is the conference operator. Today’s call will begin in just a few moments. We ask that you please stay on the line. And once again, today’s call will begin in just a few moments. Thank you, good day and welcome to the Lionsgate Studios second quarter 2027 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note today’s event is being recorded. I’d now like to turn the conference over to Nailee Shah with investor relations. Please go ahead.

Nailee Shah (Investor Relations)

Good afternoon. Thank you for joining us for the Lionsgate Studios Corporation’s fiscal 2027 second quarter conference call. We’ll begin with opening remarks from our CEO, John Feltheimer, followed by remarks from our CFO, Jimmy Barge. After their remarks, we’ll open the call for questions. Also joining us on the call today are Vice Chairman Michael Burns, COO Brian Goldsmith, Chairman of the TV Group Kevin Beggs, Chairman of the Motion Picture Group Adam Fogelson, Chief Revenue Officer Jim Packer and Senior Advisor to the Office of the CEO at Lionsgate and Co-CEO of 3 Arts, Brian Weinstein.

The matters discussed on the call also 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 could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in our public filings for Lionsgate Studios Corp. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.

I’ll now turn the call over to John.

John Feltheimer (Chief Executive Officer)

Thank you, Nilay and good afternoon everyone. Our strong performance in the quarter reflects all of the pieces of our fiscal 27 plan coming together, reaffirming our confidence in this year’s forecast of strong adjusted EBITDA growth and giving us greater visibility into our continued growth in fiscals 28 and 29. I’d like to go through each of the components of that plan first. We’re driving our growth with our portfolio of franchises and other branded IP.

Ten of our next fifteen wide theatrical releases are repeatable branded properties, with the new Hunger Games, Resurrection of the Christ, Parts One and Two, The Housemaid, Secret, Michael Two and Naruto leading the way complemented by other marquee properties. Improved areas of strength we have confidence in the earnings power of our film slate over the next three years. One of the most celebrated of these franchises, The Hunger Sunrise on the Reaping, opens in two weeks to kick off the Thanksgiving box office.

We believe that this will be one of our biggest and best Hunger Games yet. Our television business is also driven by our ability to create long-running hit properties. The Rookie is growing in popularity as it heads into its ninth season. The Rookie North spinoff will arrive in January on ABC and will stream on Hulu in the US and Disney in most international territories. Ghosts is exploring new spinoff opportunities as it enters its sixth season on CBS, and our recent licensing deal with Netflix is indicative of the kind of value we’re creating for the Power franchise ten years after the original Power series launched.

As you may have seen, Netflix announced the third season renewal of The Hunting Wives even before its second season launched. The Hunting Wives was a breakout hit on the platform in its first season, topping their global charts and attracting 35 million viewers worldwide. Its second season will debut on Thanksgiving Day and we will begin shooting the third season at our Lionsgate Studio soundstages in Atlanta next month. Second, we’re continuing to extend our franchises into new growth areas. We launched the North American tour of the Dirty Dancing musical to rave reviews in August, and as it heads for Broadway in February 2027, ticket sales are outpacing expectations. We announce the full creative team for the La La Land stage musical and begin workshopping it early next year for a 2028 opening. We opened Now You See Me Live at the MGM Grand in Las Vegas to sold-out shows last month, and we’ll be opening a limited run on Broadway next Friday.

And earlier this week we announced the expansion of one of our newest franchises, The Housemaid, into a stage play shepherded by Tony Award-winning Life of Pi producer Simon Friend that will open in the UK next September. We’re also working on the Saw Genesis multiplayer video game launching in 2027 and the John Wick AAA game in partnership with leading developer Sabre. All told, by the end of fiscal 2028 we expect to have at least eight stage plays, four concert tours, ten live experiences and nine interactive video games across our Global Products and Experiences group.

Third, we’re continuing to grow our verticals in categories where we have historically excelled. During the quarter, we began principal photography on an exciting new chapter of the found footage horror classic Blair Witch. We announced Mike P. Nelson to direct the next installment of our billion-dollar horror franchise Saw in partnership with Blumhouse Atomic, our adaptation of the horror thriller Magic, produced and directed by Spider Man and Evil Dead filmmaker Sam Raimi, and our recent acquisition of Portrait of God, starring Chase Infinity, with Jordan Peele and Sam Raimi producing, round out our strongest lineup of horror films since the early days of the studio.

Contributing to this strength, our 3 Arts talent management company is a leader in representing the top voices of the next generation of horror with clients Dylan Clark, who is directing both Blair Witch and Portrait of God, Back Rooms director Kane Parsons and Undertone director Ian Tuison. You’ll be hearing more about what 3 Arts is doing in the horror space soon. We’re also continuing our focus on the action space, wrapping production on the John Rambo prequel starring Noah Centineo and the next installment of the John Wick universe, Kane, directed by and starring Donnie Yen.

Both films have had strong early test screenings and we’ve begun pre-production on the John Wick animated prequel, returning Keanu Reeves to his iconic role. Fourth, we’re continuing to monetize our library in new ways as we scale our licensing business across a changing portfolio of buyers. We’ve rolled out more than fifty global FAST channels on track for a billion hours of viewership by the end of the fiscal year. We have SVOD add-on channels in thirty-six territories approaching the two million subscriber mark. Together they comprise a global channels business that has tripled its annual revenue to well over $100 million in the past two years, giving us greater control over where and how we license our content.

Our channels have become one of the drivers of our library’s continued growth, and in that regard we reported our second best trailing twelve-month library revenue ever this quarter, returning to over $1 billion with approximately 60% cash flow margins. The growth of our library is coming from many different places. Drivers in the quarter included the Hunger Games franchise, as you might expect, but also Heartland, a Canadian family drama TV series that has been on the air for nearly twenty years, and Kill the Whole Bloody Affair from legendary filmmaker Quentin Tarantino.

Fifth, we’re finding new ways to monetize our content with new partners outside of our traditional media ecosystem. In September, we announced a joint partnership with Meta to support the launch of their new Meta VR glasses with a number of our films. And earlier this week we announced that we’re again working with Meta to convert one of these films, The Hunger Games Sunrise on the Reaping, for 3D theatrical release before becoming available on their glasses.

And we’re continuing to discuss with them additional content opportunities at the intersection of entertainment and technology. Finally, the key to every element of our plan is our ability to replenish our content platform by sourcing, packaging, producing and delivering exciting new IP that adds value to our portfolio. We announced earlier this week that after highly competitive bidding, Sony Pictures has come aboard as our international partner and co-financier on Naruto, the film adaptation of Kishimoto’s iconic manga, one of the most beloved and successful entertainment properties in the world.

Sony brings deep expertise in anime and tremendous strength in international distribution to the film, which is helmed by Destined Daniel Cretton, the director of the biggest domestic box office hit of all time, A Brand New Day. Naruto begins production in the spring. In closing, we’re performing well against the backdrop of an operating environment that is showing a number of encouraging signs. Audiences are coming back to the movie theaters, scripted TV series orders are stabilizing with new creative and financial partners emerging across the media ecosystem. The close of the Skydance acquisition of Warner Discovery eliminates a layer of uncertainty that was hanging over the industry and we bring to this environment not only strong content slates, a world class library and a deep portfolio of branded IP, but a focus on monetizing it across a broader range of platforms than ever before.

Now I’d like to turn things over to Jimmy.

Brian Goldsmith (Chief Operating Officer)

Thanks, John, and good afternoon, everyone. I’ll briefly discuss our fiscal second quarter 2027 financial results and provide an update on the balance sheet for the quarter. Lionsgate Studios revenue increased 41% year over year to $669 million, while adjusted OIBDA improved significantly to $72 million. Operating income was $29 million. Reported diluted loss per share was $0.05 and diluted adjusted earnings per share was $0.07. Use of adjusted free cash flow in the quarter was $8 million, substantially better than the prior year.

Trailing 12 months library revenue increased 4% year over year to approximately $1.04 billion, representing the second highest library performance in the studio’s history. Trailing 12-month library revenue has now exceeded $1 billion for four out of the past five quarters. Studio segment profit, which reflects our motion picture and TV segment profits before corporate overhead expense, more than doubled year over year to $110 million. The improvement was driven by growth at both motion picture and television.

Looking specifically at motion picture, revenue increased 30% year over year to $359 million, while segment profit increased substantially to $89 million. Results were driven by continued contributions from Michael carryover from our prior year slate, continued library strength, and lower P&A expense. Turning to television, revenue increased 56% year over year to $310 million, while segment profit increased by 73% to $22 million. The year over year improvement was driven by 22 scripted episodic deliveries in the period, including deliveries for The Hunting Wives, Power: Origins, and The Studio, compared to seven episodic deliveries in the prior year.

Now turning to the balance sheet, we ended the quarter with net debt of approximately $1.5 billion. Leverage improved over a half turn from 4.3 times to 3.7 times, driven by continued growth in trailing twelve-month adjusted OIBDA. We ended the quarter with $359 million of cash and $800 million of available capacity on our revolver. Our capital structure remains well positioned with no near-term corporate debt maturities. Additionally, last week we announced that SP Media made an investment into the new joint venture that includes Lionsgate’s interest in Three Arts.

The proceeds from this investment will be reflected in our December quarter balance sheet and we anticipate that it will primarily be used to help satisfy our put obligation in January of 2027. We remain ever more confident in our fiscal 2027 outlook. Our performance in the first half, combined with a highly compelling upcoming theatrical slate and expectation for both an increase in TV deliveries and continued strength in library performance, supports our visibility into significant growth in adjusted OIBDA and free cash flow for the full year and beyond. Now I’d like to turn the call over to Neelay for Q&A.

Nailee Shah (Investor Relations)

Thanks. Operator, can we open the call for Q&A?

OPERATOR (Conference Operator)

Absolutely. If you would like to ask a question, please press star then one on your telephone keypad. If your question has already been addressed and you’d like to remove yourself from queue, please press star then two. Today’s first question comes from Vikram Kesavabhotla with Baird. Please go ahead.

Vikram Kesavabhotla (Analyst)

Okay, great. Hey, thanks for taking the questions. My first one is on The Hunger Games. Can you talk more about your observations there as you’ve gone through the marketing campaign for that film? I know you had the London premiere recently. What was the initial reception like there? And is there anything else you can share that’s informing your outlook at this stage? And then separately, I also wanted to ask about the library business. You know, the trailing twelve-month revenue there was the second highest ever. Can you talk more about the drivers of that performance? What do you think is supporting the strength and, as we look ahead, and particularly considering some of the changes unfolding at some of the streamers, how do you expect the appetite for licensing across the industry to evolve going forward? Thank you.

Adam Fogelson (Chair, Motion Picture Group)

Hey, Vikram, it’s Adam. Thanks for the question. Yeah, look, the response to The Hunger Games has been spectacular. I mean, starting as far back as a year ago, when we launched that first teaser trailer, it became the second most watched trailer in the history of the studio. Every beat since then has been really, really encouraging. And now that we’re in the shoot with a couple of weeks to go, all of the signals are very, very positive. Whether you’re talking about tracking signals, whether you’re talking about social media listening signals, or whether you’re talking about advance ticket sales, which I don’t want to comment on specifically, but Sean Gamble at Cinemark yesterday and IMAX today and others who have access to their own data are all pointing to a result that should be meaningfully higher than what we saw with the last Hunger Games movie and put us back in position to deliver both creatively and financially an incredible, incredible result.

The reaction to the film that you saw out of London is consistent with the other screenings we’ve had. So creatively and financially we feel really good about where we’re headed.

Jim Packer (President, Worldwide Television and Digital Distribution)

Yeah, I think that the key is it’s an amazing portfolio. I mean, if you look at the TV side, over the last few years, it’s grown to close to 30% of the trailing 12. We have everything from the Power franchise to Rookie, Mad Men, Weeds. You know, you just look through the portfolio of TV—that’s been a driver. Every time we get a new film like we’re getting with Hunger Games, all of those library titles become incredibly in demand and help that whole trailing 12 months.

And then the channel business for us is really a unique situation where we can take advantage of open windows and be strategic, and it’s offensive and defensive, and it’s really starting to become a meaningful part of the library.

Vikram Kesavabhotla (Analyst)

Okay, great. Thank you.

OPERATOR (Conference Operator)

Thank you. And our next question today comes from Brent Penter with Raymond James. Please go ahead.

Brent Penter (Analyst)

Hey everyone, good afternoon. Thanks for taking the questions. First one for me, you mentioned the joint venture with SP Media. Can you expand on that a bit and what that enables? And then does that mark a conclusion to this Three Arts strategic review process, or are you still talking with other possible investors?

Brian Goldsmith (Chief Operating Officer)

Hi, it’s Brian Goldsmith. How are you today? Thanks for the question. We’re very excited to work with our new partner, SP Media, Steven Paul. He’s done a number of movies for us in the past, so have a bunch of experience with him. As Jimmy noted, in exchange for meaningful investment, SP now holds an interest in a joint venture platform that holds, among other things, our interest in Three Arts. I think it’s important to note that the venture itself does not have any involvement in Three Arts’ operations or management.

We’re also really excited to focus on developing the production and distribution relationship with SP Media, including in the multi-platform motion picture product business, which has really been a successful one for us historically. And our new partner has a lot of expertise and has proven himself to be a reliable creative commercial product in this area. So that’s going to be a real area of focus for us.

Brent Penter (Analyst)

Okay, great. And then my next question. You also talked about the Warner Brothers-Paramount merger closing and how that has—it’s good to hear that that has kind of cleared up some uncertainty. Realize it’s only been a few weeks, but can you talk about how has that improved your conversations with buyers across the industry, as well as how have your conversations gone with the new combined company?

Kevin Beggs (Chair/Chief Creative Officer, Lionsgate Television Group)

Sure. It’s Kevin Beggs. I’ll take that. In the combined entity, we have a big book of business. Huge hits on CBS with Ghosts. One of the evergreen franchises of the Discovery Network is the Naked and Afraid franchise. And we just started production—really, it’s winding up being the first production of the newly merged Paramount, Warner, Skydance TV arm of Trauma, which is essentially a high-concept terrorist thriller—think Die Hard meets The Pit, conceptually—that we’re doing both for Paramount Global and Amazon UK, and we have development across all of them.

We feel good about a stronger buyer, and they’re moving very quickly to ramp up all their operations, and we think as a third-party supplier on the TV side, we’re going to continue to be a big part of it.

John Feltheimer (Chief Executive Officer)

Yeah. I’d add overall, we have a great relationship with everybody there at the combined company, starting with David, with whom we did probably his first television series. And whether it’s co-financing movies together, whether it’s television to them, we believe that having another strong buyer and strong partner is going to be really good for us.

Brent Penter (Analyst)

Great. And then final one for me, you all laid out confidence out to fiscal 2029 and you talked about several of the film releases that are contributing to that. Can you talk a little bit more about the TV side going beyond fiscal 27 into fiscal 28 and 29 and what gives you the confidence on that side of the business, particularly given it’s been such a strong year in fiscal 27 you’re comping against?

Kevin Beggs (Chair/Chief Creative Officer, Lionsgate Television Group)

Sure. It’s Kevin again. I mean, the good news for us is that we have a high degree of visibility year over year. Obviously up 65% in episodic deliveries is going to be a tough comp to match. But we do plan on growth going forward, and many of our franchises are just that—franchises—which we are tending to and growing and intending to go the distance. John touched on The Rookie in season nine. The Rookie North spinoff will premiere with it this January on ABC and Hulu.

The relationship with Disney, who has the global on Disney on Rookie North, this kind of thing is important. The Power franchise is really the gift that keeps on giving, both a giant success for us and for Starz, our network partner. The original Power series, the first of six that we have done, is coming onto Netflix next week. It’s been advertised. We think it’s going to be a giant uplift for both Netflix viewers and Starz viewers and introduce the franchise to a larger audience and, you know, on a long-term basis with that many episodes of a show that is working, we think it’s going to be one of the most consequential and lucrative financial franchises in the TV portfolio—the entire history of the company. That’s the kind of thing that gets us excited and gives us confidence about growth moving forward.

Brian Goldsmith (Chief Operating Officer)

Yeah. And Brent, and just adding to that, to Kevin’s points about visibility, I would point out we have $1.487 billion of backlog. That’s future revenues and free cash flow, as you know. And really interesting is that about 58% of that is actually television. That’s up from 52% from last year. So it’s a bit slower build, longer build, if you will, because we, relative to a lot of the others in our comps, retain the back-end rights long term and that’s really building up.

And you’re seeing it not only come through library, as we’ve shown, coming from 10% to 30% over the last decade in terms of trailing 12 months library, but it’s showing up in backlog too, representing almost 58%—call it almost 60%—of the backlog. And that gives us a lot of visibility into fiscal 2028 and 2029. So we’re very well poised for growth in the future.

Brent Penter (Analyst)

Got it. Thanks, guys.

OPERATOR (Conference Operator)

Thank you. And our next question comes from Omar Mahas with Wells Fargo. Please go ahead.

Omar Mahas (Analyst)

Good evening, and thanks for the question. John or Michael, on M&A, there’s been press reports that you guys received an offer from Legendary. I know you don’t opine on specific proposals, but can you help us understand how the board is thinking about the path forward? Specifically, what would the board need to have in place before running a more formal process to evaluate strategic alternatives? Thanks.

John Feltheimer (Chief Executive Officer)

Omar, I haven’t even seen any press. Are you sure about that? No. As always, you know we’re not going to respond to M&A speculation. What I say is what I’ve said before, which is in this rapidly consolidating environment, I believe we’re very well positioned. Simple as that.

Omar Mahas (Analyst)

That’s fair enough. Maybe, Jimmy, on the balance sheet, there’s also been reports about the IP credit facility refinancing—the IP credit facility with library-backed bonds. Can you walk us through the rationale and timing for that refinancing and how should we think about it alongside the strategic optionality you talked about? Is it tied to that or just more of a standalone financing decision?

Jimmy Barge (Chief Financial Officer)

Yeah, thanks, Omar. What I would say is that we’re always evaluating our capital structure. There is not necessarily bonds, but relatively more likely if we were to do something, it would be more like asset-backed securities. So, ABS market slightly different, as you know, but look, we don’t really have to do anything. There’s no near-term maturities, as you know. The IP facility is also backed by IP—right, asset-backed. There are almost three years left on the eOne facility and over three years on the Lionsgate Studios IP facility.

But again, we’re always willing to replace existing tranches of corporate debt with layers that have better terms and better pricing. So we’re always looking. But I wouldn’t read too much into what the article said. But again, always considering our optionality.

Omar Mahas (Analyst)

Great. And one last one for me: Jim, Michael is one of the first big films going through the new Pay One structure with Starz taking the first part of the window and Amazon taking the second. Now that you’re seeing it in practice, how is that split window performing versus your expectations? And how should we think about downstream value for Hunger Games and next year’s slate compared with the prior single-window deal? Thank you.

Jim Packer (President, Worldwide Television and Digital Distribution)

Yeah, it’s performing exactly the way we had hoped. Starz getting a big benefit out of it. I think you’ve seen some of the announcements they’ve made about their happiness with our Pay One windows. Amazon, who I speak to all the time, has been very, very happy. And what’s really interesting is that these are giving me, and giving our team in the free window, some movies at levels that we have not had in a while. And that’s going to be a significant driver for future business for us. And if you just look at the transactional EST and you look at TVOD, those windows also continue to be strong and robust. And, you know, with The Housemaid as an example, which was one of the early ones that we got from Adam, it set records for us in that area.

So not only are people coming back to the theaters, they’re also renting and buying. So overall, very pleased and excited about what I’m getting from the Motion Picture Group.

Omar Mahas (Analyst)

Great. Appreciate it, guys.

OPERATOR (Conference Operator)

Thank you. And our next question today comes from Sean Difley at Morgan Stanley. Please go ahead.

Sean Difley (Analyst)

Great, thanks very much, team. I’d love to hear how you’re leveraging AI on both the TV and film production side. What kind of cost savings are you seeing? Is it 20%, 50% from AI? Is that all pre- and post-production or VFX? Are you leveraging Runway or other tools? And then should we expect that you’ll reinvest most of that savings to make more content, or should we see some of it flow to the bottom line? Thanks very much.

Brian Goldsmith (Chief Operating Officer)

Thanks for the question. Hi, it’s Brian Goldsmith again. Look, we’re moving AI into practical use across our entire business. So that includes making the latest tools available to our creative and talent partners, particularly in the pre-production and post-production uses, including visual effects, rendering, production logistics, et cetera, as well as throughout the entire organization. The goal, of course, to improve efficiency and productivity throughout our businesses.

I’ll name a couple of examples where we’ve integrated AI into internal processes so you can kind of get a sense for the breadth of what we’re doing. Outside of the creative process, our marketing teams are leveraging AI tools to track and collect data around theatrical marketing campaigns. Our licensing and distribution teams under Jim are using these tools to enhance which titles we choose to license and then model their performance across the platforms and use those feedback mechanisms to make better decisions in the future.

And then our accounting and collection teams are using the tech to process revenues faster and collect royalty statements faster. We’re doing all this in a very thoughtful manner, utilizing robust protections around our and our creative partners’ content, data, and rights, which of course is paramount for us. I won’t get into specifics in terms of savings and the like, but ultimately we’re going to try and squeeze out as much efficiency as we can while creating the most commercial product as possible.

Sean Difley (Analyst)

Great. Maybe just elaborate on, I think you said 10 of the next 15 wide releases are repeatable branded properties. Maybe just talk about the value of IP versus your desire to create new IP, leveraging some of this unlocking creativity that you’re talking about.

Adam Fogelson (Chair, Motion Picture Group)

Yeah. Hey, it’s Adam. Thanks. Just because something is IP doesn’t necessarily mean that the audience is desperate for more. So the first job is to identify the IP, the characters, the storylines that the audience is asking for more, and then being really thoughtful and intentional about how we do that. But the other thing is, if you’re making original content at the right price with top creative talent, there is a huge opportunity to not only be successful on a one-off basis, but to start to create new IP. And so over the course of the last year, The Long Walk was a mid-budget film that we were incredibly profitable with. The Housemaid became a giant piece of new IP for the studio with three books that we’re going to be able to hopefully make great films on.

And so a number of the non-IP films that we’re making, we think we have the right creative partners. We think we’re making them for really, really good prices and we think that we’re going to be able to be profitable and create new franchises out of that. We’re constantly talking to all of our partners on the most important IP. I know that Kevin can speak to what’s happening with respect to Twilight in the TV space, but we are constantly in communication with all our creators. And Stephenie and Twilight, for example, we know that audience is desperate for more authentic content in that space and Kevin can speak to TV, but certainly in film, we look forward to ongoing conversations with her.

Kevin Beggs (Chair/Chief Creative Officer, Lionsgate Television Group)

Yeah, and just taking from what Adam said about Twilight and Stephenie, you know, she’s a huge fan of television, all genres, as we’ve come to get to know her better, and animation specifically, which really led directly to the adaptation of Midnight Sun, which was her latest book in the Twilight saga, which takes the point of view of the Cullen family and retells a story that we know from a different POV. That’s a two-season adult animation order at Netflix.

Stephenie and her team are very hands on, really running the process along with us and Netflix. We have high expectations and hope and, more importantly, are engaging our audience and her audience in a continuation and an expansion of her universe.

Sean Difley (Analyst)

Thank you very much.

OPERATOR (Conference Operator)

Thank you. And our next question today comes from Matthew Harrigan at Stonex. Please go ahead.

Matthew Harrigan (Analyst)

Thank you. I guess maybe undead IP is even better than long-lived IP. Going back to Bellagos, I was going to ask about Twilight, but you did a good job of—obviously a great job of—addressing that. And I was just curious on the remark that having on the Meta glasses on Sunrise, on the reefing, you were going to also have it in theaters. Maybe some of that is at the instigation of your partner, but is that an indication that there’s another, better technology round for 3D in theaters that might actually get some traction with people?

Are you inclined to revisit that, or is that just kind of a casual comment on something you’re working on with Meta? Thanks.

Adam Fogelson (Chair, Motion Picture Group)

Hey, it’s Adam. I’ll start just by saying that while it hasn’t been a primary focus as conversations about IMAX and the other major PLF formats and Dolby and other screens have taken the lion’s share of the conversation about what’s happening in theatrical, there has actually been a really nice, robust business in 3D. And so this opportunity that came about in the partnership with Meta allowed us to create content for the glasses when the movie reaches the home environment, but also allows us to take advantage of those screens that are doing and selling really nice ticket sales in the 3D space.

John Feltheimer (Chief Executive Officer)

Yeah. This was—Matthew, this is really a great opportunity to do something right at the intersection of technology and creativity. As a licensing deal, frankly, this is going to be a very lucrative one. But I think for us we’re looking at this a little differently. As the space between the small screen and large screen shrinks, frankly, I think Meta has a real possibility of being a big player in the content area. And, again, as part of this, we’re already discussing some original programming ideas with them.

Matthew Harrigan (Analyst)

Great, thank you.

OPERATOR (Conference Operator)

Thank you. And our next question today comes from David Joyce at Seaport Research Partners. Please go ahead

David Joyce (Analyst at Seaport Research Partners)

Thank you. I had a question around your comment that Netflix has ordered The Hunting Wives third season before the second starts already. Given that they’ve had some engagement issues because of the duration in between the first and second or whatever subsequent series, are you seeing a trend of the industry requesting that these series or the next seasons be produced more quickly? What are your constraints on doing that, and what are the opportunities for you?

Kevin Beggs (Chair/Chief Creative Officer, Lionsgate Television Group)

Absolutely, yes. It’s Kevin. The cadence of getting things back on in a predictable timetable, similar, ironically enough, to the broadcast dynamics that we have all known and grew up with, is becoming more and more important. There are so many other competitors and so many other things that are out that viewers get a little bit disconnected and forget about it. So it was important for Netflix, when the Season 1 launched last summer, to quickly order a second season that we got in production on and, while we were in production, opened a writers’ room, pitched them out a third season that Rebecca, Cutter and Irwin and that creative team presented that they loved. And we’re going to be in production in a way that we can be on every year around this time.

We’re feeling quite privileged to be on a Thanksgiving premiere, which has traditionally been the home of one of Netflix’s biggest hits, Stranger Things. We consider it the Super Bowl of television. Super excited. And the entire month of November, I must say, is big for us. Power is coming onto Netflix. The Vow on Fox Nation from our alternative team. The Hunting Wives Season 2. Rainmaker is killing it on USA. And one of our Hallmark series, Mistletoe Murders, just launched on Netflix as well on a sublicense basis, and it’s in the top five.

Just an important month of television and we’re thrilled to be part of it.

Jimmy Barge (Chief Financial Officer)

Well, look, we’re just going to continue to delever and net debt modestly declining. But to your point, we’re fully investing, where appropriate, with great visibility into our content across motion picture and TV in a very responsible, de-risked way and plan for the long-term valuation in our library. And you’re seeing the results of that not only in backlog, but trailing 12 months. And that’s our playbook. But naturally the net debt will decline.

I’ll remind you, in the second half, if you look at our investment content spend this year, it’s more heavily weighted to the second half. It’s more like 40% first half, 60% second half, just to give you an idea. So in that context, that will, from any quarter-to-quarter trailing 12 months, affect the free cash flow, but expect to totally be positive free cash flow on a trailing 12 months basis for the rest of the year and accelerating that into ’28 and ’29 and continuing to delever in absolute terms, and even more important, delevering significantly down below three times in ’29, based on increasing trailing 12 months.

OPERATOR (Conference Operator)

Thank you. And our next question today comes from Matt Condon at Citizens. Please go ahead.

Matt Condon (Analyst at Citizens)

Great. Thank you for taking my questions. My first one, just maybe following up on that last question, just given the progress you’ve made deleveraging, as you’re thinking out longer term, can you discuss how you’re thinking about capital allocation over the next few years? As deleverage continues to come down, how do you balance your film and television, pursuing maybe strategic opportunities, or returning capital to shareholders?

Jimmy Barge (Chief Financial Officer)

Well, look, I think anytime you’re deploying capital, you look and see where can you get your greatest return on capital, and right now that’s investing in our content. Content’s more valuable than ever. You look at the multiples being put on libraries and content businesses, and we’re pure play content for a reason, and that’s our playbook. But yeah, obviously if share prices don’t respond and all the other things respond in the right way, could there be a world where you’ve got a return of capital to shareholders?

Of course. But you know what? We’re focused on delevering below that three times in 2029, and then we’ll talk about it.

Matt Condon (Analyst at Citizens)

Great. And maybe just follow up, just following the recent Netflix licensing agreement for the Power franchise, are there any additional major titles returning to the market that could drive a meaningful step-up in licensing revenue here over the next several years? Thank you so much.

Jim Packer (President, Worldwide Television and Digital Distribution)

Yes, thank you. I think Orange Is the New Black is coming back in a year or two, a couple years, and that to me will be very significant. Mythic Quest is another show we have on Apple that’s coming back. Keep in mind all these library titles like Mad Men, Weeds, those titles all come back. HBO’s deal, all of these come back. So, one thing people need to realize: we are such a young company, our library is young. I mean, a deep catalog title for us is Mad Men, and that’s not that old. And so for us, what we bring to market is really, really good. I just look at the amount of series that are in licensing circulation right now. In fiscal ’22, we had four TV shows in circulation. This year, in fiscal ’27, we have 15, and I think we’ll end with 20. So not only do we have more of these coming back, they’re much more in demand, and you’ll see it in our numbers.

OPERATOR (Conference Operator)

Thank you. And our next question is a follow up from Vikram Kesavabhotla with Baird. Please go ahead.

Vikram Kesavabhotla (Analyst)

Yeah, thanks for letting me ask a few more questions here. First one, I wanted to follow up on some of the comments on Michael. Obviously it sounds like that’s continued to perform well following the theatrical run. Any updates you can share regarding a potential sequel and, more specifically, what the timing of that could look like?

Adam Fogelson (Chair, Motion Picture Group)

Yeah, hey, it’s Adam. Thanks. We are hard at work on breaking the story and on making sure that we’ve got the creative team fully in place, and hope that we’ll be able to announce timing both in terms of start of production and a release date in the not too distant future. But it’s lining up to be incredibly, incredibly exciting. We’re making real progress.

Vikram Kesavabhotla (Analyst)

Okay, that’s helpful. Thank you. And then maybe one for Jimmy on the adjusted operating profit. Any comments you can share in terms of what the second half could look like this year and, more specifically, just what the biggest drivers are that will contribute to the second half and your level of visibility into those components right now?

Jimmy Barge (Chief Financial Officer)

Sure, Vikram. Look, if you’re looking at the second half, we’ve got third quarter, obviously, I think, as our peak quarter for the year in the context of absolute terms, with the Power-Netflix deal coming through licensing. You see part of that in the backlog now, which will flow into third quarter earnings. Remember, when we get to Q4, though, we’re lapping a really big, really big fourth quarter in fiscal ’26, where that year was heavily back-end loaded.

And we’re going to have two theatrical releases, Karoshi as well as Daydrinker. Daydrinker is coming out March ’26, so you’re going to have the P&A spend associated with two films, one in the very last few days of the fourth quarter. In addition, we have Resurrection coming up May 7th in fiscal ’28. We’re all super excited about all of those, by the way. So there’s going to be some pre-spend in the fourth quarter on Resurrection, which will be following 1Q’28. So, great visibility. That’s the cadence for the rest of the year. And again, with the backlog and everything else that we can see coming through with that visibility, it gives us great confidence in finishing the year strong. Like we said, significant growth in ’27 as well as carrying that growth well into ’28 to ’29.

Vikram Kesavabhotla (Analyst)

Okay, that’s very helpful. Thank you for walking through all of that. You also, early in the prepared remarks, talked about extending your IP into new areas and you highlighted a bunch of the live productions that you’ve started. How meaningful can all of that be to your business over time? And how should we expect your strategy around that to evolve over time?

John Feltheimer (Chief Executive Officer)

I believe quite meaningful. And, you know, when you start these things, it takes a long time to get each Broadway show up and running, frankly, just because, like our films and television shows, we want to do them right, especially when we have great franchises, and we want to enhance them and not hurt them. But I believe, probably run rate—I’m going to give you sort of a ballpark; we don’t do this that often—the ballpark, I think we’re looking for run rate by the end of ’28, revenues of around $50 million, that’s what I’m targeting, and contribution of over $30 million.

So starting to be meaningful, and it will continue to grow.

Vikram Kesavabhotla (Analyst)

Okay, great. Thank you for the color. And then just the last question for me, and perhaps a bit of a higher-level question on the business. It feels like the last year or so has been particularly notable with your film slate, both in terms of the performance, but also just the variety of genres and IP that you’ve been seeing successful with. And so I’m curious, when you have a year with momentum like this, how does that impact your broader conversations with the creative community, whether that’s IP holders or directors or on-screen talent or whoever?

I’m curious if you’re seeing more opportunities arise on the back of the recent strength and, in general, how would you characterize the types of conversations you’re having today versus even a few years ago?

Adam Fogelson (Chair, Motion Picture Group)

Yeah. Hey, it’s Adam. Thank you. We are absolutely seeing momentum, and it comes, I think, from a variety of different factors. One is because of how we’re structured, because of how efficient we are, because of our ability to make money on movies that others might not be able to make money on, and because we are delivering an experience for filmmakers and for talent that I think is unique. It’s really white glove service that can be delivered only by a company of a smaller size, but the ability to deliver outsized results consistent with how major studios operate.

When you look at the filmmakers who are signing up to every one of the films that John mentioned in the opening remarks or that we’ve talked about today, when you look at the actors and actresses and producers who are working with us, when you look at the people who are signing first-look deals with us, that momentum—when you look at the creativity of the marketing and distribution that we’re putting together, when you look at our ability not only to successfully monetize films in a theatrical space but, to the point John was just making, figure out ways to really create exciting extensions of these franchises into other areas—beyond any words I might say on a call like this one, I just think looking at the names of the talent that are working with this studio gives you every indication that the momentum is there and it’s growing.

John Feltheimer (Chief Executive Officer)

Yeah. And I’d add, by the way, the really close relationship that our operating group, Film and Television at Lionsgate, have with 3 Arts. 3 Arts is really doing an amazing job bringing up this next group of filmmakers, the influencers, the directors. We’re using a number of them, and I think the ability to go back and forth, the trust between the companies to bring talent back and forth, I think is really an important asset that most other companies don’t have.

Vikram Kesavabhotla (Analyst)

Okay, thank you, everyone. I appreciate all the color.

OPERATOR (Conference Operator)

Thank you. And that concludes our question and answer session. I’d like to turn the conference back over to Nailee Shah for closing remarks.

Nailee Shah (Investor Relations)

Please refer to the press releases and events tab under the investor relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thanks, everyone.

OPERATOR (Conference Operator)

Thank you. That concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.

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