Lionsgate Studios Stock

Good day, and welcome to the Lionsgate Studios Second Quarter 2027 Earnings Conference Call.

[Operator Instructions]

Please note today's event is being recorded. I'd now like to turn the conference over to Nilay Shah with Investor Relations. Please go ahead.

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, Jon 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 Adviser 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 Jon.

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 OIBDA 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. 10 of our next 15 wide theatrical releases are repeatable branded properties, with the new Hunger Games, The Resurrection of the Christ Parts 1 and 2, The Housemaid's Secret, Michael 2 and Naruto leading the way, complemented by other marquee properties in proven areas of strength. We have confidence in the earnings power of our film slate over the next 3 years.

One of the most celebrated of these franchises, The Hunger Games: Sunrise on the Reaping opens in 2 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 spin-off will arrive in January on ABC and will stream on Hulu in the U.S. and Disney+ in most international territories. Ghosts is exploring new spin-off 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 10 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 Sound Stages 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 announced 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 U.K. 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, Saber. All told, by the end of fiscal 2028, we expect to have at least 8 stage plays, 4 concert tours, 10 live experiences and 9 interactive video games across our Global Products & 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 $1 billion 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 Infiniti 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; Backrooms director, Kane Parsons; and Undertone director, Ian Tuason. 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, Caine, directed by and starring Donnie Yen. Both films have had strong early test screenings, and we've begun preproduction 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 50 global FAST channels on track for 1 billion hours of viewership by the end of the fiscal year. We have SVOD add-on channels in 36 territories, approaching the 2 million subscriber mark. Together, they comprise a global channels business that has tripled its annual revenue to well over $100 million in the past 2 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 12-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, the Canadian family drama TV series that has been on the air for nearly 20 years, and Kill Bill: 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 are 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 Destin Daniel Cretton, the Director of the biggest domestic box office hit of all time, Spider-Man: 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.

Thanks, Jon, 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 4 out of the past 5 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 7 episodic deliveries in the prior year quarter.

Now turning to the balance sheet. We ended the quarter with net debt of approximately $1.5 billion. Leverage improved over 0.5 turn from 4.3x to 3.7x, driven by continued growth in trailing 12-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 3 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 Nilay for Q&A.

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

[Operator Instructions]

Today's first question comes from Vikram Kesavabhotla with Baird.

Okay. 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. The trailing 12-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?

Vikram, it's Adam. Thanks for the question. Yes. 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 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 advanced 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 a 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.

Yes. And Vikram, on the trailing 12 months, yes, it's pretty spectacular, another quarter well over $1 billion. So as Jon noted, the margins on that cash margins are around 60%. So gross contribution probably right around 50%. And when you just step back and think about it, I mean, we're a relatively young company relative to some of our peers. So for the last 26 years, we've been creating massive amounts of film and TV programming. So what we find is that the more we own, more the margins improve.

Another factor would be, as you know, international films and rights are constantly reverting back. So we have films that have been out for 10 to 15 years coming back and driving margins. And what Jim Packer and his team is doing in self-directed channels is really adding incremental high margins. And Jim, I don't know if you want to comment some on that and the licensing.

Yes. I think 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 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 channels 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.

And our next question today comes from Brent Penter with Raymond James.

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 the 3 Arts strategic review process? Or are you still talking with other possible investors?

It's Brian Goldsmith. 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 we have a bunch of experience with him. As Jimmy noted, in exchange for a meaningful investment, SP now holds an interest in a joint venture platform that holds, among other things, our interest in 3 Arts. I think it's important to note that the venture itself does not have any involvement in 3 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 themselves to be a reliable creative commercial product in this area. So that's going to be a real area of focus for us.

Okay. Great. And then my next question, you also talked about the Warner Bros., Paramount merger closing and how that has -- it's good to hear that, that has kind of cleared up some uncertainty. I 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?

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, Trauma, which is essentially a high-concept terrorist thriller, think Die Hard meets The Pitt conceptually that we're doing both for Paramount Global and Amazon U.K. So we're -- and we have a development across all of them. We're -- 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.

Yes. I'd add, overall, we have a great relationship with everybody. There's a 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 supplying television to them, we believe that having another strong buyer and strong partner is going to be really good for us.

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?

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. Jon touched on The Rookie and Season 9, The Rookie: North spin-off will premiere this January on ABC and Hulu, the relationship with Disney+, who has global on The Rookie: North. This kind of thing is important. The Power franchise is really the gift that keeps on giving both the giant success for us and for Starz, our network partner. The original Power series, the first of 6 that we have done, is coming on to 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 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 of the entire history of the company. That's the kind of thing that gets us excited and gives us confidence about growth moving forward.

Brent, and just adding to that to Kevin's point 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, a longer build, if you will, because we -- relative to a lot of the others in our comps, we 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, showing up in backlog, too, representing almost really 58%, call it, almost 60% of the backlog. And that gives us a lot of visibility into fiscal '28 and '29. So we're very well poised for growth in the future.

And our next question comes from Omar Mejias with Wells Fargo.

Jon or Michael, on M&A, there's been press reports that you guys received an offer from Legendary. I know you don't comment 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?

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

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 stand-alone financing decision?

Yes. Thanks, Omar. Yes, what I would say is that we're always evaluating our capital structure, okay? There is -- not necessarily bonds, but relatively more likely if we were to do something, right, would be more like an 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 3 years left on the eOne facility and over 3 years on the Lionsgate IP facility. So -- but again, we're always willing to replace existing tranches of corporate debt with layers that have better terms and better pricing. So -- and we're always looking. I wouldn't read too much into what the article said. But again, always considering our optionality.

Great. And one last one for me, Jim. Michael is one of the first big films going through the new Pay 1 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?

Yes. It's performing exactly the way we had hoped. Starz is 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 1 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 with Housemaid as an example, it's 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.

And our next question today comes from Sean Diffley at Morgan Stanley.

I would 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 for the question. 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 preproduction and post-production uses, including digital effects rendering, production logistics, et cetera. As well as throughout the entire organization with the goal, of course, to improve efficiency and productivity across -- throughout our businesses. I mean I'll name a couple of examples where we've integrated AI into internal processes, 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 monitor 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. In terms of -- I won't get to any 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 those commercial products as possible.

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 kind of create new IP, leveraging some of this unlocking creativity that you're talking about.

Yes. 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 3 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.

And just thinking from what Adam said about Twilight and Stephenie, she's a huge fan of television, all genres as we 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 and the Twilight Saga, which takes a point of view of the Cullen family and retells a story that we know from a different POV. That's a 2-season adult animation order at Netflix. Stephenie and her team are very hands-on, really running the process along with us at Netflix. We have high expectations and hope and more importantly, are engaging our audience and her audience in a continuation and expansion of our universe.

And our next question today comes from Matthew Harrigan at StoneX.

I guess maybe undead IP is even better than long-lived IP going back to Bela Lugosi. I was going to ask about Twilight, but you did a good job -- a great job of addressing that. And I was just curious on the remark that on the Meta glasses on Sunrise on the Reaping, 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 and theaters that might actually get some traction with people? Are you inclined to revisit that? Or was that just kind of a casual comment on something you're working on with Meta?

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, but 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.

Yes. This was -- Matt, 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 it's -- for us, we're looking at this a little differently that as the space between the small screen and the large screen shrinks, frankly, I think Meta has the 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.

And our next question today comes from David Joyce at Seaport Research Partners.

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?

Absolutely, yes, it's Kevin. The cadence of getting things back on in a predictable timetable, similar ironically enough to the broadcast dynamic that we all know 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 into production on.

And while we were in production, opened a writer's room, pitched them out the third season that Rebecca Cutter and Erwin 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 on to Netflix, The Vow on FOX Nation from our alternative team, The Hunting Wives Season 2, The 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 5. Just an important month of television, and we're thrilled to be part of it.

That's great. And second question, if I could. This is for Jimmy. I was wondering what are your opportunities to actually pay down debt as part of your deleveraging as opposed to just driving up the EBITDA as you're really firing on all cylinders. Do you need to get through this kind of elevated theatrical and film production cycle until those cash flows are starting to come before you would consider that?

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, derisked 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, okay, 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 or trailing 12 months affect the free cash flow. But I expect to totally be positive free cash flow for -- 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 3x in '29, okay, based on increasing trailing 12 months.

And our next question today comes from Matt Condon at Citizens.

The 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 leverage continues to come down, how do you balance your film and television slate pursuing maybe strategic opportunities for returning capital to shareholders?

Look, I think any time you're deploying capital, you look and see where can you be at your greatest return on capital. And right now, that's investing in our content. Content is more valuable than ever. You look at the multiples being put on libraries and content businesses, and we're a pure-play content company for a reason. And that's our playbook. But yes, 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 3x in 2029, and then we'll talk about it.

Great. And maybe to follow up, just following the recent Netflix licensing agreement for the power franchise, just 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?

Yes. Thank you. I think Orange Is the New Black. It's coming back in a year or 2, a couple of 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 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 4 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.

And our next question is a follow-up from Vikram Kesavabhotla with Baird.

First one, I want 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?

Yes. 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 exciting. We're making real progress.

Okay. That's helpful. And then on -- 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?

Sure, Vikram. Look, if you're looking at the second half, right, we've got -- third quarter, obviously, I think, is our peak quarter for the year in the context of absolute terms, right, with 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. So -- and we're going to have 2 theatrical releases, Karoshi as well as Day Drinker. Day Drinker coming out March 26.

So you're going to have the P&A spend associated with 2 films, one in the very last few days of the fourth quarter. In addition, we have Resurrection coming up May 7 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 in the first quarter of '28. So great visibility. That's the cadence of the rest of the year. And again, with the backlog and everything else that we can see coming through with that visibility, right, 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 and '29.

Okay. That's very helpful. You also early in the prepared remarks, you 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?

I believe quite meaningful. And 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 don't -- 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. But ballpark, I think we're looking for a 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.

Okay. Great. 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 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?

Yes. 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 Jon 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 the theatrical space, but to the point Jon 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 the studio gives you every indication that the momentum is there and it's growing.

Yes. 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 and the same 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.

And that concludes our question-and-answer session. I'd like to turn the conference back over to Nilay Shah for closing remarks.

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.

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.

..

Good afternoon, and welcome to the Lionsgate First Quarter Fiscal 2027 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nilay Shah, EVP, Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for the Lionsgate Studios Corporation's Fiscal 2027 First Quarter Conference Call. We'll begin with opening remarks from our CEO, Jon 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 Adviser 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 Jon.

Thank you, Nilay, and good afternoon, everyone. I'm pleased to report another quarter with strong financial results and growing momentum across our business. Our pure-play content strategy is working. The balance sheet is strengthening faster than anticipated. Our portfolio of intellectual property is becoming ever more franchise-driven and valuable. Library monetization remains a significant competitive advantage, and our company is increasing strategic optionality in a media landscape that continues to place growing value on scaled content assets.

In our film business, we've launched 2 new marquee branded properties, Michael and The Housemaid in a span of just 4 months, ending the first half of the calendar year with domestic box office market share over 10%. Driven by these films and our strong library, our Motion Picture Group reported its best first quarter results ever. Beyond the box office results, both our performance and the type of content driving this performance, bold, original and provocative, are reinforcing the Lionsgate brand in real and tangible ways, attracting new creative projects, expanding our filmmaker relationships and paving the way for new partnerships that will continue to drive us forward.

We've lined up a slate that includes more than a dozen branded repeatable properties over the next 3 years. 4 of these films have wrapped production and are being readied for release. Early indicators for The Hunger Games: Sunrise on the Reaping, show that it has the potential to become one of the biggest Hunger Games movies ever. The marketing campaign for Mel Gibson's Epic 2-part The Resurrection of the Christ will kick off next month with the theatrical rerelease of The Passion of the Christ in Dolby and 4K. We wrapped production on John Rambo directed by Jalmari Helander and starring breakout talent Noah Centineo as we rebuild the Rambo property into an important Lionsgate film and television franchise. It's set for release next June. And we also wrapped production on Caine with Donnie Yen directing and starring in a movie featuring one of the most talked about characters in the John Wick universe also set for release next year.

We're preparing to start production on 3 others. We just announced the addition of Brittany Snow, Co-Star of our Netflix hit series, The Hunting Wives, to The Housemaid's Secrets cast that also includes Sydney Sweeney, Kirsten Dunst and Paul Anthony Kelly. Production is slated to begin in October for a December 2027 release. Writer Chris Thomas Devlin has turned in an incredible script for our groundbreaking new chapter of The Blair Witch in partnership with Blumhouse and James Wan's Atomic Monster to be directed by Rising Star and the 3 Arts client, Dylan Clark. And we're out to cast on Naruto, which is shaping up to be a major tentpole, the next movie from record-breaking Spider-Man: Brand New Day filmmaker, Destin Daniel Cretton based on the top-ranked Manga property in the world. And with our diversified slate strategy, we're balancing this trove of IP with great original storytelling driven by incredible talent in front of and behind the camera. All of this is happening against the backdrop of a resurgent domestic box office heading for its first $10 billion year since before the pandemic.

Turning to television. There has been a paradigm shift that we believe plays to our strengths. The name of the game in television used to be deep relationships with a handful of major buyers, first the broadcast networks, then the leading cable platforms and more recently, the streamers. But today, there are many new players throughout the television ecosystem, and our strategy is focused on diversification, having the creative strengths, pricing flexibility and innovative business models to play across a wide range of different platforms and different types of series in an increasingly fragmented world. We're on the cusp of going perfect 13 for 13 in current scripted series renewals. And notably, that success is spread across 12 different buyers.

Our ability to cast a wide net was evident in the 2 series pickups we secured this week. Amazon's pickup of Friends co-creator Marta Kauffman's improvisational comedy DINKS, which if you didn't know, means dual income, no kids, driven by an innovative partnership with Media giant Publicis Groupe and the pickup of the medical action thriller Trauma, think Die Hard in the hospital, starring Richard Madden with Prime Video streaming in the U.K. and Paramount+ streaming in the U.S. and the rest of the world.

But one thing in the television landscape hasn't changed, the rewards of playing the long game. When we bought Starz in 2016, the original Power series had just finished its third season. Lionsgate and Starz collaborated on growing Power through a total of 6 hit seasons, extending it into 3 hit spin-offs, Ghost, Raising Canon and Force and expanding the Power Universe with the upcoming new pickups, Power: Origins and Power: Legacy. Together, we've built a strong, enduring and immensely valuable franchise spanning at least 6 different series and more than 200 episodes. That value was evident last week when we licensed the first 4 Power series to Netflix, all 4 internationally and the original Power worldwide for the next 3 years beginning in November. The deal proved 3 things: streamers need a lot of content, we have a lot of content, and that content becomes more and more valuable as it plays everywhere in the world.

Turning to the library. We reported another strong quarter of trailing 12-month revenue. What's interesting to note because it speaks to the depth and diversity of our library is that the biggest individual contributor in the quarter was a 38-year-old movie, Dirty Dancing. It's also worth mentioning that our film and television backlog grew to a robust $1.5 billion in the quarter. We expect this strong backlog to translate into growth in upcoming library quarters.

In closing, we continue to see encouraging signs in our operating environment. The domestic box office is strengthening as a new generation of moviegoers embraces the theatrical experience. New buyers and partners are emerging throughout the television ecosystem for those companies willing to look outside the usual places. Streamer demand for film and television series is helping to keep our library business strong. Our 3 Arts business continues to scale and diversify at a time when management companies have become increasingly valuable gateways to the media ecosystem. And AI properly harnessed is creating new opportunities to reduce cost, enhance revenue and accelerate the production process. That's the environment to which we're continuing to adapt our studio, becoming a little leaner, ever more focused, collaborating with digital and traditional storytellers alike, maintaining an entrepreneurial approach to both content and culture and above all, continuing to grow our incredibly valuable portfolio of branded intellectual properties.

Now I'll turn things over to Jimmy.

Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our fiscal first quarter 2027 Studio financial results and provide an update on the balance sheet. For the quarter, Lionsgate Studios revenue grew 48% year-over-year to $777 million, while adjusted OIBDA improved to $79 million. Operating income was $26 million, reported diluted loss per share was $0.10 and diluted adjusted earnings per share was $0.06. Free cash flow was $129 million in the period, reflecting strong operating performance, including the April release of Michael. Trailing 12-month library revenue was $987 million, roughly in line with the prior year, and our backlog of $1.5 billion was up 21% year-over-year. The continued strength of the library and our growing backlog demonstrate the enduring value of our intellectual property portfolio and provide an important source of recurring revenue and cash flow across market cycles.

Studio segment profit, which reflects our Motion Picture and Television segment profits before corporate overhead expense, increased significantly year-over-year to $115 million. We began highlighting our Studio segment profit a few quarters ago because this important metric is generally more comparable to the studio adjusted OIBDA figures reported by many of our peers. The increase in Studio segment profit was driven by strong Motion Picture performance.

Looking further into Motion Picture, we saw revenue more than double year-over-year to $587 million, while segment profit reached $105 million, the highest first quarter Motion Picture segment profit in the company's history. Results were driven primarily by the exceptional performance of Michael as well as the continued strength in ancillary contributions from The Housemaid. Turning to television. Revenue was $189 million and segment profit was $10 million. Revenue and segment profit were expectedly down versus the prior year due to the timing of episodic deliveries. We remain confident that television will achieve significant year-over-year growth in fiscal 2027 due to both our previously announced outlook to double scripted episodic deliveries and our recently announced Power licensing deal with Netflix. We expect TV segment profit to improve sequentially in the second quarter and then accelerate in the back half of the year.

Now turning to the balance sheet. We ended the quarter with net debt of approximately $1.5 billion, a $121 million sequential improvement. The primary driver was better-than-expected free cash flow performance, reflecting better in-quarter theatrical performance and recent release ancillary revenues. As a result, leverage improved to 4.3x, down nearly 2 turns since the end of March and reaching our mid-4x leverage target earlier than anticipated. We continue to believe that deleveraging will occur naturally over time with growth in adjusted OIBDA and free cash flow. And we're encouraged by the progress we've already made during the first quarter.

Additionally, we ended the quarter with $426 million of unrestricted cash on the balance sheet and $800 million of available capacity on our revolver. Our capital structure remains well positioned with no significant near-term corporate debt maturities. We remain highly confident in our fiscal 2027 outlook, which is supported by continued monetization of recent theatrical releases across downstream windows increasing television deliveries, sustained strength in our library business and the Q3 release of The Hunger Games: Sunrise on the Reaping. Accordingly, we continue to expect significant growth in adjusted OIBDA and free cash flow this fiscal year and beyond.

Now I'd like to turn the call over to Nilay for Q&A.

Thanks, Jimmy. And before we start the Q&A section, I want to remind everyone that last quarter, we added some slides to our IR website that highlighted several drivers of our business, and we plan on updating those slides in the coming days. Operator, can we open the call for Q&A?

[Operator Instructions]

Our first question today is from Vikram Kesavabhotla with Baird.

My first one is a higher-level question on the industry. When we look at the box office trends this year, I think there's been a few examples where existing proven IP has continued to perform very well. But I think there's also been some examples where proven IP has struggled or at least struggled relative to broader expectations. I'm curious to hear your perspective on some of the factors that are influencing the success and relevance of IP in today's market. And the real question behind that is, when we look at your film slate over the next few years, I think there are several examples of sequels or revivals of existing films and franchises. As you've gone through the process of greenlighting these ideas, what are some of the factors that have given you confidence in the health and the relevance of the IP that you're working with and the likelihood of your film slate being successful in aggregate? And I realize it's a bit of a high-level question, but it'd just be great to hear your thoughts on how the film slate is positioned relative to some of the broader industry trends that we're observing.

I appreciate the question. Obviously, each individual studio has its own perspective and the metrics that are used to determine what makes a film a good idea or a good bet include box office and all kinds of other ancillary opportunities that come with it. As it relates to Lionsgate specifically, I can tell you that the lens that we're looking at with these projects is does the movie in question answer an audience demand or interest about a particular character or a particular storyline or when we invite the audience to think about an idea that they may never have considered, do they get excited. And we have a very robust ongoing communication with our fan bases. Our digital team is, I think, top of class in making sure that we are constantly listening to our fans. And so you could pick any of the titles, large or small across our slate for the coming years.

And I would tell you that the characters that the stories are focused on or the storylines that are being advanced are answering very direct and very specific questions that have come from the prior films. And as long as you are then also making each of those films for the right budget and with the right filmmakers, I think while nothing is certain, your odds of success go up exponentially. And as I said, every single one of the films on our slate has more than met the threshold criteria for myself and Jon and the company to feel great about what we're doing. And then it was Adam, if you didn't know earlier.

Okay. Great. I appreciate the comments there. Separate from that, I also wanted to follow up on the licensing agreement with Netflix for the Power Universe. Can you talk more about the potential impact of that deal and what that could represent for the value of your library? And perhaps as part of that, if you could just talk about the broader health of your library business today and how that revenue contribution can trend from here, that would be great.

I'll have Jim Packer answer that.

First of all, it's just a really great time right now to have library series, especially high-profile signature franchises in the marketplace. I'm sure you've seen a couple of the announcements that are out there. This particular deal has a couple of strategic wins. First of all, Power has been strong internationally, but this is going to be transformative for the show and for the franchise. Netflix has an international footprint and the entire franchise is going to grow significantly, I think, because of that. And then we also try to set ourselves up for the next cycle, too. So we only did a 3-year deal. So domestically, we'll have Kanan and Force available for the first time in the U.S. for SVOD. Internationally, we're going to have Origins and Legacy available. So it's going to set us up for an even bigger global opportunity at a time when I think the franchise is going to be hitting some new peaks.

And really, I think long term, while these deals don't -- of this scale will happen every day, we have a number of important series returning to our distribution organization over the next couple of years. We have Orange is the New Black, Mythic Quest, Mad Men post HBO. And I think all of those are going to give us another global pipe at a time when series are really in demand. So I feel very good about it.

The next question is from Omar Mejias with Wells Fargo.

Jon or Michael, I just wanted to see if you could give us an update on the M&A front. There's been several press reports indicating parties interest in Lion, including Bollore, Banijay among others. Just want to get your updated thoughts on how you're thinking about the consolidated media environment and where Lion sits within the ecosystem.

Thanks for the question. In spite of what the headline suggests, we haven't engaged in any substantive conversations. As a policy, we don't comment on M&A speculation. What I will say is this, given the strength and the breadth of our IP and our franchises, we remain one of the most compelling assets in a rapidly consolidating marketplace. We also recognize that scale matters more than ever in this environment, and that's precisely why the value of our portfolio only becomes more relevant over time. And given the M&A backdrop, the strength of our assets and our stand-alone operating performance, we believe we have real strategic optionality, and that's something we're focusing on every single day.

That's very helpful. And maybe just shifting to the earnings power of the business. I mean you guys just started the year very strong. Clearly, you have a lot of momentum on the Motion Picture business. On the TV side, you just did the licensing deal with Netflix that you talked about and you have a very robust backdrop backlog. So just curious, how should we think about the earnings power as we look ahead into '27 and beyond with all the pieces putting it all together?

So I think we've certainly been out there with a bit of a guide to a strong earnings year '27. You mentioned '27, that's this year, actually. And we're well on our way to a really strong year. I think the momentum should continue into '28, and we'll see nice growth in '28 as well. Obviously, our earnings sometimes depends on the performance of 3 or 4 different pieces of content. But certainly, if they do better than sort of what we're covering as our base case, I think we can have a really strong year in '28 as well.

The next question is from Brent Penter with Raymond James.

A few questions. First one on 3 Arts. You talked about the value of that business. Can you update us on the strategic review process there? Is that still ongoing? And then just can you update us fundamentally on that business? It sounds like some positive trends, but anything you can say there?

Sure. Brent, it's Brian Weinstein speaking. Thanks for the question. Look, to take it in parts, first, we are focused and remain focused on potential transactions, but not ones that are purely financial. There's some interesting strategic elements in some of the deals we're looking at. So we continue to explore those conversations and find some interest in that. I'd say, operationally, we're pleased with the business, the trajectory of the business beyond the core, as we've talked about over time, we're seeing nice momentum, real momentum in new verticals like sports and creator. That's not our roots, but that's where we see lots of excitement.

In sports, we've got activity and additions with our clients, Travis Kelce and Myles Garrett and now Taylor Rook and new clients like Colston Loveland and Sophie Cunningham. But that group together with others, it just demonstrates the strength of the platform and opportunity to develop content around those relationships. So that's how we think about the sort of new areas. And then getting back to the core, at the same time, our bread and butter, our collaboration between Lionsgate and 3 Arts has really never been stronger. So we have projects like The Hunting Wives and real robust development like Ride or Die and Las Culturistas, the award show and The Algorithm and Medal of Honor and others that's driving about roughly 30 shared projects between Lionsgate and 3 Arts.

And then let's finally, just talking about the industry and the asset class at large, transaction like THE•TEAM transaction with Providence Equity buying more of that asset, just reinforce what we know, which is these are scarce businesses with premium multiples and scale of talent representation businesses like 3 Arts remain a good place to be. So overall, I hope that answers it, but that's how we feel.

Yes, it does. And then on Michael, now that we're seeing the strong from that movie. I think there's even more anticipation about the sequel. So just any updates on maybe where that is in process and potential timing? And then what are the puts and takes on the sequel in terms of the economics? I think maybe some of the film from the first movie can now be used for that. So anything just in terms of budget or cost that you can talk about?

Yes, Brent, it's Adam. Thanks for the question. We are hard at work on making sure that we can put together a sequel that is worthy of the success and the enthusiasm that the first movie generated, and we're fully engaged with everybody. While we are not ready to announce everything at the moment, I would tell you that we are targeting a production start towards the end of this year and early next. And think that somewhere between the end of calendar '27 and the first half of calendar '28 would be a current thought of roughly where the movie could go.

We do have a number of sequences, particularly some big musical sequences that were shot previously that are almost sure to be incorporated. But we are mostly focused right now on how to make sure we can deliver at the right price, the biggest, best sequel that is what the audience is going to want and deserve after the experience we gave them the first time. So we're not ready to give guidance on the budget yet, but we certainly will be able to take advantage of some stuff that we previously shot, as I had said before.

All right. And then final question for me. The Paramount Warner Bros deal now on pause and the trial not scheduled until March. I guess what's the view from Lionsgate on that situation? How does it affect you kind of being in limbo here? And then if Lionsgate -- are you all better off if that does or doesn't close?

Yes. It's kind of a mouthful. I'd say this, uncertainty is the worst thing for our business and uncertainty and delay is not good for anybody. We know David Ellison well. We did his first series, Manhattan, some years ago. I can tell you that I was super impressed with him. He loves content. I have no reason not to believe that he will be investing very heavily in content, whether it's a 30 film slate or whether it's at a bolstered Paramount+, I would say for us, a more -- a better financed streamer, a competitive streamer will be better for us, better for us in terms of original programming, better for us in terms of selling library. And so that part of it, I think, is a real positive for us.

I can tell you we're already -- we've already sold them a new television show. We hadn't been doing that much with Paramount. We hadn't been doing that much with HBO. So I'm already seeing signs of it. I'm already talking to them about potentially co-financing feature films. That would be good for us, and that would be good for the industry. And I would say, overall, the more movies that are in the marketplace, while it's competitive, it's good as the rising tide moves all boats up. And so I guess I would say I'm in favor of this transaction, but most importantly, I'm in favor of certainty and getting all of the delay out of it.

The next question is from Sean Diffley with Morgan Stanley.

Two, if I may. First, you talked about a paradigm shift in the TV demand backdrop. I was hoping you could elaborate on that a bit. What would you say your special sauce is in terms of why your content is resonating so much with the streamers? And then second, your utilization of AI. I know you guys have a deal with Runway. Maybe you could just talk about how you're using AI to energize and leverage your IP and what kind of cost savings you envision or what kind of creative unlocks you're seeing?

It's Kevin speaking. Just to talk generally about the state of the market to quote The Godfather of Soul, I feel good. There's a lot going on, the stability that John alluded to and the return to active buying on both the Paramount and the HBO front has been great for us. We just announced the trauma series yesterday with Paramount and Prime Video. I think that's helpful. I think our secret sauce is we're finding ways to get shows on in sometimes nontraditional ways, a fully funded sponsored series in DINKS, partnering with Amazon. And Publicis is a great example. Trauma starting with a U.K. buyer at Amazon Prime U.K., moving into a U.S. play and a global buyer. All of that's stacking up to great things that are not the traditional way that shows are sold and made.

And then underpinning all of that is the great library successes that Jim alluded to. We're now relative to our peers in the television space, we're not even preteens. They started in the '50s. We started in the 2000s, yet we have 20 series under distribution or that we own and have made that are over 100 episodes. And they come in a nice cyclical way, obviously, with some wins here and there, which is a nice offset to some of the deficiting that we're doing over a slower cadence and then ultimately pay off in something like the Power deal. So a lot of it is just blocking and tackling, being in the market with great talent, great partners. Our 3 Arts partnership is amazing and all the great producers we're working with.

I would add that Kevin is doing a great job getting people to move to places that other people don't really want to go to like Serbia, like Ireland and like New Jersey. So...

Some of us like Ireland. Let me take the AI question. It's Michael. We really believe that AI is a real opportunity for us, both to grow our revenue and to lower cost in content production and across all of our day-to-day operations. It's essential that we deploy these tools responsibly, efficiently and in partnership with the creative talent leading our projects, but we're really excited about this tool.

The next question is from David Joyce with Seaport Research Partners.

A couple of questions. First, I wanted to ask a bit more on the Power deal. Granted Netflix gives much more global exposure than Starz would get since they're technically just in the U.S. But what is the benefit to Starz here? Anything directly financial? Or is it just like a catch-up platform and helps with the branding? And then secondly, I wanted to ask about the Michael movie. How should we think about the construct of ultimate profitability? Over what period do you kind of think about that? How does the factor of the family being involved impact that? Just wanted to try to drill down on the math there.

Yes. I think success that we have as the owner of Power still in years back to Starz because they continue to have nonexclusive run and they've then got -- as we discussed, they've got 2 brand-new shows Origins and Legacy. One of those, they're co-financing together with us. I would say even since the separation, Starz still is a really important platform partner for us. We want them to do well. And I think they're especially a good partner for certain kinds of focused content. So I'd like them to think that when we have a win on something that we financed for many years, that's good. And of course, we want it to be good for them. And I would say, Jeff and I and Jim Packer and some of us, Kevin Beggs, we spend a lot of time together trying to figure out if there are various win-wins. And as you probably know, they are the first piece of our Pay-1 window for our Motion Pictures, and they are the Pay-1 home or first window home for Michael Jackson. And so I think, again, we've got a great relationship. And again, we're happy always for their success, and I think they're happy for ours.

And David, as it relates to your Michael question, I'll just give the answer generally. I would say there's nothing particularly unusual about Michael in so much as the estate and the filmmakers get an appropriate share of profit participation. And there was nothing unusual in this particular case. We also were sharing both the financial responsibility and the upside with our partners at Universal around the rest of the world, say, for Kino in Japan. And so I think you can think of this as pretty traditional. Obviously, it was a big movie. It was an expensive movie. The marketing and distribution globally was handled very efficiently.

And while we look at profitability over roughly a 10-year cycle, obviously, it's front-loaded over the first few years more meaningfully and not only with the great theatrical performance we had, but the movie was a top performer in PVOD. We're seeing incredible adoption of the movie now as it's moving into its more downstream opportunities, and we think there's going to be a really nice long tail on it. But there is nothing unusual about how this movie was constructed in terms of how the profit is being shared amongst all the participants.

The next question is from Matthew Harrigan with StoneX.

Reaching back to early kind of formative Lionsgate, Jon used to talk a lot about the superior multiple you're getting on ancillaries on films relative to the box office rentals, and it was pretty striking. I know you've got a huge problem now because you've got some billion-dollar box office films, maybe the second Michael, maybe Naruto and certainly the 2 Resurrection movies. So presumably, that's harder to do. But do you think that for yourselves and for the industry, you still have a positive trend on that? And a few of the movies, I mean, I think Resurrection in particular, should just have phenomenal library value. Do you think in a couple of years, you're going to get a step function lift in the library OCF just in kind of the number of hits you're having?

I know people are concerned about the roll-off in 3 years, but it looks like some of the pressure there could get offset by growth in the library revenues from both the creative side and deployment of new technologies and obviously, penetration of new technologies, both in the U.S. and overseas.

If I get your question right, Matthew, I think you sort of made an interesting point, which is when you look at sort of some version of what percentage you're going to get downstream. If you've got a $1 billion movie, obviously, it's going to be a bigger number downstream, but it may not be a bigger multiple number downstream. But I would say we'll take that. We'll take as many billion-dollar movies and television shows as we possibly can. I would say the lift that we get, you've seen this, we've seen this every time we've talked about it on these calls when we have the next Hunger Games coming out, right, you're going to see a huge lift that we're going to get across every ancillary platform for Hunger Games. N.

Ow you bring up technology. I've never seen through my 42 years, I hate to say it, but 42 years, I have never seen technology not creating incremental benefit and more additional lift for good content and strong content. And so -- and Kevin mentioned it, Adam mentioned it, we have amazing content. This is one of the reasons we keep putting slides up now on our site, just to remind people how incredible our portfolio of intellectual property and recurring intellectual property is. Everything I put up on the site and maybe people don't realize that every single one of those titles, I think there are over 40 are things that actually we are currently working on some version of, if not more than one version of. But in any case, I have never seen going through history that any technological advances don't inure to the benefit of incremental revenue of good library content, and I believe that to be the case today.

And actually, just as a quick follow-on. This is a little nerdy, but 8K, I mean, AI, in particular, you can render pretty much the entire library, I imagine, in 8K. I mean do you think that's something that will have some appeal over time? I mean every year at CES, it looks beautiful. And obviously, the commercial translation has taken more time than people thought going back to the '21 Tokyo Olympics. I know on the sports side, obviously, it's much harder to do than on what you do on movies and TV, but still interesting, pretty immersive.

I think, again, we have to -- as Michael said, we have to make sure when we're doing generative AI to work really closely with the talent. We always see these as tools that enhance the work that we do with talent. I can say we're experimenting and playing with it in so many different ways. It's certainly using it significantly preproduction, post production. We're using it now. I just looked at an example where we've got a piece of talent we actually manage a 3 Art and they do these podcasts that have never been a video, and we're actually creating video versions of them, and they're really quite good. There are just some tremendous use cases right now that we're playing with.

And again, a year from now, it's going to be a whole different world there. But I can tell you, it's saving us money. It's making us more efficient across the board. Every single employee here at this company is trained in AI and is using a 95% adoption right now across the business. And every day, we find a more interesting use for it that can save us money or enhance revenue. So it's going to be a lot of fun going forward.

Yes. And I would say -- One other thing I would say on the 8K, I do think every time you've seen a new format come around, you have a lot of people that will buy those formats. We have a thing called Lionsgate Limited, where we do 4K. So I don't anticipate that we will have any problem at all with the kinds of movies that Adam is producing, keeping that pipeline full for the next-generation technology.

The next question is a follow-up from Vikram Kesavabhotla from Baird.

Maybe first, I want to follow up on the upcoming Hunger Games film. Can you talk about the initial reception to the marketing efforts there and some of the other data points you're monitoring to inform the potential performance of that film? And maybe related to that, how is this impacting the library demand for the previous films in that franchise? And how meaningful of a contribution can that be to the business this year?

Yes, it's Adam. I'll take the first part, and then I'll pass it on to Jim. Look, I think when we came out with the first trailer for The Hunger Games, we were pretty public about the fact that it sat just behind Michael as the most viewed trailer in the history of the company. We have seen with every subsequent piece of content that we have a very, very excited and engaged audience and that we are bringing a new audience into the fold. This book meaningfully outsold the prior book. To the question that was asked earlier, these particular games, The Second Quarter Quell have been a rabid topic of conversation amongst fans of The Hunger Games for a long period of time. And this movie is setting about with an extraordinary cast and obviously, a filmmaking team that has got this movie in their DNA.

We are answering the question that the audience has been asking with an incredible cast. And I will also tell you that -- it is one of the best testing movies that we've ever had at the studio. So we think we have all of the tools necessary to deliver an incredible result.

And I would say on the library front, we're always very strategic on how we window these things. And I think this particular situation because we had a long runway to plan, we have literally every single month planned out between pretty much now through the launch of the film in a very kind of calculated way. We also strategically had windows on Netflix and some other streamers a while ago. And that just builds the fandom and builds the excitement for the brand. Overall, I think you see overall our reported 12-month trailing is always continuing to go up. It's partly due to these new franchises coming into the marketplace and how we draft off of them, whether for transactional for licensing. And so I think you'll continue to see strength in our trailing 12 because of it.

Okay. Great. And maybe just a couple of other follow-ups on the Motion Picture segment. You called out the ancillary performance of The Housemaid as a contributor to the performance this quarter. How much more runway is left for that as a tailwind to your performance in fiscal '27? And then maybe related to that, can you talk about kind of the runway for contribution from Michael, given the strength that you're seeing in the windows post the theatrical run?

Yes. I mean there's definitely a lot of continuing ancillary revenues on The Housemaid will tell you, remember that the Pay-1, a portion of that was in Q4, okay? So we've got a lot more coming. Michael, in particular, I mean, you saw major contributions, obviously, in the first quarter and a lot more to come over the ensuing 3 quarters of the year. So -- that's a lot of strength. And we've got -- looking ahead, we've got Hunger Games coming up in our third quarter. So we really feel great about that and how we finish out the year. And you see a lot of backlog that's going to be flowing through as well. So we're in a position of strength.

Okay. Great. And then just the last question for me. Jimmy, you talked about achieving your mid-4x target on leverage earlier than you expected. Can you just talk more about how we should see the leverage trend going forward and some of the key factors that will allow you to continue delevering the balance sheet?

Well, expect continuing deleveraging, but I would say we did achieve this earlier than I had anticipated, always confident that we would get there. But I expect throughout the year, we're going to continue in this kind of, call it, low to mid-4 Obviously, we have the 3 Arts potential put in Q4, as we previously talked about, that would be about a 0.5 turn increase. But even if that's the case, we quickly delever after that. And then I think we move into this fiscal '28 of 3 to 3.5x leverage and then below 3 after that.

This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks.

Thanks, everyone. 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. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, and welcome to the Lionsgate Studios Fourth Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Nilay Shah, Head of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for the Lionsgate Studios Corporation's Fiscal 2026 Fourth Quarter Conference Call. We'll begin with opening remarks from our CEO, Jon 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 Adviser 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 Jon.

Thank you, Nilay, and good afternoon, everyone. We just reported a quarter that is indicative of our earnings power, paving the way for outsized growth in fiscal '27 and '28. Since this is our fiscal year-end call, I'm going to take you through some of the highlights during the year.

Last May, we completed the separation of Lionsgate and Starz into 2 stand-alone public companies, collapsing our dual share structure into a single class of stock. The market's response confirms that a focused content-driven Lionsgate is the right structure for unlocking value. We've put together one of the strongest content pipelines we've ever had. Over the next 2 to 3 years, over half of our Film, Television and Live Entertainment slates will be comprised of branded, repeatable intellectual properties that we own or control.

We secured renewals for 12 of our 13 scripted series, setting the stage for our Television slate to nearly double the number of episodic deliveries from fiscal '26 to fiscal '27. We reported our third consecutive quarter of $1 billion trailing 12-month library revenue, creating valuable consistency in a constantly changing operating environment. We leaned into AI with a strategy designed to make technology a valuable part of the creative process and a driver of quality and efficiency across every part of our business, and we ended fiscal '26 and started fiscal '27 with 2 massively successful movies, The Housemaid and [ Michael ], reasserting our brand and demonstrating our ability to compete effectively at every level of box office.

The Housemaid reinforces our unique model and entrepreneurial approach a provocative movie, an unconventional release strategy, a risk-mitigated financial structure with significant upside and one of the highest box office to ancillary market conversion rates in the industry. We're excited to begin production later this year on The Housemaid Secret based on the best-selling second book in the Trilogy for December 17, 2027 release.

During the quarter, we took a number of other steps to keep this momentum growing, kicking off the marketing campaign for the next installment of our Hunger Games franchise, wrapping production on a new interpretation of Rambo with rising star, Noah Centineo, wrapping production on [ Mel Gibson's ] resurrection of the Christ Parts 1 and 2, greenlighting the reimagining of Blair Witch in partnership with Blumhouse and James Wan's Atomic Monster and signing a claimed Spider-Man director, [ Sam Ramy ], to direct a remake of the classic horror thriller Magic.

After the quarter, we opened Michael. The scenes of moviegoers dressing up, bringing their families over and over and dancing in the aisles are a testament to what entertainment at its very best can do. With Japan still to open, Michael is on track to become our first movie grossing over $1 billion at the worldwide box office. And we believe there is a lot more story to tell and a lot more music to share.

Turning to Television. The mantra remains the same, lean into the creative strengths that enabled us to secure renewals of scripted TV series with 12 different buyers. Keep cost down and maintain our flexibility to make shows at every price point for every buyer and across a balanced mix of retained rights and cost-plus models. The Rookie, our long-running procedural at ABC and Hulu showed no signs of slowing down in the quarter, coming off a Season 8 finale that set a new streaming viewership record for the series and benefiting from an influx of younger audiences, the show was renewed for its ninth season, and we're excited to extend the brand with the ABC pickup of The Rookie North with potential breakout star, [ Ellis ].

No discussion of our television business would be complete with add a few words about the hit comedy, The Studio on Apple TV. The series just took the international category at the [ Bafta ] awards to complete one of the most dominant award runs in modern television history by winning the top prizes at the Emmys, Golden Globes, The Actor Awards and the [ PGA, DGA and WGA ] awards. We're so proud of [ Seth Rogen, Evan Goldberg ], the amazing cast and riders, together with our partners at Apple TV for everything they have and are continuing to accomplish.

In closing, our success in the quarter is about more than one hit movie, we're beginning to see signs that our operating environment is improving. People are returning to theaters, IMAX, Dolby, XD and other premium large format screens are transforming the moviegoing experience. Great storytelling is emerging in new and unexpected places across traditional and digital media alike, and Gen Z audiences are enabling shows like The Rookie to break out with renewed vitality as we're again seeing the resilience of our business in the largest entertainment market in the world.

In this improving environment, the fact that our content pipelines are strong, our library is robust. Our brand stands out and our franchises are adding value from new markets and new audiences should give everyone confidence in a strong year ahead. In the coming weeks, we'll post several slides on our investor site that illustrate the core tenets of our business that I've touched on throughout my remarks, the proportion of repeatable branded properties on our film and television slates, the strength and consistent performance of our library and the uniqueness of our business models. I encourage you to take a look because we'll be returning to these themes often on future calls.

Now I'll turn things over to Jimmy.

Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our fiscal fourth quarter 2026 Studio financial results and provide an update on the balance sheet.

Beginning with the quarter, Lionsgate Studios revenue was expectedly down year-over-year to $907 million, while adjusted OIBDA reached a 12-year high of $165 million and was up 17% year-over-year. Operating income of $118 million was up over 50% compared to last year. Reported diluted earnings per share was $0.23 per share and diluted adjusted earnings per share were $0.37 per share. Free cash flow for the quarter was a strong positive $190 million, reflecting improved operating performance in the period as cash returns on our content investments in library were on full display. Trailing 12 months' library revenue remained above $1 billion for yet another quarter growing 5% year-over-year and continuing to demonstrate the durability and growing value of our content portfolio.

Now breaking down the performance in the quarter, I'll start with the discussion of our Studio segment profit. Studio segment profit, which reflects our Motion Picture and Television segment profits before corporate overhead expense increased 24% year-over-year to $218 million. We began highlighting our Studio segment profit last quarter because this metric is generally more comparable to the Studio adjusted OIBDA figures reported by many of our peers. The increase in Studio segment profit was driven primarily by strong Motion Picture performance.

Moving to Motion Picture. Revenue increased 23% year-over-year to $652 million, while segment profit grew 39% to $187 million. The quarter was driven primarily by the outstanding performance of The Housemaid and continued carryover from Now You See Me: Now You Don't. Particularly noteworthy was The Housemaid strong carryover into the home entertainment window where it became the industry's highest gross and [ PVOD ] title among films with up to $150 million of domestic box office. Additionally, Motion Pictures results were particularly impressive given we leaned in heavily near the end of the quarter with incremental pre-released P&A spend for Michael as well as early P&A spend for Hunger Games Sunrise on Reaping and John Rambo.

Turning to Television. Revenue was $255 million, and segment profit was $31 million. Television's year-over-year comparisons continue to reflect the timing of episodic deliveries and lower volume of scripted deliveries versus the prior year. Television segment profit remained resilient benefiting from continued strength in library performance, including The Rookie and Mad Men. Importantly, we remain confident in TV's growth in fiscal 2027 as we expect to double the number of episodic scripted deliveries versus fiscal 2026.

Now turning to the balance sheet. This quarter marks a post-spin inflection point for strengthening our balance sheet as trailing 12-month adjusted OIBDA and free cash flow benefit from fully replenished pipelines in Motion Picture and Television. We ended the fiscal year with net debt of approximately $1.6 billion, an improvement of nearly $150 million relative to the prior quarter, driven by strong free cash flow. Year-end leverage improved well over a full turn to 6.1x, reflecting both higher trailing 12 months adjusted OIBDA and strength in free cash flow. At quarter end, we had approximately $800 million of unused capacity on our revolver available and $341 million of unrestricted cash on the balance sheet.

Now let's discuss how the business is positioned going forward. Our first year as a stand-alone company was a transition year, and we have all the pieces in place in our fiscal 2027 with a lot of momentum. In particular, we entered the year with strong carryover contribution from our fiscal 2026 theatrical slate. In addition to starting the year with the exceptional performance of Michael, we have a highly anticipated Motion Picture release schedule and a large increase in scripted episodic deliveries within television. We now have enhanced visibility and continue to expect significant adjusted OIBDA growth in fiscal 2027. Additionally, this adjusted OIBDA improvement is expected to result in substantial growth in free cash flow and a continuation of significant deleveraging over the course of the year.

Now I'd like to turn the call over to Nilay Shah for Q&A.

Thanks, Jimmy. Operator, can we open the line up for Q&A?

[Operator Instructions] The first question today comes from Vikram Kesavabhotla with Baird.

My first one is a higher-level question on the injury and you referenced this a little bit in your prepared remarks, but it seems like the back office has been in a really good place over the past few months. And I'm curious on your perspective on the drivers behind those trends. And in particular, I'm curious if you think we're seeing a sustainable improvement in consumer demand at the box office or if you think it's too early to make that characterization. And I realize it's a tough question to unpack with a lot of precision, but it would be great to hear your perspective on the trends that you're observing out there.

And then separate from that, Jimmy, I'm curious if you could just talk more about what the cadence of fiscal '27 is going to look like from a profit perspective. It seems like there's some moving pieces to consider relative to fiscal '26. You called out a few of those in the remarks. It would be great if you could just talk more about some of the puts and takes we should be taking into consideration.

Thanks, Vikram. I'll start, and I think I'll turn it over to Adam to say just one thing I think is sort of an interesting statistic right now that the YouTube growth is actually being driven by a 55-plus and that actually the growth in the exhibition business -- the moviegoing business is actually being driven by Gen Z, who are up to about a 30%, 34%, I think, share of that market. And so that's obviously -- that's the group that we want to engage with right now. we're finding different ways to reach them. But overall, that's very exciting.

That coupled with, obviously, the large screen formats that I talked about before. They're actually making the moviegoing experience really like the live what's going on in live right now. It's just much more of an event especially if you've got an event movie. Adam, I don't know if you want to add to that.

Yes. Thanks, Jon. I would just say that I think the studios have done a tremendous job over the last couple of years of understanding and recognizing what type of experience moviegoers of all ages want to have in a movie theater and how to reach moviegoers with marketing campaigns in a world where there is so much more fragmentation than there was once upon a time. So I think you are seeing lessons learned by studios across the board. And I think there is much more content on the release schedule over the course of the next year and beyond that I think is going to continue to drive that type of attendance. It's really exciting to see, and I'm listening to it in my own house. Young people are talking about movies and going to the movie theaters as an incredibly fun way to spend time with their friends. And no question, the exit polls reflects what Jon said, which is that group is driving real outsized opportunity alongside groups that have gone in the past. So I'm encouraged by what's coming.

Yes. And thanks, Vikram. For sure, we've got great visibility and confidence as we look at significant growth rolling into '27 from a cadence standpoint, I would say that it's not as back-end loaded as it was in the prior year, so not as back-end loaded as fiscal '26. TV is a little bit more back-end loaded this year than Motion Picture. And to give you some color, part of that visibility, right, is we're doubling episodic deliveries going into fiscal '27. We -- you saw we had 12 or 13 returning series renewed so of that, about 90% of those episodes are going to fall over Q2, 3 and 4. That's just normal delivery cycles. So that's why TV would be a little bit more back-end loaded in that context.

The next question is from David Joyce with Seaport Research Partners.

A couple of questions. First, it was a great exit to 2026, great start to '27. But could you put a little finer point on the possible range of outcomes for the next year? Really, what does strong growth and significant growth mean given that you are also laying the groundwork on non sequels and some other films coming up? And then I have a follow-up, please.

Well, for sure. Thanks, David. Appreciate it. Yes, I mean, we clearly do have greater visibility into fiscal '27 as you would expect, as we're a bit closer, but it's still early in the year. I mean, we got to remind you, right? There's timing and release schedules, both on our film slate, ultimately episodic deliveries, even the cadence of P&A spend, right? So we're not going to put a range on that for you. But we've got great carryover coming out of the '26 late. You know that. I mean Housemaid's written all over that. Obviously, a great year -- a great start to the year in terms of theatrical slate with Michael, but also great things to come as well as Hunger Games and beyond. So -- and the TV episodic deliveries, I've already kind of provided some color there.

I'd also point you -- I mean, I think it helps with the confidence and maybe it doesn't help you with the range. But the backlog, which is a contractual future revenues and cash flows is $1.3 billion. So that likewise gives us a lot of confidence. And probably 90% of that backlog will come within the next 24 months. So it's not only strong carryover in '27, but also fiscal '28 is also nicely set up as well. So thank you.

I appreciate that there's a lot of moving pieces and timing is still to come. Could you talk about some of the other TV titles besides rookies and the spin-off and The Studio. What are some others that you're excited about? And then finally, could you provide a perspective on what the impact might be from the Paramount [ Skydance ] and Warner Bros. discovery combination on your library business?

Kevin, why don't you start?

Sure. This is Kevin Beggs speaking. In addition to The Rookie going into Season 9, which is really quite an accomplishment and as Jon alluded to in his remarks, getting younger every year in demographics, which is just simply unheard of in broadcast television. The Rookie North spin-off is a great complement and expansion of that franchise. The Studio obviously, we're in Season 2, Hunting Wives has been a breakout success for us on Netflix. We just wrapped shooting Season 2, we're in the middle of shooting The Rainmaker Season 2 for USA Network, a huge international driver for our business, about to start shooting Robinhood Season 2 and we continue to be deeply emerge the power versus the power franchise that we share with Starz, force wrapped up in early January. That particular show Season 5 of [ Camden ] is coming in June. And we're in the first season of production on Origins which is essentially a take on a young tower and hopefully, more powder in that pipeline.

Speaking for about the Sky [ Skydance ] Paramount, Warner potential combination. We're really excited about what [ Skydance ] and Paramount have done before that relative to opening up their platforms to outside studio suppliers like ourselves, both in originals and my area and Jim Packer's distribution side. I think our thesis is that a strong unified streaming player, whether they differentiate that to 2 brands or just 1 is better than maybe 2 weaker ones in terms of firepower and ability to buy from the outside market. And we know we need to compete with the best creative product that we can and come up with better financial models, but knowing there is a receptor buyer, of course, makes that virtuous circle really work for us.

But Jim may want to talk about distribution.

Yes, David, I would say telling you about Paramount, Warner Brothers both of those platforms are really going to be wanting to be strong and compete internationally. HBO has just opened up a couple of new territories in the last 24 months. The one thing I've seen when all these types of mergers or consolidations go on is nobody stops competing. They just compete, and we have the kind of content that really fits competition well. Going back, I know Kevin talked a lot about the original shows. But if you just look at our library, I'll give you one quick stat that gives you a sense of the strength of our TV library.

In fiscal '22, we only had 4 series that were sold to the big 6 streamers. And if you look at fiscal '26, we had 17 series. But the most important part of that 10 of those 17 ranked in the top 10 of those various top 6 streaming platforms, things like [ Nurse Shake, Hightown ], Madman, as you saw, went to #1 or 2 on HBO and [ Spartacus ]. So the library itself from a TV perspective continues to perform in a way. I think many, many clients are going to want.

Next question is from Omar Mejias with Wells Fargo.

Thanks for the questions. Jimmy, can you remind us what's the path to deleveraging here? Is 3 Arts still a part of that daleveraging story? Or are you now focused on organic deleveraging?

And then my second question, Adam, following the sale performance of Michael, could you give us an update on Michael 2? And if you believe part 2 carries a similar strong commercial appeal as part 1 given the [indiscernible] of the story.

Omar, it's Adam. I'll go first and then I'll turn it over to Jimmy. We are really excited about the progress we're making with respect to a second Michael film, all the conversations that we've been having with all of the appropriate parties continue to go exceptionally well. And I would say that there is a ton of incredibly entertaining Michael Jackson's story and much of the biggest and most popular parts of his music catalog that were not touched upon in the first film.

And also, I would just say we can go forward and backwards in telling the story, there are so many other events that happened even in the time frame of the original movie that weren't touched upon. So we're very, very confident that we've got an incredibly entertaining movie that will appeal once again to a global audience as the pieces come together.

And Omar, we're just naturally delevering. I mean, with the visibility that we have in the context of EBITDA growth, significant growth in likewise, strong positive free cash flow momentum just coming through our operations. So 3 Arts really isn't either here or there with regards to the delevering. I'm looking at 4x, 4.5x leverage off of 6.1% this period, which was, as you saw, down just a little over a full turn from the prior quarter, okay? All of that is natural. When we get into the fourth quarter of our fiscal '27. As you know, there's a 3 Arts put there. We could easily absorb that. That would be about a half a turn, Otherwise, if it's the right thing to do for 3 Arts and we'll do whatever we need to do is great for shareholder value in the business. But as far as deleveraging, we're deleveraging naturally.

Yes. And just -- it's Brian Weinstein, just jumping in. Look, we're -- it's an interesting time in our category. There's a ton of momentum in the entire space. There's a lot of investor focus and if you take a step back and you look at [ cells ] transaction with Goldman Sachs and the team's process formally [indiscernible] and there's just quite a bit of enthusiasm in the space for us in spite of some downward pressure on scripted and unscripted. We have real momentum in our core business and look, our decision to diversify has proved to be the right one.

Just to give you some specifics on the production side. We've got renewals with [ Running Point ] on Netflix and [ Wilfred ] and Nobody Wants This, and Hunting Wives and the [indiscernible]. So it feels good for our business, the long-term deals that SAG and the WGA struck are a real positive sign going forward. In our diversification strategy, we got ahead of some of the, stuff we've signed clients in sports like [ Miles Garrett ] and [ Mooky Bets ] and [ Jansen ] and we feel real good about that. Obviously, the creator economy business is a big part of everyone's future, including ours. We're really proud we've got a client in [ King Parsons ], who's filmed the back room has come out soon, started on his own YouTube channel, made it into a major Motion Picture, it's just a sign of the sort of things to come as we move forward. So we're excited.

I would add the strategic conversations we've alluded to before, would probably involve some deleveraging, but they will, for sure, be driven by the strategy, not the delevering.

Next question is from Brent Penter with Raymond James.

First one for me on Michael. Is there any color you all can give in terms of EBITDA contribution from that movie? Or at least as we try and do our own math, how to think about the puts and takes versus another movie of a similar scale in terms of maybe a very strong international presale, but also factoring in the States portion?

Yes, we going to break out the absolute contribution on that, but obviously, it's strong. Keep in mind, we have Universal as a partner on the international side. And then, of course, we handle the presales in Japan, which, as Jon noted, is yet to open, but great demand and great things happening there, we think. And so we're just excited about this, and that's part of the momentum. Again, come into the year extremely strong, gives us enhanced visibility. We were always looking and striving for significant growth into fiscal '27 and I think the slate it out. And I think we're in a good position to not only drive '27, but also a great carryover into '28.

Okay. Great. And then just in broad terms without getting into numbers, how should we think about the [ SQL ] and puts and takes in terms of economics there. I think maybe there was some footage from the first one that's already even shot that you might be able to use. So how might that benefit you for the sequel?

Yes. As we've said -- it's Adam. As we said previously, looking at the story for the second movie is unfolding, we think we've got 25% to 30% of a second movie already shot from the prior production activity. And so obviously, that will have some benefit ultimately but we're going to make sure we make a big and satisfying movie for a global audience once again. So I wouldn't want to quantify exactly what that's going to look like. But undoubtedly, that 25% to 30% will be material.

Okay. Okay. Great. And then final question for me. The [ Poison Pill ] aspired on May 7. Can you all talk at all about what that enables for you? Or what conversations that has enabled now that the [ Poison Pill ] are longer in place?

It's not going to change our business materially. We have a the shareholders can always decide if they want to reap a Poison Pill, but we're going to leave it in their hands. And we think at the time that we did it, it was the right thing to do. And so as you mentioned, it will be expiring to the next shareholder...

The next question is from [ Sean Diffley ] with Morgan Stanley.

Two, if I may. The first is curious how you see AI changing Studio margins over time and different things that it could unlock for your business? And then the second follow-up to the Poison Pill question. Just as you think about the strategic landscape and obviously the [indiscernible], which has been underscored by Warner Bros. and other instances, how do you think about the stand-alone opportunity versus the potential benefits of being part of a bigger strategic organization?

Well, the landscape continues to be moving towards more scale. It's creating significant opportunities for a pure-play studio like ours. We love the core assets that we put together over the last 25 years, both built and acquired, and we're laser-focused on maximizing the shareholder value. We separated the business to create a stand-alone studio and collapse into a single share class, which has given us a great deal of maximum optionality, but also certainly increase our liquidity dramatically. And we feel like we have a world where scale and franchises as well as very well-known IP have never been more relevant.

From a Studio margins perspective, we feel good about that. I mean obviously, we had really strong margins in the fourth quarter, so you can't always look to something like the Housemaid, for example, which was a very modestly priced and even less expensive when you look at it relative to our New Jersey tax credits that were something special here. And I did $400 million global box office. So you can't look at that margin. But generally speaking, good margins going into next year, look at our fiscal '26 margins in total. Growing those in Motion Pictures we go into '27 TV right around the same level. I would think we've got a lot of renewals, but there are some soft more series that are building in terms of profitability and margin. I mean, certainly profitable, but margins building. So I think I feel really strong about '27 margins continuing to increase or hold certain levels in TV.

I just want to clarify one thing. We put the pill in a year ago, it has expired.

The next question is from Matthew Harrigan with Benchmark.

Congratulations. Firstly, I guess it came out a few hours ago that you're actually going to separate the resurrection of [ Ascension Day ] '26 and '27 versus having them so tightly clustered, which I always thought was kind of maybe not economically optimal. You get more cannibalization, you get more anticipation for the second film. Is there anything to comment on there other than the economics probably look better with better duration just out of curiosity?

Matthew, it's Adam. Thanks for the question. No, you hit the nail right on the head. Look, it was -- we claimed those 2 dates because those are the 2 most obvious states where a film like the Resurrection could conceivably go and we were able to protect both dates. Having just seen production ramp actually slightly ahead of schedule and slightly under budget. The scale of what Mel and the team have created is astonishing, and we couldn't be more comfortable that there are 2 stand-alone exquisite movies and with Ascension Day falling effectively at the beginning of the incredibly lucrative summer moviegoing corridor taking advantage of that in consecutive years as other films in multiple parts have done so well, just felt like the right decision.

So the reality is that initial dating was designed more than anything to protect the 2 [ puzzle ] dates we might want, and we're excited now that we've landed on this as our go-forward strategy.

And Matthew, with regards to just the economics on fiscal '27, right? As you move that out of the back end of '27, that's a slight improvement. But realize, we're also dropping day drinker rent on that date, and you're going to have P&A there. So it's actually relatively neutral, probably slightly down a bit, just those changes on the [indiscernible] relative to fiscal '27.

And then secondly, I know this is really conjectural, but you had the [ Cadence 20 ] sell-off among the Studio stocks in February and then we had some talk today on Hell grind that shown it can, which is supposedly produced for $500,000, which certainly doesn't look like a top studio film it looks a lot better than you expect for $500,000 from what I've seen. How do you feel about -- just on the -- obviously, you've got benefits on the time line for getting movies out faster and costs. But how do you feel about immersion competition maybe people outside even the traditional studio rather in, particularly on the streaming side?

Yes. Look, as you well know, through the history of our business, all the technical technological advances of unlocked value for media companies. This is going to be the same. I'm very bullish. We're very bullish that AI is a total net positive for us. We want more people to engage with content. We're across all of our digital footprints, YouTube, social channels, and then we'll be launching -- I'm very excited, but we're launching a new fan and creator site. We're engaging with the fans wherever they are. And these are digital tool kits that we're going to give them and that will empower them to interact with our content to extend our brands, to build new versions of our brands, we're excited about the use of AI across the board.

In our own company right now, we've deployed it over 80% of our of our workforce, whether it's Copilot, whether it's ChatGPT Enterprise, Snowflake, whatever. We're utilizing it across the board for productivity for advanced analytics. And so across the board, whether it's just the operations of our business in terms of sales or whether it's enhancing our preproduction, post production. AI is a total net positive for us. And again, we want to engage with our fans. We want to give them digital toolkits to create different versions, obviously, in a protected environment, obviously, with the authority and approvals of our talent. But we're really excited about it. Our early engagement with runway enabled us to take an early look at generative AI. And so big plus for us, a big value add looking forward to more and more deployment.

The next question is a follow-up from Vikram Kesavabhotla with Baird.

So let me ask a couple of more questions here. I just wanted to follow up on Michael, given that it was such a standout result for you. Now that you've had time to reflect on the feedback and the reactions, why do you think that this film performed as well as it did. And it seems like you did some unique approaches to marketing around that film that may have benefited the performance as well. I'd be curious if you could elaborate on some of the strategies that you use there that help drive the success.

Sure. I'm happy to try to offer some thoughts. Look, I think we said on multiple earnings calls prior to the release of the film that the fact that Michael is in arguably one of the most influential artists in human history and that so many of not only his songs but his dance, his impact on fashion, his impact on Motion Pictures, his impact across so many different areas, had a profound emotional effect on people all over the world. And so the idea that when people had a chance to, if they're old enough, relive many of those extraordinary moments and for younger people who we were not shocked but thrilled at how many young people are really, really engaged with his music and his life.

And [ Anton and Graham ] did an extraordinary job of capturing that with energy. And so we expected something big. We were planning for something big, and we said to everyone that it was the most watched trailer in the history of the studio. It wasn't just that fact. It was looking into the details of who was responding to it. And you're seeing the ancillary benefits because his music is at the top of the charts now as well.

In terms of marketing. It is definitely a different era than when I was running [indiscernible] 20 years ago, how you reach people has significantly changed. And I give an immense amount of credit to both our marketing and our distribution teams and in partnership with Universal. We really found ways to create stunts that we're not only exciting to the people who were seeing them in the moment but became viral and pass along on every platform in social media. And you just can't buy your way into awareness and enthusiasm anymore. You have to create the tools for fans to share with one another. And I think the teams here and around the world did that extraordinarily well.

Okay. That's helpful. And just last one for me. Curious if you could talk about or refreshes on your philosophy around balancing the mix of tentpole films versus mid-budget films over the next few years? And particularly, given the success you've had recently with the Housemaid and Michael, if any of that has affected your perspective on how you plan to manage the portfolio going forward?

Yes. No, it has not changed it. It's reinforced what I've been talked about, what Jon has been talking about and the conversations that we've been having. I mean, it's nice that when you mention a movie like The Housemaid and a movie like Michael, you are talking about 2 very different movies. One, lower end of mid-budget film, that while it had a passionate fan base from books [indiscernible] it was not a massive based from book sales. And Michael being a very large movie and both of them were extraordinarily profitable. The criteria we're using to decide what films to make remains unchanged.

Do we believe it can be creatively great, and I'm so thrilled every time we make another announcement about what filmmakers and what actors and actresses are coming on board, what producers were working with. Can it be creatively great? Is there a marketing strategy that allows us to do what I was just talking about that allows us to reach consumers where they are now and the way they want to be impacted. And then they're a rational business plan. Can you make enough money and reasonable success to justify the risks that go into every film?

And so we've definitely been working hard to make sure that our existing when we see an audience demanding more that we're giving them an exciting version of what they're demanding, but when Jon mentioned in his opening remarks, things like Blair Witch or another Hunger Games movie, those are very modestly priced filmed. When we're talking about a Hunger Games or we're talking about, Michael, those are larger films. And when any film is able to pass the threshold criteria that I laid out, it becomes a great candidate. And I think we'll have [ 2 to 410 holes ] and the rest of the films will fit into a variety of other cost categories.

Yes. I think I'd just add that we're tenfold implies just a huge a huge box office, a huge project. You could interchange tentpole and franchise and they just branded properties. And as I said in my remarks, we're going to be posting and we're going to keep doing that in the future. We're going to be posting at least one slide that just shows what our pipeline looks like going forward in terms of television, film and live entertainment. I think everyone is going to be really surprised to see how many branded properties we have. I think you'll be able to look at that and you will see that we have as many well-known branded properties as any studio in the business.

And so we'll be filling the pipeline those properties in the future. And obviously, whether it's a Housemaid that we paid for about [ 1/5 ] of the price of Michael, I mean you can call that now a tentpole, you can call it a franchise. But I think the key thing is take a look at that slide, I think you'll be excited to know how much visibility we have in terms of proved IP going forward.

This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks.

Hi, everyone. 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. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

All right. We'll get started here. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, I'm very happy to welcome back Jimmy Barge, CFO of Lionsgate Studios.

Thanks, Thomas. It's great to be back again.

Thank you so much. So I thought I'd just kick us off with a high-level question about the year in review. I think it's been coming up on a year now where Lionsgate separated its studio and Starz businesses. part of that rationale, I think you had suggested was to unlock greater strategic optionality as a pure-play studio. Can you maybe just give us an update on how that opportunity has evolved and what path you might be seeing the strategic optionality kind of take?

Well, sure. I think our timing is great. I mean it took a while, right? But you're right, we're coming up in May. It will be a year. And we accomplished what we wanted to accomplish. It's better strategically for both Starz as well as the studio. But the objective was to get back to a pure-play studio. And I think you're seeing what others in the industry had done kind of following suit. We started this really 3 years ago, ultimately to the separation. And you're seeing it play out nicely. And so our studio is well poised. We'll talk about it later, but we're at an inflection point for our business.

We're coming off of a great year creatively heading into fiscal '27 as a March 31 year-end company and really well positioned and to be an agnostic pure-play content company has major advantages, and we've seen that. So you're seeing us hit all strides in motion picture as well as in TV. Our library sales, we're setting continuous records. We got major record-setting backlog, which is future contractual revenues and cash flows. So very well positioned. And then we see what's happening in the world of consolidation -- and everybody wanting studios, we've got a scarce asset here already completely separated.

We collapsed the A and B shares, as you know, at the time of the spin. We announced on the last earnings that we're letting the poison pill expire in May. And I think we're just extremely well positioned with our business hitting on all cylinders. At the same time, we're a pure-play studio, which has got great scarcity value.

Great. On that industry consolidation point, I did want to ask your thoughts on the impact of potential consolidation on the industry as it relates to your I think it looks like this continued trend might be ultimate impact to the buyer pool of your content, but also, to some extent, also potentially an impact to the sellers and the number of sellers that are supplying third-party content. Can you maybe just level set for us the value that you bring as a third-party content arms dealer, as you've said in the past, and particularly just in a world of scaled vertically integrated studios where your value and your library really presents value?

Well, I think, again, it just underscores the scarcity value of library, and we can come back to that. But in terms of being an arms dealer or a seller to third parties, there's plenty of demand out there. We are literally one of the few that can really provide that content. Everybody needs content, content is king. And so I think in terms of us being able to sell, I think the combination of their libraries, quite frankly, is to our benefit. And I think there's been quite a bit of disruption during -- as you would expect, right, during mergers and acquisitions. So they've not been big buyers from us.

So I don't see that as being an issue. I think they'll there'll be opportunities there to sell to them, but I think the ability to really sell to everybody else and particularly during this maybe next year of kind of continuing integration, et cetera, I think we do quite well. And when we get to TV, we'll talk about it. We've already got a significant number of series renewed. So -- and in our library, we've got a new Pay [ one ] deal coming up, right, that's split between Starz and Amazon. So we're set well there. And we've got a great pipeline coming in TV. And so I sit there and you asked about the library value. I look at it. And what's critical is the franchise is we have over 20,000 titles in library. I mean John and Michael have been building this for 20-plus years, right, always retaining rights. And so it's such a scarce asset, and it's so unique in the industry that we have this.

And so I think what you've seen in the world of consolidation is that that's what everybody wants and the value of that. And if you just look at it and you look at Paramount's acquisition of Warner Bros. and you look at Netflix's bid and you kind of sort through, you see underlying multiples for the studio of 25-plus times. So mid-20s to high 20s multiples. And we've seen that before. We saw that when Amazon acquired MGM, okay? You saw it not too recently -- pretty recently for a minority interest where Apollo, very smart money, okay, took out Wanda for minority interest in Legendary, 25, 26 mid same level.

So for us, we see that as a huge opportunity for us, one, to continue to exploit our library and drive value for our company. But also we're very cognizant of those values and the ability to create outsized valuation for our shareholders in the world of consolidation. So I think the library just becomes more scarce than ever and our production capabilities on top of that to replenish our library. And we're coming off of 5 consecutive records of library and no expectation that, that would not continue.

So do you think the takeaway, I guess, in terms of the impact of potential M&A across your peer set is that there's potentially a little bit of disruption from a near-term perspective of pencils being down as they integrate, but the diverse set of buyers that you're still interacting with it's still a healthy backdrop to continue to be able to monetize the content that you have.

Yes, I'd say that. And I'd say that in terms of buying content, which is easier than producing, right, that we've had a little disruption during the entire process as buyers. So I think some of that will open up even though they've not -- those 2 studios haven't been big buyers of our product recently. But I think some of that will open up quicker. I think some of the disruption may be in the production and everything else in development along the lines. It takes time to integrate. But we're off and running, and we've had great development. We've just finished some really strong content creation cycles. And we're poised very well for fiscal '27 and quite frankly, say, the next 2 to 3 years.

Got you. Okay. Let's move on to the motion picture a little bit more in depth there. Coming off of the success of some of the more recent films, most notably the Housemaid. Can you just talk about your ability as a smaller player in that studio world to source and generate franchises that relative to your larger peers, how that works?

Well, sure. The -- I mean, Adam Fogelson and his team have done a fantastic job, and you're starting to see their slate come to the forefront. So we've just come off of this in our fourth quarter or Housemaid was in December, so late December. The Housemaid, as you noted, has been fantastic. It's, let's call it, a rumored to be $35 million, $30 million film that's done $380 million, maybe closing in on $400 million of global box office. So just a fantastic -- and that team puts that together, and that team has also hit it on the Long Walk, okay? And don't forget, Now You See Me: Now You Don't.

So kind of the third installment of that franchise, refreshing that franchise, created a whole new franchise with the Housemaid. By the way, there's 3 books there. So there's a lot more to come. We've already greenlit the second film. And we finished the year with a really nice film and nice price points in a faith-based film called I Can Only Imagine 2. So nice to have a sequel to the original film in that space. So we're just very well poised there. And I'd say they're focusing on a lot of things. I mean, first of all, I think it would tell you, look, you got to have the right filmmaker, okay, for the right genre, who's proven in that genre. I would just say Paul Feig was a fantastic selection in Housemaid.

They bought the books thinking, hey, this could be straight video, but then realize there's something bigger here. And put the right talent around that. Paul Feig as a Director. Likewise, you look for something with a marketing hook. This was sexy, edgy, different, not a romcom. If you haven't seen it, you've got to go see it. I guarantee you're going to love it, and it's going to -- the twist and turns. It's a killer and there's no pun intended there. So it's a great film. And then you put a -- and it has great international appeal, right, with the underlying IP and the book sold well around the world.

Actually, my wife picked up her book when we were traveling in Europe. She picked it up, finished her book, picked up another one and said, "Wow, this is great. She didn't even know we were doing the movie. And said the second one, by the way, was her favorite book. So there's clearly that one has already been greenlit called The Housemaid Secret. And so I think you look at that, you got the international appeal, the marketing hook, you got a director, a filmmaker that knows how to do it, proven in the genre. And then you add known cast, recognizable cast. So Sydney Sweeney, Amanda Seyfried, who just -- they killed it again, no pun intended. It was really great. And all of a sudden, there you are with a new franchise. And we're pretty good at doing that. And I'd say Adam and his team have shown just excellent skill set. And so I expect more to come out of this franchise, and we're always every year looking for creating more franchises.

There always does seem to be a little bit of an ebb and flow in sentiment around the health of the box office more broadly, maybe also more specifically on the midsized film budget side. Do you feel like operating in that space as one of the bigger suppliers of content into that theatrical window that you have any insight into whether there's a broader consumer trend and appetite for any particular film?

Yes. Well, I think you have to be more selective, right? You got to know what audience is there. And we've always done that and particularly, I think our team is good at it. Look, we see 8 to 12 broad theatrical releases a year, right? That's just fine. And nice to have 3 tent poles. We've got 3 tent poles coming up next year. That's kind of a nice franchise/tentpole that supports underlying your slate every year. It's always a slate approach. And we stay focused on genres where we can win. We do a lot of action do faith-based, do horror and then we'll do edgy stuff, again, that has the right kind of marketing hook and edge to it just new originals, mid-budget like mid- to small budget such as the Housemaid.

So for a success like Housemaid how should we think about how that translates from the upside that we're seeing on the box office performance into potentially further upside in the downstream windows thereafter. Maybe just walk us through how you're monetizing that and if there's continued evolution in the opportunity that you see downstream post theatrical.

Yes. Well, the nice thing about a late December release is it just keeps giving. So we got great rollover coming out of that. Now you see me as well and the other 2 theatrical releases I talked about earlier. So we got great carryover coming into '27 and the Housemaid will be clearly part of that. And again, I would fully expect 3 films out of that, if not more, even though there's only 3 books, it's the type thing story you could keep telling, right? And so I see that extremely strong. It's going to play on in our library forever.

Great. So on the film slate more broadly, -- you've announced some big tentpole's that are anchoring fiscal '27, Michael coming up, Hunger Games Prequel. As we think about how to really consider the sustainability of Motion Picture momentum from an earnings generation perspective into the following fiscal years, how do you think about the appropriate run rate for your slate in terms of managing that tentpole versus midsized kind of film release.

I think it's that 8 to 12 and the tentpoles, you don't want to rush something when it's not ready, but we're set up for 3 tentpoles for the next 2 years, right? So you mentioned, one, we got great carryover again coming out of '26 into '27, right? So that's great to have. And then we start the year with Michael, April 24. By the way, I've screened it. It is fantastic. You can't stop moving your feet. And it's just spectacular. And the way it ends, I can't give it away, but it's clearly a part 1. I mean it ends, you won't so much more. And just really, really great and so well done. And so you've got Michael April 24, you got Hunger Games in November. This is a story everybody has really been waiting for.

This is the Haymitch character, Woody Harrelson character that actually won the -- I think it was the 25th quartile. So you know we won, you're recasting, younger recasting, new people play in the roles, by the way, which makes it nicely nice, cost effective, something the CFO always loves to see. And this is -- the fan base is just going crazy over this. We set trailer records all time with Michael when it dropped. and the Hunger Games trailers have been so well received and just the online presence every time -- and they did a masterful job of just rolling out the casting character after character.

And every time it was just complete online buzz. So there's just so much demand to watch this. By the way, that book was the fastest-selling book out of the entire series. So you know the audience is there in the fan base, and we're ready to reengage with them. And then we have -- we finished the year on -- good Friday. I suspect it will come out on Thursday, given the industry standards. But this is the long awaited, probably the most awaited sequel ever. 20 years later, it's the sequel to Mel Gibson's Passion of the Christ. So Resurrection part 1.

We're doing it in 2 parts. It's filming in Italy now. Production finishes in May and principal photography finishes in May. And we're just so excited about that. And then the second one will follow in the following year. And then you fast forward in the following year, I really do believe we've not announced that we're going to have Michael Jackson 2. I just told you when you finish the film and they're so set up for the rest of -- you just can't wait. And there's so much more story to be told. We publicly said we had 3.5 hours of footage with Jaafar nephew playing the scene at people there and says, this is not a kid playing Michael Jackson. This is Michael Jackson.

I mean when you hear people talk about it and you see him as I have in the first part in part 1, it's just magical. And so we're excited about that. And then you have a Resurrection part 2, Michael 2 and then you have The Housemaid's Secret. So right there, you've got 3 tentpoles moving into '28 and so fiscal '28. So you got great carryover coming out of '26 into '27, more great carryover from '27 to '28 and then more great carryover from '28 to '29.

And we've got a lot of other franchises Naruto as well, we were talking about that early, could be Monopoly, just a lot of opportunities there, could be more John Wicks as well in some of those years. So just excited about having the tentpoles that feels about right, 3 a year, maybe 4. It's always nice to have more. But plan those out. and then go with the mid-budget films as we do in the genres that we're known for to have very high probability with modest budgets, disciplined P&A spend, international presales to really drive the slate and the profitability like we've done.

Great. Yes. It sounds like the visibility on the slate is really building in terms of -- on that international presales front, you did mention Housemaid has a lot of international appeal. One area that I think you've spoken about before is also pretty healthy demand from an international presales perspective, particularly for Michael that's also coming up. What lessons can you take from that experience? Is it so specific to the resonance of any particular film subject that you're seeing that strength? And how you really try to replicate that level of enthusiasm in that market?

Well, Michael is a global sensation in his music. So it's -- you can just imagine demand, but we've got a very disciplined model there. We brought Universal in on the international distribution. We did keep Japan as a territory because we had a very high level of interest that we knew existed there. And so Helen Lee and her team just did a great job as they always do of the international presales. So we've got a fantastic model there. We distribute the U.S. And by the way, on Housemaid, as with any presales, we're set up to earn overages. So in success after our international partners recoup and make a really nice profit, then we start to share the back end.

So our international distributors are just super excited and over themselves right now in terms of how well the Housemaid has performed. So clearly, they're going to be looking forward to new ones. And then we're the only people out there or really the only distributor out there with these kind of broad projects, whether it be Michael or whether it be Resurrection, it almost have to have to participate. And we've got a proven track record with our partners of delivering, okay? And also earning some back end ourselves, but being a great partner. And so they're super excited right now for our entire slate, right? But Michael, in particular, and the Resurrection, I would add as well.

Okay. That's good to know. Interesting. All right. Yes. I mean also, I think on the downstream window front, you've entered into a new calendar year where the subsequent films that you're releasing will be delivered into a new Pay 1 agreement. So I wanted to ask about that evolution of the Pay 1 monetization opportunity and how we should think about how the aggregate value of that window looks now relative to your prior deal under Starz.

Exactly. And by the way, on the last question, I'd be remiss if I didn't back up and talk about how excited the international markets are with regards to Hunger Games as well. So you can just see the demand there. But with regards to the Pay 1 window, this is great. This is where 1 plus 1 equals more than 2, high margin. We split the window, the Pay 1, traditional Pay 1 window. We split that with Starz taking the first part of the window and then Amazon taking the second part of the window.

And so that's one, just reaffirmation of the strength of our slate, Amazon's interest. It's high margin. It creates more opportunities. Again, like I said, 1 plus 1 is more than 2. And that starts with the calendar year '26 releases, right, which really start soon. So we see that benefit will start in fiscal '27. So that's -- again, that's driving library sales is driving downstream ancillary revenues. It's great visibility because you know it's all priced off of the box office, and we've done very well. So that's going to be nicely profitable and incremental to us in fiscal '27 and beyond.

Okay. Got you. Let's move on to the television segment. You mentioned in the past, doubling the number of TV series delivered next year relative to the prior year. What do you attribute to the catalyst that's really driving that strength and the rebound in terms of pickups and renewals? And how sustainable should we think about that level of delivery as we get into fiscal '28 and beyond?

Well, a lot of this is the same as on the film side of the slate. We spent our fiscal '26 kind of rebuilding franchises and rebuilding our slate because we didn't get the carryover coming out of '25 into fiscal '26 that we would have wanted, okay? But now we have what we want. We've rebuilt that. If you think about it, we created 3 major franchises in fiscal year '26 that really doesn't show up in the numbers to speak of, okay? The Housemaid we've talked about, [indiscernible] talk about on the TV side, the studio okay, coming out of season 1 already renewed for season 2, okay? And Hunting Wives on Netflix coming out of Season 1 going into season 2, okay? So both of those are renewed.

And what we've seen in TV is of their 13 scripted series, we've had 12 of 13 already renewed, okay? The 13th, I expect to be renewed too. I can't announce anything, but it is Spartacus, it is on Starz and it's 98% fresh rock and tomatoes. But they have an option to pick that up and people generally don't exercise options earlier. But even 12 of 13 is unprecedented -- okay? Included in there is Ghosts going to Season 5 and 6. We had a 2-season order and pickup of that, which we haven't seen for a long time. So that's going in Season 5 delivered going into season 6. The Rookie Season 8 that came out of the eOne acquisition.

We were Season 7 when we did that 6 when we did that acquisition, we've had 2 more seasons picked up. So included in that also is we have Origins that we're looking forward to 18 episode order as part of the Power franchise. That's in addition to the renewals I mentioned. So we've got a really strong TV creative carryover. And you look at that as being sustainable because you know what you've got. Right.

And you'll see it in the $1.6 billion, $1.5 billion, $1.6 billion of backlog, which I referenced earlier. But that is contractual revenues and future revenues and cash flow, okay? And that's part of that. And those are at near all-time record the backlog is. So you're just seeing that benefit there. So you have that visibility.

And there's no reason to think it's not particularly sustainable into [ 18 ] and [ 19 ] because the tougher season to get renewal on is season 1 and going into 2, right? And once you've got the fan base and you're in season 2, and of course, the margins go up and your leverage goes up as you go into season 3, 4 and 5. So there's good reason to believe with that creativity of both a lot of junior programs carrying over, as I just mentioned as well seasoned programs and particularly something like a procedural, The Rookie could run forever. The Ghosts has got a huge fan base behind it. We're actually with BBC doing a film version of Ghost. So there's all kind of spin-off opportunities and other ways to serve that fan base, and the team is great at doing it. So I really like seeing that, and it's nice coming off of, again, we had a rebuilding year in fiscal '26.

Last quarter, you did mention that 33% of your library revenue now comes from TV, which I think historically has been a much lower number relative to the motion picture contribution. mean recognizing that TV licensing deals can be lumpy, can you talk about the industry demand for film versus TV catalog and how you see that changing? Film always to me at least feels a little more evergreen in terms of the demand that these streaming services.

Yes, you know you need both. And just to lay out in the last 10 years, we've gone from 15% of the library being TV to 33%, okay? Over that same period, we've had a 10% growth CAGR on trailing 12 months library. Jim Packer and his team, they do such a great job there. We've set our fifth record, which I mentioned earlier. We've had 2 quarters now with trailing 12 months over $1 billion, okay? Very high margin, 50% plus cash margins. 40%, 45% segment profit margins. So just a great business. So TV has become more and more of that.

And I think that's really indicative -- it's indicative of demand, but it's also indicative of success of our TV program and program, and we've been at this a lot, right? So you got to create the franchises to kind of stoke the library and then you've got more to sell and execute. So we're doing a lot there. And we're also mining our deep catalog. We're actually using AI to help mine the deep catalog or the longer-tail catalog, creating incremental revenues, very high margin. These are usually unrecouped projects, okay? And doing rev share, whether it be subscription or advertising models without cannibalizing at all the licensing -- the traditional licensing model. So feel very strong about library and its success and TV, in particular, being a major part of that.

Great. Great. Let's talk about AI. I mean it's obviously a big topic that's been affecting everybody across industries and a big topic at this conference. You appointed a Chief AI Officer pretty recently and have done multiple partnerships, I think, most prominently with Runway that you announced and spoke about some internal initiatives there. Can we talk about how AI is delivering a tangible benefit to Lionsgate today and how you see that evolution of that technology really changing the ability for you to monetize your content?

No, sure. And I think this, by the way, is just very positive for the industry, very positive for us. First and foremost, we're going to be talent first. We hired Kathleen Grace from [ Vermillio ], very focused on artist talent relationships. But the opportunities here are fantastic. And Kathleen reports directly to John, our CEO. And we're going to -- we're taking that approach, but we were early movers with Runway, as you mentioned, in a partnership there, allowing them to use part of our library to actually build tools, not to replicate the library or do something else in terms of distribution but to build tools, and we're using those tools.

We're using other AI platform tools as well, right? And we're already using it. We're doing this in many areas, as you would imagine, Previs, which is the pre-visualization of film and TV. I think we saved 2 weeks on Hunger Games where you're just hitting camera angles, all the other things, storyboarding, the things you would do, sequencing of scenes, et cetera, and utilizing it there, utilized it in Spartacus to amplify a lot of the fight scenes, used it on another television episode to actually change the lines using the voice of the course at their artist agreement without having to bring people back in and reshoot or do something to change a line for a better line.

So we're already using it. That's on the cost side. But -- and I mentioned on the revenue side, I think, is really probably some of the greatest opportunity, right? And I mentioned already what we're doing on our longer-tail deep library. But there's just incredible opportunity, I think, there to do more.

What about at the consumer level? Is there a broader existential threat about the value that consumers place on premium scripted content. There's, I think, a lot of increased focus on a shift in least consumption towards user-generated content. Is there any view from Lionsgate about how to potentially participate in that? Or if you feel like there's a differentiation factor that becomes more prominent? .

Sure. Look, I think the first thing to say is that historically, when you've seen technologies, which has almost always been really a friend of content, okay, and IP. But when you see technology lowering the cost and maybe more production feasible because of lower cost, what you see with more supply is an increase in demand and value for the higher end of known IP and fan bases and it's something that's already been created. So our franchises actually go up in value. You could see that actually with Sora 2, right? Because as soon as you know, it is going to happen, all the industry writes letters, including ourselves, say you can't use our IP, you're going to get sued, okay?

And all of a sudden, the downloads and the interest and usage of that just went down significantly, okay? But that doesn't mean there's a world where we might not extract the fee and licensing and share with talent and the guilds in an appropriate format as we always do with the revenue streams coming out of our creative process and being able to allow people or the fan base to more interact. And so there's definite fee opportunities there. It could be short form or not, but I don't think it's ever going to replace long form, okay? And if you think about it, the creative community just using Housemaid as an example, just talking about what went into creating that. No one person creates it on their own, okay?

And the creative people, the future, Paul Feig's and even now or Steven Spielberg's or James Cameron or Michael Jackson's, they're going to work in a creative community that's collaborative, okay? And that's the nature of this business. And you're going to want to be working in that collaborative environment. Are you going to be using AI tools? Sure. But your ability to kind of emerge and maybe you do emerge through short form or other, but even then, you're going to want to change the world. You're going to own the big screen. You're going to be everywhere. You're not just going to want to be on YouTube and TikTok. You're not going to be happy with 100 million TikTok, YouTube followers.

You're going to want to be much more broadly distributed, disseminated and work with people that actually create with you more. And to be the best you can be. And I see that as being very beneficial to what we do already, okay, in terms of working with talent, it's consistent with being talent-first driven, and it's consistent with driving future revenue streams for everybody to share and participate in.

Got you. On that value of IP point, it certainly feels like there's more momentum in your desire to expand your monetization potential into other ancillary formats like live events or video games. Can you just give us an update on the traction you're seeing there and how we should think about how meaningful this might be in terms of a contribution to your earnings?

Well, it's all incremental. It's global experiences from gaming, stage plays, experiences the John Wick experience, the Saw franchise. All of these franchise, the fans want to interact in so many ways -- and you can actually create those environments. And I think AI will actually even help further in that context. But what you have to have is you have to have the known content. And so it makes the library even more valuable. So the more library, more franchises, the more opportunities. And we're doing that already.

And I think there's just going to be more opportunities to do it. And you probably saw Meta entered into an agreement with Fox for, I think, $50 million a year for 3 to 5 years to have access. So the future revenue streams is not the same industry, but the concept that you'll participate in future revenue streams, et cetera, and be able to interact more with your fan base, I think, is enhanced here.

Got you. I'd be remiss to not ask you a little bit more about free cash flow. given your position as CFO. And the last few seconds, maybe you can just tell us a little bit about how you think about the cash needs of the studio. I think there was an initial ramp as you got back to more of a steady-state production on the investment level. But maybe just talk a little bit high level about what you see as free cash flow conversion over a more steady state and deleveraged situation.

Sure. We've got strong free cash flow coming. We -- as we said, we're back-end loaded in fiscal '26. It was a replenishment year, if you will. So you were spending more cash than you were amortizing cost off through the P&L. So less of a conversion of EBITDA into free cash flow. So it's a use of free cash flow very judiciously. We've talked about franchises that we've created. And so you'll start to see those cash flows coming in the future, and you'll also see future cash lower than amortization. So actually, it will be additive. It turns around. So that's a working capital benefit going into the future, and we see very strong free cash flows coming out of the trailing 12 months and also the trailing 12 months driving delevering as we go into mid-fiscal '27.

Thank you so much. That's all the time we have. Okay. Appreciate it.

Thanks, Thomas. Appreciate it.

Good day, and welcome to the Lionsgate Third Quarter Fiscal 2026 Results Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Nilay Shah, Head of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for the Lionsgate Studio Corporation's fiscal 2026 third quarter conference call.

We'll begin with opening remarks from our CEO, Jon 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, President of Worldwide Television Distribution, Jim Packer; and Senior Adviser 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 Jon.

Thank you, Nilay, and good afternoon, everyone. Thank you for joining us. Today, we're reporting a quarter that not only keeps us on track for our fiscal '26 financial targets, but positions us for significant growth in fiscal '27 and beyond as the investments we've been making into our intellectual property portfolio translate into strong and growing momentum across our businesses.

During the quarter, we launched a new franchise with the worldwide box office success of Paul Feig's Thriller, The Housemaid. We expect the Sequel, the Housemaid Secret to begin production later this year. Released 12 days before the end of the quarter, the majority of the Housemaid's contribution will fall in Q4 and continue into fiscal '27.

Last week, we began production on John Rambo, directed by Sisu's Jalmari Helander, with Rising Star Noah Centineo from our Lionsgate Television series to recruit, and we announced plans to produce one of our most iconic properties, Dirty Dancing, shepherded by Hunger Games producers, Nina Jacobson and Brad Simpson and starring Jennifer Gray.

These are part of a growing portfolio of more than 40 active franchise properties that are being extended across multiple platforms, including film, television, video games and live experiences. After teasing it on the Grammy telecast the next day we release the full trailer of Michael to wildly enthusiastic fan response as we continue to ramp up the campaign for the film's April 24 global rollout.

With 3 major tentpoles anchoring our fiscal '27 slate, we expect to continue building momentum generated by The Housemaid and other recent box office successes. Our television group has secured renewals for 12 of our 13 current scripted series. And notably, these renewals, which include the studio, the Hunting Lives and the Rainmaker are spread across 12 different buyers.

And finally, our film and television library achieved its fifth straight record quarter with trailing 12-month revenue reaching an all-time high of $1.05 billion.

Turning to our individual segments. Our Motion Picture Group had a strong quarter with the success of Francis Lawrence's profitable and critically acclaimed adaptation of Stephen King's, The Long Walk. Ruben Fleischer, Now You See Me: Now You Don't, which grows nearly $250 million at the worldwide box office, and of course, The Housemaid made as we roll out a diversified slate that spans every genre and budget category.

Both The Housemaid and Now You See Me achieved exceptionally strong international box office performances with particularly strong results in the markets where we self-distribute the U.K. and Latin America, bolstering our position as the only studio licensing a steady supply of major properties to leading international theatrical distributors.

As I mentioned, we continue to expand the largest and most valuable portfolio of franchises and other branded IP outside the 5 major studios, fueling our slate with upcoming tentpoles like Michael in April, the Hunger Games Sunrise on the Reaping in November and Resurrection of the Christ Parts 1 and 2 next March and May, respectively.

Behind them, The Housemaid Secret, John Rambo, Dirty Dancing, [indiscernible] the next film from the John Wick franchise, Narita, American Saycho and new installments of SAW and Blair Witch are all either in production, being readied for production or in fast track development a really powerful slate of intellectual property that matches the right creative auspices with the right content.

In television, our series continue to perform well across every platform. The studio, which just began shooting its second season for Apple TV was one of the most critically acclaimed shows of the year. The Hunting Lives was Netflix's top nonoriginal English language series for the second half of last year and debuted high on their global list of top 10 shows, despite only airing on Netflix in the U.S.

The Rainmaker was USA Network's most watch freshman series in 7 years. Robinhood has ranked #1 on MGM+ for 9 weeks in a row and the rookie has been resurgent in its eighth season on ABC. The Rookie North spin-off pilot begin shooting in Vancouver later this month and Spartacus House of Asher is one of the best reviewed series on Starz with a 92% Rotten Tomatoes rating and performing well across its international platforms.

And in a business where renewals are the name of the game, the renewal of nearly every one of our scripted shows anchors a fiscal 27 slate with double the number of scripted episode deliveries and a diversified mix of cost plus and retained rights models, balancing profitability with long-term value creation.

33% of our record library revenue this quarter comes from our television series, more than doubling the percentage from 10 years ago, achieving 5 record quarters in a row reflects the work we put into managing and growing that library, enhancing it with new technologies, monetizing it across new buyers and platforms, selectively buying back rights and striking the right balance between acquisitions and organic growth.

As a result, we have one of the youngest major libraries of any studio. With 85% of our 20,000-plus titles produced since 2000 and nearly 2/3 of library revenue coming from titles outside the top 50.

In closing, we like our place in the media ecosystem and the trajectory of our businesses. Our film and television pipelines are strong, our library continues to grow, and we're replenishing it with valuable new franchises and brand-defining television series.

We're a leading global content company at a time when content is king, critical to AI, essential to our partners and the subject of every conversation around M&A and industry consolidation. We continue to lower our costs and restructure our businesses so we can move faster and more efficiently than ever before.

We continue to align ourselves with our shareholders, adding former U.S. Treasury Secretary and major shareholders, Steven Mnuchin, to our Board converting our dual share structure into a single class of stock and letting our shareholder rights plan lapse in May.

Although there are many disruptive forces reshaping our industry, the rise of AI, the power of social platforms and the increased tempo of M&A to name just a few. We believe that we are prepared to adapt to all of them as a dynamic, agile and entrepreneurial company positioned for sustainable growth.

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

Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our fiscal third quarter 2026 Studio financial results and provide an update on the balance sheet.

Lionsgate Studios revenue was up 1% year-over-year to $724 million. Adjusted OIBDA was $85 million and operating income was $36 million. Reported fully diluted loss per share was $0.16 and fully diluted adjusted earnings was $0.01 a share. Net cash flow used in operating activities was $109 million, while use of adjusted free cash flow for the quarter was $58 million. Trailing 12-month library revenue continued to demonstrate strength with growth of 10% year-over-year to $1.050 billion and reached record levels for the fifth consecutive quarter.

Now breaking down our performance in the quarter, I'll start with a discussion of our Studio segment profit. Studio segment profit, which reflects our Motion Picture and Television segment profit before corporate overhead expense has grown sequentially throughout the fiscal year and was $114 million in the quarter. This sequential cadence reflects the back-end loaded fiscal year we previously outlined, and we expect it to continue into Q4.

We referenced our Studio segment profit because this metric is generally more comparable to the studio OIBDA figures reported by many of our peers as most other media companies do not include corporate overhead expenses in the reported studio results.

Moving to Motion Picture. Revenue grew 35% year-over-year to $421 million, driven by the release of now you see me now you don't, the house made and good fortune. Segment profit expectedly declined year-over-year to $59 million, primarily on the timing of P&A spend to support 3 wide theatrical titles, including the December 19 release of The Housemaid. The quarter included approximately $100 million of P&A spend in the U.S., which is helping drive future value across our release slate and replenishing library.

Looking ahead, we expect Motion Picture will end the fiscal year strong as we have significant carryover box office from the house made and an increase in the number of titles entering their Pay 1 window in Q4. As we outlined last quarter, there will be some P&A spend in the fourth quarter tied to the April release of Michael, but we are confident this and other key tentpole theatrical releases in fiscal '27 will drive robust growth in our Motion Picture business.

Moving to TV. Revenue was $303 million, and segment profit was $56 million. Revenue and segment profit were expectedly down year-over-year due to the previously mentioned timing of episodic deliveries in the quarter, partially offset by strength in television library revenue.

As a reminder, the prior year third quarter included the financial contribution from the inaugural season of the studio, creating a difficult comparison. As Jon highlighted, the television group has already secured renewals for an impressive 12 out of 13 of its current scripted series, which reinforces our confidence in achieving our previously outlined goal of doubling scripted episodic deliveries in fiscal '27.

Now let's take a look at the balance sheet. We ended the quarter with $1.75 billion of net debt and leverage expectedly increased to 7.4x due to lower trailing 12-month adjusted EBITDA. The revolver had $770 million of undrawn capacity available at the end of the quarter, and we had $213 million of cash on the balance sheet.

We anticipate leverage will meaningfully decline from these levels as adjusted OIBDA and free cash flow improve. Additionally, our backlog remains elevated at $1.5 billion, up 26% year-over-year. As you will recall, backlog represents off-balance sheet contractual orders not yet delivered and is indicative of the visibility we have in future revenues and cash flow.

Looking forward, we anticipate exiting the fiscal year with significant momentum heading into fiscal '27 across both our motion picture and television businesses. With Q4 adjusted OIBDA expected to improve materially from Q3 levels on strong theatrical carryover. With continued carryover profit from our fiscal '26 film slate, a tentpole heavy fiscal '27 release schedule and increased scripted episodic deliveries we remain on track to deliver strong adjusted OIBDA growth in fiscal '27 relative to fiscal '25.

Now I'd like to turn the call over to Nilay for Q&A.

Thanks, Jimmy. Operator, could we open the lines up for Q&A.

[Operator Instructions] The first question comes from David Joyce with Seaport Research Partners.

I appreciate that 2027 is shaping up very strongly with theatrical releases that we've been talking about and the doubling of episodic deliveries on the TV side. what can give us confidence in the sustainability of these volumes and the profitability of the business model, given the backdrop of industry consolidation. What would you see happening in terms of the buyers or other platforms where you can monetize your content.

David, it's Kevin Beggs responding. We're seeing some really nice green shoots in the market, a number of players that we haven't been working with before that we're doing more with John pointed to the rainmaker on U.S.A. that's been a really great new partnership. They've been out scripted for a while.

This is moving into a second season performed well. We have a hit in Robinhood with MGM. We had previously not worked there. We have more in development there. many of the buyers that were kind of slowed down or taking it a little more carefully are opening up more commissions. We continue to find entrepreneurial ways to get shows on the air via cost-plus and/or deficit models. Our distribution team is so strong. We're getting commissions in international markets. bringing those shows back into the U.S.

So -- and many of the shows referenced are long-running shows, the rookies and Season 8 has been a great success for us in ABC. So those are the reasons that we feel quite bullish about this cadence maintaining in place and holding, but it's not easy and requires 24/7 attention and the kind of entrepreneurial ideas that we bring to the market every day.

David, it's Jim Packer One thing I would say also from a buying perspective, if you just look at our trailing 12 months and the directional number, it's obviously a new benchmark. We always have an ebb and flow with buyers, certain buyers are slowing down because of mergers or acquisitions or various things, but others stand up and start to fill those voids. I don't have a streamer that I need to take into consideration so we can really play the market. And I think overall, the trends are going to continue. And I also have a slate coming in from Adam of now you see me Dirty Dancing 100 games another wake and so if you look at those franchises, all of those have other film and TV products associated with them. and that helps my drag along. So I feel pretty good about it.

Yes. And I would say from the macro, David, both the potential existing bidders are talking about more movies bolstering their streaming platforms on a global basis. And at the end of the day, a stronger streamers are going to be better for us in terms of original content, going to be better for us, as Jim was saying, in terms of selling a library.

So I don't think -- I think sort of the thesis that this consolidation is going to be a negative. I kind of see it the other way. I think it's going to be a positive. They both want to do movies. I think they're both committed David just did in the U.K. in his speech to really a big slate of movies. And so -- and we want more movies in the marketplace. We think that's bringing the audience already back to the theater. So we think we're heading towards a nice macro environment.

The next question comes from Thomas Yeh with Morgan Stanley.

One more maybe on the health is the more immediate downstream window for motion picture -- there was a big pay-one deal struck recently, obviously, and I know you have an Amazon agreement kicking as well. When you have a success like Cosma, how should we think about the carryover benefits, particularly just in the context of the pay-one monetization of that and whether you see maybe home video rental market as something that could be strong as well? Or does that get squeezed by pay-one becoming more prominent.

and then on the AI front, I saw the appointment of a Chief AI Officer. Maybe give us an update on the runway partnership and what other avenues you're maybe looking to unlock here with that position, that would be very helpful.

Yes. On Housemaid, great carryover things. It's fantastic and pay-one will be rolling over -- we're very excited about that as part of the carryover into Q4 and then obviously, major carryover in '27 on Housemaid, quite frankly, the entire fiscal '26 film slate. So we're really excited about that.

Yes. Thomas, I would say also on the pay-one environment in general. I think the Sony Netflix deal solidify the fact that pay movies are some of the most valuable content out there. We saw -- we have a great pay-one deal with Starz. We have Amazon after Starz, House, as you mentioned, is actually going to be Star and HBO. But really, the key for us is that right after these pay-one windows are over, you have multiple years that you can go into the open market and people can really bid on these titles. So that the beauty of having a Housemaid is we haven't had one of kind of this level in a while. So that's going to really I think, help the entire team, and we go out to an ecosystem that can have a shot at something that's I think a great bidding situation for us.

And I'll answer your question on AI. Look, -- we had the opportunity to bring in somebody Kathleen Grace. You read a batter. -- somebody who obviously has a very strong grasp of AI of the AI ecosystem. She's going to report directly to me that shows how important this is as we integrate it into every facet of our business.

I should point out, she comes from both a creative background as well as from a company of Vermilion that really their whole mandate is the protection of creators and talent in respect to AI adoption. So that's a real priority for us.

In terms of runway, look, we have a really -- really strong relationship with crystal ball and all of its people and are experimenting in a lot of ways. And I would say Kathleen will be the point person for us as the point of the spear in terms of any conversation we have and I expect to have some pretty interesting ones with all of the major AI companies in terms of potential future partnerships.

The next question comes from Omar Mejias with Wells Fargo.

It's DK Hall on for Omar. Since I'm on the cult might squeeze a few and if that's okay. First, Jon, I was just hoping to follow up on your comments on AI. If you could just talk a little more about some of the broad initiatives for the company. I know I think Jim Packer has some benefits in his business in programming fast channels. We've heard there's things like reshoots and visual effects that can benefit as well.

So in addition to the partnerships, I'd love to just know how you're thinking about kind of infusing it into the business day to day. Michael, I saw you on CNBC in December, you talked about the success of The Housemaid another face-based film that maybe was at Lionsgate. But I'm just wondering, as you look at kind of the middle budget targeted area, what you're most excited about for the Slate beyond Michael in fiscal '27?

And then finally, Jimmy, just -- you talked a lot about the EBITDA growth coming ahead. Do you see any pathways to inorganic deleveraging as well as organic deleveraging as you look ahead?

Let's start with Adam.

Yes. So as it relates to the opportunities in the mid-budget space, we're excited to be working off of the success that we've had recently. Obviously, the House made was an incredibly well-priced film that's generated massive returns. Similarly, The Long Walk was loved by critics love by audiences, and we work with Francis Lawrence and our talent partners to make sure we made it for a price where it could deliver a spectacular return on investment.

We've got a couple more coming in the very near future. Strangers is the third chapter of a trilogy made for such an incredibly smart and responsible price that -- we're looking at fantastic results, and I can only imagine follows right on its heels sequel to the highest grossing faith movie that the studio has had. And we've got a bunch of other films coming that fit into that category.

So alongside -- the tentpoles alongside the Michaels and the Hunger Games and the Resurrection, we've got a bunch of films in the low and mid budget category that we feel really good are made with the right creative partners, made for the right price, have a marketing hook embedded in the idea that we can work off of and when we look at the slate in total, we think we're going to turn out some really good returns.

Yes. I'll take -- I'll drill down more with you on AI, DK, but you covered a lot of ground, frankly. You talked about scheduling a fast channels. Yes, we're -- we're doing that post production, enhancing some of the effects, something I think I may have mentioned before, we certainly used it on Spartacus very effectively to open it up, expect to use it even more. Plan for it a little bit more this year.

We use it for [indiscernible] the Motion Picture business. We're looking at it in enhancing in some ways, some script revisions, things like that, obviously, working with the writers. If we are -- we certainly have it integrated into all of our operations. Obviously, that's a reasonably easy one. And if we're playing with it in any original creation ways, maybe we are, but I'm not going to talk about it.

Yes. And Omar, your question about inorganic delevering, if you will. Certainly, 3 Arts would be an opportunity to delever. But we're in a position of strength there. That's not the primary objective. I would really go more to give you comfort on the organic delevering that will naturally occur.

You see the pipeline, you see the backlog $1.5 billion 80% of that is future revenue and cash flows that come in, in the next 15 months, okay? So we are going to naturally -- we said this was the peak leverage. We're naturally with trailing 12 months and free cash flow, not only back-end loaded this year, but the carryovers into '27 and the significant growth into '27, feel really good about that delevering.

I will tell you, we're going to be -- I would expect to be in kind of the mid 4s by the middle of fiscal '27, and that 3% to 3.5% range where we would more likely be in fiscal '28. So that's just happening naturally.

The next question comes from Brent Penter with Raymond James.

First one on the M&A topic you brought up. Warner Bros, obviously commanding a very high valuation and has had 3 large sophisticated bidders. The question is, why now? Why do you think there's so much interest in this kind of studio asset now in particular. And for Lionsgate, it seems like you all have more openly talked about M&A recently and you're letting the poison pill expire. So the same question to you all in terms of why would now make sense for you to participate in M&A versus some time in the past.

Do you want me to answer.

We think that -- it's Michael. We think that recognizable world-class IP has never been more valuable, and you're certainly seeing a validation of premium content when you have those well-heeled players pursuing Warner Bros. We don't know who's going to end up with that, but we do believe that -- that is the first domino of all.

Okay. Okay. And then a financial question. So on OIBDA, my understanding has always been OIBDA gets hit for the financing cost of production loans on films which is why we don't include those in net debt or EV valuation multiples. Can you just update us on how much film financing cost there is above the line that hits OIBDA?

Yes. I mean, naturally, whether using production loans or not for working capital or to bridge and true up cash flows between cash out and cash in and better aligned you capitalized industry, you capitalize interest above the line, and that becomes part of your production cost that amortizes through. So that's just fairly natural.

For us, it's really more about managing our working capital, right? It's a great source, if you will, of film obligation that matches up cash outflows, which naturally occur 12 to 18 months ahead of release or delivery of episodic deliveries and it's just a nice mechanism like any other working capital on the balance sheet to match cash flows. It's just good financial discipline.

The next question comes from Vikram Kesavabhotla with Baird.

My first one is on Michael. Just wondering if you could talk more about the reception to the marketing efforts there. You released the official trailer a few days ago. How has that performed relative to your expectations? And what else are you monitoring in terms of the data points to inform the potential success of that film.

And then separately, you talked about extending the value of your IP into other areas like video games and live experiences. Could you talk more about how some of those initiatives are going? And what are some of the latest examples of where those strategies have been particularly impactful.

Sure. It's Adam. Thanks for the question, Vikram. So with respect to Michael, the -- I can tell you that we've now started screening the movie pretty actively, and the response to the movie itself has been extraordinarily positive. So we love the film that's been made. And that's a great thing to have in our pocket, and we're excited for everyone to get to see it.

In terms of the release of this latest trailer, it once again has broken records for us. It is by far the highest viewed music biopic trailer, you can find, and it sits at the top end of us alongside some of the biggest movies that have happened over the course of the last decade.

Obviously, in addition to views, we're monitoring sentiment. We're monitoring engagement. We have very sophisticated tools that are available to everybody, but we have very sophisticated tools to be able to identify how people are responding to the content, to what extent they're passing that content along and talking about it with other people.

And every single metric is in a very strong place. When you add that to the commitment that the IMAX and large formats have made to wanting to make sure that we've got an incredible footprint there, and the enthusiasm we're seeing from every territory around the world, it's very, very encouraging. And you never want to count your chickens before they're hatched, but this feels like it is lined up in an extraordinarily strong way.

With respect to your second question. Look, the financial benefits of our nontheatrical opportunities will take a couple of years to fully materialize, but we have made significant progress on every platform. We opened the Hunger Games Live in London to terrific reviews and incredible attendance. We opened the Now You See Me Live event in Australia, again, great reviews and spectacular attendance. Our Wonder stage show has gotten incredible reviews in Boston, and we're excited to talk about what the next opportunities are there. Dirty Dancing and La La Land, both have great plans that are coming together for their live stage.

And on the games front, we'll have a lot more to say about John Wick, which we've been talking about for a while. But I think there's going to be some really exciting stuff to talk about in the near future, not only on that, but a couple of the other projects as well. there has been real and significant progress over the last 18 months, and we think that there'll be a lot of good stuff, not only to talk about in terms of response, but talk about in terms of revenue contribution.

The next question comes from Peter Supino with Wolfe Research.

Jack [indiscernible] on for Peter. I was hoping if you could unpack the sources of growth for your library revenues and the contribution from Fast services?

Jack, it's Jim Packer. Well, first of all, again, as I said earlier, the trajectory of it has been strong. It's really driven by our core of film and TV. This particular quarter, we had a lot of Hunger Games revenue flowing through some pay windows, delivering a new season of Ghost to Paramount Plus.

And then obviously, I'm sure everybody has known and read about Mad Men going to HBO Max. And that was another thing that happened this quarter that was very, very helpful. And really, if you look at the new platforms and you look at what we're doing with self-directed licensing. It's fast, it's AVOD rev share, Amazon add-on channels.

That's a very consistent piece of revenue for us. It's around 6% of this number growing next year, hopefully, to between 10% and 15% of our trailing 12.

And then lastly, just looking at our EST and VOD, which is the rental and -- the buying of movies and TV shows globally, that transactional piece is about 10%. And it's very consistent, very strong. And as new movies come through, as I mentioned earlier, with all these franchises that Adam's team is revitalizing all of that content gets benefited. So it ultimately helps it. So I feel pretty good about it, and all of it is coming together to keep the numbers high.

The next question comes from Matthew Harrington -- excuse me, Harrigan with Benchmark.

The other interesting implication on the TV scripted doubling apart from the effect on the LTV, if you managed to sustain that is how you're able to scale that. Certainly, AI helps and people believe in the long run, you can see that software stock fell off in the transformational effects expected there.

But certainly, in the near term, you could argue that the benefits are over high certainly isn't showing in a lot of macro numbers. But how -- it's just counterintuitive that you can -- I mean, you're not making widgets and even doubling the amount of widgets in a given year, it's pretty high hurdle. But -- and you've been really keeping a tight out on capital costs. How are you managing to accomplish that? That seems like a pretty herculean feat just in terms of getting it done.

It's Kevin again. The Well, I think a lot of look, we're coming out from under the overhang of the strike. It always takes a lot longer. COVID was still impacting things long after it ended, if you will, for day-to-day livings.

And one big piece of the chest puzzle came into focus with Skydance completing the acquisition of Paramount and Paramount+ expanding its business to more third parties, and I think they're going to do more as they've talked about and discussed. And in general, the kind of chill that can prevent buyers from taking a few more risks or getting a few more budgets approved for series is saying a little bit and lead because we can produce quite effectively, economically, both the highest premium kinds of shows like something like the studio, which is a critical darling but also just a terrific hit for Apple, but also find a way to work economically with some other platforms that don't have the kind of budget capacity of Apple and find ways to make that work. It makes us an attractive partner.

And Jim and [indiscernible] team really chasing down international numbers that make these formulas work. is critical as a studio that deficit finances when we need to distribute all over the world. There are only a handful of companies that do that, that are independent only 1 or 2 that aren't beholding to their internal streamers, which is what Jim alluded to. So we just become a really good dance partner. And right now, the cadence of the dance is moving up a little more quickly than it was a year ago.

And clearly, you have the people to do that in place?

We have an amazing team. We have got an incredible group that I'm honored and I'm able to work with across our scripted and unscripted groups. And obviously, the partnership with 3 Arts continues to provide great dividends. Hunting Wives is an amazing success story for our 2 units and 1 for Netflix and our international partners around the world.

We look for those opportunities and really convert on them when we find them. Part of it is being nimble and quick, quick decision-making. It comes from the top down from Jon to myself and Sandra in our group, and really just top grading people on Scott and Josh on and [indiscernible] in my group. And that's a secret sauce. Part of it is being nimble enough to move on these opportunities quickly.

This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks.

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. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Lionsgate Second Quarter 2026 Earnings Call.

[Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Nilay Shah, Head of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for the Lionsgate Studios Corporation's Fiscal 2026 Second Quarter Conference Call. We'll begin with opening remarks from our CEO, Jon 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; President of Worldwide TV and Digital Distribution, Jim Packer; and Senior Adviser 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 Jon.

Thank you, Nilay, and good afternoon, everyone. Thank you for joining us. We reported a quarter in line with our financial expectations and with all signs pointing to significant growth over the next 2 quarters and through fiscal '27. We're pleased to report that our trailing 12-month library revenue reached $1 billion for the first time, a record performance that highlights not only the value of our library, but our entire portfolio of intellectual property. During the quarter, we continued to invest in that portfolio by preparing our tentpoles for fiscal '27 and beyond, wrapping production on Michael while shooting the Hunger Games and 2 Resurrection films.

This morning, we dropped our first Michael trailer to kick off the marketing campaign for what we believe will be a true motion picture event in April. This week, we announced a multifaceted deal with Millennium to acquire all future film and television rights to the Expendables franchise and worldwide distribution rights to the next Rambo movie, starring The Recruit's Noah Centineo and directed by Sisu's Jalmari Helander. We will also be the lead studio on all future Rambo TV series.

Next week, I will be in London for the launch of the first ever Hunger Game stage play. Early ticket sales have been so strong that the play has already been extended to October 2026, kicking off a roster of Lionsgate stage plays that includes La La Land, Dirty Dancing, Wonder and Silver Linings Playbook. In a difficult operating environment, our television business has scored 3 wins in a row with the studio, winner of a record 13 Emmys, including Best comedy, the breakout hit, The Hunting Wives for Netflix and most recently, the Rainmaker, 3 different types of shows on 3 different kinds of platforms with 3 different financial models. All 3 have been renewed for second seasons.

And our 3 Arts talent management and production company continues to have a year of strong growth and diversification. Last quarter, 3 Arts expanded into sports with the acquisition of A&A Management, adding world-class athletes like NFL Superstar, Travis Kelce to the newly rebranded 3 Arts Sports. This quarter, they built on that momentum by hiring leading sports manager and entrepreneur, Sheyi Olaoshebikan, who has already brought aboard NFL star Miles Garrett, as 3 Arts continues to build a top-tier sports talent management business.

Turning to our Motion Picture Group. From Now You See Me 2 resurrection, we've put together a film slate primed to deliver strong growth over the next 18 months. We have 3 major holiday season releases with excitement building for the return of Now You See Me's 4 Horsemen opening next Friday. Paul Feig's thriller, The Housemaid starring Sydney Sweeney and Amanda Seyfried and based on the first novel of the best-selling Housemaid Trilogy is generating strong buzz ahead of its December 19 release.

And rounding out an active 2 months, we're pleased to extend our collaboration with one of the greatest filmmakers of our generation with the December 5 release of Quentin Tarantino's Kill Bill, The Whole Bloody Affair, presenting the entire Kill Bill Epic as a single combined film in theaters nationwide for the first time.

Speaking of classic theatrical releases, we partnered with Fathom to release the 5 Twilight movies in theaters last week to celebrate the 20th anniversary of the first Twilight novel. It was one of Fathom's top releases of the year with the first Twilight film opening at #2 at the box office out of all releases 17 years after its debut. Our 3 tentpoles in fiscal '27, Michael this coming April, the Hunger Games in November and the first Resurrection movie in March 2027, followed by the second Resurrection film to kick off fiscal '28, give us added visibility into our slate in an unpredictable box office environment. Beyond these tentpoles, we continue to develop many of our signature properties, Saw, Blair Witch, American Psycho, Monopoly, Naruto, based on the blockbuster Manga property and new films from the John Wick Universe.

In television, our go-forward slate has a strong cadence as we secured key renewals for Ghosts, The Rookie, The Studio, The Hunting Wives and the Rainmaker with an anticipated doubling of scripted series deliveries from fiscal '26 to fiscal '27. And we continue to refill our pipeline with strong new shows like Robinhood, which debuted on MGM+ last weekend, Spartacus House of Ashur, which just dropped its first trailer ahead of its December 5 debut, bringing back one of Star's most successful brands, and the adult animated Twilight TV adaptation Midnight Sun, which is being ready for production at Netflix. The new season of Power Book IV: Force returns tomorrow on Starz with Power: Origins, the next installment of a franchise that has already generated 3 hit spin-offs launching next year.

In an ultra-competitive environment, we have to work over time and entrepreneurially for every win. We found the right home in Netflix to grow The Hunting Wives, putting together a viral grassroots marketing campaign to propel it to 6 weeks in Netflix's U.S. top 10 and renegotiated our international licensing deals to pave the way for a second season Netflix renewal. We partnered with Blumhouse and shot the Rainmaker in Ireland to create a winning financial model for our network partner at USA. And we continue to grow the long tail of older series with deals in new and traditional markets alike, securing a third cycle syndication sale for Mad Men, testing a traditional broadcast syndication rollout for Ghosts in 14 markets and exploring opportunities to repurpose several of our classic series for the micro drama market.

It's important to note that the value of our continued investment in scripted television, playing the long game in order to retain rights is becoming more and more evident with the percentage of our library revenues from television doubling over the past 10 years. Operationally, in September, we made the difficult but necessary decision to reduce our headcount by approximately 5% bringing overall headcount reduction over the past 18 months to more than 20% as we continue to align our business with the reality of a changing marketplace.

On the technology front, we continue to find exciting new use cases as we apply AI to more areas of our business, increasing our productivity, generating cost savings and expanding our creative toolkit. But we're also diligently protecting our content and that of our partners from unauthorized use of AI. Our intellectual property is the core of our business, and it is our prerogative to decide when, where and how to use it. But we do believe that as long as appropriate guardrails are established, the growing intersection of entertainment and AI will ultimately create significant and mutually beneficial value.

In closing, for the past 100 years, the big idea driving the entertainment business has been if you build it, they will come. If you make a movie and you put it in theaters, they will come. If you put television series on 3 or 4 broadcast networks, 100 million homes will watch them. Today, as our world expands into new digital and social media platforms, audiences are harder to find, harder to engage and harder to market to. But they are also consuming more content across more platforms than ever before, offering even more upside to a company like ours that brings to this new environment a massive portfolio of content, a roster of valuable franchises, efficient production models and an entrepreneurial spirit.

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

Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our fiscal second quarter 2026 Studio financial results and provide an update on the balance sheet. For the quarter, Lionsgate Studios revenue was $475 million, adjusted OIBDA was $14 million and operating loss was $46 million. Reported fully diluted loss per share was $0.39 and fully diluted adjusted loss per share was $0.20. Net cash flow used in operating activities was $104 million, while use of adjusted free cash flow for the quarter was $129 million. Trailing 12-month library revenue grew 13% year-over-year to just over $1 billion, reaching record levels for the fourth consecutive quarter.

Now breaking down our performance in the quarter, let's start with Motion Picture. Motion Picture revenue was $276 million and segment profit was $31 million. Revenue was expectedly down year-over-year due to a difficult comparison with last year's second quarter, which had 5 wide theatrical releases in the period relative to just 2 releases this quarter. Segment profit was up significantly year-over-year as we rebounded off of last year's underperformance of Borderlands. We anticipate Motion Picture segment profit to build from Q3 to Q4, driven by an increase in titles entering their Pay 1 window in Q4 and P&A spend, primarily tied to Now You See Me: Now You Don't and Housemaid being weighted to the third quarter. There will be some P&A spend in the fourth quarter tied to April release of Michael. Which will be followed by other highly anticipated fiscal '27 titles, including the November release of Hunger Games, Sunrise on the Reaping and the March 27 release of Resurrection Part 1.

This cadence of tentpole films, coupled with our mid-range budget slate, gives us extended visibility and bolsters our view on motion picture growth in fiscal '27.

Now moving to TV. Revenue was $199 million and segment profit was $13 million. Revenue and segment profit were expectedly down year-over-year due to the timing of episodic deliveries in the quarter. We expect strength in segment profit in TV over the remainder of the year, driven by an increase in deliveries and incremental licensing revenue tied to The Hunting Wives, which will be available in more Netflix international markets over the coming months. Furthermore, as we noted on our prior call, we are forecasting significant growth in scripted deliveries next year, strengthening TV's financial outlook in fiscal '27.

Now let's take a look at the balance sheet. We ended the quarter with $1.7 billion of net debt, expectedly reflecting a modest sequential increase in leverage to 6.4x on the timing of content spend. In addition, we strengthened our balance sheet by upsizing our IP facility by $320 million. We used the proceeds to early pay the Spyglass library acquisition facility, reduce our revolver draw to 0 and stockpile cash. We ended the quarter with $800 million of undrawn revolver and $247 million of cash on the balance sheet.

We are similarly seeing strength in off-balance sheet assets as evidenced by our backlog ending the quarter at approximately $1.6 billion, up $379 million or 31% sequentially. As you will recall, backlog represents off-balance sheet contractual orders not yet delivered and is indicative of the strength we see in our future revenues and cash flows.

We continue to anticipate that fiscal '26 will be a back-end loaded year, and we expect sequential growth into Q3 and Q4. Additionally, as we noted last quarter, we expect stronger carryover of profits from our fiscal '26 film slate into fiscal '27, which combined with our previously discussed tentpole-driven fiscal '27 slate and a TV business that is expected to show significant growth next year gives us confidence that we are still on track to deliver strong adjusted OIBDA growth in fiscal '27 relative to fiscal '25.

Now I'd like to turn the call over to Nilay for Q&A.

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

[Operator Instructions]

Our first question comes from David Joyce with Seaport Research Partners.

Two questions, please. First, if you could drill down some more on what's giving you the confidence for the back half of this year in 2027 and beyond with your slate granted. You explained the backlog being up significantly. But are there other metrics with social media or audience testing that you or your licensees are doing? And then secondly, if you could please comment on your views of the M&A optionality and what's going on more broadly in the industry.

David, it's Adam. I'll start with your confidence question in terms of the slate. Clearly, there is no perfect predictor out there. But that having been said, we are seeing a ton of excitement. Just yesterday, the day before, Exhibition was talking about a number of our films in the fourth quarter and into next year that they're seeing a lot of enthusiasm. We're getting a lot of traction online. I can't either confirm or deny that we participated in the [indiscernible] Heist, but Now You See Me has been all over social media, and The Housemaid is generating a ton of conversation. The Michael trailer generated over 30 million views in the first 6 hours of its launch today, which is 50% more than what John Wick 4 trailer delivered in its first 6 hours. The conversations around the Hunger Games with every announcement of casting and the massive global demand for Resurrection. All of that gives us confidence.

We recognize that you can't be perfect in predicting each film, but when you look at the portfolio and the films I mentioned and a lot of the mid and small budget films that we have on our slate, it does give us an exceptional amount of confidence. And the growth we're talking about is not based on projecting that every one of those turns into a blockbuster, but we think we've got a bunch in that mix.

Yes. In terms of the M&A environment, I think we can all see it's incredibly disruptive. There's a lot of uncertainty out there right now. All we can do, David, is keep sticking to our knitting, building into next year with, again, a great TV slate, a great film slate and this library really starting to perform. And I can't say often enough, we've been investing for 25 years in that library, and we've retained rights almost every single time. We continue to retain them every time we can when we sell a television show. And so we own the majority of our library, and it's paying dividends for us right now. So we'll keep doing what we do, and we'll see all the -- where the bouncing ball ends up. It will be some interesting [ dead fellows ], I think.

And the next question comes from Brent Penter with Raymond James.

Good to see the Michael trailer out today and it sounds like really strong interest in that. There was a thought in the past that you all have some optionality on that in terms of the ability to then make a second film, assuming that one performs well. Can you update us on where we stand on that option?

Sure, Brent. It's Adam. Thanks for the question. Look, since the last time we were together on an earnings call, we have now had the great pleasure of seeing the director's cut of the first film, and it is exceptional. And while we're not yet ready to confirm plans for a second film, I can tell you that the creative team is hard at work making sure that we're in a position to deliver more Michael soon after we release the first film.

Okay. Great. That's good to hear. And then more near term, Now You See Me: now You Don't coming out next weekend, what's the general sense you all are getting from tracking on that relative to what you're expecting when you green lit? And then the first 2 movies were pretty big internationally. So should we expect there's a bit more revenue locked in there via some of those international licensing deals than what we typically see?

Yes. I mean, as I was saying on one of the prior questions, there is no perfect predictive measure, and I think tracking has become less reliable than ever. That said, the movie is tracking much closer to the universe of the first movie. So we think that where traditionally you see significant degradation between the second and third film, we think that performing in line with or ahead of the second film is possible. And it's important to note, this quarter of the year really needs to be judged over multiple weeks. You'll recall that when the last Hunger Games movie came out, we had a 4 multiple off a $44 million opening. And I think a 3.5 to 4.5 multiple on this film is what we should be thinking about the movie. There are a lot of social reactions to the movie that we've been screening online, and people are loving the film.

As it relates to international, what I can say definitively is that, that international performance has led to high demand from our foreign licensing partners. And so that's already accounted for. And we are not -- we don't have a massive domestic gap that we're trying to deal with here. So the economics of this film are already considering its global appeal and Jim could speak to it, but we also have additional benefit not reflected in the individual P&L of this one film. When you make a good film in a franchise like this and have 2 existing installments out in the marketplace, there is meaningful financial benefit to that separate and apart from Now You See Me 3.

I think what you end up seeing is a halo on any of these remakes that we do or sequels or prequels. We've seen it. You can see it with John Wick. You can see it with Hunger Games. You can see it with most of these franchises, whether it's transactional, whether it's licensing, every single aspect of our business goes up. So we definitely get a benefit when we have a new one coming out.

Okay. Great. And then final question for me. You talked about the strong growth at 3 Arts. Can you just remind us the sizing of that business in terms of revenue and EBITDA? And what kind of growth exactly you're seeing?

Yes, Brent, in terms of just sizing the number, we're not going to disclose that separately. It's not something that we've provided. But I'll tell you, we're seeing very strong growth going in the second half. And remember, in particular, it's a nice seasonal business too in the December quarter. And so we're seeing nice growth going into the second half and that continued growth into fiscal '27. We like what we're seeing in that business and our partners there. And Brian can probably give you a little bit more color on the operations.

Sure. Brent, it's Brian from 3 Arts. Speaking, look, operationally, we're seeing a lot of positive momentum on the production side of our business, where we partner with and produce alongside of our clients. You have things like Season 2 and 3 of the new King of the Hill, which is back on the air, a business we've been involved with, a show we've been involved with from the start, obviously, along with our partnership at Lionsgate, the success of The Hunting Wives, another season for The Paper, more seasons for [indiscernible]. And then just this week, a third season for Nobody Wants This. So we continue in this environment to succeed on the sports side. We have real momentum, as Jon noted at the top of this call.

But some interesting innovative stuff. Our client, Travis Kelce, who's part of the team we brought over now 3 Art Sports, formerly A&A management and a really innovative deal with channel partners and a bunch of compelling corporate relationships in Travis' world and just growth in the core business. So we feel pretty good about where we're headed, about representation in general as we continue to grow that platform beyond our historical core into other new areas where we can diversify the offering that we provide to our clients.

And the next question comes from Thomas Yeh with Morgan Stanley.

Just following up on that industry M&A question. As an active seller to many of these companies, it seems like you're still seeing pretty broad strength in the series orders and series pickup environment. Is there a sense that consolidation of the buyer pool could change those dynamics if the broader view is that they'd still be spending as much content, if not more, perhaps on a consolidated basis?

Yes. That's a great question. It's Kevin speaking. I think uncertainty when it's hanging over the market makes everybody buy a little bit less. The extended process of Skydance and Paramount froze Paramount for a lot of time. We're pretty excited about that being resolved. They've laid out to the selling community what they're looking for. They have an appetite to buy more dramas, more scripted in general. I think you're going to see more clarity around Comcast between the Peacock NBC Studio side and Versant, where we have Rainmaker, which has done really well. So that consolidation could happen, but in stronger buyers that have bigger appetite and are signaling to the selling community that they're healthy, that's a positive. Obviously, the more buyers than not as good, but unhealthy buyers are not good.

But we are seeing some green shoots. It's not a full recovery, but we're off to a nice start this year, this summer between Studio, The Hunting Wives, Rainmaker. We just launched Robinhood. Force is about to go tomorrow. Spartacus is behind it. Ghost and Rookie are coming. Ghost just premiered 2 weeks ago, Rookie in January. It's a nice cadence of things and nice renewals, and that's giving us a lot of confidence about the market.

Okay. Helpful. And then, John, you mentioned ramping stage play adaptations and IP monetization kind of starting to kick in. Can you just help us think about the ancillary revenue opportunity and the economics that you'd be participating there? Is this like a high-margin licensing revenue sort of deal for like a Lava and musical?

I'll let Adam answer that. He's been really driving that business.

Yes. I mean it's not one size fits all. We're looking at each individual opportunity. There are a lot of no-risk licensing opportunities in here, but there are certain cases where we will take an investment position. It really depends on our comfort level with our being meaningfully additive to the creative process. But each of the projects Jon mentioned as it relates to stage and some of the stuff we've talked about in our previous conversations, continuing to see really great attendance of the John Wick Live experience in Las Vegas, and there definitely is interest in expanding that to other destinations. Our AAA game opportunities and other gaming opportunities around John Wick and Saw and some others that we'll be announcing soon, we're seeing increased interest and increased opportunity, and we remain on schedule. So I think in totality, you are going to see a meaningfully additive financial opportunity coming in the coming years.

And the next question comes from Omar Mejias with Wells Fargo.

Jimmy, first, you talked about the backlog now at $1.6 billion or up 31% sequentially. Can you expand on the puts and takes of this incremental demand? And are market trends improving on the TV side? Or is this a Lionsgate specific driver? Any help on unpacking the underlying strength would be helpful.

No, absolutely. The strength is across motion picture and TV and particularly the $380 million, 30% plus uplift sequentially was driven by both, but majority showing strength in television. So examples like Studio Season 2 rolling in, Housewife Season 2. Power Book Origins, Season 1, Yellow Jacket Season 4. So kind of broadly spread, giving us visibility as we were anticipating into the second half as well as into 2027. And as Jim mentioned a minute ago, with these franchises, whether it be the John Wick franchise or Twilight or Hunger Games, you just have continuing lift in demand. And so that's really nice in that window.

And I would just say that of that $1.6 billion, 85-plus percent of that will come in, in the next 18 months. So this is not only second half, but it's also well into fiscal '27, and it's really reflective of how we're rebuilding the pipeline for future revenue and cash flow. I'll remind you that's off balance sheet, which means it's future revenue and cash flows.

That's super helpful. And then on leverage, can you remind us what can you do to bring down leverage? And where do you think you can get leverage to in the relative near term? So maybe twofold question here. How should we think about growth over the near to medium term to drive down leverage? And then just an update on where things stand with 3 Arts and the potential to bring in a partner there?

Sure. So look, we're naturally going to delever. I mean, you see it. Our peak leverage is probably going to be in Q3 and then back down in Q4 and then significantly declining as we go into '27 and '28. And this is really about restocking the pipeline. If you think about it, right, in Q3, we've talked about the P&A spend, we're going to have around Now You See Me and Housemaid. If you look at our content spend, it's generally throughout the year, but more heavily weighted to the mid-quarters, meaning Q2 that we're just coming out of and extending as well into Q3, we'll also have the P&A spend. So you'll see net debt balances rise a little bit.

And really, the trailing 12 months, right, is a lower level than usual because of, again, we got the P&A spend, we're rebuilding the pipeline. And then what you'll see is the delevering will naturally occur with the ramp-up in trailing 12 months adjusted EBITDA. I think as we go out into '27 and I would say even into '28, right, which we're going to have great carryover from '26 into '27, even stronger carryover from '27 to '28, we're going to get back to that 3 to 3.5x leverage that we're more comfortable with. And that is not taking anything into consideration with regards to a potential 3 Arts transaction, it would obviously result in delevering.

Yes. We're talking to 4 or 5 potential partners. We have a nice growth profile, as Brian said, in terms of sports and in terms of our news personality business, and we're seeing really tremendous uptick of activity across the board there. We should have more information, I think, for the Street in the first quarter and be able to kind of hone in on whether there's a smart deal to be made. But if we can find the right partner at the right deal to help us grow that business, we're going to do it.

Great. And lastly for me, Jon or Adam, excited about Michael. Watched a trailer today and looks great. Curious what's the early feedback on the trailer? And what's the potential opportunity for this film globally?

The response has been overwhelmingly positive. People have been waiting a long time for this. The trailer, I think, smartly acknowledges that with the very first words that are spoken in the trailer. And we have seen wild enthusiasm. I think people are stunned with Jaafar's performance even in the short amount that's in this first relatively brief teaser. I think the production values are there. I think when you look at the quality of the filmmaking team and look at the kinds of films that they've delivered in the past and you look at the successful -- the top-tier, most successful sort of musical biopic that have ever come out, you see a broad range, but all of those broad range results would be fantastic wins for the filmmakers and for the studio and for our partners at Universal and our partners in Japan as well.

So I think if you look at the top-tier musical biopics, you get a pretty good sense of what the range is. And anything in any version of that is going to be a huge success.

Our next question comes from Matthew Harrigan with Benchmark.

Living in Colorado, I'm not even a particularly avid Broncos' fan, but I can't -- I think I'm going to have to take 3 or 4 points off you -- my price target for your signing Travis Kelce, not a fan of that one. But seriously, I'm curious on the Resurrection movie, it sounds very complicated, Marvel movie plus on the special effects. I know you're recasting so you don't have to go through the aging process, even though that's more feasible now from an AI vantage point? I think you said you couldn't have done it at all 2 or 3 years ago. But are you completely confident that you can meet -- you probably wouldn't -- would have said it already if there's any hesitation, but are you confident you can get that together? And what is the possibility of that also breaking into 2 parts? Similarly, I know it's probably a little early relative to Michael because you've seen so much of Michael.

And then secondly, you must be really confident in Now You See Me because whether you watch the election night results or the NBA or the NFL, you've got a pretty heavy load of commercials for that they're often not full 30 second. But what are you seeing in the cost of advertising from your vantage point? And what are you doing to change the marketing?

By the way, I'm a little surprised with AI and everything that it's actually getting harder to track films. It's kind of intuitively, I would think that you might have better visibility rather than worse. But I know it's always been an art rather than a science, kind of fracturing the question a little bit there, but I'm sure you get it.

Okay. Matt, that was a complicated question. But I'm going to go to our man on the ground actually in room right now to answer the first part of your question. Mike, you're there. Let's talk about resurrection.

Yes, I am. Matt, I had dinner with Bruce, the producer and Mel Gibson tonight. I was on the set today, had a visit actually with the new ambassador from Italy. And the visit, I felt like I was going -- walking in Jerusalem. The sets are extraordinary. The movie is on time, on budget. Mel showed me a bunch of footage that he shot at dinner. He is quite a filmmaker, and Adam and I hotly pursued him for this movie. It is going to be 2 movies. It is not 1 movie. It is going to be 2 movies, and Mel thought his comment to me tonight that it was going to be -- each one of those pieces would be less than 2 hours, and -- but he feels very confident that he's got a real one-two punch here. So what I saw today was extraordinary and Mel Gibson can really direct. So we are very optimistic, Matt.

Thank you, Michael. And Adam?

Yes. No, so I would add that the 2 movies combined cost less than any one movie that the major -- any one tentpole that the major studios have made in the last 10 years. So the economics of it are actually very powerful. The AFM market begins shortly, and it has been written and it is not incorrect that we once again have absolutely the hottest title out there, and we're getting incoming calls from everybody in the foreign distribution space asking to participate. And so the value of it is not only a value that we see, but it's a value that the entire market sees. And so we're really excited about the opportunity.

As it relates to your marketing question, I really appreciate how you framed it because I can tell you that we are being completely competitive in generating awareness and urgency in our films -- and yet we are still spending 30% to 50% less than competitive studios to do that work. And it is using every bit of available technology to make sure that when you are buying more traditional media, you're buying it in places where people are watching and actually watching the ads, but also leaning into all available digital opportunities, not only the ones you buy, but the ones you create. I was having only a little bit of fun on the Now You See Me speculation around the Heist at the Louvre, but there's a ton of content that we created to allow the audience to continue to have fun speculating on what happened there.

The same thing on The Long Walk when we had the treadmill screening, massive amount of pickup and social engagement on that. Sydney Sweeny and Amanda Seyfried, each thing they put out on The Housemaid is generating a massive amount of engagement. And those are things that are not high cost. But if you come up with creative on brand, on-message ways to incentivize the audience to share with one another, you can still create a significant motion picture event without spending massive sums of money. And being efficient continues to be a hallmark, but being efficient if you're not generating awareness would not be good for us or our filmmaking partners. And our filmmaking partners are all really excited with the work we're doing.

And the next question comes from Peter Supino with Wolfe Research.

Jack Stid here on for Peter. My question is with your upcoming slate increasingly concentrated behind larger, more IP-driven films, I was curious if those films garner higher international presales as a percentage of their production budget to offset the concentration risk.

Yes. I mean I would say that it's not always the case that the percentages change radically. We're actually still able to get a terrific collaboration with our foreign partners on our midsized and smaller films. But yes, on the bigger films, you sometimes will see a very outsized participation from our partners. And the risk profile of each individual film is something that we take very seriously before the movie is green lit. So we're not going into it surprised by that. We have enough intel to know going in what level of performance we need to hit the profitability threshold that we're aiming for. But we're still seeing great support for our mid and lower budget films, but it is true that on movies like Michael and Hunger Games and the Resurrection, that percentage can get up to a really strong number.

And the next question comes from Vikram Kesavabhotla with Baird.

I have 2. My first one is really a follow-up to some of your comments there. I'm curious if you could just share some of your observations from The Long Walk and Good Fortune and really from a higher level going forward, how you plan to balance your investment in the small and midsized portfolio relative to your tentpole films. And then my second question is on the library. You called out the strength there over the last 12 months. Curious if you can just talk more about what you think the drivers are that are supporting that performance and how sustainable you think this level is on a go-forward basis?

[indiscernible], do you want to take the second part first?

Yes, sure. I'll take the second part first. Jim, thank you for the question. I think you're seeing an expanding amount of contributors that are going into these numbers. It's really kind of unique and interesting that we've been growing certain areas like if you look at our self-directed channels, that business has started to really help our trailing 12 months. The series licensing that I'm seeing in the business right now has changed. I was looking at our numbers recently. We've sold about 5x more series than we did 5 years ago. And the series that we have are really strong and relevant. I mean, if you look at our Netflix top 10, we've had 9 in the top 10 recently, which is a big number for us.

And then lastly, as we've talked about earlier, with Adam producing IP that has other versions in our library, that helps pretty much become a halo for everything else we're doing. So all of that is contributing and really, I see the strength staying strong.

And as it relates to the slate mix, look, we're never going to be forcing big films onto our slate to make it look like we've got tentpoles. We just happen to have a really good stockpile of incredibly valuable content right now. So I think when we mentioned a few quarters ago that we were anticipating 2 to 4 tentpoles a year going forward, our development slate is putting us in a position to be able to accomplish that. We talked about another Resurrection and the possibility of a second Michael film. I think when we mentioned things like Naruto, which we've talked about on previous calls, I'm not sure everyone was clear on what the growing popularity of Manga is in the world, but it has been very clear generally and specifically in film, how big it is, and there is no bigger property than that. We're making huge progress on that front, making huge progress on the Monopoly front and a lot of conversation around things like American Psycho. But whether it's not priced like a tentpole, but we've had a great conversation with James Wan and Jason Blum about the new takes on both the SAW franchise and the Blair Witch franchise.

So we think we're going to have films across a broad range of costs, but we should be in that 2 to 4 tentpole year range for the foreseeable future because we've got a number of films that have earned it. But our midsized and smaller films are things that are coming with great talent, often with great IP or brand value, and we think there will still be a huge opportunity there as well.

Yes. I want to emphasize again, for me, the biggest uplift in recent years is the fact that we've taken deficits on television shows and retain rights in the feature film business that no other independent company has done. We retain all of our rights, for example, downstream rights to all our films in Latin America. We retain all rights in the U.K. And television, while we sometimes will do a cost-plus deal, really, we probably have 70% of our television shows, maybe 80% of them. We've been taking deficits for them. Even a show like Orange Is the New Black, you think about that as a Netflix show, that's not a Netflix show. It's on Netflix right now, but it's a Lionsgate show. And in a couple of years, when we get that back, we will be a very valuable addition to Jim Packer and his team on a global basis. And so I think we're starting to see the reward that we've had for taking these deficits all these years.

And as I said, we've doubled the television contribution over that last, call it, 10-year period. We've doubled it from about 15% to 30% of our library. So it's all working. And in addition, Jim has done an amazing job of building these self-directed channels, whether they're FAST channels, whether they're -- and so right now, any time we have an avail, any time it's not sold to a third party, Jim has the ability to monetize that title. You've got over 20,000 of those, and you can see it's starting to add up. So I think ultimately, it's our strategy to be different than every other independent that's starting to pay off.

This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks.

Thank you. 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 all.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.