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Starz Reports Third Quarter 2016 Financial Results

ENGLEWOOD, Colo.--(BUSINESS WIRE)--Starz (NASDAQ: STRZA, STRZB) today reported third quarter 2016 results. Highlights include (1):

Financial Highlights:

  • Starz Networks reported revenue of $348.6 million; 6% year-over-year growth and largest increase since Q2 2013
  • Reported consolidated revenue of $407.8 million; operating income of $74.0 million; fully diluted earnings per share of $0.34 and Adjusted OIBDA (2) of $89.9 million
  • Starz Networks operating income of $80.4 million and Adjusted OIBDA of $92.9 million

Operating Highlights:

  • Increased STARZ subscriptions by 1.2 million year-over-year; 300,000 since June 30, 2016 to a new high of 24.5 million
    • Combined STARZ and STARZ ENCORE subscriptions of 56.0 million
  • Nearly 1 million STARZ OTT subscriptions driven by strong Amazon and Starz OTT app subscriber growth
  • Completed multi-year AT&T/DIRECTV deal extension; licensed STARZ for upcoming DIRECTV Now service

Programming Highlights:

  • “Power” third season set multiplatform record viewership for STARZ Original series with 7.3 million viewers and counting (3)
  • “Survivor’s Remorse” renewed for fourth season based on continuing viewership growth of 53% since the series first premiered (3)
  • Licensed “Ash vs. Evil Dead” to Amazon Prime Video for Germany;
    • Anchor Bay Blu-ray/DVD sales of season one marked the best-selling 30-minute episodic season one TV title in its first week of release since September 2010

Chris Albrecht, Starz President and Chief Executive Officer, added, “Starz continued its solid operational performance in the third quarter, delivering 6% year-over-year revenue growth at Starz Networks which is the largest increase since the second quarter of 2013. Third quarter performance also saw year-over-year subscriber growth of 1.2 million customers, with 300,000 added in the quarter, setting a new record high of 24.5 million subscribers for STARZ. The third season of “Power” established a STARZ record for viewership, surpassing 7.3 million multiplatform viewers per episode, and helping nearly drive OTT subscriptions close to the 1 million mark. The strong performance of our Amazon and Starz app initiatives complements the Starz Networks business with core distributors. The planned merger with Lionsgate continues to progress, and we are readying for the content opportunities that will come with being a robust combined company.”

Consolidated

Revenue increased 1% to $407.8 million, operating income decreased 27% to $74.0 million and Adjusted OIBDA decreased 22% to $89.9 million.

Starz Networks

Revenue increased 6% to $348.6 million as a result of rate increases from various distributors partially offset by lower average subscriptions. Operating income decreased 21% to $80.4 million and Adjusted OIBDA decreased 18% to $92.9 million primarily due to an increase in programming and advertising costs associated with original programming and our new Starz app partially offset by the increase in revenue. Cash paid for investment in films and television programs increased $27.7 million to $76.3 million due to a greater number of original series in production.

Starz Distribution

Revenue decreased 7% to $60.9 million, operating income decreased $3.4 million to a loss of $2.5 million and Adjusted OIBDA decreased $3.5 million to a loss of $1.7 million. These decreases were primarily a result of fewer significant new release titles from The Weinstein Company. Cash paid for investment in films and television programs increased $23.4 million to $26.2 million due to timing of payments under our distribution agreement with The Weinstein Company.

Eliminations/Other

Operating loss increased $3.4 million to $3.9 million primarily due to merger related costs.

Share Repurchases

Starz currently has $356.7 million remaining under its share repurchase authorization. Under the merger agreement with Lions Gate, Starz is prohibited from repurchasing its common stock. Accordingly, there will be no repurchases of common stock through the effective time of the merger.

FOOTNOTES

 (1) Starz’s President and CEO Chris Albrecht and CFO Scott Macdonald will discuss these highlights and other matters during the Starz earnings conference call, which will begin at 5:00 p.m. (ET) on October 27, 2016. For information regarding how to access the call, please see “Important Notice” later in this document.
(2)For a definition of Adjusted OIBDA and applicable reconciliations see Non-GAAP Financial Measures and Reconciling Schedule below.
(3)

Source: Starz internal estimates of linear and non-linear/time-shifted results from Nielsen (NPower), Rentrak (On Demand Essentials) and internal analysis of broadband data.

 

NOTES

  • Unless otherwise noted, the foregoing discussion compares financial information for the three months ended September 30, 2016 to the same period in 2015.

SUPPLEMENTAL INFORMATION

As a supplement to Starz’s consolidated statements of operations, included in its Form 10-Q, the following is a presentation of quarterly financial information and operating metrics for the periods indicated.

Please see the definition of Adjusted OIBDA below and a discussion of why management believes the presentation of Adjusted OIBDA provides useful information for investors. The Reconciling Schedule below provides a reconciliation of Adjusted OIBDA to operating income for the same periods, as determined under GAAP.

QUARTERLY SUMMARY

           
(amounts in millions, except per share data) 3Q15 4Q15 1Q16 2Q16 3Q16
Starz Networks$329.3 $327.8 $339.9 $343.1 $348.6
Starz Distribution (1)65.6100.192.760.060.9
Starz Animation9.31.5---
Eliminations (0.1)  (1.8)  (0.7)  (0.5)  (1.7)
Revenue$404.1  $427.6  $431.9  $402.6  $407.8 
 
Starz Networks$101.6$52.0$105.3$121.1$80.4
Starz Distribution0.95.09.7(5.4)(2.5)
Starz Animation(0.2)----
Eliminations/Other (0.5)  (2.1)  (0.9)  (10.3)  (3.9)
Operating income$101.8  $54.9  $114.1  $105.4  $74.0 
 
Starz Networks$113.1$63.6$116.8$132.1$92.9
Starz Distribution1.85.910.6(4.6)(1.7)
Starz Animation(0.1)(0.1)---
Eliminations (0.1)  (1.4)  (0.3)  (0.1)  (1.3)
Adjusted OIBDA$114.7  $68.0  $127.1  $127.4  $89.9 
 
Net income$59.5$27.9$67.0$54.4$34.3
Earnings per share (diluted)$0.57$0.26$0.65$0.54$0.34
 
Starz Networks$48.6$57.9$81.1$61.5$76.3
Starz Distribution 2.8   6.2   15.1   2.8   26.2 
Total IFT (2)$51.4  $64.1  $96.2  $64.3  $102.5 
 
Subscription units - STARZ23.323.624.0