Lions Gate Entertainment Corporation (LGF)

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Wall Street Breakfast

Lionsgate Entertainment Corp. (LGF)
F1Q08 Earnings Call
August 10, 2007 9:00 am ET


Peter Wilkes - Senior Vice President, Investor Relations
Jon Feltheimer - Chief Executive Officer
Michael Burns - Vice Chairman
Steve Beeks - President
James Keegan - Chief Financial Officer
Rick Prell - Chief Accounting Officer


Gordon Hodge - Thomas Weisel Partners
Michael Savner - Banc of America
David Miller - Sanders Morris Harris Capital
Jeff Logsdon - BMO Capital Markets
Tom Eagan - Oppenheimer
Alan Gould - Natexis Bleichroeder
Barton Crockett – JP Morgan
Eric Handler - Lehman Brothers
Andy Nasr - Raymond James
David Bank - RBC Capital Markets
Michael Kelman - Susquehanna Financial Group
David Joyce - Miller Tabak
William Kidd - Wedbush Morgan



Welcome to the fiscal 2008 first quarter analyst conference call. (Operator Instructions) I would now like to turn the conference over to our host, Senior Vice President of Investor Relations, Mr. Peter Wilkes. Please go ahead.

Peter Wilkes

Good morning. We will open with remarks from Jon Feltheimer, our Chief Executive Officer; Michael Burns, our Vice Chairman; and Steve Beeks, our President and Chief Operating Officer. Jim Keegan, our CFO, and Rick Prell, our Chief Accounting Officer, are also on the call.

The matters discussed on this call include forward-looking statements, including those regarding the timing of our upcoming film slate, the expansion of our television business and the success of our fiscal 2008. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors, including the risk factors as set forth in Lions Gate's Form 10-K. 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.

Jon Feltheimer

Good morning and thank you all for joining us on today's call. As we have seen for the last three or four years, our first quarter is typically a soft, expense-laden quarter with our positive results from seasonal home video and television deliveries back loaded in the year. This Q1 is no exception. The numbers we released yesterday were exactly on track with our budget and expectations. Our negative earnings of $53 million in the quarter were primarily attributable to a $47 million increase in theatrical marketing expenses from last year's first quarter, and our negative cash flow is largely attributable to $80 million invested in television product that will come back to us as revenue during the balance of the year.

While revenue's negative cash and earnings were as expected, we're still disappointed in the performance of our first six films of the fiscal '08 slate. This performance alone would leave us about $22 million off plan. That would be the case if we didn't have a nimble and diversified business. Due to adjustments we have made to overhead as well as overperformance and projections from home entertainment, international, and corporate development activities, we are now basically on plan. We therefore are reiterating our guidance of revenue growth to over $1.1 billion, free cash flow over $100 million, and EBITDA and pre-tax net income over negative $40 million and $50 million respectively. As usual, this assumes our ongoing businesses, including our future theatrical releases perform on plan.

To give a good sense of why we're confident of that performance, I would like to turn the call over to Michael to talk about the upcoming slate, as well as our recent slate financings, and Steve will then take you through recent developments in home entertainment, our library, the international arena, and our continuing digital initiatives.

Michael Burns

Thank you. I would like to first take a moment to address what I believe to be a misperception about the financial impact of our last six under-performing films at the box office, Slow Burn, The Condemned, Delta Farce, Bug, Hostel 2, and Bratz. Because we stick to our discipline about budgets, financial structuring and P&A spends these six films will cost us an approximate cumulative ultimate loss of around $15 million. Even though that number is likely less than most on this call suspected, it is still a loss. Our plan is to reverse that trend and we have much higher return expectations for our next five wide releases, which represent the core of this year's theatrical slate.

We continue to expect that our full fiscal 2008 slate will be our strongest ever with a $400 million domestic box office target. Between now and the end of October, we will release an important picture every few weeks, and you will see what we have been striving to achieve with a bigger, broader, more diversified slate all acquired, produced and distributed within the parameters of the Lions Gate model.

Our next five films include War, which we are releasing in two weeks on August 24th starring Jet Li and Jason Statham. We expect them to deliver for us, just the way Jason delivered last year at this time in Crank. War is tracking well. On September 7th, we release 3:10 to Yuma, directed by Walk The Line's James Mangold. It is a powerful and brilliantly acted film with great performances from Russell Crowe and Christian Bale and a breakthrough performance from Ben Foster. We have high expectations for the film both at the box office and during awards season.

Two weeks later, we release Good Luck Chuck" The chemistry between Jessica Alba and Dane Cook is terrific. We believe this is Lions Gate's strongest comedy to date and the movie that defines Jessica Alba as a major motion picture comedy star. Dane is already shooting his third film for us, Bachelor 2 with Kate Hudson for next year. You will see Jessica Alba again in our thriller, The Eye which just wrapped principal photography.

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