Lions Gate Entertainment Corporation (LGF)

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Lions Gate Entertainment Corp. (LGF)

F3Q10 (Qtr End 12/31/09) Earnings Call

February 11, 2010 09:00 am ET

Executives

Peter Wilkes - SVP, IR

Jon Feltheimer - CEO

Michael Burns - VC

Steve Beeks - President

Analysts

David Miller

James Marsh

Ben Mogil

Doug Creutz

David Gober

Vasily Karasyov

Presentation

Operator

Ladies and gentlemen thank you for standing by. Welcome to the Lionsgate fiscal 2010 Q3 earnings conference call. At this time all participants are in a listen-only mode. Later there will be an opportunity for questions-and-answers with instructions being given at that time. (Operator Instructions). I would now like to turn the conference over to our host, Senior Vice President of Investor Relations and Corporate Communications, Mr. Peter Wilkes. Please go ahead.

Peter Wilkes

Thank you for joining us this morning. Jon Feltheimer our CEO would give the remarks this morning; the rest of the management team will join for the Q&A, now will include Michael Burns, our Vice Chairman; Steve Beeks our President; Co-COO, Joe Drake, President of our Motion Picture Group and Co-COO, Jim Keegan our CFO and Rick Prell our Chief Accounting Officer.

Matters discussed on this call will include forward-looking statements, that statements are subjects to a number of risks and uncertainty. 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 risk factors as set forth in Lionsgate's annual report on Form 10-K filed with the SEC on June 1st 2009 and in Exhibit 99.1 for a current report on Form 8-K filed with the SEC on October 13th, 2009.

The company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. Jon.

Jon Feltheimer

Good morning everyone. Thank you for joining us on the call today. We had a solid quarter with strong revenue recognition and strong free cash flow. Our television business generated $92 million in the quarter, taking us to $267 million for the first nine months, and despite of lots of discussion about the maturing DVD marketplace, we had our best library quarter in our history with $91 million in catalog revenues. This was driven by a very strong performance from packaged media and a growing contribution from on-demand digital and Blu-ray which I will address in a few minutes.

Our EBITDA was affected by an unusual amount of (inaudible) in this quarter, pictures that will be released next quarter. However, we're still on track to exceed our adjusted EBITDA guidance of $75 million. These numbers tell only part of the story. Today I would like to look at the numbers trends within the industry that we believe will be very favorable going forward. These trends we are seeing were expected and informed a number of decisions we've made. Let's look at a few of them.

The first trend I would like to discuss is the recent theatrical box office. Box office revenues are up, admissions are up and studio and independent film output is down. In fiscal '10 we decided to (inaudible) for a year. Now there are fewer players and less product competing for a larger industry revenue pie, obviously a better formula. This has been working to our advantage in most of our recent releases, and it will work to our advantage as we bring a more muscular and diversified slate to the marketplace in fiscal '11. In fact our last 10 wide releases have grossed $387 million at the North American box office, an average of nearly $40 million per film. This compares favorably to $30 per wide release for our previous 10 wide releases. Four of our last five domestic releases have been profitable including Precious, Brothers, Daybreakers and The Spy Next Door. In fact, seven of our last 11 wide releases have been profitable at the box office approaching our historical success rate of about 70%.

Obviously even with the success rate of 70% not every film will work. Yes we were disappointed by the opening From Paris With Love last weekend, but From Paris With Love does more to underscore the strength of our model than its weaknesses. It was a $52 million picture in which we invested only $12 million domestic theatrical rights. While we rode off $7 million this quarter to be conservative, we breakeven at approximately $24 million of total box office which is doable with a strong upcoming four day weekend.

Parenthetically Monday and Tuesday's numbers were quite strong. Obviously our job is to make money, but with a portfolio approach to our slate of films, mitigating losses is part of that discipline. Our solid success rate should continue next year with a slate lead by Kick-Ass, the Expendables and Killers. The marketing materials for these three films are achieving a positive response of over 90% from their target audiences. If you want to share their excitement please take a moment to go to our website to look at these materials.

There is a slate of 14 films which we project to generate over $500 million in box office and play to our strengths. PRECIOUS is a good example of films in [hour reel]. It's approaching $50 million at the box office and has been nominated for six academy awards. Obviously we are very proud of this quality movie, but please be assured, PRECIOUS will be very profitable.

By anticipating its award success we're able to position it in over 600 theatres this past weekend, up from 220 giving it momentum into its DVD launch on March 9th. Our Maple Pictures affiliate in Canada and Lionsgate UK also distribute independent third party films and this year in addition to our own films they distributed the Hurt Locker which earned 9 Academy Award nominations.

Read the rest of this transcript for free on seekingalpha.com