Starz (NASDAQ: STRZA, STRZB) today reported fourth quarter and
year end 2015 results. Highlights include (1):
Financial Highlights:
- Reported full year consolidated revenue
of $1,700.1 million; Adjusted OIBDA(2) of $461.6 million; operating
income of $409.7 million and fully diluted earnings per share of
$2.22
- Reported fourth quarter consolidated
revenue of $427.6 million; Adjusted OIBDA of $68.0 million;
operating income of $54.9 million and fully diluted earnings per
share of $0.26
- Starz Networks reported full year
revenue of $1,324.4 million; Adjusted OIBDA of $428.6 million and
operating income of $382.9 million
- Reported fourth quarter revenue of
$327.8 million; Adjusted OIBDA of $63.6 million and operating
income of $52.0 million
- Bought back $98.5 million of common
stock since last earnings release. Authorized an additional $400.0
million for share repurchase program; total remaining repurchase
authorization of $408.1 million
Operating Highlights:
- Increased STARZ subscriptions by
300,000 since September 30, 2015 and full year STARZ subscriptions
by 500,000 to a new high of 23.6 million; combined STARZ/ENCORE
subscriptions of 55.8 million
- Wrapped up 2015 with 76 episodes of
STARZ Original series, drawing closer to long-term target of 80-90
episodes
- Partnered with Amazon to offer
STARZ
- T-Mobile added free, unlimited STARZ
PLAY streaming for STARZ subscribers on mobile devices
Programming Highlights:
- Received six Golden Globe® nominations
for STARZ Original series, “Outlander,” ”Flesh and Bone” and “Blunt
Talk”
- Invested in three new STARZ Original
series development projects for underserved Latino audiences
- Greenlit “The White Princess” STARZ
limited series; follow-up to successful “The White Queen”
- “Ash vs Evil Dead” renewed following
successful first season
- STARZ Live+7-viewership of original
scripted series in 2015 increased by 20% compared to 2014; STARZ ON
DEMAND total viewership increased by more than 30% (3)
- 79% of 2015 top-rated STARZ programs
were STARZ Original series episodes (4)
Chris Albrecht, Starz Chief Executive Officer, stated, “In 2015,
Starz demonstrated the strength of its core subscription business
and made meaningful progress on the strategy of building a strong
slate of original programming focused on targeting diverse and
underserved audiences. We expanded distribution of our content,
with the recent successful launch of STARZ on Amazon and there is
more to come in the future. We are very excited to be nearing
completion of a new STARZ app that will allow distributors to bring
the STARZ experience directly to more consumers.”
“The growing consumer appetite and critical acclaim for our
programming led to solid subscriber growth at our flagship STARZ
network. The network also received six Golden Globe nominations.
‘Ash vs Evil Dead’ enjoyed a successful first season both
domestically and internationally and the third season of ‘Black
Sails’ is off to a strong start. These are very exciting times for
Starz with an outstanding 2016 STARZ original programming
slate.”
Consolidated
(Q4 2015 as compared to Q4 2014)For the quarter, revenue
increased 0.5% to $427.6 million, Adjusted OIBDA decreased 54% to
$68.0 million and operating income decreased 60% to $54.9 million.
Total programming expense was $196.2 million.
(2015 as compared to 2014)For the year, revenue increased 2% to
$1,700.1 million, Adjusted OIBDA decreased 8% to $461.6 million and
operating income decreased 9% to $409.7 million. Total programming
expense was $655.7 million.
Starz Networks
(Q4 2015 as compared to Q4 2014)Revenue decreased 1% to $327.8
million primarily due to merger related activity at certain
distributors. Adjusted OIBDA decreased 58% to $63.6 million
primarily due to an increase in original programming. During Q4
2015, new episodes of “Blunt Talk,” “Da Vinci’s Demons,” “Ash vs
Evil Dead,” “Flesh and Bone” and “Survivor’s Remorse” aired on the
network as compared to two lower cost series “The Chair” and “The
Missing” in Q4 2014. Operating income decreased 63% to $52.0
million. Cash paid for investment in films and television programs
increased $3.1 million to $57.9 million.
(2015 as compared to 2014)Revenue increased 1% to $1,324.4
million primarily as a result of higher subscribers and annual rate
increases from various distributors. Adjusted OIBDA decreased 14%
to $428.6 million primarily due to an increase in original
programming partially offset by lower first-run output license fees
and increased revenue. STARZ Original programming grew to eight
series with 76 episodes in 2015 as compared to six series with 48
episodes in 2014. New STARZ Original series that aired in 2015
included “Blunt Talk,” “Ash vs Evil Dead” and “Flesh and Bone.”
Operating income decreased 16% to $382.9 million. Cash paid for
investment in films and television programs increased $18.9 million
to $246.8 million due to the continued ramp up of our original
programming line-up.
Starz Distribution
(Q4 2015 as compared to Q4 2014)Revenue increased 17% to $100.1
million and Adjusted OIBDA increased $7.9 million to $5.9 million
primarily as a result of new STARZ Original series releases,
including “Black Sails,” “Ash vs. Evil Dead” and “Flesh and Bone”
and new releases from The Weinstein Company, including Southpaw and
No Escape. Operating income increased $7.9 million to $5.0 million.
Cash paid for investment in films and television programs decreased
$61.1 million to $6.2 million due to timing of payments under our
distribution agreement with The Weinstein Company.
(2015 as compared to 2014)Revenue increased 10% to $353.8
million and Adjusted OIBDA increased $28.6 million to $36.1 million
primarily as a result of licensing certain STARZ Original titles to
Netflix and Amazon earlier in the year. Operating income increased
$29.4 million to $32.4 million. Cash paid for investment in films
and television programs decreased $59.3 million to $102.3 million
due to timing of payments under our distribution agreement with The
Weinstein Company.
Share Repurchases
From November 1, 2015 through January 31, 2016, 1.8
million shares of common stock were purchased at an average cost
per share of $32.67 for total cash consideration of $59.1 million.
During February 2016, an additional 1.6 million shares of common
stock were purchased at an average cost per share of $24.45 for
total cash consideration of $39.4M. Since trading began on January
14, 2013, Starz has repurchased 27.8 million shares at an average
cost per share of $28.46 for aggregate cash consideration of $791.9
million. These repurchases represent 22.9% of the shares
outstanding as of January 14, 2013. In addition, on February 24,
2016, the Starz board authorized a $400 million increase in the
share repurchase program. Starz currently has $408.1 million
remaining under its share repurchase authorization, which includes
the newly authorized amount. Under its share repurchase program,
Starz may acquire its common stock from time to time, through open
market transactions and privately negotiated transactions. The
share repurchase program may be discontinued at any time.
FOOTNOTES
(1) Starz’s 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 February 25, 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)
Based on total minutes viewed from Nielsen (NPower Live+7 P2+),
Rentrak (On Demand Essentials) for calendar years of 2014 &
2015. (4) Source: Nielsen Live + 7 HH coverage ratings for all
STARZ flagship telecasts; % of top 100 telecasts based on unique
titles/episodes.
NOTES
- Unless otherwise noted, the foregoing
discussion compares financial information for the three months and
year ended December 31, 2015 to the same period in 2014.
- Golden Globe(s)® is the registered
trademark and service mark of the Hollywood Foreign Press
Association.
SUPPLEMENTAL INFORMATION
As a supplement to Starz’s consolidated statements of
operations, included in its Form 10-K, 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) 4Q14
1Q15 2Q15 3Q15 4Q15 Starz Networks $
332.6 $ 334.0 $ 333.3 $ 329.3 $ 327.8 Starz Distribution (1) 85.6
109.7 78.4 65.6 100.1 Starz Animation 7.7 7.3 6.5 9.3 1.5
Eliminations (0.3 ) (0.3 ) (0.5
) (0.1 ) (1.8 ) Revenue $ 425.6
$ 450.7 $ 417.7 $ 404.1
$ 427.6 Starz Networks $ 150.7 $ 129.7 $ 122.2
$ 113.1 $ 63.6 Starz Distribution (2.0 ) 26.4 2.0 1.8 5.9 Starz
Animation (0.6 ) (0.6 ) (0.7 ) (0.1 ) (0.1 ) Eliminations
0.2 - (0.1 )
(0.1 ) (1.4 ) Adjusted OIBDA $ 148.3
$ 155.5 $ 123.4 $ 114.7
$ 68.0 Starz Networks $ 140.1 $ 118.4 $ 110.9
$ 101.6 $ 52.0 Starz Distribution (2.9 ) 25.4 1.1 0.9 5.0 Starz
Animation (0.6 ) (0.7 ) (0.7 ) (0.2 ) - Eliminations/Other
(0.5 ) (0.6 ) (0.8 ) (0.5
) (2.1 ) Operating income $ 136.1 $
142.5 $ 110.5 $ 101.8 $
54.9 Net income $ 77.4 $ 86.1 $ 63.0 $ 59.5 $ 27.9
Earnings per share (diluted) $ 0.74 $ 0.80 $ 0.59 $ 0.57 $ 0.26
Starz Networks $ 54.8 $ 69.1 $ 71.2 $ 48.6 $ 57.9 Starz
Distribution 67.3 39.6
53.7 2.8 6.2
Total IFT (2) $ 122.1 $ 108.7 $
124.9 $ 51.4 $ 64.1
Subscription units - STARZ (3) 23.1 23.4 23.5 23.3 23.6
Subscription units - ENCORE (3) 33.8
33.5 33.3 32.5
32.2 Total subscription units 56.9
56.9 56.8
55.8 55.8
(1)
Includes the following home video net sales $ 58.2
$ 34.9 $ 37.4 $ 34.3
$ 56.8 (2) Cash paid for investment in films and
television programs (3) The 4Q14 and
1Q15 period end subscribers have been adjusted for a reporting
correction by one of our distributors; such adjustment had no
impact on our revenue
CASH AND
DEBT
The following presentation is provided to
separately identify cash and debt information.
(amounts in millions)
12/31/14 3/31/15 6/30/15
9/30/15 12/31/15
Cash $ 13.4 $ 10.1 $ 20.3
$ 17.0 $ 10.7
Debt: Revolving credit facility $ 432.0 $ 447.0 $ 506.0 $ 425.0 $
308.0 5% senior notes 677.5 677.3 677.2 677.1 676.9 Debt issuance
costs, net (9.9 ) (9.2 ) (13.4 ) (12.6 ) (11.9 ) Transponder
capital lease 26.3 25.1 23.9 22.8 21.6 Building capital lease
43.7 43.6 43.5
43.3 43.2 Total
debt $ 1,169.6 $ 1,183.8 $ 1,237.2
$ 1,155.6 $ 1,037.8
NON-GAAP FINANCIAL MEASURES
This press release includes a presentation of Adjusted OIBDA,
which is a non-GAAP financial measure, together with a
reconciliation to operating income, as determined under GAAP. We
define Adjusted OIBDA as revenue less programming costs, production
and acquisition costs, home video cost of sales, operating expenses
and selling, general and administrative expenses, but excluding all
stock compensation expense. Our chief operating decision maker uses
this measure of performance in conjunction with other measures to
evaluate our operating segments’ performance and make decisions
about allocating resources among our operating segments. We believe
that Adjusted OIBDA is an important indicator of the operational
strength and performance of our operating segments, including each
operating segment’s ability to assist in servicing our debt and to
fund investments in films and television programs. In addition,
this measure allows management to view operating results and
perform analytical comparisons and benchmarking between operating
segments and identify strategies to improve performance.
This measure of performance excludes stock compensation and
depreciation and amortization that are included in the measurement
of operating income pursuant to GAAP. The primary material
limitations associated with the use of Adjusted OIBDA as compared
to GAAP results are (i) it may not be comparable to similarly
titled measures used by other companies in our industry, and
(ii) it excludes financial information that some may consider
important in evaluating our performance. We compensate for these
limitations by providing a reconciliation of Adjusted OIBDA to GAAP
results to enable investors to perform their own analysis of our
operating results. Accordingly, Adjusted OIBDA should be considered
in addition to, but not as a substitute for, operating income,
income before income taxes, net income, net cash provided by
operating activities and other measures of financial performance
prepared in accordance with GAAP. Please see the Reconciling
Schedule below for the applicable reconciliation.
RECONCILING SCHEDULE
The following table provides a reconciliation of Adjusted OIBDA
for Starz Consolidated, Starz Networks and Starz Distribution to
operating income calculated in accordance with GAAP for the years
ended December 31, 2014 and 2015, and for the three months ended
December 31, 2014, March 31, 2015, June 30, 2015, September 30,
2015 and December 31, 2015, respectively.
Starz
Consolidated
(amounts in millions) 4Q14 1Q15 2Q15
3Q15 4Q15 2014 2015 Adjusted
OIBDA $ 148.3 $ 155.5 $ 123.4 $ 114.7 $
68.0 $ 501.7 $ 461.6 Stock compensation
(7.7) (8.3) (8.1) (8.1) (8.4) (30.6) (32.9) Depreciation and
amortization (4.5) (4.7) (4.8) (4.8)
(4.7) (19.4) (19.0) Operating income $ 136.1 $ 142.5
$ 110.5 $ 101.8 $ 54.9 $ 451.7 $ 409.7
Starz Networks
(amounts in
millions) 4Q14 1Q15 2Q15 3Q15 4Q15
2014 2015 Adjusted OIBDA $ 150.7 $
129.7 $ 122.2 $ 113.1 $ 63.6 $ 496.4 $ 428.6 Stock compensation
(6.9) (7.4) (7.3) (7.4) (7.6) (27.3) (29.7) Depreciation and
amortization (3.7) (3.9) (4.0) (4.1)
(4.0) (15.3) (16.0) Operating income $ 140.1 $ 118.4
$ 110.9 $ 101.6 $ 52.0 $ 453.8 $ 382.9
Starz Distribution
(amounts in
millions) 4Q14 1Q15 2Q15 3Q15 4Q15
2014 2015 Adjusted OIBDA $ (2.0) $ 26.4
$ 2.0 $ 1.8 $ 5.9 $ 7.5 $ 36.1 Stock compensation (0.5) (0.6) (0.5)
(0.5) (0.6) (2.0) (2.2) Depreciation and amortization (0.4)
(0.4) (0.4) (0.4) (0.3) (2.5) (1.5)
Operating income (loss) $ (2.9) $ 25.4 $ 1.1 $
0.9 $ 5.0 $ 3.0 $ 32.4
StarzConsolidated Balance
Sheets(Amounts in millions, except share and per share
amounts)
2015 2014 Assets Current assets: Cash and cash
equivalents $ 10.7 $ 13.4 Trade accounts receivable, net of
allowances of $35.2 and $41.9 252.9 249.1 Program rights 316.1
303.5 Other current assets 90.1 70.1 Total current
assets 669.8 636.1 Program rights 335.9 311.3 Investment in films
and television programs, net 215.6 319.5 Property and equipment,
net 89.2 89.8 Deferred income taxes, net 21.2 — Goodwill 131.8
131.8 Other assets, net 100.7 73.9 Total assets $
1,564.2 $ 1,562.4 Liabilities and Equity
Current liabilities: Current portion of debt $ 5.6 $ 5.3 Trade
accounts payable 8.0 10.1 Accrued liabilities 267.7 327.4 Deferred
revenue 10.3 7.4 Total current liabilities 291.6
350.2 Debt 1,032.2 1,164.3 Deferred income taxes, net — 0.2 Other
liabilities 22.7 7.9 Total liabilities 1,346.5
1,522.6 Stockholders’ equity: Preferred stock, $.01 par
value. Authorized 50,000,000 shares; no shares issued — —
Series A common stock, $.01 par value.
Authorized 2,000,000,000 shares; issued and outstanding
91,468,763 and 91,874,138 shares at December 31, 2015 and December
31, 2014, respectively
0.9 0.9
Series B common stock, $.01 par value.
Authorized 75,000,000 shares; issued and outstanding
9,861,294 and 9,872,524 shares at December 31, 2015 and December
31, 2014, respectively
0.1 0.1 Additional paid-in capital — 24.0 Accumulated other
comprehensive loss, net of taxes (1.5 ) (2.3 ) Retained earnings
218.2 25.8 Total stockholders’ equity 217.7 48.5
Noncontrolling interests in subsidiaries — (8.7 ) Total
equity 217.7 39.8 Commitments and contingencies
Total liabilities and equity $ 1,564.2 $
1,562.4
StarzConsolidated Statements of
Operations(Amounts in millions, except per share
amounts)
2015 2014 2013 Revenue: Programming
networks and other services $ 1,536.7 $ 1,467.5 $ 1,481.0 Home
video net sales 163.4 196.4 296.5 Total
revenue 1,700.1 1,663.9 1,777.5 Costs and expenses:
Programming (including amortization) 655.7 600.6 633.9 Production
and acquisition (including amortization) 207.1 178.7 268.6 Home
video cost of sales 43.6 60.0 71.1 Operating 49.3 54.3 54.9
Selling, general and administrative 315.7 299.2 306.4 Depreciation
and amortization 19.0 19.4 17.4 Total costs
and expenses 1,290.4 1,212.2 1,352.3
Operating income 409.7 451.7 425.2 Other income (expense):
Interest expense, net of amounts capitalized (46.0 ) (46.5 ) (45.0
) Other income (expense), net (15.7 ) 4.6 9.0 Income
before income taxes 348.0 409.8 389.2 Income tax expense
(111.5 ) (140.8 ) (139.4 ) Net income 236.5 269.0 249.8
Net loss (income) attributable to noncontrolling interests
(0.4 ) 2.3 (2.5 ) Net income attributable to
stockholders $ 236.1 $ 271.3 $ 247.3
Basic net income per common share $ 2.33 $ 2.57 $
2.13 Diluted net income per common share $ 2.22 $
2.43 $ 2.04 Weighted average number of common shares
outstanding Basic 101.2 105.5 115.9 Diluted
106.3 111.5 121.1
StarzConsolidated Statements of
Cash Flows(Amounts in millions)
2015 2014 2013 Operating activities: Net
income $ 236.5 $ 269.0 $ 249.8
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 19.0 19.4 17.4 Amortization of
program rights 607.2 555.7 581.1 Program rights payments (408.4 )
(389.1 ) (399.9 ) Amortization of investment in films and
television programs 155.1 130.0 212.4 Investment in films and
television programs (349.1 ) (389.5 ) (302.5 ) Stock compensation
32.9 30.6 34.3 Deferred income taxes (12.6 ) 19.3 8.4 Other
non-operating and non-cash items 14.2 10.4 5.7 Changes in assets
and liabilities: Current and other assets (56.5 ) (29.0 ) (61.1 )
Due to affiliates — — (39.5 ) Payables and other liabilities 12.5
(20.3 ) 6.7 Net cash provided by operating activities
250.6 206.5 312.8 Investing activities:
Purchases of property and equipment (17.2 ) (11.2 ) (14.8 )
Investment in and advances to equity investee (6.3 ) (19.1 ) — Cash
received from equity investee — 10.7 — Net
cash used in investing activities (23.5 ) (19.6 ) (14.8 )
Financing activities: Borrowings of debt 840.0 515.5 1,197.0
Payments of debt (969.2 ) (394.9 ) (721.6 ) Debt issuance costs
(5.0 ) — (2.4 ) Repurchases of common stock (104.1 ) (328.3 )
(289.9 ) Exercise of stock options 16.0 9.6 — Minimum withholding
of taxes related to stock compensation (20.4 ) (14.5 ) (9.8 )
Excess tax benefit from stock compensation 19.9 13.4 4.7
Acquisition of noncontrolling interest (7.0 ) — — Distributions to
Old LMC — — (1,200.0 ) Net cash used in financing
activities (229.8 ) (199.2 ) (1,022.0 ) Effect of exchange rate
changes on cash and cash equivalents — — (0.1 ) Net
decrease in cash and cash equivalents (2.7 ) (12.3 ) (724.1 ) Cash
and cash equivalents: Beginning of year 13.4 25.7
749.8 End of year $ 10.7 $ 13.4 $ 25.7
IMPORTANT NOTICE
- Starz (NASDAQ: STRZA, STRZB) CEO Chris
Albrecht and CFO Scott Macdonald, will discuss Starz’s financial
performance, and may discuss future opportunities in a conference
call which will begin at 5:00 p.m. (ET) on February 25, 2016.
Participants in the United States/Canada may join the event by
calling ReadyTalk at (877) 395-6218 and other international
participants may dial (281) 973-6124 with the passcode 28202882 at
least 10 minutes prior to the call. Replays of the conference call
can be accessed through March 25, 2016 at 8:00 PM ET, by dialing
(855) 859-2056 or (404) 537-3406 plus the passcode 28202882. The
call will also be broadcast live via the Internet and archived on
our website. To access the webcast go to
http://ir.starz.com/events.cfm. Links to this press release will
also be available on the Starz website.
- This press release includes certain
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements
about business strategies, market potential, future financial
prospects, new service and product launches including anticipated
episodes of our original content programming, new distribution
platforms for our programming, international distribution
opportunities, the continuation of our stock repurchase plans,
expectations regarding 2016 programming expense, and other matters
that are not historical facts. These forward-looking statements
involve many risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by
such statements, including, without limitation, market acceptance
of new products or services, the timely launch of our original
programming, ongoing relationships with our distributors,
competitive issues, regulatory matters affecting our businesses,
continued access to capital on terms acceptable to Starz, changes
in law, market conditions conducive to stock repurchases and the
ability to enter into transactions for international expansion.
These forward-looking statements speak only as of the date of this
press release, and Starz expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any
forward-looking statement contained herein to reflect any change in
Starz’s expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
Please refer to the publicly filed documents of Starz, including
the most recent Form 10-K for additional information about Starz
and about the risks and uncertainties related to Starz’s business
which may affect the statements made in this press release.
About Starz
Starz (NASDAQ: STRZA, STRZB) is a leading integrated global
media and entertainment company with operating units that provide
premium subscription video programming on domestic U.S. pay
television channels (Starz Networks) and global content
distribution (Starz Distribution), www.starz.com.
Starz Networks is a leading provider of premium subscription
video programming through the flagship STARZ® and ENCORE® pay TV
networks which showcase premium original programming and movies to
U.S. multichannel video distributors, including cable operators,
satellite television providers, and telecommunications companies.
As of December 31, 2015, STARZ and ENCORE serve a combined 55.8
million subscribers, including 23.6 million at STARZ, and 32.2
million at ENCORE, making them the largest pair of premium flagship
channels in the U.S. STARZ® and ENCORE®, along with Starz Networks’
third network MOVIEPLEX®, air more than 1,000 movies monthly across
17 linear networks, complemented by On Demand and authenticated
online offerings through STARZ PLAY, ENCORE PLAY, and MOVIEPLEX
PLAY. Starz Distribution develops, produces and acquires
entertainment content, distributing it to consumers globally on
DVD, digital formats and traditional television. Starz
Distribution’s home video, digital media and worldwide distribution
business units distribute original programming content produced by
Starz, as well as entertainment content for itself and third
parties.
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StarzCourtnee Chun, 720-875-5420Investor
Relationscourtnee.chun@starz.comorTheano Apostolou,
424-204-4052Corporate Communicationstheano@starz.com
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