Starz Reports First Quarter 2013 Financial Results

ENGLEWOOD, Colo., May 9, 2013 /PRNewswire/ -- Starz (NASDAQ: STRZA, STRZB) today reported first quarter 2013 results.  Highlights include (1):

  • Increased STARZ subscriptions by 7% and ENCORE subscriptions by 4% to 21.6 million and 35.1 million respectively
    • 56.7 million combined subscriptions; leads U.S. premium television category
  • Premiered "Da Vinci's Demons" to record original programming opening weekend viewership; renewed for second season
  • Concluded "Spartacus" series to season high viewership; global hit series averaged approximately 6 million viewers per episode in the United States
  • Greenlit New STARZ Original series "Fortitude" in co-production partnership with BSkyB's Sky Atlantic for air in 2014
  • Launched Android and new device support with new app store access for STARZ/ENCORE/MOVIEPLEX PLAY services with Barnes & Noble and Google
  • Secured home video distribution agreement at Anchor Bay with AMC Networks for original programming from AMC, IFC and Sundance Channel

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Chris Albrecht, Starz Chief Executive Officer said, "Starz delivered solid operational performance in the first quarter with record subscriber totals at STARZ and ENCORE.  We continue to execute our strategy to grow the STARZ Original series programming portfolio with quality dramatic series.  Coupled with the conclusion of "Spartacus" which aired on the same night, Starz had the biggest weekend viewing for an original series in the company's history and we are happy to have renewed 'Da Vinci's Demons' for a second season.  In addition, anticipation is building for 'Magic City,' 'The White Queen,' 'Black Sails,' and the recently greenlit 'Fortitude' which we will co-produce with BSkyB's Sky Atlantic.  We are confident that over time our approach to original programming will deliver strong shareholder value."

"Our TV Everywhere efforts continued to accelerate, with this week's launch of new device support for PLAY on Android and other new platforms.  This is an important part of cementing our relationship with viewers, adding value for our distribution partners and growing our business in the near and long-term."

Revenue decreased 1% to $399 million for the first quarter primarily attributable to Starz Networks as a result of the non-renewal of the Netflix agreement and the renewal of affiliation agreements with two distributors in the fourth quarter of 2012 on less favorable financial terms than the prior affiliation agreements (such agreements provide for annual contractual increases).  Starz Animation also contributed to the decrease in revenue due to fewer projects in production at the company's Film Roman studio. These decreases in revenue were partially offset by an increase in revenue for Starz Distribution driven by the strong performance of the company's original series "Spartacus" and various titles from The Weinstein Company LLC ("TWC") and a decrease in inter-segment eliminations.

Adjusted OIBDA (2) decreased 8% to $117 million for the first quarter.  In addition to the decrease in revenue mentioned above, Adjusted OIBDA was impacted by higher sales of lower margin titles by Starz Distribution and a decrease in inter-segment eliminations as a result of fewer exhibitions of Overture Films' titles on Starz Networks. 

Operating income decreased 13% to $105 million for the first quarter.  The decrease was due to the decrease in Adjusted OIBDA discussed above combined with an increase in stock compensation expense.

Cash paid for investments in films and television programs decreased 7% to $58 million for the first quarter.  The decrease was primarily due to timing of payments for certain TWC titles partially offset by increased investment in original programming.  The company plans to make additional investments in original programming in the future.

Share Repurchases

From February 1, 2013 through April 30, 2013, 940,400 shares of Series A common stock (NASDAQ: STRZA) were purchased at an average cost per share of $21.51 for total cash consideration of $20.2 million.  Starz has approximately $378.7 million remaining under its current repurchase authorization. 

FOOTNOTES



(1)

Starz CEO, Christopher Albrecht, will discuss these highlights and other matters during the Starz earnings conference call which will begin at 12:00 p.m. (ET) on May 9, 2013.  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 reconciliation see Non-GAAP Financial Measures and Schedule 1 below.

NOTES

  • Unless otherwise noted, the foregoing discussion compares financial information for the three months ended March 31, 2013 to the same period in 2012.
  • In January 2013, Starz (formerly known as Liberty Media Corporation ("Old LMC")) completed the spin off (the "LMC Spin-Off") of its wholly-owned subsidiary Liberty Media Corporation (formerly known as Liberty Spinco, Inc. ("Liberty Media")) in a tax-free manner through the distribution, by means of a dividend, of shares of Liberty Media's common stock to holders of Old LMC common stock.  In this distribution, each holder of a share of Old LMC common stock received one share of the corresponding series of Liberty Media common stock.  Following the LMC Spin-Off, Starz retained the businesses of its wholly-owned subsidiary, Starz, LLC, and all other businesses, assets and liabilities of Old LMC are included in Liberty Media.  Unless the context otherwise requires, Old LMC is used when events or circumstances being described occurred prior to the LMC Spin-Off and Starz is used when events or circumstances being described occurred following the LMC Spin-Off.
  • In accordance with GAAP, Liberty Media was determined to be the accounting successor to Old LMC for financial reporting purposes following the LMC Spin-Off due to the relative significance of Liberty Media to Starz (which is the legal spinnor) and the continued involvement of Old LMC's senior management with Liberty Media following the LMC Spin-Off.  Accordingly, the historical financial statements of Old LMC prior to the LMC Spin-Off will continue to be the historical financial statements of Liberty Media and Starz's historical financial information will be deemed to be the financial information of Starz, LLC.  The financial statements of Starz reflect Starz, LLC on a historical cost basis.  Starz, LLC is the only directly owned subsidiary of Starz which in turn owns either directly or indirectly various operating subsidiaries.  Starz is a holding company with no assets or liabilities of its own, other than offsetting tax receivables and payables, or operations other than those of Starz, LLC.  Accordingly, the financial position, results of operations, comprehensive income and cash flows of Starz and Starz, LLC are identical for periods prior to the LMC Spin-Off.
  • In connection with the LMC Spin-Off, Starz, LLC distributed $1.8 billion in cash to Old LMC which was funded by a combination of cash on hand and $550.0 million of borrowings under Starz, LLC's senior secured revolving credit facility.  The $1.8 billion was paid as follows: $100.0 million on July 9, 2012, $250.0 million on August 17, 2012, $50.0 million on September 4, 2012, $200.0 million on November 16, 2012 and $1.2 billion on January 10, 2013.  Such distributed cash was contributed to Liberty Media prior to the LMC Spin-Off. Additionally, in connection with the LMC Spin-Off, Starz, LLC distributed its Englewood, Colorado corporate office building and related building improvements to Old LMC (and Old LMC transferred such building and related improvements to Liberty Property Holdings, Inc. ("LPH"), a subsidiary of Liberty Media) and then leased back the use of such facilities from LPH. Following the LMC Spin-Off, Liberty Media and Starz operate independently, and neither have any stock ownership, beneficial or otherwise, in the other. 

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

Please see definition of Adjusted OIBDA below and a discussion of why management believes the presentation of Adjusted OIBDA provides useful information for investors.  Schedule 1 to this press release provides a reconciliation of Adjusted OIBDA to operating income for the same periods, as determined under generally accepted accounting principles ("GAAP").

QUARTERLY SUMMARY


(amounts in millions)

1Q12

2Q12

3Q12

4Q12

1Q13

Revenue

$  405.0

$  402.5

$ 401.0

$    422.2

$    399.3

Adjusted OIBDA

$  126.8

$  108.5

$ 108.1

$    101.4

$    116.5

Operating income

$  120.0

$  100.3

$ 99.5

$     85.6

$    104.9

Subscription units – STARZ

20.1

20.7

20.8

21.2

21.6

Subscription units – ENCORE

33.6

34.2

34.3

34.8

35.1

 

 

CASH AND DEBT

The following presentation is provided to separately identify cash and debt information.


(amounts in millions)

12/31/2012

3/31/2013

Cash

$          749.8

$             17.9




Debt:



Bank facility

$               5.0

$          235.0

5% senior notes

500.0

678.4

Transponder capital lease

34.8

33.8

Building capital lease

-

44.7

          Total debt

$          539.8

$          991.9




Starz cash decreased $732 million and debt increased $452 million primarily as a result of the cash distribution to Old LMC and the capital lease resulting from the distribution of Starz, LLC's corporate office building to Old LMC in connection with the LMC Spin-Off.

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. Our chief operating decision maker uses this measure of performance in conjunction with other measures to evaluate our operating segment's 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. 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 Schedule 1 below for applicable reconciliation.

SCHEDULE 1

The following table provides a reconciliation of Adjusted OIBDA for Starz to its operating income calculated in accordance with GAAP for the three months ended March 31, 2012, June 30, 2012, September 30, 2012, December 31, 2012 and March 31, 2013, respectively.

 

QUARTERLY SUMMARY


(amounts in millions)

1Q12

2Q12

3Q12

4Q12

1Q13

Adjusted OIBDA

$  126.8

$  108.5

$ 108.1

$  101.4

$  116.5

Stock compensation

(2.6)

(3.6)

(3.6)

(10.2)

(7.2)

Depreciation and amortization

(4.2)

(4.6)

(5.0)

(5.6)

(4.4)

Operating income

$  120.0

$  100.3

$ 99.5

$  85.6

$  104.9







 

 

 

Starz

Consolidated Balance Sheets

(Amounts in thousands, except share and per share amounts)

(Unaudited)



March 31, 2013


December 31, 2012

Assets


Current assets:




Cash and cash equivalents

$

17,874


$

749,774

Restricted cash

9,824


Trade accounts receivable, net of allowances of $30,198 and $35,045

258,208


241,415

Program rights, net

371,247


340,005

Deferred income taxes

4,846


990

Other current assets

48,134


44,727

Total current assets

710,133


1,376,911

Program rights

364,887


338,684

Investment in films and television programs, net

169,148


181,673

Property and equipment, net of accumulated depreciation of $96,421 and $110,882

92,363


96,280

Deferred income taxes

3,129


12,222

Goodwill

131,760


131,760

Other assets, net

40,881


38,520

Total assets

$

1,512,301


$

2,176,050





Liabilities and Equity




Current liabilities:




Current portion of debt

$

4,718


$

4,134

Trade accounts payable

4,546


6,162

Accrued liabilities

335,502


256,062

Due to affiliate


39,519

Deferred revenue

43,406


24,574

Total current liabilities

388,172


330,451

Debt

987,177


535,671

Other liabilities

7,664


7,784

Total liabilities

1,383,013


873,906

Stockholders' equity:




Preferred stock, $.01 par value.  Authorized 50,000,000 shares; no shares issued


Series A Liberty Capital common stock, $.01 par value.  Authorized 2,000,000,000 shares; issued and outstanding 111,903,059 and 111,722,828 shares at March 31, 2013 and the LMC Spin-Off, respectively

1,119


Series B Liberty Capital common stock, $.01 par value.  Authorized 75,000,000 shares; issued and outstanding 9,882,238 shares at March 31, 2013 and the LMC Spin-Off

99


Additional paid-in capital

576,873


Accumulated other comprehensive loss, net of taxes

(4,397)


Accumulated deficit

(434,977)


Member's interest


1,311,951

Total stockholders' equity

138,717


1,311,951

Noncontrolling interests in subsidiaries

(9,429)


(9,807)

Total equity

129,288


1,302,144

Commitments and contingencies




Total liabilities and equity

$

1,512,301


$

2,176,050

 

 

 

Starz

Consolidated Statements of Operations

(Amounts in thousands, except per share amounts)

(Unaudited)



Three Months Ended March 31,


2013


2012

Revenue:




Programming networks and other services

$

349,488


$

367,251

Home video net sales

49,829


37,713

Total revenue

399,317


404,964





Costs and expenses:




Programming costs (including amortization)

145,971


160,949

Production and acquisition costs (including amortization)

39,790


36,076

Home video cost of sales

15,121


10,560

Operating expenses

12,685


13,422

Selling, general and administrative

69,220


57,117

Stock compensation

7,254


2,582

Depreciation and amortization

4,416


4,255

Total costs and expenses

294,457


284,961





Operating income

104,860


120,003





Other income (expense):




Interest expense, net of amounts capitalized

(10,228)


(4,881)

Other income (expense), net

(1,485)


4,265

Income before income taxes

93,147


119,387





Income tax expense

(34,944)


(40,192)





Net  income

58,203


79,195





Net income attributable to noncontrolling interests

(338)


(1,413)





Net income attributable to stockholders

$

57,865


$

77,782





Basic net income per common share

$

0.48


$

0.65

Diluted net income per common share

$

0.47


$

0.65

Weighted average number of common shares outstanding:




Basic

119,924


119,996

Diluted

124,306


120,091





 

 

 

Starz

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)



Three Months Ended March 31,


2013


2012

Operating activities:




Net income

$

58,203


$

79,195

Adjustments to reconcile net income to net cash provided by (used in) operating activities:




Depreciation and amortization

4,416


4,255

Amortization of program rights

135,506


150,347

Program rights payments

(109,225)


(153,109)

Amortization of investment in films and television programs

27,399


29,132

Investment in films and television programs

(58,010)


(62,638)

Stock compensation

7,254


2,582

Payments of long term incentive plan

(2,360)


(27,478)

Deferred income taxes

17,868


9,561

Other non-cash items

(2,555)


(10,273)

Changes in assets and liabilities:




Current and other assets

(27,804)


438

Due to affiliate

(39,519)


(23,941)

Payables and other liabilities

55,580


(21,777)

Net cash provided by (used in) operating activities

66,753


(23,706)





Investing activities – purchases of property and equipment

(663)


(506)





Financing activities:




Borrowings of debt

923,500


Payments of debt

(516,121)


(1,011)

Debt issuance costs

(2,139)


(381)

Distributions to Old LMC

(1,200,000)


Repurchases of common stock

(2,868)


Minimum withholding of taxes related to stock compensation

(747)


Excess tax benefit from stock compensation

419


Settlement of derivative instruments


3

Net cash used in financing activities

(797,956)


(1,389)





Effect of exchange rate changes on cash and cash equivalents

(34)


89





Net decrease in cash and cash equivalents

(731,900)


(25,512)

Cash and cash equivalents:




Beginning of period

749,774


1,099,887

End of period

$

17,874


$

1,074,375

IMPORTANT NOTICE

  • Starz (NASDAQ: STRZA, STRZB) CEO, Chris Albrecht will discuss Starz's financial performance, and may discuss future opportunities in a conference call which will begin at 12:00 p.m. (ET) on May 9, 2013.  The call can be accessed by dialing (888) 389-5987 or (719) 325-2168 at least 10 minutes prior to the start time.  Replays of the conference call can be accessed through 6:00 p.m. (ET) on May 16, 2013, by dialing (888) 203-1112 or (719) 457-0820 plus the pass code 5933244#.  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 original content programming, new distribution platforms for our programming, the continuation of our stock repurchase plans 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, possible changes in market acceptance of new products or services, competitive issues, regulatory matters affecting our businesses, continued access to capital on terms acceptable to Starz and changes in law and market conditions conducive to stock repurchases. 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 Forms 10-K and 10-Q, 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), global content distribution (Starz Distribution) and animated television and movie production (Starz Animation), 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 March 31, 2013, STARZ and ENCORE serve a combined 56.7 million subscribers, including 21.6 million at STARZ, and 35.1 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 over 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.  Starz Animation produces animated TV and movie content for studios, networks, distributors and audiences worldwide.

 


Contacts:




Courtnee Ulrich  

Theano Apostolou

Investor Relations

 Corporate Communications

(720) 875-5420    

(424) 204-4052

courtnee.ulrich@starz.com 

theano@starz.com

 

SOURCE Starz



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