Lionsgate Studios Aktie

Good afternoon, and welcome to the Lionsgate Studios Fourth Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Nilay Shah, Head of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for the Lionsgate Studios Corporation's Fiscal 2026 Fourth Quarter Conference Call. We'll begin with opening remarks from our CEO, Jon Feltheimer; followed by remarks from our CFO, Jimmy Barge. After their remarks, we'll open the call for questions.

Also joining us on the call today are Vice Chairman, Michael Burns; COO, Brian Goldsmith; Chairman of the TV Group, Kevin Beggs; Chairman of the Motion Picture Group, Adam Fogelson; Chief Revenue Officer, Jim Packer; and Senior Adviser to the Office of the CEO at Lionsgate and Co-CEO of 3 Arts, Brian Weinstein.

The matters discussed on the call also include forward-looking statements, including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in our public filings for Lionsgate Studios Corp. 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.

I'll now turn the call over to Jon.

Thank you, Nilay, and good afternoon, everyone. We just reported a quarter that is indicative of our earnings power, paving the way for outsized growth in fiscal '27 and '28. Since this is our fiscal year-end call, I'm going to take you through some of the highlights during the year.

Last May, we completed the separation of Lionsgate and Starz into 2 stand-alone public companies, collapsing our dual share structure into a single class of stock. The market's response confirms that a focused content-driven Lionsgate is the right structure for unlocking value. We've put together one of the strongest content pipelines we've ever had. Over the next 2 to 3 years, over half of our Film, Television and Live Entertainment slates will be comprised of branded, repeatable intellectual properties that we own or control.

We secured renewals for 12 of our 13 scripted series, setting the stage for our Television slate to nearly double the number of episodic deliveries from fiscal '26 to fiscal '27. We reported our third consecutive quarter of $1 billion trailing 12-month library revenue, creating valuable consistency in a constantly changing operating environment. We leaned into AI with a strategy designed to make technology a valuable part of the creative process and a driver of quality and efficiency across every part of our business, and we ended fiscal '26 and started fiscal '27 with 2 massively successful movies, The Housemaid and [ Michael ], reasserting our brand and demonstrating our ability to compete effectively at every level of box office.

The Housemaid reinforces our unique model and entrepreneurial approach a provocative movie, an unconventional release strategy, a risk-mitigated financial structure with significant upside and one of the highest box office to ancillary market conversion rates in the industry. We're excited to begin production later this year on The Housemaid Secret based on the best-selling second book in the Trilogy for December 17, 2027 release.

During the quarter, we took a number of other steps to keep this momentum growing, kicking off the marketing campaign for the next installment of our Hunger Games franchise, wrapping production on a new interpretation of Rambo with rising star, Noah Centineo, wrapping production on [ Mel Gibson's ] resurrection of the Christ Parts 1 and 2, greenlighting the reimagining of Blair Witch in partnership with Blumhouse and James Wan's Atomic Monster and signing a claimed Spider-Man director, [ Sam Ramy ], to direct a remake of the classic horror thriller Magic.

After the quarter, we opened Michael. The scenes of moviegoers dressing up, bringing their families over and over and dancing in the aisles are a testament to what entertainment at its very best can do. With Japan still to open, Michael is on track to become our first movie grossing over $1 billion at the worldwide box office. And we believe there is a lot more story to tell and a lot more music to share.

Turning to Television. The mantra remains the same, lean into the creative strengths that enabled us to secure renewals of scripted TV series with 12 different buyers. Keep cost down and maintain our flexibility to make shows at every price point for every buyer and across a balanced mix of retained rights and cost-plus models. The Rookie, our long-running procedural at ABC and Hulu showed no signs of slowing down in the quarter, coming off a Season 8 finale that set a new streaming viewership record for the series and benefiting from an influx of younger audiences, the show was renewed for its ninth season, and we're excited to extend the brand with the ABC pickup of The Rookie North with potential breakout star, [ Ellis ].

No discussion of our television business would be complete with add a few words about the hit comedy, The Studio on Apple TV. The series just took the international category at the [ Bafta ] awards to complete one of the most dominant award runs in modern television history by winning the top prizes at the Emmys, Golden Globes, The Actor Awards and the [ PGA, DGA and WGA ] awards. We're so proud of [ Seth Rogen, Evan Goldberg ], the amazing cast and riders, together with our partners at Apple TV for everything they have and are continuing to accomplish.

In closing, our success in the quarter is about more than one hit movie, we're beginning to see signs that our operating environment is improving. People are returning to theaters, IMAX, Dolby, XD and other premium large format screens are transforming the moviegoing experience. Great storytelling is emerging in new and unexpected places across traditional and digital media alike, and Gen Z audiences are enabling shows like The Rookie to break out with renewed vitality as we're again seeing the resilience of our business in the largest entertainment market in the world.

In this improving environment, the fact that our content pipelines are strong, our library is robust. Our brand stands out and our franchises are adding value from new markets and new audiences should give everyone confidence in a strong year ahead. In the coming weeks, we'll post several slides on our investor site that illustrate the core tenets of our business that I've touched on throughout my remarks, the proportion of repeatable branded properties on our film and television slates, the strength and consistent performance of our library and the uniqueness of our business models. I encourage you to take a look because we'll be returning to these themes often on future calls.

Now I'll turn things over to Jimmy.

Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our fiscal fourth quarter 2026 Studio financial results and provide an update on the balance sheet.

Beginning with the quarter, Lionsgate Studios revenue was expectedly down year-over-year to $907 million, while adjusted OIBDA reached a 12-year high of $165 million and was up 17% year-over-year. Operating income of $118 million was up over 50% compared to last year. Reported diluted earnings per share was $0.23 per share and diluted adjusted earnings per share were $0.37 per share. Free cash flow for the quarter was a strong positive $190 million, reflecting improved operating performance in the period as cash returns on our content investments in library were on full display. Trailing 12 months' library revenue remained above $1 billion for yet another quarter growing 5% year-over-year and continuing to demonstrate the durability and growing value of our content portfolio.

Now breaking down the performance in the quarter, I'll start with the discussion of our Studio segment profit. Studio segment profit, which reflects our Motion Picture and Television segment profits before corporate overhead expense increased 24% year-over-year to $218 million. We began highlighting our Studio segment profit last quarter because this metric is generally more comparable to the Studio adjusted OIBDA figures reported by many of our peers. The increase in Studio segment profit was driven primarily by strong Motion Picture performance.

Moving to Motion Picture. Revenue increased 23% year-over-year to $652 million, while segment profit grew 39% to $187 million. The quarter was driven primarily by the outstanding performance of The Housemaid and continued carryover from Now You See Me: Now You Don't. Particularly noteworthy was The Housemaid strong carryover into the home entertainment window where it became the industry's highest gross and [ PVOD ] title among films with up to $150 million of domestic box office. Additionally, Motion Pictures results were particularly impressive given we leaned in heavily near the end of the quarter with incremental pre-released P&A spend for Michael as well as early P&A spend for Hunger Games Sunrise on Reaping and John Rambo.

Turning to Television. Revenue was $255 million, and segment profit was $31 million. Television's year-over-year comparisons continue to reflect the timing of episodic deliveries and lower volume of scripted deliveries versus the prior year. Television segment profit remained resilient benefiting from continued strength in library performance, including The Rookie and Mad Men. Importantly, we remain confident in TV's growth in fiscal 2027 as we expect to double the number of episodic scripted deliveries versus fiscal 2026.

Now turning to the balance sheet. This quarter marks a post-spin inflection point for strengthening our balance sheet as trailing 12-month adjusted OIBDA and free cash flow benefit from fully replenished pipelines in Motion Picture and Television. We ended the fiscal year with net debt of approximately $1.6 billion, an improvement of nearly $150 million relative to the prior quarter, driven by strong free cash flow. Year-end leverage improved well over a full turn to 6.1x, reflecting both higher trailing 12 months adjusted OIBDA and strength in free cash flow. At quarter end, we had approximately $800 million of unused capacity on our revolver available and $341 million of unrestricted cash on the balance sheet.

Now let's discuss how the business is positioned going forward. Our first year as a stand-alone company was a transition year, and we have all the pieces in place in our fiscal 2027 with a lot of momentum. In particular, we entered the year with strong carryover contribution from our fiscal 2026 theatrical slate. In addition to starting the year with the exceptional performance of Michael, we have a highly anticipated Motion Picture release schedule and a large increase in scripted episodic deliveries within television. We now have enhanced visibility and continue to expect significant adjusted OIBDA growth in fiscal 2027. Additionally, this adjusted OIBDA improvement is expected to result in substantial growth in free cash flow and a continuation of significant deleveraging over the course of the year.

Now I'd like to turn the call over to Nilay Shah for Q&A.

Thanks, Jimmy. Operator, can we open the line up for Q&A?

[Operator Instructions] The first question today comes from Vikram Kesavabhotla with Baird.

My first one is a higher-level question on the injury and you referenced this a little bit in your prepared remarks, but it seems like the back office has been in a really good place over the past few months. And I'm curious on your perspective on the drivers behind those trends. And in particular, I'm curious if you think we're seeing a sustainable improvement in consumer demand at the box office or if you think it's too early to make that characterization. And I realize it's a tough question to unpack with a lot of precision, but it would be great to hear your perspective on the trends that you're observing out there.

And then separate from that, Jimmy, I'm curious if you could just talk more about what the cadence of fiscal '27 is going to look like from a profit perspective. It seems like there's some moving pieces to consider relative to fiscal '26. You called out a few of those in the remarks. It would be great if you could just talk more about some of the puts and takes we should be taking into consideration.

Thanks, Vikram. I'll start, and I think I'll turn it over to Adam to say just one thing I think is sort of an interesting statistic right now that the YouTube growth is actually being driven by a 55-plus and that actually the growth in the exhibition business -- the moviegoing business is actually being driven by Gen Z, who are up to about a 30%, 34%, I think, share of that market. And so that's obviously -- that's the group that we want to engage with right now. we're finding different ways to reach them. But overall, that's very exciting.

That coupled with, obviously, the large screen formats that I talked about before. They're actually making the moviegoing experience really like the live what's going on in live right now. It's just much more of an event especially if you've got an event movie. Adam, I don't know if you want to add to that.

Yes. Thanks, Jon. I would just say that I think the studios have done a tremendous job over the last couple of years of understanding and recognizing what type of experience moviegoers of all ages want to have in a movie theater and how to reach moviegoers with marketing campaigns in a world where there is so much more fragmentation than there was once upon a time. So I think you are seeing lessons learned by studios across the board. And I think there is much more content on the release schedule over the course of the next year and beyond that I think is going to continue to drive that type of attendance. It's really exciting to see, and I'm listening to it in my own house. Young people are talking about movies and going to the movie theaters as an incredibly fun way to spend time with their friends. And no question, the exit polls reflects what Jon said, which is that group is driving real outsized opportunity alongside groups that have gone in the past. So I'm encouraged by what's coming.

Yes. And thanks, Vikram. For sure, we've got great visibility and confidence as we look at significant growth rolling into '27 from a cadence standpoint, I would say that it's not as back-end loaded as it was in the prior year, so not as back-end loaded as fiscal '26. TV is a little bit more back-end loaded this year than Motion Picture. And to give you some color, part of that visibility, right, is we're doubling episodic deliveries going into fiscal '27. We -- you saw we had 12 or 13 returning series renewed so of that, about 90% of those episodes are going to fall over Q2, 3 and 4. That's just normal delivery cycles. So that's why TV would be a little bit more back-end loaded in that context.

The next question is from David Joyce with Seaport Research Partners.

A couple of questions. First, it was a great exit to 2026, great start to '27. But could you put a little finer point on the possible range of outcomes for the next year? Really, what does strong growth and significant growth mean given that you are also laying the groundwork on non sequels and some other films coming up? And then I have a follow-up, please.

Well, for sure. Thanks, David. Appreciate it. Yes, I mean, we clearly do have greater visibility into fiscal '27 as you would expect, as we're a bit closer, but it's still early in the year. I mean, we got to remind you, right? There's timing and release schedules, both on our film slate, ultimately episodic deliveries, even the cadence of P&A spend, right? So we're not going to put a range on that for you. But we've got great carryover coming out of the '26 late. You know that. I mean Housemaid's written all over that. Obviously, a great year -- a great start to the year in terms of theatrical slate with Michael, but also great things to come as well as Hunger Games and beyond. So -- and the TV episodic deliveries, I've already kind of provided some color there.

I'd also point you -- I mean, I think it helps with the confidence and maybe it doesn't help you with the range. But the backlog, which is a contractual future revenues and cash flows is $1.3 billion. So that likewise gives us a lot of confidence. And probably 90% of that backlog will come within the next 24 months. So it's not only strong carryover in '27, but also fiscal '28 is also nicely set up as well. So thank you.

I appreciate that there's a lot of moving pieces and timing is still to come. Could you talk about some of the other TV titles besides rookies and the spin-off and The Studio. What are some others that you're excited about? And then finally, could you provide a perspective on what the impact might be from the Paramount [ Skydance ] and Warner Bros. discovery combination on your library business?

Kevin, why don't you start?

Sure. This is Kevin Beggs speaking. In addition to The Rookie going into Season 9, which is really quite an accomplishment and as Jon alluded to in his remarks, getting younger every year in demographics, which is just simply unheard of in broadcast television. The Rookie North spin-off is a great complement and expansion of that franchise. The Studio obviously, we're in Season 2, Hunting Wives has been a breakout success for us on Netflix. We just wrapped shooting Season 2, we're in the middle of shooting The Rainmaker Season 2 for USA Network, a huge international driver for our business, about to start shooting Robinhood Season 2 and we continue to be deeply emerge the power versus the power franchise that we share with Starz, force wrapped up in early January. That particular show Season 5 of [ Camden ] is coming in June. And we're in the first season of production on Origins which is essentially a take on a young tower and hopefully, more powder in that pipeline.

Speaking for about the Sky [ Skydance ] Paramount, Warner potential combination. We're really excited about what [ Skydance ] and Paramount have done before that relative to opening up their platforms to outside studio suppliers like ourselves, both in originals and my area and Jim Packer's distribution side. I think our thesis is that a strong unified streaming player, whether they differentiate that to 2 brands or just 1 is better than maybe 2 weaker ones in terms of firepower and ability to buy from the outside market. And we know we need to compete with the best creative product that we can and come up with better financial models, but knowing there is a receptor buyer, of course, makes that virtuous circle really work for us.

But Jim may want to talk about distribution.

Yes, David, I would say telling you about Paramount, Warner Brothers both of those platforms are really going to be wanting to be strong and compete internationally. HBO has just opened up a couple of new territories in the last 24 months. The one thing I've seen when all these types of mergers or consolidations go on is nobody stops competing. They just compete, and we have the kind of content that really fits competition well. Going back, I know Kevin talked a lot about the original shows. But if you just look at our library, I'll give you one quick stat that gives you a sense of the strength of our TV library.

In fiscal '22, we only had 4 series that were sold to the big 6 streamers. And if you look at fiscal '26, we had 17 series. But the most important part of that 10 of those 17 ranked in the top 10 of those various top 6 streaming platforms, things like [ Nurse Shake, Hightown ], Madman, as you saw, went to #1 or 2 on HBO and [ Spartacus ]. So the library itself from a TV perspective continues to perform in a way. I think many, many clients are going to want.

Next question is from Omar Mejias with Wells Fargo.

Thanks for the questions. Jimmy, can you remind us what's the path to deleveraging here? Is 3 Arts still a part of that daleveraging story? Or are you now focused on organic deleveraging?

And then my second question, Adam, following the sale performance of Michael, could you give us an update on Michael 2? And if you believe part 2 carries a similar strong commercial appeal as part 1 given the [indiscernible] of the story.

Omar, it's Adam. I'll go first and then I'll turn it over to Jimmy. We are really excited about the progress we're making with respect to a second Michael film, all the conversations that we've been having with all of the appropriate parties continue to go exceptionally well. And I would say that there is a ton of incredibly entertaining Michael Jackson's story and much of the biggest and most popular parts of his music catalog that were not touched upon in the first film.

And also, I would just say we can go forward and backwards in telling the story, there are so many other events that happened even in the time frame of the original movie that weren't touched upon. So we're very, very confident that we've got an incredibly entertaining movie that will appeal once again to a global audience as the pieces come together.

And Omar, we're just naturally delevering. I mean, with the visibility that we have in the context of EBITDA growth, significant growth in likewise, strong positive free cash flow momentum just coming through our operations. So 3 Arts really isn't either here or there with regards to the delevering. I'm looking at 4x, 4.5x leverage off of 6.1% this period, which was, as you saw, down just a little over a full turn from the prior quarter, okay? All of that is natural. When we get into the fourth quarter of our fiscal '27. As you know, there's a 3 Arts put there. We could easily absorb that. That would be about a half a turn, Otherwise, if it's the right thing to do for 3 Arts and we'll do whatever we need to do is great for shareholder value in the business. But as far as deleveraging, we're deleveraging naturally.

Yes. And just -- it's Brian Weinstein, just jumping in. Look, we're -- it's an interesting time in our category. There's a ton of momentum in the entire space. There's a lot of investor focus and if you take a step back and you look at [ cells ] transaction with Goldman Sachs and the team's process formally [indiscernible] and there's just quite a bit of enthusiasm in the space for us in spite of some downward pressure on scripted and unscripted. We have real momentum in our core business and look, our decision to diversify has proved to be the right one.

Just to give you some specifics on the production side. We've got renewals with [ Running Point ] on Netflix and [ Wilfred ] and Nobody Wants This, and Hunting Wives and the [indiscernible]. So it feels good for our business, the long-term deals that SAG and the WGA struck are a real positive sign going forward. In our diversification strategy, we got ahead of some of the, stuff we've signed clients in sports like [ Miles Garrett ] and [ Mooky Bets ] and [ Jansen ] and we feel real good about that. Obviously, the creator economy business is a big part of everyone's future, including ours. We're really proud we've got a client in [ King Parsons ], who's filmed the back room has come out soon, started on his own YouTube channel, made it into a major Motion Picture, it's just a sign of the sort of things to come as we move forward. So we're excited.

I would add the strategic conversations we've alluded to before, would probably involve some deleveraging, but they will, for sure, be driven by the strategy, not the delevering.

Next question is from Brent Penter with Raymond James.

First one for me on Michael. Is there any color you all can give in terms of EBITDA contribution from that movie? Or at least as we try and do our own math, how to think about the puts and takes versus another movie of a similar scale in terms of maybe a very strong international presale, but also factoring in the States portion?

Yes, we going to break out the absolute contribution on that, but obviously, it's strong. Keep in mind, we have Universal as a partner on the international side. And then, of course, we handle the presales in Japan, which, as Jon noted, is yet to open, but great demand and great things happening there, we think. And so we're just excited about this, and that's part of the momentum. Again, come into the year extremely strong, gives us enhanced visibility. We were always looking and striving for significant growth into fiscal '27 and I think the slate it out. And I think we're in a good position to not only drive '27, but also a great carryover into '28.

Okay. Great. And then just in broad terms without getting into numbers, how should we think about the [ SQL ] and puts and takes in terms of economics there. I think maybe there was some footage from the first one that's already even shot that you might be able to use. So how might that benefit you for the sequel?

Yes. As we've said -- it's Adam. As we said previously, looking at the story for the second movie is unfolding, we think we've got 25% to 30% of a second movie already shot from the prior production activity. And so obviously, that will have some benefit ultimately but we're going to make sure we make a big and satisfying movie for a global audience once again. So I wouldn't want to quantify exactly what that's going to look like. But undoubtedly, that 25% to 30% will be material.

Okay. Okay. Great. And then final question for me. The [ Poison Pill ] aspired on May 7. Can you all talk at all about what that enables for you? Or what conversations that has enabled now that the [ Poison Pill ] are longer in place?

It's not going to change our business materially. We have a the shareholders can always decide if they want to reap a Poison Pill, but we're going to leave it in their hands. And we think at the time that we did it, it was the right thing to do. And so as you mentioned, it will be expiring to the next shareholder...

The next question is from [ Sean Diffley ] with Morgan Stanley.

Two, if I may. The first is curious how you see AI changing Studio margins over time and different things that it could unlock for your business? And then the second follow-up to the Poison Pill question. Just as you think about the strategic landscape and obviously the [indiscernible], which has been underscored by Warner Bros. and other instances, how do you think about the stand-alone opportunity versus the potential benefits of being part of a bigger strategic organization?

Well, the landscape continues to be moving towards more scale. It's creating significant opportunities for a pure-play studio like ours. We love the core assets that we put together over the last 25 years, both built and acquired, and we're laser-focused on maximizing the shareholder value. We separated the business to create a stand-alone studio and collapse into a single share class, which has given us a great deal of maximum optionality, but also certainly increase our liquidity dramatically. And we feel like we have a world where scale and franchises as well as very well-known IP have never been more relevant.

From a Studio margins perspective, we feel good about that. I mean obviously, we had really strong margins in the fourth quarter, so you can't always look to something like the Housemaid, for example, which was a very modestly priced and even less expensive when you look at it relative to our New Jersey tax credits that were something special here. And I did $400 million global box office. So you can't look at that margin. But generally speaking, good margins going into next year, look at our fiscal '26 margins in total. Growing those in Motion Pictures we go into '27 TV right around the same level. I would think we've got a lot of renewals, but there are some soft more series that are building in terms of profitability and margin. I mean, certainly profitable, but margins building. So I think I feel really strong about '27 margins continuing to increase or hold certain levels in TV.

I just want to clarify one thing. We put the pill in a year ago, it has expired.

The next question is from Matthew Harrigan with Benchmark.

Congratulations. Firstly, I guess it came out a few hours ago that you're actually going to separate the resurrection of [ Ascension Day ] '26 and '27 versus having them so tightly clustered, which I always thought was kind of maybe not economically optimal. You get more cannibalization, you get more anticipation for the second film. Is there anything to comment on there other than the economics probably look better with better duration just out of curiosity?

Matthew, it's Adam. Thanks for the question. No, you hit the nail right on the head. Look, it was -- we claimed those 2 dates because those are the 2 most obvious states where a film like the Resurrection could conceivably go and we were able to protect both dates. Having just seen production ramp actually slightly ahead of schedule and slightly under budget. The scale of what Mel and the team have created is astonishing, and we couldn't be more comfortable that there are 2 stand-alone exquisite movies and with Ascension Day falling effectively at the beginning of the incredibly lucrative summer moviegoing corridor taking advantage of that in consecutive years as other films in multiple parts have done so well, just felt like the right decision.

So the reality is that initial dating was designed more than anything to protect the 2 [ puzzle ] dates we might want, and we're excited now that we've landed on this as our go-forward strategy.

And Matthew, with regards to just the economics on fiscal '27, right? As you move that out of the back end of '27, that's a slight improvement. But realize, we're also dropping day drinker rent on that date, and you're going to have P&A there. So it's actually relatively neutral, probably slightly down a bit, just those changes on the [indiscernible] relative to fiscal '27.

And then secondly, I know this is really conjectural, but you had the [ Cadence 20 ] sell-off among the Studio stocks in February and then we had some talk today on Hell grind that shown it can, which is supposedly produced for $500,000, which certainly doesn't look like a top studio film it looks a lot better than you expect for $500,000 from what I've seen. How do you feel about -- just on the -- obviously, you've got benefits on the time line for getting movies out faster and costs. But how do you feel about immersion competition maybe people outside even the traditional studio rather in, particularly on the streaming side?

Yes. Look, as you well know, through the history of our business, all the technical technological advances of unlocked value for media companies. This is going to be the same. I'm very bullish. We're very bullish that AI is a total net positive for us. We want more people to engage with content. We're across all of our digital footprints, YouTube, social channels, and then we'll be launching -- I'm very excited, but we're launching a new fan and creator site. We're engaging with the fans wherever they are. And these are digital tool kits that we're going to give them and that will empower them to interact with our content to extend our brands, to build new versions of our brands, we're excited about the use of AI across the board.

In our own company right now, we've deployed it over 80% of our of our workforce, whether it's Copilot, whether it's ChatGPT Enterprise, Snowflake, whatever. We're utilizing it across the board for productivity for advanced analytics. And so across the board, whether it's just the operations of our business in terms of sales or whether it's enhancing our preproduction, post production. AI is a total net positive for us. And again, we want to engage with our fans. We want to give them digital toolkits to create different versions, obviously, in a protected environment, obviously, with the authority and approvals of our talent. But we're really excited about it. Our early engagement with runway enabled us to take an early look at generative AI. And so big plus for us, a big value add looking forward to more and more deployment.

The next question is a follow-up from Vikram Kesavabhotla with Baird.

So let me ask a couple of more questions here. I just wanted to follow up on Michael, given that it was such a standout result for you. Now that you've had time to reflect on the feedback and the reactions, why do you think that this film performed as well as it did. And it seems like you did some unique approaches to marketing around that film that may have benefited the performance as well. I'd be curious if you could elaborate on some of the strategies that you use there that help drive the success.

Sure. I'm happy to try to offer some thoughts. Look, I think we said on multiple earnings calls prior to the release of the film that the fact that Michael is in arguably one of the most influential artists in human history and that so many of not only his songs but his dance, his impact on fashion, his impact on Motion Pictures, his impact across so many different areas, had a profound emotional effect on people all over the world. And so the idea that when people had a chance to, if they're old enough, relive many of those extraordinary moments and for younger people who we were not shocked but thrilled at how many young people are really, really engaged with his music and his life.

And [ Anton and Graham ] did an extraordinary job of capturing that with energy. And so we expected something big. We were planning for something big, and we said to everyone that it was the most watched trailer in the history of the studio. It wasn't just that fact. It was looking into the details of who was responding to it. And you're seeing the ancillary benefits because his music is at the top of the charts now as well.

In terms of marketing. It is definitely a different era than when I was running [indiscernible] 20 years ago, how you reach people has significantly changed. And I give an immense amount of credit to both our marketing and our distribution teams and in partnership with Universal. We really found ways to create stunts that we're not only exciting to the people who were seeing them in the moment but became viral and pass along on every platform in social media. And you just can't buy your way into awareness and enthusiasm anymore. You have to create the tools for fans to share with one another. And I think the teams here and around the world did that extraordinarily well.

Okay. That's helpful. And just last one for me. Curious if you could talk about or refreshes on your philosophy around balancing the mix of tentpole films versus mid-budget films over the next few years? And particularly, given the success you've had recently with the Housemaid and Michael, if any of that has affected your perspective on how you plan to manage the portfolio going forward?

Yes. No, it has not changed it. It's reinforced what I've been talked about, what Jon has been talking about and the conversations that we've been having. I mean, it's nice that when you mention a movie like The Housemaid and a movie like Michael, you are talking about 2 very different movies. One, lower end of mid-budget film, that while it had a passionate fan base from books [indiscernible] it was not a massive based from book sales. And Michael being a very large movie and both of them were extraordinarily profitable. The criteria we're using to decide what films to make remains unchanged.

Do we believe it can be creatively great, and I'm so thrilled every time we make another announcement about what filmmakers and what actors and actresses are coming on board, what producers were working with. Can it be creatively great? Is there a marketing strategy that allows us to do what I was just talking about that allows us to reach consumers where they are now and the way they want to be impacted. And then they're a rational business plan. Can you make enough money and reasonable success to justify the risks that go into every film?

And so we've definitely been working hard to make sure that our existing when we see an audience demanding more that we're giving them an exciting version of what they're demanding, but when Jon mentioned in his opening remarks, things like Blair Witch or another Hunger Games movie, those are very modestly priced filmed. When we're talking about a Hunger Games or we're talking about, Michael, those are larger films. And when any film is able to pass the threshold criteria that I laid out, it becomes a great candidate. And I think we'll have [ 2 to 410 holes ] and the rest of the films will fit into a variety of other cost categories.

Yes. I think I'd just add that we're tenfold implies just a huge a huge box office, a huge project. You could interchange tentpole and franchise and they just branded properties. And as I said in my remarks, we're going to be posting and we're going to keep doing that in the future. We're going to be posting at least one slide that just shows what our pipeline looks like going forward in terms of television, film and live entertainment. I think everyone is going to be really surprised to see how many branded properties we have. I think you'll be able to look at that and you will see that we have as many well-known branded properties as any studio in the business.

And so we'll be filling the pipeline those properties in the future. And obviously, whether it's a Housemaid that we paid for about [ 1/5 ] of the price of Michael, I mean you can call that now a tentpole, you can call it a franchise. But I think the key thing is take a look at that slide, I think you'll be excited to know how much visibility we have in terms of proved IP going forward.

This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks.

Hi, everyone. Please refer to the Press Releases and Events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thank you.

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All right. We'll get started here. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, I'm very happy to welcome back Jimmy Barge, CFO of Lionsgate Studios.

Thanks, Thomas. It's great to be back again.

Thank you so much. So I thought I'd just kick us off with a high-level question about the year in review. I think it's been coming up on a year now where Lionsgate separated its studio and Starz businesses. part of that rationale, I think you had suggested was to unlock greater strategic optionality as a pure-play studio. Can you maybe just give us an update on how that opportunity has evolved and what path you might be seeing the strategic optionality kind of take?

Well, sure. I think our timing is great. I mean it took a while, right? But you're right, we're coming up in May. It will be a year. And we accomplished what we wanted to accomplish. It's better strategically for both Starz as well as the studio. But the objective was to get back to a pure-play studio. And I think you're seeing what others in the industry had done kind of following suit. We started this really 3 years ago, ultimately to the separation. And you're seeing it play out nicely. And so our studio is well poised. We'll talk about it later, but we're at an inflection point for our business.

We're coming off of a great year creatively heading into fiscal '27 as a March 31 year-end company and really well positioned and to be an agnostic pure-play content company has major advantages, and we've seen that. So you're seeing us hit all strides in motion picture as well as in TV. Our library sales, we're setting continuous records. We got major record-setting backlog, which is future contractual revenues and cash flows. So very well positioned. And then we see what's happening in the world of consolidation -- and everybody wanting studios, we've got a scarce asset here already completely separated.

We collapsed the A and B shares, as you know, at the time of the spin. We announced on the last earnings that we're letting the poison pill expire in May. And I think we're just extremely well positioned with our business hitting on all cylinders. At the same time, we're a pure-play studio, which has got great scarcity value.

Great. On that industry consolidation point, I did want to ask your thoughts on the impact of potential consolidation on the industry as it relates to your I think it looks like this continued trend might be ultimate impact to the buyer pool of your content, but also, to some extent, also potentially an impact to the sellers and the number of sellers that are supplying third-party content. Can you maybe just level set for us the value that you bring as a third-party content arms dealer, as you've said in the past, and particularly just in a world of scaled vertically integrated studios where your value and your library really presents value?

Well, I think, again, it just underscores the scarcity value of library, and we can come back to that. But in terms of being an arms dealer or a seller to third parties, there's plenty of demand out there. We are literally one of the few that can really provide that content. Everybody needs content, content is king. And so I think in terms of us being able to sell, I think the combination of their libraries, quite frankly, is to our benefit. And I think there's been quite a bit of disruption during -- as you would expect, right, during mergers and acquisitions. So they've not been big buyers from us.

So I don't see that as being an issue. I think they'll there'll be opportunities there to sell to them, but I think the ability to really sell to everybody else and particularly during this maybe next year of kind of continuing integration, et cetera, I think we do quite well. And when we get to TV, we'll talk about it. We've already got a significant number of series renewed. So -- and in our library, we've got a new Pay [ one ] deal coming up, right, that's split between Starz and Amazon. So we're set well there. And we've got a great pipeline coming in TV. And so I sit there and you asked about the library value. I look at it. And what's critical is the franchise is we have over 20,000 titles in library. I mean John and Michael have been building this for 20-plus years, right, always retaining rights. And so it's such a scarce asset, and it's so unique in the industry that we have this.

And so I think what you've seen in the world of consolidation is that that's what everybody wants and the value of that. And if you just look at it and you look at Paramount's acquisition of Warner Bros. and you look at Netflix's bid and you kind of sort through, you see underlying multiples for the studio of 25-plus times. So mid-20s to high 20s multiples. And we've seen that before. We saw that when Amazon acquired MGM, okay? You saw it not too recently -- pretty recently for a minority interest where Apollo, very smart money, okay, took out Wanda for minority interest in Legendary, 25, 26 mid same level.

So for us, we see that as a huge opportunity for us, one, to continue to exploit our library and drive value for our company. But also we're very cognizant of those values and the ability to create outsized valuation for our shareholders in the world of consolidation. So I think the library just becomes more scarce than ever and our production capabilities on top of that to replenish our library. And we're coming off of 5 consecutive records of library and no expectation that, that would not continue.

So do you think the takeaway, I guess, in terms of the impact of potential M&A across your peer set is that there's potentially a little bit of disruption from a near-term perspective of pencils being down as they integrate, but the diverse set of buyers that you're still interacting with it's still a healthy backdrop to continue to be able to monetize the content that you have.

Yes, I'd say that. And I'd say that in terms of buying content, which is easier than producing, right, that we've had a little disruption during the entire process as buyers. So I think some of that will open up even though they've not -- those 2 studios haven't been big buyers of our product recently. But I think some of that will open up quicker. I think some of the disruption may be in the production and everything else in development along the lines. It takes time to integrate. But we're off and running, and we've had great development. We've just finished some really strong content creation cycles. And we're poised very well for fiscal '27 and quite frankly, say, the next 2 to 3 years.

Got you. Okay. Let's move on to the motion picture a little bit more in depth there. Coming off of the success of some of the more recent films, most notably the Housemaid. Can you just talk about your ability as a smaller player in that studio world to source and generate franchises that relative to your larger peers, how that works?

Well, sure. The -- I mean, Adam Fogelson and his team have done a fantastic job, and you're starting to see their slate come to the forefront. So we've just come off of this in our fourth quarter or Housemaid was in December, so late December. The Housemaid, as you noted, has been fantastic. It's, let's call it, a rumored to be $35 million, $30 million film that's done $380 million, maybe closing in on $400 million of global box office. So just a fantastic -- and that team puts that together, and that team has also hit it on the Long Walk, okay? And don't forget, Now You See Me: Now You Don't.

So kind of the third installment of that franchise, refreshing that franchise, created a whole new franchise with the Housemaid. By the way, there's 3 books there. So there's a lot more to come. We've already greenlit the second film. And we finished the year with a really nice film and nice price points in a faith-based film called I Can Only Imagine 2. So nice to have a sequel to the original film in that space. So we're just very well poised there. And I'd say they're focusing on a lot of things. I mean, first of all, I think it would tell you, look, you got to have the right filmmaker, okay, for the right genre, who's proven in that genre. I would just say Paul Feig was a fantastic selection in Housemaid.

They bought the books thinking, hey, this could be straight video, but then realize there's something bigger here. And put the right talent around that. Paul Feig as a Director. Likewise, you look for something with a marketing hook. This was sexy, edgy, different, not a romcom. If you haven't seen it, you've got to go see it. I guarantee you're going to love it, and it's going to -- the twist and turns. It's a killer and there's no pun intended there. So it's a great film. And then you put a -- and it has great international appeal, right, with the underlying IP and the book sold well around the world.

Actually, my wife picked up her book when we were traveling in Europe. She picked it up, finished her book, picked up another one and said, "Wow, this is great. She didn't even know we were doing the movie. And said the second one, by the way, was her favorite book. So there's clearly that one has already been greenlit called The Housemaid Secret. And so I think you look at that, you got the international appeal, the marketing hook, you got a director, a filmmaker that knows how to do it, proven in the genre. And then you add known cast, recognizable cast. So Sydney Sweeney, Amanda Seyfried, who just -- they killed it again, no pun intended. It was really great. And all of a sudden, there you are with a new franchise. And we're pretty good at doing that. And I'd say Adam and his team have shown just excellent skill set. And so I expect more to come out of this franchise, and we're always every year looking for creating more franchises.

There always does seem to be a little bit of an ebb and flow in sentiment around the health of the box office more broadly, maybe also more specifically on the midsized film budget side. Do you feel like operating in that space as one of the bigger suppliers of content into that theatrical window that you have any insight into whether there's a broader consumer trend and appetite for any particular film?

Yes. Well, I think you have to be more selective, right? You got to know what audience is there. And we've always done that and particularly, I think our team is good at it. Look, we see 8 to 12 broad theatrical releases a year, right? That's just fine. And nice to have 3 tent poles. We've got 3 tent poles coming up next year. That's kind of a nice franchise/tentpole that supports underlying your slate every year. It's always a slate approach. And we stay focused on genres where we can win. We do a lot of action do faith-based, do horror and then we'll do edgy stuff, again, that has the right kind of marketing hook and edge to it just new originals, mid-budget like mid- to small budget such as the Housemaid.

So for a success like Housemaid how should we think about how that translates from the upside that we're seeing on the box office performance into potentially further upside in the downstream windows thereafter. Maybe just walk us through how you're monetizing that and if there's continued evolution in the opportunity that you see downstream post theatrical.

Yes. Well, the nice thing about a late December release is it just keeps giving. So we got great rollover coming out of that. Now you see me as well and the other 2 theatrical releases I talked about earlier. So we got great carryover coming into '27 and the Housemaid will be clearly part of that. And again, I would fully expect 3 films out of that, if not more, even though there's only 3 books, it's the type thing story you could keep telling, right? And so I see that extremely strong. It's going to play on in our library forever.

Great. So on the film slate more broadly, -- you've announced some big tentpole's that are anchoring fiscal '27, Michael coming up, Hunger Games Prequel. As we think about how to really consider the sustainability of Motion Picture momentum from an earnings generation perspective into the following fiscal years, how do you think about the appropriate run rate for your slate in terms of managing that tentpole versus midsized kind of film release.

I think it's that 8 to 12 and the tentpoles, you don't want to rush something when it's not ready, but we're set up for 3 tentpoles for the next 2 years, right? So you mentioned, one, we got great carryover again coming out of '26 into '27, right? So that's great to have. And then we start the year with Michael, April 24. By the way, I've screened it. It is fantastic. You can't stop moving your feet. And it's just spectacular. And the way it ends, I can't give it away, but it's clearly a part 1. I mean it ends, you won't so much more. And just really, really great and so well done. And so you've got Michael April 24, you got Hunger Games in November. This is a story everybody has really been waiting for.

This is the Haymitch character, Woody Harrelson character that actually won the -- I think it was the 25th quartile. So you know we won, you're recasting, younger recasting, new people play in the roles, by the way, which makes it nicely nice, cost effective, something the CFO always loves to see. And this is -- the fan base is just going crazy over this. We set trailer records all time with Michael when it dropped. and the Hunger Games trailers have been so well received and just the online presence every time -- and they did a masterful job of just rolling out the casting character after character.

And every time it was just complete online buzz. So there's just so much demand to watch this. By the way, that book was the fastest-selling book out of the entire series. So you know the audience is there in the fan base, and we're ready to reengage with them. And then we have -- we finished the year on -- good Friday. I suspect it will come out on Thursday, given the industry standards. But this is the long awaited, probably the most awaited sequel ever. 20 years later, it's the sequel to Mel Gibson's Passion of the Christ. So Resurrection part 1.

We're doing it in 2 parts. It's filming in Italy now. Production finishes in May and principal photography finishes in May. And we're just so excited about that. And then the second one will follow in the following year. And then you fast forward in the following year, I really do believe we've not announced that we're going to have Michael Jackson 2. I just told you when you finish the film and they're so set up for the rest of -- you just can't wait. And there's so much more story to be told. We publicly said we had 3.5 hours of footage with Jaafar nephew playing the scene at people there and says, this is not a kid playing Michael Jackson. This is Michael Jackson.

I mean when you hear people talk about it and you see him as I have in the first part in part 1, it's just magical. And so we're excited about that. And then you have a Resurrection part 2, Michael 2 and then you have The Housemaid's Secret. So right there, you've got 3 tentpoles moving into '28 and so fiscal '28. So you got great carryover coming out of '26 into '27, more great carryover from '27 to '28 and then more great carryover from '28 to '29.

And we've got a lot of other franchises Naruto as well, we were talking about that early, could be Monopoly, just a lot of opportunities there, could be more John Wicks as well in some of those years. So just excited about having the tentpoles that feels about right, 3 a year, maybe 4. It's always nice to have more. But plan those out. and then go with the mid-budget films as we do in the genres that we're known for to have very high probability with modest budgets, disciplined P&A spend, international presales to really drive the slate and the profitability like we've done.

Great. Yes. It sounds like the visibility on the slate is really building in terms of -- on that international presales front, you did mention Housemaid has a lot of international appeal. One area that I think you've spoken about before is also pretty healthy demand from an international presales perspective, particularly for Michael that's also coming up. What lessons can you take from that experience? Is it so specific to the resonance of any particular film subject that you're seeing that strength? And how you really try to replicate that level of enthusiasm in that market?

Well, Michael is a global sensation in his music. So it's -- you can just imagine demand, but we've got a very disciplined model there. We brought Universal in on the international distribution. We did keep Japan as a territory because we had a very high level of interest that we knew existed there. And so Helen Lee and her team just did a great job as they always do of the international presales. So we've got a fantastic model there. We distribute the U.S. And by the way, on Housemaid, as with any presales, we're set up to earn overages. So in success after our international partners recoup and make a really nice profit, then we start to share the back end.

So our international distributors are just super excited and over themselves right now in terms of how well the Housemaid has performed. So clearly, they're going to be looking forward to new ones. And then we're the only people out there or really the only distributor out there with these kind of broad projects, whether it be Michael or whether it be Resurrection, it almost have to have to participate. And we've got a proven track record with our partners of delivering, okay? And also earning some back end ourselves, but being a great partner. And so they're super excited right now for our entire slate, right? But Michael, in particular, and the Resurrection, I would add as well.

Okay. That's good to know. Interesting. All right. Yes. I mean also, I think on the downstream window front, you've entered into a new calendar year where the subsequent films that you're releasing will be delivered into a new Pay 1 agreement. So I wanted to ask about that evolution of the Pay 1 monetization opportunity and how we should think about how the aggregate value of that window looks now relative to your prior deal under Starz.

Exactly. And by the way, on the last question, I'd be remiss if I didn't back up and talk about how excited the international markets are with regards to Hunger Games as well. So you can just see the demand there. But with regards to the Pay 1 window, this is great. This is where 1 plus 1 equals more than 2, high margin. We split the window, the Pay 1, traditional Pay 1 window. We split that with Starz taking the first part of the window and then Amazon taking the second part of the window.

And so that's one, just reaffirmation of the strength of our slate, Amazon's interest. It's high margin. It creates more opportunities. Again, like I said, 1 plus 1 is more than 2. And that starts with the calendar year '26 releases, right, which really start soon. So we see that benefit will start in fiscal '27. So that's -- again, that's driving library sales is driving downstream ancillary revenues. It's great visibility because you know it's all priced off of the box office, and we've done very well. So that's going to be nicely profitable and incremental to us in fiscal '27 and beyond.

Okay. Got you. Let's move on to the television segment. You mentioned in the past, doubling the number of TV series delivered next year relative to the prior year. What do you attribute to the catalyst that's really driving that strength and the rebound in terms of pickups and renewals? And how sustainable should we think about that level of delivery as we get into fiscal '28 and beyond?

Well, a lot of this is the same as on the film side of the slate. We spent our fiscal '26 kind of rebuilding franchises and rebuilding our slate because we didn't get the carryover coming out of '25 into fiscal '26 that we would have wanted, okay? But now we have what we want. We've rebuilt that. If you think about it, we created 3 major franchises in fiscal year '26 that really doesn't show up in the numbers to speak of, okay? The Housemaid we've talked about, [indiscernible] talk about on the TV side, the studio okay, coming out of season 1 already renewed for season 2, okay? And Hunting Wives on Netflix coming out of Season 1 going into season 2, okay? So both of those are renewed.

And what we've seen in TV is of their 13 scripted series, we've had 12 of 13 already renewed, okay? The 13th, I expect to be renewed too. I can't announce anything, but it is Spartacus, it is on Starz and it's 98% fresh rock and tomatoes. But they have an option to pick that up and people generally don't exercise options earlier. But even 12 of 13 is unprecedented -- okay? Included in there is Ghosts going to Season 5 and 6. We had a 2-season order and pickup of that, which we haven't seen for a long time. So that's going in Season 5 delivered going into season 6. The Rookie Season 8 that came out of the eOne acquisition.

We were Season 7 when we did that 6 when we did that acquisition, we've had 2 more seasons picked up. So included in that also is we have Origins that we're looking forward to 18 episode order as part of the Power franchise. That's in addition to the renewals I mentioned. So we've got a really strong TV creative carryover. And you look at that as being sustainable because you know what you've got. Right.

And you'll see it in the $1.6 billion, $1.5 billion, $1.6 billion of backlog, which I referenced earlier. But that is contractual revenues and future revenues and cash flow, okay? And that's part of that. And those are at near all-time record the backlog is. So you're just seeing that benefit there. So you have that visibility.

And there's no reason to think it's not particularly sustainable into [ 18 ] and [ 19 ] because the tougher season to get renewal on is season 1 and going into 2, right? And once you've got the fan base and you're in season 2, and of course, the margins go up and your leverage goes up as you go into season 3, 4 and 5. So there's good reason to believe with that creativity of both a lot of junior programs carrying over, as I just mentioned as well seasoned programs and particularly something like a procedural, The Rookie could run forever. The Ghosts has got a huge fan base behind it. We're actually with BBC doing a film version of Ghost. So there's all kind of spin-off opportunities and other ways to serve that fan base, and the team is great at doing it. So I really like seeing that, and it's nice coming off of, again, we had a rebuilding year in fiscal '26.

Last quarter, you did mention that 33% of your library revenue now comes from TV, which I think historically has been a much lower number relative to the motion picture contribution. mean recognizing that TV licensing deals can be lumpy, can you talk about the industry demand for film versus TV catalog and how you see that changing? Film always to me at least feels a little more evergreen in terms of the demand that these streaming services.

Yes, you know you need both. And just to lay out in the last 10 years, we've gone from 15% of the library being TV to 33%, okay? Over that same period, we've had a 10% growth CAGR on trailing 12 months library. Jim Packer and his team, they do such a great job there. We've set our fifth record, which I mentioned earlier. We've had 2 quarters now with trailing 12 months over $1 billion, okay? Very high margin, 50% plus cash margins. 40%, 45% segment profit margins. So just a great business. So TV has become more and more of that.

And I think that's really indicative -- it's indicative of demand, but it's also indicative of success of our TV program and program, and we've been at this a lot, right? So you got to create the franchises to kind of stoke the library and then you've got more to sell and execute. So we're doing a lot there. And we're also mining our deep catalog. We're actually using AI to help mine the deep catalog or the longer-tail catalog, creating incremental revenues, very high margin. These are usually unrecouped projects, okay? And doing rev share, whether it be subscription or advertising models without cannibalizing at all the licensing -- the traditional licensing model. So feel very strong about library and its success and TV, in particular, being a major part of that.

Great. Great. Let's talk about AI. I mean it's obviously a big topic that's been affecting everybody across industries and a big topic at this conference. You appointed a Chief AI Officer pretty recently and have done multiple partnerships, I think, most prominently with Runway that you announced and spoke about some internal initiatives there. Can we talk about how AI is delivering a tangible benefit to Lionsgate today and how you see that evolution of that technology really changing the ability for you to monetize your content?

No, sure. And I think this, by the way, is just very positive for the industry, very positive for us. First and foremost, we're going to be talent first. We hired Kathleen Grace from [ Vermillio ], very focused on artist talent relationships. But the opportunities here are fantastic. And Kathleen reports directly to John, our CEO. And we're going to -- we're taking that approach, but we were early movers with Runway, as you mentioned, in a partnership there, allowing them to use part of our library to actually build tools, not to replicate the library or do something else in terms of distribution but to build tools, and we're using those tools.

We're using other AI platform tools as well, right? And we're already using it. We're doing this in many areas, as you would imagine, Previs, which is the pre-visualization of film and TV. I think we saved 2 weeks on Hunger Games where you're just hitting camera angles, all the other things, storyboarding, the things you would do, sequencing of scenes, et cetera, and utilizing it there, utilized it in Spartacus to amplify a lot of the fight scenes, used it on another television episode to actually change the lines using the voice of the course at their artist agreement without having to bring people back in and reshoot or do something to change a line for a better line.

So we're already using it. That's on the cost side. But -- and I mentioned on the revenue side, I think, is really probably some of the greatest opportunity, right? And I mentioned already what we're doing on our longer-tail deep library. But there's just incredible opportunity, I think, there to do more.

What about at the consumer level? Is there a broader existential threat about the value that consumers place on premium scripted content. There's, I think, a lot of increased focus on a shift in least consumption towards user-generated content. Is there any view from Lionsgate about how to potentially participate in that? Or if you feel like there's a differentiation factor that becomes more prominent? .

Sure. Look, I think the first thing to say is that historically, when you've seen technologies, which has almost always been really a friend of content, okay, and IP. But when you see technology lowering the cost and maybe more production feasible because of lower cost, what you see with more supply is an increase in demand and value for the higher end of known IP and fan bases and it's something that's already been created. So our franchises actually go up in value. You could see that actually with Sora 2, right? Because as soon as you know, it is going to happen, all the industry writes letters, including ourselves, say you can't use our IP, you're going to get sued, okay?

And all of a sudden, the downloads and the interest and usage of that just went down significantly, okay? But that doesn't mean there's a world where we might not extract the fee and licensing and share with talent and the guilds in an appropriate format as we always do with the revenue streams coming out of our creative process and being able to allow people or the fan base to more interact. And so there's definite fee opportunities there. It could be short form or not, but I don't think it's ever going to replace long form, okay? And if you think about it, the creative community just using Housemaid as an example, just talking about what went into creating that. No one person creates it on their own, okay?

And the creative people, the future, Paul Feig's and even now or Steven Spielberg's or James Cameron or Michael Jackson's, they're going to work in a creative community that's collaborative, okay? And that's the nature of this business. And you're going to want to be working in that collaborative environment. Are you going to be using AI tools? Sure. But your ability to kind of emerge and maybe you do emerge through short form or other, but even then, you're going to want to change the world. You're going to own the big screen. You're going to be everywhere. You're not just going to want to be on YouTube and TikTok. You're not going to be happy with 100 million TikTok, YouTube followers.

You're going to want to be much more broadly distributed, disseminated and work with people that actually create with you more. And to be the best you can be. And I see that as being very beneficial to what we do already, okay, in terms of working with talent, it's consistent with being talent-first driven, and it's consistent with driving future revenue streams for everybody to share and participate in.

Got you. On that value of IP point, it certainly feels like there's more momentum in your desire to expand your monetization potential into other ancillary formats like live events or video games. Can you just give us an update on the traction you're seeing there and how we should think about how meaningful this might be in terms of a contribution to your earnings?

Well, it's all incremental. It's global experiences from gaming, stage plays, experiences the John Wick experience, the Saw franchise. All of these franchise, the fans want to interact in so many ways -- and you can actually create those environments. And I think AI will actually even help further in that context. But what you have to have is you have to have the known content. And so it makes the library even more valuable. So the more library, more franchises, the more opportunities. And we're doing that already.

And I think there's just going to be more opportunities to do it. And you probably saw Meta entered into an agreement with Fox for, I think, $50 million a year for 3 to 5 years to have access. So the future revenue streams is not the same industry, but the concept that you'll participate in future revenue streams, et cetera, and be able to interact more with your fan base, I think, is enhanced here.

Got you. I'd be remiss to not ask you a little bit more about free cash flow. given your position as CFO. And the last few seconds, maybe you can just tell us a little bit about how you think about the cash needs of the studio. I think there was an initial ramp as you got back to more of a steady-state production on the investment level. But maybe just talk a little bit high level about what you see as free cash flow conversion over a more steady state and deleveraged situation.

Sure. We've got strong free cash flow coming. We -- as we said, we're back-end loaded in fiscal '26. It was a replenishment year, if you will. So you were spending more cash than you were amortizing cost off through the P&L. So less of a conversion of EBITDA into free cash flow. So it's a use of free cash flow very judiciously. We've talked about franchises that we've created. And so you'll start to see those cash flows coming in the future, and you'll also see future cash lower than amortization. So actually, it will be additive. It turns around. So that's a working capital benefit going into the future, and we see very strong free cash flows coming out of the trailing 12 months and also the trailing 12 months driving delevering as we go into mid-fiscal '27.

Thank you so much. That's all the time we have. Okay. Appreciate it.

Thanks, Thomas. Appreciate it.

Good day, and welcome to the Lionsgate Third Quarter Fiscal 2026 Results Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Nilay Shah, Head of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for the Lionsgate Studio Corporation's fiscal 2026 third quarter conference call.

We'll begin with opening remarks from our CEO, Jon Feltheimer; followed by remarks from our CFO, Jimmy Barge. After their remarks, we'll open the call for questions. Also joining us on the call today are Vice Chairman, Michael Burns; COO, Brian Goldsmith; Chairman of the TV Group, Kevin Beggs; Chairman of the Motion Picture Group; Adam Fogelson, President of Worldwide Television Distribution, Jim Packer; and Senior Adviser to the Office of the CEO at Lionsgate and Co-CEO of 3 Arts, Brian Weinstein.

The matters discussed on the call also include forward-looking statements including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in our public filings for Lionsgate Studios Corp. 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.

I'll now turn the call over to Jon.

Thank you, Nilay, and good afternoon, everyone. Thank you for joining us. Today, we're reporting a quarter that not only keeps us on track for our fiscal '26 financial targets, but positions us for significant growth in fiscal '27 and beyond as the investments we've been making into our intellectual property portfolio translate into strong and growing momentum across our businesses.

During the quarter, we launched a new franchise with the worldwide box office success of Paul Feig's Thriller, The Housemaid. We expect the Sequel, the Housemaid Secret to begin production later this year. Released 12 days before the end of the quarter, the majority of the Housemaid's contribution will fall in Q4 and continue into fiscal '27.

Last week, we began production on John Rambo, directed by Sisu's Jalmari Helander, with Rising Star Noah Centineo from our Lionsgate Television series to recruit, and we announced plans to produce one of our most iconic properties, Dirty Dancing, shepherded by Hunger Games producers, Nina Jacobson and Brad Simpson and starring Jennifer Gray.

These are part of a growing portfolio of more than 40 active franchise properties that are being extended across multiple platforms, including film, television, video games and live experiences. After teasing it on the Grammy telecast the next day we release the full trailer of Michael to wildly enthusiastic fan response as we continue to ramp up the campaign for the film's April 24 global rollout.

With 3 major tentpoles anchoring our fiscal '27 slate, we expect to continue building momentum generated by The Housemaid and other recent box office successes. Our television group has secured renewals for 12 of our 13 current scripted series. And notably, these renewals, which include the studio, the Hunting Lives and the Rainmaker are spread across 12 different buyers.

And finally, our film and television library achieved its fifth straight record quarter with trailing 12-month revenue reaching an all-time high of $1.05 billion.

Turning to our individual segments. Our Motion Picture Group had a strong quarter with the success of Francis Lawrence's profitable and critically acclaimed adaptation of Stephen King's, The Long Walk. Ruben Fleischer, Now You See Me: Now You Don't, which grows nearly $250 million at the worldwide box office, and of course, The Housemaid made as we roll out a diversified slate that spans every genre and budget category.

Both The Housemaid and Now You See Me achieved exceptionally strong international box office performances with particularly strong results in the markets where we self-distribute the U.K. and Latin America, bolstering our position as the only studio licensing a steady supply of major properties to leading international theatrical distributors.

As I mentioned, we continue to expand the largest and most valuable portfolio of franchises and other branded IP outside the 5 major studios, fueling our slate with upcoming tentpoles like Michael in April, the Hunger Games Sunrise on the Reaping in November and Resurrection of the Christ Parts 1 and 2 next March and May, respectively.

Behind them, The Housemaid Secret, John Rambo, Dirty Dancing, [indiscernible] the next film from the John Wick franchise, Narita, American Saycho and new installments of SAW and Blair Witch are all either in production, being readied for production or in fast track development a really powerful slate of intellectual property that matches the right creative auspices with the right content.

In television, our series continue to perform well across every platform. The studio, which just began shooting its second season for Apple TV was one of the most critically acclaimed shows of the year. The Hunting Lives was Netflix's top nonoriginal English language series for the second half of last year and debuted high on their global list of top 10 shows, despite only airing on Netflix in the U.S.

The Rainmaker was USA Network's most watch freshman series in 7 years. Robinhood has ranked #1 on MGM+ for 9 weeks in a row and the rookie has been resurgent in its eighth season on ABC. The Rookie North spin-off pilot begin shooting in Vancouver later this month and Spartacus House of Asher is one of the best reviewed series on Starz with a 92% Rotten Tomatoes rating and performing well across its international platforms.

And in a business where renewals are the name of the game, the renewal of nearly every one of our scripted shows anchors a fiscal 27 slate with double the number of scripted episode deliveries and a diversified mix of cost plus and retained rights models, balancing profitability with long-term value creation.

33% of our record library revenue this quarter comes from our television series, more than doubling the percentage from 10 years ago, achieving 5 record quarters in a row reflects the work we put into managing and growing that library, enhancing it with new technologies, monetizing it across new buyers and platforms, selectively buying back rights and striking the right balance between acquisitions and organic growth.

As a result, we have one of the youngest major libraries of any studio. With 85% of our 20,000-plus titles produced since 2000 and nearly 2/3 of library revenue coming from titles outside the top 50.

In closing, we like our place in the media ecosystem and the trajectory of our businesses. Our film and television pipelines are strong, our library continues to grow, and we're replenishing it with valuable new franchises and brand-defining television series.

We're a leading global content company at a time when content is king, critical to AI, essential to our partners and the subject of every conversation around M&A and industry consolidation. We continue to lower our costs and restructure our businesses so we can move faster and more efficiently than ever before.

We continue to align ourselves with our shareholders, adding former U.S. Treasury Secretary and major shareholders, Steven Mnuchin, to our Board converting our dual share structure into a single class of stock and letting our shareholder rights plan lapse in May.

Although there are many disruptive forces reshaping our industry, the rise of AI, the power of social platforms and the increased tempo of M&A to name just a few. We believe that we are prepared to adapt to all of them as a dynamic, agile and entrepreneurial company positioned for sustainable growth.

Now I'd like to turn things over to Jimmy.

Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our fiscal third quarter 2026 Studio financial results and provide an update on the balance sheet.

Lionsgate Studios revenue was up 1% year-over-year to $724 million. Adjusted OIBDA was $85 million and operating income was $36 million. Reported fully diluted loss per share was $0.16 and fully diluted adjusted earnings was $0.01 a share. Net cash flow used in operating activities was $109 million, while use of adjusted free cash flow for the quarter was $58 million. Trailing 12-month library revenue continued to demonstrate strength with growth of 10% year-over-year to $1.050 billion and reached record levels for the fifth consecutive quarter.

Now breaking down our performance in the quarter, I'll start with a discussion of our Studio segment profit. Studio segment profit, which reflects our Motion Picture and Television segment profit before corporate overhead expense has grown sequentially throughout the fiscal year and was $114 million in the quarter. This sequential cadence reflects the back-end loaded fiscal year we previously outlined, and we expect it to continue into Q4.

We referenced our Studio segment profit because this metric is generally more comparable to the studio OIBDA figures reported by many of our peers as most other media companies do not include corporate overhead expenses in the reported studio results.

Moving to Motion Picture. Revenue grew 35% year-over-year to $421 million, driven by the release of now you see me now you don't, the house made and good fortune. Segment profit expectedly declined year-over-year to $59 million, primarily on the timing of P&A spend to support 3 wide theatrical titles, including the December 19 release of The Housemaid. The quarter included approximately $100 million of P&A spend in the U.S., which is helping drive future value across our release slate and replenishing library.

Looking ahead, we expect Motion Picture will end the fiscal year strong as we have significant carryover box office from the house made and an increase in the number of titles entering their Pay 1 window in Q4. As we outlined last quarter, there will be some P&A spend in the fourth quarter tied to the April release of Michael, but we are confident this and other key tentpole theatrical releases in fiscal '27 will drive robust growth in our Motion Picture business.

Moving to TV. Revenue was $303 million, and segment profit was $56 million. Revenue and segment profit were expectedly down year-over-year due to the previously mentioned timing of episodic deliveries in the quarter, partially offset by strength in television library revenue.

As a reminder, the prior year third quarter included the financial contribution from the inaugural season of the studio, creating a difficult comparison. As Jon highlighted, the television group has already secured renewals for an impressive 12 out of 13 of its current scripted series, which reinforces our confidence in achieving our previously outlined goal of doubling scripted episodic deliveries in fiscal '27.

Now let's take a look at the balance sheet. We ended the quarter with $1.75 billion of net debt and leverage expectedly increased to 7.4x due to lower trailing 12-month adjusted EBITDA. The revolver had $770 million of undrawn capacity available at the end of the quarter, and we had $213 million of cash on the balance sheet.

We anticipate leverage will meaningfully decline from these levels as adjusted OIBDA and free cash flow improve. Additionally, our backlog remains elevated at $1.5 billion, up 26% year-over-year. As you will recall, backlog represents off-balance sheet contractual orders not yet delivered and is indicative of the visibility we have in future revenues and cash flow.

Looking forward, we anticipate exiting the fiscal year with significant momentum heading into fiscal '27 across both our motion picture and television businesses. With Q4 adjusted OIBDA expected to improve materially from Q3 levels on strong theatrical carryover. With continued carryover profit from our fiscal '26 film slate, a tentpole heavy fiscal '27 release schedule and increased scripted episodic deliveries we remain on track to deliver strong adjusted OIBDA growth in fiscal '27 relative to fiscal '25.

Now I'd like to turn the call over to Nilay for Q&A.

Thanks, Jimmy. Operator, could we open the lines up for Q&A.

[Operator Instructions] The first question comes from David Joyce with Seaport Research Partners.

I appreciate that 2027 is shaping up very strongly with theatrical releases that we've been talking about and the doubling of episodic deliveries on the TV side. what can give us confidence in the sustainability of these volumes and the profitability of the business model, given the backdrop of industry consolidation. What would you see happening in terms of the buyers or other platforms where you can monetize your content.

David, it's Kevin Beggs responding. We're seeing some really nice green shoots in the market, a number of players that we haven't been working with before that we're doing more with John pointed to the rainmaker on U.S.A. that's been a really great new partnership. They've been out scripted for a while.

This is moving into a second season performed well. We have a hit in Robinhood with MGM. We had previously not worked there. We have more in development there. many of the buyers that were kind of slowed down or taking it a little more carefully are opening up more commissions. We continue to find entrepreneurial ways to get shows on the air via cost-plus and/or deficit models. Our distribution team is so strong. We're getting commissions in international markets. bringing those shows back into the U.S.

So -- and many of the shows referenced are long-running shows, the rookies and Season 8 has been a great success for us in ABC. So those are the reasons that we feel quite bullish about this cadence maintaining in place and holding, but it's not easy and requires 24/7 attention and the kind of entrepreneurial ideas that we bring to the market every day.

David, it's Jim Packer One thing I would say also from a buying perspective, if you just look at our trailing 12 months and the directional number, it's obviously a new benchmark. We always have an ebb and flow with buyers, certain buyers are slowing down because of mergers or acquisitions or various things, but others stand up and start to fill those voids. I don't have a streamer that I need to take into consideration so we can really play the market. And I think overall, the trends are going to continue. And I also have a slate coming in from Adam of now you see me Dirty Dancing 100 games another wake and so if you look at those franchises, all of those have other film and TV products associated with them. and that helps my drag along. So I feel pretty good about it.

Yes. And I would say from the macro, David, both the potential existing bidders are talking about more movies bolstering their streaming platforms on a global basis. And at the end of the day, a stronger streamers are going to be better for us in terms of original content, going to be better for us, as Jim was saying, in terms of selling a library.

So I don't think -- I think sort of the thesis that this consolidation is going to be a negative. I kind of see it the other way. I think it's going to be a positive. They both want to do movies. I think they're both committed David just did in the U.K. in his speech to really a big slate of movies. And so -- and we want more movies in the marketplace. We think that's bringing the audience already back to the theater. So we think we're heading towards a nice macro environment.

The next question comes from Thomas Yeh with Morgan Stanley.

One more maybe on the health is the more immediate downstream window for motion picture -- there was a big pay-one deal struck recently, obviously, and I know you have an Amazon agreement kicking as well. When you have a success like Cosma, how should we think about the carryover benefits, particularly just in the context of the pay-one monetization of that and whether you see maybe home video rental market as something that could be strong as well? Or does that get squeezed by pay-one becoming more prominent.

and then on the AI front, I saw the appointment of a Chief AI Officer. Maybe give us an update on the runway partnership and what other avenues you're maybe looking to unlock here with that position, that would be very helpful.

Yes. On Housemaid, great carryover things. It's fantastic and pay-one will be rolling over -- we're very excited about that as part of the carryover into Q4 and then obviously, major carryover in '27 on Housemaid, quite frankly, the entire fiscal '26 film slate. So we're really excited about that.

Yes. Thomas, I would say also on the pay-one environment in general. I think the Sony Netflix deal solidify the fact that pay movies are some of the most valuable content out there. We saw -- we have a great pay-one deal with Starz. We have Amazon after Starz, House, as you mentioned, is actually going to be Star and HBO. But really, the key for us is that right after these pay-one windows are over, you have multiple years that you can go into the open market and people can really bid on these titles. So that the beauty of having a Housemaid is we haven't had one of kind of this level in a while. So that's going to really I think, help the entire team, and we go out to an ecosystem that can have a shot at something that's I think a great bidding situation for us.

And I'll answer your question on AI. Look, -- we had the opportunity to bring in somebody Kathleen Grace. You read a batter. -- somebody who obviously has a very strong grasp of AI of the AI ecosystem. She's going to report directly to me that shows how important this is as we integrate it into every facet of our business.

I should point out, she comes from both a creative background as well as from a company of Vermilion that really their whole mandate is the protection of creators and talent in respect to AI adoption. So that's a real priority for us.

In terms of runway, look, we have a really -- really strong relationship with crystal ball and all of its people and are experimenting in a lot of ways. And I would say Kathleen will be the point person for us as the point of the spear in terms of any conversation we have and I expect to have some pretty interesting ones with all of the major AI companies in terms of potential future partnerships.

The next question comes from Omar Mejias with Wells Fargo.

It's DK Hall on for Omar. Since I'm on the cult might squeeze a few and if that's okay. First, Jon, I was just hoping to follow up on your comments on AI. If you could just talk a little more about some of the broad initiatives for the company. I know I think Jim Packer has some benefits in his business in programming fast channels. We've heard there's things like reshoots and visual effects that can benefit as well.

So in addition to the partnerships, I'd love to just know how you're thinking about kind of infusing it into the business day to day. Michael, I saw you on CNBC in December, you talked about the success of The Housemaid another face-based film that maybe was at Lionsgate. But I'm just wondering, as you look at kind of the middle budget targeted area, what you're most excited about for the Slate beyond Michael in fiscal '27?

And then finally, Jimmy, just -- you talked a lot about the EBITDA growth coming ahead. Do you see any pathways to inorganic deleveraging as well as organic deleveraging as you look ahead?

Let's start with Adam.

Yes. So as it relates to the opportunities in the mid-budget space, we're excited to be working off of the success that we've had recently. Obviously, the House made was an incredibly well-priced film that's generated massive returns. Similarly, The Long Walk was loved by critics love by audiences, and we work with Francis Lawrence and our talent partners to make sure we made it for a price where it could deliver a spectacular return on investment.

We've got a couple more coming in the very near future. Strangers is the third chapter of a trilogy made for such an incredibly smart and responsible price that -- we're looking at fantastic results, and I can only imagine follows right on its heels sequel to the highest grossing faith movie that the studio has had. And we've got a bunch of other films coming that fit into that category.

So alongside -- the tentpoles alongside the Michaels and the Hunger Games and the Resurrection, we've got a bunch of films in the low and mid budget category that we feel really good are made with the right creative partners, made for the right price, have a marketing hook embedded in the idea that we can work off of and when we look at the slate in total, we think we're going to turn out some really good returns.

Yes. I'll take -- I'll drill down more with you on AI, DK, but you covered a lot of ground, frankly. You talked about scheduling a fast channels. Yes, we're -- we're doing that post production, enhancing some of the effects, something I think I may have mentioned before, we certainly used it on Spartacus very effectively to open it up, expect to use it even more. Plan for it a little bit more this year.

We use it for [indiscernible] the Motion Picture business. We're looking at it in enhancing in some ways, some script revisions, things like that, obviously, working with the writers. If we are -- we certainly have it integrated into all of our operations. Obviously, that's a reasonably easy one. And if we're playing with it in any original creation ways, maybe we are, but I'm not going to talk about it.

Yes. And Omar, your question about inorganic delevering, if you will. Certainly, 3 Arts would be an opportunity to delever. But we're in a position of strength there. That's not the primary objective. I would really go more to give you comfort on the organic delevering that will naturally occur.

You see the pipeline, you see the backlog $1.5 billion 80% of that is future revenue and cash flows that come in, in the next 15 months, okay? So we are going to naturally -- we said this was the peak leverage. We're naturally with trailing 12 months and free cash flow, not only back-end loaded this year, but the carryovers into '27 and the significant growth into '27, feel really good about that delevering.

I will tell you, we're going to be -- I would expect to be in kind of the mid 4s by the middle of fiscal '27, and that 3% to 3.5% range where we would more likely be in fiscal '28. So that's just happening naturally.

The next question comes from Brent Penter with Raymond James.

First one on the M&A topic you brought up. Warner Bros, obviously commanding a very high valuation and has had 3 large sophisticated bidders. The question is, why now? Why do you think there's so much interest in this kind of studio asset now in particular. And for Lionsgate, it seems like you all have more openly talked about M&A recently and you're letting the poison pill expire. So the same question to you all in terms of why would now make sense for you to participate in M&A versus some time in the past.

Do you want me to answer.

We think that -- it's Michael. We think that recognizable world-class IP has never been more valuable, and you're certainly seeing a validation of premium content when you have those well-heeled players pursuing Warner Bros. We don't know who's going to end up with that, but we do believe that -- that is the first domino of all.

Okay. Okay. And then a financial question. So on OIBDA, my understanding has always been OIBDA gets hit for the financing cost of production loans on films which is why we don't include those in net debt or EV valuation multiples. Can you just update us on how much film financing cost there is above the line that hits OIBDA?

Yes. I mean, naturally, whether using production loans or not for working capital or to bridge and true up cash flows between cash out and cash in and better aligned you capitalized industry, you capitalize interest above the line, and that becomes part of your production cost that amortizes through. So that's just fairly natural.

For us, it's really more about managing our working capital, right? It's a great source, if you will, of film obligation that matches up cash outflows, which naturally occur 12 to 18 months ahead of release or delivery of episodic deliveries and it's just a nice mechanism like any other working capital on the balance sheet to match cash flows. It's just good financial discipline.

The next question comes from Vikram Kesavabhotla with Baird.

My first one is on Michael. Just wondering if you could talk more about the reception to the marketing efforts there. You released the official trailer a few days ago. How has that performed relative to your expectations? And what else are you monitoring in terms of the data points to inform the potential success of that film.

And then separately, you talked about extending the value of your IP into other areas like video games and live experiences. Could you talk more about how some of those initiatives are going? And what are some of the latest examples of where those strategies have been particularly impactful.

Sure. It's Adam. Thanks for the question, Vikram. So with respect to Michael, the -- I can tell you that we've now started screening the movie pretty actively, and the response to the movie itself has been extraordinarily positive. So we love the film that's been made. And that's a great thing to have in our pocket, and we're excited for everyone to get to see it.

In terms of the release of this latest trailer, it once again has broken records for us. It is by far the highest viewed music biopic trailer, you can find, and it sits at the top end of us alongside some of the biggest movies that have happened over the course of the last decade.

Obviously, in addition to views, we're monitoring sentiment. We're monitoring engagement. We have very sophisticated tools that are available to everybody, but we have very sophisticated tools to be able to identify how people are responding to the content, to what extent they're passing that content along and talking about it with other people.

And every single metric is in a very strong place. When you add that to the commitment that the IMAX and large formats have made to wanting to make sure that we've got an incredible footprint there, and the enthusiasm we're seeing from every territory around the world, it's very, very encouraging. And you never want to count your chickens before they're hatched, but this feels like it is lined up in an extraordinarily strong way.

With respect to your second question. Look, the financial benefits of our nontheatrical opportunities will take a couple of years to fully materialize, but we have made significant progress on every platform. We opened the Hunger Games Live in London to terrific reviews and incredible attendance. We opened the Now You See Me Live event in Australia, again, great reviews and spectacular attendance. Our Wonder stage show has gotten incredible reviews in Boston, and we're excited to talk about what the next opportunities are there. Dirty Dancing and La La Land, both have great plans that are coming together for their live stage.

And on the games front, we'll have a lot more to say about John Wick, which we've been talking about for a while. But I think there's going to be some really exciting stuff to talk about in the near future, not only on that, but a couple of the other projects as well. there has been real and significant progress over the last 18 months, and we think that there'll be a lot of good stuff, not only to talk about in terms of response, but talk about in terms of revenue contribution.

The next question comes from Peter Supino with Wolfe Research.

Jack [indiscernible] on for Peter. I was hoping if you could unpack the sources of growth for your library revenues and the contribution from Fast services?

Jack, it's Jim Packer. Well, first of all, again, as I said earlier, the trajectory of it has been strong. It's really driven by our core of film and TV. This particular quarter, we had a lot of Hunger Games revenue flowing through some pay windows, delivering a new season of Ghost to Paramount Plus.

And then obviously, I'm sure everybody has known and read about Mad Men going to HBO Max. And that was another thing that happened this quarter that was very, very helpful. And really, if you look at the new platforms and you look at what we're doing with self-directed licensing. It's fast, it's AVOD rev share, Amazon add-on channels.

That's a very consistent piece of revenue for us. It's around 6% of this number growing next year, hopefully, to between 10% and 15% of our trailing 12.

And then lastly, just looking at our EST and VOD, which is the rental and -- the buying of movies and TV shows globally, that transactional piece is about 10%. And it's very consistent, very strong. And as new movies come through, as I mentioned earlier, with all these franchises that Adam's team is revitalizing all of that content gets benefited. So it ultimately helps it. So I feel pretty good about it, and all of it is coming together to keep the numbers high.

The next question comes from Matthew Harrington -- excuse me, Harrigan with Benchmark.

The other interesting implication on the TV scripted doubling apart from the effect on the LTV, if you managed to sustain that is how you're able to scale that. Certainly, AI helps and people believe in the long run, you can see that software stock fell off in the transformational effects expected there.

But certainly, in the near term, you could argue that the benefits are over high certainly isn't showing in a lot of macro numbers. But how -- it's just counterintuitive that you can -- I mean, you're not making widgets and even doubling the amount of widgets in a given year, it's pretty high hurdle. But -- and you've been really keeping a tight out on capital costs. How are you managing to accomplish that? That seems like a pretty herculean feat just in terms of getting it done.

It's Kevin again. The Well, I think a lot of look, we're coming out from under the overhang of the strike. It always takes a lot longer. COVID was still impacting things long after it ended, if you will, for day-to-day livings.

And one big piece of the chest puzzle came into focus with Skydance completing the acquisition of Paramount and Paramount+ expanding its business to more third parties, and I think they're going to do more as they've talked about and discussed. And in general, the kind of chill that can prevent buyers from taking a few more risks or getting a few more budgets approved for series is saying a little bit and lead because we can produce quite effectively, economically, both the highest premium kinds of shows like something like the studio, which is a critical darling but also just a terrific hit for Apple, but also find a way to work economically with some other platforms that don't have the kind of budget capacity of Apple and find ways to make that work. It makes us an attractive partner.

And Jim and [indiscernible] team really chasing down international numbers that make these formulas work. is critical as a studio that deficit finances when we need to distribute all over the world. There are only a handful of companies that do that, that are independent only 1 or 2 that aren't beholding to their internal streamers, which is what Jim alluded to. So we just become a really good dance partner. And right now, the cadence of the dance is moving up a little more quickly than it was a year ago.

And clearly, you have the people to do that in place?

We have an amazing team. We have got an incredible group that I'm honored and I'm able to work with across our scripted and unscripted groups. And obviously, the partnership with 3 Arts continues to provide great dividends. Hunting Wives is an amazing success story for our 2 units and 1 for Netflix and our international partners around the world.

We look for those opportunities and really convert on them when we find them. Part of it is being nimble and quick, quick decision-making. It comes from the top down from Jon to myself and Sandra in our group, and really just top grading people on Scott and Josh on and [indiscernible] in my group. And that's a secret sauce. Part of it is being nimble enough to move on these opportunities quickly.

This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks.

Please refer to the Press Releases and Events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Lionsgate Second Quarter 2026 Earnings Call.

[Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Nilay Shah, Head of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for the Lionsgate Studios Corporation's Fiscal 2026 Second Quarter Conference Call. We'll begin with opening remarks from our CEO, Jon Feltheimer; followed by remarks from our CFO, Jimmy Barge. After their remarks, we'll open the call for questions. Also joining us on the call today are Vice Chairman, Michael Burns; COO, Brian Goldsmith; Chairman of the TV Group, Kevin Beggs; Chairman of the Motion Picture Group, Adam Fogelson; President of Worldwide TV and Digital Distribution, Jim Packer; and Senior Adviser to the Office of the CEO at Lionsgate and Co-CEO of 3 Arts, Brian Weinstein.

The matters discussed on the call also include forward-looking statements, including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in our public filings for Lionsgate Studios Corp. 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.

I'll now turn the call over to Jon.

Thank you, Nilay, and good afternoon, everyone. Thank you for joining us. We reported a quarter in line with our financial expectations and with all signs pointing to significant growth over the next 2 quarters and through fiscal '27. We're pleased to report that our trailing 12-month library revenue reached $1 billion for the first time, a record performance that highlights not only the value of our library, but our entire portfolio of intellectual property. During the quarter, we continued to invest in that portfolio by preparing our tentpoles for fiscal '27 and beyond, wrapping production on Michael while shooting the Hunger Games and 2 Resurrection films.

This morning, we dropped our first Michael trailer to kick off the marketing campaign for what we believe will be a true motion picture event in April. This week, we announced a multifaceted deal with Millennium to acquire all future film and television rights to the Expendables franchise and worldwide distribution rights to the next Rambo movie, starring The Recruit's Noah Centineo and directed by Sisu's Jalmari Helander. We will also be the lead studio on all future Rambo TV series.

Next week, I will be in London for the launch of the first ever Hunger Game stage play. Early ticket sales have been so strong that the play has already been extended to October 2026, kicking off a roster of Lionsgate stage plays that includes La La Land, Dirty Dancing, Wonder and Silver Linings Playbook. In a difficult operating environment, our television business has scored 3 wins in a row with the studio, winner of a record 13 Emmys, including Best comedy, the breakout hit, The Hunting Wives for Netflix and most recently, the Rainmaker, 3 different types of shows on 3 different kinds of platforms with 3 different financial models. All 3 have been renewed for second seasons.

And our 3 Arts talent management and production company continues to have a year of strong growth and diversification. Last quarter, 3 Arts expanded into sports with the acquisition of A&A Management, adding world-class athletes like NFL Superstar, Travis Kelce to the newly rebranded 3 Arts Sports. This quarter, they built on that momentum by hiring leading sports manager and entrepreneur, Sheyi Olaoshebikan, who has already brought aboard NFL star Miles Garrett, as 3 Arts continues to build a top-tier sports talent management business.

Turning to our Motion Picture Group. From Now You See Me 2 resurrection, we've put together a film slate primed to deliver strong growth over the next 18 months. We have 3 major holiday season releases with excitement building for the return of Now You See Me's 4 Horsemen opening next Friday. Paul Feig's thriller, The Housemaid starring Sydney Sweeney and Amanda Seyfried and based on the first novel of the best-selling Housemaid Trilogy is generating strong buzz ahead of its December 19 release.

And rounding out an active 2 months, we're pleased to extend our collaboration with one of the greatest filmmakers of our generation with the December 5 release of Quentin Tarantino's Kill Bill, The Whole Bloody Affair, presenting the entire Kill Bill Epic as a single combined film in theaters nationwide for the first time.

Speaking of classic theatrical releases, we partnered with Fathom to release the 5 Twilight movies in theaters last week to celebrate the 20th anniversary of the first Twilight novel. It was one of Fathom's top releases of the year with the first Twilight film opening at #2 at the box office out of all releases 17 years after its debut. Our 3 tentpoles in fiscal '27, Michael this coming April, the Hunger Games in November and the first Resurrection movie in March 2027, followed by the second Resurrection film to kick off fiscal '28, give us added visibility into our slate in an unpredictable box office environment. Beyond these tentpoles, we continue to develop many of our signature properties, Saw, Blair Witch, American Psycho, Monopoly, Naruto, based on the blockbuster Manga property and new films from the John Wick Universe.

In television, our go-forward slate has a strong cadence as we secured key renewals for Ghosts, The Rookie, The Studio, The Hunting Wives and the Rainmaker with an anticipated doubling of scripted series deliveries from fiscal '26 to fiscal '27. And we continue to refill our pipeline with strong new shows like Robinhood, which debuted on MGM+ last weekend, Spartacus House of Ashur, which just dropped its first trailer ahead of its December 5 debut, bringing back one of Star's most successful brands, and the adult animated Twilight TV adaptation Midnight Sun, which is being ready for production at Netflix. The new season of Power Book IV: Force returns tomorrow on Starz with Power: Origins, the next installment of a franchise that has already generated 3 hit spin-offs launching next year.

In an ultra-competitive environment, we have to work over time and entrepreneurially for every win. We found the right home in Netflix to grow The Hunting Wives, putting together a viral grassroots marketing campaign to propel it to 6 weeks in Netflix's U.S. top 10 and renegotiated our international licensing deals to pave the way for a second season Netflix renewal. We partnered with Blumhouse and shot the Rainmaker in Ireland to create a winning financial model for our network partner at USA. And we continue to grow the long tail of older series with deals in new and traditional markets alike, securing a third cycle syndication sale for Mad Men, testing a traditional broadcast syndication rollout for Ghosts in 14 markets and exploring opportunities to repurpose several of our classic series for the micro drama market.

It's important to note that the value of our continued investment in scripted television, playing the long game in order to retain rights is becoming more and more evident with the percentage of our library revenues from television doubling over the past 10 years. Operationally, in September, we made the difficult but necessary decision to reduce our headcount by approximately 5% bringing overall headcount reduction over the past 18 months to more than 20% as we continue to align our business with the reality of a changing marketplace.

On the technology front, we continue to find exciting new use cases as we apply AI to more areas of our business, increasing our productivity, generating cost savings and expanding our creative toolkit. But we're also diligently protecting our content and that of our partners from unauthorized use of AI. Our intellectual property is the core of our business, and it is our prerogative to decide when, where and how to use it. But we do believe that as long as appropriate guardrails are established, the growing intersection of entertainment and AI will ultimately create significant and mutually beneficial value.

In closing, for the past 100 years, the big idea driving the entertainment business has been if you build it, they will come. If you make a movie and you put it in theaters, they will come. If you put television series on 3 or 4 broadcast networks, 100 million homes will watch them. Today, as our world expands into new digital and social media platforms, audiences are harder to find, harder to engage and harder to market to. But they are also consuming more content across more platforms than ever before, offering even more upside to a company like ours that brings to this new environment a massive portfolio of content, a roster of valuable franchises, efficient production models and an entrepreneurial spirit.

Now I'd like to turn things over to Jimmy.

Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our fiscal second quarter 2026 Studio financial results and provide an update on the balance sheet. For the quarter, Lionsgate Studios revenue was $475 million, adjusted OIBDA was $14 million and operating loss was $46 million. Reported fully diluted loss per share was $0.39 and fully diluted adjusted loss per share was $0.20. Net cash flow used in operating activities was $104 million, while use of adjusted free cash flow for the quarter was $129 million. Trailing 12-month library revenue grew 13% year-over-year to just over $1 billion, reaching record levels for the fourth consecutive quarter.

Now breaking down our performance in the quarter, let's start with Motion Picture. Motion Picture revenue was $276 million and segment profit was $31 million. Revenue was expectedly down year-over-year due to a difficult comparison with last year's second quarter, which had 5 wide theatrical releases in the period relative to just 2 releases this quarter. Segment profit was up significantly year-over-year as we rebounded off of last year's underperformance of Borderlands. We anticipate Motion Picture segment profit to build from Q3 to Q4, driven by an increase in titles entering their Pay 1 window in Q4 and P&A spend, primarily tied to Now You See Me: Now You Don't and Housemaid being weighted to the third quarter. There will be some P&A spend in the fourth quarter tied to April release of Michael. Which will be followed by other highly anticipated fiscal '27 titles, including the November release of Hunger Games, Sunrise on the Reaping and the March 27 release of Resurrection Part 1.

This cadence of tentpole films, coupled with our mid-range budget slate, gives us extended visibility and bolsters our view on motion picture growth in fiscal '27.

Now moving to TV. Revenue was $199 million and segment profit was $13 million. Revenue and segment profit were expectedly down year-over-year due to the timing of episodic deliveries in the quarter. We expect strength in segment profit in TV over the remainder of the year, driven by an increase in deliveries and incremental licensing revenue tied to The Hunting Wives, which will be available in more Netflix international markets over the coming months. Furthermore, as we noted on our prior call, we are forecasting significant growth in scripted deliveries next year, strengthening TV's financial outlook in fiscal '27.

Now let's take a look at the balance sheet. We ended the quarter with $1.7 billion of net debt, expectedly reflecting a modest sequential increase in leverage to 6.4x on the timing of content spend. In addition, we strengthened our balance sheet by upsizing our IP facility by $320 million. We used the proceeds to early pay the Spyglass library acquisition facility, reduce our revolver draw to 0 and stockpile cash. We ended the quarter with $800 million of undrawn revolver and $247 million of cash on the balance sheet.

We are similarly seeing strength in off-balance sheet assets as evidenced by our backlog ending the quarter at approximately $1.6 billion, up $379 million or 31% sequentially. As you will recall, backlog represents off-balance sheet contractual orders not yet delivered and is indicative of the strength we see in our future revenues and cash flows.

We continue to anticipate that fiscal '26 will be a back-end loaded year, and we expect sequential growth into Q3 and Q4. Additionally, as we noted last quarter, we expect stronger carryover of profits from our fiscal '26 film slate into fiscal '27, which combined with our previously discussed tentpole-driven fiscal '27 slate and a TV business that is expected to show significant growth next year gives us confidence that we are still on track to deliver strong adjusted OIBDA growth in fiscal '27 relative to fiscal '25.

Now I'd like to turn the call over to Nilay for Q&A.

Thanks, Jimmy. Operator, can we open the call up for Q&A?

[Operator Instructions]

Our first question comes from David Joyce with Seaport Research Partners.

Two questions, please. First, if you could drill down some more on what's giving you the confidence for the back half of this year in 2027 and beyond with your slate granted. You explained the backlog being up significantly. But are there other metrics with social media or audience testing that you or your licensees are doing? And then secondly, if you could please comment on your views of the M&A optionality and what's going on more broadly in the industry.

David, it's Adam. I'll start with your confidence question in terms of the slate. Clearly, there is no perfect predictor out there. But that having been said, we are seeing a ton of excitement. Just yesterday, the day before, Exhibition was talking about a number of our films in the fourth quarter and into next year that they're seeing a lot of enthusiasm. We're getting a lot of traction online. I can't either confirm or deny that we participated in the [indiscernible] Heist, but Now You See Me has been all over social media, and The Housemaid is generating a ton of conversation. The Michael trailer generated over 30 million views in the first 6 hours of its launch today, which is 50% more than what John Wick 4 trailer delivered in its first 6 hours. The conversations around the Hunger Games with every announcement of casting and the massive global demand for Resurrection. All of that gives us confidence.

We recognize that you can't be perfect in predicting each film, but when you look at the portfolio and the films I mentioned and a lot of the mid and small budget films that we have on our slate, it does give us an exceptional amount of confidence. And the growth we're talking about is not based on projecting that every one of those turns into a blockbuster, but we think we've got a bunch in that mix.

Yes. In terms of the M&A environment, I think we can all see it's incredibly disruptive. There's a lot of uncertainty out there right now. All we can do, David, is keep sticking to our knitting, building into next year with, again, a great TV slate, a great film slate and this library really starting to perform. And I can't say often enough, we've been investing for 25 years in that library, and we've retained rights almost every single time. We continue to retain them every time we can when we sell a television show. And so we own the majority of our library, and it's paying dividends for us right now. So we'll keep doing what we do, and we'll see all the -- where the bouncing ball ends up. It will be some interesting [ dead fellows ], I think.

And the next question comes from Brent Penter with Raymond James.

Good to see the Michael trailer out today and it sounds like really strong interest in that. There was a thought in the past that you all have some optionality on that in terms of the ability to then make a second film, assuming that one performs well. Can you update us on where we stand on that option?

Sure, Brent. It's Adam. Thanks for the question. Look, since the last time we were together on an earnings call, we have now had the great pleasure of seeing the director's cut of the first film, and it is exceptional. And while we're not yet ready to confirm plans for a second film, I can tell you that the creative team is hard at work making sure that we're in a position to deliver more Michael soon after we release the first film.

Okay. Great. That's good to hear. And then more near term, Now You See Me: now You Don't coming out next weekend, what's the general sense you all are getting from tracking on that relative to what you're expecting when you green lit? And then the first 2 movies were pretty big internationally. So should we expect there's a bit more revenue locked in there via some of those international licensing deals than what we typically see?

Yes. I mean, as I was saying on one of the prior questions, there is no perfect predictive measure, and I think tracking has become less reliable than ever. That said, the movie is tracking much closer to the universe of the first movie. So we think that where traditionally you see significant degradation between the second and third film, we think that performing in line with or ahead of the second film is possible. And it's important to note, this quarter of the year really needs to be judged over multiple weeks. You'll recall that when the last Hunger Games movie came out, we had a 4 multiple off a $44 million opening. And I think a 3.5 to 4.5 multiple on this film is what we should be thinking about the movie. There are a lot of social reactions to the movie that we've been screening online, and people are loving the film.

As it relates to international, what I can say definitively is that, that international performance has led to high demand from our foreign licensing partners. And so that's already accounted for. And we are not -- we don't have a massive domestic gap that we're trying to deal with here. So the economics of this film are already considering its global appeal and Jim could speak to it, but we also have additional benefit not reflected in the individual P&L of this one film. When you make a good film in a franchise like this and have 2 existing installments out in the marketplace, there is meaningful financial benefit to that separate and apart from Now You See Me 3.

I think what you end up seeing is a halo on any of these remakes that we do or sequels or prequels. We've seen it. You can see it with John Wick. You can see it with Hunger Games. You can see it with most of these franchises, whether it's transactional, whether it's licensing, every single aspect of our business goes up. So we definitely get a benefit when we have a new one coming out.

Okay. Great. And then final question for me. You talked about the strong growth at 3 Arts. Can you just remind us the sizing of that business in terms of revenue and EBITDA? And what kind of growth exactly you're seeing?

Yes, Brent, in terms of just sizing the number, we're not going to disclose that separately. It's not something that we've provided. But I'll tell you, we're seeing very strong growth going in the second half. And remember, in particular, it's a nice seasonal business too in the December quarter. And so we're seeing nice growth going into the second half and that continued growth into fiscal '27. We like what we're seeing in that business and our partners there. And Brian can probably give you a little bit more color on the operations.

Sure. Brent, it's Brian from 3 Arts. Speaking, look, operationally, we're seeing a lot of positive momentum on the production side of our business, where we partner with and produce alongside of our clients. You have things like Season 2 and 3 of the new King of the Hill, which is back on the air, a business we've been involved with, a show we've been involved with from the start, obviously, along with our partnership at Lionsgate, the success of The Hunting Wives, another season for The Paper, more seasons for [indiscernible]. And then just this week, a third season for Nobody Wants This. So we continue in this environment to succeed on the sports side. We have real momentum, as Jon noted at the top of this call.

But some interesting innovative stuff. Our client, Travis Kelce, who's part of the team we brought over now 3 Art Sports, formerly A&A management and a really innovative deal with channel partners and a bunch of compelling corporate relationships in Travis' world and just growth in the core business. So we feel pretty good about where we're headed, about representation in general as we continue to grow that platform beyond our historical core into other new areas where we can diversify the offering that we provide to our clients.

And the next question comes from Thomas Yeh with Morgan Stanley.

Just following up on that industry M&A question. As an active seller to many of these companies, it seems like you're still seeing pretty broad strength in the series orders and series pickup environment. Is there a sense that consolidation of the buyer pool could change those dynamics if the broader view is that they'd still be spending as much content, if not more, perhaps on a consolidated basis?

Yes. That's a great question. It's Kevin speaking. I think uncertainty when it's hanging over the market makes everybody buy a little bit less. The extended process of Skydance and Paramount froze Paramount for a lot of time. We're pretty excited about that being resolved. They've laid out to the selling community what they're looking for. They have an appetite to buy more dramas, more scripted in general. I think you're going to see more clarity around Comcast between the Peacock NBC Studio side and Versant, where we have Rainmaker, which has done really well. So that consolidation could happen, but in stronger buyers that have bigger appetite and are signaling to the selling community that they're healthy, that's a positive. Obviously, the more buyers than not as good, but unhealthy buyers are not good.

But we are seeing some green shoots. It's not a full recovery, but we're off to a nice start this year, this summer between Studio, The Hunting Wives, Rainmaker. We just launched Robinhood. Force is about to go tomorrow. Spartacus is behind it. Ghost and Rookie are coming. Ghost just premiered 2 weeks ago, Rookie in January. It's a nice cadence of things and nice renewals, and that's giving us a lot of confidence about the market.

Okay. Helpful. And then, John, you mentioned ramping stage play adaptations and IP monetization kind of starting to kick in. Can you just help us think about the ancillary revenue opportunity and the economics that you'd be participating there? Is this like a high-margin licensing revenue sort of deal for like a Lava and musical?

I'll let Adam answer that. He's been really driving that business.

Yes. I mean it's not one size fits all. We're looking at each individual opportunity. There are a lot of no-risk licensing opportunities in here, but there are certain cases where we will take an investment position. It really depends on our comfort level with our being meaningfully additive to the creative process. But each of the projects Jon mentioned as it relates to stage and some of the stuff we've talked about in our previous conversations, continuing to see really great attendance of the John Wick Live experience in Las Vegas, and there definitely is interest in expanding that to other destinations. Our AAA game opportunities and other gaming opportunities around John Wick and Saw and some others that we'll be announcing soon, we're seeing increased interest and increased opportunity, and we remain on schedule. So I think in totality, you are going to see a meaningfully additive financial opportunity coming in the coming years.

And the next question comes from Omar Mejias with Wells Fargo.

Jimmy, first, you talked about the backlog now at $1.6 billion or up 31% sequentially. Can you expand on the puts and takes of this incremental demand? And are market trends improving on the TV side? Or is this a Lionsgate specific driver? Any help on unpacking the underlying strength would be helpful.

No, absolutely. The strength is across motion picture and TV and particularly the $380 million, 30% plus uplift sequentially was driven by both, but majority showing strength in television. So examples like Studio Season 2 rolling in, Housewife Season 2. Power Book Origins, Season 1, Yellow Jacket Season 4. So kind of broadly spread, giving us visibility as we were anticipating into the second half as well as into 2027. And as Jim mentioned a minute ago, with these franchises, whether it be the John Wick franchise or Twilight or Hunger Games, you just have continuing lift in demand. And so that's really nice in that window.

And I would just say that of that $1.6 billion, 85-plus percent of that will come in, in the next 18 months. So this is not only second half, but it's also well into fiscal '27, and it's really reflective of how we're rebuilding the pipeline for future revenue and cash flow. I'll remind you that's off balance sheet, which means it's future revenue and cash flows.

That's super helpful. And then on leverage, can you remind us what can you do to bring down leverage? And where do you think you can get leverage to in the relative near term? So maybe twofold question here. How should we think about growth over the near to medium term to drive down leverage? And then just an update on where things stand with 3 Arts and the potential to bring in a partner there?

Sure. So look, we're naturally going to delever. I mean, you see it. Our peak leverage is probably going to be in Q3 and then back down in Q4 and then significantly declining as we go into '27 and '28. And this is really about restocking the pipeline. If you think about it, right, in Q3, we've talked about the P&A spend, we're going to have around Now You See Me and Housemaid. If you look at our content spend, it's generally throughout the year, but more heavily weighted to the mid-quarters, meaning Q2 that we're just coming out of and extending as well into Q3, we'll also have the P&A spend. So you'll see net debt balances rise a little bit.

And really, the trailing 12 months, right, is a lower level than usual because of, again, we got the P&A spend, we're rebuilding the pipeline. And then what you'll see is the delevering will naturally occur with the ramp-up in trailing 12 months adjusted EBITDA. I think as we go out into '27 and I would say even into '28, right, which we're going to have great carryover from '26 into '27, even stronger carryover from '27 to '28, we're going to get back to that 3 to 3.5x leverage that we're more comfortable with. And that is not taking anything into consideration with regards to a potential 3 Arts transaction, it would obviously result in delevering.

Yes. We're talking to 4 or 5 potential partners. We have a nice growth profile, as Brian said, in terms of sports and in terms of our news personality business, and we're seeing really tremendous uptick of activity across the board there. We should have more information, I think, for the Street in the first quarter and be able to kind of hone in on whether there's a smart deal to be made. But if we can find the right partner at the right deal to help us grow that business, we're going to do it.

Great. And lastly for me, Jon or Adam, excited about Michael. Watched a trailer today and looks great. Curious what's the early feedback on the trailer? And what's the potential opportunity for this film globally?

The response has been overwhelmingly positive. People have been waiting a long time for this. The trailer, I think, smartly acknowledges that with the very first words that are spoken in the trailer. And we have seen wild enthusiasm. I think people are stunned with Jaafar's performance even in the short amount that's in this first relatively brief teaser. I think the production values are there. I think when you look at the quality of the filmmaking team and look at the kinds of films that they've delivered in the past and you look at the successful -- the top-tier, most successful sort of musical biopic that have ever come out, you see a broad range, but all of those broad range results would be fantastic wins for the filmmakers and for the studio and for our partners at Universal and our partners in Japan as well.

So I think if you look at the top-tier musical biopics, you get a pretty good sense of what the range is. And anything in any version of that is going to be a huge success.

Our next question comes from Matthew Harrigan with Benchmark.

Living in Colorado, I'm not even a particularly avid Broncos' fan, but I can't -- I think I'm going to have to take 3 or 4 points off you -- my price target for your signing Travis Kelce, not a fan of that one. But seriously, I'm curious on the Resurrection movie, it sounds very complicated, Marvel movie plus on the special effects. I know you're recasting so you don't have to go through the aging process, even though that's more feasible now from an AI vantage point? I think you said you couldn't have done it at all 2 or 3 years ago. But are you completely confident that you can meet -- you probably wouldn't -- would have said it already if there's any hesitation, but are you confident you can get that together? And what is the possibility of that also breaking into 2 parts? Similarly, I know it's probably a little early relative to Michael because you've seen so much of Michael.

And then secondly, you must be really confident in Now You See Me because whether you watch the election night results or the NBA or the NFL, you've got a pretty heavy load of commercials for that they're often not full 30 second. But what are you seeing in the cost of advertising from your vantage point? And what are you doing to change the marketing?

By the way, I'm a little surprised with AI and everything that it's actually getting harder to track films. It's kind of intuitively, I would think that you might have better visibility rather than worse. But I know it's always been an art rather than a science, kind of fracturing the question a little bit there, but I'm sure you get it.

Okay. Matt, that was a complicated question. But I'm going to go to our man on the ground actually in room right now to answer the first part of your question. Mike, you're there. Let's talk about resurrection.

Yes, I am. Matt, I had dinner with Bruce, the producer and Mel Gibson tonight. I was on the set today, had a visit actually with the new ambassador from Italy. And the visit, I felt like I was going -- walking in Jerusalem. The sets are extraordinary. The movie is on time, on budget. Mel showed me a bunch of footage that he shot at dinner. He is quite a filmmaker, and Adam and I hotly pursued him for this movie. It is going to be 2 movies. It is not 1 movie. It is going to be 2 movies, and Mel thought his comment to me tonight that it was going to be -- each one of those pieces would be less than 2 hours, and -- but he feels very confident that he's got a real one-two punch here. So what I saw today was extraordinary and Mel Gibson can really direct. So we are very optimistic, Matt.

Thank you, Michael. And Adam?

Yes. No, so I would add that the 2 movies combined cost less than any one movie that the major -- any one tentpole that the major studios have made in the last 10 years. So the economics of it are actually very powerful. The AFM market begins shortly, and it has been written and it is not incorrect that we once again have absolutely the hottest title out there, and we're getting incoming calls from everybody in the foreign distribution space asking to participate. And so the value of it is not only a value that we see, but it's a value that the entire market sees. And so we're really excited about the opportunity.

As it relates to your marketing question, I really appreciate how you framed it because I can tell you that we are being completely competitive in generating awareness and urgency in our films -- and yet we are still spending 30% to 50% less than competitive studios to do that work. And it is using every bit of available technology to make sure that when you are buying more traditional media, you're buying it in places where people are watching and actually watching the ads, but also leaning into all available digital opportunities, not only the ones you buy, but the ones you create. I was having only a little bit of fun on the Now You See Me speculation around the Heist at the Louvre, but there's a ton of content that we created to allow the audience to continue to have fun speculating on what happened there.

The same thing on The Long Walk when we had the treadmill screening, massive amount of pickup and social engagement on that. Sydney Sweeny and Amanda Seyfried, each thing they put out on The Housemaid is generating a massive amount of engagement. And those are things that are not high cost. But if you come up with creative on brand, on-message ways to incentivize the audience to share with one another, you can still create a significant motion picture event without spending massive sums of money. And being efficient continues to be a hallmark, but being efficient if you're not generating awareness would not be good for us or our filmmaking partners. And our filmmaking partners are all really excited with the work we're doing.

And the next question comes from Peter Supino with Wolfe Research.

Jack Stid here on for Peter. My question is with your upcoming slate increasingly concentrated behind larger, more IP-driven films, I was curious if those films garner higher international presales as a percentage of their production budget to offset the concentration risk.

Yes. I mean I would say that it's not always the case that the percentages change radically. We're actually still able to get a terrific collaboration with our foreign partners on our midsized and smaller films. But yes, on the bigger films, you sometimes will see a very outsized participation from our partners. And the risk profile of each individual film is something that we take very seriously before the movie is green lit. So we're not going into it surprised by that. We have enough intel to know going in what level of performance we need to hit the profitability threshold that we're aiming for. But we're still seeing great support for our mid and lower budget films, but it is true that on movies like Michael and Hunger Games and the Resurrection, that percentage can get up to a really strong number.

And the next question comes from Vikram Kesavabhotla with Baird.

I have 2. My first one is really a follow-up to some of your comments there. I'm curious if you could just share some of your observations from The Long Walk and Good Fortune and really from a higher level going forward, how you plan to balance your investment in the small and midsized portfolio relative to your tentpole films. And then my second question is on the library. You called out the strength there over the last 12 months. Curious if you can just talk more about what you think the drivers are that are supporting that performance and how sustainable you think this level is on a go-forward basis?

[indiscernible], do you want to take the second part first?

Yes, sure. I'll take the second part first. Jim, thank you for the question. I think you're seeing an expanding amount of contributors that are going into these numbers. It's really kind of unique and interesting that we've been growing certain areas like if you look at our self-directed channels, that business has started to really help our trailing 12 months. The series licensing that I'm seeing in the business right now has changed. I was looking at our numbers recently. We've sold about 5x more series than we did 5 years ago. And the series that we have are really strong and relevant. I mean, if you look at our Netflix top 10, we've had 9 in the top 10 recently, which is a big number for us.

And then lastly, as we've talked about earlier, with Adam producing IP that has other versions in our library, that helps pretty much become a halo for everything else we're doing. So all of that is contributing and really, I see the strength staying strong.

And as it relates to the slate mix, look, we're never going to be forcing big films onto our slate to make it look like we've got tentpoles. We just happen to have a really good stockpile of incredibly valuable content right now. So I think when we mentioned a few quarters ago that we were anticipating 2 to 4 tentpoles a year going forward, our development slate is putting us in a position to be able to accomplish that. We talked about another Resurrection and the possibility of a second Michael film. I think when we mentioned things like Naruto, which we've talked about on previous calls, I'm not sure everyone was clear on what the growing popularity of Manga is in the world, but it has been very clear generally and specifically in film, how big it is, and there is no bigger property than that. We're making huge progress on that front, making huge progress on the Monopoly front and a lot of conversation around things like American Psycho. But whether it's not priced like a tentpole, but we've had a great conversation with James Wan and Jason Blum about the new takes on both the SAW franchise and the Blair Witch franchise.

So we think we're going to have films across a broad range of costs, but we should be in that 2 to 4 tentpole year range for the foreseeable future because we've got a number of films that have earned it. But our midsized and smaller films are things that are coming with great talent, often with great IP or brand value, and we think there will still be a huge opportunity there as well.

Yes. I want to emphasize again, for me, the biggest uplift in recent years is the fact that we've taken deficits on television shows and retain rights in the feature film business that no other independent company has done. We retain all of our rights, for example, downstream rights to all our films in Latin America. We retain all rights in the U.K. And television, while we sometimes will do a cost-plus deal, really, we probably have 70% of our television shows, maybe 80% of them. We've been taking deficits for them. Even a show like Orange Is the New Black, you think about that as a Netflix show, that's not a Netflix show. It's on Netflix right now, but it's a Lionsgate show. And in a couple of years, when we get that back, we will be a very valuable addition to Jim Packer and his team on a global basis. And so I think we're starting to see the reward that we've had for taking these deficits all these years.

And as I said, we've doubled the television contribution over that last, call it, 10-year period. We've doubled it from about 15% to 30% of our library. So it's all working. And in addition, Jim has done an amazing job of building these self-directed channels, whether they're FAST channels, whether they're -- and so right now, any time we have an avail, any time it's not sold to a third party, Jim has the ability to monetize that title. You've got over 20,000 of those, and you can see it's starting to add up. So I think ultimately, it's our strategy to be different than every other independent that's starting to pay off.

This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks.

Thank you. Please refer to the Press Releases and Events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thanks all.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Lionsgate First Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nilay Shah, Head of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for the Lionsgate Studios Corporation's Fiscal 2026 First Quarter Conference Call. We'll begin with opening remarks from our CEO, Jon Feltheimer; followed by remarks from our CFO, Jimmy Barge. After their remarks, we'll open the call for questions. Also joining us on the call today are Vice Chairman, Michael Burns; COO, Brian Goldsmith; Chairman of the TV Group, Kevin Beggs; Chairman of the Motion Picture Group, Adam Fogelson; President of Worldwide TV and Digital Distribution, Jim Packer; and Senior Adviser to the Office of the CEO at Lionsgate and Co-CEO of 3 Arts, Brian Weinstein.

The matters discussed on the call also include forward-looking statements, including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in our public filings for Lionsgate Studios Corp. 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.

I'll now turn the call over to Jon.

Thank you, Nilay, and good afternoon, everyone. Thank you for joining us. We're reporting a quarter in line with expectations in what will be a busy transitional year for our Studio as we continue to refill our film and television pipelines, expand key franchises, create fresh revenue streams for our library and extend our IP to a new generation of consumers. During the quarter and throughout this fiscal year, we're taking a number of important steps towards returning to the solid and significant growth in fiscal '27 that we've previously projected.

The Hunger Games, Sunrise on the Reaping began shooting in Spain last week with Francis Lawrence directing one of our strongest Hunger Game cast ever for a November 20, 2026 release. Together with our partners at Universal, we dated our global theatrical event film, Michael, for release in theaters and on IMAX on April 24, 2026, kicking off our fiscal year with a major tentpole and giving an early start to next summer's box office.

As you read earlier this week, we will release Mel Gibson's Resurrection of the Christ, his long-awaited follow-up to The Passion of the Christ in 2 parts, 6 weeks apart. The first film will open on Good Friday in March 2027, and the second film will be released on Ascension Day in May 2027. Our fiscal '27 is now anchored by 3 major tentpoles, the Hunger Games, Michael and the First Resurrection film. The Second Resurrection film allows us a tentpole start to fiscal '28. During the quarter, we announced a new Saw deal, partnering with Blumhouse and Atomic Monster and putting the franchise back in the hands of its original co-creators, James Wan and Leigh Whannell.

The deal elevates Saw to a new level of potential box office performance while maintaining our existing ownership and distribution. Our Seth Rogen, Evan Goldberg produced comedy, The Studio for Apple TV+ earned 23 Emmy nominations, the most ever for a freshman comedy and the series has already been renewed for a second season. The Hunting Wives from Lionsgate Television and 3 Arts Entertainment has entered the Zeitgeist, debuting it #3 on Netflix' top 10 list in its first week. Remarkably, it has moved up to #2 on their global list of English-speaking shows though it is only playing in the U.S.

Finally, our library driven by a significant lift in the John Wick titles due to the release of Ballerina, reported strong quarterly revenues on its way to setting yet another record with nearly $1 billion in trailing 12-month revenue.

Turning to our individual businesses. The Motion Picture Group's results in the quarter were impacted by the domestic box office performance of Ballerina. However, the film is approaching $140 million at the worldwide box office, overperforming in the ancillary markets and most importantly, satisfied our John Wick fans. This year's slate is back loaded with Francis Lawrence's gripping adaptation of the Stephen King novel, The Long Walk, the feel good comedy, Good Fortune, starring Keanu Reeves, Seth Rogen and Aziz Ansari, and the third installment of the Now You See Me franchise with Ruben Fleischer directing, the wildly entertaining thriller, The Housemaid directed by Paul Feig and starring Sydney Sweeney and Amanda Seyfried based on the New York Times best-selling novel is testing exceptionally well and has all the earmarks of a holiday season breakout. But our slate extends far beyond the theatrical box office.

To engage a new generation of audiences who want to watch and experience their content. We've expanded the focus of our global products and experiences group to include virtual experiences, interactive games and partnerships with leading digital platforms that complement our ongoing initiatives. In the virtual world, we recently announced a partnership with Roblox, which has more than 100 million daily active users to license our franchises to the next generation of talent in the creator economy.

As part of our effort to extend our franchise into real-world experiences, we opened the John Wick experience in Las Vegas in March and received a 4.9 Google rating from visitors. We're currently in talks to expand it to other cities and several of our key properties are being readied for launch on Broadway and other stages around the world with advanced ticket selling well in anticipation of the Hunger Games on stage opening in London in October and La La Land, shepherded by Wicked producer Marc Platt targeting a Broadway opening next year to be followed by Dirty Dancing and then Wonder.

Turning to television. We reported a strong quarter driven by higher episodic deliveries, higher margins on our new series and lower G&A as we continue to cut costs. During the quarter, we continue to lean into the high-end premium series that have always been our core strength. The Studio and The Hunting Wives join a slate that includes the comedy Ghosts and the procedural The Rookie, which continue to be perennial ratings leaders on CBS and ABC, respectively. Coming up, we have the Epic gladiator drama Spartacus: House of Ashur and the spin-off Power Origins for Starz. The Twilight TV series adaptation Midnight Sun for Netflix and John Wick, Under The High Table for a major streamer.

The rainmaker adapted from John Grisham's bestseller debuts on USA Network next week. Though we continue to see pressure in the broader TV operating environment, we're continuing to deliver noisy properties that resonate across every genre economic model and type of platform. Whether it's our partnership with Roblox, unlocking opportunities for creators or restructuring our Saw deal to take it to the next level of box office performance. Rolling out 3 dozen proprietary fast channels to create new revenue streams for our library or partnering with Roku earlier this week on the new SVOD service, Howdy, collaborating with YouTube on branded channels for Gen Z and Gen Alpha audiences, amassing 6 million tik-tok followers for our movies ranking second only to Disney, among Hollywood studios or earning a record 23 Emmy nominations for the studio on Apple TV. We're delivering content to every audience, every demo and every kind of platform in our capacity as a content arms dealer of choice.

In closing, there are a lot of things we cannot control in the current operating environment. Streamers cutting back as they focus on profitability rather than subscriber growth, a blockbuster-centric box office that has yet to return to pre-pandemic levels and a new generation of audiences who look at content in completely different ways than their predecessors.

But there are also a lot of things we can control, extending our brands to reach the critical Gen Z and Gen Alpha audiences on the platforms where they live. Operating as a first mover and incorporating AI technology across our businesses, increasing efficiency, creating significant cost savings and helping us program our self-directed channels. Cutting costs and streamlining our organization to align with where the business is headed and continuing to exploit and strengthen our core asset, our library and portfolio of IP with more than 30 franchise properties in active development and production through prequals, sequels, spinoffs and adaptations. If we execute well in these areas, we will return to the kind of growth in fiscal '27 that our shareholders expect.

Now I'd like to turn things over to Jimmy.

Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our fiscal first quarter 2026 Studio financial results and provide an update on the balance sheet. For the quarter, Lionsgate Studios revenue was $556 million. Adjusted OIBDA was a loss of $3.7 million and operating loss was $10.6 million. Reported fully diluted loss per share was $0.35 and fully diluted adjusted loss per share was $0.32. Net cash flow used in operating activities was $109 million, while use of adjusted free cash flow for the quarter was $112 million. Trailing 12-month library revenue grew 12% year-over-year to $989 million, reaching record levels for the third consecutive quarter.

Breaking down our performance in the quarter, let's start with Motion Picture. Motion Picture revenue was $267 million, and segment profit was $2.4 million. Revenue and segment profit expectedly declined year-over-year in comparison to the prior year, which benefited from the carryover of fiscal 2024 films, including the Hunger Games, The Ballad of Songbirds and Snakes and Saw 10. Additionally, this past quarter included P&A for the June release of Ballerina, which we expect to be recouped in the next few quarters.

Moving to TV. Revenue of $289 million was up 20% year-over-year, while segment profit of $26 million was up nearly 150%. The TV continues to rebound from the strikes with revenue strength driven by growth in episodic deliveries for new and returning series, including Spartacus, P-Valley and Hunting Wives.

Now let's take a look at the balance sheet. We ended the quarter with $1.5 billion of net debt in line with the prior quarter and down from the $1.65 billion at the date of separation in May. Studio leverage at the end of the quarter increased to 6x as lower adjusted OIBDA expectedly impacted trailing 12-month figures.

Looking forward, we continue to anticipate that fiscal '26 will be a back-end loaded year, we expect the upcoming wide theatrical titles in fiscal '26 to drive strong carryover profits and long-term library value in fiscal '27 and beyond. Coupling this with a fiscal '27 slate that includes 3 tent pole films and a TV business is expected to see a significant increase in episodic deliveries next year we remain confident that we are still on track to deliver solid full year adjusted OIBDA growth from fiscal '25 through fiscal '27 as we previously discussed.

Now I'd like to turn the call over to Nilay for Q&A.

Thanks, Jimmy. Operator, can we open the call up for Q&A.

[Operator Instructions] And our first question will come from Brent Penter with Raymond James.

First one for me. Can you all update us on 3 Arts -- and how core is that asset to Lionsgate strategically? Or is that something that you'd be willing to sell some or all of your stake to help bring that leverage.

Yes, it's Jon. look, they're doing a great job. They're on a role in a really hot sector, and there's lots of investor interest in it. We've spent some money on acquiring 2 terrific management companies. I'm going to have Brian Weinstein expand on that in a minute. But for sure, we're cognizant of our balance sheet. And if we can bring in the right partner to help us fund the growth and help us a little on the balance sheet. I think that's something we would certainly and are considering.

And Brian, why don't you go from there? .

Thanks, Jon. Look, as Jon stated, there's -- the sector has a lot of investor interest, and there's a real commitment to the space of representation, 3 Arts has long been a clear market leader in management and production. And we do have quite a bit of moment somewhere is exciting. We've acquired 2 businesses recently; one, a sports business called A&A Management; and two, a broadcast news and personality business called OManagement, which just further deepen our commitment to those spaces and growing the company. We have momentum with 6 new shows sold, I should say, renewed and a bunch of new shows sold. And in particular, the relationship with Lionsgate strong. As we'll talk about later, Hunting Wives is a project that we share together with Lionsgate as well as [indiscernible], which is a new show, which is currently #1 on Peacock. So it's been a productive operating time period for us, and Jon address the strategic possibilities.

Okay. And then the library and the IP are clearly good parts of Lionsgate's value. Can you talk a little bit about your ownership of the library in terms of, obviously, you license out the international rights. So how should investors think about that record library revenue, what portion of it, you own, what portion of it you control as we try to value Lionsgate?

Yes, great question. And I'm happy to clear up together with Jim Packer, who runs our global distribution, sort of what seems to be a misconception. We own most of our library. We've been producing for 25 years now. We've put $20 billion into production and really pretty much own all of our library. At various times, we, like every studio, licenses out our product. But at the end of the day, if you even looked at the library results for this quarter, 29 out of the top 30 titles are titles that we own. And so Jim, maybe you could expand on that a little bit.

Yes. I think overall, if you look at the big picture, I don't think we'd be at $1 billion or close to $1 billion of trailing 12, if we didn't own a big significant portion. I think if you break it down a bit. On the TV side, we control and distribute 20,000 episodes of television, and we control those globally. So that part is very busy. On the film side, we released theatrically direct or directed in the U.S., Canada, U.K., LatAm and India, which is really the majority of the global box office ex China. And in those territories, we control and distribute all downstream ancillary rights. So those are a very significant portion of our revenue. For the rest of the world, outside of the U.S. and Canada, we do deploy a risk ligation model, where we license. We don't sell but we license our rights, various term lengths. We do get overages from those from our third-party partners. And given, as Jon said, since the company has been around since 2000, many of those rights, a very significant portion, are into our machine and being licensed by our teams.

Some other notes on the rest of world, as Jon mentioned, we own them all, but more importantly, most of them, but also through self-distribution of rights and reversions. This is a key step. 75% of the top 20 franchises we control in our licensing now or also in the next few years. So those are the drivers of our library, and I think we're really in good shape of that.

To wrap it up, really, the bottom line is we own most of our library in perpetuity in both film and television period.

Okay. And then one final question for me. That's super helpful. Jimmy, you talked about the impact in 1Q of some of last year's slate. Can you quantify for us in any way, kind of how much fiscal '25 benefited from the fiscal '24 slate and how much the year-over-year impact would be since fiscal '26, you're getting the later windows from the fiscal '25 slate, if that makes sense?

Yes. There was significant carryover in the prior year quarter from the '24 slate, as you noted. And the '25 slate, obviously, didn't have the same kind of carryover in Q1. You're talking about maybe $40 million, $50 million if you really kind of ballpark that. So we're feeling good. And in fact, we knew that was coming. So that was expected. We said we were back-end loaded. That was one of the reasons. And similarly, don't overlook, we had the releases this quarter, including Ballerina. So we had the P&A. We probably had a $20 million uptick in terms of P&A relative to the prior year quarter where there were 2 releases.

So we saw that and factored it in, and I think it's in a lot of your projections for those of you on the call, and it's a back-end loaded year. And when we get this '26 slate, which we're very proud of, rolling we're going to have replenished the pipeline, both film and TV, which is going to really propel us into that solid growth in fiscal '27 we're talking about. And don't overlook the fact that Michael Jackson will release early in April of our fiscal '27. So there'll be some prespend on that in Q4 of '26, which we're factoring in. Again, propels us into 27.

We've got 3 tentpole films with Michael Jackson in April, Hunger Games in November, Resurrection in March, and we have a significant increase in our TV episodic deliveries, including season 2 renewal we're very excited about for the studio, which has moved from Q4 of into '27 as well. So we really feel good about where we are.

Next question will come from Thomas Yeh with Morgan Stanley.

I was hoping to revisit the strategic optionality that you were hoping to unlock with the separation and fully acknowledging you probably won't comment on any M&A rumors. I thought I'd just take a shot anyway and ask how the tenor or nature of conversations around being a participant of M&A has changed pre or post separation? Is there an increased sense of urgency there?

Look, I would say the whole idea about the separation was to create optionality for both sides. I think that's exactly what's happening. I know the Starz folks are looking at their various potential paths, especially in this really disruptive and interesting ecosystem we're dealing with and obviously, so are we. So I think the rationale was absolutely right. I would say in the world we're in, we're the only really major with the scale that's significantly less than the other majors. And I would say that does speak to the potential for us to look to figure out a way to take advantage of our earnings power, but without some of the overhead that we have.

Now obviously, we are working every single day on overhead, and we are cutting it. We think we're doing a really good job on it. But I think that there's no doubt about it that we're focused on how to crystallize the value of our earnings power of our library of our array of intellectual property as I said in my remarks, it's pretty incredible.

When I look at the other companies and look at the intellectual product, we have 30 different pieces of significant intellectual property already in development in so many different ways in ancillary markets in reaching out to this sort of new generation of Gen Z and Gen Alpha folks, different platforms that we're able to take it, different merchandising and licensing opportunities. Really 30 significant pieces plus of intellectual property. So at the end of the day, we know what our earnings power is. As Jimmy said, we've got a slight going 3 tentpoles in '27, 3 tentpoles in '28 and Kevin should probably double the deliveries of scripted television into next year. Some of the shows were pushed back a little in terms of delivery.

And we're turning around and Craig and his team are very proud to turn around the unscripted area, you're going to see the benefit of that next year. So we understand our earnings power, but also understand what the scale we have that I think doing some kind of strategic transaction down the road is something that's probably going to be happened. I think there's a lot of ways that could happen, and we're pretty focused on it.

That's super helpful. And then as the film slate starts to line up and TV build momentum on production, Jimmy, can you just revisit the cash spending needs for the studio on a stand-alone basis? Is it still kind of around that 1.6, 1.7 run rate that we're looking at historically and dovetailing that with just free cash flow and how to think about that for the year and conversion would be helpful.

Sure. Look, I think on the content spend, there'll be a little less content spend, just the cycle of production is a little less in fiscal '26, probably like 1.3, then more going back to that 1.5, 1.6 level as you go into fiscal '27. Keep in mind next quarter, which is the current quarter Q2, we're in production on Hunger Games. We've got some prepping going on for Resurrection course. So the little use of continuing use of cash in Q2.

So I think on the free cash flow side of things, we're looking at the use of cash as we go from Q1 as you saw, again, the P&A spend as well as content spend going into Q2 and then mitigating the use of cash as we go through the second half of fiscal '26 and accelerating into positive free cash flow into '27. Very strong conversion. Again, once you set aside the timing of P&A spend and the timing of the content spend, you've got a really strong conversion factor. Again, no real significant cash taxes, no CapEx. You have some cash interest, but the capability really to turn that into very strong conversions.

Next question will come from Omar Mejias with Wells Fargo.

So first, Jon or Jimmy I know this is a down year with Ballerina, underperforming and Michael shifting to next year. But how do we think about adjusted OIBDA for next year and beyond once you're back with a full slate. Just curious on how do you think about the earnings power of the business?

With regards to '27, without putting specifics on it, I think you can look back just more broadly about the earnings power of this company. And you've seen we've delivered $300 million to $350 million adjusted EBITDA, we've got, if you really exclude the corporate overhead and look at it kind of on a gross basis, you're talking about close to $500 million. So the earnings power is significant. I think we moved into '27 like we said, we're looking more specifically as we frame very solid 2-year growth, right, coming off the fiscal '25. So I would just reiterate that, as we've talked about tentpoles, we've talked about the episodic deliveries. I would also say we're significantly saving on cost across the board, all categories. G&A going to start to see that on our distribution on our marketing across the board. So likewise, as we go throughout '26 and into '27, you're going to see cost savings also as a contributing factor.

That's very helpful. And maybe along those same lines of thinking, you have a lot of strategic value here. When looking beyond the poison pill, how do you think about the asset value of the business on a sum of the part basis? Just curious how internally you guys are thinking about the business? And any color you can provide on that, that would be good.

Yes. Look, I think if you look at the history of the studio business, you know that the value of that business has typically been the value of the library and the value of the franchises. And if you do some simple math, you'd say, well, where, as Jimmy has said before, our cash flow off of our library revenues over 50%, if we're close to $1 billion, and I've got to believe we're going to continue growing it with all of the movies and TV shows we have in the pipeline, if you're looking at $1 billion and over 50%, you're talking about $500 million, with a multiple, again, looking historically, you've seen multiples well in advance of 15x.

So if you start with that, you can do the math, Omar, add to that, the value of the franchise themselves, the value of 75% of 3 Arts, the value of some of our other minority interest and the value of the pipeline we've put in terms of the ancillaries, the Broadway shows, the video games, all of that ancillary business that we've been developing for the last 3 or 4 years. And I'm not going to put a number on it, but I would say that would be indicative to me of how you would value some of the parts.

Your next question will come from Peter Supino with Wolfe Research.

Jack Stid on for Peter. First, I was curious, with fast platforms gaining market share, is faster or lower cost service like Howdy incremental to monetizing your back catalog of IP. We noticed you recently published some full length films on your YouTube channel. I'd be curious to hear how that's going.

Great. Thanks, Peter. Yes, I would say, first of all, we look at all these businesses as not being cannibalistic. We will always license first. So these are rights that we're very careful to make sure that we do not -- do anything that would affect our licensing business, and they're really starting to grow to a level that is meaningful. If you just look at our Amazon add-on channels and you look at how fast we've gone from probably a $10 million to $15 million number in fiscal '23 up to about $60 million this year, and it continues to grow dramatically.

So I think overall, we feel it's a strategic business. We really like what we did with Roku because nobody is really in that space. It's a very inexpensive space. It's $3 easy add-on. You look at Roku with 61 million active users. We think that's the right spot to be. And we think it's a really interesting thing to only have 2 other partners. So we can all 3 of us share in the upside with Roku.

Your next question will come from Alan Gould with Loop Capital.

Question about the film strategy. A question about the film strategy. How do you see the marketplace changing right now? Are you going to get back to your typical portfolio of 10 to 12 midrange releases per year. And Adam, I don't think your first film that you started -- that you greenlit has even come out yet. What changes once we see films that are directly from you.

Thanks for the question. First of all, I would say that I think 10 to 12 is a fair number, but we're going to scale up or down depending on the size of the larger films that we're working from. What we're seeing in the marketplace right now is that well-made films based on IP do have a significant advantage. And as Jon just said, we've got so much great IP to work with now at the studio.

Some of those are larger scale films like we've spoken about with Hunger Games or the John Wick franchise or things like that Resurrection. But also when you talk about Saw and films like that, they don't require a significant expenditure for us to be able to deliver a great film and some great profitability for the studio. So we are trying to lean into IP. We're going to -- we're getting screen plays in now on both Naruto and Monopoly. There's a lot of other IP that we haven't yet begun to monetize that's available to us. So we're excited about that.

As it relates to what's going to be different, you are correct, the first film that was greenlit under the new team is the long walk in September. And as I think I stated previously, we're looking to make films that can be creatively great. We're looking to make films that have a clear marketing point of view, and we're looking to make films at the right price point. And I'm very proud of what those first films represent in that regard. Every single one of them, the price point is exactly where we believe it needs to be to create real profitability and to mitigate risk. The talent making these films is fantastic. Our screening results have shown that audiences are loving this batch of films. And so it is still the Motion Picture business. Each comes with some degree of risk, but we're excited that creatively from a marketability standpoint and from a price standpoint, we've got some really great films coming down the pipeline.

If I can just have a quick follow-up there. I know horror has been a genre that's been very successful for Lionsgate in the past, especially all the Saw films. But it seems like the horror films are just getting much more expensive as a lot of the major studios are also getting into it. Can we still produce our films as inexpensively and hope to have that kind of performance you've had in the past?

Yes. I don't think that it is necessarily the case that these films have to be expensive. Some other studios have had real success with modestly budgeted horror films. Longlegs was modestly budgeted horror film, this last Terrifier film was a very modestly budgeted or film. So while I think there is room because horror has been able to deliver significant grosses. One can justify more expensive for films today than you might have been able to do 5 or 10 years ago, but by no means has it eliminated the opportunity for lower budget horror.

Our last and final question today will come from Matthew Harrigan with Benchmark.

I was curious if you could update us on the Twilight animated series for Netflix. And is that indicative of you might look at doing something else on the animated side? And obviously, it's a great opportunity to be involved with Netflix, but I don't think you've done that much animation. So kind of what are the gives and takes there. And I was going to ask about Monopoly, Adam addressed it saying you have a screenwriter pair. But is Margot Robbie still involved with that? Or any other comments on who else might be involved with that?

It's Adam. I'll just quickly handle Monopoly before turning it over to Kevin. So Goldstein and Daley are the writers, have delivered a first draft of the screen plan. We're making revisions now. They are very, very excited, as are we, as is Hasbro. And yes, LuckyChap, Margot and her company, are actively involved creatively as producers on the film. So we are well downfield on this first step in the creative process. And I think we are excited about the possibility of getting this move into production in the near future.

It's Kevin speaking. On the Twilight animated, yes, we're working with Netflix who've had a lot of experience in multiple shows, including Blue Eye Samurai and many other adult animation, grown up prime time animation we've had an amazing experience developing the scripts. We had an incredible table read with a full cast assembled recently. We've been seeing some early animatic, Stephanie Meyer and her team, our producers at both Temple Hill and PictureStart and Lionsgate are all very enthused about what that is. And in engaging with this incredible IP that continues years after the last movie came out to uplift library sales and fuel our experiences and other parts of the Lionsgate ecosystem just makes this animation idea all the more powerful. And obviously, as much as we can do with Stephanie and Twilight, we want to and choose passionate about animation. And thus, we are as well, and we're looking forward to getting it on the air.

This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks. Please go ahead.

Thanks, operator. Everyone, please refer to the Press Releases and Events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.