Starz Entertainment Corp Aktie

Good day, and thank you for standing by. Welcome to the STARZ second quarter 2026 earnings conference call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd like to hand the conference over to your speaker today, Nilay Shah, Head of Investor Relations. Please go ahead.

Thank you for joining us for STARZ Entertainment's second quarter 2026 earnings call. We'll begin with opening remarks from our President and CEO, Jeffrey Hirsch, followed by remarks from our CFO, Scott Macdonald. Also joining us on the call today is Alison Hoffman, President of STARZ Networks. After our opening remarks, we will open the call for questions. The matters discussed on this call include forward-looking statements, including those regarding expected future performance. 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 most recently filed Form 10-K for STARZ Entertainment Corp. STARZ undertakes no obligation to update these forward-looking statements due to new information or any future events unless required by law. The matters discussed today will also include non-GAAP financial measures and key performance indicators. These non-GAAP measures will include adjusted OIBDA, unlevered free cash flow, equity free cash flow, and net debt. The reconciliation for these to the most directly comparable U.S. GAAP measures and additional required information is available in the 8-K we filed this morning, which is available on the STARZ Investor Relations website at investors.starz.com. This non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP.

I'll now turn the call over to Jeff.

Thank you, Nilay, and thank you all for joining us this morning. We delivered another strong quarter and entered the back half of 2026 with significant momentum across the business. We just completed a strong weekend with the penultimate episode of Raising Kanan season 5 and the premiere of our first owned original, Fightland. Raising Kanan delivered the strongest episode of the season. Most notably, season 5 has grown its audience from the first season 5 years ago, a rare achievement in today's television landscape. And I'm happy to report Fightland premiered as STARZ's second best-rated new IP launch of all time.

Its opening weekend demonstrates significant audience overlap with the Power Universe, which will expand audience engagement and reduce subscriber churn. Now turning to the quarter, our excellent second quarter results were driven by the finale of Outlander, the premiere of Raising Kanan season 5, and The Housemaid. The content portfolio in the quarter generated the second-highest audience engagement quarter of all time. This marks the fourth consecutive quarter of engagement growth since we separated. Consumer demand for our content, coupled with the results of our rate increase, delivered significant sequential OTT revenue growth. And perhaps more importantly, we returned to year-over-year OTT revenue growth in the quarter. Total revenue also increased sequentially in the quarter, despite a difficult comparison to the first quarter.

We expect this revenue trend to continue, putting us on a solid path toward achieving our outlook of positive annual OTT revenue growth in 2026. The strength of the quarter, our improved visibility into the second half of the year, and the early performance of Fightland increase our confidence that 2026 is shaping up to be a more significant inflection year for STARZ than we initially anticipated. As a result, we are now raising our adjusted OIBDA growth forecast and our unlevered free cash flow guidance, which Scott will get into in more detail. We also continue to see a clear and accelerating path toward our leverage target and our 20% margin target supported by improved OTT economics, greater scale in owned content, and continued operating discipline. Looking ahead, our content slate supports the momentum we are seeing across the business and positions us well for our updated outlook.

We have the highly anticipated return of P-Valley, the continued expansion of the Outlander universe through Blood of My Blood season 2, and the upcoming Michael biopic following its impressive theatrical run. Further out, we continue to build our owned content pipeline beyond Fightland with the Untitled Black Rodeo show starting production this month and several other STARZ-owned projects in development. During the quarter, we also made significant strides in the distribution side of the business. We have secured a long-term renewal with 1 of our largest distribution partners while expanding our fully distributed portfolio with 2 new partners. First, we launched a new partnership with Peacock during the quarter, making STARZ available as an add-on subscription to the platform for the first time. This partnership allows us to market STARZ to an additional 48 million subscribers, creating a new opportunity for customer acquisition and revenue growth.

Second, we recently announced a new bundle with Crunchyroll on Prime Video, further demonstrating our ability to reach highly engaged audiences through targeted partnerships. Together, these relationships expand our distribution footprint, increase awareness of the STARZ brand, and support our growth strategy while allowing us to reach large audiences without incremental platform investments. As our core business continues to strengthen and progress toward our goals of 20% adjusted OIBDA margin, delevering, and increasing unlevered free cash flow conversion, we have the flexibility to be selective as we evaluate strategic initiatives.

Our priority remains executing against our operating plan. We will only pursue M&A where it accelerates our strategy and creates value beyond what we could achieve organically. The progress we are reporting today is not being driven by a single title, a single partnership, or a single quarter. It is the direct result of disciplined execution against the priorities we use to manage the business: expanding profitability, improving free cash flow conversion, and reducing leverage. We have built a stronger business with a deeper and more balanced content slate, and we continue to create value through ownership, partnerships, and disciplined capital allocation. With that, I will turn it over to Scott to take you through the financial details and our updated allocation.

Thank you, Jeff, and good morning, everyone. I'm pleased to report that the second quarter was another strong quarter during which we delivered on or ahead of our expectations. Our financial story is simple: growing OTT revenue, expanding adjusted OIBDA, generating meaningful free cash flow, and reducing leverage. Based on our second quarter performance, we are updating our full-year guidance across several of these metrics, which I will walk through during my remarks. Total revenue in the second quarter was $308 million. OTT revenue was $221 million, growing year-over-year for the first time since the fourth quarter of 2024 and giving us strong momentum entering the back half of the year. On a comparative basis, the year-over-year growth in OTT revenue was negatively impacted by $3 million of OTT revenue related to our Canadian operations reflected in Q2 2025.

On a pro forma basis, excluding this $3 million, OTT revenue would have increased by 1.4% this quarter. As a reminder, we transitioned our Canadian operations from a distribution partnership with Bell to a content licensing model at the end of 2025. ARPU continued to improve in Q2 as the April price increase flowed through the base. We expect further ARPU expansion in the second half of 2026 as additional promotional cohorts convert to retail rates. Importantly, the revenue improvement we are seeing this quarter is coming through both better pricing and increased subscribers, not 1 at the expense of the other, which is exactly the balance we set out to structure. Linear and other revenue was $87 million, reflecting the continued secular pressure on traditional video households we've discussed on prior calls.

Adjusted OIBDA was $60 million for the quarter, ahead of our expectations. From a quarterly cadence perspective, we expect Q3 adjusted OIBDA to be in the mid-30s. This will be our lowest quarter of the year due to higher programming amortization from the airing of Raising Kanan season 5, Fightland season 1, and Blood of My Blood season 2 all during Q3. We expect Q4 to finish the year strongly in the mid-60s. Accordingly, we are raising our 2026 adjusted OIBDA growth guidance from low-single digits to mid-single digits, and we remain confident in achieving our 20% adjusted OIBDA margin target in the back half of 2027. Unlevered free cash flow was negative $15 million in the second quarter and positive $66 million year-to-date. Equity free cash flow was negative $33 million in the quarter and positive $35 million year-to-date.

As noted last quarter, we expected free cash flow to be negative in Q2, given the timing of content payments. And while that timing dynamic did play out, our free cash flow still came in ahead of our expectations. The free cash flow inflection we've guided to all year is materializing, and we are raising our unlevered free cash flow outlook to the mid- to upper-end of our previously provided $80 million to $120 million range. Conversion of adjusted OIBDA to unlevered free cash flow remains on track against our 70% target. Cash content spend was $182 million for the quarter. Now that we have exited the Universal Pay 2 agreement, we expect to report full-year cash content spend below $600 million on our cash flow statement and see continued improvement in the convergence of cash content spend and programming amortization this year.

Net debt was $566 million as of June 30, 2026, and our adjusted OIBDA leverage ratio was 2.9x. Our revolver remains undrawn, and we continue to maintain significant liquidity and financial flexibility. Today, I am pleased to announce that we have obtained firm commitments to increase our credit facilities by $100 million, comprised of a $67 million increase to our term loan A and a $33 million increase to our revolver, which we expect to close in the third quarter. Importantly, this transaction is not being undertaken to fund operations or support liquidity needs. Rather, it allows us to replace the remaining balance of our programming notes, which are working capital facilities that carry significantly higher interest costs than our credit facilities.

By refinancing these obligations into lower-cost corporate debt, we expect to improve annual free cash flow by approximately $4 million through lower cash interest expense while simplifying our capital structure. More importantly, even after incorporating this additional $67 million of term debt, we still expect to end 2026 with leverage approximately 2.7x. Put differently, the underlying deleveraging occurring in the business is even stronger than our expected year-end leverage ratio would suggest. Absent this refinancing transaction, year-end leverage would be meaningfully lower by approximately 0.3x, underscoring the strength of our adjusted OIBDA growth and free cash flow generation. As a result, we remain highly confident in the path toward 2.5x leverage and below, and believe the combination of growing adjusted OIBDA, increasing free cash flow, and lower financing costs will continue to strengthen our balance sheet over time.

As a reminder, the agreement to exit the Universal Pay 2 was signed in April 2026. Thus, we recorded the associated restructuring charge of $147 million this quarter, rather than in the March quarter. We continue to expect this to be the final content restructuring charge of this magnitude going forward, which sets the company up for meaningfully lower restructuring activity from here. Given the timing of our final cash payments to Universal in 2028, we believe 2029 is shaping up to be a significant year for free cash flow growth relative to the trajectory we see across 2026 through 2028. The financial story for STARZ is getting stronger and simpler every quarter: growing OTT revenue, expanding margins, growing free cash flow, and reducing leverage. We're confident in our trajectory and we look forward to continuing to demonstrate our progress.

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

[Operator Instructions] Our first question comes from the line of Vikram Kesavabhotla with Baird. Your line is now open.

Okay, great. Hey, thanks for taking the question and good morning, everybody. Hey, my first one is on Fightland. Could you talk more about what you observed from the launch, particularly around customer acquisition and engagement, and what else is standing out to you so far as you reflect on the feedback and observe some of the early patterns of your members?

Good morning, Vic. It's Jeff, and I think Alison will jump in. We're really excited, as I said in my prepared remarks, it's the second best premiere of new IP in the history of STARZ. The social sentiment has been great and improving. I think the fan base is absolutely loving it. And it's doing exactly what we designed it to do, right? Which is to serve the audience that we have, lower churn, extend engagement, extend lifetime value at a cost that is much more reasonable than what we've gotten from the prior parent. I mean, just from a perspective, you know, Fightland is about $2.5 million per episode cheaper. So, you know, same amount of content, just much cheaper cost.

And so it's doing exactly what we designed it to do. Alison, I don't know if you want to talk about the subscriber acquisition. I think the other thing about Fightland that we're seeing is a really strong overlap with the Power Universe with Kanan, which was intentional. So that should play out in great post-season churn from a Power Universe perspective, and we'll see that through the business.

I would also say from an acquisition perspective, really seeing an influx of win-backs or lapsed-users coming back to the platform. So that was really great to see. We just had a massive weekend last weekend with Fightland, you know, getting off to a great start, really buoyed by the Kanan penultimate episode.

Okay, great. Thanks for the color there. And then separate from that, I also want to ask about this recently announced licensing deal for the Power Universe to join Netflix later this year. Obviously, it sounds like the Power library will continue to be on STARZ going forward as well. So with that in mind, could you just talk about what the potential implications of that deal could be for STARZ and some of the opportunities that could ultimately present for you?

Yes, I think, you know, we feel that, you know, when a mature show like Power, the original Power, which has been essentially in syndication for many years, it was on Hulu, now it's on Netflix, you know, goes to a bigger platform like that, it creates an opportunity for us. You know, it's a way for us to introduce the franchise to new audiences and new viewers and really reinvigorate. As a reminder, though, we are the exclusive home of the Power Universe. We have exclusive rights to all of the sequels, prequels, spinoffs, and it is the recent installments that are really driving the business in terms of engagement, in terms of first titles streamed, subscriber acquisition. So, yes, we think it's a good thing. It is part of our strategy as programming gets mature. We think that syndication model actually works for us.

Thank you. Our next question comes from the line of Brent Penter with Raymond James. Your line is now open.

Hey, good morning, everyone. First question, sort of a follow-up on that. As you move to owning your own series, you've talked about the cost savings and the international licensing piece. I don't want to get ahead of ourselves, but top of mind with the Netflix Power deal, as we look down the road, do you see opportunity to take advantage of those same kinds of deals for the library of owned titles that you're building?

Hey, Brent. It's Jeff. Yes, look, I think that's part of a big piece of our strategy of rebuilding our content library and getting ownership back on the network is building volume and scale with the franchises that we will then launch and sell internationally. As you know, Sky is the co-commission partner in the U.K. I think we'll have some more announcements from the rest of the world around Fightland, which will bring that per episode cost down even further. And I think as we build our slate back and get volume, it gives us opportunities to do output deals around the world, which is much more of an MG-type basis than a one-off. And then ultimately in the second window, the ability to sell those as they get older and we see less value for them on the core business to monetize them in that second window.

Yep, makes sense. And then on the Universal Pay 2 window exit, any way you can quantify what portion of viewership or engagement on STARZ came from those titles?

Yes, so we haven't aired those titles in almost a year and a half because we were working with Universal to tell them so we wanted to keep them fresh. So there's absolutely almost zero viewership or engagement tied to those titles. When we had it on the air, what we saw, like I said on previous quarters, that we were paying, you know, Pay 2 prices for library performance. And so we've been able to reinvest some of the savings into buying library to actually drive more engagement. And as I said in my prepared remarks, this quarter was our second-highest engagement quarter of all time. And so we had a great first quarter. We're accelerating to the second quarter here on engagement. And so we feel like we're in a really good place, and it was the right decision based on the performance of the titles when we had it in '24 and '25.

Okay, great. And then, Jeff, you talked about the ability to be selective with strategic initiatives. And in the past, you've talked about the value of the AVOD and SVOD platform you've built on STARZ. Can you update us on any conversations you all are having on that front, on any of those strategic initiatives?

Yes, look, I'm not going to get into any detail on any of those strategic conversations. I think what I will say, as I said in my prepared remarks, we do think there's an opportunity with a lot of these marooned linear networks that fit our demo very well to give them a digital future through our technology and our customer acquisition and our ability to move from linear to digital, like we've done with STARZ over the last 10 years. But again, you know, the core business is operating so well. Scott talked about '29 becomes a massive step up on equity free cash flow. And so the core business is on a really good path. And so unless, you know, these conversations lead to any kind of, you know, putting together of content that gives us additive to the revenue base within the leverage kind of calculus that we feel comfortable with on a company our size and we can grow the business more than we will organically, we just won't do it because we don't need to right now.

Thank you. Our next question comes from the line of David Joyce with Seaport Research Partners. Your line is now open.

Thank you. Could you please help us understand what the subscriber trends have been like? I know it's not something that you've been publishing regularly, but how is it looking year-over-year and into this new quarter? And then also, if you could drill down some more on the cash content spend versus amortization as a particular area to the free cash flow cadence, especially as we get into that 2029 inflection point you mentioned. Thank you.

Hey, David, thanks for the question. As we said, we're not really reporting subscribers, but what I would say is the business continues to grow. I think Scott said it pretty well in his prepared remarks that you can't just grow the business on rate. We're really excited about the Peacock deal because that gives us access to 48 million subscribers that we haven't had access to in a very simple and easy and consumer-frictionless way to grow our business. If you look at our other, you know, mature distribution partners, we're anywhere between 14% to 22% penetrated. So think about what that could mean on a base of 48 million as we grow that over time. And so I think we could grow the business just on Peacock alone over the next couple of years on a subscriber basis.

But what I would say is total subscribers in the quarter were up even in the face of a rate increase, which is very rare. So there's real strength of the business on both sides of the revenue equation.

David, this is Scott. We are really comfortable in coming in below $600 million on overall content spend for this year, and we kind of see below $600 million as the trend going forward. It's kind of a combination of the Universal deal, you know, the Pay 2 exit, as well as, as Jeff mentioned, getting the ownership economics on our originals, you know, where you see $2 million to $2.5 million, you know, lower cost per episode, which is meaningful when you look at the number of episodes we do a year. So we're very comfortable with that. And what will happen as we move forward, we're comfortable hitting the mid- to upper-end of our adjusted OIBDA target of $80 million to $120 million. As I mentioned earlier, content payments were really light in Q1. We caught that up in Q2 and we see positive for the rest of the year there, growing into '27, '28. But when you get to 2029, there'll really be a huge inflection point as the Universal payments will be done then.

So you should think of equity free cash flow of over 70% and unlevered exceeding 90%. To remind you, we have very small CapEx, about less than $20 million a year, and we, with our NOL position, don't expect to be a taxpayer. So we feel really good about how our free cash flow is going to go here over the next few years.

Thank you. Our next question comes from the line of Drew Crum with B. Riley Securities. Your line is now open.

Okay, thanks, good morning, everyone. So, you know, with you reaffirming the positive revenue growth for OTT, it being down, I think 3% year-to-date, how are you thinking about the shape or quarterly phasing in the second half? I know you gave some commentary around OIBDA in 3Q and 4Q, but asking specifically about OTT revenue. Thanks.

Look, I think we're going to continue to see OTT revenue growth sequentially through the back half of the year and into next year and we feel very confident and very positive about that, the trends we're seeing. Fightland off to a great start. We've got some, you know, we've got Michael coming on, as we said, we've got P-Valley, which is 1 of our biggest shows coming back. And, you know, I think 1 of the really great things about Fightland this past weekend is that we were acquiring subs at $6 and historically, when we were reporting subs and in that quarterly cadence of subs, we would have been probably acquiring at $2 to $3. We're seeing strong ARPU growth. We're seeing great sub growth, and the content is working, which is, you put those 3 things together with the slate going forward, we feel very confident in the revenue trajectory for the rest of the year.

Thanks for that, Jeff. And just can you remind us the timing of Michael on the platform? That's 3Q, and is that revenue flow in the third quarter, or is it more fourth quarter?

It will premiere on the platform August 10th.

Thank you. Our next question comes from the line of David Karnovsky with J.P. Morgan. Your line is now open.

Thanks, Jeff. Maybe just 1 on distribution. You know, we saw Peacock recently do a deal with YouTube Premium for their platform to get ingested into the bundle. I'm just curious what you make of that arrangement, whether you've ever thought of something similar for STARZ. Thank you.

It's a great question. I think as we've talked a lot over the last 10 years, STARZ has always been this premium add-on to broad-based distribution platforms. We were always sold on top of Comcast. We were sold on top of DirecTV. And when we pivoted to digital in April of 2016, we actually thought that the more things changed, the more they were going to stay the same and the digital world would then start to rebundle itself. And while it's taken a lot longer than we thought it would, you're starting to see that on scale. And so as you start to see 3 or 4 really big, broad-based streamers out there, you know, we're sold on top of Amazon, we're sold on top of Hulu, now sold on top of Peacock. I think you'll see that continue.

You know, we think that's why the Warner Bros. and Paramount deal is such a good deal for not only the consumer, but for independents like us, because it gives us again, another platform to be sold on top of. And so we're supportive of that deal as well. And so I think the deal you saw with Peacock and YouTube is just the next step in that, as Alison likes to say, you know, it's going from bundling to packaging and recreating what we used to have in the old linear business. And that is really good for the STARZ business.

Thank you. Our next question comes from the line of [ Sean Diffley ] with Morgan Stanley. Your line is now open.

Great. Thanks very much, team. I was hoping you could unpack some of the details on how this price hike compares to prior cycles. It sounds like it's going better given the content slate success, but how are you thinking about your pricing power relative to other streaming services? And then second question on capital allocation, as you've outlined, there's a clear path to more free cash flow generation. It seems like delevering is still a focus, but is there a path to doing buybacks or are you saving cash to reinvest or potential M&A? How should we think about capital allocation from here? Thanks.

Yes, thanks, [ Sean ]. I'll start with the rate increase. We're really proud of how the team has managed and defended the rate increase. As you noted, we're seeing disconnects are significantly lower than the last time we executed a rate increase. You should know also it has pretty much flowed through at this point on the streaming side. We have a little bit more to go on the linear affiliates who are participating, but we've really sort of managed and digested that rate increase at this point. And despite the increase, we're seeing record low churn in the business. And I think that does speak to the power of the slate, the engagement trends that we're seeing in the business. So we do feel that we have that, we're at the right price in the ecosystem and we feel really good about it.

In terms of capital allocation, it's a great question. I think you saw in Scott's prepared remarks, we were able to upsize the revolver and the term loan and still, you know, confident of getting to that 2.7x, which means the underlying business is actually delivering faster than what we have. And so we feel really good about that. And, you know, we think that path to 2.5x is going to come much sooner than we thought it would originally. And when we get there, I think we'll have a conversation and the Board, I think, will have a pretty robust conversation about what we'll do there. And, you know, that's a good problem for us to have. And so we'll have that conversation when we get there.

Thank you. Our next question comes from the line of Matthew Harrigan with Benchmark. Your line is now open.

Thank you. I guess try to turn this call on a little bit of a pin, Lionsgate, Fightland. You were actually running an advertising on Bloomberg and CNBC, and I thought it was really appealing. And I know surprisingly, you know, Bloomberg has actually had programming with the cast on some of their cultural segments. And it seems like something that could really have a lot of crossover appeal and clearly the law of small numbers or large numbers, depending how you look at it, it really would afford a lot of operating leverage. When you look at your, I know you probably won't give out the exact percentages, but when you look at the urban and the distaff side, is that really the great majority of the viewers? And if you really do have a crossover hit where everybody working in Manhattan suddenly wants to watch Fightland, isn't that something that could be pretty transformative in terms of increasing the bundling appeal and even just getting, as you commented, more standalone OTT acquisitions? Thanks.

Yes, I mean, look, I think we've always had a large portion of our customer base set in New York. I mean, the Power shows have been set in New York. We shoot them in New York. You know, if you look at even D.C., there's a huge following of the Power shows, you know, whether it's the CBC or Speaker Jeffries. And so there's a large portion of this country that really is obsessed with our franchises. And so we thought it would be really good to try to expand a little bit. Fightland's a little different than we've had because it brings the U.K. involved, it brings boxing involved. I think we can expand the footprint and the subscriber base through that show and what we're seeing early on is just that and as Alison said, we're seeing it with win-backs where we engage customers that have lapsed over a period of time because either they left the Power franchise or they just couldn't stomach the original OG Ghost dying as you've seen a lot socially.

And so we just thought that as you start to bring new content in that is designed for the audience but feels a little different that will start to actually market and put the shows in different places. I think you'll see that with the Black Rodeo show. It's similar to P-Valley in the sense that it's shot in the South but it brings in a whole element of the Black rodeo which is a real, you know, important thing in the South right now that you see throughout Texas. And so I think there's more opportunity to expand the footprint and expand the subscriber base around shows that are designed for the core audience, but are different stories and different accesses to different aspects of the world that are real live today that people haven't seen. And we saw that with P-Valley on scale.

Thank you. Our next question is a follow-up from Vikram Kesavabhotla with Baird. Your line is now open.

Yes, hey, thanks for letting me ask a couple more questions here. I wanted to follow up on the partnership agreement with Crunchyroll. What did you find appealing about that deal and how should we expect your broader approach to bundling to evolve going forward? And then separate from that, it sounds like you're optimistic about the opportunities from this recent Peacock agreement as well. I'm curious if you think about the other opportunities to further expand your distribution with deals like that one and if there's anything else on the horizon that we should be looking for.

Yes, I think Crunchyroll is really interesting to us because we both have powerful, engaged fan bases and they're differentiated. So it's an opportunity to really mine a new audience, I think, for both partners. We have been really aggressive in the bundling space and we will continue to be, so you will see more partnerships coming online. Like others, we're seeing that bundling is really good for the reduction of churn, but also it provides opportunities to basically increase your slate, have marketing optionality across the year because you have that many more tentpoles or programming opportunities to introduce customers to your programming. So we're really excited about that.

And then with Peacock, I mean, that is a big deal for us. I mean, that is parent-to-parent sharing a premium with a broad-based streamer, as Jeff mentioned, with 48 million customers. And that, you know, I think you'll see that our integration is going to continue to get deeper on the Peacock platform. It is a multi-phase rollout. So you'll see discoverability improve, the buy flow improve. And we do think that's, you know, a great model for others. We are built to be bundled. We are built to be a channel. We are highly complementary to a broad-based streamer. And there are others out there that I think, you know, we have that opportunity to do this with.

Okay, thanks for the color. And then separately, I also wanted to follow up on the Michael biopic joining the platform in the next few days. Can you talk about how meaningful that could be for the business and perhaps what you've observed historically on the platform when you add a film of that magnitude in terms of the impact to customer acquisition or engagement or anything else?

Yes, we manage the business in terms of tentpoles and we think in terms of supporting content. We fully expect Michael to be a tentpole for the service. So if you think about what we have going on right now, you've got Kanan having a massive finale this weekend, Fightland off to a great start. We have Michael coming, which we expect to be a tentpole, and generate both subscriber acquisition and high engagement. And if it does anything like what The Housemaid did, that propagated for a very long time and continues to drive for the network. So there's a tail on these movies that are big four-quadrant blockbusters that really resonate through the business. So, we're excited, we do have expectations against that that we think are reasonable, but we could also see that outperform our expectations.

Okay, great. And then just the last question for me. You mentioned that Raising Kanan grew its audience in season 5 relative to season 1. What do you think worked well about that show that enabled that dynamic? And what do you think that suggests about the potential outlook for the upcoming Power spin-offs, given that you have a few others coming up here soon?

I think we've demonstrated over the last, you know, 10 years, the ability to do spinoffs, sequels, prequels. You know, I think our average spinoff, sequel, prequel brings anywhere from 75% to 100% of the prior, you know, IP audience to the new spinoff. I think it's part of the reason why we, you know, launched Fightland on the back of Kanan. And so, and you know, when we look at IP, we're looking to franchise shows, we're looking, we know that based on the data that seasons 2, 3, 4, and 5 is where we see massive subscriber growth. And so whenever we're looking at a piece of content, it's really to be a recurring series that comes back and everything that we do in terms of how we schedule it, how we launch it, what we launch it behind, how we market, when we drop a trailer.

If you look at what we did this past weekend, you know, Fightland had an overlap of 2 episodes with Kanan. And we dropped the teaser trailer for Origins, which is the next spinoff right around that. You see a lot of social conversation of people going back to the OG Power to look at Kanan and Ghost and their interaction there. As, you know, Sascha Penn, I think, did a phenomenal job, who's the writer of dropping kernels into the end of Kanan, which will lead us into Origins, which then leads back to the original OG. And so there's all this intertwining that allows us to move the fan base from 1 show to the next, to the next. And we've been successful at doing that because we've had that season 2, 3, 4, 5 kind of mentality on everything we do. And we are very purposely built around premiering, teasing, dropping, and moving audience across. And you saw that with BMF, with the first season of Kanan. You just saw what we did with Fightland. You're going to see with Origins and 18 episodes, it gives us an even more opportunity to layer in other things around that. And so, you know, we are purposely built to get to seasons 2, 3, 4, and 5, because that's where you see the streaming business really grow.

Okay, great. Thanks, everyone.

Thank you. I would now like to turn the call back over to Nilay Shah for closing remarks.

Thank you, Operator, and thank you, everyone. Please refer to the News 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.

This concludes today's conference. Thank you for your participation. You may now disconnect.

Good day, and welcome to the Starz First 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, Investor Relations.

Good afternoon. Thank you for joining us for Starz Entertainment's First Quarter 2026 Earnings Call. We'll begin with opening remarks from our President and CEO, Jeffrey Hirsch; followed by remarks from our CFO, Scott MacDonald. Also joining us on the call today is Alison Hoffman, President of Starz Networks. After our opening remarks, we'll open the call for questions.

The matters discussed on this call include forward-looking statements, including those regarding expected future performance. 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 most recently filed 10-KT for Starz Entertainment Corp. Starz undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.

The matters discussed today will also include non-GAAP measures. The reconciliation for these and additional required information is available in the 8-K we filed this afternoon, which is available on the Starz Investor Relations website at investors.starz.com. I'll now turn the call over to Jeff.

Thank you, Nilay, and thank you all for joining us. Today marks the 1-year anniversary of our separation. The Starz of today is structurally stronger than the business was when we separated a year ago. Over the last 12 months, we've made significant strides in setting the business up for long-term value creation. We have been laser-focused on achieving our financial goals of increasing margins to 20%, converting 70% of adjusted OIBDA to unlevered free cash flow and delevering to 2.5x as quickly as possible.

I'm happy to report in our first year, we have met or exceeded all our key financial targets, created a new licensing revenue stream by restructuring the Canadian business, started to rebuild our content library through ownership, announced our first co-commission partner, helping to improve unit economics of our originals, the aged our slate while expanding our most popular franchises. And overall, we have unwound many of the constraints of operating within a studio structure. As I outlined on the last call, calendar '26 will serve as a financial inflection point for the business.

Cash flow timing is now closer aligned with industry norms. Adjusted OIBDA is becoming more predictable and consistent, and we are managing the business against the metrics that matter most: OTT revenue growth, adjusted OIBDA, free cash flow and delevering. We are off to a great start in calendar '26. We had a strong first quarter, meeting or exceeding all financial guides, which Scott will discuss in more detail. Our structural work is showing up directly in the numbers, and our content continues to perform. The finale of Power Book IV: Force started the quarter off strong. The premier Season 8 of Outlander achieved a 4-year series high in its Premier Week.

And just after the quarter, we released -- the Housemaid and it quickly set records as our best-performing Pay 1 film in both acquisition and streaming viewership. I expect this momentum will continue through the year. We have one of the strongest content slates ahead with our proven hit series, Raising Kanan, Outlander: Blood of my Blood and P-Valley, supported by the upcoming MICHAEL biopic. Congratulations to John and the Lionsgate team for the great box office performance. It will further strengthen our already robust schedule this year.

In addition to our lineup of returning series, we announced this week that our first STARZ owned original Fightland, will premiere in just a few months on July 31. If you recall from the last quarter, we also announced Sky as the co-commission partner on Fightland, driving even more upside to the already favorable unit economics. We also continue to make advances in our ownership strategy beyond Fightland with the recently announced greenlight of another STARZ owned original, the untitled Black Rodeo show. This family drama is set inside the thriving world of the Black Rodeo in Texas and production is set to begin this fall. This is another example of us continuing to build out our content library through ownership, which I remind you, allows us to control the cost from inception and globally monetize our IP.

As we have continued to highlight, rightsizing the content cost structure of the business has been paramount to reaching our stated goal of 20% margin. Today, we are announcing that we have exited our Pay-Two agreement with Universal. The Universal titles, which we originally planned to air through calendar '28 are incredibly popular and bring with them tremendous box office strength. However, due to the high subscriber overlap between Amazon and Starz, these titles are heavily watched before they come to us in the Pay-Two window. This unique dynamic with Amazon has resulted in lower viewership than we originally projected. In order to replace the revenue component of the Pay-Two, we will reinvest and acquire high-performing titles at superior economics.

As a result, I'm pleased to announce that our outlook for reaching 20% margin has moved 12 months forward to the back half of 2027 instead of exiting 2028. We are thankful to our partners at Universal for working with us to find a mutually beneficial solution. We continue to see 2 paths for value creation for the Starz business. First, our focus has been growing the core business to achieve the 20% margin guide. Second, we believe there's an additional path to growth through potential M&A opportunities. Our approach to M&A remains disciplined. Any strategic initiative must be complementary and additive to our core audience, must fit within an acceptable leverage parameter and create clear and identifiable value for our shareholders. But given the strength and the profitability of our core business, we do not need M&A to maximize shareholder value.

Before I turn it over to Scott, I would like to reiterate how excited I am about the growth of our business going forward. The free cash flow conversion is materializing. We are advancing ownership of our content library. We've rightsized the overall content portfolio, and we are anticipating continued rapid delevering. Starz remains focused and committed to executing on our growth strategies. We said calendar '26 would be an important year in showcasing what the business will look like as a stand-alone. The first quarter serves as evidence of just that. Now let me hand it over to Scott to take you through the financial details.

Thank you, Jeff, and good afternoon, everyone. I'm pleased to report that Q1 2026 was a strong quarter financially, and we delivered on or ahead of our key guidance metrics. Before I get into the financial details, I want to remind everyone that we are focused on 4 metrics going forward: OTT revenue growth, adjusted OIBDA, free cash flow and leverage. The decision to deemphasize subscriber counts is already being validated as pricing discipline and a focus on higher lifetime value customers are proving more valuable than maximizing quarter end subscribers.

Let me start with revenue. OTT revenue in Q1 was $211 million, up from $210 million in Q4 2025. Total revenue in Q1 was $307 million, down from $323 million in Q4 2025. This sequential decline primarily reflects the timing of Canadian licensing revenue. The sequential growth in OTT revenue is an important benchmark, and it was driven by exactly what we set out to do, pricing discipline on both the acquisition and retention side, fewer low-priced entry offers, more annual and multi-month plans. This is deliberate and is improving the health of the business. While we are not disclosing ARPU directly, ARPU did grow on a sequential basis in the period. We expect ARPU to continue to build through 2026 as promotional customers convert to higher retail rates.

In addition, we recently announced a price increase to $11.99, which will flow through the subscriber base starting in Q2. We continue to forecast positive OTT revenue growth in 2026 versus 2025 and are already ahead of where we expected to be at this stage of the year. Moving on to adjusted OIBDA. We delivered $58 million of adjusted OIBDA in Q1 2026, up sequentially from Q4 2025 due primarily to lower advertising and G&A expenses. On a year-over-year basis, adjusted OIBDA was down due to lower revenue and higher content amortization, offset by favorable advertising and marketing expenses. Importantly, adjusted OIBDA came in ahead of our internal plan, which gives us confidence in our full year guidance of low single-digit adjusted OIBDA growth. We also expect our quarterly adjusted OIBDA cadence to be more consistent in 2026 relative to 2025.

In Q1, as part of our efforts to rightsize our content cost structure, we recorded a $139 million restructuring charge, the majority of which is related to the write-off of content with limited strategic value for our platforms. As the agreement with Universal was entered into in April 2026, we will record the Pay-Two restructuring charge in the second quarter of 2026. The revised terms meaningfully improve our cash payment obligations, creating a significant reduction in cash content spend beginning in 2027. Moreover, we believe this is the final component of our post-separation content rightsizing efforts. Combined with the ongoing de-aging of our original slate and the growing owned content contribution, this gives us clear line of sight visibility to reaching our 20% adjusted OIBDA margin target in the back half of 2027, a full year ahead of our prior guidance.

Cash content spend in Q1 was $113 million, down year-over-year due to the timing of spend on output movies and originals. For the full year 2026, we continue to expect content spend to come in below $650 million, a meaningful decline from 2025. We expect the convergence of content spend and programming amortization to improve significantly in 2026 as compared to 2025 and continue to improve thereafter. When they reach near parity, you will see the full benefit of our content strategy reflected in the cash flow statement. Unlevered free cash flow was $81 million in Q1 2026, up $147 million year-over-year, while equity free cash flow was up $136 million year-over-year to $69 million.

I want to note that Q1 was positively impacted by lower content spend, which we expect to catch up in Q2. Accordingly, we are not raising our free cash flow outlook at this time. Turning to the balance sheet. As of March 31, our net debt was $523 million. Our leverage ratio at the end of Q1 was 3.1x, lower than our internal expectations for the period, and we remain confident in achieving our 2.7x year-end target. I do want to note that leverage increased modestly on a sequential basis due to the timing impact of trailing 12-month adjusted OIBDA, not a reflection of any change in the underlying business trajectory. Our $150 million revolver remains undrawn, and we have significant liquidity and financial flexibility to manage the business.

Let me close with guidance. We are reaffirming our full year 2026 outlook across all metrics. OTT revenue growth versus 2025, low single-digit adjusted OIBDA growth versus 2025, $80 million to $120 million of unlevered free cash flow, leverage exiting the year at approximately 2.7x. We will remain disciplined in how we manage the business, and we are confident in our ability to deliver on these metrics. Finally, 2027 is now setting up to be a very significant year for margin expansion and improved free cash flow generation, given the restructuring benefit, owned originals ramping and continued content cost reductions.

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

We will now begin the question-and-answer session. Go ahead, Nilay.

I was going to say thanks, Scott. You can hand it over for Q&A. So we can start. Thank you.

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from David Joyce with Seaport Research Partners.

Regarding the Universal deal, can you size the portion of your available titles, that represented? Is it all theatrical? Or is there episodic in there? And where would you be sourcing more content from? Would it have similar kind of aging? And what are the checks and balances that you've gone through to make sure you don't have overexposed content again?

David, it's Jeff Hirsch. Thanks for the question. This is a really unique situation because of the size of the overlap of our subscriber base sitting on Amazon, which sits in the Pay-One B from Universal. And so what you're really seeing is we were paying Pay-Two prices for library performance. And so we've talked a lot about the data information we have on the business. And we've been able to use the data to kind of recreate and reinvest into other library titles that give us the same kind of performance so we can protect the revenue component of that while actually just putting money to the bottom line while we reinvest. And so it's a little bit of money ball where we actually look at various titles from library from across the industry to kind of recreate the performance that we had at a much better economic level.

The next question comes from Brent Penter with Raymond James.

First one for me. Could you talk a little bit more about -- last quarter, you announced you're not reporting subs and you're deemphasizing subscribers. How are you seeing that reflected in your results so far? Anything specific you can talk about in terms of customer lifetime values, churn, overall revenue, how that's benefiting you?

Thank you so much for the question. I think we're really seeing the rewards of the pricing discipline that we put into the business. In this past quarter, we have seen churn reach an all-time low in our business. Basically, we're not bringing in low-value subscribers in the way that we were when we were in a quarterly sub chase. And so the health of the business is really there. Just another stat in terms of the last quarter that was really strong is engagement was really strong for the business. So we have a strong content quarter and we saw year-over-year engagement up about 8%. So I think we feel really good that this is the right way to approach and operate the business for the long-term revenue growth goals that we have as opposed to, again, orienting around a quarterly sub chase.

Okay. Great. That's great color. And then I also want to ask about the shareholder rights plan put into place in March after there was a big chunk of your shares that changed hands. Can you help us understand why that was put into place, why now? And then the rationale for the 1-year time line expiring next March? And then, Jeff, is that at all related to the M&A possibility that you just laid out?

Yes. Look, great question. I think there's a few components. So one is a newly separated company. And as you've seen, the market cap has moved around a lot and run up. So we wanted, I think, with the Board, we wanted to make sure that we had the ability and the time to kind of get the business rightsized and get value to the right place. And I think you're seeing that reflected in the stock and the market cap today. And so I think that the Board was really coalesced around making sure that we had the ability to get the business in the right place. Also, I think the Board is really also coalesced around our long-term vision for the business and how we can scale the business and wanted to make sure that we were laser-focused on that without any distraction. So we put that in place. It's a 1 year term. And then next year, we'll come up probably for a shareholder vote, whether we extend it or not.

Okay. Okay. Got it. And then final question for me. With the Universal Pay-Two deal ending and you're moving up the 20% margin goal. As we think a couple of years out to 2028, does this mean maybe you could get even above that 20% goal as we look ahead? Or is this really more of a timing thing that it's just a matter of when you hit the 20%?

I think it's a combination of -- we knew that we had the titles through calendar '28. And so as that was rolling off, we had great line of sight into what that margin profile would look like. As we're able to work with the Universal and move that forward, that obviously brings the profitability of the company greater into a shorter period of time. But as you know, there's multiple ways to grow margin in the business. I think as we continue to put more ownership on the network, de-age the slate, get into '28 and '29 where the majority of our originals are owned by Starz and kind of bring that entire portfolio over, there may be some opportunity to continue to grow margin as well.

The next question comes from Vikram Kesavabhotla with Baird.

I think you mentioned in the prepared remarks that you guys raised price recently. It'd be great to hear more about what gave you the confidence to make that decision and perhaps any of the early feedback that you're seeing from customers who've seen that increase.

Yes, Vikram, thanks for the question. We executed our price increase on April 1, and we have done this before. We are really positioned very well as a complementary service. $11.99 is a great price point for the value that we offer and for the audiences that we serve. So far, the price increase is digesting really well throughout our business. It's going to expectations. We'll have more information as we get into the summer and it really sort of plays out through the business. But going to plan and going very well, we think that we're very, very well positioned at that price point.

I would also add that April is off to a really strong start even with the rate increase coming in April 1.

Okay. Great. And then separate from that, I know you've talked about in the past getting to half year slate by 2027. It'd be great to get your updated thoughts on how you feel about that goal right now and maybe some of the puts and takes that will affect your ability to get there? And maybe just some more color on the progress you've made on some of the projects that you already have going.

Look, I've never been more excited about the pipeline that we have in the business. We just announced an untitled Black Rodeo Show, which is -- I think it's going to be one of our biggest shows. We're excited about production beginning that on in the fall. Fightland, which is our first owned original will premiere July 31st. We released a lot of the first look footage pictures of that yesterday, and it looks amazing. And we've got Kingmaker in development. We've got Masquerade in development. We're out. We've landed a couple of book series that we think could be big franchises for us. We've got all 4s.

We've announced Plan B being our production partner there. We're putting more writers around that. And so the pipeline has never been more full and more exciting. And I think you couple that with the Pay-One Lionsgate, we're going to have a very, very strong content slate for the next 1 to 2 to 3 years. And so we're right on track to delivering against that 50% goal, and I think we'll actually accelerate past that. Obviously, the hope is to get most of the slate owned and controlled by Starz long term, and that's something we're laser-focused on.

[Operator Instructions] The next question comes from David Karnovsky with JPMorgan.

Doug Wardlaw on for David. I'm wondering now that you're out of this agreement with Universal, what's the criteria for the acquisition of titles you'll be looking for to properly lead to whether user acquisition or to the churn? And then separately, does this lead to more room for spend on original content?

So great question. We've developed a really robust database of first title streams and viewership on movies that we've acquired over the past from all the different studios. So we have a pretty good sense on in terms of indie films, what kind of viewership and first title stream that we can pull from different titles depending on how -- what their box office was, how old they are, what characters are in it, what's the storyline. And so we're really able to kind of, like I said earlier, Moneyball the portfolio to replace what we were seeing from the Universal titles at a much more of a library price. we were paying Pay-Two rates and they were performing much more like library because of just the strength of the titles being watched to Amazon. So we've got a pretty good view on what we need to acquire and at what price. And so there's an ability to put a lot of the savings to the bottom line. You see that moving the guide to 20% in '27, but we're also reinvesting in the business to protect the revenue side of the business as well. And so we've been able to do both in a much highly economic positive aspect to the business.

Great. And then I guess, separately, you mentioned P-Valley is coming back at some point this year, and it's been a long gap. And I'm just wondering what your data kind of says about audience reengagement for shows that have hiatuses that long? And does that kind of lead to more marketing spend to kind of get some of those viewers back that may have been gone?

It's a great question. Look, I think with P-Valley specifically, and we've seen this with other shows that have had longer breaks, Outlander is a good example where we've had a lot of breaks. The fan bases are so obsessed with these shows that they've been continually looking for it and coming back on the network. So I actually think the moment we bring P-Valley back, the obsessiveness and the craziness for the fan base will get people there. We also have the ability, obviously, within app to notify customers, which is a zero cost game for us as well. And so we've got a lot of different marketing tools that are not economically expensive for us to go ahead and bring them back. But I -- Outlander is a great example. That fan base has created a thing called Outlander, which is the off-season, and they're online every day, wondering when that show is coming back. And I think P-Valley brings that same kind of intensity from the fan base. And so I expect it to be a wonderful return to the network and a massive both subscriber gain as well as viewership gain when we get it back 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.

Thank you, operator, and thank you, everyone. Please refer to the News 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, everyone.

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

Good day, and thank you for standing by. Welcome to the Starz Q4 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Nilay from Investor Relations.

Good afternoon. Thank you for joining us for Starz Entertainment's Fiscal 2025 Fourth Quarter Earnings Call. We'll begin with opening remarks from our President and CEO, Jeffrey Hirsch; followed by remarks from our CFO, Scott MacDonald. Also joining us on the call today is Alison Hoffman, President of Starz Networks. After our opening remarks, we'll open the call for questions.

The matters discussed on the call include forward-looking statements, including those regarding expected future performance. 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 most recently filed 10-Q for Starz Entertainment Corp. Starz 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.

The matters discussed today will also include non-GAAP measures. The reconciliation for these and additional required information is available in the 8-K we filed this afternoon, which is available on the Starz Investor Relations website at investors.starz.com.

I'll now turn the call over to Jeff.

Thank you Nilay, and thank you, everyone, for joining us today. It's only been 9 months since our separation, and I'm pleased to report that Starz delivered another strong quarter, both financially and operationally.

Before I get into the highlights of the quarter, I want to give everyone an update on how we are executing in our core operations and how we are positioned for 2026 and beyond. 2025 was a very successful year, one in which we exceeded all of our financial guidance. It's a feat we're especially proud of amidst the pressures you see happening across the industry.

We ended the year at an all-time high of 12.7 million OTT subscribers, growing year-over-year by 7.6%. We grew OTT subscribers in 3 out of 4 quarters, including adding 370,000 in the fourth quarter alone. This resulted in 170,000 total subscriber growth in quarter 4. We grew total revenue on a sequential basis in both quarter 3 and quarter 4. We exceeded our $200 million outlook for 2025 by 2%, delivering $204 million and grew adjusted OIBDA year-over-year. And we exceeded our leverage target ending the year lower than anticipated at 2.9x versus a 3.1x guide.

The successful 2025 was aided by an exceptionally strong December quarter. Our substantial subscriber growth in the quarter was fueled by the stellar reception to our programming slate. We premiered the highly anticipated Spartacus, revival to critical acclaim, and Power Book IV: Force Season 3 delivered impressive in-season viewership growth of 57%. The momentum from quarter 4 has continued into 2026, resulting in a strong start to the year.

The success of our originals proved that our Bedrock strategy is working. We deliver edgy, premium content for women and underrepresented audiences that broad-based streamers don't address. Content remains core to everything we do. And as we look at the rest of 2026, it's clear we have one of our most compelling lineups of originals. The slate includes the highly anticipated conclusion of Outlander and Power Book III: Raising Kanan, the premiere of Starz owned Fightland, the return of Blood of My Blood and the long-awaited return of one of our biggest hits, P-Valley, from Pulitzer Prize-winning, showrunner, Katori Hall. These 2026 originals, our Pay-One movies from Lionsgate, including films like The Housemaid and the Michael Biopic and our robust development pipeline make it clear that Starz has never been better positioned to keep our audience engaged, entertained and growing.

Before I get into our key financial targets for 2026, I want to recap our operational milestones in 2025. We restructured our Canadian business into a licensing revenue stream, prioritizing our focus on the U.S. market. We greenlit and completed production on our first wholly owned series Fightland, advancing our strategy of rebuilding our content library through ownership. And this morning, we announced that Sky will come on board as our co-commission partner for Fightland, further improving the already superior unit economics we get from owning the series.

We've also made significant strides in the aging our content slate this year while still expanding our network-defining franchises, Outlander and the Power Universe. More specifically, we successfully launched Outlander prequel Blood of My Blood and have greenlit a new Power Universe series. Power Origins, which has a supersized 18-episode order, is currently in production and will give fans an action-packed origin story of fan favorite characters, Ghost and Tommy as ambitious young entrepreneurs. These shifts are critical in achieving our long-term targets of increasing margins to 20%, converting 70% of adjusted OIBDA to unlevered free cash flow and delevering to 2.5x as quickly as possible. The changes fortify our long-term path and set us up to continue the growth we delivered in 2025 through 2026.

Our outlook for 2026 is strong. We expect OTT revenue to grow. We expect to deliver low single-digit percentage adjusted OIBDA growth versus 2025. We anticipate generating between $80 million to $120 million of positive unlevered free cash flow, converting the business to positive equity free cash flow. And we expect to end the year at approximately 2.7x leverage, an improvement from our current 2.9x leverage and well on our way to reaching our stated goal of 2.5x leverage. As we stated, we've spent several quarters unwinding some of the legacy constraints of operating within a studio.

We believe this has set up the business to drive strong cash flow generation going forward, with 2026 functioning as an inflection point. With the long-term growth of the business as our North Star, we are deemphasizing the need to manage the business around quarterly subscriber levels. As a result, we will not be disclosing subscribers starting with the March 2026 quarter. We remain laser-focused on OTT revenue growth, profitability, converting adjusted OIBDA to free cash flow and delevering. We believe this decision is in the best interest of our shareholders as it puts us on a path to achieving the targets we outlined.

Before I hand the call over to Scott, I want to reiterate that we continue to believe that there is an opportunity to scale our 2 core demos and grow our business as a result of the increased consolidation across the media landscape. Given our track record of profitably converting our business from linear to digital and our industry-leading tech stack, we believe we are uniquely positioned to capitalize on potential M&A opportunities. We are poised to increase our scale as assets that are strategically valuable to Starz become available.

Now let me hand it over to Scott to take you through the financials.

Thank you, Jeff, and good afternoon, everyone. I'll briefly discuss the fourth quarter's financial results, provide an update on our balance sheet and discuss our outlook for 2026. It was a strong fourth quarter and calendar year for Starz, as Jeff outlined. We were able to reach the key milestones we outlined on our previous calls for both the quarter and the year, and we positioned the post-separation business to drive a significant increase in free cash flow generation from 2025 to 2026 while further bringing down our leverage.

Let me start the breakdown of the quarter with an update on our subscribers. Please note that our financials for the fourth quarter reflect the transition of our Canadian operations to a content licensing relationship. And hence, I will focus my discussion on subscriber trends on Starz's U.S. business. Starz added 370,000 domestic OTT subscribers in the quarter, reaching an all-time high of 12.7 million customers. Additionally, total U.S. subscribers grew 170,000 in the period to 17.6 million as growth in OTT was partially offset by a decline in linear customers. The increase in subscribers in the seasonally strong fourth quarter was driven by demand for our scripted originals, including Force and Spartacus.

Moving on to revenue. Total revenue in the quarter was $323 million, up 60 basis points on a sequential basis. Sequential revenue growth was driven by an increase in distribution revenue, primarily from revenue recognized in the quarter related to the transition of our Canadian operations to a content licensing relationship and is reflected in the linear and other revenue line item on our income statement. This growth in distribution revenue was partially offset by a decline in linear and OTT revenue, which stemmed from ongoing traditional linear declines and heavy holiday seasonal promotions, including lower-churn multi-month plans.

Adjusted OIBDA for the quarter was $56 million, up over 100% sequentially due to lower programming amortization, lower advertising marketing and higher revenue. We ended the calendar year with $204 million of adjusted OIBDA, exceeding our $200 million outlook.

Looking at the balance sheet, we ended the quarter with net debt of $589 million, roughly flat with Q3 levels. Total gross debt was flat at $625 million and includes $325 million of our 5.5% senior unsecured notes as well as $300 million of our Term Loan A. Cash was $36 million, and our $150 million revolver remained undrawn at the end of the period. Leverage at the end of 2025 was 2.9x, better than our previous guidance of exiting the year at 3.1x.

Looking forward, as Jeff noted in his prepared remarks, 2026 is going to be a year with significant focus on driving increased free cash flow. More specifically, in 2026, we expect unlevered free cash flow to range between $80 million to $120 million, and we expect to generate positive equity free cash flow for the year. This represents approximately an $80 million to $120 million improvement year-over-year in both measures. The improvement in cash flow stems from lower cash content spend in 2026 versus 2025, which drives a closer alignment of cash content spend with the programming amortization expense reflected on our income statement.

Finally, as we complete the transition in the first few months of 2026 from being part of a studio business and bringing our content payment timing in better alignment with industry norms, with improved free cash flow and another year of at least $200 million of adjusted OIBDA, we expect our leverage to continue to decline year-over-year and exit the year at approximately 2.7x.

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

Operator, could we open up the call for Q&A?

Yes. Thank you. [Operator Instructions] Our first question comes from Brent Penter with Raymond James & Associates.

And first and foremost, I appreciate the 50 Cent hold music there. So good to see the $200 million target exceeded in '25 and then expected to grow in '26. Can you just walk us through some of the moving pieces? You talked about OTT revenue up. How should we think about total revenue? And then with that 20% margin target out there exiting 2028, what kind of progress in '26 does the guidance contemplate?

Look forward to seeing you on Monday. I'll take the second question in terms of the margin. So we're well on our way to executing against getting to that 20% margin coming out of calendar '28. You'll see a slight improvement in '26, but the lion's share of the improvement really comes in '27 and '28 when you start to see the Starz originals really become a lion's share of our programming slate. And there's a lot of de-aging of the content there, ownership of the content we announced, offsetting some of the costs by bringing Sky in on Fightland as a co-commission partner.

So when you take all of the de-aging of the content, Starz owned content, creating that incremental revenue stream by selling it internationally, you really start to see us move significantly toward that 20% margin in '27 and '28.

Scott, do you want to take that?

I would just say, on OTT revenue, we feel really good about growth next year. When you look at our slate, it's probably one of the best we've ever had. It's very consistently placed throughout the year. So we feel really good about that as well as our focus on our pricing strategy.

Okay. Got it. And then thanks for the commentary on industry consolidation. It sounds like you all are ready to capitalize if there's an opportunity. So I guess, what kind of assets would you be interested in? And then how should we think about the constraints in terms of your ability to buy something? Is there a leverage level you want to go above or an equity valuation that you would want to be at before doing any kind of deal? Or just can you help frame those constraints?

Yes, great question. I'm not going to comment on our conversations to date. But what I will say, and we've said this repeatedly, we have 2 very valuable core demos that make us really complementary and important in the ecosystem. And there's a lot of, I would say, linear networks out there that have great brands that kind of complement our 2 core demos, but are really marooned on the linear side of the business without any kind of tech capability or desire from their larger corporate parent to try to transition them and reconnect them with their consumers that have moved to the digital side.

And so those are kind of the characteristics that we look at to make sure that we're continuing to lean into what we do on an SVOD side, much more on an ad-supported side. And again, we continue to drive leverage down. Scott and I continue to focus on getting leverage down to that 2.5x. And so that's where we would like to operate. So any kind of deal that we do, we'd have to stick within that kind of leverage constraint to keep it around. We don't really want to operate in a business that's 4x, 5x, 6x levered. And so we'll be very cautious about what kind of deal we do when it comes to leverage.

Okay. Got it. And then putting M&A aside, given that free cash flow is starting to inflect, how do you rank order your other capital allocation priorities? Obviously, delevering has been the top goal so far. And -- but as you start to get closer to that 2.5x goal, what are your other capital allocation goals? And at what point, given where the valuation is, do you start to consider shareholder returns?

I think we look at this as it's going to be a good problem to have as we move forward. We -- as I noted, we expect free cash flow to improve or come in the range on unlevered basis, $80 million to $120 million. That's a significant improvement over the year. We'll start to have cash that we'll start to build, which will give us an opportunity to delever, further invest in the business. And at that point, we would be in a position to make the decision to start returning some of that cash to shareholders.

Our next question comes from Thomas Yeh with Morgan Stanley.

On the OTT subscriber momentum into this year, I think you mentioned 1Q is pacing pretty healthy. Can you just talk about the retention patterns that you're seeing for the subscribers that might have come in for Spartacus or it came back for Power Book IV Season 3? Is the slate structured to run that retention through? Or is there something more to do there still?

I think there's really 2 components to that. One is the slate is really set up to have a great connected year throughout the year. We have some of our biggest shows throughout the year, Kanan, P-Valley, Fightland, that's a real long good run across the year against one of our demos. We've got Outlander finale, Blood of My Blood coming in. We have a couple of acquisitions to fill the gaps there. So we have a great, complete slate, again, surrounded by great movies from the Lionsgate Pay-One and Universal Pay-Two, that plus, we really deployed -- what we've seen in our data, we really deployed longer-term offers, so annual offers, which we see really has -- when people roll from that 12-month offer to retail, the take rate up to retail is significantly higher. And so you see a lot more spike in ARPU at the end of those offers, and they're also great for long-term churn.

And so the combination of a great slate and longer-term offers really lead us to push churn down over the next 12 to 18 months.

Okay. That's helpful. Anything on the distribution partnership side that is kicking in as well? Or any update on progress there in terms of the bundled partnerships that you've taken on?

Thomas, this is Alison. I would say we continue to be at the forefront of bundling. This is really a focus for us. We've set up the business to be a complementary or an add-on partner to a broad-based streamer, to targeted streamers. And so that's a real focus for us. I think that we're excited to expand our bundling relationships, and we're excited to see expansion in our distribution relationships. And we think that even with the disruption in the industry that those will come.

And just to comment on particularly the bundling piece, our data is showing that it is very good for business. The bundles that we have in place are expanding our TAM. They're driving net new additions to the business. They're revenue accretive and then also ultimately are driving better retention for the business. So bundling and distribution are a big focus for us, and we're excited about the year to come.

Okay. Great. And then last one for me. You've talked about a time line to get to 60% plus slate ownership. If we just think about the opportunities there, is it fair to assume that we should think about the international sales as concurrent with that ramp and then ancillaries maybe start to build thereafter?

I think that's spot on. I mean we've got -- we've announced 4 originals that we have in some stage of production. All 4, we've just brought in Plan B, a production agency to help produce that show, and we're super excited about that. Kingmaker, Masquerade, the rooms have just finished, and we're just getting the materials into a place. We're out looking for production partners there as well to see where we're going to shoot those shows and at what cost.

And again, as you saw with the Sky announcement this morning, we have somewhat of a first-look deal with Sky, where they continue to look at our slate and be excited about it, and I expect that partnership to build and grow. Also, Fightland was Lionsgate, who's our international sales partner today, took Fightland out to Content London last night to very, very great reviews. So outside of the Sky markets, Lionsgate will sell that for us. So I expect that only -- the unit economics of Fightland to only continue to get better.

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

A couple of things. Last year, you had a few volatile quarters of cash flows in and out and margins up and down, tied to some of the final content arrangements with Lionsgate. How should we think about the cadence this year of both OIBDA and free cash flow? And on the free cash flow side, is it going to be moving around based on spending for originals? That's the first question.

Okay. Thanks, David. That's a good question. When you think about our P&L, it has been very up and down. A lot of that was driven by the transition from being part of a bigger studio, same thing with the related cash. We worked over the last few months to bring that better -- into better alignment. We worked with our teams as to better sync up when we're spending the dollars on the production and getting that more in alignment when they are much more in line with industry standards. When you're part of a bigger organization, the cash management is just totally different. It's not necessarily based on just what Starz's needs are.

So we feel like we're getting that into a really good place now as we move into '26. There's a little bit of work to do here in the first part of the year. But we feel like we're on a really good glide path to improve our spend. And we see content spend coming in under about $650 million next year. From a P&L cadence, you'll see very consistent over the year, especially in the first 3 quarters. The fourth quarter in '26 will be a more positive quarter, but the first 3 will be very consistent. It won't be as choppy as you've seen in the past.

Okay. And on my other question, I see you've got $41 million in production loans now. How many projects is that for? Is that just Fightland? Or is that a couple of others? And how many originals do you think will be in production by the time you're exiting 2026?

That is just for Fightland, that particular production loan. We look -- it's very cost-effective cost of capital. So we like to use those -- the line -- help us line up our cash flows with those shows. As we greenlight the new shows coming up here, we would expect to have production loans for those shows. It will take a time to -- as those will build up over time. But at some point, the show will be completed and you'll repay the loan. So it should end up being a fairly consistent balance after we get through the end of this year.

Our next question comes from Vikram Kesavabhotla with Baird.

I wanted to follow up on the co-commission deal with Sky. Can you talk more about why they were the right partner? And from a higher level, when you look at the content slate that you have planned, how would you characterize the demand environment for your programming internationally?

Vikram, it's Jeff. Thanks for the question. Look, we think that we've seen in the past when we were in the international business before that the U.K. market is an incredible market for all of our shows. And over time, that has actually expanded into France as well. And so we think there's a real big appetite for our content in some of the biggest international markets.

We've had a great relationship with Sky. We've licensed Amadeus from them. We've licensed Sweetpea from them. And so we have an ongoing relationship with them. I think they're very interested in what we have in production, and I think there's others that will be as well. And so I think the slate that we've designed, we've obviously designed it with international revenue in mind. And I expect that to continue to grow as we get more ownership back onto the network and own our own library.

Okay. That's helpful. And then you referenced the pricing strategy a few times in your previous answers. Can you just elaborate more on your philosophy there? I mean do you think there's one way for you to raise price on your subscriptions over time? And how do you plan to manage the cadence of that going forward?

Yes. So as we said and we'll continue to say, we're a complementary service. We've always wanted to be underpriced, way underpriced of the broad-based streamers out there. And so as they continue to raise rate, it gives us room to raise rate. You've seen the broad-based streamers raise anywhere from $1 to $3 over the last couple of years. So it's created a lot of room for us to have some pricing power against the broad-based streamers. And we'll continue to look at that right time, right place, right slate to determine whether that's right for our consumers. So we'll watch the industry, watch the broad-based streamers and we'll make decisions based on where we think that's right to drop that in.

Our next question comes from David Karnovsky with JPMorgan.

Doug Wardlaw on for David. I just wanted to get an idea of how you guys think about relying on spin-offs or reliable shows like Power and Outlander versus new originals. Obviously, each piece of content kind of plays a large part on what sub growth looks like in the quarter. So I guess, long term, how you weigh starting a new show versus a spin-off of sure thing?

Thanks for the question. I mean franchising here at Starz is a real kind of power of ours. I think we -- as you know, we've successfully franchised Power into 3 successful spin-offs and currently in production. And these are really reliable drivers of engagement, drivers of acquisition for the business. Same with Outlander, we're so proud that Outlander has been on the air since 2014 and still drives a huge engaged fan base, and we successfully launched Blood of My Blood last season.

But what they also provide is a real platform or lead-in for new shows. And so what you'll see is you'll see us using these reliable franchises to launch new IP and establish new IPs with audiences so that we can bring thread audiences from one show to the next as we're marketing and expanding our TAM with new audiences. So I think it's a real -- thank you for the question. I think it's a real part of our programming strategy, and it's something that we think a lot about in terms of how we make investments and how we schedule.

And the last question will come from Matthew Harrigan with Benchmark.

I should probably apologize for belaboring you with this one. But what's your reaction to Seedance? It caused a lot of volatility in the markets. Are there benefits -- I guess, speaking more broadly, do you see more benefits from you on the AI side as far as development? And I guess, secondly, how is the development process differing from when you were under the Lionsgate's weighing? I mean, what parameters are you emphasizing or maybe a little bit different in terms of moving faster or adapting to your demographic even more precisely?

It's Jeff. Thanks for the question. I think on the first one, look, AI is a -- it's going to be a very powerful tool to enhance the business. I think there's 3 or 4 areas that we're using it today. Obviously, with content and reducing costs that we used it with Spartacus, for some of the large scenes in Spartacus, I think, very successfully. On the boring side, I think you can do a lot of internal training with AI that you would have to do -- waste hours of employees.

Again, for us, with a large-scale D2C business that has over 10 years of acquisition data, retention data, pricing data, that, coupled with all of the content we have and how to schedule that content to best align around lifetime value and customer churn and marrying all those key KPIs together with hundreds of millions of data sets, I think the AI tools can really help us be efficient and continue to drive profitability for our business. I do believe it will be an additional tool for the industry. And I don't -- again, this is a lot -- still more art than it is science, and I think the creative process will continue to be that way. And we're excited to use it as a tool, but I think the business is really grown on the success of the uniqueness of our originals, and I think that's hard to replicate. And so we're excited about that.

From a second question, it's -- look, Lionsgate is a tremendous producer of television. We've had a great 9-year run with Kevin and team. And I think that will continue based on the Power Universe that we're still locked on the hip on. And so I don't expect that relationship to change. I think as we go out and start to rebuild our own library again and it gives us the ability to control front-end costs, a little better direct line to the producing partner that way. It also allows us to really get that incremental revenue stream from international that we weren't getting as part of being owned by a studio. And so those are probably the 2 biggest components that we have, a little more control with our team and a little more revenue on the other side.

So -- but again, we're still pretty much locked at the hip with Lionsgate on a lot of our big shows. As I said, they're our sales agent for internationally. They're over in London today. I think Packer continues to do a great job maximizing revenue for us there. So I expect that relationship to continue for a long time, and we're excited about that.

It would be interesting to see what your stock does now.

Thank you. I would now like to turn the call back over to Nilay for any closing remarks.

Thank you, operator, and thank you, everyone. Please refer to the News 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, everyone.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Starz Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Nilay Shah with Starz Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for Starz Entertainment's Fiscal 2025 Third Quarter Earnings Call. We'll begin with opening remarks from our President and CEO, Jeffrey Hirsch followed by remarks from our CFO, Scott MacDonald. Also joining us on the call today is Alison Hoffman, President of Starz Networks.

After our opening remarks, we'll open the call for questions. The matters discussed on the call include forward-looking statements, including those regarding expected future performance. 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 most recently filed 10-Q for Starz Entertainment Corp. Starz 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.

The matters discussed today will also include non-GAAP measures. The reconciliation for these and additional required information is available in the 8-K we filed this afternoon, which is available on the Starz Investor Relations website at investors.starzcom.

I'll now turn the call over to Jeff.

Thank you, Nilay. Thank you, everyone, for joining us today. I am pleased to report that Starz delivered a strong quarter, both financially and operationally. Before I get into the highlights of the quarter, I want to give an update on how Starz is executing against our post-separation plan. As we laid out at separation, our growth strategy has 2 clear paths. First, our focus has been on growing our core business by increasing our margins to 20% as we exit calendar 2028, converting 70% of adjusted OIBDA to unlevered free cash flow and delevering to 2.5x as quickly as possible. Rebuilding our content library through ownership is a key component to delivering this result.

Ownership of our series improves both the cost structure of our content and allows us to generate incremental revenue through international content licensing. Today, we are announcing a structural change to our Canadian operation. We are moving from a joint venture model to a stable, consistent content licensing agreement with our partner, Bell Canada.

Under this new simplified structure, the Starz-branded service will continue to be available in Canada and Starz will generate international licensing revenue, while Bell will assume full operational responsibility in the territory. This approach is consistent with our strategy of owning our content and creating incremental licensing revenue without the need to operate international services directly.

As we've shared over the past couple of quarters, we have been aggressively working toward delivering our previously stated goal of owning half of our slate. We opened several writers rooms just weeks after separation. A couple of weeks after that, we greenlit our first Starz-owned original, Fightland from Curtis 50 Cent Jackson.

The series currently in production in London, and we are thrilled with how the show is coming along. We have a stellar cast an award-winning stable of directors and producers, and we plan to have it ready to premiere next year. I'm excited to share today that we're in the late stages of bringing on a co-commission partner on Fightland, which will improve the economics of the series.

This will layer incremental international revenue on top of the previously discussed revenue from Bell Canada. The partnership will lower the per episode cost on an already attractively priced show and has the potential to expand to additional Starz owned originals. Both the Bell and Fightland deals will be modestly accretive to adjusted OIBDA and free cash flow in calendar 2026, and they will assist us on our path to reaching 20% margins exiting calendar 2028.

While we continue to strengthen our core business, we are also looking to build upon our valuable core demos of women and underrepresented audiences. With the potential for increased consolidation across the media landscape, we believe that we are uniquely positioned to capitalize on potential M&A opportunities.

Given our track record of profitably converting our business from linear to digital and our industry-leading tech stack, we are poised to increase our scale as assets that are strategically valuable to Starz become available. Turning to the quarter. We delivered on all key operational goals we outlined on our last call, including a return to positive revenue and U.S. OTT subscriber growth. U.S. OTT subscribers have now grown by 670,000 year-over-year with growth in 3 out of the last 4 quarters.

We expect to continue revenue and U.S. OTT subscriber growth in the fourth quarter and to finish another year with approximately $200 million of adjusted OIBDA. Digging deeper into the third quarter results, OTT engagement reached a 12-month high, driven by the performance of Blood of My Blood, the Prequel to our hit franchise Outlander. The series successfully reengaged the fan base while also attracting new subscribers, demonstrating the continued strength of the Outlander universe.

The quarter was also aided by the premier Ballerina from the John Wick franchise, which we strategically moved to air a quarter earlier than planned. Key tentpoles in the fourth quarter include Season 3 of Power Spin-off Force and the new chapter in the Spartacus World, House of Ashur.

Our slate continues to be strong as we head into calendar 2026. We have a full lineup of originals, including the return of some of our most highly anticipated tentpoles. These include the Epic Final seasons of Outlander and Power Book III: Raising Kanan, the premiere of Fightland, the return of Blood of My Blood and the new season of one of our biggest hits, P-Valley, from [indiscernible] winning creator to Katori Hall. Even with the strength of the slate, we expect investment in content to decrease year-over-year, helping drive improved free cash flow in calendar 2026. In closing, Starz continues to execute well in a rapidly changing operating environment. While the media industry continues to face significant headwinds, we are confident in our ability to deliver on our plan, and we are well positioned to take advantage of the structural changes we expect to take place in the sector over the next 12 to 24 months. And now I'd like to hand it over to Scott to go over the financials.

Thanks, Jeff, and good afternoon, everyone. It was a strong financial quarter, as Jeff noted, and I'm pleased that we reached the key financial metrics that we outlined on last quarter's call. Specifically, we grew revenue sequentially and added U.S. OTT subscribers. Looking forward, as Jeff noted, we are affirming our guidance for the remainder of the year, which includes achieving positive U.S. OTT subscriber growth and positive sequential revenue growth as well as generating approximately $200 million of adjusted OIBDA for the year.

Now let me walk through the financial details for the quarter, starting with subscribers. We added 110,000 U.S. OTT subscribers in the period, ending the quarter with 12.3 million. The increase in the quarter was driven by the successful debut of Outlander Blood of My Blood and the [indiscernible] Premier of Ballerina. We ended the quarter with 19.2 million total subscribers in North America, representing a sequential increase of 120,000 subscribers.

Our North American linear subscriber base ended the quarter at 6.2 million, which was flat on a sequential basis. During the quarter, the carriage dispute in Canada that we mentioned on our May call was resolved. As a result, we reinstated approximately 250,000 Canadian linear subscribers into our base, which offset linear declines in the U.S.

As Jeff noted in his remarks, we modified the structure of our Canadian business, which will result in us no longer reporting Canadian subscribers starting with the December quarter. The Canadian content licensing revenue that we will start to generate next quarter will be a component of linear and other revenue in our statements of operations.

Moving on to revenue. Total revenue for the quarter was $321 million, up $1.2 million sequentially. OTT revenue was up $1.7 million to $223 million, while linear and other revenue was down slightly to $98 million. The sequential increase in total revenue was due to the content slate, which drove improved subscriber performance. Next, our adjusted OIBDA of $22 million was expectedly down $11 million on a sequential basis due to higher advertising and marketing costs related to driving awareness and subscriber acquisition in connection with the premiere of the first season of Outlander Blood of My Blood.

Additionally, advertising and marketing spend was impacted by the marketing associated with the Premier of Ballerina, which we aired a quarter earlier than originally planned. Next on to debt. We ended the quarter with $588 million in total net debt. As a reminder, debt includes $300 million of our Term Loan A and $325 million of our 5.5% senior unsecured notes, plus $37 million in cash.

We had no borrowings outstanding on our $150 million revolving credit facility at the end of the quarter. Our leverage on a trailing 12-month basis was 3.4x for the quarter, better than the 3.5x we noted on the last call, and we continue to expect to exit the year with leverage at approximately 3.1x. As we have mentioned on our last couple of calls, we view 2025 as a transition year for our cash flow.

For the final quarter of 2025, we will have some fluctuations in the timing of our content payments, but we will reach a normal payment flow as we move through 2026. This will set us on a good path to deleverage, which, as we have noted, will be our focus in 2026 and into 2027. Now I'd like to turn the call back over to Nilay for Q&A. Nilay?

Thanks, Scott. Operator, could we open the call up for analyst questions.

[Operator Instructions] Our first question comes from Brent Penter with Raymond James.

First one for me. Jeff, I appreciate the color on Fightland and good to hear that, that's starting to make it through the process and expected next year. Can you just go over a little bit the mechanics in terms of the cost savings that you get as well as the international revenue you get when you produce your own shows with your own IP. I think you said like $1 million to $2 million in savings per hour from that in the past. So just can you help us understand where those savings come from?

Yes. Brent, thanks for the question. I think there's 2 components to getting IP ownership back on the network, which really helps drive us to that 20% margin goal exiting 2028. First and foremost is we're de-aging shows. So we're going from late-stage shows, which are more expensive on a per hourly basis to newer shows, which, generally speaking, are much cheaper than a season 4 or Season 5. We also can control the economics in terms of how we start the show. And so we set the budget and what we're willing to pay as we come into the content.

And so as we open the writers' room and they think about the show, they know what kind of financial envelope they have to work within, and we're rigorously defending that number against that. The second side, obviously, is as a U.S.-based company, we're creating our own content. We can monetize that around the world. And much like if you think about the output deals that HBO and Showtime used to do outside the U.S. as we get to scale and we add 2, 3, 4 shows each year that we own, we can actually package those and really drive kind of an originals output deal that puts an MG or a good amount of incremental revenue on top of the business.

And so creating and owning your own IP domestically allows you to control costs on the front end, but it also creates a lot of incremental revenue from outside the U.S.

Okay. Okay. I appreciate that. And then when you all originally announced Fightland in the writers room, there were a few other shows that you talked about as well. So any update on any of those other shows? And should we expect those also to be coming in the near term? And could that help improve your EBITDA margin then once you start to get more of those owned shows?

Yes. We announced rooms on 4 shows right after separation. [indiscernible] was one of them, and that room is just about to close. So we have most of the script materials. It's probably going to be shot in Venice. And so we're looking at production partners. We're also looking at brand partners to come in to also reduce the cost of that show.

The other one was Kingmaker. That room is just about finished as well, and we're really starting to look for production entities to help us produce that show as well. And those really should earnest come on the network into '27, where half the slate will be owned by Starz. The fourth show we talked about was [ all ours ]. We just announced a production partner there, and we will start to move into kind of a writer's room once we pick runner and a writer we're in that piece right now.

So all those shows are moving really, really well. We've added a bunch more into development since we separated. And so we were really laser-focused on getting half that slate owned by Starz in '27 and really then having the ability to go out and package those together and package kind of each year, 4 or 5 shows to a partner outside the U.S. that it will become our kind of distribution partner outside the U.S. and really drive significant incremental revenue.

Okay. Great. And then final question for me. On the EBITDA guide, can you just walk us through the moving pieces? Obviously, it bounces around quarter-to-quarter based on the costs. So what are the kind of bridge to get us to the $51 million, I think, that you need in 4Q to hit the $200 million? And then through the separation process, you all had talked about the $200 million EBITDA and then that could be something that you would grow off of. Can you talk about your level of confidence that, that's still the case that you hit the guide this year, but then you continue to grow off of that in the future?

Yes, this is Scott. So on the cadence to get to the $200 million, and we feel confident getting there as we sit here in November. The first quarter was -- I'm looking on a calendar year basis. Now the first quarter was our strongest quarter from an EBITDA basis. Q2 and Q3 were always expected to be lower from an adjusted OIBDA basis. And then Q4 was expected to be a better quarter. It's really primarily due to the timing of content and the programming amortization that we'll see in the quarter. So we're quite -- which are -- we know what those items are at this point. So we're confident that we will ultimately get to the $200 million. It's about $52 million that we need in Q4.

And just in terms of confidence level that the $200 million is a level that you can grow from?

Yes. We've continued to deliver against that $200 million. And if you think about the building blocks that we've talked about, getting ownership on the network controlling cost. You'll see our content cost spend will come down next year in '26. That will further come down as we get 4 or 5 shows that Starz owns on the air in '27. And that as we start to really get that content cost spend down, which is stuff that we can control, you'll start to see the business move that margin up to 20% coming out of calendar '28.

And so we feel very confident that we can move that EBITDA up based on the fact that this is self-help and self-control.

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

Could you please provide some color about particular programming viewership trends, you did have to cancel BMF recently, and you've kind of alluded to that last quarter. But -- how should we think about the performance of these shows granted that we look at the multi-day period?

Yes. This is Alison. I think one of the things that we mentioned with Jeff's remarks is that we did see improved engagement in the last quarter. So active -- we look at it in terms of monthly active viewers. They hit a 12-month high and so we were really excited to see that.

It was up about 7% versus the prior quarter. And I think that's a testament to strong performing content like Blood of My Blood and movies that we have like Ballerina. And so I think that, that sets us up in a nice way in terms of that Outlander universe and what we can expect from that.

We had Force premier last weekend. It went very well. We have early read on that, but we've seen stronger gross additions for Force than we saw with our prior 2 tent poles. So nice trajectory there. We're going into a really strong viewing and subscription time of year.

If you think about Black Friday and holidays and people being home -- so our expectation is that's a really nice platform for growth for the service. Obviously, we have Spartacus coming on in December as well, that will be a new title, but really nice to think about sort of the Power universe being able to discover Spartacus and new viewers coming in for Spartacus and being able to cross you with the power of universe.

So I think we're very excited about that. And then just as we've mentioned, we've got -- looking ahead to next year, we've got Outlander coming for a final season. We've got Kanan. We've got P Valley coming back. We've got Fightland, as Jeff mentioned. So we're feeling really good about our slate, what we're seeing in terms of engagement and what we have coming up.

And can you provide color on how much of your overall viewership of your services is on theatrical content as opposed to these originals?

Yes, definitely. In general, as it pertains to viewership or even how we think about subscription or subscriber acquisition, we measured in terms of first title streams. It is about 50-50 -- it will vary by platform. So for instance, our own retail app will lean a little bit more towards the original series. We'll see more viewership and subscribers coming in there for our originals.

But then other platforms, other distributor platforms that carry us might rely more heavily on the movies. So it really is a nice portfolio. And I think if you think about our amortization versus sort of the viewership and the subscriber acquisition, it's all really nicely aligned to performance.

The other thing I'd add, David, is if we look at the lifetime value of our customers, the consumer -- or customers that watch an original on a movie, their lifetime value is significantly longer than if just one watch one or the other.

So having a good mix of the portfolio of both originals and movies together really helps drive reduced churn and increase lifetime value.

Our next question comes from David Karnovsky with JPMorgan.

Jeff, it would be great to get your thoughts on the streaming landscape currently. I think investors sometimes have concern generally as they look across domestic operators on how much incremental volume or pricing growth there is from here. So I'd be curious to get your thoughts broadly and then if you can tie that context back to your confidence on continued OTT subscriber revenue growth at Starz, that would be great.

Yes. I think as I said in my prepared remarks, there's a lot of headwinds out there. I think there's a lot of moving parts. There's a lot of integrations of platforms. There's a lot of consolidation going on. And I think all of that creates a lot of noise in the marketplace for consumers, and it makes it hard, especially for us because we are a complementary service, and we do depend on these large broad-based streamers to package us, bundle us and sell us.

We're sold on top of Hulu, we're sold on top of Amazon. I think we're the most bundled service on Amazon today. I think we're over 2/3 of all their bundles have a Starz component, and that's really been our strategy. And so as people continue to change and focus on themselves to figure out what their platform looks like, it gets it a little more complicated for us to get sold on top of.

But as you saw, we've had 3 out of the last 4 very strong subscriber quarters. We think that will continue based on the strength of our content slate in the fourth quarter and through all of next year. And as people continue to raise rate as a way to drive revenue, it creates room for us to also raise our rate because as a complementary partner, we've always wanted a large gap between the stated retail rate of our broad-based streaming partners versus our complementary service.

And so it continues to give us the ability to raise rate if we need to. But for now, we really think based on the strength of our content, we can continue to grow subscribers on an organic basis without -- and revenue without having to put rate on the business today.

Great. And then I want to follow up on your M&A comments. I don't know if it's possible for you to give any more detail in terms of assets you might be interested in and how you think that can transform Starz'. And then how should we view Starz' potential financing of any deals just given your goal to delever and maybe use of equity being a challenger.

Yes. I'm not going to comment any specific names, but I think I've said on a few quarters ago that we would like to diversify our revenue base from just an SVOD base into an AVOD and an SVOD base, because of the nature of the adult nature of our content and the amount of content we have, it's not really possible for us to expand into an AVOD basis in terms of competing with the large giants in terms of advertising.

But the one way we can do that is to look at [ maroon ] linear networks that are -- that their consumers have moved to the digital side, but the brands are stuck on the linear side. We can use our tech platform to kind of -- to reposition those brands into the digital world that are very complementary to the Starz content on the SVOD world. And as we've seen and a lot of the work we've done, as you put complementary AVOD businesses next to the SVOD business, the churn reduction on the Starz side is really meaningful, and it really can accelerate both subscriber and revenue growth on scale.

And so we're super interested in looking at that. I do think as these large companies continue to consolidate, pieces of those businesses that become less important to them because their focuses are on, whether it's the studio or the streaming services, not the linear, some of the networks that may strategically fit with Starz may become available.

And I think we are uniquely positioned because of our -- what we've done at Starz in terms of transitioning from 100% linear to 70% digital, doing that profitably, owning our own tech stack, having our own customer acquisition team, having our own data stack, we're able to actually give that expertise to those networks and really put the businesses together and really generate a ton of growth.

In terms of the balance sheet is a pretty good size to be tax efficient in terms of some of these deals. But the one thing I would reiterate, and I said this in the last couple of calls is we're not going to be in the market of doing deals that puts an incredible amount of leverage on the business. We just won't do those deals.

And so if it's a deal that allows us to stay within the kind of the leverage range that we have, it fits with us strategically in terms of our 2 core demos and we believe that we can actually convert the business from linear to digital, and we think that's our home run deal for us.

Our next question comes from Thomas Yeh with Morgan Stanley.

I just wanted to follow up on your comments about the subscriber momentum into the back half of the year. Can you maybe just tease out the dynamics around churn relative to gross acquisitions supporting that momentum? Are we at a point where the slate is bridging consumers over from one series to the next and retention is benefiting? Or is this more like a gross acquisition story, given some of the bundling dynamics that have been picking up a little bit more?

Yes, I think what you saw in the quarter was -- I would say it was a 2/3 was kind of on the growth side, a 1/3 was on the churn side, depending on the platform. The Starz app churn continues to come down to all-time lows. It's a combination of stringing, like you said, stringing shows together, but also looking at longer-term offers.

If you look at the business, if we can get a consumer to month 7 and month 13, churn gets down in the low single digits. And so we've been trying to use pricing strategy to drive consumers to that critical point where we can bring churn down significantly increased lifetime value.

I think as we move into the slate in '26 when you have shows -- you really have shows sung back to back to back. I think you'll start to see that we'll be more reliant on the churn reduction side of the business and less on the gross add side of the business. We did announce Power: Origins, which is an extended a longer season. That's one of the reasons why we're excited about that is to try to do a lot more episodes over a longer period of time. So you have a show that goes instead of 8 to 10 weeks, it goes somewhere between 18 and 20, 22 weeks.

We think that may be another way to really drive churn down and really, especially at certain month points after the show premier getting that to a real all-time low. So we're looking at not only back-to-back shows, but length of series to try to see if we can manage that in a longer way in a more cost-effective way.

Okay. Understood. And can we revisit the Canadian business model shift? I might have missed this, but are you expecting licensing revenues to cover the existing subscription revenues? And is that licensing fee variable to what the partner benefits from, from a subscriber adoption perspective?

No, it's a great question. Yes, it does more than cover what we had in terms of the subscriber business. It's also much more stable in a sense. It was a unique deal where we had 3 partners in that deal. So it was incredibly hard for us to do what we do here in the U.S. in terms of managing the customer acquisition, retention, save cues, all of the different life cycle management. And if you think about, again, the building blocks of how we're getting this business to extend adjusted OIBDA and get to that 20% margin, Canada and licensing is, again, another international territory. So you have to think about it as a kind of overall output deal with Canada for our content. We hope to have more of those around the world in terms of driving stable incremental revenue to the kind of linear and other line item in the revenue side.

Okay. Great. And just last one for me. Can we revisit the cash spend outlook is $700 million kind of still the right number for 2026, and then it kind of continues to go down beyond that just based on some of the timing of how you transition to fuller slate.

Yes. This is Scott. That is our expectation that we would be under -- just under $700 million in 2026. And we're still working through and we'll provide a little more guidance on 2026 on our next call. But that's the plan, and we're also looking to move further down as we move forward, which is key as we de-age the content, as Jeff mentioned, get the ownership on the network that helps to bring the average cost per episode down of the portfolio of shows we have on the air. And that will contribute to getting down to that $600, $650 range here in a couple of years.

Our next question comes from Matthew Harrigan with The Benchmark Company.

Firstly, apart from the de-aging on the slate, I think you cited some advantages on the cost side in terms of development and maybe a little more latitude in terms of really using your data lake to optimize for Starz. I mean, even with the best of intentions, you may have had a bit of a suboptimization problem when you were so tightly bound with Lionsgate television.

And then secondly, I thought your cash burn was a little bit less than -- or actually quite a bit less than I had anticipated. I generally don't ask too many prosaic cash flow timing questions. But does that more or less imply that maybe some of that got punted into Q4 and maybe people are probably going to be in roughly the same place on the cash burn for the year once you -- before you get to normality more or less over the next couple of years?

No. As we noted, again, this is Scott on our prior calls, the cash was going to be a bit choppy right after the separation. So the prior quarter, Q2, we were actually quite favorable. And some of that was just part of the process of us starting to manage our cash. This quarter, we were a bit negative. We expect to be a bit negative next quarter as well on that. And then we start to improve as we move through 2026. I mean it doesn't change overnight. But some of the challenges has been we were not necessarily -- when we're producing shows in the past, typically, you pay for your show and fund it over its production cycle very consistently, and the shows are at different times in their production.

So you get a much more consistent cash flow. Just based on being part of the bigger studio, those cash payments dependent on the needs of the corporate parent. So we would -- they were way more -- they fluxed a lot more than you would like from a normal business perspective if you're just a stand-alone company.

That's what we're working on now to get that back into a better alignment with kind of what you see in the industry. And that's -- we're getting -- we're starting to get there as we get to the end of the year. We'll be working -- still working on it early in '26, but '26 will start to get back in that more normal cadence. And you'll see content spend, as we mentioned earlier, come down probably just below $700 million next year, which is a meaningful decline from where we are today. So it's really -- it just takes some time to get that all worked out through the system. So it will be a bit spotty as we get into the Q4 and maybe a little bit into Q1, but we'll see it start working to be much more consistent after that.

And I guess, then, on the development question, the development costs and your latitude for more creativity and maybe being faster on that side and getting costs down.

Look, I think all of having control over when you open a room, when you greenlight a show, when you go into production, to Scott's point, timing and aligning all of the production to the on-air date to the cash spend. I mean when you get to a consistent kind of assembly line from the day you put it into development to the day you greenlight, to the day you deliver and you pay on delivery and then you air it, ultimately, we should get cash content spend should be 1:1 with cash air over time if you are consistent.

Having control over our own production gives us the ability to align these shows and deliver them when we need to and so that we can get the choppiness of cash content spend out of the business. And so ultimately, the goal is when we get there is that cash content spend at amort should be almost 1:1 as the business goes forward.

And then on the marketing side, I thought you might have some ideas, particularly given the huge demographics actually that you're targeting. But at the same time, I thought you might have some more opportunities there. Are you hamstrung by having such a high bundling component in terms of really being able to do marketing yourself to address those groups through a targeted process?

I don't think we are. I mean I think bundling does a few things. I think back to the prior question, it allows us to align our content slate with others' content slates to fill gaps and you do that at a discount for the consumer. So ultimately, you're bringing 2 slates together to provide more benefit and more value to a consumer, which ultimately gives you more lifetime value.

But again, we are distributed across all different vehicles. We have our own retail app. And again, when we market to our demos in ways that are unique to us, I think it rises not just our own retail, but the component of stars that are in those bundles as well. So we see in our data when we put stuff on the top of the funnel, it drives -- it softens the bottom, not just for us and our own app, but for all of our partners as well, whether it's a stand-alone a la carte sub or it's in a bundled sub.

That concludes today's question-and-answer session. I'd like to turn the call back to Nilay Shah for closing remarks.

Thank you, operator, and thank you, everyone. Please refer to the News 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.

This concludes today's conference call. Thank you for participating. You may now disconnect.