Starz Reports Third Quarter 2013 Financial Results

Starz Reports Third Quarter 2013 Financial Results

ENGLEWOOD, Colo., Nov. 6, 2013 /PRNewswire/ -- Starz (NASDAQ: STRZA, STRZB) today reported third quarter 2013 results. Highlights include ((1)):


-- STARZ reached 22.0 million subscriber benchmark for first time ever; up
6% since September 30, 2012
-- STARZ/ENCORE combined subscribers hit 57.0 million; leads U.S. premium
television category
-- ENCORE subscriptions at 35.0 million; up 2% since September 30, 2012
-- Since June 30, 2013, STARZ subscriptions increased by 1% while
ENCORE subscriptions were essentially flat
-- Achieved increases in revenue of 11%, Adjusted OIBDA((2)) of 5% and
operating income of 1%
-- "The White Queen" STARZ mini-series multiplatform performance strong
through first half; close to 5 million viewers per episode and 60%
female demographic((3))
-- "Black Sails" (January 2014 debut) international TV sales off to solid
start - TV/digital deals secured covering approximately 115 territories
to-date including Canada, France, Germany, Israel, and Latin America
-- "Survivor's Remorse" placed into STARZ Original series development slate
- comedy project from LeBron James, Tom Werner, and Mike O'Malley; also
added "WonderWorld" scripted drama project with Owen Wilson and Rene
Balcer into development
-- Repurchased 4.0 million shares from August 1 to October 31, 2013; since
trading began on January 14, 2013, Starz has repurchased 7.4% of its
outstanding shares
(Logo: http://photos.prnewswire.com/prnh/20080522/LATH063LOGO-b)

"Our financial results in the third quarter show that our business is performing well and STARZ subscribers grew for the eighth consecutive quarter," said Starz CEO Chris Albrecht. "We are in the early stages of executing on our strategy to create compelling original programming that when combined with exclusive first-run movies offers a significant value proposition for our distributors and consumers."

"On the original programming front, 'The White Queen' delivered strong viewership and proved a true hit with women, who comprised approximately 60 percent of viewership. 'Black Sails' from Michael Bay is set for a worldwide January premiere which will kick off a powerful 2014 STARZ original programming slate with approximately 50 hours planned."

For the third quarter, revenue increased 11% to $446.1 million, Adjusted OIBDA( )increased 5% to $113.7 million and operating income increased 1% to $100.8 million.

At Starz Networks, revenue increased primarily as a result of higher effective subscriber rates partially offset by lower subscriptions under consignment agreements. The growth in revenue at Starz Distribution is primarily a result of increased revenue from the distribution of The Weinstein Company ("TWC") titles, various STARZ Original series titles and AMC's "The Walking Dead." A decrease in inter-segment eliminations also contributed to the increase in revenue. Lower revenue at Starz Animation partially offset these increases due to fewer projects in production at the company's Film Roman studio.

The increase in Adjusted OIBDA for the quarter was primarily due to the increase in Starz Distribution revenue as mentioned above. This increase was partially offset by Starz Networks due to an increase in cooperative marketing efforts with our distributors.

In addition to the changes in Adjusted OIBDA described above, operating income was impacted by an increase in stock compensation expense during the quarter.

Cash paid for investment in films and television programs increased 67% to $110.1 million for the quarter primarily due to timing of payments for various TWC titles.

Share Repurchases
From August 1, 2013 through October 31, 2013, 4.0 million shares of Series A common stock (NASDAQ: STRZA) were purchased at an average cost per share of $26.51 for total cash consideration of $105.1 million. Since trading began on January 14, 2013, Starz has repurchased approximately 9.0 million shares at an average cost per share of $24.21 for aggregate cash consideration of $219.1 million. These repurchases represent approximately 7.4% of the shares outstanding at January 14, 2013.

FOOTNOTES


1. Starz CEO, Christopher Albrecht, will discuss these highlights and other
matters during the Starz earnings conference call which will begin at
12:00 p.m. (ET) on November 6, 2013. For information regarding how to
access the call, please see "Important Notice" later in this document.
2. For a definition of Adjusted OIBDA and applicable reconciliation see
Non-GAAP Financial Measures and Schedule 1 below.
3. Starz internal estimates based on Nielsen Live+ DVR P2+ audience
projections, Rentrak VOD Essentials, affiliate estimates, and STARZ PLAY
views. Promotional sampling and mini-marathons not included. Assumes no
duplication across platforms.
NOTES


-- Unless otherwise noted, the foregoing discussion compares financial
information for the three months ended September 30, 2013 to the same
period in 2012.
SUPPLEMENTAL INFORMATION
As a supplement to Starz's condensed consolidated statements of operations, to be included in its Form 10-Q, the following is a presentation of quarterly financial information and operating metrics for the periods indicated.

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

QUARTERLY SUMMARY



(amounts in millions) 3Q12 4Q12 1Q13 2Q13 3Q13
---- ---- ---- ---- ----

Starz Networks $317.9 $315.8 $315.8 $340.0 $319.9

Starz Distribution (1) 75.0 97.0 76.2 171.9 117.6

Starz Animation 10.1 10.9 7.5 6.6 8.7

Eliminations (2.0) (1.5) (0.2) (1.1) (0.1)
---- ---- ---- ---- ----

Revenue $401.0 $422.2 $399.3 $517.4 $446.1
====== ====== ====== ====== ======


Starz Networks $111.5 $121.1 $114.4 $116.5 $106.5

Starz Distribution (3.7) (19.8) 2.6 14.5 7.4

Starz Animation (0.3) (0.4) (0.6) (0.8) (0.5)

Eliminations 0.6 0.5 0.1 (0.7) 0.3
--- --- --- ---- ---

Adjusted OIBDA $108.1 $101.4 $116.5 $129.5 $113.7
====== ====== ====== ====== ======


Operating income $99.5 $85.6 $104.9 $116.1 $100.8


Starz Networks $47.4 $69.1 $33.6 $23.1 $45.5

Starz Distribution 18.5 20.0 24.4 26.2 64.6
---- ---- ---- ---- ----

Total IFT (2) $65.9 $89.1 $58.0 $49.3 $110.1
===== ===== ===== ===== ======


Subscription units -
STARZ 20.8 21.2 21.6 21.8 22.0

Subscription units -
ENCORE 34.3 34.8 35.1 35.1 35.0


(1) Includes the
following home video net
sales $54.7 $78.3 $49.8 $126.3 $65.7

(2) Cash paid for
investment in films and
television programs
CASH AND DEBT
The following presentation is provided to separately identify cash and debt information.



(amounts in millions) 9/30/12 12/31/12 3/31/13 6/30/13 9/30/13
------- -------- ------- ------- -------

Cash $846.5 $749.8 $17.9 $30.9 $30.6
====== ====== ===== ===== =====


Debt:

Bank facility $5.0 $5.0 $235.0 $257.0 $309.5

5% senior notes 500.0 500.0 678.4 678.3 678.1

Transponder capital lease 35.8 34.8 33.8 32.8 31.7

Building capital lease - - 44.7 44.5 44.5
--- --- ---- ---- ----

Total debt $540.8 $539.8 $991.9 $1,012.6 $1,063.8
====== ====== ====== ======== ========
NON-GAAP FINANCIAL MEASURES

This press release includes a presentation of Adjusted OIBDA, which is a non-GAAP financial measure, together with a reconciliation to operating income, as determined under GAAP. We define Adjusted OIBDA as: revenue less programming costs, production and acquisition costs, home video cost of sales, operating expenses, and selling, general and administrative expenses. Our chief operating decision maker uses this measure of performance in conjunction with other measures to evaluate our operating segments' performance and make decisions about allocating resources among our operating segments. We believe that Adjusted OIBDA is an important indicator of the operational strength and performance of our operating segments, including each operating segment's ability to assist in servicing our debt and to fund investments in films and television programs. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking between operating segments and identify strategies to improve performance. This measure of performance excludes stock compensation and depreciation and amortization that are included in the measurement of operating income pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, income before income taxes, net income, net cash provided by operating activities and other measures of financial performance prepared in accordance with GAAP. Please see Schedule 1 below for the applicable reconciliation.

SCHEDULE 1

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



(amounts
in
millions) 3Q12 4Q12 1Q13 2Q13 3Q13
---- ---- ---- ---- ----

Adjusted
OIBDA $108.1 $101.4 $116.5 $129.5 $113.7

Stock
compensation (3.6) (10.2) (7.2) (9.0) (8.8)

Depreciation
and
amortization (5.0) (5.6) (4.4) (4.4) (4.1)
---- ---- ---- ---- ----

Operating
income $99.5 $85.6 $104.9 $116.1 $100.8
===== ===== ====== ====== ======





Starz
Consolidated Balance Sheets
(Amounts in thousands, except share and per share amounts)
(Unaudited)


September December
30, 31, 2012

2013
----

Assets

Current assets:

Cash and cash
equivalents $30,642 $749,774

Restricted cash 64,506 -

Trade accounts
receivable, net of
allowances of $39,239
and $35,045 247,985 241,415

Program rights, net 334,736 340,005

Deferred income taxes 652 990

Other current assets 32,816 44,727
------ ------

Total current assets 711,337 1,376,911

Program rights 352,274 338,684

Investment in films
and television
programs, net 148,748 181,673

Property and
equipment, net of
accumulated
depreciation of
$103,502 and $110,882 90,783 96,280

Deferred income taxes 22,044 12,222

Goodwill 131,760 131,760

Other assets, net 36,359 38,520

Total assets $1,493,305 $2,176,050
========== ==========


Liabilities and Equity

Current liabilities:

Current portion of
debt $4,867 $4,134

Trade accounts payable 6,059 6,162

Accrued liabilities 321,358 256,062

Due to affiliate - 39,519

Deferred revenue 4,257 24,574
----- ------

Total current
liabilities 336,541 330,451

Debt 1,058,939 535,671

Other liabilities 8,436 7,784
----- -----

Total liabilities 1,403,916 873,906
--------- -------

Stockholders' equity:

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

Series A common stock,
$.01 par value.
Authorized
2,000,000,000 shares;
issued and
outstanding
104,572,952 and
111,722,828 shares at
September 30, 2013
and the LMC Spin-
Off, respectively 1,046 -

Series B common stock,
$.01 par value.
Authorized 75,000,000
shares; issued and
outstanding 9,875,738
and 9,882,238 shares
at September 30, 2013
and the LMC Spin-
Off, respectively 99 -

Additional paid-in
capital 417,743 -

Accumulated other
comprehensive loss,
net of taxes (4,395) -

Accumulated deficit (318,846) -

Member's interest - 1,311,951

Total stockholders'
equity 95,647 1,311,951

Noncontrolling
interests in
subsidiaries (6,258) (9,807)

Total equity 89,389 1,302,144
------ ---------

Commitments and contingencies

Total liabilities and
equity $1,493,305 $2,176,050
========== ==========





Starz
Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
(Unaudited)


Three Months
Ended Nine Months Ended

September 30, September 30,
------------- -------------

2013 2012 2013 2012
---- ---- ---- ----

Revenue:

Programming
networks and
other
services $380,376 $346,246 $1,120,945 $1,075,124

Home video net
sales 65,677 54,724 241,846 133,372
------ ------ ------- -------

Total revenue 446,053 400,970 1,362,791 1,208,496


Costs and expenses:


Programming
costs
(including
amortization) 166,036 164,421 477,360 504,674

Production and
acquisition
costs
(including
amortization) 67,942 42,169 220,999 117,617

Home video
cost of sales 21,334 19,033 51,550 40,261

Operating
expenses 13,803 12,501 38,925 38,876

Selling,
general and
administrative 63,219 54,705 214,201 163,611

Stock
compensation 8,815 3,653 25,127 9,888

Depreciation
and
amortization 4,148 4,980 12,917 13,787
----- ----- ------ ------

Total costs
and expenses 345,297 301,462 1,041,079 888,714
------- ------- --------- -------


Operating
income 100,756 99,508 321,712 319,782


Other income
(expense):

Interest
expense, net
of amounts
capitalized (11,655) (9,475) (33,214) (18,805)

Other income
(expense),
net 195 (487) (1,798) 3,680
--- ---- ------ -----

Income before
income taxes 89,296 89,546 286,700 304,657


Income tax
expense (36,210) (34,264) (109,376) (100,572)
------- ------- -------- --------


Net income 53,086 55,282 177,324 204,085


Net loss
(income)
attributable
to
noncontrolling
interests (842) 1,142 (3,328) (1,154)
---- ----- ------ ------


Net income
attributable
to
stockholders $52,244 $56,424 $173,996 $202,931
======= ======= ======== ========


Basic net
income per
common share $0.46 $0.47 $1.48 $1.69
===== ===== ===== =====

Diluted net
income per
common share $0.43 $0.47 $1.42 $1.69
===== ===== ===== =====

Weighted average
number of common
shares outstanding:

Basic 114,621 119,996 117,616 119,996
======= ======= ======= =======

Diluted 120,522 120,047 122,626 120,047
======= ======= ======= =======





Starz
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)


Nine Months Ended

September 30,
-------------

2013 2012
---- ----

Operating activities:

Net income $177,324 $204,085

Adjustments to reconcile net income to
net cash provided by operating
activities:

Depreciation and
amortization 12,917 13,787

Amortization of program
rights 442,797 473,251

Program rights payments (323,220) (366,381)

Amortization of investment
in films and television
programs 172,877 86,742

Investment in films and
television programs (217,474) (194,988)

Stock compensation 25,127 9,888

Payments of long term
incentive plan (3,195) (33,410)

Deferred income taxes 2,799 (3,265)

Other non-cash items 9,658 877

Changes in assets and liabilities:

Current and other assets (59,269) (6,184)

Due to affiliate (39,519) (15,556)

Payables and other
liabilities (10,807) 2,246
------- -----

Net cash provided by
operating activities 190,015 171,092
------- -------


Investing activities -
purchases of property and
equipment (6,165) (7,870)
------ ------


Financing activities:

Borrowings of debt 1,081,000 500,000

Payments of debt (601,445) (503,035)

Debt issuance costs (2,348) (8,007)

Distributions to Old LMC (1,200,000) (400,000)

Repurchases of common stock (179,197) -

Distributions to Old LMC
related to stock
compensation - (2,024)

Minimum withholding of taxes
related to stock
compensation (2,961) (3,643)

Excess tax benefit from
stock compensation 2,096 -

Settlement of derivative
instruments - 3

Net cash used in financing
activities (902,855) (416,706)
-------- --------


Effect of exchange rate
changes on cash and cash
equivalents (127) 59
---- ---


Net decrease in cash and
cash equivalents (719,132) (253,425)

Cash and cash equivalents:

Beginning of period 749,774 1,099,887

End of period $30,642 $846,462
======= ========
IMPORTANT NOTICE


-- Starz (NASDAQ: STRZA, STRZB) CEO, Chris Albrecht will discuss Starz's
financial performance, and may discuss future opportunities in a
conference call which will begin at 12:00 p.m. (ET) on November 6, 2013.
The call can be accessed by dialing (877) 681-3375 or (719) 325-4874 at
least 10 minutes prior to the start time. Replays of the conference
call can be accessed through 3:00 p.m. (ET) on November 13, 2013, by
dialing (888) 203-1112 or (719) 457-0820 plus the passcode 1527207#.
The call will also be broadcast live via the Internet and archived on
our website. To access the webcast go to
http://ir.starz.com/events.cfm. Links to this press release will also
be available on the Starz website.
-- This press release includes certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995,
including statements about business strategies, market potential, future
financial prospects, new service and product launches including original
content programming, new distribution platforms for our programming, the
continuation of our stock repurchase plans and other matters that are
not historical facts. These forward-looking statements involve many
risks and uncertainties that could cause actual results to differ
materially from those expressed or implied by such statements,
including, without limitation, market acceptance of new products or
services, the timely launch of our original programming, the cooperation
of our distributors in marketing our services, competitive issues,
regulatory matters affecting our businesses, continued access to capital
on terms acceptable to Starz and changes in law and market conditions
conducive to stock repurchases. These forward-looking statements speak
only as of the date of this press release, and Starz expressly disclaims
any obligation or undertaking to disseminate any updates or revisions to
any forward-looking statement contained herein to reflect any change in
Starz's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based. Please
refer to the publicly filed documents of Starz, including the most
recent Forms 10-K and 10-Q, for additional information about Starz and
about the risks and uncertainties related to Starz's business which may
affect the statements made in this press release.
About Starz
Starz (NASDAQ: STRZA, STRZB) is a leading integrated global media and entertainment company with operating units that provide premium subscription video programming on domestic U.S. pay television channels (Starz Networks), global content distribution (Starz Distribution) and animated television and movie production (Starz Animation), www.starz.com.

Starz Networks is a leading provider of premium subscription video programming through the flagship STARZ(®) and ENCORE(®) pay TV networks which showcase premium original programming and movies to U.S. multichannel video distributors, including cable operators, satellite television providers, and telecommunications companies. As of September 30, 2013, STARZ and ENCORE serve a combined 57.0 million subscribers, including 22.0 million at STARZ, and 35.0 million at ENCORE, making them the largest pair of premium flagship channels in the U.S. STARZ(®) and ENCORE(®), along with Starz Networks' third network MOVIEPLEX(®), air over 1,000 movies monthly across 17 linear networks, complemented by On Demand and authenticated online offerings through STARZ PLAY, ENCORE PLAY, and MOVIEPLEX PLAY. Starz Distribution develops, produces and acquires entertainment content, distributing it to consumers globally on DVD, digital formats and traditional television. Starz Distribution's home video, digital media and worldwide distribution business units distribute original programming content produced by Starz, as well as entertainment content for itself and third parties. Starz Animation produces animated TV and movie content for studios, networks, distributors and audiences worldwide.



Contacts:

Courtnee Ulrich Theano Apostolou

Investor Relations Corporate Communications

(720) 875-5420 (424) 204-4052

courtnee.ulrich@starz.com theano@starz.com
SOURCE Starz

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Starz

Web Site: http://www.starz.com


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