Lionsgate reassures Wall Street on ‘Games’ profits

Studo still awaiting 90% of earnings to hit bottom line

Lionsgate leaders are reassuring Wall Street that profits from “The Hunger Games” have just started to flow.

In a conference call with analysts on Thursday morning, CEO Jon Feltheimer projected that 90% of earnings from “The Hunger Games” have not yet shown up on the studio’s bottom line. His declaration comes on the heels of Wednesday’s earnings report that fell short of expectations, elevated partly by the box office performance of “Hunger Games.”

Pic, the first of four planned sci-fi dramas, opened just a week before the end of Lionsgate’s fiscal year on March 31.

Feltheimer said $900 million in EBITDA will be generated over the next three years by Lionsgate operations, including the “Hunger Games” and “Twilight” franchises plus TV series such as “Mad Men” and “Nurse Jackie.” “With this level of profitability, we remain confident the Summit term loan will be paid down on schedule and our corporate debt at the Lionsgate level will be significantly reduced,” he said during the call.

The message appealed to investors, and Lionsgate shares closed up 3.6%, or 47¢, to $13.32 in active trading. Shares hit an all-time high of $15.68 in March, just before “Hunger Games” opened.

The CEO also said Lionsgate has paid down more than $100 million of the $500 million Summit term loan. Lionsgate acquired Summit on Jan. 13 in a $412.5 million leveraged buyout.

Feltheimer said production will begin in September on “The Hunger Games: Catching Fire,” the second film in the franchise based on author Suzanne Collins’ trilogy. He noted that Lionsgate racked up $170 million in international sales at Cannes, where it began selling foreign markets for “Catching Fire,” which will open on Nov. 22, 2013.

Patrick Wachsberger, the co-chair of Lionsgate Motion Picture Group, told analysts that “Catching Fire” had done “extremely well” in Cannes. “We got the best deals,” he added.

The former Summit chief also predicted “Catching Fire” will reach $400 million in foreign B.O., based partly on the performance of the second “Twilight,” which outgrossed the first in foreign markets by 50% (the first grossed $192 million overseas and the second took in $296 million).

“Hunger Games” has grossed nearly $400 million domestically and $250 million internationally, with China opening next month.

Rob Friedman, who co-chairs the motion picture group, said in response to a question that Lionsgate will remain vigilant on production costs for pics in the franchise. “We’re on top of that,” he added. “Hunger Games” carried a pricetag of about $80 million.

After the market closed Wednesday, Lionsgate posted a loss of $22.7 million for its fiscal fourth quarter ended in March vs. a profit of $49 million the year before due largely to $38 million in transaction and purchase accounting costs associated with the Summit deal. Revenue of $645 million surged by more than 70% from $377 million with contributions from the home entertainment release of “The Twilight Saga: Breaking Dawn — Part 1” and strong TV and library revenue.

Feltheimer noted that the fifth and final “Twilight” pic opens in November and that “Ender’s Game” — another potential franchise based on a fantasy novel — opens Nov. 1, 2013.

“We have established ourselves as the No. 1 studio in young adult franchises,” he said during the call.

Feltheimer listed other Lionsgate young-adult projects in development, based on Veronica Roth’s “Divergent” series, Erin Morgenstern’s “The Night Circus” and Patrick Ness’ “Chaos Walking” trilogy.

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