Focus to remain on young adult franchises

The combined Lionsgate/Summit will condense its slate to 14-15 films annually after it clears this year’s 20-film backlog created by the merger, CEO Jon Feltheimer told analysts in a Tuesday call. Execs also touted over $100 million in synergy savings and robust digital sales.

Feltheimer’s call came the day after studio released its third-quarter earnings, which exceeded Wall Street expectations due partly to strong performance from Summit’s final “Twilight” film and cost savings from integration that will diminish the studios’ previous output in sum. Before the merger, Lionsgate released 12-14 films per year, while Summit put out eight to nine.

“It’s a robust slate, but from sort of the main pipeline we ended up with 20 films due to the integration,” Feltheimer said. “I think we feel that we don’t need to do that many films.”

Feltheimer also said that the synergies from combining Summit with Lionsgate are “significantly larger” than management expected.

“We are looking at gross synergies of over $100 million, of which will benefit to us after our participation over $50 million a year,” he added. “So it’s really pretty significant, and again, extremely pleased with the Summit transaction, extremely pleased with the management that we’ve inherited and integrated. And overall, again, I think we’re in really, really good shape going into ’14 and ’15.”

The exec said Lionsgate will continue to focus on its established strengths in young adult franchises such as “The Hunger Games” and the upcoming “Divergent,” horror, action and comedy. Feltheimer said in his opening remarks that the average cost per Lionsgate film — production cost after foreign presales and before marketing — is $13 million or “not much more than our historical average.”

He also said Lionsgate is ramping up its releasing partnerships with Roadside Attractions (which bought four films at the Toronto Intl. Film Festival in September) and Codeblack Entertainment, which is releasing Kevin Hart’s stand-up comedy film “Let Me Explain” in July.

“Kevin is potentially the next Tyler Perry,” Feltheimer added.

Feltheimer noted that 2013 titles “Warm Bodies” and “Texas Chainsaw Massacre” have performed well but admitted that Arnold Schwarzenegger’s “The Last Stand” was a disappointment.

“Not every film will be a hit,” he added, noting that underperformers such as “The Last Stand” demonstrate the need for a “portfolio” strategy of diversification in titles.

During the call, Lionsgate execs also touted the company’s renewal of feature output deals, deleveraging its balance sheet, robust results from VOD and digital in new releases and library titles. consolidation of media buying with a soon-to-be-announced new agency deal; significant improvement in capital structure with a new revolving credit facility and early payment of the Summit term loan.

“The incremental margin generated by these synergies is greater than we anticipated,” Feltheimer said. “Coupled with the continued strong performance of our business, these synergies give us ever greater comfort with our three-year guidance of $900 million in EBITDA. We also believe that the $125 million in free cash flow we generated this quarter is indicative of our ability to continue de-levering our balance sheet going forward.”

Steve Beeks, co-chief operating officer, gave a particularly bullish outlook on digital revenues for Lionsgate.

“The amount of digital revenue, including Internet-delivered as well as VOD, has even surprised us with how much that is, and we’re actually having to raise our ultimates in both of those categories, which is really heartening,” he said. “I think we’re actually seeing strength in the overall business, particularly in digital, and when you look at our Q4 revenue, not only was ‘The Hunger Games’ revenue in digital really surprisingly robust but we had a tremendous quarter in library. We’re seeing the digital is really embracing library, so you look at our library numbers which are way up, and I think we had $135 million in library and a lot of that coming from digital, which is really the first time that we’ve seen digital becoming a library medium.”

Shares of Lionsgate edged back 12 cents to $19.64 on Tuesday after soaring to an all-time high Monday on ongoing Wall Street bullishness. The stock has more than doubled since Lionsgate bought Summit a year ago.

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