Lionsgate execs see profit ahead

Cash flow should surge to $75 mil in 2010

On the heels of Monday’s glum earnings report, Lionsgate toppers said they see cash flow surging to $75 million in fiscal 2010 from a $133 million loss a year ago.

The company’s film slate for fiscal 2009, which ended in March, lost $125 million, execs disclosed on a conference call with investors and media Tuesday. But they anticipate that figure swinging to a profit of around $138 million in 2010.

During the call, Lionsgate co-chairman and CEO Jon Feltheimer confirmed that the company’s ambitious startup pay TV channel Epix, a partnership with MGM and Viacom, won’t have all of its carriage deals in place by its skedded October launch.

“It’s kind of a rolling process for us,” Feltheimer said. But, he added, “We are all very confident.”

In talking about its fiscal fourth quarter and full-year earnings, the Lionsgate team didn’t mention — nor were they directly asked about — activist investor Carl Icahn, who has built up a 14.5% stake in the company and whose intentions remain unclear after he launched an unsuccessful debt tender offer.

“I don’t think Icahn is a big issue right now,” said analyst Alan Gould of Natixis Bleichroeder. “If Icahn bought enough stock to take him to 20%, which would take him to a change in control of the bank lines, that would be a big deal. But I don’t see how that would be good for him, or the company.”

But if Icahn wants to buy more Lionsgate, the shares just got cheaper. Lionsgate stock dropped 13.42%, or 84¢, on Tuesday to close at $5.42. It gained back some ground in after-hours trading.

“I strategically like what they’re doing, but the numbers were disappointing,” Gould said. He applauded the company’s decision, in line with the rest of Hollywood, to cut its release slate to 11 films in fiscal 2010 from 16 last year.

The company also took a hefty $45 million writedown in 2009 on its homevideo distribution deal with HIT Entertainment. Prexy Steven Beeks said the writedown covered the company for the final two years of the HIT pact.

One analyst suggested Lionsgate had decided to take all its hits last quarter.

“After nine months, this was already a disaster of a year, so you might as well kitchen-sink it and write off whatever you can,” he said.

Execs predicted Lionsgate’s home entertainment revenue will likely dip by 10%-12% this year. But they estimated revenue from the booming television group would rise to $300 million in fiscal 2010 from $220 million last year.

Overall revenue will nose up to about $1.5 billion for the year.

Feltheimer urged Wall Streeters to bear in mind that Lionsgate, as a pure content company, can have proportionately high P&A costs.

“Typically, I think that this is sort of a big issue that all of you have when valuing our company,” he said. “This year, I think we are expensing $550 million in marketing expenses on our film and television businesses. That’s more than 25% of our revenue, compared with (major) studios, where it’s 5%-10%.”

Execs also noted the company has a $500 million backlog due on television projects produced and delivered that haven’t aired yet.

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