Executive Summary / Key Takeaways

• Lionsgate Studios Corp. is transforming into a pure-play content powerhouse, strategically leveraging its extensive 20,000-title film and television library and valuable franchises following the Starz separation. This focus on owned IP and efficient production models is driving record library revenues and strong future growth.
• The company anticipates significant financial growth through fiscal 2027, with fiscal 2026 serving as a "back-end loaded" year for pipeline replenishment. This includes an expected doubling of scripted television series deliveries and a tentpole-driven film slate in fiscal 2027, featuring major releases like Michael, The Hunger Games, and Resurrection.
• Despite a sequential increase in net debt to $1.7 billion (6.4x leverage) in Q2 fiscal 2026 due to content spend timing, Lionsgate expects natural deleveraging, targeting a 3.5x to 4x range by late fiscal 2027 and a long-term goal of 3x to 3.5x. This will be supported by increasing adjusted OIBDA and a robust $1.6 billion backlog, 85% of which is expected within 18 months.
• Lionsgate is strategically expanding its talent management arm, 3 Arts Entertainment, into sports and the broader creator economy, while also integrating AI to enhance productivity and cost savings in content production. These initiatives aim to diversify revenue streams and maintain a competitive edge in a dynamic market.
• The company operates in an "ultra-competitive" and "disruptive" M&A environment, facing pressure on content spending from platforms. Lionsgate differentiates itself through efficient marketing, retaining content rights, and an entrepreneurial approach to production and distribution.

A Pure-Play Content Powerhouse Emerges

Lionsgate Studios Corp. (NYSE:LION) is charting a course as a standalone, pure-play content company, strategically positioned to capitalize on its deep reservoir of intellectual property. With a history spanning approximately 25 years, the company has meticulously built a library exceeding 20,000 film and television titles, a foundational asset that underpins its current strategy. This long-term commitment to retaining content rights, particularly in television and international film markets, is now yielding significant dividends. The recent separation from Starz on May 6, 2025, was a pivotal move, designed to unlock shareholder value, simplify the capital structure, and grant the studio greater agility to focus on its core business of diversified motion picture and television production and distribution.

The company's overarching strategy is to leverage its "massive portfolio of content, a roster of valuable franchises, efficient production models and an entrepreneurial spirit" to thrive in an evolving entertainment landscape. This involves a multi-pronged approach: investing in high-value tentpole films, expanding its television production footprint, diversifying through talent management and new ventures like the creator economy, and optimizing its extensive library through various monetization channels.

Lionsgate's competitive positioning is defined by its ability to operate nimbly as a specialized studio, contrasting with larger, more integrated conglomerates like Warner Bros. Discovery (WBD) or The Walt Disney Company (DIS). While these larger rivals benefit from immense scale and cross-platform synergies, Lionsgate's focused approach allows for quicker decision-making and potentially lower operational overhead. Against streaming giants like Netflix (NFLX), Lionsgate's strength lies in its deep content library and creative control over specific projects, aiming to differentiate itself in premium content markets. The company acknowledges the "incredibly disruptive" nature of ongoing media M&A and the "ultra-competitive environment" for content, where platforms are under pressure to control spending. Lionsgate responds by emphasizing efficient production, strategic partnerships, and a relentless pursuit of "every win."

Technological Edge and Operational Innovation

Lionsgate is actively embracing technological advancements, particularly in artificial intelligence (AI), to enhance its operational efficiency and creative capabilities. The company is applying AI to more areas of its business, aiming to increase productivity, generate cost savings, and expand its creative toolkit. This includes leveraging AI in both pre- and post-production to optimize workflows and streamline visual effects. For example, collaborations like the one with Runway for AI are helping to optimize these processes and potentially save money.

While specific quantitative metrics on AI's impact were not detailed, the strategic intent is clear: to maintain a competitive edge by reducing production costs and accelerating content creation, thereby enhancing profitability. This technological adoption also extends to diligently protecting its intellectual property from unauthorized AI use, underscoring the company's commitment to safeguarding its core assets. The "so what" for investors is that these technological integrations are designed to improve the company's cost structure and production timelines, contributing to better margins and a more robust content pipeline in a rapidly evolving industry.

Strategic Evolution and Business Model Diversification

Lionsgate's strategic journey has been marked by significant transformations aimed at sharpening its focus and maximizing asset value. The Starz separation, completed on May 6, 2025, was a landmark event, creating a standalone Lionsgate Studios Corp. dedicated to film and television production and distribution. This move was intended to provide both entities with greater strategic flexibility.

The company has been active in M&A, integrating the eOne acquisition in July 2024 to strengthen properties like The Rookie and Yellowjackets and monetize additional library titles. In May 2025, its talent management arm, 3 Arts Entertainment, expanded into sports with the acquisition of A&A Management Group, now 3 Arts Sports, adding high-profile athletes like Travis Kelce and Miles Garrett. This diversification into sports management leverages 3 Arts' existing talent relationships and opens new revenue streams. The company is exploring potential partnerships for 3 Arts, with more information expected in the first calendar quarter of 2026, aiming to further grow the business.

A core tenet of Lionsgate's business model is the strategic retention and monetization of its vast content library. Trailing 12-month library revenue reached a record $1 billion for the first time by September 30, 2025, reflecting a 13% year-over-year growth. This growth is driven by organic replenishment, distribution of third-party titles, library acquisitions, and the rollout of new proprietary FAST and AVOD channels. The television business's contribution to library revenues has doubled over the past decade, now accounting for approximately 30% of the total, a testament to the strategy of taking deficits on TV shows to retain long-term rights. Lionsgate also actively pursues ancillary revenue opportunities, including stage play adaptations of popular IP like The Hunger Games, La La Land, and Dirty Dancing, and expanding into gaming and branded attractions such as the John Wick Live experience.

Segment Performance and Operational Details

Lionsgate Studios operates primarily through its Motion Picture and Television Production segments.

Motion Picture Segment

The Motion Picture segment experienced a revenue decrease of 32.50% to $276.40 million for the three months ended September 30, 2025, compared to $409.40 million in the prior year. This was primarily due to fewer wide theatrical releases (two in the current quarter versus five last year) and lower television and international revenue. However, segment profit saw a significant rebound, increasing to $30.50 million from $1.70 million year-over-year, driven by lower direct operating and distribution/marketing expenses, and a recovery from the underperformance of Borderlands in the prior year. Digital media home entertainment revenue showed resilience, increasing by 8.91% to $124.70 million, partly due to releases like Ballerina From the World of John Wick.

The company is strategically building its film slate, with three major holiday season releases planned: Now You See Me: Now You Don't, The Housemaid, and Quentin Tarantino's Kill Bill, The Whole Bloody Affair. Management notes that Now You See Me is tracking closer to the first film's performance, suggesting potential for strong results. Looking ahead, fiscal 2027 is set to be driven by tentpole releases, including Michael (April), The Hunger Games: Sunrise on the Reaping (November), and Resurrection Part 1 (March 2027), with Resurrection Part 2 kicking off fiscal 2028. The Resurrection films are notable for their combined cost being less than a single tentpole from major studios, highlighting Lionsgate's efficient production model. The Michael trailer generated over 30 million views in its first six hours, 50% more than John Wick 4, indicating strong audience anticipation.

Television Production Segment

The Television Production segment's revenue decreased by 52.30% to $198.70 million for the three months ended September 30, 2025, from $416.60 million in the prior year. This decline was primarily attributed to a decrease in the number of television episodes delivered and lower international revenue. Segment profit for the quarter was $12.50 million, down from $24.40 million year-over-year. However, digital media home entertainment revenue for the segment grew by 10.79% to $38.00 million.

Despite the quarterly dip, the television business has secured significant wins, including second-season renewals for Emmy-winning The Studio, Netflix hit The Hunting Wives, and The Rainmaker. The company forecasts a "significant growth in scripted deliveries next year," anticipating a "doubling of scripted series deliveries from fiscal '26 to fiscal '27." This growth is supported by key renewals for Ghosts and The Rookie, and new shows like Robinhood and Spartacus House of Ashur. Lionsgate's strategy of retaining rights for its television content is proving valuable, with the TV contribution to library revenues doubling over the past decade.

Financial Health and Liquidity

Lionsgate reported a consolidated revenue of $475.10 million for the three months ended September 30, 2025, and $1.001 billion for the six months ended September 30, 2025. The net loss attributable to Lionsgate Studios Corp. shareholders for the three months was $113.50 million, or $0.39 per diluted share, compared to a net loss of $163.30 million, or $0.66 per diluted share, in the prior year. For the six months, the net loss was $222.40 million, or $0.79 per diluted share, compared to $222.70 million, or $0.90 per diluted share, in the prior year.

Operating cash flow for continuing operations showed a use of $213.10 million for the six months ended September 30, 2025, an increase from $161.40 million used in the prior year, primarily due to lower cash flows from operating activities before changes in operating assets and liabilities.

The company ended the quarter with $1.7 billion of net debt, reflecting a modest sequential increase in leverage to 6.4x due to the timing of content spend. However, Lionsgate strengthened its balance sheet by upsizing its IP facility by $320 million, using the proceeds to reduce its revolver draw to zero and stockpile cash, ending the quarter with $800 million of undrawn revolver capacity and $247 million in cash.

A key indicator of future revenue and cash flow strength is the company's backlog, which reached approximately $1.6 billion, a 31% sequential increase. Over 85% of this backlog is expected to be realized within the next 18 months, providing strong visibility into fiscal 2027.

Outlook and Guidance

Lionsgate anticipates a "back-end loaded" fiscal 2026, with sequential growth expected in Q3 and Q4, driven by increased episodic deliveries in TV and an increase in film titles entering their Pay 1 window. This pipeline replenishment is expected to generate "stronger carryover of profits" into fiscal 2027, which, combined with a tentpole-driven slate and significant TV growth, is projected to deliver "strong adjusted OIBDA growth in fiscal '27 relative to fiscal '25."

The company expects to naturally delever, with peak leverage likely in Q3 fiscal 2026, declining in Q4, and significantly decreasing into fiscal 2027 and 2028. The long-range target for leverage is 3x to 3.5x, with an interim target of 3.5x to 4x by late fiscal 2027. This deleveraging is expected to be driven by the ramp-up in trailing 12-month adjusted OIBDA.

Cash requirements for productions are expected to remain consistent, while marketing spend is anticipated to increase in fiscal 2026. Lionsgate believes its current liquidity, including cash on hand, revolving credit facility, and various financing options, will be adequate to meet its operational and debt service needs for the next 12 months and beyond.

Risks and Challenges

Despite the optimistic outlook, Lionsgate faces several risks inherent in the entertainment industry. The "unpredictability of the commercial success of our motion pictures and television programming" remains a primary concern. The company also operates in a "disruptive" M&A environment, which can lead to uncertainty and dampen content buying. Changes in tax laws and regulations, particularly the impact of the "One Big Beautiful Bill Act," could affect the company's effective tax rate and cash flows, although no material impact is expected in the current fiscal year.

Goodwill impairment is another risk, as fair value determinations rely on considerable judgment and assumptions about market conditions and growth rates. The company's ability to obtain additional financing depends on capital market conditions and debt ratings, with potential for increased difficulty or expense due to "inflation and rising interest rates and ongoing disruptions in financial markets." Labor disruptions or strikes, such as those that led to unutilized production facilities, also pose a threat to operational continuity and costs.

Conclusion

Lionsgate Studios Corp. is strategically transforming into a focused content leader, leveraging its deep library and entrepreneurial culture to drive future growth. The successful Starz separation has provided a clearer path for the studio to concentrate on its core strengths: diversified film and television production, robust IP monetization, and efficient operations. While the company is currently experiencing a period of increased leverage due to strategic content investments, management has articulated a clear roadmap for deleveraging, supported by an anticipated surge in adjusted OIBDA and a substantial backlog of contractual revenues.

The company's commitment to technological innovation, particularly in AI, and its expansion into new ventures like sports talent management and the creator economy, underscore a proactive approach to diversifying revenue streams and enhancing competitive advantages. Despite operating in a challenging and competitive industry marked by M&A uncertainty and evolving content consumption patterns, Lionsgate's disciplined marketing, strategic retention of content rights, and focus on high-value franchises position it for a compelling future. Investors should monitor the execution of its content slate, the trajectory of its deleveraging efforts, and the continued monetization of its extensive IP portfolio as key indicators of its long-term value creation.