STARZ ENTERTAINMENT CORP /CN/ 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview Lions Gate Entertainment Corp. (the “Company,” “Lionsgate,” "Lions Gate," “we,” “us” or “our”) encompasses world-class motion picture and television studio operations (collectively referred to as the “Studio Business”) aligned with the STARZ premium global subscription platform to bring a unique and varied portfolio of entertainment to consumers around the world. The Company’s film, television, subscription and location-based entertainment businesses are backed by a more than 20,000-title library and a valuable collection of iconic film and television franchises. We classify our operations through three reporting segments: Motion Picture, Television Production, and Media Networks (see further discussion below). Acquisition of eOne On December 27, 2023, the Company, and its subsidiaries, Lions Gate Entertainment Inc., a Delaware corporation (“LGEI”), and Lions Gate International Motion Pictures S.à.r.l., a Luxembourg société à responsabilité limitée (“LGIMP” and, with the Company and LGEI, collectively the “Buyers”), completed the previously announced acquisition of all of the issued and outstanding equity interests of the companies constituting the Entertainment One television and film (“eOne”) business from Hasbro, Inc., a Rhode Island corporation (“Hasbro”), pursuant to that certain Equity Purchase Agreement (the “Purchase Agreement”) dated August 3, 2023. The aggregate cash purchase price was approximately $375.0 million, subject to certain purchase price adjustments, including for cash, debt, and working capital. Upon closing, the Company paid $331.0 million, net of cash acquired of $54.1 million, which reflects the purchase price of $375.0 million adjusted for estimated cash, debt, transaction costs and working capital. The preliminary purchase price is subject to further adjustments based on the final determination of the purchase price adjustments. The acquisition of eOne, a film and television production and distribution company, builds the Company's film and television library, strengthens the Company's scripted and unscripted television business, and continues to expand the Company's presence in Canada and the U.K. The acquisition was accounted for under the acquisition method of accounting, with the financial results of eOne included in the Company's consolidated results from December 27, 2023. There was no material revenue or net income from eOne for the period from December 27, 2023 through December 31, 2023. The Company incurred approximately $5.6 million and $8.8 million of acquisition-related costs that were expensed in restructuring and other during the three and nine months ended December 31, 2023, respectively. See Note 2 to our unaudited condensed consolidated financial statements for further information. Business Combination On December 22, 2023, the Company entered into a business combination agreement (the “Business Combination Agreement”), with Screaming Eagle Acquisition Corp., a Cayman Islands exempted company (“Screaming Eagle”), SEAC II Corp., a Cayman Islands exempted company and a wholly-owned subsidiary of Screaming Eagle (“New SEAC”), SEAC MergerCo, a Cayman Islands exempted company and a wholly-owned subsidiary of Screaming Eagle, 1455941 B.C. Unlimited Liability Company, a British Columbia unlimited liability company and a wholly-owned subsidiary of Screaming Eagle, LG Sirius Holdings ULC, a British Columbia unlimited liability company and wholly-owned subsidiary of Lionsgate and LG Orion Holdings ULC, a British Columbia unlimited liability company and wholly-owned subsidiary of Lionsgate (“StudioCo”). Pursuant to the terms and conditions of the Business Combination Agreement, the Studio Business will be combined with Screaming Eagle through a series of transactions, including an amalgamation of StudioCo and New SEAC under a Canadian plan of arrangement (the “Business Combination”). Upon consummation of the Business Combination, approximately 87.3% of the total shares of the Studio Business are expected to continue to be held by Lionsgate, while Screaming Eagle public shareholders and founders and common equity financing investors are expected to own an aggregate of approximately 12.7% of the combined company. In addition to establishing the Studio Business as a standalone publicly-traded entity, the transaction is expected to deliver approximately $350.0 million of gross proceeds to the Company, including $175.0 million in private investments in public equities (“PIPE”) financing. The transaction is subject to certain closing conditions, including regulatory approvals and approval from the shareholders and public warrant holders of Screaming Eagle, and is expected to close in the 48 Table of Contents spring of 2024. The closing of the transaction is subject to the gross proceeds to the Company being equal to a minimum of $350.0 million. Harry E. Sloan, a member of the Company’s Board of Directors, is also the Chairman of Screaming Eagle, and owns, directly or indirectly, a material interest in Eagle Equity Partners V, LLC, a Delaware limited liability company, the Screaming Eagle sponsor. Mr. Sloan recused himself from the decisions to approve the Business Combination made by both the board of directors of Screaming Eagle and Lionsgate. The Business Combination is expected to be accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Screaming Eagle will be treated as the acquired company and the Studio Business will be treated as the acquirer for financial reporting purposes. Accordingly, for accounting purposes, the financial statements of New SEAC will represent a continuation of the financial statements of the Studio Business, with the Business Combination treated as the equivalent of the Studio Business issuing stock for the historical net assets of Screaming Eagle, accompanied by a recapitalization. The net assets of Screaming Eagle will be stated at fair value, which approximates historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of the Studio Business. Media Networks Restructuring In fiscal 2023, we began a plan to restructure our LIONSGATE+ business, which initially included exiting the business in seven international territories (France, Germany, Italy, Spain, Benelux, the Nordics and Japan), and identifying additional cost-saving initiatives. This plan included a strategic review of content performance across Starz’s domestic and international platforms, resulting in certain programming being removed from those platforms and written down to fair value. In July 2023, in connection with a modification to shorten a long-term distribution contract, the Company decided to shut down the LIONSGATE+ service in Latin America. While the modified contract covers the cost of the content during the shutdown period, there may be additional charges for remaining contractual commitments when the service is completely shut down in Latin America, which is expected in the quarter ended March 31, 2024. During the nine months ended December 31, 2023, the Company continued executing its restructuring plan, including its evaluation of the programming on Starz's domestic and international platforms. In connection with this review, the Company cancelled certain ordered programming, and identified certain other programming with limited strategic purpose which was removed from the Starz platforms and abandoned by the Media Networks segment. In addition, as a result of the continuing review of its international territories, in order to continue growing the profitability of STARZ and given the economic and industry challenges in the United Kingdom ("U.K."), the Company has made the strategic decision to shut down the LIONSGATE+ service in the U.K. market, resulting in additional content impairment charges. As a result of these restructuring initiatives, we recorded content impairment charges related to the Media Networks segment in the three and nine months ended December 31, 2023 of $77.8 million and $317.4 million, respectively, which are included in restructuring and other in the unaudited condensed consolidated statement of operations (three and nine months ended December 31, 2022 - $80.8 million and $293.8 million, respectively) (see Note 14 to our unaudited condensed consolidated financial statements). We have incurred impairment charges from the inception of the plan through December 31, 2023 amounting to $696.7 million. Under the current restructuring plan and ongoing strategic content review, the Company estimates it will incur additional charges ranging from approximately $30 million to $55 million related to certain contractual content commitments or programming content impairment charges, among other items, related to territories exited or to be exited and content to be removed from its services. The net future cash outlay is estimated to range from approximately $145 million to $170 million, which includes contractual commitments on content in territories being exited or to be exited, and payments on the remaining amounts payable for content removed or that may be removed from its services. The amounts above will depend on the results of its strategic content review and amounts recoverable from alternative distribution strategies, if any, on content in domestic and foreign markets. As the Company continues to evaluate the Media Networks business and its current restructuring plan in relation to the current micro and macroeconomic environment and the announced plan to separate the Company's Starz business (i.e., Media Networks segment) and Studio Business (i.e., Motion Picture and Television Production segments), including further strategic review of content performance and its strategy on a territory-by-territory basis, the Company may decide to expand its restructuring plan and exit additional territories or remove certain content off its platform in the future. Accordingly, the Company may incur additional content impairment and other restructuring charges beyond the estimates above. 49 Table of Contents Industry Strikes On May 1, 2023, the collective bargaining agreement between the Writers Guild of America (“WGA”) and the Alliance of Motion Picture and Television Producers (“AMPTP”) expired, and on May 2, 2023, the WGA commenced an industry-wide strike. Subsequently, on September 25, 2023, WGA members voted in favor ratifying a new three-year contract, commencing September 25, 2023 and ending May 1, 2026. On July 12, 2023, the collective bargaining agreement between the Screen Actors Guild - American Federation of Television and Radio Artists (“SAG-AFTRA”) and the AMPTP expired, and on July 14, 2023, the SAG-AFTRA commenced an industry-wide strike. Subsequently, on November 9, 2023, the national board of SAG-AFTRA approved an agreement reached on November 8, 2023 between SAG-AFTRA and the AMPTP to end the strike, and SAG-AFTRA union members ratified it shortly thereafter. We paused certain theatrical and television productions as a result of the strikes. Consequently, the timing of certain production payments were delayed until productions resume and may increase the variability in payments for investment in film and television programs and licensed program rights in future periods. In addition, the pausing and restarting of productions resulted in incremental costs, delayed the completion and release of some of our content (investment in films, television programs and licensed programs) and may have been the cause of impairments of our investment in film, television programs or licensed program rights due to the cancellation of certain television shows. The extent of these costs and delays depends on the ability to reschedule production in a timely and efficient manner. Revenues Our revenues are derived from the Motion Picture, Television Production and Media Networks segments, as described below. We refer to our Motion Picture and Television Production segments collectively as our Studio Business. Our revenues are derived from the U.S., Canada, the United Kingdom and other foreign countries. None of the non-U.S. countries individually comprised greater than 10% of total revenues for the three and nine months ended December 31, 2023 and 2022. Studio Business Motion Picture: Our Motion Picture segment includes revenues derived from the following: • Theatrical. Theatrical revenues are derived from the domestic theatrical release of motion pictures licensed to theatrical exhibitors on a picture-by-picture basis (distributed by us directly in the U.S. and through a sub-distributor in Canada). The revenues from Canada are reported net of distribution fees and release expenses of the Canadian sub-distributor. The financial terms that we negotiate with our theatrical exhibitors in the U.S. generally provide that we receive a percentage of the box office results. • Home Entertainment. Home entertainment revenues are derived from the sale or rental of our film productions and acquired or licensed films and certain television programs (including theatrical and direct-to-video releases) on packaged media and through digital media platforms (including pay-per-view and video-on-demand platforms, electronic sell through, and digital rental). In addition, we have revenue sharing arrangements with certain digital media platforms which generally provide that, in exchange for a nominal or no upfront sales price, we share in the rental or sales revenues generated by the platform on a title-by-title basis. • Television. Television revenues are primarily derived from the licensing of our theatrical productions and acquired films to the linear pay, basic cable and free television markets. In addition, when a license in our traditional pay television window is made to a subscription video-on-demand ("SVOD") or other digital platform, the revenues are included here. • International. International revenues are derived from (1) licensing of our productions, acquired films, our catalog product and libraries of acquired titles to international distributors, on a territory-by-territory basis; and (2) the direct distribution of our productions, acquired films, and our catalog product and libraries of acquired titles in the United Kingdom. • Other. Other revenues are derived from, among others, the licensing of our film and television and related content (games, music, location-based entertainment royalties, etc.) to other ancillary markets. Television Production: Our Television Production segment includes revenues derived from the following. • Television. Television revenues are derived from the licensing to domestic markets (linear pay, basic cable, free television and syndication) of scripted and unscripted series, television movies, mini-series and non-fiction 50 Table of Contents programming. Television revenues include fixed fee arrangements as well as arrangements in which we earn advertising revenue from the exploitation of certain content on television networks. Television revenues also include revenue from licenses to SVOD platforms in which the initial license of a television series is to an SVOD platform. • International. International revenues are derived from the licensing and syndication to international markets of scripted and unscripted series, television movies, mini-series and non-fiction programming. • Home Entertainment. Home entertainment revenues are derived from the sale or rental of television production movies or series on packaged media and through digital media platforms. • Other. Other revenues are derived from, among others, the licensing of our television programs to other ancillary markets, the sales and licensing of music from the television broadcasts of our productions, and from commissions and executive producer fees earned related to talent management. Media Networks Our Media Networks segment includes revenues derived from the following: • Starz Networks. Starz Networks’ revenues are derived from the domestic distribution of our STARZ branded premium subscription video services through over-the-top ("OTT") streaming platforms and distributors, on a direct-to-consumer basis through the Starz App, and through U.S. multichannel video programming distributors (“MVPDs”) including cable operators, satellite television providers and telecommunications companies (collectively, “Distributors”), (in the aggregate, the "Starz Domestic Platform"). • LIONSGATE+. LIONSGATE+ revenues are primarily derived from OTT distribution of the STARZ branded premium subscription video services outside of the U.S. The Starz Domestic Platform together with the LIONSGATE+ platforms are referred to as the "Starz Platforms". Expenses Our primary operating expenses include direct operating expenses, distribution and marketing expenses and general and administration expenses. Direct operating expenses include amortization of film and television production or acquisition costs, amortization of programming production or acquisition costs and programming related salaries, participation and residual expenses, provision for doubtful accounts, and foreign exchange gains and losses. Participation costs represent contingent consideration payable based on the performance of the film or television program to parties associated with the film or television program, including producers, writers, directors or actors. Residuals represent amounts payable to various unions or “guilds” such as the Screen Actors Guild - American Federation of Television and Radio Artists, Directors Guild of America, and Writers Guild of America, based on the performance of the film or television program in certain ancillary markets or based on the individual’s (i.e., actor, director, writer) salary level in the television market. Distribution and marketing expenses primarily include the costs of theatrical prints and advertising (“P&A”) and premium video-on-demand ("Premium VOD") expense and of DVD/Blu-ray duplication and marketing. Theatrical P&A includes the costs of the theatrical prints delivered to theatrical exhibitors and the advertising and marketing cost associated with the theatrical release of the picture. Premium VOD expense represents the advertising and marketing cost associated with the Premium VOD release of the picture. DVD/Blu-ray duplication represents the cost of the DVD/Blu-ray product and the manufacturing costs associated with creating the physical products. DVD/Blu-ray marketing costs represent the cost of advertising the product at or near the time of its release or special promotional advertising. Marketing costs for Media Networks includes advertising, consumer marketing, distributor marketing support and other marketing costs. In addition, distribution and marketing costs includes our Media Networks segment operating costs for the direct-to-consumer service, transponder expenses and maintenance and repairs. General and administration expenses include salaries and other overhead. Corporate general and administrative expenses include certain corporate executive expense (such as salaries and wages for the office of the Chief Executive Officer, Chief Financial Officer, General Counsel and other corporate officers), investor relations costs, costs of maintaining corporate facilities, and other unallocated common administrative support functions, including corporate accounting, finance and financial reporting, internal and external audit and tax costs, corporate and other legal support functions, and certain information technology and human resources expense. 51 CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of our financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The application of the following accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. As described more fully below, these estimates bear the risk of change due to the inherent uncertainty of the estimate. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments. For a summary of all of our accounting policies, including the accounting policies discussed below, see Note 1 to our audited consolidated financial statements in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on May 25, 2023, as amended on July 20, 2023 (the "Form 10-K"). Accounting for Films and Television Programs and Licensed Program Rights Capitalized costs for films or television programs are amortized and tested for impairment based on whether the content is predominantly monetized individually or as a group. Film and Television Programs Monetized Individually. For films and television programs monetized individually, film cost amortization, participations and residuals expense are based on management's estimates. Costs of acquiring and producing films and television programs and of acquired libraries that are monetized individually are amortized and estimated liabilities for participations and residuals costs are accrued using the individual-film-forecast method, based on the ratio of the current period's revenues to management’s estimated remaining total gross revenues to be earned ("ultimate revenue"). Management's judgment is required in estimating ultimate revenue and the costs to be incurred throughout the life of each film or television program. Management estimates ultimate revenues based on historical experience with similar titles or the title genre, the general public appeal of the cast, audience test results when available, actual performance (when available) at the box office or in markets currently being exploited, and other factors such as the quality and acceptance of motion pictures or programs that our competitors release into the marketplace at or near the same time, critical reviews, general economic conditions and other tangible and intangible factors, many of which we do not control and which may change. For motion pictures, ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release of the motion picture. The most sensitive factor affecting our estimate of ultimate revenues for a film intended for theatrical release is the film's theatrical performance, as subsequent revenues from the licensing and sale in other markets have historically been highly correlated to its theatrical performance. After a film's release, our estimates of revenue from succeeding markets are revised based on historical relationships and an analysis of current market trends. For an episodic television series, the period over which ultimate revenues are estimated cannot exceed ten years following the date of delivery of the first episode, or, if still in production, five years from the date of delivery of the most recent episode, if later. The most sensitive factors affecting our estimate of ultimate revenues for a television series is whether the series will be ordered for a subsequent season and estimates of revenue in secondary markets other than the initial license fee, which may depend on a number of factors, including, among others, the ratings or viewership the program achieves on the customers' platforms. The initial estimate of ultimate revenue may include estimates of revenues outside of the initial license window (i.e., international, home entertainment and other distribution platforms) and are based on historical experience for similar programs (genre, duration, etc.) and the estimated number of seasons of the series. Ultimates of revenue beyond the initial license fee are generally higher for programs that have been or are expected to be ordered for multiple seasons. We regularly monitor the performance of each season, and evaluate whether impairment indicators are present (i.e., low ratings, cancellations or the season is not reordered), and based upon our review, we revise our estimates as needed and perform an impairment assessment if impairment indicators are present (see below). For titles included in acquired libraries, ultimate revenue includes estimates over a period not to exceed twenty years following the date of acquisition. Due to the inherent uncertainties involved in making such estimates of ultimate revenues and expenses, these estimates have differed in the past from actual results and are likely to differ to some extent in the future from actual results. In addition, in the normal course of our business, some films and titles are more successful or less successful than anticipated. Management 52 regularly reviews and revises when necessary, its ultimate revenue and cost estimates, which may result in a change in the rate of amortization of film costs and participations and residuals and/or a write-down of all or a portion of the unamortized costs of the film or television program to its estimated fair value (see below). An increase in the estimate of ultimate revenue will generally result in a lower amortization rate and, therefore, less film and television program amortization expense, while a decrease in the estimate of ultimate revenue will generally result in a higher amortization rate and, therefore, higher film and television program amortization expense, and also periodically results in an impairment requiring a write-down of the film cost to the title’s fair value. These write-downs are included in amortization expense within direct operating expenses in our consolidated statements of operations. See further discussion below under Impairment Assessment . Film and Television Programs Monetized as a Group. Licensed programming rights may include rights to more than one exploitation window under the Company's output and library agreements. For films with multiple windows, the license fee is allocated between the windows based upon the proportionate estimated fair value of each window which generally results in the majority of the cost allocated to the first window on newer releases. Certain license agreements and productions may include additional ancillary rights in addition to the rights for exploitation on the Starz Platforms. A portion of the cost of these licenses and the cost of produced content, is allocated between the programming rights for exploitation on the Starz Platforms and investment in film and television programs for exploitation outside of the Starz Platforms in ancillary markets (e.g., home video, digital platforms, television, etc.) based on the relative fair value of those markets. The estimates of fair value for the allocation between windows of exploitation on the Starz Platform and ancillary markets is based on historical experience of the values of similar titles licensed in subsequent windows and estimates of future revenues in ancillary markets. Management believes these are reasonably reliable estimates of these values, however, these estimates involve uncertainty and management judgment. The cost of licensed program rights for films and television programs (including original series) exhibited by the Media Networks segment are generally amortized on a title-by-title or episode-by-episode basis using an accelerated or straight-line method based on the expected and historical viewership patterns, or the current and anticipated number of exhibitions over the license period or estimated life for owned or produced programs. The number of exhibitions is estimated based on the number of exhibitions allowed in the agreement (if specified) and the expected usage of the content. Participations and residuals are expensed in line with the amortization of production costs. Changes in management’s estimate of the anticipated exhibitions and viewership patterns of films and original series on our platforms could result in the earlier recognition of our programming costs than anticipated. Impairment Assessment. A film group or individual film or television program is evaluated for impairment when events or changes in circumstances indicate that the fair value of an individual film or film group is less than its unamortized cost. If the result of the impairment test indicates that the carrying value exceeds the estimated fair value, an impairment charge will then be recorded for the amount of the difference. Estimate of Fair Value. For content that is predominantly monetized individually (primarily investment in film and television programs related to the Motion Picture and Television Production segments), the fair value is determined based on a discounted cash flow analysis of the cash flows directly attributable to the title. For motion pictures intended for theatrical release, the discounted cash flow analysis used in the impairment evaluation prior to theatrical release is subjective and the key inputs include estimates of future anticipated revenues, estimates of box office performance, which may differ from future actual results. These estimates are based in part on the historical performance of similar films, test audience results when available, information regarding competing film releases, and critic reviews. For television programs, the discounted cash flow analysis used in the impairment evaluation includes key inputs such as estimates of future anticipated revenue, as discussed above. See further discussion of Valuation Assumptions below. For content that is predominantly monetized as a group (primarily licensed program rights in the Media Networks segment and internally produced programming, as discussed above), the fair value is determined based on the present value of the discounted cash flows of the group using the lowest level for which identifiable cash flows are independent of other produced and licensed content. The Company's film groups are generally aligned with the Company's networks and digital content offerings domestically (i.e., Starz Networks) and internationally by territory or groups of territories where content assets are shared across the various territories. Content removed from the service and abandoned is written down to its fair value, if any, determined using a discounted cash flow approach. As a result of the Media Networks restructuring initiatives discussed in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview", we recorded content impairment charges related to the Media Networks segment in the three and nine months ended December 31, 2023 of $77.8 million and $317.4 million, respectively, which are included in restructuring and other in the unaudited condensed consolidated statement of operations (three and nine months ended December 31, 2022 - $80.8 million and $293.8 million, respectively) (see Note 3 and Note 14 to our unaudited 53 condensed consolidated financial statements). We have incurred impairment charges from the inception of the plan through December 31 2023 amounting to $696.7 million. Valuation Assumptions. The discounted cash flow analysis includes cash flows estimates of ultimate revenue and costs as well as a discount rate (a Level 3 fair value measurement, see Note 8 to our unaudited condensed consolidated financial statements). The discount rate utilized in the discounted cash flow analysis is based on the weighted average cost of capital of the Company plus a risk premium representing the risk associated with producing a particular film or television program or film group. Estimates of future revenue involve measurement uncertainty and it is therefore possible that reductions in the carrying value of investment in films and television programs may be required as a consequence of changes in management’s future revenue estimates. Revenue Recognition. Our Motion Picture and Television Production segments generate revenue principally from the licensing of content in domestic theatrical exhibition, home entertainment (e.g., digital media and packaged media), television, and international market places. Our Media Networks segment generates revenue primarily from the distribution of our STARZ premium subscription video services. Our content licensing arrangements include fixed fee and minimum guarantee arrangements, and sales or usage based royalties. Our fixed fee or minimum guarantee licensing arrangements in the television, digital media and international markets may, in some cases, include multiple titles, multiple license periods (windows) with a substantive period in between the windows, rights to exploitation in different media, or rights to exploitation in multiple territories, which may be considered distinct performance obligations. When these performance obligations are considered distinct, the fixed fee or minimum guarantee in the arrangement is allocated to the title, window, media right or territory as applicable, based on estimates of relative standalone selling prices. The amounts related to each performance obligation (i.e., title, window, media or territory) are recognized when the content has been delivered, and the window for the exploitation right in that territory has begun, which is the point in time at which the customer is able to begin to use and benefit from the content. Sales or usage based royalties represent amounts due to us based on the “sale” or “usage” of our content by the customer, and revenues are recognized at the later of when the subsequent sale or usage occurs, or the performance obligation to which some or all the sales or usage-based royalty has been allocated has been satisfied (or partially satisfied). Generally, when we license completed content (with standalone functionality, such as a movie, or television show), our performance obligation will be satisfied prior to the sale or usage. When we license intellectual property that does not have stand-alone functionality (e.g., brands, themes, logos, etc.), our performance obligation is generally satisfied in the same period as the sale or usage. The actual amounts due to us under these arrangements are generally not reported to us until after the close of the reporting period. We record revenue under these arrangements for the amounts due and not yet reported to us based on estimates of the sales or usage of these customers and pursuant to the terms of the contracts. Such estimates are based on information from our customers, historical experience with similar titles in that market or territory, the performance of the title in other markets and/or available data in the industry. While we believe these estimates are reasonable estimates of the amounts due under these arrangements, such estimated amounts could differ from the actual amounts to be subsequently reported by the customer, which could be higher or lower than our estimates, and could result in an adjustment to revenues in future periods. Revenue from the theatrical release of feature films are treated as sales or usage-based royalties and recognized starting at the exhibition date and based on our participation in box office receipts of the theatrical exhibitor . Digital media revenue sharing arrangements are recognized as sales or usage based royalties. Revenue from the sale of physical discs (DVDs, Blu-ray or 4K Ultra HD), referred to as "Packaged Media", in the retail market, net of an allowance for estimated returns and other allowances, is recognized on the later of receipt by the customer or “street date” (when it is available for sale by the customer). Revenue from commissions are recognized as such services are provided. Media Networks revenues may be based on a variable fee (i.e., a fee based on number of subscribers who receive our networks or other subscriber based factors) or to a lesser extent, may be based on a monthly fixed fee or minimum guarantee, subject to nominal annual escalations. Media Networks revenue is also generated through the distribution of our SVOD service directly to consumer through the Starz App. The variable distribution fee arrangements represent sales or usage based royalties, which are recognized over the period of such sales or usage by our distributor, which is the same period that the content is provided to the distributor. Estimates of revenue generated but not yet reported to us by our distribution partners are made based on the estimated number of subscribers using historical trends and recent reporting. Media Networks fixed fee or minimum guarantee programming revenue is recognized over the contract term based on the continuous delivery of the content to the distributor. Subscribers through the Starz App are billed in advance of the start of their monthly or annual membership and revenues are recognized ratably over each applicable membership period. Payments to distributors for marketing support 54 costs for which Starz receives a discrete benefit are recorded as distribution and marketing costs, and payments to distributors for which Starz receives no discrete benefit are recorded as a reduction of revenue. Goodwill and Indefinite-Lived Intangibles. At December 31, 2023, the carrying value of goodwill and indefinite-lived intangible assets was $801.4 million and nil, respectively, net of impairment charges recorded and reflecting the reassessment of the estimated useful life of our indefinite-lived intangible assets in the second quarter ended September 30, 2023, as further discussed below. Through September 30, 2023, our indefinite-lived intangible assets consisted of trade names representing the estimated fair value of the Starz brand name determined in connection with the acquisition of Starz as of December 8, 2016 (see further discussion under Indefinite-Lived Intangibles Other Than Goodwill Impairment Assessment below). Goodwill is allocated to our reporting units, which are our operating segments or one level below our operating segments (component level). Reporting units are determined by the discrete financial information available for the component and whether that information is regularly reviewed by segment management. Components are aggregated into a single reporting unit if they share similar economic characteristics. Our reporting units for purposes of goodwill impairment testing, along with their respective goodwill balances at December 31, 2023, were Motion Picture (goodwill of $395 million), Media Networks (no remaining goodwill balance subsequent to the impairment discussed below), and our Television (goodwill of $314 million) and Talent Management (goodwill of $93 million) businesses, both of which are part of our Television Production segment. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment each fiscal year or between the annual tests if an event occurs or circumstances change that indicates it is more-likely-than-not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value. We perform our annual impairment test as of January 1 in each fiscal year. A goodwill or indefinite-lived intangible asset impairment loss would be recognized for the amount that the carrying amount of a reporting unit, including goodwill or an indefinite-lived intangible asset, exceeds its fair value. An entity may perform a qualitative assessment of the likelihood of the existence of a goodwill or indefinite-lived intangible asset impairment. The qualitative assessment is an evaluation, based on all identified events and circumstances which impact the fair value of the reporting unit or indefinite-lived intangible asset, of whether or not it is more-likely-than-not that the fair value is less than the carrying value of the reporting unit or indefinite-lived intangible asset. If we believe that as a result of our qualitative assessment it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is greater than its carrying amount, a quantitative impairment test is not required but may be performed at the option of the Company. A quantitative assessment requires determining the fair value of our reporting units or indefinite-lived intangible assets. The determination of fair value requires considerable judgment and requires assumptions and estimates of many factors, including revenue and market growth, operating margins and cash flows, market multiples and discount rates. In performing a quantitative assessment of goodwill, we determine the fair value of our reporting units by using a combination of discounted cash flow ("DCF") analyses and market-based valuation methodologies. The models rely on significant judgments and assumptions surrounding general market and economic conditions, short-term and long-term growth rates, discount rates, income tax rates, and detailed management forecasts of future cash flow and operating margin projections, and other assumptions, all of which are based on our internal forecasts of future performance as well as historical trends. The market-based valuation method utilizes EBITDA multiples from guideline public companies operating in similar industries and a control premium. The results of these valuation methodologies are weighted as to their relative importance and a single fair value is determined. The fair value of our reporting units is reconciled to the market value of our equity, determined based on the average prices of our common shares just prior to the period end. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual or interim goodwill impairment tests will prove to be an accurate prediction of the future. Goodwill Impairment Assessments: Fiscal 2024. During the second quarter ended September 30, 2023, due to the continuing difficult macro and microeconomic conditions, industry trends, and their impact on the performance and projected cash flows of the Media Networks segment, including its growth in subscribers and revenue worldwide, and the expanded restructuring activities discussed in Note 14 to our unaudited condensed consolidated financial statements, along with recent market valuation multiples, we updated our quantitative impairment assessment for the Media Networks reporting unit goodwill based on the most recent data and expected growth trends. The DCF analysis components of the fair value estimates were determined primarily by discounting estimated future cash flows, which included a weighted average perpetual nominal growth rate of 1.5%, at a weighted average cost of capital (discount rate) of 10.5%, which considered the risk of achieving the projected cash flows, including the risk applicable to the reporting unit, industry and market as a whole. The Media Networks reporting unit goodwill was established in connection with the acquisition of Starz as of December 8, 2016. Based on our quantitative impairment assessment, we determined that the fair value of our Media Networks reporting unit which was previously disclosed as a reporting unit "at risk" of impairment, was less than its carrying value (after the 55 impairment write-down of its indefinite-lived intangible assets discussed below). The analysis resulted in a goodwill impairment charge of $493.9 million in the second quarter ended September 30, 2023, representing all of our remaining Media Networks reporting unit goodwill, which is recorded in the "goodwill and intangible asset impairment" line item in the unaudited condensed consolidated statement of operations in the nine months ended December 31, 2023 (see Note 5 to the unaudited condensed consolidated financial statements). During each quarter in the nine months ended December 31, 2023, we performed qualitative goodwill impairment assessments for all our other reporting units (Motion Picture, and our Television and Talent Management businesses, both of which are part of our Television Production segment). Our qualitative assessment considered the market price of the Company’s common shares, the recent performance of these reporting units, and updated forecasts of performance and cash flows, as well as the current micro and macroeconomic environments in relation to the current and expected performance of these reporting units, and industry considerations, and determined that since the quantitative assessment performed in the quarter ended September 30, 2022 and our qualitative assessment performed for fiscal 2023, there were no events or circumstances that rise to a level that would more-likely-than-not reduce the fair value of those reporting units below their carrying values; therefore, a quantitative goodwill impairment analysis was not required for these reporting units. Fiscal 2023. In fiscal 2023, during the second quarter ended September 30, 2022, we updated our quantitative impairment assessment for all of our reporting units based on the most recent data and expected growth trends. The DCF analysis components of the fair value estimates were determined primarily by discounting estimated future cash flows, which included weighted average perpetual nominal growth rates ranging from 1.5% to 3.5%, at a weighted average cost of capital (discount rate) ranging from 10.5% to 13.0%, which considered the risk of achieving the projected cash flows, including the risk applicable to the reporting unit, industry and market as a whole. Based on our quantitative impairment assessment, the Company determined that the fair value of our reporting units exceeded the carrying values for all of our reporting units, except the Media Networks reporting unit which was previously disclosed as a reporting unit "at risk" of impairment. The analysis resulted in a goodwill impairment charge of $1.475 billion in the second quarter of fiscal 2023, related to our Media Networks reporting unit goodwill. Since the impairment charge reduced the carrying value of the Media Networks reporting unit to its fair value, at September 30, 2022 the fair value and carrying value of the Media Networks reporting unit were equal and thus it continued to be considered "at risk" of impairment. Management will continue to monitor all of its reporting units for further changes in the business environment that could impact the recoverability in future periods. The recoverability of goodwill is dependent upon the continued growth of revenue and cash flows from our business activities. Examples of events or circumstances that could result in changes to the underlying key assumptions and judgments used in our goodwill impairment tests, and ultimately impact the estimated fair value of our reporting units may include the global economy; consumer consumption levels of our content; adverse macroeconomic conditions related to higher inflation and interest rates and currency rate fluctuations, and the impact on the global economy from wars, terrorism and multiple international conflicts, and future bank failures; volatility in the equity and debt markets which could result in higher weighted-average cost of capital; capital market transactions; the duration and potential impact of strikes of unions which we rely on, on our ability to produce, acquire and distribute our content; the commercial success of our television programming and motion pictures; our continual contractual relationships with our customers; and changes in consumer behavior. If our assumptions are not realized, it is possible that additional impairment charges may need to be recorded in the future. Indefinite-Lived Intangibles Other Than Goodwill Impairment Assessment: Through September 30, 2023, our indefinite-lived intangible assets consisted of trade names representing the estimated fair value of the Starz brand name determined in connection with the acquisition of Starz as of December 8, 2016, amounting to $250.0 million related to the Media Networks reporting unit before the impairment charge recorded in the second quarter ended September 30, 2023 discussed below. During the second quarter ended September 30, 2023, due to the events and their impact discussed above related to our Media Networks reporting unit, we performed a quantitative impairment assessment of our indefinite-lived trade names. The fair value of the Company's indefinite-lived trade names was estimated based on the present value of the hypothetical cost savings that could be realized by the owner of the tradenames as a result of not having to pay a stream of royalty payments to another party. These cost savings were calculated based on a DCF analysis of the hypothetical royalty payment that a licensee would be required to pay in exchange for use of the tradenames, reduced by the tax effect realized by the licensee on the royalty payments. Based on the quantitative impairment assessment of our trade names, we recorded an impairment charge of $170.0 million in the second quarter ended September 30, 2023 related to the Company's Starz business, which was recorded in the "goodwill and intangible asset impairment" line item in the unaudited condensed consolidated statement of operations in the nine months ended December 31, 2023. 56 After the Company performed its quantitative impairment assessment, during the second quarter ended September 30, 2023, the Company then reassessed the estimated useful life of the trade names with a remaining carrying value of $80.0 million, net of the impairment charge discussed above. The Company concluded that based upon the most recent factors, including current macro and microeconomic conditions, market competition and historical Company and industry trends, the trade names now have a finite estimated remaining useful life of 10 years. Accordingly, beginning in the third quarter ended December 31, 2023, the trade names are being accounted for as finite-lived intangible assets and amortized over their estimated remaining useful life. This resulted in an increase to amortization expense of $2.0 million for the three and nine months ended December 31, 2023 with a corresponding reduction of income before income taxes, net loss, and net loss attributable to Lions Gate Entertainment Corp. shareholders. This resulted in a decrease to basic and diluted net loss per share for the three months ended December 31, 2023 by $0.01 per share, and a decrease to basic and diluted net loss per share for the nine months ended December 31, 2023 by $0.01 per share. There was no tax benefit from the change due to changes in the Company’s valuation allowance on deferred taxes. Finite-Lived Intangible Assets. At December 31, 2023, the carrying value of our finite-lived intangible assets was approximately $950.5 million. Our finite-lived intangible assets primarily relate to customer relationships associated with U.S. MVPDs, including cable operators, satellite television providers and telecommunications companies ("Traditional Affiliate"), which amounted to $943.1 million. The amount of our customer relationship asset related to these Traditional Affiliate relationships reflects the estimated fair value of these customer relationships determined in connection with the acquisition of Starz on December 8, 2016, net of amortization recorded since the date of the Starz acquisition. Beginning in the third quarter ended December 31, 2023, our finite-lived intangible assets also include the trade names previously accounted for as indefinite-lived intangible assets as discussed above. Identifiable intangible assets with finite lives are amortized to depreciation and amortization expense over their estimated useful lives, ranging from 5 to 16 years. The Starz Traditional Affiliate customer relationship intangible asset is amortized in the proportion that current period revenues bear to management’s estimate of future revenue over the remaining estimated useful life of the asset, which results in greater amortization in the earlier years of the estimated useful life of the asset than the latter years. Amortizable intangible assets are tested for impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount of the asset may not be recoverable. If a triggering event has occurred, an impairment analysis is required. The impairment test first requires a comparison of undiscounted future cash flows expected to be generated over the useful life of an asset to the carrying value of the asset. The impairment test is performed at the lowest level of cash flows associated with the asset. If the carrying value of the asset exceeds the undiscounted future cash flows, the asset would not be deemed to be recoverable. Impairment would then be measured as the excess of the asset’s carrying value over its fair value. The Company monitors its finite-lived intangible assets and changes in the underlying circumstances each reporting period for indicators of possible impairments or a change in the useful life or method of amortization of our finite-lived intangible assets. During the second quarter ended September 30, 2023, for the Company's finite-lived customer relationship intangible assets related to our Media Networks reporting unit, which represented $956.8 million as of September 30, 2023, the Company performed a comparison of undiscounted future cash flows expected to be generated over the remaining useful life of an asset to the carrying value of the asset. Based on our impairment analysis, the estimated undiscounted cash flows exceeded the carrying amount of the assets and therefore no impairment charge was required. During the third quarter ended December 31, 2023, there were no events or circumstances that would indicate that the carrying amount of our finite-lived intangible assets may not be recoverable. Determining whether an intangible asset is recoverable or impaired requires various estimates and assumptions, including whether events or circumstances indicate that the carrying amount of the asset may not be recoverable, determining estimates of future cash flows for the assets involved and, when applicable, the assumptions applied in determining fair value, including discount rates, growth rates, market risk premiums and other assumptions about the economic environment. Should the revenues from our Traditional Affiliate relationships decline more than the assumed attrition rates used in our current estimates, either as a result of decreases in subscriber rates or changes of the terms of our renewals of our Traditional Affiliate contracts, we may have indicators of impairment which could result in an impairment of our customer relationships intangible assets, or we may need to further shorten the useful life or adopt a more accelerated method of amortization, both of which would increase the amount of amortization expense we record. Income Taxes. We are subject to federal and state income taxes in the U.S., and in several foreign jurisdictions. We record deferred tax assets related to net operating loss carryforwards and certain temporary differences, net of applicable reserves in these jurisdictions. We recognize a future tax benefit to the extent that realization of such benefit is more likely than not on a jurisdiction-by-jurisdiction basis; otherwise, a valuation allowance is applied. In order to realize the benefit of our deferred tax 57 assets, we will need to generate sufficient taxable income in the future in each of the jurisdictions which have these deferred tax assets. However, the assessment as to whether there will be sufficient taxable income in a jurisdiction to realize our net deferred tax assets in that jurisdiction is an estimate which could change in the future depending primarily upon the actual performance of our Company. We will be required to continually evaluate the more likely than not assessment that our net deferred tax assets will be realized, and if operating results deteriorate in a particular jurisdiction, we may need to record a valuation allowance for all or a portion of our deferred tax assets through a charge to our income tax benefit (provision). As of March 31, 2023, we had a valuation allowance of $455.7 million against certain U.S. and foreign deferred tax assets that may not be realized on a more likely than not basis. Our quarterly income tax provision and our corresponding annual effective tax rate are based on expected income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate. For interim financial reporting, we estimate the annual effective tax rate based on projected taxable income for the full year and record a quarterly tax provision in accordance with the expected annual effective tax rate. As the year progresses, we refine the estimates of the year’s taxable income as new information becomes available, including year-to-date financial results. This continual estimation process often results in a change to our expected annual effective tax rate for the year. When this occurs, we adjust our income tax provision during the quarter in which the change in estimate occurs so that the year-to-date income tax provision reflects the expected annual effective tax rate. Significant judgment is required in determining our expected annual effective tax rate and in evaluating our tax positions. Our effective tax rates differ from the federal statutory rate and are affected by many factors, including the overall level of pre-tax income (loss), the mix of our pre-tax income (loss) generated across the various jurisdictions in which we operate, any changes in tax laws and regulations in those jurisdictions, changes in uncertain tax positions, changes in valuation allowances against our deferred tax assets, tax planning strategies available to us and other discrete items. RESULTS OF OPERATIONS Three Months Ended December 31, 2023 Compared to Three Months Ended December 31, 2022 Consolidated Results of Operations The following table sets forth our consolidated results of operations for the three months ended December 31, 2023 and 2022: 58 Three Months Ended December 31, Change 2023 2022 Amount Percent (Amounts in millions) Revenues Studio Business Motion Picture $ 443.2 $ 288.8 $ 154.4 53.5 % Television Production 248.4 605.4 (357.0) (59.0) % Total Studio Business 691.6 894.2 (202.6) (22.7) % Media Networks 417.2 380.3 36.9 9.7 % Intersegment eliminations (133.7) (274.4) 140.7 (51.3) % Total revenues 975.1 1,000.1 (25.0) (2.5) % Expenses: Direct operating 510.8 584.7 (73.9) (12.6) % Distribution and marketing 220.0 171.0 49.0 28.7 % General and administration 121.0 115.0 6.0 5.2 % Depreciation and amortization 49.9 46.3 3.6 7.8 % Restructuring and other 116.9 75.3 41.6 55.2 % Total expenses 1,018.6 992.3 26.3 2.7 % Operating income (loss) (43.5) 7.8 (51.3) nm Interest expense (67.1) (59.6) (7.5) 12.6 % Interest and other income 1.8 1.7 0.1 5.9 % Other expense (2.5) (10.7) 8.2 (76.6) % Gain on extinguishment of debt — 38.2 (38.2) (100.0) % Gain on investments, net 4.4 43.4 (39.0) (89.9) % Equity interests income (loss) 4.2 — 4.2 n/a Income (loss) before income taxes (102.7) 20.8 (123.5) nm Income tax provision (4.7) (5.6) 0.9 (16.1) % Net income (loss) (107.4) 15.2 (122.6) nm Less: Net loss attributable to noncontrolling interest 0.8 1.4 (0.6) (42.9) % Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders $ (106.6) $ 16.6 $ (123.2) nm _______________________ nm - Percentage not meaningful. 59 Revenues. Consolidated revenues decreased $25.0 million in the three months ended December 31, 2023 reflecting a decrease of $202.6 million from our Studio Business, offset by an increase of $36.9 million from our Media Networks business, and lower intersegment eliminations of $140.7 million. Intersegment eliminations relate to the licensing of product from our Studio Business (primarily our Television Production segment as discussed below) to the Media Networks segment. Motion Picture revenue increased $154.4 million in the current quarter due primarily to higher theatrical and international revenue associated with the release of The Hunger Games: The Ballad of Songbirds & Snakes , and higher television and home entertainment revenue. Motion Picture revenue included $36.6 million of revenue from licensing Motion Picture segment product to the Media Networks segment, representing an increase of $20.4 million from the three months ended December 31, 2022. Television Production revenue decreased $357.0 million due to decreased domestic and international television revenue from lower intersegment revenues from the licensing of Starz original series, and lower third-party domestic television revenue, digital media home entertainment and other revenue. Television Production revenue included $97.1 million of revenue from licensing Television Production segment product to our Media Networks segment, representing a decrease of $161.1 million from the three months ended December 31, 2022. The decrease in intersegment eliminations of $140.7 million is primarily associated with lower Television Production revenues of $161.1 million, for licenses of original series to Starz Networks and LIONSGATE+, partially offset by higher Motion Picture revenues of $20.4 million reflecting the licensing of certain recent theatrical releases to Starz, both in the Media Networks segment as discussed above. Media Networks revenue increased $36.9 million reflecting increased revenue at LIONSGATE+ of $35.9 million, and at Starz Networks of $1.0 million. See further discussion in the Segment Results of Operations section below. Direct Operating Expenses. Direct operating expenses by segment were as follows for the three months ended December 31, 2023 and 2022: Three Months Ended December 31, 2023 2022 Change Amount % of Segment Revenues Amount % of Segment Revenues Amount Percent (Amounts in millions) Direct operating expenses Studio Business: Motion Picture $ 214.3 48.4 % $ 131.8 45.6 % $ 82.5 62.6 % Television Production 219.0 88.2 515.5 85.2 (296.5) (57.5) % Total Studio Business 433.3 62.7 647.3 72.4 (214.0) (33.1) % Media Networks 198.3 47.5 204.7 53.8 (6.4) (3.1) % COVID-19 related charges (benefit) (0.1) nm (1.8) nm 1.7 (94.4) % Other 0.9 nm 0.5 nm 0.4 80.0 % Intersegment eliminations (121.6) nm (266.0) nm 144.4 (54.3) % $ 510.8 52.4 % $ 584.7 58.5 % $ (73.9) (12.6) % _______________________ nm - Percentage not meaningful. Direct operating expenses decreased in the three months ended December 31, 2023 due to lower direct operating expenses for our Studio Business and Media Networks segment, partially offset by lower intersegment eliminations. The decrease at the Studio Business reflects lower direct operating expenses of the Television Production segment associated with lower Television Production revenues, partially offset by higher direct operating expenses of the Motion Picture segment due to higher Motion Picture revenues. The decrease in Media Networks direct operating expense was driven by a decrease at Starz Networks of $24.9 million due to lower programming cost amortization, partially offset by an increase at LIONSGATE+ of $18.5 million. The decrease in intersegment eliminations is due to lower Television Production revenue from licenses of original series to Starz Networks and LIONSGATE+, partially offset by increased Motion Picture revenue from licenses of recent theatrical 60 releases to Starz Networks and LIONSGATE+, as discussed above. See further discussion in the Segment Results of Operations section below. COVID-19 Related Charges (Benefit). We incurred certain incremental costs associated with the COVID-19 global pandemic. In the three months ended December 31, 2023, direct operating expense included a benefit of $0.1 million, representing insurance recoveries on costs incurred (three months ended December 31, 2022 - benefit of $1.8 million, net of insurance recoveries of $2.8 million). Direct operating expenses related to the COVID-19 global pandemic have been declining and are expected to continue to decline as the severity of the COVID-19 global pandemic continues to lessen. We are in the process of seeking additional insurance recovery for some of the costs incurred. The ultimate amount of insurance recovery cannot be estimated at this time. Other. Other direct operating expense includes share-based compensation. Distribution and Marketing Expenses. Distribution and marketing expenses by segment were as follows for the three months ended December 31, 2023 and 2022: Three Months Ended December 31, Change 2023 2022 Amount Percent (Amounts in millions) Distribution and marketing expenses Studio Business: Motion Picture $ 101.4 $ 60.0 $ 41.4 69.0 % Television Production 7.8 7.6 0.2 2.6 % Total Studio Business 109.2 67.6 41.6 61.5 % Media Networks 110.7 103.2 7.5 7.3 % Other 0.2 0.2 — — % Intersegment eliminations (0.1) — (0.1) n/a $ 220.0 $ 171.0 $ 49.0 28.7 % U.S. theatrical P&A and Premium VOD expense included in Motion Picture distribution and marketing expense $ 54.1 $ 27.7 $ 26.4 95.3 % _______________________ nm - Percentage not meaningful. Distribution and marketing expenses increased in the three months ended December 31, 2023, due to higher Studio Business and Media Networks distribution and marketing expense. The increase at the Studio Business primarily reflects greater Motion Picture theatrical P&A and Premium VOD expense associated with the theatrical release of The Hunger Games: The Ballad of Songbirds & Snakes in the current quarter. The increase in Media Networks distribution and marketing expense was due to an increase at Starz Networks of $18.8 million due to increased advertising and marketing costs, partially offset by a decrease at LIONSGATE+ of $11.3 million due to a decrease in distribution and advertising expenses from the territories exited, or to be exited. See further discussion in the Segment Results of Operations section below. General and Administrative Expenses. General and administrative expenses by segment were as follows for the three months ended December 31, 2023 and 2022: 61 Three Months Ended December 31, Change 2023 % of Revenues 2022 % of Revenues Amount Percent (Amounts in millions) General and administrative expenses Studio Business: Motion Picture $ 27.1 $ 20.5 $ 6.6 32.2 % Television Production 13.5 10.8 2.7 25.0 % Total Studio Business 40.6 31.3 9.3 29.7 % Media Networks 22.7 22.9 (0.2) (0.9) % Corporate 31.1 21.3 9.8 46.0 % Share-based compensation expense 23.8 22.6 1.2 5.3 % Purchase accounting and related adjustments 2.8 16.9 (14.1) (83.4) % Total general and administrative expenses $ 121.0 12.4% $ 115.0 11.5% $ 6.0 5.2 % General and administrative expenses increased in the three months ended December 31, 2023, resulting from increased corporate, Motion Picture, and Television Production general and administrative expenses and share-based compensation expense, partially offset by lower purchase accounting and related adjustments, and a slight decrease in Media Networks general and administrative expenses. See further discussion in the Segment Results of Operations section below. Corporate general and administrative expenses increased $9.8 million, or 46.0%, primarily due to an increase in incentive based compensation. The following table presents share-based compensation expense by financial statement line item: Three Months Ended December 31, 2023 2022 (Amounts in millions) Share-based compensation expense by expense category General and administrative expense $ 23.8 $ 22.6 Restructuring and other (1) 6.8 1.5 Direct operating expense 0.9 0.5 Distribution and marketing expense 0.2 0.2 Total share-based compensation expense $ 31.7 $ 24.8 _______________________ (1) Represents share-based compensation expense included in restructuring and other expenses reflecting the impact of the acceleration of vesting schedules for equity awards pursuant to certain severance arrangements. Purchase accounting and related adjustments include the non-cash charge for the accretion of the noncontrolling interest discount related to Pilgrim Media Group and 3 Arts Entertainment, the non-cash charge for the amortization of the recoupable portion of the purchase price and the expense associated with the noncontrolling equity interests in the distributable earnings related to 3 Arts Entertainment, all of which are accounted for as compensation and are included in general and administrative expense. The noncontrolling equity interest in the distributable earnings of 3 Arts Entertainment are reflected as an expense rather than noncontrolling interest in the consolidated statement of operations due to the relationship to continued employment. Purchase accounting and related adjustments decreased $14.1 million, or 83.4%, primarily due to lower expense of $8.9 million associated with the noncontrolling equity interests in the distributable earnings related to 3 Arts Entertainment and lower noncontrolling interest discount amortization of $3.3 million. Depreciation and Amortization Expense. Depreciation and amortization of $49.9 million in the three months ended December 31, 2023 increased $3.6 million from $46.3 million in the three months ended December 31, 2022 due to increased depreciation expense related to software in the current quarter. 62 Restructuring and Other. Restructuring and other increased $41.6 million in the three months ended December 31, 2023 as compared to the three months ended December 31, 2022, and includes restructuring and severance costs, certain transaction and other costs, and certain unusual items, when applicable. Restructuring and other costs were as follows for the three months ended December 31, 2023 and 2022 (see Note 14 to our unaudited condensed consolidated financial statements): Three Months Ended December 31, Increase (Decrease) 2023 2022 Amount Percent (Amounts in millions) Restructuring and other: Content and other impairments (1) $ 77.8 $ 80.8 $ (3.0) (3.7) % Severance (2) Cash 23.9 2.4 21.5 nm Accelerated vesting on equity awards (see Note 12 to our unaudited condensed consolidated financial statements) 6.8 1.5 5.3 nm Total severance costs 30.7 3.9 26.8 nm Transaction and other costs (3) 8.4 (9.4) 17.8 (189.4) % $ 116.9 $ 75.3 $ 41.6 55.2 % _______________________ nm - Percentage not meaningful. (1) Media Networks Restructuring: As a result of the Media Networks restructuring initiatives discussed in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" , the Company recorded content impairment charges related to the Media Networks segment in the three months ended December 31, 2023 of $77.8 million (three months ended December 31, 2022 - $80.8 million). See Note 14 to our unaudited condensed consolidated financial statements. (2) Severance costs were primarily related to restructuring activities and other cost-saving initiatives. In the three months ended December 31, 2023, amounts were due to restructuring activities including integration of the acquisition of eOne, LIONSGATE+ international restructuring and our Motion Picture and Television Production segments. (3) Transaction and other costs in the three months ended December 31, 2023 and 2022 reflect transaction, integration and legal costs associated with certain strategic transactions, and restructuring activities and also include costs and benefits associated with certain legal matters. In the three months ended December 31, 2022, these amounts include a benefit of $11.0 million for a settlement of a legal matter related to the Media Networks segment. Interest Expense. Interest expense of $67.1 million for the three months ended December 31, 2023 increased $7.5 million, from $59.6 million in the three months ended December 31, 2022 due to higher average interest rates and balances on variable rate corporate debt and film related obligations, partially offset by a larger benefit from the interest rate swaps. The following table sets forth the components of interest expense for the three months ended December 31, 2023 and 2022: 63 Three Months Ended December 31, 2023 2022 (Amounts in millions) Interest Expense Cash Based: Revolving credit facility $ 6.5 $ 2.9 Term loans 23.6 18.5 Senior Notes 9.9 13.0 Other (1) 19.6 18.9 59.6 53.3 Amortization of debt issuance costs and other non-cash interest (2) 7.5 6.3 Total interest expense $ 67.1 $ 59.6 _______________________ (1) Other interest expense includes payments associated with certain film related obligations (Production Tax Credit Facility, IP Credit Facility, Backlog Facility and other, see Note 7 to our unaudited condensed consolidated financial statements), and payments and receipts associated with the Company's interest rate swaps (see Note 17 to our unaudited condensed consolidated financial statements). (2) Amounts include the amortization of unrealized losses in accumulated other comprehensive income (loss) related to de-designated interest rate swaps which are being amortized to interest expense (see Note 17 to our unaudited condensed consolidated financial statements). Interest and Other Income. Interest and other income of $1.8 million for the three months ended December 31, 2023 was comparable to interest and other income of $1.7 million for the three months ended December 31, 2022. Other Expense. Other expense of $2.5 million for the three months ended December 31, 2023 compared to other expense of $10.7 million for the three months ended December 31, 2022, and represented a decrease in the loss recorded related to our monetization of accounts receivable programs (see Note 18 to our unaudited condensed consolidated financial statements). Gain on Extinguishment of Debt. Gain on extinguishment of debt of $38.2 million in the three months ended December 31, 2022 represented a gain associated with the repurchase of $123.7 million principal amount of 5.500% Senior Notes at a discount. There was no comparable gain on extinguishment of debt in the three months ended December 31, 2023. See Note 6 to our unaudited condensed consolidated financial statements. Gain on Investments, net. Gain on investments, net was $4.4 million for the three months ended December 31, 2023 due to a gain on other investments, as compared to $43.4 million for the three months ended December 31, 2022 which represented a gain associated with the sale of a portion of our ownership interest in STARZPLAY Arabia. Equity Interests Income (Loss). Equity interests income of $4.2 million in the three months ended December 31, 2023 compared to equity interests income of nil in the three months ended December 31, 2022 due to a gain in the current quarter related to the sale of an equity method investee. Income Tax Provision. We had an income tax provision of $4.7 million in the three months ended December 31, 2023, compared to an income tax provision of $5.6 million in the three months ended December 31, 2022. Our income tax provision differs from the federal statutory rate multiplied by pre-tax income (loss) due to the mix of our pre-tax income (loss) generated across the various jurisdictions in which we operate, changes in the valuation allowance against our deferred tax assets, and certain minimum taxes and foreign withholding taxes. Our income tax provision for the three months ended December 31, 2023 and 2022 was also impacted by charges for interest on uncertain tax benefits, and benefited from the release of uncertain tax benefits due to the close of audits or expiration of statutory limitations. We acquired all of the issued and outstanding equity interests of eOne on December 27, 2023 and are evaluating the tax impact on the preliminary purchase price allocation (see Note 2 to our unaudited condensed consolidated financial statements). Net Income (Loss) Attributable to Lions Gate Entertainment Corp. Shareholders. Net loss attributable to our shareholders for the three months ended December 31, 2023 was $106.6 million, or basic and diluted net loss per common share of $0.45 on 235.1 million weighted average common shares outstanding. This compares to net income attributable to our shareholders for the three months ended December 31, 2022 of $16.6 million, or basic net income per common share of $0.07 on 228.8 million weighted average common shares outstanding and diluted net income per common share of $0.07 on 230.1 million weighted average common shares outstanding. 64 Segment Results of Operations and Non-GAAP Measures The Company's primary measure of segment performance is segment profit. Segment profit is defined as segment revenues, less segment direct operating and segment distribution and marketing expense, less segment general and administration expenses. Total segment profit represents the sum of segment profit for our individual segments, net of eliminations for intersegment transactions. Segment profit and total segment profit excludes, when applicable, corporate general and administrative expense, restructuring and other costs, share-based compensation, certain programming and content charges as a result of changes in management and/or programming and content strategy, certain charges related to the COVID-19 global pandemic, charges resulting from Russia's invasion of Ukraine, and purchase accounting and related adjustments. Segment profit when presented in accordance with ASC 280 within the notes to the consolidated financial statements is a GAAP financial measure and is disclosed in Note 15 to our unaudited condensed consolidated financial statements. We also present below our total segment profit for all of our segments and the sum of our Motion Picture and Television Production segment profit as our "Studio Business" segment profit. Total segment profit and Studio Business segment profit, when presented outside of the segment information and reconciliations included in Note 15 to our unaudited condensed consolidated financial statements, is considered a non-GAAP financial measure, and should be considered in addition to, not as a substitute for, or superior to, measures of financial performance prepared in accordance with United States GAAP. We use this non-GAAP measure, among other measures, to evaluate the aggregate operating performance of our business. The Company believes the presentation of total segment profit and Studio Business segment profit is relevant and useful for investors because it allows investors to view total segment performance in a manner similar to the primary method used by the Company's management and enables them to understand the fundamental performance of the Company's businesses before non-operating items. Total segment profit and Studio Business segment profit is considered an important measure of the Company’s performance because it reflects the aggregate profit contribution from the Company's segments, both in total and for the Studio Business and represents a measure, consistent with our segment profit, that eliminates amounts that, in management’s opinion, do not necessarily reflect the fundamental performance of the Company’s businesses, are infrequent in occurrence, and in some cases are non-cash expenses. Not all companies calculate segment profit or total segment profit in the same manner, and segment profit and total segment profit as defined by the Company may not be comparable to similarly titled measures presented by other companies due to differences in the methods of calculation and excluded items. The following table reconciles the GAAP measure, operating income (loss), to the non-GAAP measure, total segment profit, for the three months ended December 31, 2023 and 2022. In addition, each of segment direct operating expense, distribution and marketing expense and general and administrative expense is reconciled to the respective line items presented in the GAAP-based statement of operations in the preceding section of the Management's Discussion and Analysis of Financial Condition and Results of Operations which discusses consolidated results of operations. Three Months Ended December 31, Change 2023 2022 Amount Percent (Amounts in millions) Operating income (loss) $ (43.5) $ 7.8 $ (51.3) nm Corporate general and administrative expenses 31.1 21.3 9.8 46.0 % Adjusted depreciation and amortization 13.5 9.8 3.7 37.8 % Restructuring and other 116.9 75.3 41.6 55.2 % COVID-19 related charges (benefit) (0.1) (1.8) 1.7 (94.4) % Adjusted share-based compensation expense 24.9 23.3 1.6 6.9 % Purchase accounting and related adjustments 39.2 53.4 (14.2) (26.6) % Total segment profit $ 182.0 $ 189.1 $ (7.1) (3.8) % _______________________ nm - Percentage not meaningful. See Note 15 to our unaudited condensed consolidated financial statements for further information on the reconciling line items above, and for reconciliations of depreciation and amortization and share-based compensation expense as presented on our unaudited condensed consolidated statements of operations to adjusted depreciation and amortization and adjusted share-based compensation expense, respectively, as presented in the line items above. We refer to our Motion Picture and Television Production segments collectively as our Studio Business. The table below 65 sets forth the revenues and segment profit of our collective Studio Business and Media Networks segment. Three Months Ended December 31, Increase (Decrease) 2023 2022 Amount Percent (Amounts in millions) Revenue Studio Business Motion Picture $ 443.2 $ 288.8 $ 154.4 53.5 % Television Production 248.4 605.4 (357.0) (59.0) % Total Studio Business $ 691.6 $ 894.2 $ (202.6) (22.7) % Media Networks 417.2 380.3 36.9 9.7 % Intersegment eliminations (133.7) (274.4) 140.7 (51.3) % $ 975.1 $ 1,000.1 $ (25.0) (2.5) % Segment Profit Studio Business Motion Picture $ 100.4 $ 76.5 $ 23.9 31.2 % Television Production 8.1 71.5 (63.4) (88.7) % Total Studio Business $ 108.5 $ 148.0 $ (39.5) (26.7) % Media Networks 85.5 49.5 36.0 72.7 % Intersegment eliminations (12.0) (8.4) (3.6) 42.9 % $ 182.0 $ 189.1 $ (7.1) (3.8) % See the following discussion for further detail of our individual segments. The segment results of operations presented below do not include the elimination of intersegment transactions which are eliminated when presenting consolidated results. Motion Picture The table below sets forth Motion Picture gross contribution and segment profit for the three months ended December 31, 2023 and 2022: Three Months Ended December 31, Increase (Decrease) 2023 2022 Amount Percent (Amounts in millions) Motion Picture Segment: Revenue $ 443.2 $ 288.8 $ 154.4 53.5 % Expenses: Direct operating expense 214.3 131.8 82.5 62.6 % Distribution & marketing expense 101.4 60.0 41.4 69.0 % Gross contribution 127.5 97.0 30.5 31.4 % General and administrative expenses 27.1 20.5 6.6 32.2 % Segment profit $ 100.4 $ 76.5 $ 23.9 31.2 % U.S. theatrical P&A and Premium VOD expense included in distribution and marketing expense $ 54.1 $ 27.7 $ 26.4 95.3 % Direct operating expense as a percentage of revenue 48.4 % 45.6 % Gross contribution as a percentage of revenue 28.8 % 33.6 % Revenue. The table below sets forth Motion Picture revenue by media and product category for the three months ended December 31, 2023 and 2022: 66 Three Months Ended December 31, 2023 2022 Total Increase (Decrease) Lionsgate Original Releases (1) Other Film (2) Total Lionsgate Original Releases (1) Other Film (2) Total (Amounts in millions) Motion Picture Revenue Theatrical $ 98.7 $ 1.4 $ 100.1 $ 9.5 $ 2.2 $ 11.7 $ 88.4 Home Entertainment Digital Media 112.7 42.8 155.5 107.7 39.7 147.4 8.1 Packaged Media 11.4 9.6 21.0 8.2 11.1 19.3 1.7 Total Home Entertainment 124.1 52.4 176.5 115.9 50.8 166.7 9.8 Television 59.7 5.6 65.3 37.6 9.4 47.0 18.3 International 80.6 14.1 94.7 41.2 14.1 55.3 39.4 Other 4.8 1.8 6.6 5.4 2.7 8.1 (1.5) $ 367.9 $ 75.3 $ 443.2 $ 209.6 $ 79.2 $ 288.8 $ 154.4 ____________________ (1) Lionsgate Original Releases: Includes titles originally planned for a wide theatrical release by Lionsgate, including titles that have changed from a planned wide theatrical release to an initial direct-to-streaming release. These releases include films developed and produced in-house, films co-developed and co-produced and films acquired or licensed from third parties. In addition, Lionsgate Original Releases also includes multi-platform and direct-to-platform motion pictures originally released or licensed by Lionsgate, and the licensing of our original release motion picture content to other ancillary markets (location-based entertainment, games, etc.). (2) Other Film: Includes acquired and licensed brands and libraries originally released by other parties such as third-party library product, including our titles released by acquired companies prior to our acquisition of the company (i.e., Summit Entertainment library), and titles released with our equity method investees, Roadside Attractions and Pantelion Films, and other titles. Theatrical revenue increased $88.4 million in the three months ended December 31, 2023 as compared to the three months ended December 31, 2022 due to an increase of $89.2 million from Lionsgate Original Releases driven by the successful box-office performance of The Hunger Games: The Ballad of Songbirds & Snakes, and to a lesser extent, theatrical revenue from Saw X , released September 29, 2023. Home entertainment revenue increased $9.8 million, or 5.9%, in the three months ended December 31, 2023, as compared to the three months ended December 31, 2022, due to higher digital media revenue of $8.1 million. The increase in digital media revenue was due to an increase from Lionsgate Original Releases of $5.0 million due to revenues generated from a greater number of fiscal 2024 theatrical slate titles released on home entertainment digital media in the current quarter and revenues from titles in The Hunger Games franchise, which were offset by revenue from the license of Shotgun Wedding to a direct-to-streaming platform in the prior year's quarter. The increase in digital media revenue was also due to an increase from Other Film of $3.1 million from our acquired library titles. Television revenue increased $18.3 million, or 38.9%, in the three months ended December 31, 2023, as compared to the three months ended December 31, 2022, due to an increase from Lionsgate Original Releases of $22.1 million due to a greater number of television windows opening from our fiscal 2024 theatrical slate ( Are You There God? It's Me, Margaret., The Blackening, Joy Ride and About My Father), than from our fiscal 2023 theatrical slate in the prior year's quarter ( The Unbearable Weight of Massive Talent) . International revenue increased $39.4 million, or 71.2%, in the three months ended December 31, 2023, as compared to the three months ended December 31, 2022 due to an increase from Lionsgate Original Releases of $39.4 million driven by higher revenue generated from our fiscal 2024 theatrical state titles in the current quarter, and in particular, The Hunger Games: The Ballad of Songbirds & Snakes , as compared to the fiscal 2023 theatrical slate titles in the prior year's quarter. Direct Operating Expense. The increase in direct operating expenses is due to higher motion picture revenue in the current quarter. The increase in direct operating expenses as a percentage of motion picture revenue is driven by the change in the mix of titles and product categories generating revenue in the current quarter as compared to the prior year's quarter. In addition, the current quarter included a lower benefit from foreign currency gains of $2.6 million as compared to the prior year's quarter. 67 Investment in film write-downs included in Motion Picture segment direct operating expense were $0.5 million in the three months ended December 31, 2023, compared to approximately $0.6 million in the three months ended December 31, 2022. Distribution and Marketing Expense. The increase in distribution and marketing expense in the three months ended December 31, 2023 is due to higher theatrical P&A and Premium VOD expense due to higher expense associated with the theatrical release of The Hunger Games: The Ballad of Songbirds & Snakes in the current quarter, partially offset by lower expense for films to be released in subsequent quarters. In the three months ended December 31, 2023, approximately $10.5 million of theatrical P&A and Premium VOD expense was incurred in advance for films to be released in subsequent quarters, compared to approximately $15.5 million in the prior year's quarter in the Motion Picture segment. Gross Contribution. Gross contribution of the Motion Picture segment for the three months ended December 31, 2023 increased as compared to the three months ended December 31, 2022, due to higher Motion Picture revenue, partially offset by higher direct operating expense as a percentage of revenue and distribution and marketing expense. General and Administrative Expense. General and administrative expenses of the Motion Picture segment increased $6.6 million, or 32.2% primarily due to an increase in incentive based compensation. Television Production The table below sets forth Television Production gross contribution and segment profit for the three months ended December 31, 2023 and 2022: Three Months Ended December 31, Increase (Decrease) 2023 2022 Amount Percent (Amounts in millions) Television Production Segment: Revenue $ 248.4 $ 605.4 $ (357.0) (59.0) % Expenses: Direct operating expense 219.0 515.5 (296.5) (57.5) % Distribution & marketing expense 7.8 7.6 0.2 2.6 % Gross contribution 21.6 82.3 (60.7) (73.8) % General and administrative expenses 13.5 10.8 2.7 25.0 % Segment profit $ 8.1 $ 71.5 $ (63.4) (88.7) % Direct operating expense as a percentage of revenue 88.2 % 85.2 % Gross contribution as a percentage of revenue 8.7 % 13.6 % 68 Revenue. The table below sets forth Television Production revenue and changes in revenue by media for the three months ended December 31, 2023 and 2022: Three Months Ended December 31, Increase (Decrease) 2023 2022 Amount Percent (Amounts in millions) Television Production Revenue Television $ 182.3 $ 377.5 $ (195.2) (51.7) % International 32.1 65.7 (33.6) (51.1) % Home Entertainment Digital 17.4 131.2 (113.8) (86.7) % Packaged Media 0.3 1.3 (1.0) (76.9) % Total Home Entertainment 17.7 132.5 (114.8) (86.6) % Other 16.3 29.7 (13.4) (45.1) % $ 248.4 $ 605.4 $ (357.0) (59.0) % The primary component of Television Production revenue is domestic television revenue. Domestic television revenue decreased in the three months ended December 31, 2023 due to a decrease of $114.2 million from intersegment revenues from the licensing of fewer Starz original series to Starz Networks (revenue in the current quarter from Power Book II: Ghost Season 4, and BMF - Black Mafia Family Season 3, among others, compared to revenue in the prior year's quarter from Heels Season 2, Power Book IV: Force Season 2, Hightown Season 3, and Power Book II: Ghost Season 3, among others), and lower third-party revenue from fewer television episodes delivered which were impacted by the WGA and SAG-AFTRA strikes. In particular, the prior year's period included significant third-party revenue from Minx - Season 2 and Home Economics - Season 3. International revenue in the three months ended December 31, 2023 decreased $33.6 million, or 51.1%, and reflected a decrease of $41.0 million from intersegment revenues from the licensing of fewer Starz original series to LIONSGATE+ (revenue in the current quarter from Power Book II: Ghost Season 4, among others, compared to revenue in the prior year's quarter from Heels Season 2, Power Book IV: Force Season 2, Nacho Season 1, among others). This decrease was partially offset by increased third-party revenue in the current quarter ( The Continental Season 1 and Acapulco Season 3 in the current quarter, compared to Love and Death Season 1 and Minx Season 2 in the prior year's quarter). Home entertainment revenue in the three months ended December 31, 2023 decreased $114.8 million due primarily to digital media revenue in the prior year's quarter for Schitt's Creek Seasons 1 to 6 from the license to a streaming platform, and to a lesser extent, Nashville Seasons 1 to 6, and a decrease in digital media intersegment revenues from the licensing of Starz original series to Starz Networks of $5.9 million. Other revenue decreased $13.4 million in the three months ended December 31, 2023 as compared to the three months ended December 31, 2022, and primarily reflects lower revenue of 3 Arts Entertainment, which is generated from commissions and executive producer fees earned related to talent management and was unfavorably impacted by the WGA and SAG-AFTRA strikes. Direct Operating Expense. Direct operating expense of the Television Production segment in the three months ended December 31, 2023 decreased $296.5 million, or 57.5% due to the decrease in Television Production revenues. Direct operating expenses as a percentage of television production revenue increased primarily due to the mix of titles generating revenue in the current quarter as compared to the prior year's quarter, and in particular, the prior year's quarter amortization rate reflected the timing of the licensing of higher margin library and acquired titles. Gross Contribution. Gross contribution of the Television Production segment for the three months ended December 31, 2023 decreased as compared to the three months ended December 31, 2022, due to lower television production revenue and higher direct operating expenses as a percentage of television production revenue. General and Administrative Expense. General and administrative expenses of the Television Production segment increased $2.7 million, or 25.0%, primarily due to an increase in incentive based compensation. 69 Media Networks The table below sets forth Media Networks gross contribution and segment profit for the three months ended December 31, 2023 and 2022. Three Months Ended December 31, Increase (Decrease) 2023 2022 Amount Percent (Amounts in millions) Media Networks Segment: Revenue $ 417.2 $ 380.3 $ 36.9 9.7 % Expenses: Direct operating expense 198.3 204.7 (6.4) (3.1) % Distribution & marketing expense 110.7 103.2 7.5 7.3 % Gross contribution 108.2 72.4 35.8 49.4 % General and administrative expenses 22.7 22.9 (0.2) (0.9) % Segment profit $ 85.5 $ 49.5 $ 36.0 72.7 % Direct operating expense as a percentage of revenue 47.5 % 53.8 % Gross contribution as a percentage of revenue 25.9 % 19.0 % The following table sets forth the Media Networks segment profit by product line: Three Months Ended Three Months Ended December 31, 2023 December 31, 2022 Starz Networks LIONSGATE+ Total Media Networks Starz Networks LIONSGATE+ Total Media Networks (Amounts in millions) Media Networks Segment: Revenue $ 342.7 $ 74.5 $ 417.2 $ 341.7 $ 38.6 $ 380.3 Expenses: Direct operating expense 157.2 41.1 198.3 182.1 22.6 204.7 Distribution & marketing expense 103.7 7.0 110.7 84.9 18.3 103.2 Gross contribution 81.8 26.4 108.2 74.7 (2.3) 72.4 General and administrative expenses 19.3 3.4 22.7 16.6 6.3 22.9 Segment profit $ 62.5 $ 23.0 $ 85.5 $ 58.1 $ (8.6) $ 49.5 70 Subscriber Data. The number of period-end service subscribers is a key metric which management uses to evaluate a non-ad supported subscription video service. We believe this key metric provides useful information to investors as a growing or decreasing subscriber base is a key indicator of the health of the overall business. Service subscribers may impact revenue differently depending on specific distribution agreements we have with our distributors which may include fixed fees, rates per basic video household or a rate per STARZ subscriber. The table below sets forth, as of the dates presented, subscriptions to our Media Networks and STARZPLAY Arabia services. Actual Pro Forma (1) December 31, December 31, December 31, December 31, 2023 2022 2023 2022 (Amounts in millions) Starz Domestic OTT Subscribers 12.63 11.56 12.63 11.56 Linear Subscribers 7.10 8.32 7.10 8.32 Total 19.73 19.88 19.73 19.88 LIONSGATE+ OTT Subscribers (1) 4.35 13.35 3.25 3.17 Linear Subscribers 1.75 1.83 1.75 1.83 Total 6.10 15.18 5.00 5.00 Total Starz OTT Subscribers (1) 16.98 24.91 15.88 14.73 Linear Subscribers 8.85 10.15 8.85 10.15 Total Starz 25.83 35.06 24.73 24.88 STARZPLAY Arabia (2) 3.19 2.10 3.19 2.10 Total Domestic and International Subscribers (1) 29.02 37.16 27.92 26.98 Supplemental Subscriber Information: Starz North America (4) OTT Subscribers 13.43 12.24 13.43 12.24 Linear Subscribers 8.85 10.15 8.85 10.15 Total 22.28 22.39 22.28 22.39 Subscribers by Platform: OTT Subscribers (1)(3) 20.17 27.01 19.07 16.83 Linear Subscribers 8.85 10.15 8.85 10.15 Total Global Subscribers (1) 29.02 37.16 27.92 26.98 ___________________ (1) Pro forma amounts exclude OTT subscribers for the international territories exited or to be exited in Australia, Continental Europe, Japan, Latin America and the U.K. amounting to 1.10 million and 10.18 million at December 31, 2023 and 2022, respectively. (2) Represents subscribers of STARZPLAY Arabia, a non-consolidated equity method investee. (3) OTT subscribers includes subscribers of STARZPLAY Arabia, as presented above. (4) Starz North America subscribers include subscribers in the U.S. (as presented in the "Starz Domestic" line item) and Canada (included in the LIONSGATE+ subscriber amounts in the table above). 71 Revenue. Media Networks revenue increased $36.9 million and reflected increased revenue at LIONSGATE+ of $35.9 million, and Starz Networks of $1.0 million. Starz Networks' revenue increased $1.0 million primarily due to higher OTT revenue of $19.0 million resulting from an increase in OTT subscribers as well as from a price increase initiated at the end of June 2023 and fully implemented during the quarter ended September 30, 2023, which was mostly offset by declines in revenue of $17.4 million from traditional linear services. The LIONSGATE+ revenue of $74.5 million for the three months ended December 31, 2023 includes $67.5 million from the LIONSGATE+ territories exited, or to be exited of Australia, Continental Europe, Japan, Latin America and the U.K. (the "Exiting Territories"). The increase in revenue at LIONSGATE+ was primarily due to an increase in revenue from the Exiting Territories of approximately $35.6 million, which was primarily the result of a modification to shorten a long-term distribution contract in Latin America. During the three months ended December 31, 2023 and 2022, the following original series premiered on STARZ: Three Months Ended December 31, 2023 Three Months Ended December 31, 2022 Title Premiere Date Title Premiere Date Shining Vale Season 2 October 13, 2023 Step Up Season 3 October 16, 2022 Power Book III: Raising Kanan Season 3 December 1, 2023 Dangerous Liaisons Season 1 November 6, 2022 Direct Operating and Distribution and Marketing Expenses . Direct operating and distribution and marketing expenses primarily represent programming cost amortization and advertising and marketing costs, respectively. The level of programming cost amortization and advertising and marketing costs and thus the gross contribution margin for the Media Networks' segment can fluctuate from period to period depending on the number of new original series and first-run output theatrical movies premiering on the network during the period. Programming cost amortization and advertising and marketing costs generally increase in periods where new original series premiere. In addition, the shutdown, and planned shutdown, of the LIONSGATE+ international service in the Exiting Territories, will result in a decrease in expenses going forward. The decrease in Media Networks direct operating expenses is due to a decrease at Starz Networks of $24.9 million, partially offset by an increase at LIONSGATE+ of $18.5 million in the three months ended December 31, 2023. The decrease in Starz Networks direct operating expense was primarily due to lower programming cost amortization of $9.0 million related to library content, $8.5 million related to our Starz Originals, and $7.0 million related to theatrical releases under our programming output agreements. Direct operating expenses at LIONSGATE+ increased in the Exiting Territories as a result of higher programming cost amortization and operating expenses of approximately $12.1 million and increased expense of approximately $5.5 million related to lower foreign exchange gains in the current quarter. The LIONSGATE+ direct operating expense of $41.1 million for the three months ended December 31, 2023 includes $35.4 million from the Exiting Territories. The increase in Media Networks distribution and marketing expense is due to an increase of $18.8 million at Starz Networks due to an increase in advertising and marketing costs to drive subscriber growth and increased spend on our Starz Original premieres, partially offset by a decrease of $11.3 million at LIONSGATE+ primarily due to a decrease in distribution and advertising expenses from the Exiting Territories. The LIONSGATE+ distribution and marketing expense of $7.0 million for the three months ended December 31, 2023 includes $5.2 million from the Exiting Territories. Gross Contribution. The increase in gross contribution compared to the three months ended December 31, 2022 was due to increased gross contribution at LIONSGATE+ of $28.7 million and at Starz Networks of $7.1 million, driven by higher revenue and lower distribution and marketing expense at LIONSGATE+, and lower direct operating expense partially offset by higher distribution and marketing expense at Starz Networks, as described above. The positive gross contribution related to the Exiting Territories was approximately $27.0 million for the three months ended December 31, 2023. General and Administrative Expense. General and administrative expenses of the Media Networks segment in the three months ended December 31, 2023 decreased slightly from the prior year's quarter, due to a decrease of $2.9 million at LIONSGATE+, partially offset by increases of $2.7 million at Starz Networks. Nine Months Ended December 31, 2023 Compared to Nine Months Ended December 31, 2022 Consolidated Results of Operations The following table sets forth our consolidated results of operations for the nine months ended December 31, 2023 and 2022: 72 Nine Months Ended December 31, Change 2023 2022 Amount Percent (Amounts in millions) Revenues Studio Business Motion Picture $ 1,245.6 $ 791.6 $ 454.0 57.4 % Television Production 860.7 1,468.6 (607.9) (41.4) % Total Studio Business 2,106.3 2,260.2 (153.9) (6.8) % Media Networks 1,214.9 1,157.5 57.4 5.0 % Intersegment eliminations (422.1) (648.6) 226.5 (34.9) % Total revenues 2,899.1 2,769.1 130.0 4.7 % Expenses: Direct operating 1,549.1 1,744.7 (195.6) (11.2) % Distribution and marketing 686.0 567.1 118.9 21.0 % General and administration 368.1 340.0 28.1 8.3 % Depreciation and amortization 138.9 133.9 5.0 3.7 % Restructuring and other 371.0 316.5 54.5 17.2 % Goodwill and intangible asset impairment 663.9 1,475.0 (811.1) (55.0) % Total expenses 3,777.0 4,577.2 (800.2) (17.5) % Operating loss (877.9) (1,808.1) 930.2 (51.4) % Interest expense (192.9) (163.0) (29.9) 18.3 % Interest and other income 6.5 4.8 1.7 35.4 % Other expense (19.6) (21.1) 1.5 (7.1) % Gain on extinguishment of debt 21.2 40.3 (19.1) (47.4) % Gain on investments, net 2.7 42.1 (39.4) (93.6) % Equity interests income 5.7 0.8 4.9 612.5 % Loss before income taxes (1,054.3) (1,904.2) 849.9 (44.6) % Income tax provision (12.5) (16.6) 4.1 (24.7) % Net loss (1,066.8) (1,920.8) 854.0 (44.5) % Less: Net loss attributable to noncontrolling interest 3.3 7.3 (4.0) (54.8) % Net loss attributable to Lions Gate Entertainment Corp. shareholders $ (1,063.5) $ (1,913.5) $ 850.0 (44.4) % _______________________ nm - Percentage not meaningful. 73 Revenues. Consolidated revenues increased $130.0 million in the nine months ended December 31, 2023 reflecting an increase of $57.4 million from our Media Networks business, and a decrease of $153.9 million from our Studio Business which was more than offset by lower intersegment eliminations of $226.5 million. Intersegment eliminations relate to the licensing of product from our Studio Business (primarily our Television Production segment) to the Media Networks segment. Motion Picture revenue increased $454.0 million in the current period due primarily to higher theatrical and international revenue associated with the release of The Hunger Games: The Ballad of Songbirds & Snakes , and higher digital media home entertainment revenue, television and other revenue. Motion Picture revenue included $113.7 million of revenue from licensing Motion Picture segment product to the Media Networks segment, representing an increase of $83.7 million from the nine months ended December 31, 2022. Television Production revenue decreased $607.9 million due to decreased domestic and international television revenue from lower intersegment revenues from the licensing of Starz original series, and lower third-party domestic television revenue, digital media home entertainment and other revenue. Television Production revenue included $308.4 million of revenue from licensing Television Production segment product to our Media Networks segment, representing a decrease of $310.2 million from the nine months ended December 31, 2022. The decrease in intersegment eliminations of $226.5 million is primarily associated with lower Television Production revenues of $310.2 million for licenses of original series to Starz Networks and LIONSGATE+, both in the Media Networks segment as discussed above, partially offset by higher Motion Picture revenues of $83.7 million reflecting the licensing of certain recent theatrical releases to Starz. Media Networks revenue increased $57.4 million, and reflected increased revenue at LIONSGATE+ of $86.2 million, offset by a decrease of $28.8 million at Starz Networks. See further discussion in the Segment Results of Operations section below. Direct Operating Expenses. Direct operating expenses by segment were as follows for the nine months ended December 31, 2023 and 2022: Nine Months Ended December 31, 2023 2022 Change Amount % of Segment Revenues Amount % of Segment Revenues Amount Percent (Amounts in millions) Direct operating expenses Studio Business Motion Picture $ 603.6 48.5 % $ 379.6 48.0 % $ 224.0 59.0 % Television Production 701.8 81.5 1,306.1 88.9 (604.3) (46.3) % Total Studio Business 1,305.4 62.0 1,685.7 74.6 (380.3) (22.6) % Media Networks 617.5 50.8 677.0 58.5 (59.5) (8.8) % COVID-19 related charges (benefit) (0.5) nm (8.8) nm 8.3 (94.3) % Other 2.3 nm 9.1 nm (6.8) (74.7) % Intersegment eliminations (375.6) nm (618.3) nm 242.7 (39.3) % $ 1,549.1 53.4 % $ 1,744.7 63.0 % $ (195.6) (11.2) % Direct operating expenses decreased in the nine months ended December 31, 2023 due to lower direct operating expenses for our Studio Business and the Media Networks segment, partially offset by lower intersegment eliminations. The decrease at the Studio Business reflects lower direct operating expenses of the Television Production segment due to lower revenues from Television Production, partially offset by higher direct operating expenses of the Motion Picture segment due to higher Motion Picture revenues. The decrease in Media Networks direct operating expense was driven by decreases at Starz Networks of $55.5 million and LIONSGATE+ of $4.0 million due to lower programming cost amortization, and a benefit from foreign exchange gains as compared to foreign exchange losses in the prior year's period at LIONSGATE+. The decrease in intersegment eliminations is due to lower Television Production revenue from licenses of original series to Starz Networks and LIONSGATE+, as discussed above. See further discussion in the Segment Results of Operations section below. 74 COVID-19 Related Charges (Benefit). We incurred certain incremental costs associated with the COVID-19 global pandemic. In the nine months ended December 31, 2023, direct operating expense included a benefit of $0.5 million, net of insurance recoveries of $0.7 million (nine months ended December 31, 2022 - benefit of $8.8 million, net of insurance recoveries of $10.7 million). Other. In the nine months ended December 31, 2023 and 2022, other direct operating expense includes share-based compensation. In addition, in the nine months ended December 31, 2022, other direct operating expenses includes approximately $7.2 million in development costs written off in connection with certain management changes and changes in the theatrical marketplace in the Motion Picture segment, as a result of changes in strategy across its theatrical slate. These charges are excluded from segment operating results but included in direct operating expense in the consolidated statement of operations and reflected in the "other" line item above. Other direct operating expense in the nine months ended December 31, 2022 also includes the amortization of the non-cash fair value adjustments on film and television assets associated with the application of purchase accounting related to recent acquisitions. Distribution and Marketing Expenses. Distribution and marketing expenses by segment were as follows for the nine months ended December 31, 2023 and 2022: Nine Months Ended December 31, Change 2023 2022 Amount Percent (Amounts in millions) Distribution and marketing expenses Studio Business: Motion Picture $ 321.7 $ 163.1 $ 158.6 97.2 % Television Production 24.3 25.9 (1.6) (6.2) % Total Studio Business 346.0 189.0 157.0 83.1 % Media Networks 342.0 376.5 (34.5) (9.2) % Other 0.7 0.6 0.1 16.7 % Intersegment eliminations (2.7) 1.0 (3.7) nm $ 686.0 $ 567.1 $ 118.9 21.0 % U.S. theatrical P&A and Premium VOD expense included in Motion Picture distribution and marketing expense $ 204.0 $ 77.0 $ 127.0 164.9 % _______________________ nm - Percentage not meaningful Distribution and marketing expenses increased in the nine months ended December 31, 2023, due to higher Studio Business distribution and marketing expense, partially offset by lower Media Networks distribution and marketing expense. The increase at the Studio Business primarily reflects greater Motion Picture theatrical P&A and Premium VOD expense associated with the theatrical slate releases in the current period. The decrease in Media Networks distribution and marketing expense was due to a decrease at LIONSGATE+ of $39.6 million primarily due to a decrease in distribution and advertising expenses from the Exiting Territories, partially offset by an increase at Starz Networks of $5.1 million. See further discussion in the Segment Results of Operations section below. 75 General and Administrative Expenses. General and administrative expenses by segment were as follows for the nine months ended December 31, 2023 and 2022: Nine Months Ended December 31, Change 2023 % of Revenues 2022 % of Revenues Amount Percent (Amounts in millions) General and administrative expenses Studio Business Motion Picture $ 83.2 $ 66.2 $ 17.0 25.7 % Television Production 40.5 32.0 8.5 26.6 % Total Studio Business 123.7 98.2 25.5 26.0 % Media Networks 71.3 70.5 0.8 1.1 % Corporate 94.2 69.4 24.8 35.7 % Share-based compensation expense 63.9 55.9 8.0 14.3 % Purchase accounting and related adjustments 15.0 46.0 (31.0) (67.4) % Total general and administrative expenses $ 368.1 12.7% $ 340.0 12.3% $ 28.1 8.3 % General and administrative expenses increased in the nine months ended December 31, 2023, resulting from increased corporate, Motion Picture, Television Production, share-based compensation expense, and Media Networks general and administrative expenses, partially offset by lower purchase accounting and related adjustments. See further discussion in the Segment Results of Operations section below. Corporate general and administrative expenses increased $24.8 million, or 35.7%, primarily due to an increase in incentive based compensation. The increase in share-based compensation expense included in general and administrative expense in the nine months ended December 31, 2023, as compared to the nine months ended December 31, 2022 is primarily due to lower fair values in the prior year's period associated with performance-based stock option and other equity awards that are revalued at each reporting period until the stock option or equity award vests and the applicable performance goals are achieved. The following table presents share-based compensation expense by financial statement line item: Nine Months Ended December 31, 2023 2022 (Amounts in millions) Share-based compensation expense by expense category General and administrative expense $ 63.9 $ 55.9 Restructuring and other (1) 8.4 2.1 Direct operating expense 2.3 1.2 Distribution and marketing expense 0.7 0.6 Total share-based compensation expense $ 75.3 $ 59.8 _______________________ (1) Represents share-based compensation expense included in restructuring and other expenses reflecting the impact of the acceleration of vesting schedules for equity awards pursuant to certain severance arrangements. Purchase accounting and related adjustments include the non-cash charge for the accretion of the noncontrolling interest discount related to Pilgrim Media Group and 3 Arts Entertainment, the non-cash charge for the amortization of the recoupable portion of the purchase price and the expense associated with the noncontrolling equity interests in the distributable earnings related to 3 Arts Entertainment, all of which are accounted for as compensation and are included in general and administrative expense. The noncontrolling equity interest in the distributable earnings of 3 Arts Entertainment are reflected as an expense rather than noncontrolling interest in the consolidated statement of operations due to the relationship to continued employment. Purchase accounting and related adjustments decreased $31.0 million, or 67.4% primarily due to lower noncontrolling interest 76 discount amortization of $13.3 million and lower expense of $13.3 million associated with the noncontrolling equity interests in the distributable earnings related to 3 Arts Entertainment. Depreciation and Amortization Expense. Depreciation and amortization of $138.9 million for the nine months ended December 31, 2023 increased $5.0 million from $133.9 million in the nine months ended December 31, 2022 due to increased depreciation expense related to software in the current period. Restructuring and Other. Restructuring and other increased $54.5 million in the nine months ended December 31, 2023 as compared to the nine months ended December 31, 2022, and includes restructuring and severance costs, certain transaction and other costs, and certain unusual items, when applicable. Restructuring and other costs were as follows for the nine months ended December 31, 2023 and 2022 (see Note 14 to our unaudited condensed consolidated financial statements): Nine Months Ended December 31, Change 2023 2022 Amount Percent (Amounts in millions) Restructuring and other: Content and other impairments (1) $ 317.4 $ 299.7 $ 17.7 5.9 % Severance (2) Cash 32.9 14.8 18.1 122.3 % Accelerated vesting on equity awards (see Note 12 to our unaudited condensed consolidated financial statements) 8.4 2.1 6.3 300.0 % Total severance costs 41.3 16.9 24.4 144.4 % COVID-19 related charges — 0.1 (0.1) (100.0) % Transaction and other costs (3) 12.3 (0.2) 12.5 nm $ 371.0 $ 316.5 $ 54.5 17.2 % _______________________ nm - Percentage not meaningful (1) Media Networks Restructuring: As a result of the Media Networks restructuring initiatives discussed in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" , the Company recorded content impairment charges related to the Media Networks segment in the nine months ended December 31, 2023 of $317.4 million (nine months ended December 31, 2022 - $293.8 million). See Note 14 to our unaudited condensed consolidated financial statements. Other Impairments: Amounts in the nine months ended December 31, 2022 also include an impairment of an operating lease right-of-use asset related to the Studio business and corporate facilities amounting to $5.8 million associated with a portion of a facility lease that will no longer be utilized by the Company. (2) Severance costs were primarily related to restructuring activities and other cost-saving initiatives. In the nine months ended December 31, 2023, amounts were due to restructuring activities including integration of the acquisition of eOne, LIONSGATE+ international restructuring and our Motion Picture and Television Production segments. (3) Transaction and other costs in the nine months ended December 31, 2023 and 2022 reflect transaction, integration and legal costs associated with certain strategic transactions, and restructuring activities and also include costs and benefits associated with certain legal matters. In the nine months ended December 31, 2023, transaction and other costs also includes a benefit of $3.8 million associated with an arrangement to migrate subscribers in some of the exited territories to a third-party in connection with the LIONSGATE+ international restructuring. In the nine months ended December 31, 2022, transaction and other costs includes a benefit of $11.0 million for a settlement of a legal matter related to the Media Networks segment. Goodwill and Intangible Asset Impairment. Goodwill and intangible asset impairment of $663.9 million in the nine months ended December 31, 2023 included goodwill impairment of $493.9 million and impairment of our indefinite-lived trade names of $170.0 million related to the Media Networks reporting unit, as compared to goodwill impairment of $1.475 billion for the nine months ended December 31, 2022 related to the Media Networks reporting unit. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates", 77 Goodwill and Indefinite-Lived Intangible Assets and Note 5 to our unaudited condensed consolidated financial statements for further information. Interest Expense. Interest expense of $192.9 million in the nine months ended December 31, 2023 increased $29.9 million from the nine months ended December 31, 2022 due to higher average interest rates and balances on variable rate corporate debt and film related obligations, partially offset by a larger benefit from the interest rate swaps. The following table sets forth the components of interest expense for the nine months ended December 31, 2023 and 2022: Nine Months Ended December 31, 2023 2022 (Amounts in millions) Interest Expense Cash Based: Revolving credit facility $ 24.3 $ 10.2 Term loans 67.4 41.9 Senior Notes 30.0 40.3 Other (1) 49.2 50.5 170.9 142.9 Amortization of debt issuance costs and other non-cash interest (2) 22.0 20.1 Total interest expense $ 192.9 $ 163.0 ______________________ (1) Other interest expense includes payments associated with certain film related obligations (Production Tax Credit Facility, IP Credit Facility, Backlog Facility and other, see Note 7 to our unaudited condensed consolidated financial statements), and payments and receipts associated with the Company's interest rate swaps (see Note 17 to our unaudited condensed consolidated financial statements). (2) Amounts include the amortization of unrealized losses in accumulated other comprehensive income (loss) related to de-designated interest rate swaps which are being amortized to interest expense (see Note 17 to our unaudited condensed consolidated financial statements). Interest and Other Income. Interest and other income of $6.5 million for the nine months ended December 31, 2023 was comparable to interest and other income of $4.8 million for the nine months ended December 31, 2022. Other Expense. Other expense of $19.6 million for the nine months ended December 31, 2023 was comparable to other expense of $21.1 million for the nine months ended December 31, 2022, and represented the loss recorded related to our monetization of accounts receivable programs (see Note 18 to our unaudited condensed consolidated financial statements). Gain on Extinguishment of Debt. Gain on extinguishment of debt of $21.2 million for the nine months ended December 31, 2023 represented a gain associated with the repurchase of $85.0 million principal amount of 5.500% Senior Notes at a discount. In the nine months ended December 31, 2022, the gain on extinguishment of debt of $40.3 million represented a gain associated with the repurchase of $123.7 million principal amount of 5.500% Senior Notes at a discount, partially offset by the write-off of debt issuance costs associated with the voluntary prepayment of the entire outstanding amount of Term Loan A due March 22, 2023 and the repurchase of the 5.500% Senior Notes. See Note 6 to our unaudited condensed consolidated financial statements. Gain on Investments, net. Gain on investments, net was $2.7 million for the nine months ended December 31, 2023, as compared to gain on investments, net of $42.1 million for the nine months ended December 31, 2022 which primarily represented a gain associated with the sale of a portion of our ownership interest in STARZPLAY Arabia. Equity Interests Income. Equity interests income of $5.7 million in the nine months ended December 31, 2023 compared to equity interests income of $0.8 million in the nine months ended December 31, 2022 due to a gain in the current period related to the sale of an equity method investee. 78 Income Tax Provision. We had an income tax provision of $12.5 million in the nine months ended December 31, 2023, compared to an income tax provision of $16.6 million in the nine months ended December 31, 2022. Our income tax provision differs from the federal statutory rate multiplied by pre-tax income (loss) due to the mix of our pre-tax income (loss) generated across the various jurisdictions in which we operate, changes in the valuation allowance against our deferred tax assets, and certain minimum taxes and foreign withholding taxes. Our income tax provision for the nine months ended December 31, 2023 and 2022 was also impacted by charges for interest on uncertain tax benefits, and benefited from the release of uncertain tax benefits due to the close of audits or expiration of statutory limitations. We acquired all of the issued and outstanding equity interests of eOne on December 27, 2023 and are evaluating the tax impact on the preliminary purchase price allocation (see Note 2 to our unaudited condensed consolidated financial statements). Net Loss Attributable to Lions Gate Entertainment Corp. Shareholders. Net loss attributable to our shareholders for the nine months ended December 31, 2023 was $1,063.5 million, or basic and diluted net loss per common share of $4.56 on 233.1 million weighted average common shares outstanding. This compares to net loss attributable to our shareholders for the nine months ended December 31, 2022 of $1,913.5 million, or basic and diluted net loss per common share of $8.41 on 227.4 million weighted average common shares outstanding. Segment Results of Operations and Non-GAAP Measures See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Three Months Ended December 31, 2023 Compared to Three Months Ended December 31, 2022", Segment Results of Operations and Non-GAAP measures for a definition of the non-GAAP measure, total segment profit and Studio Business segment profit, which when presented outside of the segment information and reconciliations included in Note 15 to our unaudited condensed consolidated financial statements, is considered a non-GAAP financial measure, and should be considered in addition to, not as a substitute for, or superior to, measures of financial performance prepared in accordance with United States GAAP. We use this non-GAAP measure, among other measures, to evaluate the aggregate operating performance of our business. The following table reconciles the GAAP measure, operating loss, to the non-GAAP measure, total segment profit, for the nine months ended December 31, 2023 and 2022. In addition, each of segment direct operating expense, distribution and marketing expense and general and administrative expense is reconciled to the respective line items presented in the GAAP-based statement of operations in the preceding section of the Management's Discussion and Analysis of Financial Condition and Results of Operations which discusses consolidated results of operations. Nine Months Ended December 31, Change 2023 2022 Amount Percent (Amounts in millions) Operating loss $ (877.9) $ (1,808.1) $ 930.2 (51.4) % Corporate general and administrative expenses 94.2 69.4 24.8 35.7 % Goodwill and intangible asset impairment 663.9 1,475.0 (811.1) (55.0) % Adjusted depreciation and amortization 33.4 29.5 3.9 13.2 % Restructuring and other 371.0 316.5 54.5 17.2 % COVID-19 related charges (benefit) (0.5) (8.8) 8.3 (94.3) % Content charges — 7.2 (7.2) (100.0) % Adjusted share-based compensation expense 66.9 57.7 9.2 15.9 % Purchase accounting and related adjustments 120.5 151.1 (30.6) (20.3) % Total segment profit $ 471.5 $ 289.5 $ 182.0 62.9 % _______________________ nm - Percentage not meaningful. 79 See Note 15 to our unaudited condensed consolidated financial statements for further information on the reconciling line items above, and for reconciliations of depreciation and amortization and share-based compensation expense as presented on our unaudited condensed consolidated statements of operations to adjusted depreciation and amortization and adjusted share-based compensation expense, respectively, as presented in the line items above. We refer to our Motion Picture and Television Production segments collectively as our Studio Business. The table below sets forth the revenues and segment profit of our collective Studio Business and Media Networks segment. Nine Months Ended December 31, Change 2023 2022 Amount Percent (Amounts in millions) Revenue Studio Business Motion Picture $ 1,245.6 $ 791.6 $ 454.0 57.4 % Television Production 860.7 1,468.6 (607.9) (41.4) % Total Studio Business $ 2,106.3 $ 2,260.2 $ (153.9) (6.8) % Media Networks 1,214.9 1,157.5 57.4 5.0 % Intersegment eliminations (422.1) (648.6) 226.5 (34.9) % $ 2,899.1 $ 2,769.1 $ 130.0 4.7 % Segment Profit Studio Business Motion Picture $ 237.1 $ 182.7 $ 54.4 29.8 % Television Production 94.1 104.6 (10.5) (10.0) % Total Studio Business $ 331.2 $ 287.3 $ 43.9 15.3 % Media Networks 184.1 33.5 150.6 nm Intersegment eliminations (43.8) (31.3) (12.5) 39.9 % $ 471.5 $ 289.5 $ 182.0 62.9 % _______________________ nm - Percentage not meaningful. See the following discussion for further detail of our individual segments. The segment results of operations presented below do not include the elimination of intersegment transactions which are eliminated when presenting consolidated results. Motion Picture The table below sets forth Motion Picture gross contribution and segment profit for the nine months ended December 31, 2023 and 2022: 80 Nine Months Ended December 31, Change 2023 2022 Amount Percent (Amounts in millions) Motion Picture Segment: Revenue $ 1,245.6 $ 791.6 $ 454.0 57.4 % Expenses: Direct operating expense 603.6 379.6 224.0 59.0 % Distribution & marketing expense 321.7 163.1 158.6 97.2 % Gross contribution 320.3 248.9 71.4 28.7 % General and administrative expenses 83.2 66.2 17.0 25.7 % Segment profit $ 237.1 $ 182.7 $ 54.4 29.8 % U.S. theatrical P&A and Premium VOD expense included in distribution and marketing expense $ 204.0 $ 77.0 $ 127.0 164.9 % Direct operating expense as a percentage of revenue 48.5 % 48.0 % Gross contribution as a percentage of revenue 25.7 % 31.4 % Revenue. The table below sets forth Motion Picture revenue by media and product category for the nine months ended December 31, 2023 and 2022: Nine Months Ended December 31, 2023 2022 Total Increase (Decrease) Lionsgate Original Releases (1) Other Film (2) Total Lionsgate Original Releases (1) Other Film (2) Total (Amounts in millions) Motion Picture Revenue Theatrical $ 191.0 $ 3.2 $ 194.2 $ 24.0 $ 4.6 $ 28.6 $ 165.6 Home Entertainment Digital Media 359.1 136.2 495.3 255.7 122.8 378.5 116.8 Packaged Media 43.9 19.1 63.0 27.2 28.1 55.3 7.7 Total Home Entertainment 403.0 155.3 558.3 282.9 150.9 433.8 124.5 Television 193.9 20.6 214.5 116.7 30.3 147.0 67.5 International 220.0 35.3 255.3 124.4 42.1 166.5 88.8 Other 17.5 5.8 23.3 10.0 5.7 15.7 7.6 $ 1,025.4 $ 220.2 $ 1,245.6 $ 558.0 $ 233.6 $ 791.6 $ 454.0 ____________________ (1) Lionsgate Original Releases: Includes titles originally planned for a wide theatrical release by Lionsgate, including titles that have changed from a planned wide theatrical release to an initial direct-to-streaming release. These releases include films developed and produced in-house, films co-developed and co-produced and films acquired or licensed from third parties. In addition, Lionsgate Original Releases also includes multi-platform and direct-to-platform motion pictures originally released or licensed by Lionsgate, and the licensing of our original release motion picture content to other ancillary markets (location-based entertainment, games, etc.). (2) Other Film: Includes acquired and licensed brands and libraries originally released by other parties such as third-party library product, including our titles released by acquired companies prior to our acquisition of the company (i.e., Summit Entertainment library), and titles released with our equity method investees, Roadside Attractions and Pantelion Films, and other titles. Theatrical revenue increased $165.6 million in the nine months ended December 31, 2023 as compared to the nine months ended December 31, 2022 due to an increase of $167.0 million from Lionsgate Original Releases driven by the performance of our fiscal 2024 theatrical slate, and in particular, The Hunger Games: The Ballad of Songbirds & Snakes and Saw X, and revenue from our fiscal 2023 theatrical slate release, John Wick: Chapter 4 in the current period. The increase was also, to a lesser extent, due to a greater number of theatrical slate releases in the current period as compared to the prior year's period. 81 Home entertainment revenue increased $124.5 million, or 28.7%, in the nine months ended December 31, 2023, as compared to the nine months ended December 31, 2022, due to higher digital media revenue of $116.8 million. The increase in digital media revenue was due to an increase from Lionsgate Original Releases of $103.4 million due to revenues generated from John Wick: Chapter 4 , Jesus Revolution (fiscal 2023 theatrical slate titles), and from titles in The Hunger Games franchise, and a greater number of fiscal 2024 theatrical slate titles released on home entertainment digital media in the current period as compared to the prior year's period, partially offset by revenue in the prior year's period from the license of Shotgun Wedding to a direct-to-streaming platform. The increase in digital media revenue was also due to an increase from Other Film of $13.4 million from our acquired library titles. Television revenue increased $67.5 million, or 45.9%, in the nine months ended December 31, 2023, as compared to the nine months ended December 31, 2022 due to an increase from Lionsgate Original Releases of $77.2 million due to a greater number of television windows opening from our fiscal 2024 and fiscal 2023 theatrical slates than from our fiscal 2023 and fiscal 2022 theatrical slates in the prior year's period, and higher revenue recognized for those titles, and in particular, John Wick: Chapter 4, partially offset by a decrease from Other Film of $9.7 million from our acquired library titles. International revenue increased $88.8 million, or 53.3%, in the nine months ended December 31, 2023, as compared to the nine months ended December 31, 2022 due to an increase from Lionsgate Original Releases of $95.6 million driven by higher revenue generated from our fiscal 2024 and fiscal 2023 theatrical slate titles in the current period, and in particular, The Hunger Games: The Ballad of Songbirds & Snakes , and John Wick: Chapter 4 , as compared to the fiscal 2023 and fiscal 2022 theatrical slate titles in the prior year's period, partially offset by a decrease from Other Film of $9.0 million from our acquired library titles. Direct Operating Expense. The increase in direct operating expenses is due to higher motion picture revenue in the current period. Direct operating expenses as a percentage of motion picture revenue was comparable to the prior year's period and is driven by the change in the mix of titles and product categories generating revenue in the current period as compared to the prior year's period. Investment in film write-downs included in Motion Picture segment direct operating expense increased to $27.5 million in the nine months ended December 31, 2023, as compared to $1.1 million in the nine months ended December 31, 2022. Distribution and Marketing Expense. The increase in distribution and marketing expense in the nine months ended December 31, 2023 is due to higher theatrical P&A and Premium VOD expense due to higher expense associated with the theatrical slate releases in the current period, partially offset by slightly lower expense for films to be released in subsequent quarters. In the nine months ended December 31, 2023 approximately $24.8 million of P&A and Premium VOD expense was incurred in advance for films to be released in subsequent quarters, compared to approximately $27.3 million in the nine months ended December 31, 2022 in the Motion Picture segment. Gross Contribution. Gross contribution of the Motion Picture segment for the nine months ended December 31, 2023 increased as compared to the nine months ended December 31, 2022 due to higher Motion Picture revenue, partially offset by higher distribution and marketing expense and direct operating expense. General and Administrative Expense. General and administrative expenses of the Motion Picture segment in the nine months ended December 31, 2023 increased $17.0 million, or 25.7%, primarily due to an increase in incentive based compensation. 82 Television Production The table below sets forth Television Production gross contribution and segment profit for the nine months ended December 31, 2023 and 2022: Nine Months Ended December 31, Change 2023 2022 Amount Percent (Amounts in millions) Television Production Segment: Revenue $ 860.7 $ 1,468.6 $ (607.9) (41.4) % Expenses: Direct operating expense 701.8 1,306.1 (604.3) (46.3) % Distribution & marketing expense 24.3 25.9 (1.6) (6.2) % Gross contribution 134.6 136.6 (2.0) (1.5) % General and administrative expenses 40.5 32.0 8.5 26.6 % Segment profit $ 94.1 $ 104.6 $ (10.5) (10.0) % Direct operating expense as a percentage of revenue 81.5 % 88.9 % Gross contribution as a percentage of revenue 15.6 % 9.3 % Revenue. The table below sets forth Television Production revenue and changes in revenue by media for the nine months ended December 31, 2023 and 2022: Nine Months Ended December 31, Increase (Decrease) 2023 2022 Amount Percent Television Production (Amounts in millions) Television $ 554.2 $ 973.1 $ (418.9) (43.0) % International 137.7 219.4 (81.7) (37.2) % Home Entertainment Digital 113.4 205.1 (91.7) (44.7) % Packaged Media 1.0 2.7 (1.7) (63.0) % Total Home Entertainment 114.4 207.8 (93.4) (44.9) % Other 54.4 68.3 (13.9) (20.4) % $ 860.7 $ 1,468.6 $ (607.9) (41.4) % 83 The primary component of Television Production revenue is domestic television revenue. Domestic television revenue decreased in the nine months ended December 31, 2023 due to a decrease of $214.1 million from intersegment revenues from the licensing of fewer Starz original series to Starz Networks (revenue in the current period from Power Book II: Ghos t Season 4, BMF Season 3 and Power Book III: Raising Kanan Season 3 compared to revenue in the prior year's period from Power Book II: Ghost Season 3 , P-Valley Season 2 , BMF Season 2 , Heels Season 2 , Power Book III: Raising Kanan Season 2 , and Power Book IV: Force Season 2, among others) . The decrease in domestic television revenue was also due to lower third-party revenue from fewer television episodes delivered which were impacted by the WGA and SAG-AFTRA strikes (including significant revenue in the prior year's period from The First Lady Season 1, and lower revenue in the current period from unscripted television programs). International revenue in the nine months ended December 31, 2023 decreased $81.7 million, or 37.2% as compared to the nine months ended December 31, 2022 due to a decrease of $79.9 million from intersegment revenues from the licensing of fewer Starz original series to LIONSGATE+. Home entertainment revenue in the nine months ended December 31, 2023 decreased $93.4 million, or 44.9% as compared to the nine months ended December 31, 2022 due to lower third-party digital media revenue ( The Continental Season 1 in the current period, compared to Schitt's Creek Seasons 1 to 6 from the license to a streaming platform, Nashville Seasons 1 to 6, and Ghosts Season 1 in the prior year's period), and a decrease of $16.2 million from digital media intersegment revenues from the licensing of Starz original series to Starz Networks. Other revenue in the nine months ended December 31, 2023 decreased $13.9 million, or 20.4% from the nine months ended December 31, 2022, and primarily reflects lower revenue of 3 Arts Entertainment, which is generated from commissions and executive producer fees earned related to talent management and was unfavorably impacted by the WGA and SAG-AFTRA strikes. Direct Operating Expense. Direct operating expense of the Television Production segment in the nine months ended December 31, 2023 decreased $604.3 million, or 46.3% due to the decrease in Television Production revenues. Direct operating expenses as a percentage of television production revenue decreased as compared to the prior year's period, primarily due to the mix of titles generating revenue in the current period as compared to the prior year's period, and in particular, the current period included significant revenue from The Continental which has a lower amortization rate as compared to the prior year's period, which included a greater number of deliveries of newer shows in which direct operating expense is typically higher as a percentage of revenue. Investment in film and television programs write-downs included in Television Production segment direct operating expense in the nine months ended December 31, 2023 were $6.6 million as compared to $4.7 million in the nine months ended December 31, 2022. Gross Contribution. Gross contribution of the Television Production segment for the nine months ended December 31, 2023 decreased slightly as compared to the nine months ended December 31, 2022, due to lower television production revenue which was mostly offset by lower direct operating expenses as a percentage of television production revenue. General and Administrative Expense. General and administrative expenses of the Television Production segment increased $8.5 million, or 26.6% primarily due to an increase in incentive based compensation. Media Networks The table below sets forth Media Networks gross contribution and segment profit for the nine months ended December 31, 2023 and 2022: 84 Nine Months Ended December 31, Change 2023 2022 Amount Percent (Amounts in millions) Media Networks Segment: Revenue $ 1,214.9 $ 1,157.5 $ 57.4 5.0 % Expenses: Direct operating expense 617.5 677.0 (59.5) (8.8) % Distribution & marketing expense 342.0 376.5 (34.5) (9.2) % Gross contribution 255.4 104.0 151.4 145.6 % General and administrative expenses 71.3 70.5 0.8 1.1 % Segment profit $ 184.1 $ 33.5 $ 150.6 449.6 % Direct operating expense as a percentage of revenue 50.8 % 58.5 % Gross contribution as a percentage of revenue 21.0 % 9.0 % _______________________ nm - Percentage not meaningful. The following table sets forth the Media Networks segment profit by product line: Nine Months Ended Nine Months Ended December 31, 2023 December 31, 2022 Starz Networks LIONSGATE+ Total Media Networks Starz Networks LIONSGATE+ Total Media Networks (Amounts in millions) Media Networks Segment: Revenue $ 1,019.9 $ 195.0 $ 1,214.9 $ 1,048.7 $ 108.8 $ 1,157.5 Expenses: Direct operating expense 502.3 115.2 617.5 557.8 119.2 677.0 Distribution & marketing expense 309.9 32.1 342.0 304.8 71.7 376.5 Gross contribution 207.7 47.7 255.4 186.1 (82.1) 104.0 General and administrative expenses 59.3 12.0 71.3 50.7 19.8 70.5 Segment profit $ 148.4 $ 35.7 $ 184.1 $ 135.4 $ (101.9) $ 33.5 Revenue . Media Networks revenue increased $57.4 million and reflected increased revenue at LIONSGATE+ of $86.2 million, partially offset by a decrease of $28.8 million at Starz Networks. Starz Networks' revenue decreased $28.8 million primarily because of declines in revenue of $63.1 million from traditional linear services, which were offset by higher OTT revenue of $33.1 million resulting primarily from an increase in OTT subscribers as well as from a price increase initiated at the end of June 2023 and fully implemented during the quarter ended September 30, 2023. The LIONSGATE+ revenue of $195.0 million for the nine months ended December 31, 2023 includes $158.8 million from the Exiting Territories. The increase in revenue at LIONSGATE+, was primarily due to an increase in revenue from the Exiting Territories of approximately $69.9 million, which was primarily the result of a modification to shorten a long-term distribution contract in Latin America. In addition, the increase was due to revenue from the distribution of certain Starz Originals and licensed content to third-party distributors outside of the Starz Platforms in ancillary markets of approximately $16.1 million. 85 During the nine months ended December 31, 2023 and 2022, the following original series premiered on STARZ: Nine Months Ended December 31, 2023 Nine Months Ended December 31, 2022 Title Premiere Date Title Premiere Date First Quarter: First Quarter: Blindspotting Season 2 April 14, 2023 Gaslit April 24, 2022 Run the World Season 2 May 26, 2023 P-Valley Season 2 June 3, 2022 Outlander Season 7A June 16, 2023 Becoming Elizabeth Season 1 June 12, 2022 Who is Ghislaine Maxwell June 26, 2022 Second Quarter: Second Quarter: Minx Season 2 July 21, 2023 Power Book III: Raising Kanan Season 2 August 14, 2022 Heels Season 2 July 28, 2023 Serpent Queen Season 1 September 11, 2022 Men in Kilts Season 2 August 11, 2023 Power Book IV: Force Season 2 July 28, 2023 Third Quarter: Third Quarter: Shining Value Season 2 October 13, 2023 Step Up Season 3 October 16, 2022 Power Book III: Raising Kanan Season 3 December 1, 2023 Dangerous Liaisons Season 1 November 6, 2022 Direct Operating and Distribution and Marketing Expenses . Direct operating and distribution and marketing expenses primarily represent programming cost amortization and advertising and marketing costs, respectively. The level of programming cost amortization and advertising and marketing costs and thus the gross contribution margin for the Media Networks' segment can fluctuate from period to period depending on the number of new original series and first-run output theatrical movies premiering on the network during the period. Programming cost amortization and advertising and marketing costs generally increase in periods where new original series premiere. In addition, the shutdown, and planned shutdown, of the LIONSGATE+ international service in the Exiting Territories will result in a decrease in expenses going forward. The decrease in Media Networks direct operating expenses is due to decreases at Starz Networks of $55.5 million and LIONSGATE+ of $4.0 million in the nine months ended December 31, 2023. The decrease in Starz Networks direct operating expense was due primarily to lower programming cost amortization of $27.0 million related to theatrical releases under our programming output agreements, $24.5 million related to library content, and $10.0 million related to our Starz Originals, partially offset by a benefit in the prior year's period of $10.0 million associated with the modification of a content licensing arrangement. Direct operating expenses at LIONSGATE+ decreased in the Exiting Territories as a result of lower programming cost amortization and operating costs of approximately $10.2 million and lower expense of approximately $7.3 million related to foreign exchange gains in the current period compared to foreign exchange losses in the prior year's period, partially offset by higher amortization of investment in films and television programs of $11.9 million associated with the distribution of Starz Originals and licensed content to third-party distributors outside of the Starz Platforms in ancillary markets. The LIONSGATE+ direct operating expense of $115.2 million for the nine months ended December 31, 2023 includes $87.8 million from the Exiting Territories. The decrease in Media Networks distribution and marketing expense is due to a decrease of $39.6 million at LIONSGATE+ primarily due to a decrease in distribution and advertising expenses from the Exiting Territories, partially offset by an increase of $5.1 million at Starz Networks. The LIONSGATE+ distribution and marketing expense of $32.1 million for the nine months ended December 31, 2023 includes $25.4 million from the Exiting Territories. Gross Contribution. The increase in gross contribution compared to the nine months ended December 31, 2022 was due to increased gross contribution at LIONSGATE+ of $129.8 million, and at Starz Networks of $21.6 million, driven by higher LIONSGATE+ revenue, and lower direct operating expense and LIONSGATE+ distribution and marketing expense, partially offset by lower Starz Networks revenue, as described above. The positive gross contribution related to the Exiting Territories was approximately $45.7 million for the nine months ended December 31, 2023. General and Administrative Expense. General and administrative expenses in the nine months ended December 31, 2023 increased from the prior year's period, due to increases of $8.6 million at Starz Networks, partially offset by a decrease of $7.8 million at LIONSGATE+. 86 LIQUIDITY AND CAPITAL RESOURCES Sources of Cash Our liquidity and capital requirements in the nine months ended December 31, 2023 were provided principally through cash generated from operations, corporate debt, our film related obligations (as further discussed below), and the monetization of trade accounts receivable. As of December 31, 2023, we had cash and cash equivalents of $283.0 million. As discussed under "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview", in connection with the business combination with Screaming Eagle and establishing the Studio Business as a standalone publicly-traded entity, the transaction is expected to deliver approximately $350.0 million of gross proceeds to the Company, including $175.0 million in private investments in public equities (“PIPE”) financing. The transaction is subject to certain closing conditions, including regulatory approvals and approval from the shareholders and public warrant holders of Screaming Eagle, and is expected to close in the spring of 2024. The closing of the transaction is also subject to the gross proceeds to the Company being equal to a minimum of $350.0 million. Corporate Debt Our corporate debt at December 31, 2023, excluding film related obligations discussed further below, consisted of the following: • Senior Credit Facilities: ◦ Revolving Credit Facility. We have a $1.25 billion revolving credit facility (with $375.0 million outstanding at December 31, 2023 used for the purchase of eOne) due April 2026 (the "Revolving Credit Facility"). We maintain significant availability under our Revolving Credit Facility, which is currently used to meet our short-term liquidity requirements, and could also be used for longer term liquidity requirements. ◦ Term Loan A. We have a term loan A facility due April 2026 (the "Term Loan A"), with $407.1 million outstanding at December 31, 2023. The outstanding amounts under the Revolving Credit Facility and Term Loan A may become due on December 23, 2024 (i.e. 91 days prior to March 24, 2025) prior to its maturity on April 6, 2026 in the event that the aggregate principal amount of outstanding Term Loan B in excess of $250 million has not been repaid, refinanced or extended to have a maturity date on or after July 6, 2026. The Company expects to refinance and extend the maturity date of the Term Loan B prior to December 23, 2024 such that the maturity of the revolving credit facility and Term Loan A are not accelerated. ◦ Term Loan B. We have a term loan B facility due March 2025 (the "Term Loan B", and, together with the Revolving Credit Facility and the Term Loan A, the "Senior Credit Facilities"), with $822.3 million outstanding at December 31, 2023. • Senior Notes: We have $715.0 million outstanding of 5.500% senior notes due 2029 (the "5.500% Senior Notes") at December 31, 2023. See Note 6 to our unaudited condensed consolidated financial statements for a discussion of our corporate debt. Film Related Obligations We utilize our film related obligations to fund our film and television productions or licenses. Our film related obligations at December 31, 2023 include the following: • Production Loans: Production loans represent individual and multi-title loans for the production of film and television programs that we produce or license. The majority of the Company's production loans have contractual repayment dates either at or near the expected completion or release dates, with the exception of certain loans containing repayment dates on a longer term basis. At December 31, 2023, there was $1,279.2 million outstanding of production loans. • Programming Notes: Programming notes represent individual loans for the licensing of film and television programs that we license, related to our Media Networks business. The Company's programming notes have contractual repayment dates in February 2024. At December 31, 2023, there was $60.4 million outstanding of programming notes. 87 • Production Tax Credit Facility: We have a $250.0 million non-recourse senior secured revolving credit facility due January 2025 based on collateral consisting solely of certain of the Company’s tax credit receivables (the "Production Tax Credit Facility"). Cash collections from the underlying collateral (tax credit receivables) are used to repay the Production Tax Credit Facility. At December 31, 2023, there was $250.0 million outstanding under the Production Tax Credit Facility. • IP Credit Facility: In July 2021, as amended in September 2022, certain of our subsidiaries entered into a senior secured amortizing term credit facility due July 2027 (the "IP Credit Facility") based on the collateral consisting solely of certain of our rights in certain library titles, including the Spyglass and other recently acquired libraries. The maximum principal amount of the IP Credit Facility is $161.9 million, subject to the amount of collateral available, which is based on the valuation of cash flows from the libraries. At December 31, 2023, there was $117.3 million outstanding under the IP Credit Facility. • Backlog Facility and Other: ◦ Backlog Facility. In March 2022, as amended in August 2022, certain subsidiaries of the Company entered into a committed secured revolving credit facility (the "Backlog Facility") based on collateral consisting solely of certain of the Company's fixed fee or minimum guarantee contracts where cash will be received in the future. The maximum principal amount of the Backlog Facility is $175.0 million, subject to the amount of eligible collateral contributed to the facility. The Backlog Facility revolving period finishes on May 16, 2025, at which point cash collections from the underlying collateral is used to repay the facility. The facility maturity date is up to two years and 90 days after the revolving period ends, currently August 14, 2027. As of December 31, 2023, there was $175.0 million outstanding under the Backlog Facility. ◦ Other. The Company has previously had other loans which are secured by contracted receivables which are not yet recognized as revenue under certain licensing agreements. Outstanding loan balances under these "other" loans must be repaid with any cash collections from the underlying collateral if and when received by the Company, and may be voluntarily repaid at any time without prepayment penalty fees. The Company's "other" loans had no amounts outstanding as of December 31, 2023. See Note 7 to our unaudited condensed consolidated financial statements for a discussion of our film related obligations. Accounts Receivable Monetization and Governmental Incentives Our accounts receivable monetization programs include individual agreements to monetize certain of our trade accounts receivable directly with third-party purchasers and a revolving agreement to monetize designated pools of trade accounts receivable with various financial institutions. In addition, we utilize governmental incentives, programs and other structures from states and foreign countries (e.g., sales tax refunds, transferable tax credits, refundable tax credits, low interest loans, direct subsidies or cash rebates, calculated based on the amount of money spent in the particular jurisdiction in connection with the production) to fund our film and television productions and reduce financial risk. See Note 18 to our unaudited condensed consolidated financial statements for our accounts receivable monetization programs and our tax credit receivables. Uses of Cash Our principal uses of cash in operations include the funding of film and television productions, film and programming rights acquisitions, the distribution and marketing of films and television programs, and general and administrative expenses. We also use cash for debt service (i.e. principal and interest payments) requirements, equity method or other equity investments, quarterly cash dividends when declared, the purchase of common shares under our share repurchase program, capital expenditures, and acquisitions of or investment in businesses. Redeemable Noncontrolling Interests. In addition, the Company has a redeemable noncontrolling interest balance of $409.1 million as of December 31, 2023 related to its acquisition of a controlling interest, consisting of a limited liability company interest, in each of Pilgrim Media Group and 3 Arts Entertainment, which may require the use of cash in the event the holders of the noncontrolling interests require the Company to repurchase their interests (see Note 9 to our unaudited condensed consolidated financial statements). 88 • 3 Arts Entertainment. As of December 31, 2023, the Company had a redeemable noncontrolling interest representing 49% of 3 Arts Entertainment. The noncontrolling interest was subject to put and call options at fair value that were exercisable during the quarter. On January 2, 2024, the Company closed on the acquisition of an additional 25% of 3 Arts Entertainment representing approximately half of the noncontrolling interest for approximately $194 million. In addition, the Company purchased certain profit interests held by certain managers and entered into certain option rights agreements, which replaced the put and call rights discussed above by providing noncontrolling interest holders the right to sell to the Company and the Company the right to purchase their remaining (24%) interest beginning in January 2027. • Pilgrim Media Group. The Company has a remaining redeemable noncontrolling interest representing 12.5% of Pilgrim Media Group. The noncontrolling interest holder has a right to put and the Company has a right to call the noncontrolling interest at fair value, subject to a cap, exercisable for thirty (30) days beginning November 12, 2024, as amended. We may from time to time seek to retire or purchase or refinance our outstanding debt through cash purchases, and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, refinancings, or otherwise. Such repurchases or exchanges or refinancings, if any, will depend on prevailing market conditions, our liquidity requirements, our assessment of opportunities to lower interest expense, contractual restrictions and other factors, and such repurchases or exchanges could result in a charge from the early extinguishment of debt. The amounts involved may be material. Anticipated Cash Requirements. The nature of our business is such that significant initial expenditures are required to produce, acquire, distribute and market films and television programs, while revenues from these films and television programs are earned over an extended period of time after their completion or acquisition. In addition to the cash requirements of any potential future redemption of our noncontrolling interests as discussed above, which we may fund with a combination of cash on hand, borrowings under our line of credit and/or new financing arrangements, we have other anticipated cash requirements outside of our normal operations. Under the current Media Networks business restructuring plan and ongoing strategic review previously discussed under "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview", we estimate we will incur additional charges ranging from approximately $30 million to $55 million related to certain contractual content commitments or programming content impairment charges, among other items related to territories exited or to be exited and content to be removed from its services. The net future cash outlay is estimated to range from approximately $145 million to $170 million, which includes contractual commitments on content in territories being exited or to be exited, and payments on the remaining amounts payable for content removed or that may be removed from its services. The amounts above will depend on the results of its strategic content review and amounts recoverable from alternative distribution strategies, if any, on content in domestic and foreign markets. As we continue to evaluate the Media Networks business and its current restructuring plan in relation to the current micro and macroeconomic environment and the announced plan to separate the Company's Starz business (i.e., Media Networks segment) and Studio Business (i.e., Motion Picture and Television Production segments), including further strategic review of content performance and its strategy on a territory-by-territory basis, we may decide to expand our restructuring plan and exit additional territories or remove certain content off its platform in the future. We may incur additional content impairment and other restructuring charges beyond the estimates above. In the short-term, we currently expect that our cash requirements for productions will decrease and that our cash requirements for marketing spend will increase in fiscal 2024 as compared to fiscal 2023. However, we currently believe that cash flow from operations, cash on hand, revolving credit facility availability, the monetization of trade accounts receivable, tax-efficient financing, the availability of our Production Tax Credit Facility, IP Credit Facility and Backlog Facility and other financing obligations, and available production or license financing will be adequate to meet known operational cash and debt service (i.e. principal and interest payments) requirements for the next 12 months and beyond, including the funding of future film and television production, film and programming rights acquisitions and theatrical and home entertainment release schedules, and future equity method or other investment funding requirements, and international expansion in our remaining international territories. We monitor our cash flow liquidity, availability, fixed charge coverage, capital base, film spending and leverage ratios with the long-term goal of maintaining our credit worthiness. Our current financing strategy is to fund operations and to leverage investment in films and television programs in the short-term and long-term through our cash flow from operations, our revolving credit facility, production loans and programming notes, government incentive programs, the monetization of trade accounts receivable, our Production Tax Credit Facility, our IP Credit Facility, our Backlog Facility, and other obligations. In addition, we may acquire businesses or assets, including individual films or libraries that are complementary to our business. Any such transaction could be financed through our cash flow from operations, credit facilities, equity or debt financing. If additional financing beyond our existing cash flows 89 from operations and credit facilities cannot fund such transactions, there is no assurance that such financing will be available on terms acceptable to us. Our ability to obtain any additional financing will depend on, among other things, our business plans, operating performance, the condition of the capital markets at the time we seek financing, and short and long-term debt ratings assigned by independent rating agencies. Additionally, circumstances related to inflation and rising interest rates and bank failures has caused disruption in the capital markets, which could make financing more difficult and/or expensive, and we may not be able to obtain such financing. We may also dispose of businesses or assets, including individual films or libraries, and use the net proceeds from such dispositions to fund operations or such acquisitions, or to repay debt. Material Cash Requirements from Known Contractual and Other Obligations. Our material cash requirements from known contractual and other obligations primarily relate to our corporate debt and film related obligations. The following table sets forth our significant contractual and other obligations as of December 31, 2023 and the estimated timing of payment: Total Next 12 Months Beyond 12 Months (Amounts in millions) Future annual repayment of debt and other obligations recorded as of December 31, 2023 (on-balance sheet arrangements) Corporate debt (1) : Revolving credit facility (2) $ 375.0 $ — $ 375.0 Term Loan A (2) 407.1 37.8 369.3 Term Loan B 822.3 12.5 809.8 5.500% Senior Notes 715.0 — 715.0 Film related obligations (3) 1,881.9 1,318.6 563.3 Content related payables (4) 338.2 282.2 56.0 Operating lease obligations 408.3 43.6 364.7 4,947.8 1,694.7 3,253.1 Contractual commitments by expected repayment date (off-balance sheet arrangements) Film related obligations commitments (5) 666.6 454.9 211.7 Interest payments (6) 401.8 159.8 242.0 Other contractual obligations 416.3 112.2 304.1 1,484.7 726.9 757.8 Total future repayment of debt and other commitments under contractual obligations (6) $ 6,432.5 $ 2,421.6 $ 4,010.9 ___________________ (1) See Note 6 to our unaudited condensed consolidated financial statements for further information on our corporate debt. (2) The outstanding amounts under the Revolving Credit Facility and Term Loan A may become due on December 23, 2024 (i.e. 91 days prior to March 24, 2025) prior to its maturity on April 6, 2026 in the event that the aggregate principal amount of outstanding Term Loan B in excess of $250 million has not been repaid, refinanced or extended to have a maturity date on or after July 6, 2026. The Company expects to refinance and extend the maturity date of the Term Loan B prior to December 23, 2024 such that the maturity of the revolving credit facility and Term Loan A are not accelerated. (3) See Note 7 to our unaudited condensed consolidated financial statements for further information on our film related obligations (4) Content related payables include minimum guarantees and accrued licensed program rights obligations included on our consolidated balance sheet, which represent amounts payable for film or television rights that we have acquired or licensed. (5) Film related obligations commitments include distribution and marketing commitments, minimum guarantee commitments, program rights commitments, and production loan commitments not reflected on the consolidated balance sheets as they did not then meet the criteria for recognition. (6) Includes cash interest payments on our corporate debt and film related obligations, based on the applicable SOFR interest rates at December 31, 2023, net of payments and receipts from the Company's interest rate swaps, and excluding the interest payments on the revolving credit facility as future amounts are not fixed or determinable due to fluctuating balances and interest rates. (7) Not included in the amounts above are $409.1 million of redeemable noncontrolling interest, as future amounts and timing are subject to a number of uncertainties such that we are unable to make sufficiently reliable estimations of future payments. As discussed above, on January 2, 2024, the Company closed on the acquisition of an additional 25% of 3 Arts 90 Entertainment representing approximately half of the noncontrolling interest for approximately $194 million. See Note 9 to our unaudited condensed consolidated financial statements. We have an exclusive multiyear post pay-one output licensing agreement with Universal for live-action films theatrically released in the U.S. starting January 1, 2022. The Universal agreement provides us with rights to exhibit these films immediately following their pay-one windows. We are unable to estimate the amounts to be paid under the Universal agreement for films that have not yet been released in theaters, however, such amounts are expected to be significant. For additional details of contingencies, see Note 16 to our unaudited condensed consolidated financial statements. Covenants. The Senior Credit Facilities contain representations and warranties, events of default and affirmative and negative covenants that are customary for similar financings and which include, among other things and subject to certain significant exceptions, restrictions on the ability to declare or pay dividends, create liens, incur additional indebtedness, make investments, dispose of assets and merge or consolidate with any other person. In addition, a net first lien leverage maintenance covenant and an interest coverage ratio maintenance covenant apply to the Revolving Credit Facility and the Term Loan A and are tested quarterly. As of December 31, 2023, the Company was in compliance with all applicable covenants. The 5.500% Senior Notes contain certain restrictions and covenants that, subject to certain exceptions, limit the Company’s ability to incur additional indebtedness, pay dividends or repurchase the Company’s common shares, make certain loans or investments, and sell or otherwise dispose of certain assets subject to certain conditions, among other limitations. As of December 31, 2023, the Company was in compliance with all applicable covenants. Share Repurchase Plan. On February 2, 2016, our Board of Directors authorized to increase our previously announced share repurchase plan from $300 million to $468 million. To date, approximately $288.1 million of our common shares have been purchased under the plan, leaving approximately $179.9 million of authorized potential repurchases. The remaining $179.9 million of our common shares authorized under the plan may be purchased from time to time at our discretion, including quantity, timing and price thereof, and will be subject to market conditions. Such purchases will be structured as permitted by securities laws and other legal requirements. During the nine months ended December 31, 2023, the Company did not repurchase any common shares. Dividends. The amount of dividends, if any, that we pay to our shareholders is determined by our Board of Directors, at its discretion, and is dependent on a number of factors, including our financial position, results of operations, cash flows, capital requirements and restrictions under our credit agreements, and shall be in compliance with applicable law. Capacity to Pay Dividends. At December 31, 2023, the capacity to pay dividends under the Senior Credit Facilities and the Senior Notes significantly exceeded the amount of the Company's accumulated deficit or net loss, and therefore the Company's net loss of $1,066.8 million and accumulated deficit of $3,574.6 million were deemed free of restrictions from paying dividends at December 31, 2023. Discussion of Operating, Investing, Financing Cash Flows Cash, cash equivalents and restricted cash increased by $18.5 million for the nine months ended December 31, 2023 and increased by $89.9 million for the nine months ended December 31, 2022, before foreign exchange effects on cash. Components of these changes are discussed below in more detail. Operating Activities. Cash flows provided by (used in) operating activities for the nine months ended December 31, 2023 and 2022 were as follows: Nine Months Ended December 31, 2023 2022 Net Change (Amounts in millions) Net Cash Flows Provided By (Used In) Operating Activities $ 401.4 $ (128.0) $ 529.4 Cash flows provided by operating activities for the nine months ended December 31, 2023 were $401.4 million compared to cash flows used in operating activities of $128.0 million for the nine months ended December 31, 2022. The increase in cash provided by operating activities is due to greater cash provided by changes in operating assets and liabilities of $572.2 million. The greater cash provided by changes in operating assets and liabilities was driven by lower cash used for investment in film and television programs and program rights, greater proceeds from decreases in accounts receivable, net, and increases in film 91 related obligations and deferred revenue, partially offset by lower increases in participations and residuals and greater decreases in accounts payable and accrued liabilities. The nine months ended December 31, 2022 included proceeds in the prior year's period from the termination of interest rate swaps (see further discussion below for interest rate swap transactions in the prior year's period). In addition, cash flows provided by operating activities for the nine months ended December 31, 2023 included a net benefit of approximately $40.1 million from the monetization of accounts receivables programs, as compared to a net benefit of approximately $77.0 million for the nine months ended December 31, 2022 (see Note 18 to our unaudited condensed consolidated financial statements). During the nine months ended December 31, 2022, we terminated certain interest rate swaps (a portion of which were considered hybrid instruments with a financing component and an embedded at-market derivative that was a designated cash flow hedge), and received approximately $56.4 million. The $56.4 million received was classified in the unaudited condensed consolidated statement of cash flows as cash provided by operating activities of $188.7 million reflecting the amount received for the derivative portion of the termination of swaps (and presented in the "proceeds from the termination of interest rate swaps" line item on the unaudited condensed consolidated statement of cash flows), and a use of cash in financing activities of $134.5 million reflecting the pay down of the financing component of the Terminated Swaps (inclusive of payments made between April 1, 2022 and the termination date amounting to $3.2 million) (see Financing Activities below). See Note 17 to our unaudited condensed consolidated financial statements. Investing Activities. Cash flows used in investing activities for the nine months ended December 31, 2023 and 2022 were as follows: Nine Months Ended December 31, 2023 2022 (Amounts in millions) Purchase of eOne, net of cash acquired $ (331.1) $ — Proceeds from the sale of equity method and other investments 5.2 46.3 Investment in equity method investees and other (11.3) (17.5) Increase in loans receivable (3.6) — Capital expenditures (24.7) (36.6) Net Cash Flows Used In Investing Activities $ (365.5) $ (7.8) Cash flows used in investing activities of $365.5 million for the nine months ended December 31, 2023 compared to cash flows used in investing activities of $7.8 million for the nine months ended December 31, 2022, primarily due to cash used for the purchase of eOne, net of cash acquired, in the current period and lower proceeds from the sale of equity method and other investments due to the sale of a portion of our ownership interest in STARZPLAY Arabia in the prior year's period, partially offset by lower cash used for capital expenditures and investment in equity method investees and other. Financing Activities. Cash flows provided by (used in) financing activities for the nine months ended December 31, 2023 and 2022 were as follows: Nine Months Ended December 31, 2023 2022 (Amounts in millions) Debt - borrowings $ 2,270.5 $ 1,238.0 Debt - repurchases and repayments (1,987.4) (1,548.3) Net proceeds from (repayments and repurchases of) debt 283.1 (310.3) Film related obligations - borrowings 1,262.6 1,384.0 Film related obligations - repayments (1,530.3) (694.8) Net proceeds from (repayments of) film related obligations (267.7) 689.2 Other financing activities (32.8) (153.2) Net Cash Flows Provided By (Used In) Financing Activities $ (17.4) $ 225.7 92 Cash flows used in financing activities of $17.4 million for the nine months ended December 31, 2023 compared to cash flows provided by financing activities of $225.7 million for the nine months ended December 31, 2022. Cash flows used in financing activities for the nine months ended December 31, 2023 primarily reflects net film related obligations repayments of $267.7 million due to net repayments under production loans and the Production Tax Credit Facility of $188.1 million and net repayments under the Backlog Facility, IP Credit Facility and other of $79.6 million, and cash used for other financing activities of $32.8 million representing primarily tax withholding required on equity awards of $31.0 million. These uses of cash were partially offset by net proceeds from debt of $283.1 million in the nine months ended December 31, 2023, which included net borrowings under our revolving credit facility of $375.0 million to fund the purchase of eOne, which were offset by cash paid of $61.4 million for the repurchase of $85.0 million principal amount of the 5.500% Senior Notes, and required repayments on our term loans. Cash flows provided by financing activities of $225.7 million for the nine months ended December 31, 2022 primarily reflects net film related obligations borrowings of $689.2 million due to net borrowings under production loans and the Production Tax Credit Facility of $430.2 million and increased net borrowings under the Backlog Facility, IP Credit Facility and other of $259.0 million, offset by net debt repayments of $310.3 million. Net debt repayments and repurchases of $310.3 million in the nine months ended December 31, 2022 included the below transactions, along with required repayments on our term loans: • In April 2022, we voluntarily prepaid the entire outstanding principal amount of the Term Loan A due March 22, 2023 of $193.6 million. • During the nine months ended December 31, 2022, we repurchased $142.4 million principal amount of the 5.500% Senior Notes for $96.2 million. In addition, other financing activities in the nine months ended December 31, 2022 includes $134.5 million for interest rate swap settlement payments due to a financing component on a portion of our interest rate swaps (inclusive of payments made between April 1, 2022 and the termination date amounting to $3.2 million) (see discussion above in Operating Activities , and Note 17 to our unaudited condensed consolidated financial statements). Other financing activities also includes tax withholding required on equity awards of $17.3 million. Remaining Performance Obligations and Backlog Remaining performance obligations represent deferred revenue on the balance sheet plus fixed fee or minimum guarantee contracts where the revenue will be recognized and the cash received in the future (i.e., backlog). As disclosed in Note 10 to our unaudited condensed consolidated financial statements, remaining performance obligations were $2.0 billion at December 31, 2023 (March 31, 2023 - $1.9 billion). The backlog portion of remaining performance obligations (excluding deferred revenue) related to our Motion Picture and Television Production segments was $1.6 billion at December 31, 2023 (March 31, 2023 - $1.5 billion).