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). Business Combination On May 13, 2024, the Company consummated the business combination agreement (the “Business Combination Agreement”), with Screaming Eagle Acquisition Corp., a Cayman Islands exempted company (“SEAC”), SEAC II Corp., a Cayman Islands exempted company and wholly-owned subsidiary of SEAC (“New SEAC”), LG Sirius Holdings ULC, a British Columbia unlimited liability company and a wholly-owned subsidiary of the Company (“Studio HoldCo”), LG Orion Holdings ULC, a British Columbia unlimited liability company and a wholly-owned subsidiary of the Company (“StudioCo) and other affiliates of SEAC. Pursuant to the terms and conditions of the Business Combination Agreement, the Studio Business was combined with SEAC through a series of transactions, including an amalgamation of StudioCo and New SEAC under a Canadian plan of arrangement (the “Business Combination”). In connection with the closing of the business combination, New SEAC changed its name to “Lionsgate Studios Corp.” (referred to as “Lionsgate Studios”) and continues the existing business operations of StudioCo, which consists of the Studio Business of Lionsgate. The "Studio Business" consists of the businesses of Lionsgate's Motion Picture and Television Production segments, together with substantially all of Lionsgate's corporate general and administrative functions and costs. Lionsgate Studios became a separate publicly traded company and its common shares commenced trading on Nasdaq under the symbol “LION” on May 14, 2024. In connection with and prior to the Business Combination, the Company and StudioCo entered into a separation agreement pursuant to which the assets and liabilities of the Company’s Studio Business were transferred to StudioCo such that StudioCo holds, directly or indirectly, all of the assets and liabilities of the Studio Business (the “Separation”). Following the transaction, approximately 87.8% of the total shares of Lionsgate Studios continue to be held by the Company, while former SEAC public shareholders and founders and common equity financing investors own approximately 12.2% of Lionsgate Studios. In addition to establishing Lionsgate Studios as a standalone publicly-traded entity, the transaction resulted in approximately $330.0 million of gross proceeds to the Company, including $254.3 million in PIPE financing. The net proceeds were used to partially pay down amounts outstanding under the Term Loan A and Term Loan B pursuant to the Credit Agreement (see Note 6 to our unaudited consolidated financial statements). The Business Combination has been accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, SEAC was treated as the acquired company and the Studio Business was treated as the acquirer for financial reporting purposes. Accordingly, for accounting purposes, the financial statements of Lionsgate Studios 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 SEAC, substantially consisting of cash held in the trust account, accompanied by a recapitalization. The historical net assets of SEAC were stated at fair value, which approximates historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of the Studio Business. The Studio Business continues to be a consolidated subsidiary of the Company. 43 Table of Contents Media Networks Restructuring During fiscal 2024, the Company continued executing its Media Networks restructuring plan, which included exiting all international territories except for Canada and India, and included an evaluation of the programming on Starz's domestic and international platforms. As a result of these restructuring initiatives, the Company recorded content impairment charges related to the Media Networks segment in the three months ended June 30, 2024 and 2023 of $1.9 million and $28.0 million, respectively. The Company has incurred impairment charges from the inception of the plan through June 30, 2024 amounting to $745.7 million. Under the current restructuring plan and ongoing strategic content review, the net future cash outlay is estimated to range from approximately $50 million to $55 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. 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 months ended June 30, 2024 and 2023. 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. 44 Table of Contents • 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 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. and Canada multichannel video programming distributors (“MVPDs”) including cable operators, satellite television providers and telecommunications companies (collectively, “Distributors”). • Other. Other revenues are primarily derived from OTT distribution of the STARZ branded premium subscription video services outside of the U.S. and Canada. The Starz Networks platforms together with the Other 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 45 Table of Contents reporting, internal and external audit and tax costs, corporate and other legal support functions, and certain information technology and human resources expense. 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 30, 2024 (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. 46 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 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. 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 months ended June 30, 2024 of $1.9 million, which are included in restructuring and other in the 47 unaudited condensed consolidated statement of operations (three months ended June 30, 2023 - $28.0 million) (see Note 3 and Note 14 to our unaudited condensed consolidated financial statements). We have incurred impairment charges from the inception of the plan through June 30, 2024 amounting to $745.7 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 48 and revenues are recognized ratably over each applicable membership period. Payments to distributors for marketing support 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. At June 30, 2024, the carrying value of goodwill was $812.1 million. 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 June 30, 2024, were Motion Picture (goodwill of $395 million), Media Networks (no remaining goodwill balance), and our Television (goodwill of $324 million) and Talent Management (goodwill of $93 million) businesses, both of which are part of our Television Production segment. Goodwill is not amortized but is 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 is less than its carrying value. We perform our annual impairment test as of January 1 in each fiscal year. A goodwill impairment loss would be recognized for the amount that the carrying amount of a reporting unit exceeds its fair value. An entity may perform a qualitative assessment of the likelihood of the existence of a goodwill impairment. The qualitative assessment is an evaluation, based on all identified events and circumstances which impact the fair value of the reporting unit of whether or not it is more-likely-than-not that the fair value is less than the carrying value of the reporting unit. 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 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. 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. For our annual goodwill impairment test for fiscal 2024, we performed qualitative goodwill impairment assessments for our reporting units with a remaining goodwill balance (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 date of the most recent quantitative assessment performed over these reporting units, 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. During the three months ended June 30, 2024, there were no events or circumstances that have changed that would indicate that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. 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 49 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 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. Finite-Lived Intangible Assets. At June 30, 2024, the carrying value of our finite-lived intangible assets was $954.0 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 $874.0 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 October 1, 2023, our finite-lived intangible assets also include the trade names previously accounted for as indefinite-lived intangible assets. 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. For fiscal 2024, due to changes in the industry related to the migration from linear to OTT and direct-to-consumer consumption, and continuing difficult macro and microeconomic conditions, we performed an impairment analysis of our amortizable intangible assets. The impairment analysis 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. 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 quarter ended June 30, 2024, 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 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, 2024, we had 50 a valuation allowance of $808.3 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 U.S. federal statutory income tax rate and is affected by many factors, including the overall level of income (loss) before taxes and its mix across the jurisdictions in which we conduct operations, changes in tax laws and regulations, changes in valuation allowances against our deferred tax assets, changes in unrecognized tax benefits, tax planning strategies available to us, and other discrete items. RESULTS OF OPERATIONS Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 Consolidated Results of Operations The following table sets forth our consolidated results of operations for the three months ended June 30, 2024 and 2023. Due to the acquisition of eOne, the three months ended June 30, 2024 includes the results of operations of eOne (acquired December 27, 2023), see Note 2 to our unaudited condensed consolidated financial statements for further details. 51 Three Months Ended June 30, Change 2024 2023 Amount Percent (Amounts in millions) Revenues Studio Business Motion Picture $ 347.3 $ 406.5 $ (59.2) (14.6) % Television Production 241.1 218.5 22.6 10.3 % Total Studio Business 588.4 625.0 (36.6) (5.9) % Media Networks 350.1 381.1 (31.0) (8.1) % Intersegment eliminations (103.8) (97.5) (6.3) 6.5 % Total revenues 834.7 908.6 (73.9) (8.1) % Expenses: Direct operating 429.2 481.2 (52.0) (10.8) % Distribution and marketing 198.6 244.2 (45.6) (18.7) % General and administration 119.5 123.6 (4.1) (3.3) % Depreciation and amortization 46.1 44.4 1.7 3.8 % Restructuring and other 22.5 32.0 (9.5) (29.7) % Total expenses 815.9 925.4 (109.5) (11.8) % Operating income (loss) 18.8 (16.8) 35.6 (211.9) % Interest expense (68.8) (62.0) (6.8) 11.0 % Interest and other income 5.1 1.9 3.2 168.4 % Other expense (3.1) (5.7) 2.6 (45.6) % Gain (loss) on extinguishment of debt (5.9) 21.2 (27.1) (127.8) % Equity interests income (loss) 0.9 (0.3) 1.2 nm Loss before income taxes (53.0) (61.7) 8.7 (14.1) % Income tax provision (10.1) (9.8) (0.3) 3.1 % Net loss (63.1) (71.5) 8.4 (11.7) % Less: Net loss attributable to noncontrolling interest 3.7 0.8 2.9 362.5 % Net loss attributable to Lions Gate Entertainment Corp. shareholders $ (59.4) $ (70.7) $ 11.3 (16.0) % _______________________ nm - Percentage not meaningful. 52 Revenues. Consolidated revenues decreased $73.9 million in the three months ended June 30, 2024 reflecting a decrease of $36.6 million from our Studio Business, a decrease of $31.0 million from our Media Networks business, and higher intersegment eliminations of $6.3 million. Studio Business revenues for the three months ended June 30, 2024 included approximately $101.6 million of revenues from eOne (acquired December 27, 2023, therefore the three months ended June 30, 2023 included no comparable revenues). Intersegment eliminations relate to the licensing of product from our Studio Business to the Media Networks segment. Motion Picture revenue decreased $59.2 million due to lower theatrical, home entertainment and international revenue, primarily due to revenue in the prior year's quarter from John Wick: Chapter 4 , partially offset by increased television revenue. Motion Picture revenues for the three months ended June 30, 2024 included approximately $25.1 million of revenues from eOne. Motion Picture revenue included $64.2 million of revenue from licensing Motion Picture segment product to the Media Networks segment, representing an increase of $47.7 million from the three months ended June 30, 2023. Television Production revenue increased $22.6 million due to increased domestic television, international, and home entertainment digital revenue. Television Production revenues for the three months ended June 30, 2024 included approximately $76.5 million of revenues from eOne. Television Production revenue included $39.6 million of revenue from licensing Television Production segment product to our Media Networks segment, representing a decrease of $41.4 million from the three months ended June 30, 2023. The increase in intersegment eliminations of $6.3 million is primarily associated with higher Motion Picture intersegment revenues of $47.7 million reflecting the licensing of certain recent theatrical releases to Starz, partially offset by lower Television Production intersegment revenues of $41.4 million for licenses of original series to the Starz Platforms. Media Networks revenue decreased $31.0 million, and reflected decreases in international revenue of $34.7 million due to exiting additional international territories, partially offset by an increase of $3.7 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 three months ended June 30, 2024 and 2023: Three Months Ended June 30, 2024 2023 Change Amount % of Segment Revenues Amount % of Segment Revenues Amount Percent (Amounts in millions) Direct operating expenses Studio Business Motion Picture $ 150.6 43.4 % $ 186.7 45.9 % $ (36.1) (19.3) % Television Production 202.0 83.8 174.9 80.0 27.1 15.5 % Total Studio Business 352.6 59.9 361.6 57.9 (9.0) (2.5) % Media Networks 166.2 47.5 206.4 54.2 (40.2) (19.5) % Other 2.8 nm 0.6 nm 2.2 366.7 % Intersegment eliminations (92.4) nm (87.4) nm (5.0) 5.7 % $ 429.2 51.4 % $ 481.2 53.0 % $ (52.0) (10.8) % _______________________ nm - Percentage not meaningful Direct operating expenses decreased in the three months ended June 30, 2024, due to lower direct operating expenses of our Media Networks segment and Studio Business, and higher intersegment eliminations. The decrease in Media Networks direct operating expense was driven by decreases at Starz Networks of $15.0 million due to lower programming cost amortization, and decreases of $25.2 million due to the territories exited, or to be exited. The decrease at the Studio Business reflects lower direct operating expenses of the Motion Picture segment due to lower Motion Picture revenues, partially offset by higher direct operating expenses of the Television Production segment due to increased revenues from Television Production. The increase in intersegment eliminations is due to higher Motion Picture revenue from licenses of original series to the Starz Platforms, as discussed above. See further discussion in the Segment Results of Operations section below. 53 Other. Other direct operating expense in the three months ended June 30, 2024 includes rent cost for production facilities that were unutilized as a result of the industry strikes amounting to $5.2 million, which was not allocated to the segments, and is included in direct operating expense. In addition, other direct operating expense in the three months ended June 30, 2024 and 2023 includes share-based compensation, and COVID related charges, if any, net of insurance recoveries. Distribution and Marketing Expenses. Distribution and marketing expenses by segment were as follows for the three months ended June 30, 2024 and 2023: Three Months Ended June 30, Change 2024 2023 Amount Percent (Amounts in millions) Distribution and marketing expenses Studio Business: Motion Picture $ 82.1 $ 121.2 $ (39.1) (32.3) % Television Production 10.5 8.0 2.5 31.3 % Total Studio Business 92.6 129.2 (36.6) (28.3) % Media Networks 105.9 117.0 (11.1) (9.5) % Other 0.2 0.2 — — % Intersegment eliminations (0.1) (2.2) 2.1 nm $ 198.6 $ 244.2 $ (45.6) (18.7) % U.S. theatrical P&A and Premium VOD expense included in Motion Picture distribution and marketing expense $ 51.3 $ 84.4 $ (33.1) (39.2) % _______________________ nm - Percentage not meaningful Distribution and marketing expenses decreased in the three months ended June 30, 2024, due to lower Studio Business and Media Networks distribution and marketing expense. The decrease at the Studio Business primarily reflects lower Motion Picture theatrical P&A and Premium VOD expense associated with the theatrical slate releases in the current quarter. The decrease in Media Networks distribution and marketing expense was due to a decrease of $11.4 million primarily from the international territories exited, partially offset by an increase at Starz Networks of $0.3 million. 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 June 30, 2024 and 2023: Three Months Ended June 30, Change 2024 % of Revenues 2023 % of Revenues Amount Percent (Amounts in millions) General and administrative expenses Studio Business Motion Picture $ 28.5 $ 29.4 $ (0.9) (3.1) % Television Production 17.9 12.7 5.2 40.9 % Total Studio Business 46.4 42.1 4.3 10.2 % Media Networks 20.5 25.8 (5.3) (20.5) % Corporate 33.3 30.4 2.9 9.5 % Share-based compensation expense 17.2 15.3 1.9 12.4 % Purchase accounting and related adjustments 2.1 10.0 (7.9) (79.0) % Total general and administrative expenses $ 119.5 14.3% $ 123.6 13.6% $ (4.1) (3.3) % 54 General and administrative expenses decreased in the three months ended June 30, 2024, resulting from decreased purchase accounting and related adjustments and Media Networks general and administrative expenses, partially offset by increased Studio Business and corporate general and administrative expenses and share-based compensation expense. Studio Business general and administrative expenses for the three months ended June 30, 2024 included approximately $7.0 million from eOne. See further discussion in the Segment Results of Operations section below. Corporate general and administrative expenses increased $2.9 million, or 9.5%, primarily due to approximately $3.0 million of corporate general and administrative expenses from eOne. The increase in share-based compensation expense included in general and administrative expense in the three months ended June 30, 2024, as compared to the three months ended June 30, 2023 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: Three Months Ended June 30, 2024 2023 (Amounts in millions) Share-based compensation expense by expense category General and administrative expense $ 17.2 $ 15.3 Restructuring and other (1) — 0.5 Direct operating expense 0.7 0.4 Distribution and marketing expense 0.2 0.2 Total share-based compensation expense $ 18.1 $ 16.4 _______________________ (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 expense associated with the noncontrolling equity interests in the distributable earnings related to 3 Arts Entertainment, and the non-cash charges for the accretion of the noncontrolling interest discount and the amortization of the recoupable portion of the purchase price related to 3 Arts Entertainment, all of which are accounted for as compensation and are included in general and administrative expense. The noncontrolling equity interests in the distributable earnings of 3 Arts Entertainment are reflected as an expense rather than noncontrolling interest in the unaudited condensed consolidated statement of operations due to the relationship to continued employment. Purchase accounting and related adjustments decreased $7.9 million, or 79.0%, primarily due to lower noncontrolling equity interests in the distributable earnings related to 3 Arts Entertainment of $6.6 million associated with a lower noncontrolling interest ownership percentage as a result of our acquisition of an additional interest in 3 Arts Entertainment (see Note 9 to our unaudited condensed consolidated financial statements). In addition, purchase accounting and related adjustments decreased due to lower amortization of the recoupable portion of the purchase price of 3 Arts Entertainment of $1.3 million, due to the amortization period ending in May 2023. Depreciation and Amortization Expense. Depreciation and amortization of $46.1 million for the three months ended June 30, 2024 increased $1.7 million from $44.4 million in the three months ended June 30, 2023 due to increased amortization of intangible assets. Restructuring and Other. Restructuring and other decreased $9.5 million in the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, 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 June 30, 2024 and 2023 (see Note 14 to our unaudited condensed consolidated financial statements): 55 Three Months Ended June 30, Change 2024 2023 Amount Percent (Amounts in millions) Restructuring and other: Content and other impairments (1) $ 19.9 $ 28.0 $ (8.1) (28.9) % Severance (2) Cash 3.1 4.3 (1.2) (27.9) % Accelerated vesting on equity awards (see Note 12 to our unaudited condensed consolidated financial statements) — 0.5 (0.5) (100.0) % Total severance costs 3.1 4.8 (1.7) (35.4) % Transaction and other costs (3) (0.5) (0.8) 0.3 (37.5) % $ 22.5 $ 32.0 $ (9.5) (29.7) % _______________________ (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 June 30, 2024 of $1.9 million (three months ended June 30, 2023 - $28.0 million). See Note 14 to our unaudited condensed consolidated financial statements. Other Impairments: Amounts in the three months ended June 30, 2024 also include impairments of certain operating lease right-of-use and leasehold improvement assets related to the Television Production segment amounting to $18.0 million associated with facility leases that will no longer be utilized by the Company primarily related to the integration of eOne. (2) Severance costs were primarily related to restructuring, acquisition integration activities and other cost-saving initiatives. (3) Transaction and other costs in the three months ended June 30, 2024 and 2023 reflect transaction, integration and legal costs associated with certain strategic transactions, and restructuring activities and also include costs and benefits associated with legal and other matters. In the three months ended June 30, 2024 and 2023, transaction and other costs also includes a benefit of $7.1 million and $3.8 million, respectively, associated with an arrangement to migrate subscribers in some of the exited territories to a third-party in connection with the Starz international restructuring. Interest Expense. Interest expense of $68.8 million in the three months ended June 30, 2024 increased $6.8 million from the three months ended June 30, 2023 due to higher average interest rates and balances on variable rate corporate debt and film related obligations, partially offset by a slightly larger benefit from the interest rate swaps. The following table sets forth the components of interest expense for the three months ended June 30, 2024 and 2023: 56 Three Months Ended June 30, 2024 2023 (Amounts in millions) Interest Expense Cash Based: Revolving credit facility $ 14.1 $ 9.5 Term loans 20.8 20.4 Senior Notes 9.8 10.2 Other (1) 15.6 15.1 60.3 55.2 Amortization of debt issuance costs and other non-cash interest (2) 8.5 6.8 Total interest expense $ 68.8 $ 62.0 ______________________ (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 $5.1 million for the three months ended June 30, 2024 increased as compared to interest and other income of $1.9 million for the three months ended June 30, 2023 due to higher interest income. Other Expense. Other expense of $3.1 million for the three months ended June 30, 2024 decreased as compared to other expense of $5.7 million for the three months ended June 30, 2023, and primarily represented the loss recorded related to our monetization of accounts receivable programs (see Note 18 to our unaudited condensed consolidated financial statements). Gain (Loss) on Extinguishment of Debt. Loss on extinguishment of debt of $5.9 million for the three months ended June 30, 2024 related to the write-off of debt issuance costs associated with the voluntary prepayment of $84.9 million principal amount of the Term Loan A and $214.1 million of the Term Loan B, and the 5.5% Senior Notes exchange. In the three months ended June 30, 2023, the gain on extinguishment of debt of $21.2 million represented a gain associated with the repurchase of $85.0 million principal amount of 5.5% Senior Notes at a discount. See Note 6 to our unaudited condensed consolidated financial statements. Equity Interests Income (Loss). Equity interests income of $0.9 million in the three months ended June 30, 2024 compared to equity interests loss of $0.3 million in the three months ended June 30, 2023 due to higher income generated by our equity method investees. Income Tax Provision. We had an income tax provision of $10.1 million in the three months ended June 30, 2024, compared to an income tax provision of $9.8 million in the three months ended June 30, 2023. Our income tax provision differs from the U.S. federal statutory income tax rate of 21% multiplied by income (loss) before taxes due to the mix of our earnings across the various jurisdictions in which our operations are conducted, changes in valuation allowances against our deferred tax assets, and certain minimum income and foreign withholding taxes. Our income tax provision for the three months ended June 30, 2024 and 2023 also benefited from the release of uncertain tax benefits due to the close of audits or expiration of statutory limitations. Our income tax provision for the three months ended June 30, 2024 was also impacted by additional deferred tax expense as result of the Separation that occurred during the quarter. Net Loss Attributable to Lions Gate Entertainment Corp. Shareholders. Net loss attributable to our shareholders for the three months ended June 30, 2024 was $59.4 million, or basic and diluted net loss per common share of $0.25 on 235.6 million weighted average common shares outstanding. This compares to net loss attributable to our shareholders for the three months ended June 30, 2023 of $70.7 million, or basic and diluted net loss per common share of $0.31 on 230.2 million weighted average common shares outstanding. 57 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, 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 loss, to the non-GAAP measure, total segment profit, for the three months ended June 30, 2024 and 2023. 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 June 30, Change 2024 2023 Amount Percent (Amounts in millions) Operating loss $ 18.8 $ (16.8) $ 35.6 (211.9) % Corporate general and administrative expenses 33.3 30.4 2.9 9.5 % Adjusted depreciation and amortization 8.5 10.0 (1.5) (15.0) % Restructuring and other 22.5 32.0 (9.5) (29.7) % COVID-19 related charges (benefit) (3.1) 0.2 (3.3) nm Unallocated rent cost included in direct operating expense 5.2 — 5.2 n/a Adjusted share-based compensation expense 18.1 15.9 2.2 13.8 % Purchase accounting and related adjustments 39.7 44.4 (4.7) (10.6) % Total segment profit $ 143.0 $ 116.1 $ 26.9 23.2 % _______________________ nm - Percentage not meaningful. 58 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. Three Months Ended June 30, Change 2024 2023 Amount Percent (Amounts in millions) Revenue Studio Business Motion Picture $ 347.3 $ 406.5 $ (59.2) (14.6) % Television Production 241.1 218.5 22.6 10.3 % Total Studio Business $ 588.4 $ 625.0 $ (36.6) (5.9) % Media Networks 350.1 381.1 (31.0) (8.1) % Intersegment eliminations (103.8) (97.5) (6.3) 6.5 % $ 834.7 $ 908.6 $ (73.9) (8.1) % Segment Profit Studio Business Motion Picture $ 86.1 $ 69.2 $ 16.9 24.4 % Television Production 10.7 22.9 (12.2) (53.3) % Total Studio Business $ 96.8 $ 92.1 $ 4.7 5.1 % Media Networks 57.5 31.9 25.6 80.3 % Intersegment eliminations (11.3) (7.9) (3.4) 43.0 % $ 143.0 $ 116.1 $ 26.9 23.2 % 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 June 30, 2024 and 2023: 59 Three Months Ended June 30, Change 2024 2023 Amount Percent (Amounts in millions) Motion Picture Segment: Revenue $ 347.3 $ 406.5 $ (59.2) (14.6) % Expenses: Direct operating expense 150.6 186.7 (36.1) (19.3) % Distribution & marketing expense 82.1 121.2 (39.1) (32.3) % Gross contribution 114.6 98.6 16.0 16.2 % General and administrative expenses 28.5 29.4 (0.9) (3.1) % Segment profit $ 86.1 $ 69.2 $ 16.9 24.4 % U.S. theatrical P&A and Premium VOD expense included in distribution and marketing expense $ 51.3 $ 84.4 $ (33.1) (39.2) % Direct operating expense as a percentage of revenue 43.4 % 45.9 % Gross contribution as a percentage of revenue 33.0 % 24.3 % Revenue. The table below sets forth Motion Picture revenue by media and product category for the three months ended June 30, 2024 and 2023. Motion Picture revenues for the three months ended June 30, 2024 included approximately 25.1 million of revenues from eOne. Three Months Ended June 30, 2024 2023 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 $ 35.4 $ 0.6 $ 36.0 $ 65.2 $ 0.7 $ 65.9 $ (29.9) Home Entertainment Digital Media 100.4 39.7 140.1 131.3 42.8 174.1 (34.0) Packaged Media 6.6 2.6 9.2 20.8 5.1 25.9 (16.7) Total Home Entertainment 107.0 42.3 149.3 152.1 47.9 200.0 (50.7) Television 82.4 5.6 88.0 42.3 6.2 48.5 39.5 International 48.2 20.1 68.3 74.1 6.9 81.0 (12.7) Other 2.7 3.0 5.7 9.7 1.4 11.1 (5.4) $ 275.7 $ 71.6 $ 347.3 $ 343.4 $ 63.1 $ 406.5 $ (59.2) ____________________ (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 decreased $29.9 million in the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 due to a decrease of $29.8 million from Lionsgate Original Releases due to revenue in the prior year's quarter from the fiscal 2023 theatrical slate release, John Wick: Chapter 4, partially offset by revenue from the release of The Strangers: Chapter 1 in the current quarter. 60 Home entertainment revenue decreased $50.7 million, or 25.4%, in the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, due to lower digital media revenue of $34.0 million and lower packaged media revenue of $16.7 million primarily due to decreases from Lionsgate Original Releases. Digital media revenue and packaged media revenue from Lionsgate Original Releases declined $30.9 million and $14.2 million, respectively, due to revenue in the prior year's quarter from John Wick: Chapter 4, partially offset by revenue in the current quarter from The Ministry of Ungentlemanly Warfare. Television revenue increased $39.5 million, or 81.4%, in the three months ended June 30, 2024, as compared to the three months ended June 30, 2023 due to an increase from Lionsgate Original Releases of $40.1 million due to a greater number of television windows opening in the current quarter for our theatrical slate titles, and higher revenue recognized for those titles, and in particular, The Hunger Games: The Ballad of Songbirds & Snakes, partially offset by a decrease from Other Film of $0.6 million. International revenue decreased $12.7 million, or 15.7%, in the three months ended June 30, 2024, as compared to the three months ended June 30, 2023 due to a decrease from Lionsgate Original Releases of $25.9 million driven by revenue in the prior year's quarter for John Wick: Chapter 4 , partially offset by an increase from Other Film of $13.2 million from our acquired library titles. Direct Operating Expense. The decrease in direct operating expenses is due to lower motion picture revenue in the current quarter. Direct operating expenses as a percentage of motion picture revenue decreased slightly from the prior year's quarter and 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. Investment in film write-downs included in Motion Picture segment direct operating expense increased to $0.3 million in the three months ended June 30, 2024, as compared to $0.2 million in the three months ended June 30, 2023. Distribution and Marketing Expense. The decrease in distribution and marketing expense in the three months ended June 30, 2024 is due to lower theatrical P&A and Premium VOD expense due to lower expense associated with the theatrical slate releases in the current quarter. In the three months ended June 30, 2024 approximately $15.1 million of P&A and Premium VOD expense was incurred in advance for films to be released in subsequent quarters, compared to approximately $20.9 million in the three months ended June 30, 2023 in the Motion Picture segment. Gross Contribution. Gross contribution of the Motion Picture segment for the three months ended June 30, 2024 increased as compared to the three months ended June 30, 2023 due to lower Motion Picture distribution and marketing expense and direct operating expense, partially offset by lower Motion Picture revenue. General and Administrative Expense. General and administrative expenses of the Motion Picture segment in the three months ended June 30, 2024 decreased $0.9 million, or 3.1%, primarily due to a decrease in professional fees. Television Production The table below sets forth Television Production gross contribution and segment profit for the three months ended June 30, 2024 and 2023: Three Months Ended June 30, Change 2024 2023 Amount Percent (Amounts in millions) Television Production Segment: Revenue $ 241.1 $ 218.5 $ 22.6 10.3 % Expenses: Direct operating expense 202.0 174.9 27.1 15.5 % Distribution & marketing expense 10.5 8.0 2.5 31.3 % Gross contribution 28.6 35.6 (7.0) (19.7) % General and administrative expenses 17.9 12.7 5.2 40.9 % Segment profit $ 10.7 $ 22.9 $ (12.2) (53.3) % Direct operating expense as a percentage of revenue 83.8 % 80.0 % Gross contribution as a percentage of revenue 11.9 % 16.3 % 61 Revenue. The table below sets forth Television Production revenue and changes in revenue by media for the three months ended June 30, 2024 and 2023. Television Production revenues for the three months ended June 30, 2024 included approximately $76.5 million of revenues from eOne. Three Months Ended June 30, Increase (Decrease) 2024 2023 Amount Percent Television Production (Amounts in millions) Television $ 160.2 $ 150.0 $ 10.2 6.8 % International 35.5 31.9 3.6 11.3 % Home Entertainment Digital 18.9 11.8 7.1 60.2 % Packaged Media 0.9 0.4 0.5 125.0 % Total Home Entertainment 19.8 12.2 7.6 62.3 % Other 25.6 24.4 1.2 4.9 % $ 241.1 $ 218.5 $ 22.6 10.3 % The primary component of Television Production revenue is domestic television revenue. Domestic television revenue increased in the three months ended June 30, 2024 due to an increase of approximately $66.3 million for revenues from eOne in the current quarter, partially offset by a decrease of $30.0 million from intersegment revenues from the licensing of fewer Starz original series to Starz Networks and a decrease from reality television programs. International revenue in the three months ended June 30, 2024 increased $3.6 million, or 11.3% as compared to the three months ended June 30, 2023 due to an increase of approximately $5.4 million for revenues from eOne in the current quarter. Home entertainment revenue in the three months ended June 30, 2024 increased $7.6 million, or 62.3% as compared to the three months ended June 30, 2023 due to increased third-party digital media revenues. Other revenue in the three months ended June 30, 2024 decreased $1.2 million, or 4.9% from the three months ended June 30, 2023, and primarily reflects revenue of 3 Arts Entertainment, which is generated from commissions and executive producer fees earned related to talent management. Direct Operating Expense. Direct operating expense of the Television Production segment in the three months ended June 30, 2024 increased $27.1 million, or 15.5% due to the increase in Television Production revenues. Direct operating expenses as a percentage of television production revenue increased as compared to the prior year's quarter, primarily due to the mix of titles generating revenue in the current quarter as compared to the prior year's quarter. There were no investment in film and television programs write-downs included in Television Production segment direct operating expense in the three months ended June 30, 2024 and 2023. Gross Contribution. Gross contribution of the Television Production segment for the three months ended June 30, 2024 decreased as compared to the three months ended June 30, 2023, due to higher direct operating expenses as a percentage of television production revenue, partially offset by increased television production revenue. General and Administrative Expense. General and administrative expenses of the Television Production segment increased $5.2 million, or 40.9%. Television Production general and administrative expenses for the three months ended June 30, 2024 included $6.0 million from eOne. Media Networks The table below sets forth Media Networks gross contribution and segment profit for the three months ended June 30, 2024 and 2023: 62 Three Months Ended June 30, Change 2024 2023 Amount Percent (Amounts in millions) Media Networks Segment: Revenue $ 350.1 $ 381.1 $ (31.0) (8.1) % Expenses: Direct operating expense 166.2 206.4 (40.2) (19.5) % Distribution & marketing expense 105.9 117.0 (11.1) (9.5) % Gross contribution 78.0 57.7 20.3 35.2 % General and administrative expenses 20.5 25.8 (5.3) (20.5) % Segment profit $ 57.5 $ 31.9 $ 25.6 80.3 % Direct operating expense as a percentage of revenue 47.5 % 54.2 % Gross contribution as a percentage of revenue 22.3 % 15.1 % _______________________ nm - Percentage not meaningful. The following table sets forth the Media Networks segment profit by product line: Three Months Ended Three Months Ended June 30, 2024 June 30, 2023 Starz Networks (North America) (1) Other (2) Total Media Networks Starz Networks (North America) (1) Other (2) Total Media Networks (Amounts in millions) Media Networks Segment: Revenue $ 345.3 $ 4.8 $ 350.1 $ 341.6 $ 39.5 $ 381.1 Expenses: Direct operating expense 162.5 3.7 166.2 177.5 28.9 206.4 Distribution & marketing expense 105.1 0.8 105.9 104.8 12.2 117.0 Gross contribution 77.7 0.3 78.0 59.3 (1.6) 57.7 General and administrative expenses 19.2 1.3 20.5 21.2 4.6 25.8 Segment profit $ 58.5 $ (1.0) $ 57.5 $ 38.1 $ (6.2) $ 31.9 _______________________ (1) Starz Networks represents the results of operations of the U.S. and Canada, see footnote (2) below. (2) During the quarter ended June 30, 2024, the Company began reflecting the results of operations of Canada within Starz Networks. Accordingly, the following amounts were reclassified from "Other" (formerly "LIONSGATE+") to Starz Networks in the three months ended June 30, 2023 to conform to the current period presentation: (i) revenue of $4.2 million; (ii) direct operating expense of $2.7 million; and (iii) distribution and marketing expense of $1.1 million, which resulted in gross contribution and segment profit of $0.4 million reclassified. The amounts reflected in "Other" consist of the results of operations outside of the U.S. and Canada. 63 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, for the periods presented, subscriptions to our Media Networks and STARZPLAY Arabia services. Actual Pro Forma (1) June 30, June 30, June 30, June 30, 2024 2023 2024 2023 (Amounts in millions) Starz North America (1) OTT Subscribers 13.20 12.51 13.20 12.51 Linear Subscribers 8.10 9.48 8.10 9.48 Total 21.30 21.99 21.30 21.99 Other OTT Subscribers (2) 2.62 4.62 2.62 3.03 Total Starz OTT Subscribers (2) 15.82 17.13 15.82 15.54 Linear Subscribers 8.10 9.48 8.10 9.48 Total Starz 23.92 26.61 23.92 25.02 STARZPLAY Arabia (4) 3.25 2.80 3.25 2.80 Total Domestic and International Subscribers (2) 27.17 29.41 27.17 27.82 Subscribers by Platform: OTT Subscribers (2)(4) 19.07 19.93 19.07 18.34 Linear Subscribers 8.10 9.48 8.10 9.48 Total Global Subscribers (2) 27.17 29.41 27.17 27.82 ___________________ (1) Starz North America represents subscribers for the U.S. and Canada. (2) Pro forma amounts exclude OTT subscribers for the international territories exited in Australia, Latin America and the U.K. amounting to 1.59 million at June 30, 2023. (3) Represents subscribers of STARZPLAY Arabia, a non-consolidated equity method investee. (4) OTT subscribers include subscribers of STARZPLAY Arabia, as presented above. Revenue . Media Networks revenue decreased $31.0 million and reflected lower Other revenue of $34.7 million, partially offset by an increase of $3.7 million at Starz Networks. Starz Networks' revenue increased $3.7 million primarily because of higher OTT revenue of $20.9 million resulting from a price increase initiated at the end of June 2023 and fully implemented during the quarter ended September 30, 2023, and growth in OTT subscribers of 0.69 million since June 30, 2023, which were offset by declines in revenue of $15.7 million from traditional linear services. The Other revenue of $4.8 million for the three months ended June 30, 2024 includes $2.6 million from the U.K. which was exited in May 2024. The decrease in Other revenue was primarily due to revenue in the prior year's quarter from the international territories exited in Australia, Continental Europe, Japan, Latin America and the U.K. (the "Exiting Territories") of approximately $36.9 million. 64 During the three months ended June 30, 2024 and 2023, the following original series premiered on STARZ: Three Months Ended June 30, 2024 Three Months Ended June 30, 2023 Title Premiere Date Title Premiere Date Mary & George Season 1 April 5, 2024 Blindspotting Season 2 April 14, 2023 Power Book II: Ghost Season 4 Part 1 June 7, 2024 Run the World Season 2 May 26, 2023 Outlander Season 7A June 16, 2023 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 of the 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 $15.0 million and Other of $25.2 million in the three months ended June 30, 2024. The decrease in Starz Networks direct operating expense was due primarily to lower programming cost amortization of $45.4 million related to our Starz Originals, partially offset by an increase of $28.4 million related to theatrical releases under our programming output agreements. Other direct operating expenses decreased $24.9 million in the Exiting Territories. Other direct operating expense of $3.7 million for the three months ended June 30, 2024 includes $2.0 million from the Exiting Territories. The decrease in Media Networks distribution and marketing expense is due to a decrease in Other of $11.4 million primarily due to a decrease in distribution and advertising expenses from the Exiting Territories, partially offset by an increase of $0.3 million at Starz Networks. Gross Contribution. The increase in gross contribution compared to the three months ended June 30, 2023 was due to increased gross contribution at Starz Networks of $18.4 million and from Other of $1.9 million, driven by lower direct operating expense and Other distribution and marketing expense, partially offset by lower Other revenue, as described above. General and Administrative Expense. General and administrative expenses in the three months ended June 30, 2024 decreased from the prior year's quarter, due to decreases of $2.0 million at Starz Networks and $3.3 million from Other. 65 LIQUIDITY AND CAPITAL RESOURCES Sources of Cash Our liquidity and capital requirements in the three months ended June 30, 2024 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 June 30, 2024, we had cash and cash equivalents of $192.5 million. Business Combination. As discussed under "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview", on May 13, 2024, the Company closed the Business Combination Agreement, and Lionsgate Studios became a separate publicly traded company and its common shares commenced trading on Nasdaq under the symbol "LION" on May 14, 2024. Following the transaction, approximately 87.8% of the total shares of Lionsgate Studios continue to be held by the Company, while former SEAC public shareholders and founders and common equity financing investors own approximately 12.2% of Lionsgate Studios. In addition to establishing Lionsgate Studios as a standalone publicly-traded entity, the transaction resulted in approximately $330.0 million of gross proceeds to the Company, including $254.3 million in PIPE financing. The net proceeds were used to partially pay down amounts outstanding under the Term Loan A and Term Loan B pursuant to the Credit Agreement (see Note 6 to our unaudited condensed consolidated financial statements). eOne IP Facility. In July 2024, certain subsidiaries of the Company entered into a senior secured amortizing term credit facility (the "eOne IP Credit Facility") based on and secured by the Company’s intellectual property rights primarily associated with certain titles acquired as part of the eOne acquisition. The maximum principal amount of the eOne IP Credit Facility is $340.0 million, subject to the amount of collateral available, which is based on the valuation of unsold rights from the libraries. The Company borrowed $340.0 million under the eOne IP Credit Facility. The cash flows generated from the rights will be applied to repay the eOne IP Credit Facility subject to quarterly required principal payments of $8.5 million, beginning September 30, 2024, with the balance payable at maturity. Advances under the eOne IP Credit Facility bear interest at a rate equal to Term SOFR plus 2.25% per annum. The eOne IP Credit Facility matures on July 3, 2029. See Note 19 - Subsequent Events. Corporate Debt Our corporate debt at June 30, 2024, 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 $585.0 million outstanding at June 30, 2024) 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 $314.4 million outstanding at June 30, 2024. 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 repay and/or 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 $605.1 million outstanding at June 30, 2024. 66 • Senior Notes: We have $715.0 million outstanding of 5.5% senior notes due 2029 (the "5.5% Senior Notes") at June 30, 2024. Effective upon completion of the separation of the Starz Business from the Studio Business, the interest rate will increase to 6.0% and the maturity date will extend to April 15, 2030 for a portion of the 5.5% Senior Notes (the "Exchange Notes") which amounted to $389.9 million at June 30, 2024. On or after the Separation Closing Date, as defined in the indenture to the Exchange Notes, the Company may redeem the Exchange Notes, in whole at any time, or in part from time to time, at certain specified redemption prices, plus accrued and unpaid interest, if any, to, but not including, the redemption date. The Exchange Notes will initially be guaranteed by all existing obligors under the Existing Notes, and upon completion of the separation of the Studio Business and the Starz Business, the Exchange Notes will be guaranteed exclusively by entities which are part of the Studio Business. 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 June 30, 2024 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 June 30, 2024, there was $1,306.4 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 August 2024. At June 30, 2024, there was $53.8 million outstanding of programming notes. • Production Tax Credit Facility: We have a $260.0 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"). As of June 30, 2024, tax credit receivables amounting to $336.8 million represented collateral related to the Production Tax Credit Facility. Cash collections from the underlying collateral (tax credit receivables) are used to repay the Production Tax Credit Facility. At June 30, 2024, there was $260.0 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 acquired 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 June 30, 2024, there was $100.6 million outstanding under the IP Credit Facility. 67 • 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 June 30, 2024, there was $175.0 million outstanding under the Backlog Facility. ◦ Other. The Company has other loans which are secured by accounts receivable and 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. As of June 30, 2024, there was $138.0 million outstanding under the "other" loans, of which $67.9 million has a contractual repayment date in July 2025 and $70.1 million has a contractual repayment date in April 2027. As of June 30, 2024, accounts receivable amounting to $84.8 million and contracted receivables not yet reflected as accounts receivable on the balance sheet at June 30, 2024 amounting to $81.1 million represented collateral related to the "other" loans. 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 previously have included 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. In addition, the Company has a redeemable noncontrolling interest balance of $123.0 million as of June 30, 2024 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). 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, refinancing's, or otherwise. Such repurchases or exchanges or refinancing's, 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. 68 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", the net future cash outlay is estimated to range from approximately $50 million to $55 million, which includes contractual commitments on content in territories being exited, and payments on the remaining amounts payable for content removed or that may be removed from its services. 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 increase and our marketing spend will decrease in fiscal 2025 as compared to fiscal 2024. 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 from other financing obligations, available production, license or intellectual property financing, and proceeds from equity financing (see Note 2 to our unaudited condensed consolidated financial statements), 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. 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 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. 69 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 June 30, 2024 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 June 30, 2024 (on-balance sheet arrangements) Corporate debt (1) : Revolving credit facility (2) $ 585.0 $ — $ 585.0 Term Loan A (2) 314.4 41.1 273.3 Term Loan B 605.1 819.2 (214.1) 5.5% Senior Notes 715.0 — 715.0 Film related obligations (3) 2,033.8 1,666.0 367.8 Content related payables (4) 223.0 186.7 36.3 Operating lease obligations 423.7 55.3 368.4 4,900.0 2,768.3 2,131.7 Contractual commitments by expected repayment date (off-balance sheet arrangements) Film related obligations commitments (5) 515.2 355.2 160.0 Interest payments (6) 315.0 135.0 180.0 Other contractual obligations 527.5 147.6 379.9 1,357.7 637.8 719.9 Total future repayment of debt and other commitments under contractual obligations (7) $ 6,257.7 $ 3,406.1 $ 2,851.6 ___________________ (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 repay and/or 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 June 30, 2024, 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 $123.0 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 (see Note 9 to our unaudited condensed consolidated financial statements). See Note 19 to our unaudited condensed consolidated financial statements for amounts borrowed in July 2024 under the eOne IP Facility. 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. 70 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 June 30, 2024, the Company was in compliance with all applicable covenants. The 5.5% 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 June 30, 2024, 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 three months ended June 30, 2024, 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 June 30, 2024, 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 $63.1 million and accumulated deficit of $3,242.7 million were deemed free of restrictions from paying dividends at June 30, 2024. Discussion of Operating, Investing, Financing Cash Flows Cash, cash equivalents and restricted cash decreased by $129.0 million for the three months ended June 30, 2024 and increased by $79.9 million for the three months ended June 30, 2023, 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 three months ended June 30, 2024 and 2023 were as follows: Three Months Ended June 30, 2024 2023 Net Change (Amounts in millions) Net Cash Flows Provided By (Used In) Operating Activities $ (158.9) $ 29.2 $ (188.1) Cash flows used in operating activities for the three months ended June 30, 2024 were $158.9 million compared to cash flows provided by operating activities of $29.2 million for the three months ended June 30, 2023. The decrease in cash provided by operating activities is due to greater cash used in changes in operating assets and liabilities of $157.3 million. The greater cash used in changes in operating assets and liabilities was driven by increased cash used for investment in film and television programs and program rights, greater decreases in participations and residuals and accounts payable and accrued liabilities, partially offset by greater increases in deferred revenue, and greater proceeds from decreases in accounts receivable, net. Investing Activities. Cash flows used in investing activities for the three months ended June 30, 2024 and 2023 were as follows: 71 Three Months Ended June 30, 2024 2023 (Amounts in millions) Investment in equity method investees and other $ (2.0) $ — Acquisition of assets (film library and related assets) (35.0) — Increase in loans receivable — (0.9) Capital expenditures (9.0) (8.9) Net Cash Flows Used In Investing Activities $ (46.0) $ (9.8) Cash flows used in investing activities of $46.0 million for the three months ended June 30, 2024 compared to cash flows used in investing activities of $9.8 million for the three months ended June 30, 2023, primarily due to cash used for the acquisition of a film library and related assets in the current quarter. Financing Activities. Cash flows provided by financing activities for the three months ended June 30, 2024 and 2023 were as follows: Three Months Ended June 30, 2024 2023 (Amounts in millions) Debt - borrowings, net of debt issuance and redemption costs $ 771.8 $ 490.0 Debt - repurchases and repayments (1,065.4) (560.1) Net proceeds from (repayments and repurchases of) debt (293.6) (70.1) Film related obligations - borrowings 636.9 569.9 Film related obligations - repayments (557.8) (423.7) Net proceeds from (repayments of) film related obligations 79.1 146.2 Sale of noncontrolling interest in Lionsgate Studios Corp. (see Note 2) 294.0 — Other financing activities (3.6) (15.6) Net Cash Flows Provided By (Used In) Financing Activities $ 75.9 $ 60.5 Cash flows provided by financing activities of $75.9 million for the three months ended June 30, 2024 compared to cash flows provided by financing activities of $60.5 million for the three months ended June 30, 2023. Cash flows provided by financing activities for the three months ended June 30, 2024 primarily reflects net proceeds from the sale of a noncontrolling interest in Lionsgate Studios of $294.0 million, and net film related obligations borrowings of $79.1 million due to net borrowings under production loans and the Production Tax Credit Facility of $64.8 million and net borrowings under the Backlog Facility, IP Credit Facility and other of $14.3 million. These sources of cash were partially offset by net repayments of debt of $293.6 million, which included the prepayment of $84.9 million principal amount of the Term Loan A and $214.1 million principal amount of the Term Loan B and required repayments on our term loans, along with borrowings and repayments under our revolving credit facility for working capital purposes. Cash used for other financing activities of $3.6 million represented primarily tax withholding required on equity awards of $3.0 million. Cash flows provided by financing activities of $60.5 million for the three months ended June 30, 2023 primarily reflects net film related obligations borrowings of $146.2 million due to net borrowings under production loans and the Production Tax Credit Facility of $3.6 million and net borrowings under the Backlog Facility, IP Credit Facility and other of $142.6 million, offset by net debt repayments and repurchases of $70.1 million. Net debt repayments and repurchases of $70.1 million in the three months ended June 30, 2023 included the below transaction, along with required repayments on our term loans: • During the three months ended June 30, 2023, we repurchased $85.0 million principal amount of the 5.5% Senior Notes for $61.4 million. Other financing activities also includes tax withholding required on equity awards of $15.1 million. 72 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 $1.8 billion at June 30, 2024 (March 31, 2024 - $1.8 billion). The backlog portion of remaining performance obligations (excluding deferred revenue) related to our Motion Picture and Television Production segments was $1.3 billion at June 30, 2024 (March 31, 2024 - $1.5 billion).