Starz Entertainment Corp. (NASDAQ:STRZ) Q4 2025 Earnings Call Transcript

Starz Entertainment Corp. (NASDAQ:STRZ) Q4 2025 Earnings Call Transcript February 27, 2026

Operator: Good day, and thank you for standing by. Welcome to the Starz Q4 2025 Earnings Call. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Nilay from Investor Relations.

Nilay Shah: Good afternoon. Thank you for joining us for Starz Entertainment’s Fiscal 2025 Fourth Quarter Earnings Call. We’ll begin with opening remarks from our President and CEO, Jeffrey Hirsch; followed by remarks from our CFO, Scott MacDonald. Also joining us on the call today is Alison Hoffman, President of Starz Networks. After our opening remarks, we’ll open the call for questions. The matters discussed on the call include forward-looking statements, including those regarding expected future performance. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in our most recently filed 10-Q for Starz Entertainment Corp.

Starz undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. The matters discussed today will also include non-GAAP measures. The reconciliation for these and additional required information is available in the 8-K we filed this afternoon, which is available on the Starz Investor Relations website at investors.starz.com. I’ll now turn the call over to Jeff.

Jeffrey Hirsch: Thank you Nilay, and thank you, everyone, for joining us today. It’s only been 9 months since our separation, and I’m pleased to report that Starz delivered another strong quarter, both financially and operationally. Before I get into the highlights of the quarter, I want to give everyone an update on how we are executing in our core operations and how we are positioned for 2026 and beyond. 2025 was a very successful year, one in which we exceeded all of our financial guidance. It’s a feat we’re especially proud of amidst the pressures you see happening across the industry. We ended the year at an all-time high of 12.7 million OTT subscribers, growing year-over-year by 7.6%. We grew OTT subscribers in 3 out of 4 quarters, including adding 370,000 in the fourth quarter alone.

This resulted in 170,000 total subscriber growth in quarter 4. We grew total revenue on a sequential basis in both quarter 3 and quarter 4. We exceeded our $200 million outlook for 2025 by 2%, delivering $204 million and grew adjusted OIBDA year-over-year. And we exceeded our leverage target ending the year lower than anticipated at 2.9x versus a 3.1x guide. The successful 2025 was aided by an exceptionally strong December quarter. Our substantial subscriber growth in the quarter was fueled by the stellar reception to our programming slate. We premiered the highly anticipated Spartacus, revival to critical acclaim, and Power Book IV: Force Season 3 delivered impressive in-season viewership growth of 57%. The momentum from quarter 4 has continued into 2026, resulting in a strong start to the year.

The success of our originals proved that our Bedrock strategy is working. We deliver edgy, premium content for women and underrepresented audiences that broad-based streamers don’t address. Content remains core to everything we do. And as we look at the rest of 2026, it’s clear we have one of our most compelling lineups of originals. The slate includes the highly anticipated conclusion of Outlander and Power Book III: Raising Kanan, the premiere of Starz owned Fightland, the return of Blood of My Blood and the long-awaited return of one of our biggest hits, P-Valley, from Pulitzer Prize-winning, showrunner, Katori Hall. These 2026 originals, our Pay-One movies from Lionsgate, including films like The Housemaid and the Michael Biopic and our robust development pipeline make it clear that Starz has never been better positioned to keep our audience engaged, entertained and growing.

Before I get into our key financial targets for 2026, I want to recap our operational milestones in 2025. We restructured our Canadian business into a licensing revenue stream, prioritizing our focus on the U.S. market. We greenlit and completed production on our first wholly owned series Fightland, advancing our strategy of rebuilding our content library through ownership. And this morning, we announced that Sky will come on board as our co-commission partner for Fightland, further improving the already superior unit economics we get from owning the series. We’ve also made significant strides in the aging our content slate this year while still expanding our network-defining franchises, Outlander and the Power Universe. More specifically, we successfully launched Outlander prequel Blood of My Blood and have greenlit a new Power Universe series.

Power Origins, which has a supersized 18-episode order, is currently in production and will give fans an action-packed origin story of fan favorite characters, Ghost and Tommy as ambitious young entrepreneurs. These shifts are critical in achieving our long-term targets of increasing margins to 20%, converting 70% of adjusted OIBDA to unlevered free cash flow and delevering to 2.5x as quickly as possible. The changes fortify our long-term path and set us up to continue the growth we delivered in 2025 through 2026. Our outlook for 2026 is strong. We expect OTT revenue to grow. We expect to deliver low single-digit percentage adjusted OIBDA growth versus 2025. We anticipate generating between $80 million to $120 million of positive unlevered free cash flow, converting the business to positive equity free cash flow.

And we expect to end the year at approximately 2.7x leverage, an improvement from our current 2.9x leverage and well on our way to reaching our stated goal of 2.5x leverage. As we stated, we’ve spent several quarters unwinding some of the legacy constraints of operating within a studio. We believe this has set up the business to drive strong cash flow generation going forward, with 2026 functioning as an inflection point. With the long-term growth of the business as our North Star, we are deemphasizing the need to manage the business around quarterly subscriber levels. As a result, we will not be disclosing subscribers starting with the March 2026 quarter. We remain laser-focused on OTT revenue growth, profitability, converting adjusted OIBDA to free cash flow and delevering.

We believe this decision is in the best interest of our shareholders as it puts us on a path to achieving the targets we outlined. Before I hand the call over to Scott, I want to reiterate that we continue to believe that there is an opportunity to scale our 2 core demos and grow our business as a result of the increased consolidation across the media landscape. Given our track record of profitably converting our business from linear to digital and our industry-leading tech stack, we believe we are uniquely positioned to capitalize on potential M&A opportunities. We are poised to increase our scale as assets that are strategically valuable to Starz become available. Now let me hand it over to Scott to take you through the financials.

Scott MacDonald: Thank you, Jeff, and good afternoon, everyone. I’ll briefly discuss the fourth quarter’s financial results, provide an update on our balance sheet and discuss our outlook for 2026. It was a strong fourth quarter and calendar year for Starz, as Jeff outlined. We were able to reach the key milestones we outlined on our previous calls for both the quarter and the year, and we positioned the post-separation business to drive a significant increase in free cash flow generation from 2025 to 2026 while further bringing down our leverage. Let me start the breakdown of the quarter with an update on our subscribers. Please note that our financials for the fourth quarter reflect the transition of our Canadian operations to a content licensing relationship.

And hence, I will focus my discussion on subscriber trends on Starz’s U.S. business. Starz added 370,000 domestic OTT subscribers in the quarter, reaching an all-time high of 12.7 million customers. Additionally, total U.S. subscribers grew 170,000 in the period to 17.6 million as growth in OTT was partially offset by a decline in linear customers. The increase in subscribers in the seasonally strong fourth quarter was driven by demand for our scripted originals, including Force and Spartacus. Moving on to revenue. Total revenue in the quarter was $323 million, up 60 basis points on a sequential basis. Sequential revenue growth was driven by an increase in distribution revenue, primarily from revenue recognized in the quarter related to the transition of our Canadian operations to a content licensing relationship and is reflected in the linear and other revenue line item on our income statement.

This growth in distribution revenue was partially offset by a decline in linear and OTT revenue, which stemmed from ongoing traditional linear declines and heavy holiday seasonal promotions, including lower-churn multi-month plans. Adjusted OIBDA for the quarter was $56 million, up over 100% sequentially due to lower programming amortization, lower advertising marketing and higher revenue. We ended the calendar year with $204 million of adjusted OIBDA, exceeding our $200 million outlook. Looking at the balance sheet, we ended the quarter with net debt of $589 million, roughly flat with Q3 levels. Total gross debt was flat at $625 million and includes $325 million of our 5.5% senior unsecured notes as well as $300 million of our Term Loan A.

Cash was $36 million, and our $150 million revolver remained undrawn at the end of the period. Leverage at the end of 2025 was 2.9x, better than our previous guidance of exiting the year at 3.1x. Looking forward, as Jeff noted in his prepared remarks, 2026 is going to be a year with significant focus on driving increased free cash flow. More specifically, in 2026, we expect unlevered free cash flow to range between $80 million to $120 million, and we expect to generate positive equity free cash flow for the year. This represents approximately an $80 million to $120 million improvement year-over-year in both measures. The improvement in cash flow stems from lower cash content spend in 2026 versus 2025, which drives a closer alignment of cash content spend with the programming amortization expense reflected on our income statement.

Finally, as we complete the transition in the first few months of 2026 from being part of a studio business and bringing our content payment timing in better alignment with industry norms, with improved free cash flow and another year of at least $200 million of adjusted OIBDA, we expect our leverage to continue to decline year-over-year and exit the year at approximately 2.7x. Now I’d like to turn the call back over to Nilay for Q&A.

Nilay Shah: Operator, could we open up the call for Q&A?

Q&A Session

Operator: Yes. Thank you. [Operator Instructions] Our first question comes from Brent Penter with Raymond James & Associates.

Brent Penter: And first and foremost, I appreciate the 50 Cent hold music there. So good to see the $200 million target exceeded in ’25 and then expected to grow in ’26. Can you just walk us through some of the moving pieces? You talked about OTT revenue up. How should we think about total revenue? And then with that 20% margin target out there exiting 2028, what kind of progress in ’26 does the guidance contemplate?

Jeffrey Hirsch: Look forward to seeing you on Monday. I’ll take the second question in terms of the margin. So we’re well on our way to executing against getting to that 20% margin coming out of calendar ’28. You’ll see a slight improvement in ’26, but the lion’s share of the improvement really comes in ’27 and ’28 when you start to see the Starz originals really become a lion’s share of our programming slate. And there’s a lot of de-aging of the content there, ownership of the content we announced, offsetting some of the costs by bringing Sky in on Fightland as a co-commission partner. So when you take all of the de-aging of the content, Starz owned content, creating that incremental revenue stream by selling it internationally, you really start to see us move significantly toward that 20% margin in ’27 and ’28. Scott, do you want to take that?

Scott MacDonald: I would just say, on OTT revenue, we feel really good about growth next year. When you look at our slate, it’s probably one of the best we’ve ever had. It’s very consistently placed throughout the year. So we feel really good about that as well as our focus on our pricing strategy.

Brent Penter: Okay. Got it. And then thanks for the commentary on industry consolidation. It sounds like you all are ready to capitalize if there’s an opportunity. So I guess, what kind of assets would you be interested in? And then how should we think about the constraints in terms of your ability to buy something? Is there a leverage level you want to go above or an equity valuation that you would want to be at before doing any kind of deal? Or just can you help frame those constraints?

Jeffrey Hirsch: Yes, great question. I’m not going to comment on our conversations to date. But what I will say, and we’ve said this repeatedly, we have 2 very valuable core demos that make us really complementary and important in the ecosystem. And there’s a lot of, I would say, linear networks out there that have great brands that kind of complement our 2 core demos, but are really marooned on the linear side of the business without any kind of tech capability or desire from their larger corporate parent to try to transition them and reconnect them with their consumers that have moved to the digital side. And so those are kind of the characteristics that we look at to make sure that we’re continuing to lean into what we do on an SVOD side, much more on an ad-supported side.

And again, we continue to drive leverage down. Scott and I continue to focus on getting leverage down to that 2.5x. And so that’s where we would like to operate. So any kind of deal that we do, we’d have to stick within that kind of leverage constraint to keep it around. We don’t really want to operate in a business that’s 4x, 5x, 6x levered. And so we’ll be very cautious about what kind of deal we do when it comes to leverage.

Brent Penter: Okay. Got it. And then putting M&A aside, given that free cash flow is starting to inflect, how do you rank order your other capital allocation priorities? Obviously, delevering has been the top goal so far. And — but as you start to get closer to that 2.5x goal, what are your other capital allocation goals? And at what point, given where the valuation is, do you start to consider shareholder returns?

Scott MacDonald: I think we look at this as it’s going to be a good problem to have as we move forward. We — as I noted, we expect free cash flow to improve or come in the range on unlevered basis, $80 million to $120 million. That’s a significant improvement over the year. We’ll start to have cash that we’ll start to build, which will give us an opportunity to delever, further invest in the business. And at that point, we would be in a position to make the decision to start returning some of that cash to shareholders.

Operator: Our next question comes from Thomas Yeh with Morgan Stanley.

Thomas Yeh: On the OTT subscriber momentum into this year, I think you mentioned 1Q is pacing pretty healthy. Can you just talk about the retention patterns that you’re seeing for the subscribers that might have come in for Spartacus or it came back for Power Book IV Season 3? Is the slate structured to run that retention through? Or is there something more to do there still?

Jeffrey Hirsch: I think there’s really 2 components to that. One is the slate is really set up to have a great connected year throughout the year. We have some of our biggest shows throughout the year, Kanan, P-Valley, Fightland, that’s a real long good run across the year against one of our demos. We’ve got Outlander finale, Blood of My Blood coming in. We have a couple of acquisitions to fill the gaps there. So we have a great, complete slate, again, surrounded by great movies from the Lionsgate Pay-One and Universal Pay-Two, that plus, we really deployed — what we’ve seen in our data, we really deployed longer-term offers, so annual offers, which we see really has — when people roll from that 12-month offer to retail, the take rate up to retail is significantly higher.

And so you see a lot more spike in ARPU at the end of those offers, and they’re also great for long-term churn. And so the combination of a great slate and longer-term offers really lead us to push churn down over the next 12 to 18 months.

Thomas Yeh: Okay. That’s helpful. Anything on the distribution partnership side that is kicking in as well? Or any update on progress there in terms of the bundled partnerships that you’ve taken on?

Alison Hoffman: Thomas, this is Alison. I would say we continue to be at the forefront of bundling. This is really a focus for us. We’ve set up the business to be a complementary or an add-on partner to a broad-based streamer, to targeted streamers. And so that’s a real focus for us. I think that we’re excited to expand our bundling relationships, and we’re excited to see expansion in our distribution relationships. And we think that even with the disruption in the industry that those will come. And just to comment on particularly the bundling piece, our data is showing that it is very good for business. The bundles that we have in place are expanding our TAM. They’re driving net new additions to the business. They’re revenue accretive and then also ultimately are driving better retention for the business. So bundling and distribution are a big focus for us, and we’re excited about the year to come.

Thomas Yeh: Okay. Great. And then last one for me. You’ve talked about a time line to get to 60% plus slate ownership. If we just think about the opportunities there, is it fair to assume that we should think about the international sales as concurrent with that ramp and then ancillaries maybe start to build thereafter?

Jeffrey Hirsch: I think that’s spot on. I mean we’ve got — we’ve announced 4 originals that we have in some stage of production. All 4, we’ve just brought in Plan B, a production agency to help produce that show, and we’re super excited about that. Kingmaker, Masquerade, the rooms have just finished, and we’re just getting the materials into a place. We’re out looking for production partners there as well to see where we’re going to shoot those shows and at what cost. And again, as you saw with the Sky announcement this morning, we have somewhat of a first-look deal with Sky, where they continue to look at our slate and be excited about it, and I expect that partnership to build and grow. Also, Fightland was Lionsgate, who’s our international sales partner today, took Fightland out to Content London last night to very, very great reviews.

So outside of the Sky markets, Lionsgate will sell that for us. So I expect that only — the unit economics of Fightland to only continue to get better.

Operator: Our next question comes from David Joyce with Seaport Research Partners.

David Joyce: A couple of things. Last year, you had a few volatile quarters of cash flows in and out and margins up and down, tied to some of the final content arrangements with Lionsgate. How should we think about the cadence this year of both OIBDA and free cash flow? And on the free cash flow side, is it going to be moving around based on spending for originals? That’s the first question.

Scott MacDonald: Okay. Thanks, David. That’s a good question. When you think about our P&L, it has been very up and down. A lot of that was driven by the transition from being part of a bigger studio, same thing with the related cash. We worked over the last few months to bring that better — into better alignment. We worked with our teams as to better sync up when we’re spending the dollars on the production and getting that more in alignment when they are much more in line with industry standards. When you’re part of a bigger organization, the cash management is just totally different. It’s not necessarily based on just what Starz’s needs are. So we feel like we’re getting that into a really good place now as we move into ’26.

There’s a little bit of work to do here in the first part of the year. But we feel like we’re on a really good glide path to improve our spend. And we see content spend coming in under about $650 million next year. From a P&L cadence, you’ll see very consistent over the year, especially in the first 3 quarters. The fourth quarter in ’26 will be a more positive quarter, but the first 3 will be very consistent. It won’t be as choppy as you’ve seen in the past.

David Joyce: Okay. And on my other question, I see you’ve got $41 million in production loans now. How many projects is that for? Is that just Fightland? Or is that a couple of others? And how many originals do you think will be in production by the time you’re exiting 2026?

Scott MacDonald: That is just for Fightland, that particular production loan. We look — it’s very cost-effective cost of capital. So we like to use those — the line — help us line up our cash flows with those shows. As we greenlight the new shows coming up here, we would expect to have production loans for those shows. It will take a time to — as those will build up over time. But at some point, the show will be completed and you’ll repay the loan. So it should end up being a fairly consistent balance after we get through the end of this year.

Operator: Our next question comes from Vikram Kesavabhotla with Baird.

Vikram Kesavabhotla: I wanted to follow up on the co-commission deal with Sky. Can you talk more about why they were the right partner? And from a higher level, when you look at the content slate that you have planned, how would you characterize the demand environment for your programming internationally?

Jeffrey Hirsch: Vikram, it’s Jeff. Thanks for the question. Look, we think that we’ve seen in the past when we were in the international business before that the U.K. market is an incredible market for all of our shows. And over time, that has actually expanded into France as well. And so we think there’s a real big appetite for our content in some of the biggest international markets. We’ve had a great relationship with Sky. We’ve licensed Amadeus from them. We’ve licensed Sweetpea from them. And so we have an ongoing relationship with them. I think they’re very interested in what we have in production, and I think there’s others that will be as well. And so I think the slate that we’ve designed, we’ve obviously designed it with international revenue in mind. And I expect that to continue to grow as we get more ownership back onto the network and own our own library.

Vikram Kesavabhotla: Okay. That’s helpful. And then you referenced the pricing strategy a few times in your previous answers. Can you just elaborate more on your philosophy there? I mean do you think there’s one way for you to raise price on your subscriptions over time? And how do you plan to manage the cadence of that going forward?

Jeffrey Hirsch: Yes. So as we said and we’ll continue to say, we’re a complementary service. We’ve always wanted to be underpriced, way underpriced of the broad-based streamers out there. And so as they continue to raise rate, it gives us room to raise rate. You’ve seen the broad-based streamers raise anywhere from $1 to $3 over the last couple of years. So it’s created a lot of room for us to have some pricing power against the broad-based streamers. And we’ll continue to look at that right time, right place, right slate to determine whether that’s right for our consumers. So we’ll watch the industry, watch the broad-based streamers and we’ll make decisions based on where we think that’s right to drop that in.

Operator: Our next question comes from David Karnovsky with JPMorgan.

Douglas Samuel Wardlaw: Doug Wardlaw on for David. I just wanted to get an idea of how you guys think about relying on spin-offs or reliable shows like Power and Outlander versus new originals. Obviously, each piece of content kind of plays a large part on what sub growth looks like in the quarter. So I guess, long term, how you weigh starting a new show versus a spin-off of sure thing?

Alison Hoffman: Thanks for the question. I mean franchising here at Starz is a real kind of power of ours. I think we — as you know, we’ve successfully franchised Power into 3 successful spin-offs and currently in production. And these are really reliable drivers of engagement, drivers of acquisition for the business. Same with Outlander, we’re so proud that Outlander has been on the air since 2014 and still drives a huge engaged fan base, and we successfully launched Blood of My Blood last season. But what they also provide is a real platform or lead-in for new shows. And so what you’ll see is you’ll see us using these reliable franchises to launch new IP and establish new IPs with audiences so that we can bring thread audiences from one show to the next as we’re marketing and expanding our TAM with new audiences.

So I think it’s a real — thank you for the question. I think it’s a real part of our programming strategy, and it’s something that we think a lot about in terms of how we make investments and how we schedule.

Operator: And the last question will come from Matthew Harrigan with Benchmark.

Matthew Harrigan: I should probably apologize for belaboring you with this one. But what’s your reaction to Seedance? It caused a lot of volatility in the markets. Are there benefits — I guess, speaking more broadly, do you see more benefits from you on the AI side as far as development? And I guess, secondly, how is the development process differing from when you were under the Lionsgate’s weighing? I mean, what parameters are you emphasizing or maybe a little bit different in terms of moving faster or adapting to your demographic even more precisely?

Jeffrey Hirsch: It’s Jeff. Thanks for the question. I think on the first one, look, AI is a — it’s going to be a very powerful tool to enhance the business. I think there’s 3 or 4 areas that we’re using it today. Obviously, with content and reducing costs that we used it with Spartacus, for some of the large scenes in Spartacus, I think, very successfully. On the boring side, I think you can do a lot of internal training with AI that you would have to do — waste hours of employees. Again, for us, with a large-scale D2C business that has over 10 years of acquisition data, retention data, pricing data, that, coupled with all of the content we have and how to schedule that content to best align around lifetime value and customer churn and marrying all those key KPIs together with hundreds of millions of data sets, I think the AI tools can really help us be efficient and continue to drive profitability for our business.

I do believe it will be an additional tool for the industry. And I don’t — again, this is a lot — still more art than it is science, and I think the creative process will continue to be that way. And we’re excited to use it as a tool, but I think the business is really grown on the success of the uniqueness of our originals, and I think that’s hard to replicate. And so we’re excited about that. From a second question, it’s — look, Lionsgate is a tremendous producer of television. We’ve had a great 9-year run with Kevin and team. And I think that will continue based on the Power Universe that we’re still locked on the hip on. And so I don’t expect that relationship to change. I think as we go out and start to rebuild our own library again and it gives us the ability to control front-end costs, a little better direct line to the producing partner that way.

It also allows us to really get that incremental revenue stream from international that we weren’t getting as part of being owned by a studio. And so those are probably the 2 biggest components that we have, a little more control with our team and a little more revenue on the other side. So — but again, we’re still pretty much locked at the hip with Lionsgate on a lot of our big shows. As I said, they’re our sales agent for internationally. They’re over in London today. I think Packer continues to do a great job maximizing revenue for us there. So I expect that relationship to continue for a long time, and we’re excited about that.

Matthew Harrigan: It would be interesting to see what your stock does now.

Operator: Thank you. I would now like to turn the call back over to Nilay for any closing remarks.

Nilay Shah: Thank you, operator, and thank you, everyone. Please refer to the News and Events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thanks, everyone.

Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.