Big Cash, No Profits at Lionsgate


Lionsgate Entertainment (NYS: LGF) pulled off an interesting trick last night.

The minty fresh first-quarter report shows sales jumping 81% year over year to $472 million, led by the torrential success of The Hunger Games. Operating cash flows rose from negative $44.5 million a year ago to $151 million of positive cash this time, as you might expect when the studio scores a runaway hit.

And yet, Lionsgate also reported a GAAP net loss of $44 million, or $0.33 per share. The culprit? A massive increase in distribution and marketing costs largely not related to The Hunger Games, whose promotion campaign was pretty much paid for before the quarter started. It isn't blatantly obvious how these charges slid off the cash flow statement, but the accounts receivable balance more than doubled year over year, and the nebulous line item for amortization of films and TV programs nearly tripled.

That amortization item points to an upcoming slate of big-budget movies. Lionsgate is working up three sequels to The Hunger Games as well as wrapping up the Twilight saga and preparing Ender's Game for a 2013 release. November and December of 2013 will see the first Hunger Games follow-on and Ender's Game occupying IMAX (NAS: IMAX) theaters back to back for a solid six weeks, which is a pretty unique domination of the action-movie market.

All of these are potential bank-breakers, both in terms of production budgets and expected box-office results. Lionsgate is milking the tweens and teens like no other studio, except perhaps Walt Disney (NYS: DIS) and its rock-solid stable of Marvel superheroes.

CEO Jon Feltheimer says that two-thirds of the profits from the first Hunger Games movie still lie ahead. Lionsgate obviously hopes to sell truckloads of DVD and Blu-ray movies, coupled with cable TV and streaming licenses. The box office is not the be-all and end-all of money-making movies anymore. Keep that in mind when you're looking at Disney's record-breaking Avengers or any other big-ticket action hit -- the real payoff doesn't happen right away.

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