STRZ

Good afternoon. Thank you for joining us for Starz Entertainment's first quarter 2026 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 this 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-K for Starz Entertainment Corp.

Starz undertakes no obligation to publicly release the results 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.

Thank you, Nilay, and thank you all for joining us. Today marks the one-year anniversary of our separation. The Starz of today is structurally stronger than the business was when we separated a year ago. Over the last 12 months, we've made significant strides in setting the business up for long-term value creation. We have been laser-focused on achieving our financial goals of increasing margins to 20%, converting 70% of adjusted OIBDA to unlevered free cash flow, and delevering to 2.5x as quickly as possible. I'm happy to report in our first year, we have met or exceeded all our key financial targets, created a new licensing revenue stream by restructuring the Canadian business, started to rebuild our content library through ownership, announced our first co-commission partner, helping to improve unit economics of our originals, de-aged our slate while expanding our most popular franchises.

Overall, we have unwound many of the constraints of operating within a studio structure. As I outlined on the last call, calendar 2026 will serve as a financial inflection point for the business. Cash flow timing is now closer aligned with industry norms. Adjusted OIBDA is becoming more predictable and consistent, and we are managing the business against the metrics that matter most: OTT revenue growth, adjusted OIBDA, free cash flow, and delevering. We are off to a great start in calendar 2026. We had a strong first quarter, meeting or exceeding all financial guides, which Scott will discuss in more detail. Our structural work is showing up directly in the numbers, and our content continues to perform. The finale of Power Book IV: Force started the quarter off strong. The premiere of season eight of Outlander achieved a four-year series high in its premiere week.

Just after the quarter, we released The Housemaid, and it quickly set records as our best-performing Pay-1 film in both acquisition and streaming viewership. I expect this momentum will continue through the year. We have one of the strongest content slates ahead with our proven hit series, Raising Kanan, Outlander: Blood of My Blood, and P-Valley, supported by the upcoming Michael biopic. Congratulations to Jon and the Lionsgate team for the great box office performance. It will further strengthen our already robust schedule this year. In addition to our lineup of returning series, we announced this week that our first Starz-owned original, Fightland, will premiere in just a few months on July 31st. If you recall from the last quarter, we also announced Sky as the co-commission partner on Fightland, driving even more upside to the already favorable unit economics.

We also continue to make advances in our ownership strategy beyond Fightland with the recently announced greenlight of another Starz-owned original, the untitled Black rodeo show. This family drama is set inside the thriving world of the Black rodeo in Texas, and production is set to begin this fall. This is another example of us continuing to build out our content library through ownership, which I remind you, allows us to control the cost from inception and globally monetize our IP. As we have continued to highlight, rightsizing the content cost structure of the business has been paramount to reaching our stated goal of 20% margin. Today, we are announcing that we've exited our Pay-2 agreement with Universal. The Universal titles, which we originally planned to air through calendar 2028, are incredibly popular and bring with them tremendous box office strengths.

However, due to the high subscriber overlap between Amazon and Starz, these titles are heavily watched before they come to us in the Pay-2 window. This unique dynamic with Amazon has resulted in lower viewership than we originally projected. In order to replace the revenue component of the Pay-2, we will reinvest and acquire high-performing titles at superior economics. As a result, I'm pleased to announce that our outlook for reaching 20% margin has moved 12 months forward to the back half of 2027 instead of exiting 2028. We are thankful to our partners at Universal for working with us to find a mutually beneficial solution. We continue to see two paths for value creation for the Starz business. First, our focus has been growing the core business to achieve the 20% margin guide.

Second, we believe there's an additional path to growth through potential M&A opportunities. Our approach to M&A remains disciplined. Any strategic initiative must be complementary and additive to our core audience, must fit within an acceptable leverage parameter, and create clear and identifiable value for our shareholders. But given the strength and the profitability of our core business, we do not need M&A to maximize shareholder value. Before I turn it over to Scott, I would like to reiterate how excited I am about the growth of our business going forward. The free cash flow conversion is materializing. We are advancing ownership of our content library. We've rightsized the overall content portfolio, and we are anticipating continued rapid delevering. Starz remains focused and committed to executing on our growth strategies. We said calendar 2026 would be an important year in showcasing what the business will look like as a standalone.

The first quarter serves as evidence of just that. Now, let me hand it over to Scott to take you through the financial details.

Thank you, Jeff, and good afternoon, everyone. I'm pleased to report that Q1 2026 was a strong quarter financially, and we delivered on or ahead of our key guidance metrics. Before I get into the financial details, I want to remind everyone that we are focused on four metrics going forward: OTT revenue growth, adjusted OIBDA, free cash flow, and leverage. The decision to de-emphasize subscriber counts is already being validated as pricing discipline and a focus on higher lifetime value customers are proving more valuable than maximizing quarter-end subscribers. Let me start with revenue. OTT revenue in Q1 was $211 million, up from $210 million in Q4 2025. Total revenue in Q1 was $307 million, down from $323 million in Q4 2025. This sequential decline primarily reflects the timing of Canadian licensing revenue.

The sequential growth in OTT revenue is an important benchmark, and it was driven by exactly what we set out to do, pricing discipline on both the acquisition and retention side, fewer low-priced entry offers, more annual and multi-month plans. This is deliberate and is improving the health of the business. While we are not disclosing ARPU directly, ARPU did grow on a sequential basis in the period. We expect ARPU to continue to build through 2026 as promotional customers convert to higher retail rates. In addition, we recently announced a price increase to $11.99, which will flow through the subscriber base starting in Q2. We continue to forecast positive OTT revenue growth in 2026 versus 2025 and are already ahead of where we expected to be at this stage of the year. Moving on to adjusted OIBDA.

We delivered $58 million of adjusted OIBDA in Q1 2026, up sequentially from Q4 2025, due primarily to lower advertising and G&A expenses. On a year-over-year basis, adjusted OIBDA was down due to lower revenue and higher content amortization, offset by favorable advertising and marketing expenses. Importantly, adjusted OIBDA came in ahead of our internal plan, which gives us confidence in our full-year guidance of low single-digit adjusted OIBDA growth. We also expect our quarterly adjusted OIBDA cadence to be more consistent in 2026 relative to 2025. In Q1, as part of our efforts to rightsize our content cost structure, we recorded a $139 million restructuring charge, the majority of which is related to the write-off of content with limited strategic value for our platforms.

As the agreement with Universal was entered into in April 2026, we will record the Pay-2 restructuring charge in the second quarter of 2026. The revised terms meaningfully improve our cash payment obligations, creating a significant reduction in cash content spend beginning in 2027. Moreover, we believe this is the final component of our post-separation content rightsizing efforts. Combined with the ongoing de-aging of our original slate and the growing owned content contribution, this gives us clear line of sight visibility to reaching our 20% adjusted OIBDA margin target in the back half of 2027, a full year ahead of our prior guidance. Cash content spend in Q1 was $113 million, down year-over-year due to the timing of spend on output movies and originals.

For the full year 2026, we continue to expect content spend to come in below $650 million, a meaningful decline from 2025. We expect the convergence of content spend and programming amortization to improve significantly in 2026 as compared to 2025 and continue to improve thereafter. When they reach near parity, you will see the full benefit of our content strategy reflected in the cash flow statement. Unlevered free cash flow was $81 million in Q1 2026, up $147 million year-over-year, while equity free cash flow was up $136 million year-over-year to $69 million. I want to note that Q1 was positively impacted by lower content spend, which we expect to catch up in Q2. Accordingly, we are not raising our free cash flow outlook at this time. Turning to the balance sheet.

As of March 31st, our net debt was $523 million. Our leverage ratio at the end of the Q1 was 3.1x, lower than our internal expectations for the period, and we remain confident in achieving our 2.7x year-end target. I do want to note that leverage increased modestly on a sequential basis due to the timing impact of trailing 12-month adjusted OIBDA, not a reflection of any change in the underlying business trajectory. Our $150 million revolver remains undrawn, and we have significant liquidity and financial flexibility to manage the business. Let me close with guidance.

We are reaffirming our full-year 2026 outlook across all metrics: OTT revenue growth versus 2025, low single-digit adjusted OIBDA growth versus 2025, $80 million-$120 million of unlevered free cash flow, leverage exiting the year at approximately 2.7x. We will remain disciplined in how we manage the business, and we are confident in our ability to deliver on these metrics. Finally, 2027 is now setting up to be a very significant year for margin expansion and improved free cash flow generation, given the restructuring benefit, owned originals ramping, and continued content cost reductions. Now I'd like to turn the call back over to Nilay for Q&A.

We will now be beginning.

Thanks, Scott.

The question-and-answer session. Go ahead, Nilay.

I was just gonna say thanks, Scott. You can hand it over for Q&A, so we can start. Thank you.

Thank you so much. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.

The first question today comes from David Joyce with Seaport Research Partners. Please go ahead.

Thank you. Regarding the Universal deal, can you size the portion of your available titles that that represented? Is it all theatrical or is there some episodic in there? And where would you be sourcing more content from? Would it have, you know, similar kind of aging, and, you know, what are the checks and balances that you've gone through to make sure you don't have the overexposed content again?

Hey, David, it's Jeff, alright, thanks for the question. You know, this is a really unique situation because of the size of the overlap of our subscriber base sitting on Amazon, which sits in the Pay-1B from Universal. So, what you're surely seeing is we were paying Pay-2 prices for library performance. You know, we've talked a lot about the data information we have on the business, and we've been able to use the data to kinda recreate and reinvest into other library titles that give us the same kind of performance so we can protect the revenue component of that while actually just putting money to the bottom line while we reinvest.

It's a little bit of Moneyball, where we actually look at various titles from library from across the industry to kind of recreate the performance that we had at a much better economic level.

Interesting. Great. Thanks.

The next question comes from Brent Penter with Raymond James. Please go ahead.

Hey, everyone. Good afternoon. Thanks for taking the questions. First one from me. Could you talk a little bit more about, you know, last quarter you announced you're not reporting subs and you're de-emphasizing subscribers, how are you seeing that reflected in your results so far? Anything specific you can talk about in terms of customer lifetime values, churn, you know, overall revenue, how that's benefiting you?

Thank you so much for the question. I think, you know, we're really seeing the rewards of the pricing discipline that we put into the business. In this past quarter, we have seen churn reach an all-time low in our business. Basically, you know, we're not bringing in low-value subscribers in the way that we were when we were in a quarterly sub chase, and so the health of the business is really there. Just, you know, another stat in terms of the last quarter that was really strong is engagement was really strong for the business. We had a strong content quarter, and we saw year-over-year engagement up about 8%.

I think, you know, we feel really good that this is the right way to approach and operate the business for the long-term revenue growth goals that we have, as opposed to, again, orienting around a quarterly sub chase.

Okay, great. That's great color. I also want to ask about the shareholder rights plan put into place in March after there was a big chunk of your shares that changed hands. Can you help us understand why that was put into place, why now, and the rationale for the one-year timeline expiring next March? And then Jeff, is that at all related to the M&A possibility that you just laid out?

Yeah. Look, great question. I think there's a few components. The one is a, you know, newly separated company and as you've seen, the, you know, the market cap has moved around a lot and gone up. We wanted to think at the board, we wanted to make, you know, make sure that we had the ability and the time to kinda get the business rightsized and get value to the right place. I think you're seeing that reflected in the stock and the market cap today. I think that the board was really coalesced around making sure that we had the ability to get the business in the right place.

Also, you know, I think the board is really also coalesced around our long-term vision for the, for the business and how we can scale the business and wanted to make sure that we were laser-focused on that without any distraction, so we put that in place. It's a one year, one term, and then, you know, next year we'll come up probably for a shareholder vote whether we extend it or not.

Okay. Okay. Got it. And then final question from me, with the Universal Pay-2 deal ending and you moving up the 20% margin goal, as we think a couple years out to 2028, does this mean maybe you could get even above that 20% goal as we look ahead? Or is this really more of a timing thing that it's just a matter of when you hit the 20%?

I think it's a combination of, you know, we knew that we had the titles through calendar 2028. As that was rolling off, we had great line of sight into what that margin profile would look like. As we're able to work with Universal, move that forward, that obviously brings the profitability of the company greater into a shorter period of time. As you know, there's multiple ways to grow margin in the business. I think as we continue to, you know, put more ownership on the network, de-age the slate, get into 2028 and 2029, where the majority of our, you know, originals are owned by Starz and kind of bring the entire portfolio over, there may be some opportunity to continue to grow margin as well.

Okay, great. Thanks, everyone.

The next question comes from Vikram Kesavabhotla with Baird. Please go ahead.

Yeah. Hey, thanks for taking the question. I think you mentioned in the prepared remarks that you guys raised price recently. It'd be great to hear more about, you know, what gave you the confidence to make that decision and perhaps any of the early feedback that you're seeing from customers who've seen that increase.

Yeah, Vikram, thanks for the question. We executed our price increase on April 1st. You know, we have done this before. We are really positioned very well as a complimentary service. You know, $11.99 is a great price point for the value that we offer and for the audiences that we serve. So far, the price increase is digesting really well throughout our business. It's going to expectations. We'll have more information as we get into the summer, and it really sort of plays out through the business. You know, it's going to plan and going very well. We think that we're very, very well-positioned at that price point.

Yeah. I would also add that April's off to a really strong start, even with the rate increase coming in April 1st.

Okay, great. Then, separate from that, I know you've talked about in the past getting to, you know, own a half-year slate by 2027. It'd be great to get your updated thoughts on how you feel about that goal right now and maybe some of the puts and takes that'll affect your ability to get there and maybe just some more color on the progress you've made on some of the projects that you already have going.

Yeah. Look, I've never been more excited about the pipeline that we have in the business. We just announced an untitled Black rodeo show, which is, I think it's gonna be one of our biggest shows. We're excited about production beginning that on the fall. Fightland, which is our first owned original, you know, will premiere July 31st. We released a lot of the first-look footage of pictures of that yesterday, and it looks amazing. We've got Kingmaker in development; we've got Masquerade in development. You know, we're out. We've landed a couple, you know, book series that we think could be big franchises for us. We've got All Fours. We've announced Plan B being our production partner there. We're putting more writers around that. So, the pipeline has never been more full and more exciting.

I think you couple that with the Pay-1 from Lionsgate, we're going to have a very, very strong content slate for the next one to two to three years. We're right on track to delivering against that 50% goal, and I think we'll actually accelerate past that. Obviously, the hope is to get most of the slate owned and controlled by Starz long term, and that's something we're laser-focused on.

Okay, great. Thank you.

Again, if you have a question, please press star then one. The next question comes from David Karnovsky with JPMorgan. Please go ahead.

Hey, Doug Wardlaw on for David. I'm wondering, you know, now that you're out of this agreement with Universal, you know, what's the criteria for the acquisition of titles you'll be looking for, you know, to properly lead to whether user acquisition or to limit churn? Then separately, does this lead to more room for spend on original content?

Great question. You know, we've developed a really robust database of first title streams and viewership on movies that we've acquired over the past from all the different studios. We have a pretty good sense on, you know, in terms of indie films, what kind of viewership and first title stream that we can pull from different titles depending on how, you know, what their box office was, how old they are, what characters are in it, what's the storyline. We're really able to kind of, like I said earlier, Moneyball the portfolio to replace what we were seeing from the, you know, the Universal titles at a much more of a library price.

Remember, we were paying Pay-2 rates, and they were performing much more like library because of just the strength of the titles being watched at Amazon. We've got a pretty good view on what we need to, you know, acquire and at what price. You know, there's an ability to put a lot of the savings to the bottom line. You see that move in the guide to 20% in 2027, but we're also reinvesting in the business to protect the revenue side of the business as well. We've been able to do both at a much, you know, highly economic, positive aspect of the business.

Great. Then, you know, I guess separately, you know, you mentioned P-Valley is coming back at some point this year, you know, it's been a long gap. I'm just wondering what your data kinda says about, you know, audience re-engagement for shows that have hiatuses that long, and you know, does that kinda lead to more marketing spend to kinda get some of those viewers back that may have been gone?

It's a great question. Look, I think with P-Valley specifically, and we've seen this with other shows that have had longer breaks, Outlander is a good example where we've had a lot of breaks. The fan bases are so obsessed with these shows that, you know, they've been continually looking for it and coming back on the network. So, I actually think the moment we bring P-Valley back, the obsessiveness and the craziness for the fan base will get people there. We also have the ability, obviously with in-app, to notify customers, which is a zero-cost game for us as well. We've got a lot of different marketing tools that are not economically, you know, expensive for us to go ahead and bring them back. YoU know, Outlander is a great example.

That fan base has created a thing called Droughtlander, which is the off-season, and they're online every day wondering when that show's coming back. I think P-Valley brings that same kind of intensity from the fan base, and so, I expect it to be a wonderful return to the network and a massive both subscriber gain as well as viewership gain when we get it back on the air.

Got it. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks.

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

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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.

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.

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.

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.

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

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

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?

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?

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.

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?

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.

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?

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.

Our next question comes from Thomas Yeh with Morgan Stanley.

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?

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.

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?

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.

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?

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.

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

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.

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.

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?

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.

Our next question comes from Vikram Kesavabhotla with Baird.

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?

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.

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?

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.

Our next question comes from David Karnovsky with JPMorgan.

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?

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.

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

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?

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.

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

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

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.

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

I would now like to hand the conference over to your speaker today, Nilay from Investor Relations.

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.

Thank you, Nilay, and thank you everyone for joining us today. It's only been nine 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 three out of four quarters, including adding 370,000 in the fourth quarter alone.

This resulted in 170,000 total subscriber growth in Q4. We grew total revenue on a sequential basis in both Q3 and Q4. We exceeded our $200 million outlook for 2025 by 2%, delivering $204 million, and grew adjusted OIBDA year-over-year. 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 Q4 has continued into 2026, resulting in a strong start to the year. The success of our originals prove that our bedrock strategy is working. We deliver edgy, premium content for women and underrepresented audiences that broad-based streamers don't address. 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 own 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 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. 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 this series.

We've also made significant strides in de-aging our content slate this year while still expanding our network-defining franchises, Outlander and the Power universe. More specifically, we successfully launched the 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-$120 million of positive unlevered free cash flow, converting the business to positive equity free cash flow. 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 de-emphasizing 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 de-levering. 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's an opportunity to scale our two 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.

Let me hand it over to Scott to take you through the financials.

Thank you, Jeff. 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 marking, 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-$120 million, and we expect to generate positive equity free cash flow for the year. This represents approximately an $80 million-$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. 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. I'd like to turn the call back over to Nilay for Q&A.

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

Yes, thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for questions. Our first question comes from Brent Penter with Raymond James & Associates. You may proceed.

Hey, good afternoon, everyone. Thanks for taking the questions. First and foremost, appreciate the $0.50 hold music there. Good to see the $200 million target exceeded in 2025 and then expected to grow in 2026. Can you just walk us through some of the moving pieces? You talked about OTT revenue up. How should we think about total revenue? With that 20% margin target out there exiting 2028, what kind of progress in 2026 does the guidance contemplate?

Hey, Brent, how are you? I look forward to seeing you on Monday. I'll take the second question in terms of the margin. We're well on our way to exceed, you know, to executing against getting to that 20% margin coming out of calendar 2028. You'll see a slight improvement in 2026. The lion's share of the improvement really comes in 2027 and 2028, when you start to see the Starz originals really become a lion's share of our programming slate, and there's a lot of, you know, de-aging of the content there, ownership of the content. We announced offsetting some of the costs by bringing Sky in on Fightland as the co-commission partner.

When you take all the de-aging of the content, STARZ zone content-Creating that incremental revenue stream by selling it internationally, you really start to see us move significantly toward that 20% margin in 2027 and 2028. Scott, do you wanna take that?

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. We feel really good about that as well as our focus on our pricing strategy.

Okay. Got it. Thanks for the commentary on industry consolidation. Sounds like you all are ready to capitalize if there's an opportunity. I guess what kind of assets would you be interested in? How should we think about the constraints in terms of your ability to buy something? Is there a leverage level you wanna go above or an equity valuation that you would wanna be at before doing any kind of deal? Or just can you help frame those constraints?

Yeah, great question. I'm not gonna comment on our conversations to date, but what I will say, and we've said this repeatedly, we have two very valuable core demos that make us really complementary and important in the ecosystem. There's a lot of, I would say, linear networks out there that have great brands that kind of complement our two core demos, but are really marooned on the linear side of the business without any kind of tech capability or, you know, desire from their larger corporate parent to try to transition them and reconnect them with their consumers that have moved to the digital side.

Those are kind of the characteristics that we look at to make sure that we're continue to lean into what we do on an SVOD side, much more on an ad-supported side. Again, you know, we continue to drive leverage down. Scott and I continue to focus on getting leverage down to that 2.5x. That's where we would like to operate. Any kind of, you know, deal that we do, we'd have to stick within that kind of leverage constraint to keep it around. We don't really wanna operate in a business that's 4x, 5x, 6x levered, we'll be very cautious about what kind of deal we do when it comes to leverage.

Okay. Got it. Putting M&A aside, given that free cash flow is starting to inflect, how do you rank order your other capital allocation priorities? Obviously, de-levering has been the top goal so far but as you start to get closer to that 2.5x goal, what are your other capital allocation goals? You know, at what point, given where the valuation is, do you start to consider shareholder returns?

I think, you know, we look at this as it's gonna be a good problem to have as we move forward. You know, as I noted, you know, we expect free cash flow to improve, or come in the range unlevered basis, $80 million-$120 million. That's a significant improvement over the year. You'll start to, you know, have cash that we'll start to build, which will give us an opportunity to lever, further invest in the business. At that point, you know, we would be in a position to make the decision to start returning some of the of that cash to shareholders.

Okay, great. Thanks, everyone.

Thank you.

Operator, could we get the next question, please?

Our next question comes from Thomas Yeh with Morgan Stanley. You may proceed.

Thanks. On the OTT subscriber momentum into this year, I think you mentioned 1Q's 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 came back for Power Book IV Season 3? Is the slate structured to run that retention through, or is there, you know, something more to do there still?

I think there's really two components to that. One is the slate's really set up to have a great connected year throughout the year. We have some of our biggest shows throughout the year, you know, 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 acquisitions to fill the gaps there. We have a great complete slate, you know, again, surrounded by great movies from the Lionsgate Pay-One and the Universal Pay-Two. That plus, you know, we've really deployed what we've seen in our data.

We've really deployed longer term offers, so annual offers, which we see really has, you know, when people, you know, 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. They're also great for you know, long-term churn. The combination of a great slate and longer term offers really lead us to push churn down over the next, you know, 12 to 18 months.

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?

You know, Thomas, this is Alison. I would say, you know, 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, that's a real focus for us. I think that, you know, we're excited to expand our bundling relationships, we're excited to see expansion in our Distribution relationships. We think that even with the disruption in the industry, that those will come. Just to comment on, you know, particularly the bundling piece, you know, 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, you know, also ultimately are driving better retention for the business. Bundling and Distribution are a big focus for us, and we're excited about the year to come.

Okay, great. Last one for me. You've talked about a timeline to get to 60%+ 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, you know, ancillaries maybe start to build thereafter?

I think that's spot on. I mean, we've got. You know, we've announced four originals that we have in some stage of production. All four, 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, you know, getting the materials into a place. We're out looking for production partners there as well to see, you know, where we're gonna shoot those shows and at what cost. Again, as you know, 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. Outside of the Sky markets, Lionsgate will sell that for us. I expect that only the unit economics of Fightland to only continue to get better.

Okay, appreciate it. Thank you.

Could we get the next question, please?

Thank you. Our next question comes from David Joyce with Seaport Research Partners. You may proceed.

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

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

We feel like we're getting that into a really good place now as we move into 2026. 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. You know, 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 the first three quarters. The fourth quarter in 2026 will be a more positive quarter, but the first three will be very consistent. Won't be as choppy as you've seen in the past.

Okay, thanks. 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 others? How many originals do you think will be in production maybe by the time you're exiting 2026?

That is just for Fightland, that particular production loan. It's very cost-effective, cost to capital, so we like to use those. Help us line up our cash flows with those, with those shows. You know, 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, you know, as those will build up over time. You know, at some point, you know, the show will be complete and you'll repay the loan. Should be end up being a fairly consistent balance after we get through the end of this year.

Thank you.

Thanks.

David. Operator, could we get the next question, please?

Thank you. Our next question comes from Vikram Kesavabhotla with Baird. You may proceed.

Yeah. Hey, thanks for taking the questions. Wanted to follow up on the co-commission deal with Sky. Can you talk more about why they were the right partner? From a higher level, you know, when you look at the content slate that you have planned, how would you characterize the demand environment for your programming internationally?

Hey, 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. Over time, that has actually expanded in France as well. 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, 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. I think the slate that we've designed, we've obviously designed it with international revenue in mind.

I expect that to continue to grow as we get more ownership back onto the network and own our own library.

Okay, that's helpful. Then, yeah, you referenced the pricing strategy a few times, in your previous answers. Can you just elaborate more on your thoughts there? I mean, do you think there's one way for you to raise price on your subscriptions over time? How do you plan to manage the cadence of that going forward?

As we've said and we'll continue to say, we're a complementary service. We've always wanted to be underpriced, way underpriced to the broad-based streamers out there. As they continue to raise rate, it gives us room to raise rate. You've seen the broad-based streamers raise anywhere from $1-$3 over the last couple years. 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, you know, right time, right place, right slate to determine whether that's right for our consumers. We'll watch the industry, watch the broad-based streamers, then we'll make decisions based on where we think that's right to drop that in.

Okay, great. Thank you.

Thanks, Vikram. Operator, could we get the next question, please?

Thank you. Our next question comes from David Karnovsky with JPMorgan. You may proceed.

Hi, Doug Wardlaw on for David Karnovsky. I just wanted to get an idea of how you guys think about relying on spin-offs of 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. I guess long term, how do you weigh starting a new show versus a spin-off of a sure thing? Thanks.

Thanks for the question. I mean, franchising here at Starz is a real kind of power of ours. I think we, you know, as you know, we've successfully franchised Power into three successful spin-offs and one currently in production. These are really reliable drivers of engagement, drivers of acquisition for the business. Same with Outlander. You know, we're so proud that Outlander has been on the air, you know, since 2014 and still drives a huge engaged fan base, and we successfully launched Blood of My Blood last season. What they also provide is a real platform or lead-in for new shows.

You know, 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. You know, 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.

Great. Thank you.

Thanks, Doug. Operator, could we get the next question, please?

Thank you. The last question will come from Matthew Harrigan with Benchmark. You may proceed.

Thank you. I should probably apologize for belaboring you with this one, but what's your reaction to DeepSeek? It caused a lot of volatility in the markets. Are there benefits, or I guess, speaking more broadly, do you see more benefits from you on the AI side as far as development? I guess secondly, how's the development process differing from when you were under the, what, Lionsgate's, you know, wing? 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? Thanks.

Hey, Jeff, thanks for the question. I think on the first one, you know, look, AI is gonna be a very powerful tool to enhance the business. You know, I think there's three or four areas that we're using it today. Obviously, with content and reducing costs, we used it with Spartacus for some of the large scenes in Spartacus, I think very successfully. You know, on the boring side, I think you can do a lot of, you know, internal training with AI that you would have to do, you know, and waste hours of employees.

Again, for us, with, you know, a large scale D2C business that has over 10 years of acquisition data, retention data, pricing data, that coupled with, you know, 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, you know, hundreds of millions of datasets, 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, you know, again, this is a lot still more art than it is science, and I think the creative process will continue to be that way.

We're excited to use it as a tool, but, you know, I think the business is really grown on the success of the uniqueness of our originals, and I think that's hard to replicate. We're excited about that. From a second question, you know, Look, Lionsgate is a tremendous producer of television. We've had a great 9-year run with Kevin and team. I think that will continue based on the Power Universe that we're still locked on the hip on. I don't expect that relationship to change. I think as we go out and start to rebuild our own, you know, 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. Those are the probably the two biggest components that we have, you know, a little more control with our team and a little more revenue on the other side. But again, we're still pretty much locked at the hip with Lionsgate on a lot of our big shows. As I said, you know, they're our sales agent for internationally. They're over in London today, and I think, you know, Packer continues to do a great job maximizing revenue for us there. I expect that relationship to continue for a long time, and, you know, we're excited about that.

Thanks, Jeff. Be interesting to see what your stock does now. Thanks.

Thank you.

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

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.

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