Starz Entertainment Q1 Earnings Call Highlights

Key Points

• Starz beat internal expectations in Q1 fiscal 2026, with adjusted OIBDA of $58 million and OTT revenue of $211 million, while management said the company is on track for low single-digit full-year adjusted OIBDA growth and reaffirmed 2026 guidance.
• The company is pulling forward its margin target after exiting its Universal Pay-2 deal, saying lower content costs and better economics should help it reach a 20% adjusted OIBDA margin in the back half of 2027, a year earlier than previously planned.
• Starz is leaning harder into pricing discipline and owned originals, with higher ARPU, all-time-low churn and strong engagement supporting OTT revenue growth, while new originals like Fightland and other upcoming titles are expected to expand its owned-content slate.

Starz Entertainment NASDAQ: STRZ executives said the company delivered a strong first quarter of fiscal 2026 and is moving faster than previously expected toward its long-term margin target, aided by content cost reductions, pricing discipline and a shift toward owned original programming.

President and CEO Jeffrey Hirsch said the quarter coincided with the one-year anniversary of Starz’s separation and argued that the company is now “structurally stronger” than it was at the time of the split. He said Starz has met or exceeded its key first-year financial targets, including improving margins, converting adjusted OIBDA into free cash flow and reducing leverage.

“Calendar 2026 will serve as a financial inflection point for the business,” Hirsch said, adding that Starz is now managing against four core metrics: OTT revenue growth, adjusted OIBDA, free cash flow and deleveraging.

Quarterly Results Meet or Exceed Guidance

CFO Scott Macdonald said first-quarter OTT revenue was $211 million, up from $210 million in the fourth quarter of fiscal 2025. Total revenue was $307 million, down from $323 million sequentially, primarily due to the timing of Canadian licensing revenue.

Adjusted OIBDA was $58 million in the quarter, up sequentially from the prior quarter, driven mainly by lower advertising and general and administrative expenses. On a year-over-year basis, adjusted OIBDA declined due to lower revenue and higher content amortization, partly offset by lower advertising and marketing expenses.

Macdonald said the adjusted OIBDA result was ahead of the company’s internal plan, supporting Starz’s full-year forecast for low single-digit adjusted OIBDA growth. He also said quarterly adjusted OIBDA should be more consistent in 2026 than it was in 2025.

Unlevered free cash flow was $81 million in the quarter, up $147 million year over year, while equity free cash flow rose $136 million year over year to $69 million. Macdonald cautioned that the quarter benefited from lower content spending, which the company expects to catch up in the second quarter, and said Starz is not raising its free cash flow outlook at this time.

As of March 31, Starz had net debt of $523 million and a leverage ratio of 3.1x. Macdonald said the company remains confident it can exit the year at approximately 2.7x leverage. Starz’s $150 million revolver remains undrawn.

Universal Pay-2 Exit Pulls Margin Target Forward

A key development in the quarter was Starz’s decision to exit its Pay-2 agreement with Universal. Hirsch said the Universal titles were “incredibly popular” and had significant box office strength, but their performance on Starz was lower than expected because of high subscriber overlap with Amazon, where the titles were heavily watched before reaching Starz in the Pay-2 window.

“We were paying Pay-2 prices for library performance,” Hirsch said during the question-and-answer session. He said Starz plans to reinvest in other high-performing library titles at better economics, using internal data to identify content that can deliver similar performance.

Hirsch described the approach as “a little bit of Moneyball,” saying Starz can look across the industry for library titles that recreate the desired performance at lower cost.

Macdonald said Starz recorded a $139 million restructuring charge in the first quarter, mostly related to the write-off of content with limited strategic value for its platforms. Because the Universal agreement was entered into in April 2026, the Pay-2 restructuring charge will be recorded in the second quarter.

Executives said the revised Universal terms will meaningfully reduce cash payment obligations beginning in 2027. As a result, Starz now expects to reach its 20% adjusted OIBDA margin target in the back half of 2027, a full year earlier than the prior target of exiting 2028.

Pricing Discipline Drives OTT Revenue Focus

Macdonald said Starz’s decision to de-emphasize subscriber counts is being validated by the results. He said pricing discipline, fewer low-priced entry offers and more annual and multi-month plans helped drive sequential OTT revenue growth. While the company is not disclosing ARPU directly, Macdonald said ARPU increased sequentially and is expected to continue building through 2026 as promotional subscribers move to higher retail rates.

Starz recently raised its price to $11.99, with the increase beginning to flow through the subscriber base in the second quarter. During the Q&A session, executives said the April 1 price increase is “digesting really well” and proceeding in line with expectations.

The company also said churn reached an all-time low during the quarter, reflecting a reduced focus on acquiring low-value subscribers. Engagement was also strong, with year-over-year engagement up about 8% in the quarter, according to executives on the call.

Owned Originals and Content Slate Take Center Stage

Hirsch said Starz continues to shift toward content ownership as part of its broader strategy to control costs and monetize intellectual property globally. The company’s first Starz-owned original, “Fightland,” is scheduled to premiere July 31. Starz previously announced Sky as a co-commission partner on the series, which Hirsch said improves the unit economics.

Starz has also greenlit an untitled Black rodeo drama set in Texas, with production expected to begin this fall. Hirsch said the project is another example of the company building its content library through ownership.

Executives highlighted several upcoming and recent titles, including:

• “Power Book IV: Force,” whose finale helped start the quarter strongly;
• Season eight of “Outlander,” which Hirsch said reached a four-year series high in its premiere week;
• “The Housemaid,” which Hirsch said became Starz’s best-performing Pay-1 film in both acquisition and streaming viewership shortly after the quarter;
• Upcoming series and franchises including “Raising Kanan,” “Outlander: Blood of My Blood” and “P-Valley”;
• The upcoming “Michael” biopic, which Hirsch said will strengthen the company’s schedule.

Hirsch said Starz remains on track to own 50% of its slate by 2027 and suggested the company could accelerate beyond that level. He cited projects including “Fightland,” the Black rodeo drama, “Kingmaker,” “Masquerade” and “All Fours” as examples of a fuller development pipeline.

Guidance Reaffirmed as 2027 Seen as Key Year

Starz reaffirmed its full-year 2026 outlook, including OTT revenue growth versus 2025, low single-digit adjusted OIBDA growth, $80 million to $120 million of unlevered free cash flow and year-end leverage of about 2.7x.

Macdonald said 2027 is shaping up to be a significant year for margin expansion and improved free cash flow due to restructuring benefits, increasing contributions from owned originals and continued content cost reductions.

Hirsch also said Starz continues to see two paths to value creation: growing the core business to achieve its margin target and pursuing disciplined M&A opportunities. However, he emphasized that the company does not need M&A to maximize shareholder value, given the strength and profitability of the core business.

About Starz Entertainment NASDAQ: STRZ

Starz Entertainment NASDAQ: STRZ is a global media and entertainment company that operates premium subscription video services across linear television and digital streaming platforms. The company's core offering includes the STARZ and STARZ ENCORE linear networks in the United States, alongside its STARZPLAY streaming service, which is available in North America, parts of Europe, Latin America and select Asian markets. Through its multi-platform distribution strategy, Starz delivers a combination of original programming, feature films and licensed series to a broad subscriber base.

At the heart of Starz Entertainment's business is its investment in original content production.

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