Starz Entertainment Corp. (STRZ) Earnings

Management highlights

- Content Performance * The quarter delivered the second-highest audience engagement quarter in STARS history, marking four consecutive quarters of engagement growth post-separation. Results were driven by the *Outlander* finale, *Raising Canaan* Season 5 premiere, and *The Housemaid*. *Raising Canaan* Season 5 grew its total audience compared to Season 1, a rare achievement for long-running series. * New owned original *Fightland* premiered as STARS' second-highest rated new IP launch in company history, with significant audience overlap with the Power Universe that is expected to reduce subscriber churn and drive lapsed user win-backs. * Upcoming content slate includes the highly anticipated return of *P-Valley*, *Blood of My Blood* Season 2 (Outlander universe expansion), and the *Michael* biopic, with new owned originals *Untitled Black Rodeo Show* entering production in Q3 2026. - Distribution and Partnership Growth * Secured a long-term renewal with one of STARS' largest distribution partners, and added two new distribution partnerships during the quarter: 1) A new add-on subscription partnership with Peacock, granting access to 48 million additional potential subscribers for customer acquisition growth without incremental platform investment; 2) A new bundled offering with Crunchyroll on Prime Video, targeting highly engaged niche audiences. * These partnerships expand STARS' distribution footprint and brand awareness while aligning with the company's growth strategy. - Strategic and Capital Priorities * Core priorities remain growing OTT revenue, expanding profitability, improving free cash flow conversion, and reducing balance sheet leverage. The company will only pursue M&A if it accelerates existing strategy and creates more value than organic growth, given the strong current performance of the core business. * Completed exit from the Universal pay-to agreement, recorded a $147 million restructuring charge in Q2 2026, which management expects to be the final large restructuring charge of this type.

Guidance

- Full year 2026 adjusted OIBDA growth guidance is raised from low single digits to mid single digits; the company remains confident in hitting its 20% adjusted OIBDA margin target in H2 2027. - Unlevered free cash flow guidance for 2026 is raised to the mid-to-upper end of the previous $80 million to $120 million range, maintaining on track to hit the 70% adjusted OIBDA to unlevered free cash flow conversion target. - Full year 2026 cash content spend is expected to come in below $600 million, with continued convergence of cash content spend and programming amortization. - Adjusted OIBDA leverage ratio is expected to end 2026 at approximately 2.7x, with underlying deleveraging faster than this figure implies; the company remains on track to reach a target leverage ratio of 2.5x or lower sooner than originally expected. - Q3 2026 adjusted OIBDA is expected to be in the mid-$30 millions (the lowest quarterly figure of 2026 due to higher programming amortization for multiple new seasons airing in the quarter), with Q4 2026 adjusted OIBDA expected to come in at mid-$60 millions to close the year strongly. - OTT revenue is expected to grow sequentially through H2 2026, putting STARS on track to achieve its full year 2026 target of positive annual OTT revenue growth. A significant free cash flow inflection is expected in 2029 after all final Universal payments are completed.

Segment performance

STARS reports two core revenue segments for Q2 2026: 1) OTT: Total OTT revenue of $221 million, marking the first year-over-year OTT revenue growth since Q4 2024. OTT revenue contributed 71.75% of total Q2 revenue. Excluding a $3 million one-time Canadian operations revenue impact from Q2 2025, pro forma year-over-year OTT growth was 1.4%. 2) Linear and other: Total linear and other revenue of $87 million, reflecting continued secular decline in traditional video households, contributing 28.25% of total Q2 revenue. Total company Q2 2026 revenue was $308 million.

Risks & headwinds

- Forward-looking performance statements are subject to material risks and uncertainties that could cause actual results to differ from projections, with detailed risk factors included in STARS' most recently filed 10-KT. - The linear segment continues to face ongoing secular pressure from declining traditional video household penetration, a long-term headwind that management has acknowledged in prior calls. - Content performance and subscriber acquisition outcomes from new distribution partnerships are not guaranteed, and depend on consumer adoption and partner platform integration.

Analyst Q&A

• Q: What early customer acquisition and engagement trends have been observed from the *Fightland* launch, and what are the implications of the upcoming Power Universe library licensing deal to Netflix? /

  A: *Fightland* has exceeded expectations, with strong social sentiment, high engagement, and an unexpected influx of lapsed user win-backs that aligns with the goal of reducing Power Universe churn. For the Netflix Power licensing deal, STARS remains the exclusive home of all current Power Universe spinoffs, prequels, and new content that drives core engagement and acquisition. Management views the deal as a positive opportunity to introduce the franchise to new Netflix audiences, consistent with STARS' strategy to monetize mature library content via syndication. (331 characters)

• Q: As STARS builds its owned original content library, will it pursue more syndication deals like the Netflix Power agreement, and what was the engagement impact of exiting the Universal pay-to deal? /

  A: Building a scalable owned content library to enable international output deals and secondary window syndication monetization is a core part of STARS' strategy. Co-production partnerships like the one with Sky for *Fightland* also reduce per-episode content costs. Universal titles have not aired on STARS in 18 months, contributing nearly zero current engagement, and the cost savings from the exit have been reinvested into new content that drove record engagement this quarter. (359 characters)

• Q: What are the recent subscriber trends, and how will cash content spend and free cash flow develop heading into the 2029 inflection? /

  A: While STARS does not regularly publish official subscriber counts, total subscribers grew in Q2 2026 even after implementing a price increase, a rare and positive outcome. The new Peacock partnership offers significant long-term subscriber growth potential via access to 48 million existing Peacock subscribers. Full-year 2026 cash content spend will come in below $600 million, a trend that will continue post-Universal exit due to lower costs for owned originals. After Universal payments are completed in 2028, 2029 is expected to see a major free cash flow inflection, with projected equity free cash flow conversion over 70% and unlevered free cash flow conversion over 90%. (472 characters)

• Q: How did the recent price increase perform relative to prior hikes, and what is STARS' capital allocation plan once deleveraging targets are met? /

  A: The 2026 price increase performed significantly better than prior cycles, with much lower subscriber disconnections and record low churn despite the price change, demonstrating strong pricing power backed by high content engagement. Deleveraging remains the near-term capital allocation priority, and the business is deleveraging faster than projected, with the 2.5x leverage target expected to be hit sooner than originally planned. Once the leverage target is reached, the board will evaluate options including share buybacks, but no decisions have been made at this time. (416 characters)