Jeff [Last Name]: 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 STARS become available. Now let me hand it over to Scott to take you through the financials.
Scott [Last Name]: 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 STARS, 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 STARS' U.S. business. STARS added 370,000 domestic OTT subscribers in the quarter, reaching an all-time high of 12.7 million customers. Additionally, total US 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 stem 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 2.9 times better than our previous guidance of exiting the year at 3.1 times. 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 2.7 times. Now I'd like to turn the call back over to Neelay for Q&A.
Neelay [Last Name]: Operator, could we open up the call for Q&A?
Operator: Yes, thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions. And our first question comes from Brent Penter with Raymond James and Associates. You may proceed.
Brent Penter: Hey, good afternoon, everyone. Thanks for taking the questions. And first and foremost, 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?
Jeff [Last Name]: 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 executing against 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 STARS 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. So when you take all of the de-aging of the content, StarZone content, creating that incremental revenue stream by selling it internationally, you really start to see us move significantly toward that 20% margin in 27 and 28. Scott, do you want to take that?
Scott [Last Name]: I would just say on OTT revenue, we feel really good about growth next year. When you look at our slate, it's probably one of the best we've ever had. It's very consistently placed throughout the year. So we feel really good about that as well as our focus on our pricing strategy.
Brent Penter: Okay. Got it. And then thanks for the commentary on industry consolidation and 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 help frame those constraints?
Jeff [Last Name]: Yeah, 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 two very valuable core demos that make us really complementary 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 two 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 continue 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 two and a half times. 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 a business that's four or five, six or times levered. And so we'll be very cautious about what kind of deal we do when it comes to leverage.
Brent Penter: Okay, got it. And then putting M&A aside, given that free cash flow is starting to inflect How do you rank order your other capital allocation priorities? Obviously, delevering has been the top goal so far. But as you start to get closer to that two and a half goal, what are your other capital allocation goals? And at what point, given where the valuation is, do you start to consider shareholder returns?
Scott [Last Name]: I think, you know, we look at this as it's going to be a good problem to have as we move forward. You know, we, as I noted, you know, we expect free cash flow to improve. We're coming in the range 80, on lever basis, 80 to 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. And 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.
Brent Penter: Okay, great. Thanks, everyone.
Operator: Thank you.
Neelay [Last Name]: Could we get the next question, please?
Operator: Our next question comes from Thomas Yeh with Morgan Stanley. You may proceed.
Thomas Yeh: Thanks. 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 PowerBook 4, Season 3. Is the slate structured to run that retention through, or is there something more to do there still?
Jeff [Last Name]: 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, Canaan, 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. So we have a great complete slate, again, surrounded by great movies from the Lionsgate pay one and the Universal pay two. That plus, we really deployed what we've seen in our data. We really deployed longer term offers. So annual offers, which we see really has, when people roll from that 12 month offer to retail The take rate up to retail is significantly higher, and so you see a lot more spike in ARPU at the end of those offers. And they're also great for long-term churn. And so the combination of a great slate and longer-term offers really lead us to push churn down over the next 12 to 18 months.
Thomas Yeh: Okay, that's helpful. Anything on the distribution partnership side that is kicking in as well, or any update on progress there in terms of the bundled partnerships that you've taken on?
Allison [Last Name]: You know, Thomas, this is Allison. 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. And so that's a real focus for us. I think that, you know, 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, 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, the revenue accretive, and then, you know, also ultimately are driving better retention for the business. So bundling and distribution are a big focus for us, and we're excited about the year to come.
Thomas Yeh: Okay, great. And then last one for me. You've talked about a timeline 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, you know, ancillaries maybe start to build thereafter?
Jeff [Last Name]: 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 fours we've just brought in plan B. a production agency to help produce that show. And we're super excited about that. Kingmaker, Masquerade, their 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 going to shoot those shows and at what cost. And again, as you, 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. 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.
Thomas Yeh: Okay. Appreciate it. Thank you.
Neelay [Last Name]: Could we get the next question, please?
Operator: Thank you. Our next question goes from David Joyce with Seaport Research Partners. You may proceed.
David Joyce: Thank you. 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 EBITDA 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. Thanks.
Scott [Last Name]: 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 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 STARS 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, 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 26 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.
David Joyce: Okay, thanks. And on a 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? And how many originals do you think will be in production by the time you're exiting 2026?
Scott [Last Name]: 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. They help us line up our cash flows with those shows. You know, as we green light 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. But, you know, at some point, you know, the show will be completed and you'll repay the loan. So it should be in a fairly consistent balance after we get through the end of this year.
spk04: Thank you.
Neelay [Last Name]: David, operator, could we get the next question, please?
spk04: Thank you.
Operator: Our next question comes from Vikram Casavolta with Baird. You may proceed.
Vikram Casavolta: Yeah, hey, thanks for taking the questions. I wanted to follow up on the co-commissioned 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?
Jeff [Last Name]: Hey, Jeff, thanks for the question. We think that we've seen past when we were in the international business before that the UK market is an incredible market for all of our shows. And over time, that has actually expanded in 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 Sweet Pea from them. And so we have an ongoing relationship with them. I think they're very interested in and what we have in production. And I think there's others that will be as well. And so I think the, the slate that we've designed, we've obviously designed it with, with international revenue in mind. And I expect that to continue to grow as we get more ownership back onto the network and on our own library.
Vikram Casavolta: 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? 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?
Jeff [Last Name]: Yeah, so as we've 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, you know, 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.
spk04: Okay, great. Thank you.
Neelay [Last Name]: Thanks, Vikram. Could we get the next question, please?
Operator: Thank you. Our next question comes from David Karnofsky with J.P. Morgan. You may proceed.
Doug Wardlaw: Hi, 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 do you weigh starting a new show versus a spinoff of a sure thing? Thanks.
Allison [Last Name]: Thanks for the question. I mean, franchising here at stars is a real kind of power of ours. I think we, you know, as you know, we've successfully franchised power into three successful spinoffs and one in 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 shows. 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 CAM with new audiences. So I think it's a real, 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.
spk04: Great. Thank you. Thanks, Doug.
Neelay [Last Name]: Operator, could we get the next question, please?
Operator: Thank you. And the last question will come from Matthew Harrigan with Benchmark. You may proceed.
Matthew Harrigan: Thank you. I should probably apologize for belaboring you with this one, but what's your reaction to CDANs that cause 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's the development process differing from when you were under the Lionsgate wing? I mean, what parameters are you emphasizing that are maybe a little bit different in terms of moving faster or adapting to your demographic even more precisely? Thanks.
Jeff [Last Name]: Hey, Jeff. Thanks for the question. I think on the first one, you know, look, AI is going to be a very powerful tool to enhance the business. 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. On the boring side, I think you can do a lot of internal training with AI that you would have to do and 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, 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 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, you know, again, this is a 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, you know, I think the business has 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, you know, look, Lionsgate is a tremendous producer of television. We've had a great nine-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, you know, our own library again, and it gives us the ability to control front end costs a little better with 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 again, Those are probably the two biggest components that we have, 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, they're our sales agent for internationally. They're over in London today, and I think Packer continues to do a great job maximizing revenue for us there. So I expect that relationship to continue for a long time, and we're excited about that.
Matthew Harrigan: Thanks, Jeff. It'll be interesting to see what your stock does now. Thanks.
Operator: Thank you. I would now like to turn the call back over to Neelay for any closing remarks.
Neelay [Last Name]: 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-GAF forward-looking measures discussed on this call. Thanks, everyone.
Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
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