Fiscal 2021 Third Quarter Revenues of $177.9
million Fiscal 2021 Third Quarter Operating Income of $69.9
million Fiscal 2021 Third Quarter Adjusted Operating Income
of $75.0 million Acquisition by MSG Entertainment Would
Create Diversified Entertainment and Media Company
MSG Networks Inc. (NYSE: MSGN) today reported financial results
for the fiscal third quarter ended March 31, 2021.
Results for both the fiscal 2021 third quarter and the prior
year period reflect the impact of the COVID-19 pandemic. In March
2020, the NHL and NBA suspended their 2019-20 seasons before
resuming play several months later and completing the shortened
seasons in the fall of 2020. This impacted the start and length of
each league’s 2020-21 regular seasons, with the NBA beginning a
reduced schedule of 72 games on December 22, 2020, and the NHL
starting a reduced 56-game schedule on January 13, 2021. As a
result, the Company aired 164 NBA and NHL telecasts in the fiscal
2021 third quarter, as compared with 141 in the prior year
period.
For the fiscal 2021 third quarter, the Company generated
revenues of $177.9 million, a decrease of 4% as compared with the
prior year period. In addition, the Company generated operating
income of $69.9 million, a decrease of 5%; adjusted operating
income of $75.0 million, a decrease of 5%; and net income of $45.6
million, a decrease of 1%; all as compared with the prior year
period.(1)
President and CEO Andrea Greenberg said, “We’ve had exciting NBA
and NHL regular seasons, which have helped drive strong ratings on
our linear channels, as well as all-time high levels of engagement
with our streaming platform. We believe the enduring popularity of
live sports will continue to drive value for our Company and look
forward to combining our exclusive content and distribution
expertise with MSG Entertainment’s marquee assets and brands in a
transaction that we believe would create substantial benefits for
our shareholders.”
Fiscal Year 2021
Third Quarter Results
(In thousands, except per share
data)
Three Months Ended
March 31,
2021
Revenues
$
177,853
Operating income
69,885
Adjusted operating income
75,042
Net income
45,583
Diluted EPS
$
0.78
(1)
See page 3 of this earnings release for
the definition of adjusted operating income included in the
discussion of non-GAAP financial measures.
Summary of Reported Results from
Operations
Fiscal 2021 third quarter total revenues of $177.9 million
decreased 4%, or $7.1 million, as compared with the prior year
period. Affiliation fee revenue decreased $11.0 million, primarily
due to the impact of a decrease in subscribers of approximately 7%,
a net unfavorable affiliate adjustment of $5.8 million (primarily
reflecting accruals for affiliate fee rebates) recorded in the
current year quarter and, to a lesser extent, the impact of the
previously disclosed non-renewal with a small Connecticut-based
distributor as of October 1, 2020.(2) This was partially offset by
the impact of higher affiliation rates. The Company’s
year-over-year decrease in subscribers of approximately 7% reflects
an improvement as compared to the 7.5% year-over-year decrease in
the fiscal 2021 second quarter.(2)
Advertising revenue increased $3.7 million primarily due to
higher sales related to live professional sports telecasts,
partially offset by other net decreases. The increase in sales from
live professional sports telecasts was primarily due to a greater
number of NBA and NHL telecasts in the fiscal 2021 third quarter
compared with the prior year period as a result of the timing of
the 2020-21 NBA and NHL regular seasons and the suspension of the
2019-20 NBA and NHL regular seasons in mid-March 2020.
Direct operating expenses of $74.4 million decreased 11%, or
$9.4 million, as compared with the prior year period driven by
lower rights fees expense and, to a lesser extent, a decrease in
other programming and production-related costs. The decline in
rights fees expense was primarily due to the impact of fewer NHL
and NBA games made available for exclusive broadcast by the Company
during the NHL and NBA’s shortened 2020-21 regular seasons. These
decreases were partially offset by the timing of the 2020-21 NBA
and NHL regular seasons and the impact of annual contractual rate
increases. The decrease in other programming and production-related
costs primarily reflects the absence of certain expenses related to
the production of away games.(3)
Selling, general and administrative expenses of $31.7 million
increased 23%, or $5.9 million, as compared with the prior year
period, primarily due to higher advertising and marketing expenses,
employee compensation and related benefits and professional fees.
The fiscal 2021 third quarter includes $1.2 million of expenses
related to the proposed acquisition of the Company by Madison
Square Garden Entertainment Corp.
Operating income of $69.9 million decreased $3.8 million, or 5%,
and adjusted operating income of $75.0 million decreased $4.1
million, or 5%, both as compared with the prior year period,
primarily due to the decrease in revenues and increase in selling,
general and administrative expenses, partially offset by the
decrease in direct operating expenses.
About MSG Networks Inc.
MSG Networks Inc., a pioneer in sports media, owns and operates
two award-winning regional sports and entertainment networks and a
companion streaming service that serve the nation’s number one
media market, the New York DMA, as well as other portions of New
York, New Jersey, Connecticut and Pennsylvania. The networks
feature a wide range of compelling sports content, including
exclusive live local games and other programming of the New York
Knicks, New York Rangers, New York Islanders, New Jersey Devils and
Buffalo Sabres, as well as significant coverage of the New York
Giants and Buffalo Bills. This content, in addition to a diverse
array of other sporting events and critically acclaimed original
programming, has established MSG Networks as the gold standard in
regional sports.
(2)
The approximately 7% year-over-year rate
of subscriber decline excludes the impact of the previously
disclosed non-renewal with a small Connecticut-based distributor as
of October 1, 2020.
(3)
In an effort to minimize travel amidst the
ongoing COVID-19 pandemic, the Company received its broadcast feeds
for away games during the quarter from each game's home team
regional sports network.
Non-GAAP Financial Measures
We define adjusted operating income, which is a non-GAAP
financial measure, as operating income before 1) depreciation,
amortization and impairments of property and equipment and
intangible assets, 2) share-based compensation expense or benefit,
3) restructuring charges or credits and 4) gains or losses on sales
or dispositions of businesses. Because it is based upon operating
income, adjusted operating income also excludes interest expense
(including cash interest expense) and other non-operating income
and expense items. We believe that the exclusion of share-based
compensation expense or benefit allows investors to better track
the performance of the Company without regard to the settlement of
an obligation that is not expected to be made in cash. We believe
adjusted operating income is an appropriate measure for evaluating
the operating performance of our Company. Adjusted operating income
and similar measures with similar titles are common performance
measures used by investors and analysts to analyze our performance.
Internally, we use revenues and adjusted operating income measures
as the most important indicators of our business performance, and
evaluate management’s effectiveness with specific reference to
these indicators. Adjusted operating income should be viewed as a
supplement to and not a substitute for operating income, net
income, cash flows from operating activities, and other measures of
performance and/or liquidity presented in accordance with U.S.
generally accepted accounting principles (“GAAP”). Since adjusted
operating income is not a measure of performance calculated in
accordance with GAAP, this measure may not be comparable to similar
measures with similar titles used by other companies. For a
reconciliation of operating income to adjusted operating income,
please see page 7 of this release.
The Company defines Free Cash Flow (“Free Cash Flow”), which is
a non-GAAP financial measure, as net cash provided by operating
activities less capital expenditures, both of which are reported in
our Consolidated Statement of Cash Flows. The Company believes the
most comparable GAAP financial measure is net cash provided by
operating activities. The Company believes that Free Cash Flow is
useful as an indicator of its overall ability to generate
liquidity, as the amount of Free Cash Flow generated in any period
is representative of cash that is generated for debt repayment,
investment, and other discretionary and non-discretionary cash
uses. The Company also believes that Free Cash Flow is one of
several benchmarks used by analysts and investors for comparison of
the Company’s generation of liquidity with other companies in the
industry, although the Company’s measure of Free Cash Flow may not
be directly comparable to similar measures reported by other
companies. For a reconciliation of Free Cash Flow to net cash
provided by operating activities, please see page 9 of this
release.
Additional Information and Where to Find It
This communication may be deemed to be solicitation material in
respect of the proposed transaction between MSG Entertainment and
MSG Networks. In connection with the proposed transaction, MSG
Entertainment and MSG Networks filed with the Securities and
Exchange Commission (“SEC”) a registration statement on Form S-4 on
May 6, 2021 that includes a preliminary joint proxy statement of
MSG Entertainment and MSG Networks that also constitutes a
prospectus of MSG Entertainment. The information in the preliminary
joint proxy statement/prospectus is not complete and may be
changed. MSG Entertainment and MSG Networks also intend to file
other documents with the SEC regarding the proposed transaction.
This document is not a substitute for the preliminary joint proxy
statement/prospectus, Form S-4 or any other document which MSG
Entertainment or MSG Networks may file with the SEC. INVESTORS AND
SECURITY HOLDERS OF MSG ENTERTAINMENT AND MSG NETWORKS ARE URGED TO
READ THE REGISTRATION STATEMENT, THE PRELIMINARY JOINT PROXY
STATEMENT/PROSPECTUS AND ALL OTHER RELEVANT DOCUMENTS THAT ARE
FILED OR WILL BE FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR
SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY AND IN THEIR ENTIRETY
BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT
THE PROPOSED TRANSACTION. Investors and security holders may obtain
free copies of the Form S-4 and the preliminary joint proxy
statement/prospectus and other documents filed with the SEC by MSG
Entertainment and MSG Networks from the SEC’s website at
www.sec.gov. Copies of documents filed with the SEC by MSG
Entertainment will be made available free of charge on MSG
Entertainment’s investor relations website at
http://investor.msgentertainment.com. Copies of documents filed
with the SEC by MSG Networks will be made available free of charge
on MSG Networks’ investor relations website at
http://investor.msgnetworks.com.
No Offer or Solicitation
This communication is for informational purposes only and is not
intended to and does not constitute an offer to sell, or the
solicitation of an offer to subscribe for or buy, or a solicitation
of any vote or approval in any jurisdiction, nor shall there be any
sale, issuance or transfer of securities in any jurisdiction in
which such offer, sale or solicitation would be unlawful, prior to
registration or qualification under the securities laws of any such
jurisdiction. No offer of securities shall be made except by means
of a prospectus meeting the requirements of Section 10 of the
Securities Act of 1933, as amended, and otherwise in accordance
with applicable law.
Participants in the Solicitation
MSG Entertainment, MSG Networks and certain of their respective
directors and executive officers may be deemed to be participants
in the solicitation of proxies from the holders of MSG
Entertainment and MSG Networks securities in respect of the
proposed transaction under the rules of the SEC. Information
regarding MSG Entertainment’s directors and executive officers is
available in MSG Entertainment’s proxy statement relating to its
2020 annual meeting of stockholders filed with the SEC on October
27, 2020. Information regarding MSG Networks’ directors and
executive officers is available in MSG Networks’ proxy statement
relating to its 2020 annual meeting of stockholders filed with the
SEC on October 21, 2020. Investors may obtain additional
information regarding these directors and executive officers and a
description of their direct and indirect interests, by security
holdings or otherwise, in the Form S-4 and preliminary joint proxy
statement/prospectus regarding the proposed transaction, including
any amendments thereto, as well as the definitive joint proxy
statement/prospectus if and when it becomes available and other
relevant materials to be filed with the SEC by MSG Entertainment
and MSG Networks. Investors should read the preliminary joint proxy
statement/prospectus, and the definitive joint proxy
statement/prospectus if and when it becomes available, carefully
before making any voting or investment decisions. These documents
will be available free of charge from the sources indicated
above.
Forward-Looking Statements
This document contains statements that may constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, as amended. Some of these
forward-looking statements can be identified by the use of
forward-looking words such as “believes,” “expects,” “may,” “will,”
“should,” “seeks,” “approximately,” “intends,” “plans,”
“estimates,” “projects,” “strategy,” or “anticipates,” or the
negative of those words or other comparable terminology. However,
the absence of these words does not mean that the statements are
not forward-looking.
These forward-looking statements include, but are not limited
to, statements regarding the proposed transaction, pro forma
descriptions of the combined company and its operations,
integration and transition plans, synergies, opportunities and
anticipated future performance. Any such forward-looking statements
are not guarantees of future performance or results and involve
risks and uncertainties, and actual results, developments and
events may differ materially from those in the forward-looking
statements as a result of various factors, including, but not
limited to, the following factors: the impact of public health
crises, such as pandemics (including coronavirus (COVID-19)) and
epidemics and any related company or government policies and
actions to protect the health and safety of individuals or
government policies or actions to maintain the functioning of
national or global economies and markets; MSG Entertainment’s and
MSG Networks’ ability to effectively manage the impacts of the
COVID-19 pandemic and the actions taken in response by governmental
authorities and certain professional sports leagues; the occurrence
of any event, change or other circumstances that could give rise to
the termination of the merger agreement with respect to the
proposed transaction between MSG Entertainment and MSG Networks or
otherwise cause the transaction not to occur; the risk that the
conditions to the closing of the proposed transaction between MSG
Entertainment and MSG Networks may not be satisfied or waived,
including the risk that required approvals from the stockholders of
MSG Entertainment and MSG Networks, regulatory clearances and other
approvals are not obtained; the risk that the anticipated tax
treatment of the proposed transaction between MSG Entertainment and
MSG Networks is not obtained; potential litigation relating to the
proposed transaction between MSG Entertainment and MSG Networks;
uncertainties as to the timing of the consummation of the proposed
transaction between MSG Entertainment and MSG Networks; the risk
that the proposed transaction disrupts the current business plans
and operations of MSG Entertainment or MSG Networks; the ability of
MSG Entertainment and MSG Networks to retain and hire key
personnel; unexpected costs, charges or expenses resulting from the
proposed transaction; potential adverse reactions or changes to the
business relationships of MSG Entertainment and MSG Networks
resulting from the announcement, pendency or completion of the
proposed transaction; financial community and rating agency
perceptions of each of MSG Entertainment and MSG Networks and its
business, operations, financial condition and the industry in which
it operates; strategic or financial benefits or opportunities if
the merger is completed; the impact of the merger on the liquidity
position or financial flexibility and other potential impacts of
the proposed transaction; opportunities related to mobile sports
gaming or growth initiatives; strategic or financial benefits or
opportunities if the merger is completed; the impact of the merger
on the liquidity position or financial flexibility and other
potential impacts of the proposed transaction; opportunities
related to sports gaming or growth initiatives; and the potential
impact of general economic, political and market factors on MSG
Entertainment and MSG Networks or the proposed transaction. These
risks, as well as other risks associated with the proposed
transaction between MSG Entertainment and MSG Networks, are more
fully discussed in the preliminary joint proxy statement/prospectus
that are included in the registration statement on Form S-4 that
was filed with the SEC in connection with the proposed transaction,
and will be discussed in the definitive joint proxy
statement/prospectus if and when it becomes available. The effects
of the COVID-19 pandemic may give rise to risks that are currently
unknown or amplify the risks associated with many of these
factors.
In addition, future performance and actual results are subject
to other risks and uncertainties that relate more broadly to MSG
Entertainment’s and MSG Networks’ overall business and financial
condition, including those more fully described in MSG
Entertainment’s and MSG Networks’ filings with the SEC including
their respective Annual Reports on Form 10-K, subsequent Quarterly
Reports on Form 10-Q and other SEC filings, including the sections
titled “Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” contained therein.
Forward-looking statements speak only as of the date made, and MSG
Entertainment and MSG Networks each disclaim any obligation to
update or revise any forward-looking statements except as required
by applicable law.
CONSOLIDATED STATEMENTS OF OPERATIONS (In
thousands, except per share data) (Unaudited)
Three Months Ended
Nine Months Ended
March 31,
March 31,
2021
2020
2021
2020
Revenues
$
177,853
$
184,972
$
481,455
$
533,683
Direct operating expenses
74,392
83,762
196,497
236,487
Selling, general and administrative
expenses
31,743
25,831
75,962
80,173
Depreciation and amortization
1,833
1,716
5,463
5,123
Operating income
69,885
73,663
203,533
211,900
Other income (expense):
Interest income
481
900
1,446
3,734
Interest expense
(4,958)
(9,419)
(15,320)
(30,168)
Debt refinancing expense
—
—
—
(2,764)
Other components of net periodic benefit
cost
(207)
(258)
(620)
(774)
Miscellaneous income
1,252
—
1,252
—
(3,432)
(8,777)
(13,242)
(29,972)
Income from operations before income
taxes
66,453
64,886
190,291
181,928
Income tax expense
(20,870)
(18,616)
(68,174)
(52,627)
Net income
$
45,583
$
46,270
$
122,117
$
129,301
Earnings per share:
Basic
$
0.79
$
0.77
$
2.13
$
1.98
Diluted
$
0.78
$
0.77
$
2.11
$
1.97
Weighted-average number of common shares
outstanding:
Basic
57,505
60,011
57,358
65,194
Diluted
58,235
60,315
57,775
65,553
ADJUSTMENTS TO RECONCILE OPERATING INCOME TO
ADJUSTED OPERATING INCOME (In thousands)
The following is a description of the adjustments to operating
income in arriving at adjusted operating income as described in
this earnings release:
- Share-based compensation expense.
This adjustment eliminates the compensation expense relating to
restricted stock units and stock options granted under our employee
stock plan and non-employee director stock plan in all
periods.
- Depreciation and amortization.
This adjustment eliminates depreciation, amortization and
impairments of property and equipment and intangible assets in all
periods.
Three Months Ended
Nine Months Ended
March 31,
March 31,
2021
2020
2021
2020
Operating income
$
69,885
$
73,663
$
203,533
$
211,900
Share-based compensation expense
3,324
3,753
14,217
13,852
Depreciation and amortization
1,833
1,716
5,463
5,123
Adjusted operating income
$
75,042
$
79,132
$
223,213
$
230,875
CONSOLIDATED BALANCE SHEETS (In thousands,
except per share data)
March 31, 2021
June 30, 2020
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents
$
324,067
$
196,837
Accounts receivable, net
86,455
105,549
Related party receivables, net
25,659
14,190
Prepaid income taxes
1,500
461
Prepaid expenses
8,385
11,063
Other current assets
8,742
4,541
Total current assets
454,808
332,641
Property and equipment, net
7,258
8,758
Amortizable intangible assets, net
27,688
30,283
Goodwill
424,508
424,508
Operating lease right-of-use assets
13,286
17,153
Other assets
44,209
37,460
Total assets
$
971,757
$
850,803
LIABILITIES AND STOCKHOLDERS'
DEFICIENCY
Current Liabilities:
Accounts payable
$
235
$
2,115
Related party payables
6,210
1,472
Current portion of long-term debt
48,239
37,229
Current portion of operating lease
liabilities
5,125
5,492
Income taxes payable
3,116
641
Accrued liabilities:
Employee related costs
15,652
14,187
Other accrued liabilities
17,434
10,116
Deferred revenue
572
2,753
Total current liabilities
96,583
74,005
Long-term debt, net of current portion
1,007,598
1,043,780
Long-term operating lease liabilities
9,960
13,780
Defined benefit and other postretirement
obligations
25,150
25,860
Other employee related costs
5,538
5,149
Other liabilities
1,483
1,536
Deferred tax liability
244,321
239,542
Total liabilities
1,390,633
1,403,652
Commitments and contingencies
Stockholders' Deficiency:
Class A Common Stock, par value $0.01,
360,000 shares authorized; 43,460 and 43,122 shares outstanding as
of
March 31, 2021 and June 30, 2020,
respectively
643
643
Class B Common Stock, par value $0.01,
90,000 shares authorized; 13,589 shares outstanding as of March 31,
2021 and June 30, 2020
136
136
Preferred stock, par value $0.01, 45,000
shares authorized; none outstanding
—
—
Additional paid-in capital
17,490
12,731
Treasury stock, at cost, 20,799 and 21,137
shares as of March 31, 2021 and June 30, 2020, respectively
(450,053)
(457,363)
Retained earnings (accumulated
deficit)
20,845
(100,792)
Accumulated other comprehensive loss
(7,937)
(8,204)
Total stockholders' deficiency
(418,876)
(552,849)
Total liabilities and stockholders'
deficiency
$
971,757
$
850,803
SUPPLEMENTAL FINANCIAL INFORMATION (Dollars
in thousands) (Unaudited)
Summary Data from the Statements of
Cash Flows
Nine Months Ended
March 31,
2021
2020
Net cash provided by operating
activities
$
158,483
$
139,971
Net cash used in investing activities
(2,980)
(2,211)
Net cash used in financing activities
(28,273)
(225,886)
Net increase (decrease) in cash and cash
equivalents
127,230
(88,126)
Cash and cash equivalents at beginning of
period
196,837
226,423
Cash and cash equivalents at end of
period
$
324,067
$
138,297
Free Cash Flow
Nine Months Ended
March 31,
2021
2020
Net cash provided by operating
activities
$
158,483
$
139,971
Less: Capital expenditures
(2,980)
(2,211)
Free cash flow
$
155,503
$
137,760
Capitalization
March 31,
2021
Cash and cash equivalents
$
324,067
Credit facility debt(a)
1,060,125
Net debt
$
736,058
Reconciliation of operating income to
AOI for the trailing twelve-month period(b)
Operating income
$
286,601
Share-based compensation expense
19,600
Depreciation and amortization
7,503
Adjusted operating income
$
313,704
Leverage ratio(c)
2.3x
(a) Represents aggregate principal amount
of the debt outstanding.
(b) Represents reported adjusted operating
income for the trailing twelve-month period.
(c) Represents net debt divided by
adjusted operating income for the trailing twelve-month period,
which differs from the covenant calculation contained in the
Company's credit facility.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210507005154/en/
Kimberly Kerns Communications (212) 465-6442
Ari Danes, CFA Investor Relations (212) 465-6072
MSG Networks (NYSE:MSGN)
Historical Stock Chart
From Nov 2024 to Dec 2024
MSG Networks (NYSE:MSGN)
Historical Stock Chart
From Dec 2023 to Dec 2024