MSG Networks Inc. (NYSE: MSGN) today reported financial results for
the fiscal 2020 third quarter ended March 31, 2020.
For the fiscal 2020 third quarter, MSG Networks
Inc. generated revenues of $185.0 million, a decrease of 5% as
compared with the prior year period. In addition, the Company
generated operating income of $73.7 million, a decrease of 11%;
adjusted operating income of $79.1 million, a decrease of 11%; and
net income of $46.3 million, a decrease of 15%; all as compared
with the prior year period.(1)
President and CEO Andrea Greenberg said, "During
these unprecedented times, we are reminded of the important role
live professional sports plays in people's lives. We are
confident that our business is well-positioned to weather this
uncertain period and that, as a leader in regional sports and
entertainment programming, we have a strong foundation in place
that will benefit us as we navigate through the months ahead."
| Fiscal Year 2020 Third
Quarter Results |
|
|
| (In thousands, except per share data) |
|
Three Months Ended |
| |
|
March 31, |
| |
|
2020 |
|
Revenues |
|
$ |
184,972 |
|
| Operating income |
|
73,663 |
|
| Adjusted operating income |
|
79,132 |
|
| Net Income |
|
46,270 |
|
| Diluted EPS |
|
$ |
0.77 |
|
| |
| (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
OperationsFiscal 2020 third quarter total revenues of
$185.0 million decreased 5%, or $10.1 million, as compared with the
prior year period. Affiliation fee revenue decreased $6.6
million, primarily due to the impact of a decrease in subscribers
of approximately 8%, partially offset by the impact of higher
affiliation rates.
Advertising revenue decreased $3.5 million,
primarily due to lower sales related to live professional sports
telecasts, partially offset by other net advertising increases. The
decrease in sales from live professional sports telecasts was
primarily due to fewer telecasts as compared with the prior year
period, a result of the pause of the NBA and NHL seasons. Other
revenues decreased $0.1 million.
Direct operating expenses of $83.8 million
increased 2%, or $1.7 million, as compared with the prior year
period. The increase was primarily due to higher rights fees
expense, mainly a result of annual contractual rate increases. This
was partially offset by other programming-related cost decreases,
which include the impact of fewer live professional sports
telecasts as compared with the prior year period.
Selling, general and administrative expenses of
$25.8 million decreased 10%, or $2.9 million, as compared with the
prior year period, due to lower advertising sales commissions,
employee compensation and related benefits and advertising and
marketing costs.
Operating income of $73.7 million decreased 11%,
or $8.8 million, as compared with the prior year period, primarily
due to the decrease in revenues and, to a lesser extent, higher
direct operating expenses, partially offset by lower selling,
general and administrative expenses (including share-based
compensation expense).
Adjusted operating income of $79.1 million
decreased 11%, or $9.5 million, as compared with the prior year
period, primarily due to the decrease in revenues and, to a lesser
extent, higher direct operating expenses, partially offset by lower
selling, general and administrative expenses (excluding share-based
compensation expense).
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.
Non-GAAP Financial MeasuresWe
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 6 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 8 of this release.
Forward Looking StatementsThis
press release may contain statements that constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned
that any such forward-looking statements are not guarantees of
future performance or results and involve risks and uncertainties,
and that actual results, developments and events may differ
materially from those in the forward-looking statements as a result
of various factors, including financial community perceptions of
the Company and its business, operations, financial condition and
the industry in which it operates and the factors described in the
Company’s filings with the Securities and Exchange Commission,
including the sections titled “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” contained therein. The Company disclaims any obligation
to update any forward-looking statements contained herein.
|
Contacts: |
|
|
| |
|
|
| Kimberly Kerns |
|
Ari Danes, CFA |
| Communications |
|
Investor Relations |
| (212) 465-6442 |
|
(212) 465-6072 |
| |
|
|
Conference Call Information:The conference call
will be Webcast today at 10:00 a.m. ET at
investor.msgnetworks.comConference call dial-in number is
877-883-0832 / Conference ID Number 5577875Conference call replay
number is 855-859-2056 / Conference ID Number 5577875 until May 8,
2020
| |
|
|
|
|
|
MSG NETWORKS INC.CONSOLIDATED STATEMENTS OF
OPERATIONS(In thousands, except per share
data)(Unaudited) |
| |
|
|
|
|
| |
|
Three Months Ended |
|
Nine Months Ended |
| |
|
March 31, |
|
March 31, |
| |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Revenues |
|
$ |
184,972 |
|
|
$ |
195,105 |
|
|
$ |
533,683 |
|
|
$ |
552,483 |
|
| Direct operating expenses |
|
83,762 |
|
|
82,085 |
|
|
236,487 |
|
|
230,210 |
|
| Selling, general and
administrative expenses |
|
25,831 |
|
|
28,734 |
|
|
80,173 |
|
|
76,931 |
|
| Depreciation and
amortization |
|
1,716 |
|
|
1,805 |
|
|
5,123 |
|
|
5,650 |
|
| Operating income |
|
73,663 |
|
|
82,481 |
|
|
211,900 |
|
|
239,692 |
|
| Other income (expense): |
|
|
|
|
|
|
|
|
|
Interest income |
|
900 |
|
|
1,557 |
|
|
3,734 |
|
|
4,571 |
|
|
Interest expense |
|
(9,419 |
) |
|
(11,658 |
) |
|
(30,168 |
) |
|
(35,273 |
) |
|
Debt refinancing expense |
|
— |
|
|
— |
|
|
(2,764 |
) |
|
— |
|
|
Other components of net periodic benefit cost |
|
(258 |
) |
|
(413 |
) |
|
(774 |
) |
|
(1,231 |
) |
|
|
|
(8,777 |
) |
|
(10,514 |
) |
|
(29,972 |
) |
|
(31,933 |
) |
| Income from operations before
income taxes |
|
64,886 |
|
|
71,967 |
|
|
181,928 |
|
|
207,759 |
|
| Income tax expense |
|
(18,616 |
) |
|
(17,732 |
) |
|
(52,627 |
) |
|
(62,756 |
) |
| Net income |
|
$ |
46,270 |
|
|
$ |
54,235 |
|
|
$ |
129,301 |
|
|
$ |
145,003 |
|
| |
|
|
|
|
|
|
|
|
| Earnings per share: |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.77 |
|
|
$ |
0.72 |
|
|
$ |
1.98 |
|
|
$ |
1.93 |
|
|
Diluted |
|
$ |
0.77 |
|
|
$ |
0.72 |
|
|
$ |
1.97 |
|
|
$ |
1.92 |
|
| Weighted-average number of
common shares outstanding: |
|
|
|
|
|
|
|
|
|
Basic |
|
60,011 |
|
|
75,152 |
|
|
65,194 |
|
|
75,041 |
|
|
Diluted |
|
60,315 |
|
|
75,739 |
|
|
65,553 |
|
|
75,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSG NETWORKS INC.ADJUSTMENTS TO RECONCILE
OPERATING INCOMETO 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, |
| |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Operating income |
|
$ |
73,663 |
|
|
$ |
82,481 |
|
|
$ |
211,900 |
|
|
$ |
239,692 |
|
| Share-based compensation
expense |
|
3,753 |
|
|
4,371 |
|
|
13,852 |
|
|
13,658 |
|
| Depreciation and
amortization |
|
1,716 |
|
|
1,805 |
|
|
5,123 |
|
|
5,650 |
|
| Adjusted operating income |
|
$ |
79,132 |
|
|
$ |
88,657 |
|
|
$ |
230,875 |
|
|
$ |
259,000 |
|
|
|
|
MSG NETWORKS INC.CONSOLIDATED BALANCE
SHEETS(In thousands, except per share
data) |
|
|
|
|
|
March 31, 2020 |
|
June 30, 2019 |
| |
|
(unaudited) |
|
|
| ASSETS |
|
|
|
|
| Current Assets: |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
138,297 |
|
|
$ |
226,423 |
|
|
Accounts receivable, net |
|
108,605 |
|
|
108,349 |
|
|
Related party receivables, net |
|
28,635 |
|
|
16,091 |
|
|
Prepaid income taxes |
|
— |
|
|
1,968 |
|
|
Prepaid expenses |
|
2,812 |
|
|
2,003 |
|
|
Other current assets |
|
4,345 |
|
|
5,286 |
|
|
Total current assets |
|
282,694 |
|
|
360,120 |
|
| Property and equipment, net |
|
8,024 |
|
|
9,302 |
|
| Amortizable intangible assets,
net |
|
31,148 |
|
|
33,743 |
|
| Goodwill |
|
424,508 |
|
|
424,508 |
|
| Operating lease right-of-use
assets |
|
13,054 |
|
|
— |
|
| Other assets |
|
38,204 |
|
|
39,226 |
|
|
Total assets |
|
$ |
797,632 |
|
|
$ |
866,899 |
|
| LIABILITIES AND
STOCKHOLDERS' DEFICIENCY |
|
|
|
|
| Current Liabilities: |
|
|
|
|
|
Accounts payable |
|
$ |
1,271 |
|
|
$ |
907 |
|
|
Related party payables |
|
1,688 |
|
|
941 |
|
|
Current portion of long-term debt |
|
31,729 |
|
|
111,789 |
|
|
Current portion of operating lease liabilities |
|
4,374 |
|
|
— |
|
|
Income taxes payable |
|
4,173 |
|
|
— |
|
|
Share repurchase obligation |
|
2,901 |
|
|
— |
|
|
Accrued liabilities: |
|
|
|
|
|
Employee related costs |
|
12,241 |
|
|
15,466 |
|
|
Other accrued liabilities |
|
12,494 |
|
|
13,898 |
|
|
Deferred revenue |
|
1,046 |
|
|
185 |
|
|
Total current liabilities |
|
71,917 |
|
|
143,186 |
|
| Long-term debt, net of current
portion |
|
1,055,838 |
|
|
906,228 |
|
| Long-term operating lease
liabilities |
|
10,764 |
|
|
— |
|
| Defined benefit and other
postretirement obligations |
|
24,453 |
|
|
25,834 |
|
| Other employee related costs |
|
4,711 |
|
|
4,713 |
|
| Other liabilities |
|
109 |
|
|
2,310 |
|
| Deferred tax liability |
|
241,873 |
|
|
243,396 |
|
|
Total liabilities |
|
1,409,665 |
|
|
1,325,667 |
|
| Commitments and
contingencies |
|
|
|
|
| Stockholders' Deficiency: |
|
|
|
|
|
Class A Common Stock, par value $0.01, 360,000 shares
authorized; 43,508 and 61,287 shares outstanding as of March 31,
2020 and June 30, 2019, respectively |
|
643 |
|
|
643 |
|
|
Class B Common Stock, par value $0.01, 90,000 shares authorized;
13,589 shares outstanding as of March 31, 2020 and June 30,
2019 |
|
136 |
|
|
136 |
|
|
Preferred stock, par value $0.01, 45,000 shares authorized; none
outstanding |
|
— |
|
|
— |
|
|
Additional paid-in capital |
|
7,403 |
|
|
9,916 |
|
|
Treasury stock, at cost, 20,751 and 2,972 shares as of March 31,
2020 and June 30, 2019, respectively |
|
(456,302 |
) |
|
(179,561 |
) |
|
Accumulated deficit |
|
(156,712 |
) |
|
(282,414 |
) |
|
Accumulated other comprehensive loss |
|
(7,201 |
) |
|
(7,488 |
) |
|
Total stockholders' deficiency |
|
(612,033 |
) |
|
(458,768 |
) |
|
Total liabilities and stockholders' deficiency |
|
$ |
797,632 |
|
|
$ |
866,899 |
|
| |
|
MSG NETWORKS INC.SUPPLEMENTAL FINANCIAL
INFORMATION(Dollars in
thousands)(Unaudited) |
| |
|
Summary Data from the Statements of Cash
Flows |
| |
|
Nine Months Ended |
| |
|
March 31, |
| |
|
2020 |
|
2019 |
|
Net cash provided by operating activities |
|
$ |
139,971 |
|
|
$ |
142,080 |
|
| Net cash used in investing
activities |
|
(2,211 |
) |
|
(3,912 |
) |
| Net cash used in financing
activities |
|
(225,886 |
) |
|
(161,250 |
) |
| Net decrease in cash and cash
equivalents |
|
(88,126 |
) |
|
(23,082 |
) |
| Cash and cash equivalents at
beginning of period |
|
226,423 |
|
|
205,343 |
|
| Cash and cash equivalents at
end of period |
|
$ |
138,297 |
|
|
$ |
182,261 |
|
| Free Cash
Flow |
|
|
| |
|
Nine Months Ended |
| |
|
March 31, |
| |
|
2020 |
|
2019 |
|
Net cash provided by operating activities |
|
$ |
139,971 |
|
|
$ |
142,080 |
|
| Less: Capital
expenditures |
|
(2,211 |
) |
|
(1,912 |
) |
| Free cash flow |
|
$ |
137,760 |
|
|
$ |
140,168 |
|
|
Capitalization |
|
|
| |
|
March 31, |
| |
|
2020 |
|
Cash and cash equivalents |
|
$ |
138,297 |
|
| Credit facility debt(a) |
|
1,093,125 |
|
| Net debt |
|
$ |
954,828 |
|
| |
|
|
| Reconciliation of
operating income to AOI for the trailing twelve-month
period(b) |
|
|
| Operating Income |
|
$ |
282,107 |
|
| Share-based compensation
expense |
|
18,281 |
|
| Depreciation and
amortization |
|
6,871 |
|
| Adjusted operating income |
|
$ |
307,259 |
|
| |
|
|
| Leverage ratio(c) |
|
|
3.1x |
|
| |
|
|
| (a) Represents
aggregate principal amount of the debt outstanding. |
| (b) Represents
reported adjusted operating income for the trailing twelve
months. |
|
(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. |
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