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MSG Networks Inc. Reports Fiscal 2021 First Quarter Results

·11 min read

Fiscal 2021 first quarter revenues of $157.4 million
Fiscal 2021 first quarter operating income of $67.9 million
Fiscal 2021 first quarter adjusted operating income of $74.4 million

MSG Networks Inc. (NYSE: MSGN) today reported financial results for the fiscal first quarter ended September 30, 2020.

For the fiscal 2021 first quarter, MSG Networks Inc. generated revenues of $157.4 million, a decrease of 2% as compared with the prior year period. In addition, the Company generated operating income of $67.9 million, a decrease of less than 1%; adjusted operating income of $74.4 million, a decrease of less than 1%; and net income of $35.0 million, a decrease of 19%; all as compared with the prior year period.(1)

President and CEO Andrea Greenberg said, "We experienced strong engagement and advertising results during our fiscal first quarter tied to the return of live sports to our networks, which we believe firmly underscores the importance of our live local sports content and the value it delivers to our affiliates, advertisers and fans. While we await the start of the 2020-21 NBA and NHL seasons, we continue to introduce new content to engage our viewers, while we navigate the ever-changing media landscape which remains impacted by the ongoing COVID-19 pandemic."

Fiscal Year 2021 First Quarter Results

(In thousands, except per share data)

Three Months Ended

September 30,

2020

Revenues

$

157,363

Operating income

67,936

Adjusted operating income

74,391

Net Income

35,011

Diluted EPS

$

0.61

(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 first quarter total revenues of $157.4 million decreased 2%, or $3.6 million, as compared with the prior year period. Affiliation fee revenue decreased $7.2 million, primarily due to the impact of a decrease in subscribers of approximately 8.5% and, to a lesser extent, an unfavorable $1.0 million affiliate adjustment recorded in the current year quarter. This was partially offset by the impact of higher affiliation rates and, to a lesser extent, the absence of an unfavorable $0.7 million affiliate adjustment recorded in the prior year quarter.

Advertising revenue increased $3.6 million due to the New York Rangers’ and Islanders’ participation in the 2019-20 NHL return to play.

Direct operating expenses of $65.1 million decreased 5%, or $3.6 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 due to a reduction in media rights fees related to the 2019-20 NHL season, partially offset by annual contractual rate increases.

Selling, general and administrative expenses of $22.5 million increased 1%, or $0.2 million, as compared with the prior year period, primarily due to higher advertising sales commissions, partially offset by lower professional fees. The decrease in professional fees reflects the absence of $1.0 million in expenses recorded in the prior year period that were not indicative of the Company's core expense base, partially offset by other net increases.

Operating income of $67.9 million and adjusted operating income of $74.4 million both decreased $0.3 million, or less than 1%, as compared with the prior year period, primarily due to the decrease in revenues and, to a lesser extent, higher selling, general and administrative expenses, largely offset by lower 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.

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 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 Statements

This 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.

Conference Call Information:
The conference call will be Webcast today at 10:00 a.m. ET at investor.msgnetworks.com
Conference call dial-in number is 877-883-0832 / Conference ID Number 4877072
Conference call replay number is 855-859-2056 / Conference ID Number 4877072 until November 9, 2020

MSG NETWORKS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended

September 30,

2020

2019

Revenues

$

157,363

$

160,981

Direct operating expenses

65,072

68,660

Selling, general and administrative expenses

22,527

22,320

Depreciation and amortization

1,828

1,727

Operating income

67,936

68,274

Other income (expense):

Interest income

477

1,928

Interest expense

(5,219)

(10,815)

Other components of net periodic benefit cost

(207)

(258)

(4,949)

(9,145)

Income from operations before income taxes

62,987

59,129

Income tax expense

(27,976)

(16,062)

Net income

$

35,011

$

43,067

Earnings per share:

Basic

$

0.61

$

0.57

Diluted

$

0.61

$

0.57

Weighted-average number of common shares outstanding:

Basic

57,158

75,063

Diluted

57,378

75,464

MSG NETWORKS INC.
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

September 30,

2020

2019

Operating income

$

67,936

$

68,274

Share-based compensation expense

4,627

4,659

Depreciation and amortization

1,828

1,727

Adjusted operating income

$

74,391

$

74,660

MSG NETWORKS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

September 30,
2020

June 30,
2020

(unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

254,380

$

196,837

Accounts receivable, net

103,251

105,549

Related party receivables, net

8,860

14,190

Prepaid income taxes

518

461

Prepaid expenses

7,587

11,063

Other current assets

4,157

4,541

Total current assets

378,753

332,641

Property and equipment, net

8,395

8,758

Amortizable intangible assets, net

29,418

30,283

Goodwill

424,508

424,508

Operating lease right-of-use assets

15,779

17,153

Other assets

36,703

37,460

Total assets

$

893,556

$

850,803

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:

Accounts payable

$

579

$

2,115

Related party payables

2,272

1,472

Current portion of long-term debt

42,731

37,229

Current portion of operating lease liabilities

5,469

5,492

Income taxes payable

11,330

641

Accrued liabilities:

Employee related costs

7,667

14,187

Other accrued liabilities

12,115

10,116

Deferred revenue

2,317

2,753

Total current liabilities

84,480

74,005

Long-term debt, net of current portion

1,031,721

1,043,780

Long-term operating lease liabilities

12,318

13,780

Defined benefit and other postretirement obligations

25,287

25,860

Other employee related costs

5,630

5,149

Other liabilities

1,535

1,536

Deferred tax liability

248,287

239,542

Total liabilities

1,409,258

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 September 30, 2020 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 September 30, 2020 and June 30, 2020

136

136

Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding

Additional paid-in capital

7,948

12,731

Treasury stock, at cost, 20,799 and 21,137 shares as of September 30, 2020 and June 30, 2020, respectively

(450,053)

(457,363)

Accumulated deficit

(66,261)

(100,792)

Accumulated other comprehensive loss

(8,115)

(8,204)

Total stockholders' deficiency

(515,702)

(552,849)

Total liabilities and stockholders' deficiency

$

893,556

$

850,803

MSG NETWORKS INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(Dollars in thousands)

(Unaudited)

Summary Data from the Statements of Cash Flows

Three Months Ended

September 30,

2020

2019

Net cash provided by operating activities

$

68,259

$

57,149

Net cash used in investing activities

(1,741)

(1,233)

Net cash provided by (used in) financing activities

(8,975)

78,024

Net increase in cash and cash equivalents

57,543

133,940

Cash and cash equivalents at beginning of period

196,837

226,423

Cash and cash equivalents at end of period

$

254,380

$

360,363

Free Cash Flow

Three Months Ended

September 30,

2020

2019

Net cash provided by operating activities

$

68,259

$

57,149

Less: Capital expenditures

(1,741)

(1,233)

Free cash flow

$

66,518

$

55,916

Capitalization

September 30,

2020

Cash and cash equivalents

$

254,380

Credit facility debt(a)

1,079,375

Net debt

$

824,995

Reconciliation of operating income to AOI for the trailing twelve-month period(b)

Operating Income

$

294,630

Share-based compensation expense

19,203

Depreciation and amortization

7,264

Adjusted operating income

$

321,097

Leverage ratio(c)

2.6x

(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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201102005200/en/

Contacts

Kimberly Kerns
Communications
(212) 465-6442

Ari Danes, CFA
Investor Relations
(212) 465-6072