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MSG Networks Inc. Reports Fourth Quarter and Fiscal 2020 Results

·13 min read

Fiscal 2020 fourth quarter revenues of $152.1 million
Fiscal 2020 fourth quarter operating income of $83.1 million
Fiscal 2020 fourth quarter adjusted operating income of $90.5 million

NEW YORK, Aug. 13, 2020 (GLOBE NEWSWIRE) -- MSG Networks Inc. (NYSE: MSGN) today reported financial results for the fourth quarter and fiscal year ended June 30, 2020.

For the fiscal 2020 fourth quarter, MSG Networks Inc. generated revenues of $152.1 million, a decrease of 10% as compared with the prior year quarter. In addition, the Company generated operating income of $83.1 million, an increase of 18%, adjusted operating income of $90.5 million, an increase of 18%, and net income of $55.9 million, an increase of 36%, all as compared with the prior year quarter.(1)

For fiscal 2020, MSG Networks Inc. generated revenues of $685.8 million, a decrease of 5% as compared with the prior year. In addition, the Company generated operating income of $295.0 million, a decrease of 5%, adjusted operating income of $321.4 million, a decrease of 4%, and net income of $185.2 million, a decrease of 1%, all as compared with the prior year.

President and CEO Andrea Greenberg said, “The impact of the COVID-19 pandemic is being felt by virtually every business around the world. Yet despite its effects, we have continued to accomplish many of our key goals, while engaging fans with compelling programming on our two 24/7 networks. During fiscal 2020, we successfully renewed two major affiliate agreements, grew non-ratings based advertising revenue, strengthened our balance sheet and generated substantial free cash flow. As we continue to navigate the challenges of the pandemic as well as the evolving media landscape, we remain confident in the importance of our live professional sports content and the value it delivers for our affiliates, advertisers and viewers.”


Fiscal Year 2020 Fourth Quarter and Annual Results

(In thousands, except per share data)

Three Months Ended

Twelve Months Ended

June 30,

June 30,

2020

2020

Revenues

$

152,114

$

685,797

Operating income

83,068

294,968

Adjusted operating income

90,491

321,366

Net Income

55,920

185,221

Diluted EPS

$

0.97

$

2.92


(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 Fiscal 2020 Fourth Quarter Results from Operations
Fiscal 2020 fourth quarter total revenues of $152.1 million decreased 10%, or $16.2 million, as compared with the prior year period. Affiliation fee revenue decreased $8.3 million, primarily due to the impact of a decrease in subscribers of approximately 8% and, to a lesser extent, an unfavorable $2.0 million net affiliate adjustment recorded in the current year quarter, partially offset by the impact of higher affiliation rates.

Advertising revenue decreased $7.2 million, as compared with the prior year period, primarily due to the absence of live professional sports telecasts (including playoff games) in the current year quarter due to the cancellation of games as a result of the shortened NBA and NHL 2019-20 seasons, as well as a lower net decrease in deferred revenue related to ratings guarantees, and other net decreases. Other revenues decreased $0.7 million as compared with the prior year period.

Direct operating expenses of $46.4 million decreased 34%, or $23.7 million, as compared with the prior year quarter. The decrease was primarily due to a reduction in rights fees expense due to the cancellation of games as a result of the shortened NBA and NHL 2019-20 seasons, partially offset by contractual rate increases.

Selling, general and administrative expenses of $20.7 million decreased 22%, or $5.7 million, as compared with the prior year quarter. This decrease reflects the absence of $3.6 million in expenses recorded in the prior year quarter that were not indicative of the Company's core expense base, as well as lower advertising and marketing costs and lower advertising sales commissions, partially offset by other net cost increases.

Operating income of $83.1 million increased 18%, or $12.9 million, as compared with the prior year quarter, primarily due to the decrease in direct operating expenses and, to a lesser extent, lower selling, general and administrative expenses (including share-based compensation expense), partially offset by the decrease in revenues.

Adjusted operating income of $90.5 million increased 18%, or $14.1 million, as compared with the prior year quarter, primarily due to the decrease in direct operating expenses and, to a lesser extent, lower selling, general and administrative expenses (excluding share-based compensation expense), partially offset by the decrease in revenues.

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.

Contacts:

Kimberly Kerns

Ari Danes, CFA

Communications

Investor Relations

(212) 465-6442

(212) 465-6072


Conference Call Information:
The conference call will be Webcast live today at 10:00 a.m. ET at investor.msgnetworks.com
Conference call dial-in number is 877-883-0832 / Conference ID Number 3798172
Conference call replay number is 855-859-2056 / Conference ID Number 3798172 until August 20, 2020




CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)
(Unaudited)

Three Months Ended

Twelve Months Ended

June 30,

June 30,

2020

2019

2020

2019

Revenues

$

152,114

$

168,362

$

685,797

$

720,845

Direct operating expenses

46,350

70,064

282,837

300,274

Selling, general and administrative expenses

20,656

26,343

100,829

103,274

Depreciation and amortization

2,040

1,748

7,163

7,398

Operating income

83,068

70,207

294,968

309,899

Other income (expense):

Interest income

500

1,772

4,234

6,343

Interest expense

(6,156

)

(12,316

)

(36,324

)

(47,589

)

Debt refinancing expense

(2,764

)

Other components of net periodic benefit cost

(256

)

1,475

(1,030

)

244

(5,912

)

(9,069

)

(35,884

)

(41,002

)

Income from operations before income taxes

77,156

61,138

259,084

268,897

Income tax expense

(21,236

)

(19,959

)

(73,863

)

(82,715

)

Net income

$

55,920

$

41,179

$

185,221

$

186,182

Earnings per share:

Basic

Net income

$

0.98

$

0.55

$

2.93

$

2.48

Diluted

Net income

$

0.97

$

0.54

$

2.92

$

2.46

Weighted-average number of common shares outstanding:

Basic

57,062

75,152

63,172

75,069

Diluted

57,357

75,764

63,515

75,731




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

Twelve Months Ended

June 30,

June 30,

2020

2019

2020

2019

Operating income

$

83,068

$

70,207

$

294,968

$

309,899

Share-based compensation expense

5,383

4,429

19,235

18,087

Depreciation and amortization

2,040

1,748

7,163

7,398

Adjusted operating income

$

90,491

$

76,384

$

321,366

$

335,384




CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

June 30,
2020

June 30,
2019

ASSETS

Current Assets:

Cash and cash equivalents

$

196,837

$

226,423

Accounts receivable, net

105,549

108,349

Related party receivables, net

14,190

16,091

Prepaid income taxes

461

1,968

Prepaid expenses

11,063

2,003

Other current assets

4,541

5,286

Total current assets

332,641

360,120

Property and equipment, net

8,758

9,302

Amortizable intangible assets, net

30,283

33,743

Goodwill

424,508

424,508

Operating lease right-of-use assets

17,153

Other assets

37,460

39,226

Total assets

$

850,803

$

866,899

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:

Accounts payable

$

2,115

$

907

Related party payables

1,472

941

Current portion of long-term debt

37,229

111,789

Current portion of operating lease liabilities

5,492

Income taxes payable

641

Accrued liabilities:

Employee related costs

14,187

15,466

Other accrued liabilities

10,116

13,898

Deferred revenue

2,753

185

Total current liabilities

74,005

143,186

Long-term debt, net of current portion

1,043,780

906,228

Long-term operating lease liabilities

13,780

Defined benefit and other postretirement obligations

25,860

25,834

Other employee related costs

5,149

4,713

Other liabilities

1,536

2,310

Deferred tax liability

239,542

243,396

Total liabilities

1,403,652

1,325,667

Commitments and contingencies

Stockholders' Deficiency:

Class A Common Stock, par value $0.01, 360,000 shares authorized; 43,122 and 61,287 shares outstanding as of June 30, 2020 and 2019, respectively

643

643

Class B Common Stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of June 30, 2020 and 2019

136

136

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

Additional paid-in capital

12,731

9,916

Treasury stock, at cost, 21,137 and 2,972 shares as of June 30, 2020 and 2019, respectively

(457,363

)

(179,561

)

Accumulated deficit

(100,792

)

(282,414

)

Accumulated other comprehensive loss

(8,204

)

(7,488

)

Total stockholders' deficiency

(552,849

)

(458,768

)

Total liabilities and stockholders' deficiency

$

850,803

$

866,899




SUPPLEMENTAL FINANCIAL INFORMATION

(Dollars in thousands)
(Unaudited)

Summary Data from the Statements of Cash Flows

Twelve Months Ended

June 30,

2020

2019

Net cash provided by operating activities

$

210,032

$

205,959

Net cash used in investing activities

(2,814

)

(4,879

)

Net cash used in financing activities

(236,804

)

(180,000

)

Net increase (decrease) in cash and cash equivalents

(29,586

)

21,080

Cash and cash equivalents at beginning of period

226,423

205,343

Cash and cash equivalents at end of period

$

196,837

$

226,423

Free Cash Flow

Twelve Months Ended

June 30,

2020

2019

Net cash provided by operating activities

$

210,032

$

205,959

Less: Capital expenditures

(2,814

)

(2,879

)

Free cash flow

$

207,218

$

203,080

Capitalization

June 30,

2020

Cash and cash equivalents

$

196,837

Credit facility debt(a)

1,086,250

Net debt

$

889,413

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

Operating Income

$

294,968

Share-based compensation expense

19,235

Depreciation and amortization

7,163

Adjusted operating income

$

321,366

Leverage ratio(c)

2.8x

(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 trailing twelve-month adjusted operating income, which differs from the covenant calculation contained in the Company's credit facility.