MSG Networks Inc. (NYSE: MSGN) today reported financial results for
the fiscal 2020 first quarter ended September 30, 2019.
For the fiscal 2020 first quarter, MSG Networks
Inc. generated revenues of $161.0 million, a decrease of 2% as
compared with the prior year period. In addition, the Company
generated operating income of $68.3 million, a decrease of 13%;
adjusted operating income of $74.7 million, a decrease of 12%; and
net income of $43.1 million, a decrease of 8%; all as compared with
the prior year period.(1)
President and CEO Andrea Greenberg said, "While
the media landscape is clearly evolving, we believe our exclusive
live sports content continues to be very valuable to the
distributors, advertisers and viewers we serve. Our recent
repurchase of a significant number of our outstanding shares
demonstrates not only our opportunistic approach to utilizing our
substantial free cash flow to create value for shareholders but
also the confidence we have in our long-term outlook."
|
|
Fiscal Year 2020 First
Quarter Results |
|
(In thousands, except per share data) |
Three Months Ended |
|
September 30, |
|
2019 |
Revenues |
$ |
160,981 |
|
Operating income |
68,274 |
|
Adjusted operating income |
$ |
74,660 |
|
Net Income |
43,067 |
|
Diluted EPS |
$ |
0.57 |
|
(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 first quarter total revenues of
$161.0 million decreased 2%, or $3.5 million, as compared with the
prior year period. Affiliation fee revenue decreased $2.1
million, primarily due to the impact of a decrease in subscribers
of 7% and, to a lesser extent, an unfavorable $0.7 million
affiliate adjustment recorded in the current year quarter,
partially offset by the impact of higher affiliation rates.
Advertising revenue decreased $0.6 million, primarily due to a
lower net decrease in deferred revenue related to ratings
guarantees. Other revenues decreased $0.7 million, due to the
absence in the current year quarter of $0.7 million in fees related
to Fuse Media.
Direct operating expenses of $68.7 million
increased 3%, or $2.0 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.
Selling, general and administrative expenses of
$22.3 million increased 32%, or $5.4 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 overall increase includes $1.0 million
in expenses in the current year quarter that are not indicative of
the Company's core expense base.
Operating income of $68.3 million decreased 13%,
or $10.6 million, as compared with the prior year period, primarily
due to higher selling, general and administrative expenses
(including share-based compensation expense), the decrease in
revenues and, to a lesser extent, higher direct operating
expenses.
Adjusted operating income of $74.7 million
decreased 12%, or $9.9 million, as compared with the prior year
period, primarily due to higher selling, general and administrative
expenses (excluding share-based compensation expense), the decrease
in revenues and, to a lesser extent, higher direct operating
expenses. Excluding the impact of the $1.0 million in expenses that
are not indicative of the Company's core expense base, the $0.7
million unfavorable affiliate adjustment and the absence of $0.7
million in Fuse Media fees, fiscal 2020 first quarter adjusted
operating income would have decreased 9%, or $7.6 million, as
compared with the prior year quarter.
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
www.msgnetworks.comConference call dial-in number is 877-883-0832 /
Conference ID Number 9574737Conference call replay number is
855-859-2056 / Conference ID Number 9574737 until November 14,
2019
CONSOLIDATED STATEMENTS OF
OPERATIONS(In thousands, except per share
data)(Unaudited)
|
Three Months Ended |
|
September 30, |
|
2019 |
|
2018 |
Revenues |
$ |
160,981 |
|
|
$ |
164,464 |
|
Direct operating expenses |
68,660 |
|
|
66,655 |
|
Selling, general and
administrative expenses |
22,320 |
|
|
16,903 |
|
Depreciation and
amortization |
1,727 |
|
|
2,045 |
|
Operating income |
68,274 |
|
|
78,861 |
|
Other income (expense): |
|
|
|
Interest income |
1,928 |
|
|
1,592 |
|
Interest expense |
(10,815 |
) |
|
(11,922 |
) |
Other components of net periodic benefit cost |
(258 |
) |
|
(405 |
) |
|
(9,145 |
) |
|
(10,735 |
) |
Income from operations before
income taxes |
59,129 |
|
|
68,126 |
|
Income tax expense |
(16,062 |
) |
|
(21,196 |
) |
Net income |
$ |
43,067 |
|
|
$ |
46,930 |
|
|
|
|
|
Earnings per share: |
|
|
|
Basic |
$ |
0.57 |
|
|
$ |
0.63 |
|
Diluted |
$ |
0.57 |
|
|
$ |
0.62 |
|
Weighted-average number of
common shares outstanding: |
|
|
|
Basic |
75,063 |
|
|
74,895 |
|
Diluted |
75,464 |
|
|
75,693 |
|
|
|
|
|
|
|
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 |
|
September 30, |
|
2019 |
|
2018 |
Operating income |
$ |
68,274 |
|
|
$ |
78,861 |
|
Share-based compensation
expense |
4,659 |
|
|
3,676 |
|
Depreciation and
amortization |
1,727 |
|
|
2,045 |
|
Adjusted operating income |
$ |
74,660 |
|
|
$ |
84,582 |
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE
SHEETS(In thousands, except per share
data)
|
September 30, 2019 |
|
June 30, 2019 |
|
(unaudited) |
|
|
ASSETS |
|
|
|
Current Assets: |
|
|
|
Cash and cash equivalents |
$ |
360,363 |
|
|
$ |
226,423 |
|
Accounts receivable, net |
107,988 |
|
|
108,349 |
|
Related party receivables, net |
2,549 |
|
|
16,091 |
|
Prepaid income taxes |
3,545 |
|
|
1,968 |
|
Prepaid expenses |
2,950 |
|
|
2,003 |
|
Other current assets |
4,552 |
|
|
5,286 |
|
Total current assets |
481,947 |
|
|
360,120 |
|
Property and equipment, net |
9,031 |
|
|
9,302 |
|
Amortizable intangible assets,
net |
32,878 |
|
|
33,743 |
|
Goodwill |
424,508 |
|
|
424,508 |
|
Operating lease right-of-use
assets |
15,095 |
|
|
— |
|
Other assets |
38,472 |
|
|
39,226 |
|
Total assets |
$ |
1,001,931 |
|
|
$ |
866,899 |
|
LIABILITIES AND
STOCKHOLDERS' DEFICIENCY |
|
|
|
Current Liabilities: |
|
|
|
Accounts payable |
$ |
412 |
|
|
$ |
907 |
|
Related party payables |
996 |
|
|
941 |
|
Current portion of long-term debt |
23,065 |
|
|
111,789 |
|
Current portion of operating lease liabilities |
4,926 |
|
|
— |
|
Income taxes payable |
7,898 |
|
|
— |
|
Share repurchase obligation |
253,078 |
|
|
— |
|
Accrued liabilities: |
|
|
|
Employee related costs |
7,350 |
|
|
15,466 |
|
Other accrued liabilities |
6,770 |
|
|
13,898 |
|
Deferred revenue |
907 |
|
|
185 |
|
Total current liabilities |
305,402 |
|
|
143,186 |
|
Long-term debt, net of current
portion |
1,076,849 |
|
|
906,228 |
|
Long-term operating lease
liabilities |
12,433 |
|
|
— |
|
Defined benefit and other
postretirement obligations |
24,485 |
|
|
25,834 |
|
Other employee related costs |
4,826 |
|
|
4,713 |
|
Other liabilities |
190 |
|
|
2,310 |
|
Deferred tax liability |
244,995 |
|
|
243,396 |
|
Total liabilities |
1,669,180 |
|
|
1,325,667 |
|
Commitments and
contingencies |
|
|
|
Stockholders' Deficiency: |
|
|
|
Class A Common Stock, par value $0.01, 360,000 shares
authorized; 61,540 and 61,287 shares outstanding as of September
30, 2019 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 September 30, 2019 and
June 30, 2019 |
136 |
|
|
136 |
|
Preferred stock, par value $0.01, 45,000 shares authorized; none
outstanding |
— |
|
|
— |
|
Additional paid-in capital |
— |
|
|
9,916 |
|
Treasury stock, at cost 2,719 and 2,972 shares as of
September 30, 2019 and June 30, 2019, respectively |
(417,691 |
) |
|
(179,561 |
) |
Accumulated deficit |
(242,946 |
) |
|
(282,414 |
) |
Accumulated other comprehensive loss |
(7,391 |
) |
|
(7,488 |
) |
Total stockholders' deficiency |
(667,249 |
) |
|
(458,768 |
) |
Total liabilities and stockholders' deficiency |
$ |
1,001,931 |
|
|
$ |
866,899 |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL FINANCIAL
INFORMATION(Dollars in
thousands)(Unaudited)
Summary Data from the Statements of Cash
Flows
|
Three Months Ended |
|
September 30, |
|
2019 |
|
2018 |
Net cash provided by operating activities |
$ |
57,149 |
|
|
$ |
62,978 |
|
Net cash used in investing
activities |
(1,233 |
) |
|
(830 |
) |
Net cash provided by (used in)
financing activities |
78,024 |
|
|
(97,408 |
) |
Net increase (decrease) in
cash and cash equivalents |
133,940 |
|
|
(35,260 |
) |
Cash and cash equivalents at
beginning of period |
226,423 |
|
|
205,343 |
|
Cash and cash equivalents at
end of period |
$ |
360,363 |
|
|
$ |
170,083 |
|
|
|
|
|
|
|
|
|
Free Cash Flow
|
Three Months Ended |
|
September 30, |
|
2019 |
|
2018 |
Net cash provided by operating activities |
$ |
57,149 |
|
|
$ |
62,978 |
|
Less: Capital
expenditures |
(1,233 |
) |
|
(830 |
) |
Free cash flow |
$ |
55,916 |
|
|
$ |
62,148 |
|
|
|
|
|
Capitalization
|
September 30, |
|
2019 |
Cash and cash equivalents |
$ |
360,363 |
|
Credit facility debt(a) |
1,102,500 |
|
Net debt |
$ |
742,137 |
|
|
|
Reconciliation of
operating income to AOI for trailing twelve-month
period(b) |
|
Operating Income |
$ |
299,312 |
|
Share-based compensation
expense |
19,070 |
|
Depreciation and
amortization |
7,080 |
|
Adjusted operating income |
$ |
325,462 |
|
|
|
Leverage ratio(c) |
2.3x |
|
|
(a) Represents
aggregate principal amount of the debt outstanding including
borrowings under the revolving credit facility. |
(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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