MSGN MSG Networks Inc

Fiscal 2021 second quarter revenues of $146.2 million Fiscal 2021 second quarter operating income of $65.7 million Fiscal 2021 second quarter adjusted operating income of $73.8 million

MSG Networks Inc. (NYSE: MSGN) today reported financial results for the fiscal second quarter ended December 31, 2020.

Due to the COVID-19 pandemic, in March 2020, the 2019-20 NHL and NBA seasons were suspended. The leagues resumed play several months later, with the New York Rangers and Islanders participating in the NHL's return to play. The NHL and NBA subsequently completed their seasons in September and October 2020, respectively, which impacted each league’s 2020-21 regular season. The NBA started its regular season on December 22, 2020 with a reduced schedule of 72 games, while the NHL regular season began on January 13, 2021 and has been reduced to a 56-game schedule. In the fiscal 2021 second quarter, the Company aired nine NBA telecasts as compared with 181 NBA and NHL telecasts in the prior year period.

For the fiscal 2021 second quarter, MSG Networks Inc. generated revenues of $146.2 million, a decrease of 22% as compared with the prior year period. In addition, the Company generated operating income of $65.7 million, a decrease of 6%; adjusted operating income of $73.8 million, a decrease of 4%; and net income of $41.5 million, an increase of 4%; all as compared with the prior year period.(1)

President and CEO Andrea Greenberg said, “With the 2020-21 NBA and NHL seasons underway, our schedule is once again filled with sports content from our teams. Despite the daily challenges of producing live games during this pandemic, we've remained focused on our long-term strategic objectives, including capitalizing on new opportunities to engage with fans.”

Fiscal Year 2021 Second Quarter Results

 

 

(In thousands, except per share data)

 

Three Months Ended

 

 

December 31,

 

 

2020

Revenues

 

$

146,239

 

Operating income

 

65,712

 

Adjusted operating income

 

73,780

 

Net Income

 

41,523

 

Diluted EPS

 

$

0.72

 

(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 second quarter total revenues of $146.2 million decreased 22%, or $41.5 million, as compared with the prior year period. Affiliation fee revenue decreased $16.1 million, primarily due to the impact of a decrease in subscribers of approximately 7.5% and, to a lesser extent, unfavorable affiliate adjustments of $4.9 million recorded in the current year quarter, the absence of a $2.3 million favorable affiliate adjustment recorded in the prior year quarter and 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 higher affiliation rates.

Advertising revenue decreased $24.4 million primarily due to the delayed start of the 2020-21 NBA and NHL regular seasons, resulting in nine NBA telecasts in the fiscal 2021 second quarter compared with a regular NBA and NHL telecast schedule in the prior year period.

Other revenues decreased $1.0 million primarily due to the delayed start of the 2020-21 NBA and NHL regular seasons.

Direct operating expenses of $57.0 million decreased 32%, or $27.0 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 the NHL’s shortened 56-game schedule for the 2020-21 regular season and, to a lesser extent, the impact of the delayed start of the 2020-21 NBA and NHL regular seasons, partially offset by the impact of annual contractual rate increases. The decrease in other programming and production-related costs primarily reflects the impact of the delayed start of the 2020-21 NBA and NHL regular seasons.

Selling, general and administrative expenses of $21.7 million decreased 32%, or $10.3 million, as compared with the prior year period, primarily due to lower advertising sales commissions and advertising and marketing expenses.

Operating income of $65.7 million decreased $4.3 million, or 6%, and adjusted operating income of $73.8 million decreased $3.3 million, or 4%, both as compared with the prior year period, primarily due to the decrease in revenues, largely offset by the decrease in direct operating expenses and, to a lesser extent, the decrease in selling, general and administrative 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 7.5% 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.

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 7719946 Conference call replay number is 855-859-2056 / Conference ID Number 7719946 until February 11, 2021

MSG NETWORKS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

December 31,

 

December 31,

 

 

2020

 

2019

 

2020

 

2019

Revenues

 

$

146,239

 

 

$

187,730

 

 

$

303,602

 

 

$

348,711

 

Direct operating expenses

 

57,033

 

 

84,065

 

 

122,105

 

 

152,725

 

Selling, general and administrative expenses

 

21,692

 

 

32,022

 

 

44,219

 

 

54,342

 

Depreciation and amortization

 

1,802

 

 

1,680

 

 

3,630

 

 

3,407

 

Operating income

 

65,712

 

 

69,963

 

 

133,648

 

 

138,237

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

488

 

 

906

 

 

965

 

 

2,834

 

Interest expense

 

(5,143

)

 

(9,934

)

 

(10,362

)

 

(20,749

)

Debt refinancing expense

 

—

 

 

(2,764

)

 

—

 

 

(2,764

)

Other components of net periodic benefit cost

 

(206

)

 

(258

)

 

(413

)

 

(516

)

 

 

(4,861

)

 

(12,050

)

 

(9,810

)

 

(21,195

)

Income from operations before income taxes

 

60,851

 

 

57,913

 

 

123,838

 

 

117,042

 

Income tax expense

 

(19,328

)

 

(17,949

)

 

(47,304

)

 

(34,011

)

Net income

 

$

41,523

 

 

$

39,964

 

 

$

76,534

 

 

$

83,031

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.72

 

 

$

0.66

 

 

$

1.34

 

 

$

1.23

 

Diluted

 

$

0.72

 

 

$

0.66

 

 

$

1.33

 

 

$

1.22

 

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

57,415

 

 

60,452

 

 

57,287

 

 

67,758

 

Diluted

 

57,721

 

 

60,825

 

 

57,550

 

 

68,144

 

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

 

Six Months Ended

 

 

December 31,

 

December 31,

 

 

2020

 

2019

 

2020

 

2019

Operating income

 

$

65,712

 

 

$

69,963

 

 

$

133,648

 

 

$

138,237

 

Share-based compensation expense

 

6,266

 

 

5,440

 

 

10,893

 

 

10,099

 

Depreciation and amortization

 

1,802

 

 

1,680

 

 

3,630

 

 

3,407

 

Adjusted operating income

 

$

73,780

 

 

$

77,083

 

 

$

148,171

 

 

$

151,743

 

MSG NETWORKS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

 

December 31, 2020

 

June 30, 2020

 

 

(unaudited)

 

 

ASSETS

 

 

 

 

Current Assets:

 

 

 

 

Cash and cash equivalents

 

$

283,660

 

 

 

$

196,837

 

 

Accounts receivable, net

 

95,526

 

 

 

105,549

 

 

Related party receivables, net

 

6,978

 

 

 

14,190

 

 

Prepaid income taxes

 

225

 

 

 

461

 

 

Prepaid expenses

 

20,010

 

 

 

11,063

 

 

Other current assets

 

4,150

 

 

 

4,541

 

 

Total current assets

 

410,549

 

 

 

332,641

 

 

Property and equipment, net

 

7,912

 

 

 

8,758

 

 

Amortizable intangible assets, net

 

28,553

 

 

 

30,283

 

 

Goodwill

 

424,508

 

 

 

424,508

 

 

Operating lease right-of-use assets

 

14,538

 

 

 

17,153

 

 

Other assets

 

35,641

 

 

 

37,460

 

 

Total assets

 

$

921,701

 

 

 

$

850,803

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

 

 

 

 

Current Liabilities:

 

 

 

 

Accounts payable

 

$

309

 

 

 

$

2,115

 

 

Related party payables

 

2,203

 

 

 

1,472

 

 

Current portion of long-term debt

 

48,234

 

 

 

37,229

 

 

Current portion of operating lease liabilities

 

5,405

 

 

 

5,492

 

 

Income taxes payable

 

2,438

 

 

 

641

 

 

Accrued liabilities:

 

 

 

 

Employee related costs

 

10,159

 

 

 

14,187

 

 

Other accrued liabilities

 

7,716

 

 

 

10,116

 

 

Deferred revenue

 

2,172

 

 

 

2,753

 

 

Total current liabilities

 

78,636

 

 

 

74,005

 

 

Long-term debt, net of current portion

 

1,019,660

 

 

 

1,043,780

 

 

Long-term operating lease liabilities

 

11,037

 

 

 

13,780

 

 

Defined benefit and other postretirement obligations

 

25,208

 

 

 

25,860

 

 

Other employee related costs

 

5,470

 

 

 

5,149

 

 

Other liabilities

 

1,498

 

 

 

1,536

 

 

Deferred tax liability

 

248,064

 

 

 

239,542

 

 

Total liabilities

 

1,389,573

 

 

 

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 December 31, 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 December 31, 2020 and June 30, 2020

 

136

 

 

 

136

 

 

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

 

—

 

 

 

—

 

 

Additional paid-in capital

 

14,166

 

 

 

12,731

 

 

Treasury stock, at cost, 20,799 and 21,137 shares as of December 31, 2020 and June 30, 2020, respectively

 

(450,053

)

 

 

(457,363

)

 

Accumulated deficit

 

(24,738

)

 

 

(100,792

)

 

Accumulated other comprehensive loss

 

(8,026

)

 

 

(8,204

)

 

Total stockholders' deficiency

 

(467,872

)

 

 

(552,849

)

 

Total liabilities and stockholders' deficiency

 

$

921,701

 

 

 

$

850,803

 

 

MSG NETWORKS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

Summary Data from the Statements of Cash Flows

 

 

 

Six Months Ended

 

 

December 31,

 

 

2020

 

2019

Net cash provided by operating activities

 

$

105,254

 

 

$

74,021

 

Net cash used in investing activities

 

(2,533

)

 

(1,758

)

Net cash used in financing activities

 

(15,898

)

 

(182,772

)

Net increase (decrease) in cash and cash equivalents

 

86,823

 

 

(110,509

)

Cash and cash equivalents at beginning of period

 

196,837

 

 

226,423

 

Cash and cash equivalents at end of period

 

$

283,660

 

 

$

115,914

 

Free Cash Flow

 

 

Six Months Ended

 

 

December 31,

 

 

2020

 

2019

Net cash provided by operating activities

 

$

105,254

 

 

$

74,021

 

Less: Capital expenditures

 

(2,533

)

 

(1,758

)

Free cash flow

 

$

102,721

 

 

$

72,263

 

 

 

 

 

 

Capitalization

 

 

December 31,

 

 

2020

Cash and cash equivalents

 

$

283,660

 

Credit facility debt(a)

 

1,072,500

 

Net debt

 

$

788,840

 

 

 

 

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

 

 

Operating Income

 

$

290,379

 

Share-based compensation expense

 

20,029

 

Depreciation and amortization

 

7,386

 

Adjusted operating income

 

$

317,794

 

 

 

 

Leverage ratio(c)

 

2.5x

 

 

 

(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/20210204005429/en/

Kimberly Kerns Communications (212) 465-6442

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