Nov 2, 2017

MSG Networks Inc. Reports Fiscal 2018 First Quarter Results

Fiscal 2018 first quarter revenues of $157.5 million
Fiscal 2018 first quarter operating income of $76.4 million
Fiscal 2018 first quarter adjusted operating income of $81.7 million

NEW YORK, Nov. 02, 2017 (GLOBE NEWSWIRE) -- MSG Networks Inc. (NYSE:MSGN) today reported financial results for the fiscal first quarter ended September 30, 2017. 

For the fiscal 2018 first quarter, MSG Networks Inc. generated revenues of $157.5 million, an increase of 3% as compared with the prior year period.  In addition, the Company generated operating income of $76.4 million, adjusted operating income of $81.7 million and income from continuing operations of $41.2 million.(1)(2)

President and CEO Andrea Greenberg said, "We are pleased with our start to fiscal 2018 as we remain committed to building on last year's financial, strategic and operational successes.  We delivered solid financial results for our fiscal first quarter, a testament to the continued strength of our highly sought-after live content, as well as our ongoing focus on operational excellence.  We also made significant strides in expanding our digital presence - achieving distribution of MSG GO with all our major affiliates and completing digital distribution agreements with two OTT operators.  Looking ahead, we are confident that we can continue to generate meaningful revenue and adjusted operating income and create long-term value for our shareholders."

Fiscal Year 2018 First Quarter Results      
(In thousands, except per share data)

 
  Three Months Ended  
    September 30,  
    2017  
Revenues   $ 157,456    
Operating income   76,353    
Adjusted operating income   81,725    
Income from continuing operations   41,157    
Diluted EPS from continuing operations   $ 0.54    
       

1. See page 3 of this earnings release for the definition of adjusted operating income included in the discussion of non-GAAP financial measures.
2. In the first quarter of fiscal year 2018, the Company adopted ASU No. 2017-07.  The adoption of this standard resulted in the non-service cost components of net periodic benefit cost to be presented separately in the income statement from the service cost component and the non-service cost components to no longer be included in the subtotal for operating income.  As this standard was applied retrospectively, the Company reclassified $0.4 million of net periodic benefit cost from selling, general and administrative expenses and direct operating expenses to a separate line item within other income (expense) in the accompanying consolidated statement of operations for the three months ended September 30, 2016.  Furthermore, all prior period amounts presented throughout this release reflect reclassifications made as a result of the adoption of ASU No. 2017-07.

Summary of Reported Results from Continuing Operations
Fiscal 2018 first quarter total revenues of $157.5 million increased 3%, or $3.9 million, as compared with the prior year period.  Affiliation fee revenue increased $3.8 million, primarily due to higher affiliation rates, partially offset by the impact of a low single-digit percentage decrease in subscribers versus the prior year period.  Advertising revenue decreased $0.1 million, while other revenues increased $0.2 million as compared with the prior year period.    

Direct operating expenses of $63.1 million increased 4%, or $2.3 million, as compared with the prior year period.  The increase was primarily due to higher rights fees expense.

Selling, general and administrative expenses of $15.6 million increased 2%, or $0.3 million, as compared with the prior year period, primarily due to higher employee compensation and related benefits, partially offset by lower advertising and marketing costs and professional fees. 

Operating income of $76.4 million increased 2%, or $1.4 million, as compared with the prior year period, primarily due to the increase in revenues, partially offset by higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses (including share-based compensation expense). 

Adjusted operating income of $81.7 million increased 3% or $2.4 million, as compared with the prior year period, primarily due to higher revenues and, to a lesser extent, lower selling, general and administrative expenses (excluding share-based compensation expense), partially offset by higher direct operating expenses. 

About MSG Networks Inc.
An industry leader in sports production, and content development and distribution, MSG Networks Inc. owns and operates two award-winning regional sports and entertainment networks, MSG Network (MSG) and MSG+, and a live streaming and video on demand platform, MSG GO. The networks are home to 10 professional sports teams, delivering live games of the New York Knicks; New York Rangers; New York Islanders; New Jersey Devils; Buffalo Sabres; New York Liberty; New York Red Bulls and the Westchester Knicks, as well as coverage of the New York Giants and Buffalo Bills.  Each year, MSG and MSG+ collectively telecast approximately 500 live professional games, along with a comprehensive lineup of other sporting events, including college football and basketball, and critically-acclaimed original programming.  The gold standard for regional broadcasting, MSG Networks has won 162 New York Emmy Awards over the past ten years.

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 from continuing operations less capital expenditures, both of which are reported in our Consolidated Statement of Cash Flows.  Net cash provided by operating activities from continuing operations excludes net cash provided by operating activities of discontinued operations. 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 from continuing operations, 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
Communications
(212) 465-6442
Ari Danes, CFA
Investor Relations
(212) 465-6072
 

Conference Call Information:
The conference call will be Webcast live today at 10:00 a.m. ET at www.msgnetworks.com
Conference call dial-in number is 877-883-0832 / Conference ID Number 98595302
Conference call replay number is 855-859-2056 / Conference ID Number 98595302 until November 9, 2017


CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
    Three Months Ended
    September 30,
    2017   2016
Revenues   $ 157,456     $ 153,578  
Direct operating expenses   63,091     60,775  
Selling, general and administrative expenses   15,561     15,298  
Depreciation and amortization   2,451     2,578  
Operating income   76,353     74,927  
Other income (expense):        
Interest income   878     627  
Interest expense   (10,643 )   (9,515 )
Other components of net periodic benefit cost   (407 )   (420 )
    (10,172 )   (9,308 )
Income from continuing operations before income taxes   66,181     65,619  
Income tax expense   (25,024 )   (25,258 )
Income from continuing operations   41,157     40,361  
Loss from discontinued operations, net of taxes       (120 )
Net income   $ 41,157     $ 40,241  
Earnings per share:        
Basic        
Income from continuing operations   $ 0.55     $ 0.54  
Loss from discontinued operations        
Net income   $ 0.55     $ 0.54  
Diluted        
Income from continuing operations   $ 0.54     $ 0.54  
Loss from discontinued operations        
Net income   $ 0.54     $ 0.53  
Weighted-average number of common shares outstanding:        
Basic   75,285     75,103  
Diluted   75,779     75,412  


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,
    2017   2016
Operating income   $ 76,353     $ 74,927  
Share-based compensation expense   2,921     1,776  
Depreciation and amortization   2,451     2,578  
Adjusted operating income   $ 81,725     $ 79,281  

 

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 
    September 30,
 2017
  June 30,
 2017
ASSETS   (unaudited)    
Current Assets:        
Cash and cash equivalents   $ 172,948     $ 141,087  
Accounts receivable, net   105,725     105,030  
Net related party receivable   7,087     17,153  
Prepaid income taxes   10,191     14,322  
Prepaid expenses   5,105     6,468  
Other current assets   2,311     2,343  
Total current assets   303,367     286,403  
Property and equipment, net   10,431     11,828  
Amortizable intangible assets, net   39,798     40,663  
Goodwill   424,508     424,508  
Other assets   41,416     41,642  
Total assets   $ 819,520     $ 805,044  
LIABILITIES AND STOCKHOLDERS' DEFICIENCY        
Current Liabilities:        
Accounts payable   $ 590     $ 1,241  
Net related party payable   3,384     2,963  
Current portion of long-term debt   72,414     72,414  
Income taxes payable   11,241     11,483  
Accrued liabilities:        
Employee related costs   7,659     14,238  
Other accrued liabilities   9,644     10,050  
Deferred revenue   5,354     5,071  
Total current liabilities   110,286     117,460  
Long-term debt, net of current portion   1,222,328     1,240,431  
Defined benefit and other postretirement obligations   28,873     29,979  
Other employee related costs   3,948     3,930  
Other liabilities   5,565     5,597  
Deferred tax liability   351,246     351,854  
Total liabilities   1,722,246     1,749,251  
Commitments and contingencies        
Stockholders' Deficiency:        
Class A Common stock, par value $0.01, 360,000 shares authorized; 61,648 and 61,497 shares outstanding as of
September 30, 2017 and June 30, 2017, respectively
  643     643  
Class B Common stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of September 30, 2017 and June 30, 2017   136     136  
Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding        
Additional paid-in capital       6,909  
Treasury stock, at cost, 2,611 and 2,762 shares as of September 30, 2017 and June 30, 2017, respectively   (187,931 )   (198,800 )
Accumulated deficit   (709,103 )   (746,539 )
Accumulated other comprehensive loss   (6,471 )   (6,556 )
Total stockholders' deficiency   (902,726 )   (944,207 )
Total liabilities and stockholders' deficiency   $ 819,520     $ 805,044  


SUPPLEMENTAL FINANCIAL INFORMATION
(Dollars in thousands)
(Unaudited)
 
Summary Data from the Statements of Cash Flows
 
    Three Months Ended
    September 30,
    2017   2016
Net cash provided by operating activities from continuing operations   $ 52,419     $ 50,824  
Net cash used in investing activities from continuing operations   (484 )   (1,726 )
Net cash used in financing activities from continuing operations   (20,074 )   (12,252 )
Net cash provided by continuing operations   31,861     36,846  
Net cash used in discontinued operations       (939 )
Cash and cash equivalents at beginning of period   141,087     119,568  
Cash and cash equivalents at end of period   $ 172,948     $ 155,475  
         

Free Cash Flow

    Three Months Ended
    September 30,
    2017   2016
Net cash provided by operating activities from continuing operations   $ 52,419     $ 50,824  
Less: Capital expenditures   (484 )   (1,726 )
Free cash flow   $ 51,935     $ 49,098  
         

Capitalization

     
    September 30, 2017
     
Cash and cash equivalents   $ 172,948  
Credit facility debt(a)   1,302,500  
Net debt   $ 1,129,552  
     
Reconciliation of operating income to AOI for trailing twelve-month period(b)    
Operating Income   $ 316,323  
Share-based compensation expense   $ 11,076  
Depreciation and amortization   $ 10,169  
Adjusted operating income   $ 337,568  
     
Leverage ratio(c)   3.3x
     
(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 annualized adjusted operating income, which differs from the covenant calculation contained in the Company's credit facility.

 

Source: MSG Networks Inc.

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