Feb 5, 2019

MSG Networks Inc. Reports Fiscal 2019 Second Quarter Results

Fiscal 2019 second quarter revenues of $192.9 million
Fiscal 2019 second quarter operating income of $78.4 million
Fiscal 2019 second quarter adjusted operating income of $85.8 million

NEW YORK, Feb. 05, 2019 (GLOBE NEWSWIRE) -- MSG Networks Inc. (NYSE: MSGN) today reported financial results for the fiscal second quarter ended December 31, 2018.

For the fiscal 2019 second quarter, MSG Networks Inc. generated revenues of $192.9 million, an increase of 6% as compared with the prior year period.  In addition, the Company generated operating income of $78.4 million, adjusted operating income of $85.8 million and net income of $43.8 million.(1)

President and CEO Andrea Greenberg said, "We delivered solid second quarter results, highlighted by increases in both affiliate and advertising revenues.  Our exclusive live sports programming drew increased interest from existing and new advertisers and advertising categories, and we continued to benefit from strong affiliate relationships and digital distribution.  Looking ahead, we remain focused on capitalizing on our unique live content to create long-term shareholder value."

Fiscal Year 2019 Second Quarter Results      
(In thousands, except per share data)

 
  Three Months Ended  
    December 31,  
    2018  
Revenues   $ 192,914    
Operating income   78,350    
Adjusted operating income   85,761    
Net Income   43,838    
Diluted EPS   $ 0.58    
       
  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 2019 second quarter total revenues of $192.9 million increased 6%, or $11.7 million, as compared with the prior year period.  Affiliation fee revenue increased $7.8 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 increased $3.5 million, primarily due to higher sales generated from live professional sports programming.  Other revenues increased $0.5 million as compared with the prior year period.

Direct operating expenses of $81.5 million increased 3%, or $2.6 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 $31.3 million increased 29%, or $7.0 million, as compared with the prior year period, primarily due to higher advertising and marketing costs, employee compensation and related benefits (including share-based compensation expense) and, to a lesser extent, higher advertising sales commissions.

Operating income of $78.4 million increased 4%, or $2.8 million, as compared with the prior year period, primarily due to the increase in revenues, partially offset by higher selling, general and administrative expenses (including share-based compensation expense) and, to a lesser extent, higher direct operating expenses.

Adjusted operating income of $85.8 million increased 4%, or $3.0 million, as compared with the prior year period, primarily due to the increase in revenues, partially offset by higher selling, general and administrative expenses (excluding share-based compensation expense) and, to a lesser extent, higher 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, with more than 150 New York Emmy Awards over the past 10 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 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
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 9083646
Conference call replay number is 855-859-2056 / Conference ID Number 9083646 until February 12, 2019

 
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
   
    Three Months Ended   Six Months Ended
    December 31,   December 31,
    2018   2017   2018   2017
Revenues    $ 192,914     $ 181,222     $ 357,378     $ 338,678  
Direct operating expenses    81,470     78,902     148,125     141,993  
Selling, general and administrative expenses    31,294     24,311     48,197     39,872  
Depreciation and amortization    1,800     2,423     3,845     4,874  
Operating income    78,350     75,586     157,211     151,939  
Other income (expense):                
Interest income    1,422     999     3,014     1,877  
Interest expense    (11,693 )   (10,242 )   (23,615 )   (20,885 )
Other components of net periodic benefit cost    (413 )   (407 )   (818 )   (814 )
    (10,684 )   (9,650 )   (21,419 )   (19,822 )
Income from operations before income taxes    67,666     65,936     135,792     132,117  
Income tax benefit (expense)    (23,828 )   89,632     (45,024 )   64,608  
Net income    $ 43,838     $ 155,568     $ 90,768     $ 196,725  
Earnings per share:                
Basic                
Net income    $ 0.58     $ 2.06     $ 1.21     $ 2.61  
Diluted                
Net income    $ 0.58     $ 2.05     $ 1.2     $ 2.6  
Weighted-average number of common shares outstanding:                
Basic    75,079     75,458     74,987     75,371  
Diluted    75,737     75,756     75,715     75,768  
   


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,
    2018   2017   2018   2017
Operating income    $ 78,350     $ 75,586     $ 157,211     $ 151,939  
Share-based compensation expense    5,611     4,798     9,287     7,719  
Depreciation and amortization    1,800     2,423     3,845     4,874  
Adjusted operating income    $ 85,761     $ 82,807     $ 170,343     $ 164,532  
   

 

 
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
         
    December 31,
 2018
  June 30,
 2018
ASSETS   (unaudited)    
Current Assets:      
Cash and cash equivalents   $ 174,624     $ 205,343  
Accounts receivable, net   108,960     110,657  
Related party receivables, net   20,788     12,100  
Prepaid income taxes   4,080     1,134  
Prepaid expenses   6,124     4,489  
Other current assets   5,910     4,719  
Total current assets   320,486     338,442  
Property and equipment, net   9,524     10,029  
Amortizable intangible assets, net   35,473     37,203  
Goodwill   424,508     424,508  
Other assets   40,422     39,430  
Total assets   $ 830,413     $ 849,612  
LIABILITIES AND STOCKHOLDERS' DEFICIENCY        
Current Liabilities:        
Accounts payable   $ 622     $ 1,460  
Related party payables   1,035     785  
Current portion of long-term debt   85,539     72,414  
Income taxes payable   6,027     8,460  
Accrued liabilities:        
Employee related costs   10,918     15,342  
Other accrued liabilities   9,600     8,129  
Deferred revenue   1,906     4,626  
Total current liabilities   115,647     111,216  
Long-term debt, net of current portion   993,685     1,118,017  
Defined benefit and other postretirement obligations   25,835     28,170  
Other employee related costs   4,771     4,560  
Other liabilities   4,063     3,974  
Deferred tax liability   248,444     241,417  
Total liabilities   1,392,445     1,507,354  
Commitments and contingencies        
Stockholders' Deficiency:        
Class A Common stock, par value $0.01, 360,000 shares authorized; 61,287 and 61,017 shares outstanding as of
December 31, 2018 and June 30, 2018, respectively
  643     643  
Class B Common stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of December 31, 2018 and June 30, 2018   136     136  
Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding        
Additional paid-in capital   1,116     4,067  
Treasury stock, at cost 2,972 and 3,242 shares as of December 31, 2018 and June 30, 2018, respectively   (179,561 )   (195,881 )
Accumulated deficit   (377,828 )   (460,007 )
Accumulated other comprehensive loss   (6,538 )   (6,700 )
Total stockholders' deficiency   (562,032 )   (657,742 )
Total liabilities and stockholders' deficiency   $ 830,413     $ 849,612  


SUPPLEMENTAL FINANCIAL INFORMATION 
(Dollars in thousands) 
(Unaudited) 
   
Summary Data from the Statements of Cash Flows  
    Six Months Ended
    December 31,
    2018   2017
Net cash provided by operating activities   $ 90,455     $ 101,972  
Net cash used in investing activities   (3,674 )   (871 )
Net cash used in financing activities   (117,500 )   (40,273 )
Net increase (decrease) in cash and cash equivalents   (30,719 )   60,828  
Cash and cash equivalents at beginning of period   205,343     141,087  
Cash and cash equivalents at end of period   $ 174,624     $ 201,915  
         
   

Free Cash Flow

  Six Months Ended
  December 31,
    2018
  2017
Net cash provided by operating activities    $ 90,455     $ 101,972  
Less: Capital expenditures   (1,674 )   (871 )
Free cash flow   $ 88,781     $ 101,101  
         

Capitalization

     
    December 31, 2018
         
Cash and cash equivalents   $ 174,624  
Credit facility debt(a)   1,083,750  
Net debt   $ 909,126  
     
Reconciliation of operating income to AOI for trailing twelve-month period(b)    
Operating Income   $ 318,430  
Share-based compensation expense   15,547  
Depreciation and amortization   8,309  
Adjusted operating income   $ 342,286  
     
Leverage ratio(c)         2.7x  
 
 
(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.

 

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Source: MSG Networks Inc.

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