MSG Networks
May 4, 2016

MSG Networks Inc. Reports Fiscal 2016 Third Quarter Results

Fiscal 2016 third quarter revenues of $179.6 million
Fiscal 2016 third quarter AOCF of $87.8 million
Fiscal 2016 third quarter operating income of $84.1 million

NEW YORK, May 04, 2016 (GLOBE NEWSWIRE) -- MSG Networks Inc. (NYSE:MSGN) today reported financial results for the fiscal third quarter ended March 31, 2016

For the fiscal 2016 third quarter, MSG Networks Inc. generated revenues of $179.6 million, an increase of 6% as compared with the prior year period.  In addition, the Company generated adjusted operating cash flow ("AOCF") of $87.8 million, operating income of $84.1 million and income from continuing operations of $44.7 million.(1)

For the three months ended March 31, 2015, the reported financial results of MSG Networks Inc. reflect the results of the sports and entertainment businesses of The Madison Square Garden Company as discontinued operations.  Please note that results from continuing operations for the fiscal 2015 third quarter include certain corporate overhead expenses that MSG Networks Inc. did not incur in the fiscal 2016 third quarter and does not expect to incur in future periods, but do not meet the criteria for inclusion in discontinued operations.  The reported financial results of MSG Networks Inc. for the three months ended March 31, 2016 reflect the Company's results on a standalone basis, including the Company's actual corporate overhead. 

President and CEO Andrea Greenberg said, "For the third quarter, our compelling lineup of highly valuable, exclusive live sports content and other award-winning original programming drove strong results that included continued growth in affiliate revenue, and a strong increase in advertising revenue.  We are well on our way to delivering a substantial level of revenue and AOCF for the full fiscal year, and remain confident in our ability to create long-term value for our shareholders."

Fiscal Year 2016 Third Quarter Results   
(In thousands, except per share data)

 
 Three Months Ended 
  March 31, 
  2016 
Revenues $179,596  
Adjusted operating cash flow 87,766  
Operating income  84,087  
Income from continuing operations 44,710  
Diluted EPS from continuing operations $0.59  
    
    
  1. See definition of adjusted operating cash flow ("AOCF") included in the discussion of non-GAAP financial measures on page 3 of this earnings release.

Summary of Reported Results from Continuing Operations
Fiscal 2016 third quarter total revenues of $179.6 million increased 6%, or $10.6 million, as compared with the prior year period. Affiliation fee revenue increased $4.4 million, primarily due to higher affiliation rates and, to a lesser extent, the impact of a favorable affiliate adjustment recorded in the current year period, partially offset by the impact of a low single digit percentage decrease in subscribers versus the prior year period. Advertising revenue increased $6.1 million, primarily driven by higher average per game sales from the telecast of live professional sports programming. Excluding the impact of the favorable affiliate adjustment recorded in the current year quarter, fiscal 2016 third quarter affiliation fee revenue increased $2.8 million and total company revenues increased $9.1 million, or 5%, both as compared with the prior year period.  

Direct operating expenses of $73.3 million increased 21%, or $12.7 million, as compared with the prior year period.  The increase was primarily due to higher rights fees expense, partially offset by other programming-related cost decreases.  Higher rights fees expense includes a $12.1 million increase related to the new long-term media rights agreements with the New York Knicks and New York Rangers.   Assuming the new media rights fees with the New York Knicks and New York Rangers were in place during the prior year third quarter, direct operating expenses of $73.3 million in the current year period would have represented an increase of 1%, or $0.6 million.

Selling, general and administrative expenses of $19.6 million decreased 38%, or $11.9 million, as compared with the prior year period, primarily due to the absence of certain corporate overhead expenses included in the results of the prior year third quarter.  As noted above, fiscal 2015 third quarter reported results from continuing operations include certain corporate expenses that MSG Networks Inc. did not incur during the current year third quarter and does not expect to incur in future periods.  Partially offsetting this decrease in expenses are corporate costs which were incurred during the fiscal 2016 third quarter by MSG Networks Inc. as a standalone public company as well as incremental net expenses related to the Company's advertising sales representation agreement with The Madison Square Garden Company.

Adjusted operating cash flow of $87.8 million increased 13%, or $10.2 million, and operating income of $84.1 million increased 16%, or $11.7 million, both as compared with the prior year period, primarily due to lower selling, general and administrative expenses and higher revenues, partially offset by higher direct operating expenses.

About MSG Networks Inc.
MSG Networks Inc. is an industry leader with two award-winning regional sports and entertainment networks, MSG Network (MSG) and MSG+, as well as the live streaming and video on demand platform, MSG GO. The networks are home to nine 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; Major League Soccer's Red Bulls and the Westchester Knicks, and exclusive non-game coverage of the New York Giants.  Each year, the networks collectively telecast approximately 700 live sporting events - which also include college football and college basketball from top conferences - along with a full schedule of critically-acclaimed original programming.  The gold standard for regional broadcasting, MSG Networks has won 145 New York Emmy Awards over the past nine years.

Non-GAAP Financial Measures
We define adjusted operating cash flow ("AOCF"), 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.  The Company excluded the gain on sale of Fuse from AOCF as it is not indicative of the Company's ongoing operating performance.  Because it is based upon operating income, AOCF 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 either the distortive effects of fluctuating stock prices or the settlement of an obligation that is not expected to be made in cash.

We believe AOCF is an appropriate measure for evaluating the operating performance of our Company.  AOCF and similar measures with similar titles are common performance measures used by investors and analysts to analyze our performance. Internally, we use revenues and AOCF measures as the most important indicators of our business performance, and evaluate management's effectiveness with specific reference to these indicators. AOCF 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 AOCF 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 AOCF, please see page 5 of this release.

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 live today at 10:00 a.m. ET at www.msgnetworks.com
Conference call dial-in number is 877-883-0832 / Conference ID Number 94958091
Conference call replay number is 855-859-2056 / Conference ID Number 94958091 until May 11, 2016


CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

  Three Months Ended Nine Months Ended
  March 31, March 31,
  2016 2015 2016 2015
Revenues $179,596  $168,958  $497,674  $477,848 
Direct operating expenses  73,329  60,601  204,978  165,374 
Selling, general and administrative expenses 19,578  31,471  83,066  113,276 
Depreciation and amortization 2,602  4,474  10,372  13,204 
Gain on sale of Fuse       (186,178)
Operating income 84,087  72,412  199,258  372,172 
Other income (expense):        
Interest expense, net (9,804) (461) (20,289)  (1,509)
Income from continuing operations before income taxes 74,283  71,951  178,969  370,663 
Income tax expense (29,573) (36,132) (58,878) (165,506)
Income from continuing operations 44,710  35,819  120,091  205,157 
Income (loss) from discontinued operations, net of taxes (40) 3,893  (161,194)  3,858 
Net income (loss) $44,670  $39,712  $(41,103) $209,015 
Earnings (loss) per share:        
Basic        
Income from continuing operations $0.60  $0.46  $1.60  $2.65 
Income (loss) from discontinued operations   0.05  (2.15) 0.05 
Net income (loss) $0.60  $0.51  $(0.55) $2.70 
Diluted        
Income from continuing operations $0.59  $0.46   $1.59  $2.63 
Income (loss) from discontinued operations   0.05  (2.13) 0.05 
Net income (loss) $0.59  $0.51  $(0.54) $2.68 
Weighted-average number of common shares outstanding:        
Basic 75,037  77,134  75,173  77,454 
Diluted 75,353  77,575  75,544  78,042 
             

Note: For the three months ended September 30, 2015 and for the three and nine months ended March 31, 2015, the reported financial results of MSG Networks Inc. reflect the results of the sports and entertainment businesses of The Madison Square Garden Company as discontinued operations.  Please note that results from continuing operations for these periods include certain corporate overhead expenses that MSG Networks Inc. did not incur in the fiscal 2016 second and third quarters and does not expect to incur in future periods, but do not meet the criteria for inclusion in discontinued operations.

ADJUSTMENTS TO RECONCILE OPERATING INCOME
TO ADJUSTED OPERATING CASH FLOW

The following is a description of the adjustments to operating income in arriving at adjusted operating cash flow as described in this earnings release: 

  Three Months Ended Nine Months Ended
  March 31, March 31,
  2016 2015 2016 2015
Operating income $84,087  $72,412  $199,258  $372,172 
Share-based compensation 1,077  679   7,976  8,681 
Depreciation and amortization 2,602  4,474  10,372  13,204 
Gain on sale of Fuse       (186,178)
Adjusted operating cash flow $87,766  $77,565  $217,606  $207,879 
                 

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)

  March 31,
 2016
 June 30,
 2015
ASSETS    
Current Assets:    
Cash and cash equivalents $111,055  $203,768 
Restricted cash   9,003 
Accounts receivable, net 76,984  85,610 
Net related party receivables 52,149  27,324 
Prepaid income taxes 22,463  30,375 
Prepaid expenses 7,518  12,863 
Other current assets 2,477  3,514 
Current assets of discontinued operations   125,896 
Total current assets 272,646  498,353 
Property and equipment, net 14,534  19,514 
Amortizable intangible assets, net 44,988  47,583 
Goodwill 424,508  424,508 
Other assets 42,866  46,274 
Non-current assets of discontinued operations   1,983,597 
Total assets $799,542  $3,019,829 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)    
Current Liabilities:    
Accounts payable $1,012  $11,359 
Net related party payables 14,170  420 
Current portion of long-term debt 57,414   
Income taxes payable 35,001   
Accrued liabilities:    
Employee related costs 8,423  19,504 
Other accrued liabilities 15,863  18,101 
Deferred revenue 5,878  4,971 
Current liabilities of discontinued operations   520,179 
Total current liabilities 137,761  574,534 
Long-term debt, net of current portion 1,430,949   
Defined benefit and other postretirement obligations 28,148  28,476 
Other employee related costs 4,439   5,318 
Related party payable 1,637   
Other liabilities 4,145  5,951 
Deferred tax liability 359,541  351,734 
Non-current liabilities of discontinued operations   330,294 
Total liabilities 1,966,620  1,296,307 
Commitments and contingencies    
Stockholders' Equity (Deficiency):    
Class A Common stock, par value $0.01, 360,000 shares authorized; 61,293 and 62,207 shares outstanding as of
March 31, 2016 and June 30, 2015, respectively
 643  643 
Class B Common stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of March 31, 2016 and June 30, 2015 136  136 
Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding    
Additional paid-in capital 1,490  1,084,002 
Treasury stock, at cost, 2,966 and 2,052 shares as of March 31, 2016 and June 30, 2015, respectively (213,002) (143,250)
Retained earnings (accumulated deficit) (950,594) 807,563 
Accumulated other comprehensive loss (5,751) (25,572)
Total stockholders' equity (deficiency) (1,167,078) 1,723,522 
Total liabilities and stockholders' equity (deficiency) $799,542  $3,019,829 
         

SUPPLEMENTAL FINANCIAL INFORMATION
(Dollars in thousands)
(Unaudited)

Summary Data from the Statements of Cash Flows

  Nine Months Ended
  March 31,
  2016 2015
Net cash provided by operating activities from continuing operations $161,280  $61,194 
Net cash provided by (used in) investing activities from continuing operations (2,458) 223,857 
Net cash used in financing activities from continuing operations (82,357) (121,628)
Net cash provided by continuing operations 76,465  163,423 
Net cash provided by (used in) discontinued operations (184,095) (14,605)
Cash and cash equivalents at beginning of period 218,685  92,251 
Cash and cash equivalents at end of period $111,055  $241,069 
      

Free Cash Flow

  Nine Months Ended
  March 31,
  2016 2015
Net cash provided by operating activities from continuing operations $161,280   $61,194 
Less: Capital expenditures (2,458) (4,206)
Free cash flow $158,822  $56,988 
     

Capitalization

   
  March 31, 2016
   
Cash and cash equivalents $111,055 
Credit facility debt(a) 1,500,000 
Net debt  $1,388,945 
   
Annualized AOCF(b) $332,864 
   
Leverage ratio(c)  4.2x
   
(a)Represents aggregate principal amount of the debt.
(b)Represents reported AOCF for the fiscal 2016 second and third quarters, multiplied by two.
(c) Represents net debt divided by Annualized AOCF. This ratio differs from the covenant calculation contained in the Company's credit facility.
Note: MSG Networks Inc. made its first principal payment of $50 million during the fiscal 2016 third quarter.  In addition, during the fiscal 2016 third quarter, the Company made tax payments of $142 million, which primarily reflects a one-time payment related to certain historical activities of the Company's former subsidiary, The Madison Square Garden Company, approximately $22 million of taxes paid related to continuing operations, and other offsetting items.
 


Contacts:

Kimberly Kerns

Communications

(212) 465-6442



Ari Danes, CFA

Investor Relations

(212) 465-6072

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Source: MSG Networks Inc.

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