MSG Networks
Aug 18, 2016

MSG Networks Inc. Reports Fourth Quarter and Fiscal 2016 Results

Fiscal 2016 fourth quarter revenues of $160.5 million
Fiscal 2016 fourth quarter operating income of $74.3 million
Fiscal 2016 fourth quarter AOCF of $79.8 million

NEW YORK, Aug. 18, 2016 (GLOBE NEWSWIRE) -- MSG Networks Inc. (NYSE:MSGN) today reported financial results for the fourth quarter and fiscal year ended June 30, 2016

For fiscal 2016, MSG Networks Inc. generated revenues of $658.2 million, an increase of 4% as compared with the prior year.  In addition, the Company generated operating income of $273.6 million, adjusted operating cash flow ("AOCF") of $297.4 million and income from continuing operations of $163.3 million.(1)

For the fiscal 2016 fourth quarter, MSG Networks Inc. generated revenues of $160.5 million, an increase of 5% as compared with the prior year quarter.   In addition, the Company generated operating income of $74.3 million, AOCF of $79.8 million and income from continuing operations of $43.2 million.

For each quarter of fiscal 2015, as well as the first quarter of fiscal 2016, 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, third and fourth quarters 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 June 30, 2016 reflect the Company's results on a standalone basis, including the Company's actual corporate overhead.

President and CEO Andrea Greenberg said, "As we look back at our first fiscal year as a pure-play, publicly traded media company, we are pleased with what we have been able to accomplish financially, strategically and operationally.  We delivered strong revenue and AOCF results for the fourth quarter and full fiscal year, and entered into important rights agreements that secure all of our NBA and NHL content for the long-term, while continuing to deliver award-winning, must-have programming for sports fans.  Looking ahead, we believe our unique position as a provider of exclusive live sports content in the nation's largest television market will enable us to continue generating significant value for our shareholders."

Fiscal Year 2016 Fourth Quarter Results 
(In thousands, except per share data)
Three Months Ended
 June 30,
 2016
Revenues$160,524 
Operating income74,328 
Adjusted operating cash flow79,829 
Income from continuing operations43,207 
Diluted EPS from continuing operations$0.57 
  
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 Fiscal 2016 Fourth Quarter Results from Continuing Operations
Fiscal 2016 fourth quarter total revenues of $160.5 million increased 5%, or $7.4 million, as compared with the prior year period.  Affiliation fee revenue increased $7.3 million, primarily due to higher affiliation rates and, to a lesser extent, the absence of an unfavorable affiliate adjustment recorded in the prior year period, partially offset by the impact of a low single digit percentage decrease in subscribers versus the prior year period.  Advertising revenue increased $0.4 million, primarily driven by higher average per game sales from the telecast of live professional sports programming and other net increases, partially offset by the timing of regular season telecasts as compared with the prior year period.  Excluding the impact of the unfavorable affiliate adjustment recorded in the prior year quarter, fiscal 2016 fourth quarter affiliation fee revenue increased $3.4 million and total company revenues increased $3.5 million, or 2%, both as compared with the prior year period.  

Direct operating expenses of $63.0 million increased 22%, or $11.2 million, as compared with the prior year period.  The increase was primarily due to higher rights fees expense, slightly offset by other programming-related cost decreases.  Higher rights fees expense primarily reflects a $12.3 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 fourth quarter, direct operating expenses of $63.0 million in the current year period would have represented a decrease of 2%, or $1.1 million.

Selling, general and administrative expenses of $18.9 million decreased 55%, or $22.8 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 fourth quarter.  As noted above, fiscal 2015 fourth quarter reported results from continuing operations include certain corporate expenses that MSG Networks Inc. did not incur during the current year fourth 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 fourth quarter by MSG Networks Inc. as a standalone public company.

Operating income of $74.3 million increased 35% or $19.2 million, and adjusted operating cash flow of $79.8 million increased 31%, or $18.7 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.
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 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 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.

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 55129718
Conference call replay number is 855-859-2056 / Conference ID Number 55129718 until August 25, 2016

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
     
  Three Months Ended Twelve Months Ended
  June 30, June 30,
  2016 2015 2016 2015
Revenues $ 160,524  $153,162  $658,198  $631,010 
Direct operating expenses 63,046  51,859  268,024  217,233 
Selling, general and administrative expenses 18,939  41,727  102,005  155,003 
Depreciation and amortization 4,211  4,437  14,583  17,641 
Gain on sale of Fuse       (186,178)
Operating income 74,328  55,139  273,586  427,311 
Other income (expense):        
Interest expense, net (9,028) (467) (29,317) (1,976)
Income from continuing operations before income taxes 65,300  54,672  244,269  425,335 
Income tax expense (22,093) (11,399) (80,971) (176,905)
Income from continuing operations 43,207  43,273  163,298  248,430 
Income (loss) from discontinued operations, net of taxes 5,530  2,413  (155,664) 6,271 
Net income (loss) $48,737  $45,686  $7,634  $254,701  
Earnings (loss) per share:        
Basic        
Income from continuing operations $0.58  $0.57  $2.17  $3.22 
Income (loss) from discontinued operations 0.07  0.03  (2.07) 0.08 
Net income (loss) 0.65  0.60  0.10   3.30 
Diluted        
Income from continuing operations $0.57  $0.56  $2.16  $3.20 
Income (loss) from discontinued operations 0.07  0.03  (2.06) 0.08 
Net income (loss) 0.65  0.60  0.10  3.28 
Weighted-average number of common shares outstanding:        
Basic 75,087  76,186  75,152   77,138 
Diluted 75,475  76,617  75,527  77,687 
             

Note: For the three months ended September 30, 2015 and for the twelve months ended June 30, 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, third and fourth 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 Twelve Months Ended
  June 30, June 30,
  2016 2015 2016 2015
Operating income $74,328  $55,139  $273,586  $427,311 
Share-based compensation 1,290   1,530  9,266  10,211 
Depreciation and amortization 4,211  4,437  14,583  17,641 
Gain on sale of Fuse       (186,178)
Adjusted operating cash flow $79,829  $61,106  $297,435  $268,985 
                 


CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
     
  June 30,
 2016
 June 30,
 2015
ASSETS    
Current Assets:    
Cash and cash equivalents $119,568  $203,768 
Restricted cash   9,003 
Accounts receivable, net 101,427  85,610 
Net related party receivables 15,492  27,324 
Prepaid income taxes
 28,384  30,375 
Prepaid expenses 13,188  12,863 
Other current assets 3,053  3,514 
Current assets of discontinued operations
   125,896 
Total current assets 281,112  498,353 
Property and equipment, net 14,154  19,514 
Amortizable intangible assets, net 44,123  47,583 
Goodwill 424,508  424,508 
Other assets 42,645  46,274 
Non-current assets of discontinued operations
   1,983,597 
Total assets $806,542  $3,019,829 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)    
Current Liabilities:     
Accounts payable $2,043  $11,359 
Net related party payables 4,302  420 
Current portion of long-term debt 64,914   
Income taxes payable 8,662   
Accrued liabilities:    
Employee related costs 10,340  19,504 
Other accrued liabilities 15,991  18,101 
Deferred revenue 6,143  4,971 
Current liabilities of discontinued operations   520,179 
Total current liabilities 112,395  574,534 
Long-term debt, net of current portion 1,412,845   
Defined benefit and other postretirement obligations 31,827  28,476 
Other employee related costs 5,550  5,318 
Related party payable
 1,710   
Other liabilities 5,612  5,951 
Deferred tax liability 356,561  351,734 
Non-current liabilities of discontinued operations   330,294 
Total liabilities 1,926,500  1,296,307 
Commitments and contingencies (see Notes 9, 10 and 11)    
Stockholders' Equity (Deficiency):    
Class A common stock, par value $0.01, 360,000 shares authorized; 61,354 and 62,207 shares outstanding as of June 30, 2016 and 2015, respectively 643  643 
Class B common stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of June 30, 2016 and 2015 136  136 
Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding    
Additional paid-in capital   1,084,002 
Treasury stock, at cost, 2,905 and 2,052 shares as of June 30, 2016 and 2015, respectively (207,796) (143,250)
Retained earnings (accumulated deficit) (905,352) 807,563 
Accumulated other comprehensive loss (7,589) (25,572)
Total stockholders' equity (deficiency) (1,119,958) 1,723,522 
Total liabilities and stockholders' equity (deficiency) $806,542  $3,019,829 
         


SUPPLEMENTAL FINANCIAL INFORMATION
(Dollars in thousands)
(Unaudited)
 
Summary Data from the Statements of Cash Flows
   
  Twelve Months Ended
  June 30,
  2016 2015
Net cash provided by operating activities from continuing operations $181,848  $22,651 
Net cash provided by (used in) investing activities from continuing operations (3,323) 221,427 
Net cash used in financing activities from continuing operations (93,541) (148,256)
Net cash provided by continuing operations 84,984   95,822 
Net cash provided by (used in) discontinued operations (184,101) 30,612 
Cash and cash equivalents at beginning of period 218,685  92,251 
Cash and cash equivalents at end of period $119,568  $218,685 
     


Free Cash Flow  
   
  Twelve Months Ended
  June 30,
  2016 2015
Net cash provided by operating activities from continuing operations $181,848  $ 22,651 
Less: Capital expenditures (3,323) (6,663)
Free cash flow $178,525  $15,988 
     


Capitalization  
   
  June 30, 2016
    
Cash and cash equivalents $119,568 
Credit facility debt(a) 1,488,750 
Net debt $1,369,182 
   
Annualized AOCF(b) $328,348 
   
Leverage ratio(c)  4.2x 
   
(a)Represents aggregate principal amount of the debt outstanding.
(b)Represents reported AOCF for the fiscal 2016 second, third and fourth quarters, multiplied by four-thirds.
(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 principal payments of $61.25 million during fiscal 2016.
 
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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