Nov 7, 2019

MSG Networks Inc. Reports Fiscal 2020 First Quarter Results

Fiscal 2020 first quarter revenues of $161.0 million
Fiscal 2020 first quarter operating income of $68.3 million
Fiscal 2020 first quarter adjusted operating income of $74.7 million

NEW YORK, Nov. 07, 2019 (GLOBE NEWSWIRE) -- MSG Networks Inc. (NYSE: MSGN) today reported financial results for the fiscal 2020 first quarter ended September 30, 2019.

For the fiscal 2020 first quarter, MSG Networks Inc. generated revenues of $161.0 million, a decrease of 2% as compared with the prior year period.  In addition, the Company generated operating income of $68.3 million, a decrease of 13%; adjusted operating income of $74.7 million, a decrease of 12%; and net income of $43.1 million, a decrease of 8%; all as compared with the prior year period.(1)

President and CEO Andrea Greenberg said, "While the media landscape is clearly evolving, we believe our exclusive live sports content continues to be very valuable to the distributors, advertisers and viewers we serve.  Our recent repurchase of a significant number of our outstanding shares demonstrates not only our opportunistic approach to utilizing our substantial free cash flow to create value for shareholders but also the confidence we have in our long-term outlook."

   
Fiscal Year 2020 First Quarter Results  
(In thousands, except per share data) Three Months Ended
  September 30,
  2019
Revenues $ 160,981  
Operating income 68,274  
Adjusted operating income $ 74,660  
Net Income 43,067  
Diluted EPS $ 0.57  


(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 2020 first quarter total revenues of $161.0 million decreased 2%, or $3.5 million, as compared with the prior year period.  Affiliation fee revenue decreased $2.1 million, primarily due to the impact of a decrease in subscribers of 7% and, to a lesser extent, an unfavorable $0.7 million affiliate adjustment recorded in the current year quarter, partially offset by the impact of higher affiliation rates.  Advertising revenue decreased $0.6 million, primarily due to a lower net decrease in deferred revenue related to ratings guarantees.  Other revenues decreased $0.7 million, due to the absence in the current year quarter of $0.7 million in fees related to Fuse Media.

Direct operating expenses of $68.7 million increased 3%, or $2.0 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 $22.3 million increased 32%, or $5.4 million, as compared with the prior year period, primarily due to higher advertising and marketing expenses, employee compensation and related benefits and professional fees.  The overall increase includes $1.0 million in expenses in the current year quarter that are not indicative of the Company's core expense base.

Operating income of $68.3 million decreased 13%, or $10.6 million, as compared with the prior year period, primarily due to higher selling, general and administrative expenses (including share-based compensation expense), the decrease in revenues and, to a lesser extent, higher direct operating expenses.

Adjusted operating income of $74.7 million decreased 12%, or $9.9 million, as compared with the prior year period, primarily due to higher selling, general and administrative expenses (excluding share-based compensation expense), the decrease in revenues and, to a lesser extent, higher direct operating expenses. Excluding the impact of the $1.0 million in expenses that are not indicative of the Company's core expense base, the $0.7 million unfavorable affiliate adjustment and the absence of $0.7 million in Fuse Media fees, fiscal 2020 first quarter adjusted operating income would have decreased 9%, or $7.6 million, as compared with the prior year quarter.

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.

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 Ari Danes, CFA
Communications Investor Relations
(212) 465-6442 (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 9574737
Conference call replay number is 855-859-2056 / Conference ID Number 9574737 until November 14, 2019


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

  Three Months Ended
  September 30,
  2019   2018
Revenues $ 160,981     $ 164,464  
Direct operating expenses 68,660     66,655  
Selling, general and administrative expenses 22,320     16,903  
Depreciation and amortization 1,727     2,045  
Operating income 68,274     78,861  
Other income (expense):      
Interest income 1,928     1,592  
Interest expense (10,815 )   (11,922 )
Other components of net periodic benefit cost (258 )   (405 )
  (9,145 )   (10,735 )
Income from operations before income taxes 59,129     68,126  
Income tax expense (16,062 )   (21,196 )
Net income $ 43,067     $ 46,930  
       
Earnings per share:      
Basic $ 0.57     $ 0.63  
Diluted $ 0.57     $ 0.62  
Weighted-average number of common shares outstanding:      
Basic 75,063     74,895  
Diluted 75,464     75,693  
           

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,
  2019   2018
Operating income $ 68,274     $ 78,861  
Share-based compensation expense 4,659     3,676  
Depreciation and amortization 1,727     2,045  
Adjusted operating income $ 74,660     $ 84,582  
               

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

  September 30,
2019
  June 30,
2019
  (unaudited)    
ASSETS      
Current Assets:      
Cash and cash equivalents $ 360,363     $ 226,423  
Accounts receivable, net 107,988     108,349  
Related party receivables, net 2,549     16,091  
Prepaid income taxes 3,545     1,968  
Prepaid expenses 2,950     2,003  
Other current assets 4,552     5,286  
Total current assets 481,947     360,120  
Property and equipment, net 9,031     9,302  
Amortizable intangible assets, net 32,878     33,743  
Goodwill 424,508     424,508  
Operating lease right-of-use assets 15,095      
Other assets 38,472     39,226  
Total assets $ 1,001,931     $ 866,899  
LIABILITIES AND STOCKHOLDERS' DEFICIENCY      
Current Liabilities:      
Accounts payable $ 412     $ 907  
Related party payables 996     941  
Current portion of long-term debt 23,065     111,789  
Current portion of operating lease liabilities 4,926      
Income taxes payable 7,898      
Share repurchase obligation 253,078      
Accrued liabilities:      
Employee related costs 7,350     15,466  
Other accrued liabilities 6,770     13,898  
Deferred revenue 907     185  
Total current liabilities 305,402     143,186  
Long-term debt, net of current portion 1,076,849     906,228  
Long-term operating lease liabilities 12,433      
Defined benefit and other postretirement obligations 24,485     25,834  
Other employee related costs 4,826     4,713  
Other liabilities 190     2,310  
Deferred tax liability 244,995     243,396  
Total liabilities 1,669,180     1,325,667  
Commitments and contingencies      
Stockholders' Deficiency:      
Class A Common Stock, par value $0.01, 360,000 shares authorized; 61,540 and 61,287 shares outstanding as of September 30, 2019 and June 30, 2019, respectively 643     643  
Class B Common Stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of September 30, 2019 and June 30, 2019 136     136  
Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding      
Additional paid-in capital     9,916  
Treasury stock, at cost 2,719 and 2,972 shares as of September 30, 2019 and June 30, 2019, respectively (417,691 )   (179,561 )
Accumulated deficit (242,946 )   (282,414 )
Accumulated other comprehensive loss (7,391 )   (7,488 )
Total stockholders' deficiency (667,249 )   (458,768 )
Total liabilities and stockholders' deficiency $ 1,001,931     $ 866,899  
               

SUPPLEMENTAL FINANCIAL INFORMATION
(Dollars in thousands)
(Unaudited)

Summary Data from the Statements of Cash Flows

  Three Months Ended
  September 30,
  2019   2018
Net cash provided by operating activities $ 57,149     $ 62,978  
Net cash used in investing activities (1,233 )   (830 )
Net cash provided by (used in) financing activities 78,024     (97,408 )
Net increase (decrease) in cash and cash equivalents 133,940     (35,260 )
Cash and cash equivalents at beginning of period 226,423     205,343  
Cash and cash equivalents at end of period $ 360,363     $ 170,083  
               

Free Cash Flow

  Three Months Ended
  September 30,
  2019   2018
Net cash provided by operating activities $ 57,149     $ 62,978  
Less: Capital expenditures (1,233 )   (830 )
Free cash flow $ 55,916     $ 62,148  
       

Capitalization

  September 30,
  2019
Cash and cash equivalents $ 360,363  
Credit facility debt(a) 1,102,500  
Net debt $ 742,137  
   
Reconciliation of operating income to AOI for trailing twelve-month period(b)  
Operating Income $ 299,312  
Share-based compensation expense 19,070  
Depreciation and amortization 7,080  
Adjusted operating income $ 325,462  
   
Leverage ratio(c) 2.3x
   
(a) Represents aggregate principal amount of the debt outstanding including borrowings under the revolving credit facility.
(b) Represents reported adjusted operating income for the trailing twelve months.
(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.

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Source: MSG Networks Inc.

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