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MSG Networks Inc. Reports Fourth Quarter and Fiscal 2020 Results

08/13/2020

Fiscal 2020 fourth quarter revenues of $152.1 million
Fiscal 2020 fourth quarter operating income of $83.1 million
Fiscal 2020 fourth quarter adjusted operating income of $90.5 million

NEW YORK, Aug. 13, 2020 (GLOBE NEWSWIRE) -- MSG Networks Inc. (NYSE: MSGN) today reported financial results for the fourth quarter and fiscal year ended June 30, 2020.

For the fiscal 2020 fourth quarter, MSG Networks Inc. generated revenues of $152.1 million, a decrease of 10% as compared with the prior year quarter. In addition, the Company generated operating income of $83.1 million, an increase of 18%, adjusted operating income of $90.5 million, an increase of 18%, and net income of $55.9 million, an increase of 36%, all as compared with the prior year quarter.(1)

For fiscal 2020, MSG Networks Inc. generated revenues of $685.8 million, a decrease of 5% as compared with the prior year. In addition, the Company generated operating income of $295.0 million, a decrease of 5%, adjusted operating income of $321.4 million, a decrease of 4%, and net income of $185.2 million, a decrease of 1%, all as compared with the prior year.

President and CEO Andrea Greenberg said, “The impact of the COVID-19 pandemic is being felt by virtually every business around the world. Yet despite its effects, we have continued to accomplish many of our key goals, while engaging fans with compelling programming on our two 24/7 networks. During fiscal 2020, we successfully renewed two major affiliate agreements, grew non-ratings based advertising revenue, strengthened our balance sheet and generated substantial free cash flow. As we continue to navigate the challenges of the pandemic as well as the evolving media landscape, we remain confident in the importance of our live professional sports content and the value it delivers for our affiliates, advertisers and viewers.”

 

Fiscal Year 2020 Fourth Quarter and Annual Results    
(In thousands, except per share data)

Three Months Ended Twelve Months Ended
  June 30, June 30,
  2020 2020
Revenues $ 152,114   $ 685,797  
Operating income 83,068   294,968  
Adjusted operating income 90,491   321,366  
Net Income 55,920   185,221  
Diluted EPS $ 0.97   $ 2.92  

 

(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 Fiscal 2020 Fourth Quarter Results from Operations
Fiscal 2020 fourth quarter total revenues of $152.1 million decreased 10%, or $16.2 million, as compared with the prior year period. Affiliation fee revenue decreased $8.3 million, primarily due to the impact of a decrease in subscribers of approximately 8% and, to a lesser extent, an unfavorable $2.0 million net affiliate adjustment recorded in the current year quarter, partially offset by the impact of higher affiliation rates.

Advertising revenue decreased $7.2 million, as compared with the prior year period, primarily due to the absence of live professional sports telecasts (including playoff games) in the current year quarter due to the cancellation of games as a result of the shortened NBA and NHL 2019-20 seasons, as well as a lower net decrease in deferred revenue related to ratings guarantees, and other net decreases. Other revenues decreased $0.7 million as compared with the prior year period.

Direct operating expenses of $46.4 million decreased 34%, or $23.7 million, as compared with the prior year quarter. The decrease was primarily due to a reduction in rights fees expense due to the cancellation of games as a result of the shortened NBA and NHL 2019-20 seasons, partially offset by contractual rate increases.

Selling, general and administrative expenses of $20.7 million decreased 22%, or $5.7 million, as compared with the prior year quarter. This decrease reflects the absence of $3.6 million in expenses recorded in the prior year quarter that were not indicative of the Company's core expense base, as well as lower advertising and marketing costs and lower advertising sales commissions, partially offset by other net cost increases.

Operating income of $83.1 million increased 18%, or $12.9 million, as compared with the prior year quarter, primarily due to the decrease in direct operating expenses and, to a lesser extent, lower selling, general and administrative expenses (including share-based compensation expense), partially offset by the decrease in revenues.

Adjusted operating income of $90.5 million increased 18%, or $14.1 million, as compared with the prior year quarter, primarily due to the decrease in direct operating expenses and, to a lesser extent, lower selling, general and administrative expenses (excluding share-based compensation expense), partially offset by the decrease in revenues.

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 investor.msgnetworks.com
Conference call dial-in number is 877-883-0832 / Conference ID Number 3798172
Conference call replay number is 855-859-2056 / Conference ID Number 3798172 until August 20, 2020

 



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)
(Unaudited)

    Three Months Ended   Twelve Months Ended
    June 30,   June 30,
    2020   2019   2020   2019
Revenues   $ 152,114     $ 168,362     $ 685,797     $ 720,845  
Direct operating expenses   46,350     70,064     282,837     300,274  
Selling, general and administrative expenses   20,656     26,343     100,829     103,274  
Depreciation and amortization   2,040     1,748     7,163     7,398  
Operating income   83,068     70,207     294,968     309,899  
Other income (expense):                
Interest income   500     1,772     4,234     6,343  
Interest expense   (6,156 )   (12,316 )   (36,324 )   (47,589 )
Debt refinancing expense           (2,764 )    
Other components of net periodic benefit cost   (256 )   1,475     (1,030 )   244  
    (5,912 )   (9,069 )   (35,884 )   (41,002 )
Income from operations before income taxes   77,156     61,138     259,084     268,897  
Income tax expense   (21,236 )   (19,959 )   (73,863 )   (82,715 )
Net income   $ 55,920     $ 41,179     $ 185,221     $ 186,182  
Earnings per share:                
Basic                
Net income   $ 0.98     $ 0.55     $ 2.93     $ 2.48  
Diluted                
Net income   $ 0.97     $ 0.54     $ 2.92     $ 2.46  
Weighted-average number of common shares outstanding:                
Basic   57,062     75,152     63,172     75,069  
Diluted   57,357     75,764     63,515     75,731  

 



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   Twelve Months Ended
    June 30,   June 30,
    2020   2019   2020   2019
Operating income   $ 83,068     $ 70,207     $ 294,968     $ 309,899  
Share-based compensation expense   5,383     4,429     19,235     18,087  
Depreciation and amortization   2,040     1,748     7,163     7,398  
Adjusted operating income   $ 90,491     $ 76,384     $ 321,366     $ 335,384  




CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

    June 30,
2020
  June 30,
2019
ASSETS        
Current Assets:        
Cash and cash equivalents   $ 196,837     $ 226,423  
Accounts receivable, net   105,549     108,349  
Related party receivables, net   14,190     16,091  
Prepaid income taxes
  461     1,968  
Prepaid expenses   11,063     2,003  
Other current assets   4,541     5,286  
Total current assets   332,641     360,120  
Property and equipment, net   8,758     9,302  
Amortizable intangible assets, net   30,283     33,743  
Goodwill   424,508     424,508  
Operating lease right-of-use assets   17,153      
Other assets   37,460     39,226  
Total assets   $ 850,803     $ 866,899  
LIABILITIES AND STOCKHOLDERS' DEFICIENCY        
Current Liabilities:        
Accounts payable   $ 2,115     $ 907  
Related party payables   1,472     941  
Current portion of long-term debt   37,229     111,789  
Current portion of operating lease liabilities

  5,492      
Income taxes payable   641      
Accrued liabilities:        
Employee related costs   14,187     15,466  
Other accrued liabilities   10,116     13,898  
Deferred revenue   2,753     185  
Total current liabilities   74,005     143,186  
Long-term debt, net of current portion   1,043,780     906,228  
Long-term operating lease liabilities   13,780      
Defined benefit and other postretirement obligations   25,860     25,834  
Other employee related costs   5,149     4,713  
Other liabilities   1,536     2,310  
Deferred tax liability   239,542     243,396  
Total liabilities   1,403,652     1,325,667  
Commitments and contingencies        
Stockholders' Deficiency:        
Class A Common Stock, par value $0.01, 360,000 shares authorized; 43,122 and 61,287 shares outstanding as of June 30, 2020 and 2019, respectively   643     643  
Class B Common Stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of June 30, 2020 and 2019   136     136  
Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding        
Additional paid-in capital   12,731     9,916  
Treasury stock, at cost, 21,137 and 2,972 shares as of June 30, 2020 and 2019, respectively   (457,363 )   (179,561 )
Accumulated deficit   (100,792 )   (282,414 )
Accumulated other comprehensive loss   (8,204 )   (7,488 )
  Total stockholders' deficiency   (552,849 )   (458,768 )
Total liabilities and stockholders' deficiency   $ 850,803     $ 866,899  

 



SUPPLEMENTAL FINANCIAL INFORMATION

(Dollars in thousands)
(Unaudited)

Summary Data from the Statements of Cash Flows

    Twelve Months Ended
    June 30,
    2020   2019
Net cash provided by operating activities   $ 210,032     $ 205,959  
Net cash used in investing activities   (2,814 )   (4,879 )
Net cash used in financing activities   (236,804 )   (180,000 )
Net increase (decrease) in cash and cash equivalents
  (29,586 )   21,080  
Cash and cash equivalents at beginning of period
  226,423     205,343  
Cash and cash equivalents at end of period   $ 196,837     $ 226,423  

Free Cash Flow

    Twelve Months Ended
    June 30,
    2020   2019
Net cash provided by operating activities   $ 210,032     $ 205,959  
Less: Capital expenditures   (2,814 )   (2,879 )
Free cash flow   $ 207,218     $ 203,080  

Capitalization

    June 30,
    2020
Cash and cash equivalents   $ 196,837  
Credit facility debt(a)   1,086,250  
Net debt   $ 889,413  
     
Reconciliation of operating income to AOI for trailing twelve-month period (b)    
Operating Income   $ 294,968  
Share-based compensation expense   19,235  
Depreciation and amortization   7,163  
Adjusted operating income   $ 321,366  
     
Leverage ratio(c)   2.8x  
     
(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 trailing twelve-month 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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