Attached files

file filename
8-K - 8-K - MSG NETWORKS INC.d15177d8k.htm

Exhibit 99.1

LOGO

MSG NETWORKS INC. REPORTS

FOURTH QUARTER AND FISCAL 2020 RESULTS

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, N.Y., August 13, 2020 - 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
June 30,
2020
     Twelve Months
Ended
June 30,
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.

 

2


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.

 

3


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

 

4


MSG NETWORKS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

     Three Months Ended
June 30,
    Twelve Months Ended
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  

 

5


MSG NETWORKS INC.

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
June 30,
     Twelve Months Ended
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  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

6


MSG NETWORKS INC.

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  
  

 

 

   

 

 

 

 

7


MSG NETWORKS INC.

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.

 

8