Q3 2020 MSG Networks Inc Earnings Call

[music].

Good morning, and welcome to the MSG Networks' fiscal 2023rd quarter earnings Conference call.

All lines have been placed on mute to prevent any background noise.

Should anyone need assistance during today's call. Please press star zero to reach an operator.

Thank you I'll now turn the call ever to Ari Danes Investor Relations. Please go ahead.

Thank you Christie.

Good morning.

And welcome to MSG Networks' fiscal 2023rd quarter Conference call.

The company's president and CEO, Andrew Greenberg will begin today's call with a discussion of the company's operations.

This will be followed by a review of financial results with Bret Richter, the company's he VP Chief financial Officer and Treasurer.

As we operate in these uncertain times, we were pleased to provide some perspective on our third quarter results.

While we understand you'll have questions given how fluid the current environment as today's call will only include prepared remarks.

If you do not have a copy of today's earnings release. It is available in the Investor section of the company's corporate web site.

Please take note of the following.

Today's discussion may contain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1990 fives.

Investors are cautioned that any such forward looking statements are not guarantees of future performance or results and involve risks 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.

These include financial community perceptions of the company in its business operations financial condition and the industry and what should operates as well as the factors described in the company's filings with the Securities and Exchange Commission.

Including the sections entitled 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 that may be discussed during this call.

Lastly, we will discuss certain non-GAAP financial measures on todays call on pages five and six of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income.

In addition on page eight of the earnings release, we provide a reconciliation of the net cash provided by operating activities the free cash flow.

That.

I'll now turn the call over to Andrea.

Hi.

We appreciate everyone joining us.

Despite the fact that we are facing temporal unknowns, we tried in prepared today to unlock Simeon.

Possible.

I'd like to start this morning by sending our thoughts to those who have been affected by club at 19.

The Corona virus Santana, that's kind of put sound and are not just our company and on the world.

And while we expect a series of uncertainty to continue for some time.

Our confidence that our company is well positioned to weather the challenges we currently thanks.

We remain firm believers in the enjoying popularity of life for.

But just so evident in the CRM, we all see certain.

And we believe MSG networks as a leader in regional sports and entertainment programming.

Built a solid foundation that will benefit us.

As we navigate through the month ahead.

That foundation includes healthy long standing and wide ranging relationship.

Our team affiliate and advertising partners.

In addition, we have a strong balance sheet with substantial cash on hand.

Earlier this fiscal year, we completed a debt refinancing, which provides us with even more financial flexibility.

We also have a long track record of generating substantial free cash flow for the benefit of our shareholders.

And our expectation is that we will continue to do so.

As you all know since March 12.

It has been applied in the 2019 planning and da and NHL season.

At that time, we had already heavily caf.

For 335 lines.

And then Sheldon.

Supposedly.

There are approaching the end of their regular season.

We remain in close contact with our partners, including lean.

Mhm affiliate and advertising.

As the end BA and NHL some came to assess the best path forward for the remaining at their current season.

In the meantime, our focus has been on providing content that enables that viewers to stay connected with our network.

On the programming fun.

Sorry, creative team working remotely since mid March has been producing a week day at home version of our MSG 150 show using video conferencing technology.

As well is utilizing our sense of library.

That's what's the matter collections and cranes and classic thing from our team.

This week on MSG network.

Viewers are enjoying the excitement of the 2011 12 nicks team and the Olin sanity craze.

In many cases, where supplementing this content.

Fresh insights in interviews from key players in participant.

We've also seen high levels of engagement on our social platforms compared to an average week during the regular season.

As we focused on delivering lighthearted interactive team related content.

Right well go through our financial results in more detail shortly but first I'd like to spend a few minutes, providing some additional color.

Including how the current clause in the end BA and NHL season impacted us.

For our fiscal third quarter.

We generated $185 million in revenue.

Increase of 5% versus the prior year period and $79 million in adjusted operating income.

Our affiliate revenues, though.

Let the impacts of an approximately 8% decrease in subscribers.

A year over year rate of decline, which is about the same as our fiscal second quarter.

With the majority of the decrease.

People to the things you distributor that have driven the acceleration in the rate of subscriber declines during recent quarters.

A portion of the impact from lower subscribers.

Offset by higher average affiliates.

As we've previously discussed earlier this fiscal year, we successfully completed new carriage agreements with two of our largest distributors which include rate increases.

The impact of these renewals is reflective Miss Cordis affiliate revenue.

On the advertising fund.

We had expected an increase in advertising revenue for the third quarter <unk>.

Parts into additional professional sports telecast.

As compared to the prior year.

As it was off of the pandemic however.

We aired significantly fewer games in the quarter on a year over year basis.

Which led to a decrease in advertising revenue.

And while the absence of these games also resulted in decreases in certain costs.

Such as variable production senses and advertising definitions.

Did not offset the advertising revenue decline.

I would also note that supplies and the N.B.A. in NHL seasons did not otherwise directly impact my third quarter results.

This is in part because the remaining regular season game have not been permanently cancers.

And while the situation remain fluid.

Yes, Dan and the potential impact on our revenues and expenses under very possible scenarios.

As I mentioned earlier, we are fortunate to have been in the final stages of our NB a in NHL regular season and to have delivered the vast majority of our teams game.

Hypothetically, even if the rest of both seasons were cancelled.

Given the contractual protections in our life and affiliate agreements, we would expect it to continue to generate substantial adjusted operating income in free cash flow.

Without any material negative impact to these methods.

For fiscal 2020 from the loss of those games.

That said the impact of the coated 19, pendennis is larger than our company and our industry.

Making it difficult to predict the impact it will have on the economy.

Fibers advertisers and even the number of games, we should expect air.

Our plan is to stay in close contact with our partners.

As we continue to monitor the situation.

I would like to ask me by thanking our employees.

Partners.

There's some shareholders for their support during this period.

Everyone has come together in a gray said teamwork and creativity.

And embrace but New York sports are all about.

I will now turn the call over to Brad who will take you through our financial myself.

Thank you Andrea and good morning, everyone.

Let's discuss our financial results for the fiscal.

2023rd quarter.

Total revenues of $185 million decreased $10.1 million were approximately 5% as compared with the prior year period.

This was driven by a $6.6 million decrease in affiliate revenue, primarily reflecting the impact of the decline in subscribers, partially offset by higher affiliate reach.

Well the affiliate revenue decrease of $6.6 million was greater than the 3.1 billion dollar year over year decrease through our fiscal second quarter I would remind you that our results for our second quarter benefited from a $2.3 million favorable adjustment to affiliate revenue.

As we have discussed some past earnings calls there were a variety of economic provisions in certain of our affiliate contracts that can impact affiliate revenue results in any given quarter.

[noise] advertising revenue decreased approximately $3.5 million year over year due to lower sales related to lie professional sports telecasts, partially offset by other net advertising increases.

The decrease in sales from life professional sports telecasts was primarily due to fewer games as compared with the prior year results of the pause in the EMEA in NHL seasons.

Direct operating expenses of $83.8 million increased $1.7 million were 2% as compared with the prior year quarter, primarily due to higher rights fees expense, mainly a result of contractual rate increases.

This was partially offset by other programming related cost decreases which includes the impact of fewer lives, which telecasts as compared with the prior year quarter.

[noise] SGT expenses of $25.8 million decreased $2.9 million or 10% as compared with the prior year period.

This is largely due to lower advertising sales commissions employee compensation and related benefits and advertising and marketing costs.

Adjusted operating income of $79.1 million decreased 11% as compared with the prior year period, primarily due to the decrease in revenues and to a lesser extent higher direct operating expenses, partially offset by lower SGN expenses.

Reported free cash flow from continuing operations for the nine months ending March 31st 2020 was $137.8 million.

Turning to our balance sheet.

As of March 31st 2020, total cash and cash equivalents were approximately $138 million will total debt outstanding was $1.09 billion and our $250 million revolver was undrawn.

Our average interest rate for the quarter was approximately 3.2%.

Net debt at quarter end decreased by approximately $29 million to $955 million, while our net leverage ratio remained 3.1 times trailing 12 months adjusted operating income.

During the fiscal third quarter, we made a mandatory principal payment from $6.9 million in accordance with the terms of or credit agreement.

As Andrew noted earlier this fiscal year, we amended and extended our credit facilities for a five year period beginning in October 2019.

The amended terms of the facility provider company with significant financial flexibility.

For example, our credit facility provides for a total of only $33 million and mandatory principal payments during the next 12 months.

To put that in context, we generated over $200 million in free cash flow during the trailing 12 month period.

And as Andrea noted our expectation going forward is that we will continue to generate substantial free cash flow.

Lastly, during the fiscal third quarter, we resumed or share repurchase program.

Section of our confidence in the strength of our business.

Specifically, we have repurchased approximately 3.5 million shares since January one 2020.

For $40.1 million at an average price of $11.61 per share.

This amount represented more than 7% of class a shares outstanding.

We currently have $146 million remaining under our share buyback authorization and looking ahead, we will continue to maintain a disciplined and opportunistic approach to capital allocation.

I will now turn the call back over it already.

Thank you Brett.

Thank you all for joining US we look forward to speaking with you on our next earnings call until then stay safe and healthy and have a good day.

Thank you. This does conclude today's conference call you may now disconnect.