Q3 2020 Earnings Call

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 over 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 a 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 EGP, Chief Financial Officer and Treasurer.

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

While we understand you'll have questions given how fluid. The current environment does 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.

Actual results development and events may differ materially from those in a forward looking statements as a result of various factors.

These include financial community perceptions of the company and its business operations financial condition and the industry in which it operates as well as the factors describing the company's filings with the Securities and Exchange Commission, including the sections entitled Risk factors and management's discussion and analysis, a financial condition and <unk>.

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 today's 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.

With that I'll now turn the call over to Andrea Thank you I.

We appreciate everyone joining us citizens.

Despite the fact that we are facing several unknowns, we tried in the past today's remarks, it's helpful possible.

I'd like to start this morning by sending us lots to those who have been affected by Clovis 19.

The Corona virus and Dennis has had a profound and yeah I'm not just our company, but on the world.

And while we expect this period of uncertainty to continue for some time, we are confident that our company is well positioned to weather the challenges we currently face.

We remain firm believers in the enduring popularity of life sport.

But you saw evidence I mean, if he has some we'll see for its return.

And we believe that must be network 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 sounds Haitian includes healthy long standing and wide ranging relationship with our team affiliate and advertising partners.

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

Hi earlier this fiscal year.

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.

In a pause and the 2000 1920, M.D.A. and NHL season.

At that time, he had already probably path over 330, fives line and be a NHL games.

Supposedly.

Were approaching the end of their regular season.

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

Team affiliates and advertisers.

As the M.D.A. NHL seeking to assess the best path forward for the remaining of their high 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.

Really creative.

Working remotely mid March has been producing a we'd say that home version of our NFC 150 show using video conferencing technology.

As well is utilizing senses library.

That's what's the matter collections of claims in classic in some our team.

This week on MSG networks 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 and 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 an 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 that could cause any and be a NHL season and pass it off.

For our fiscal third quarter.

We generated $185 million in revenue.

Decrease of 5% versus acquired this area and $79 million, an adjusted operating income.

Personally Robin results.

Let's see in process in approximately 8% decreasing subscribers.

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

With the majority of the decrease.

We'd be able to the seem to distributors that have driven the acceleration innovative subscriber declines during the second quarter.

A portion of the impact from lower subscribers.

Offset by higher average affiliate with.

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 reflected in this quarter's affiliates Evan.

On the advertising fun.

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

<unk> costs into additional professional sports telecasts.

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 an increase in advertising revenue.

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

Such as variable production sensors and advertising definition.

Did not offset the advertising revenue decline.

I would also note that supplies and the N.V.A. in NHL seasons did not otherwise directly within pacify third quarter results.

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

And while the situation remain fluid.

We haven't done and the potential impact on our revenues and expenses under various possible scenarios.

As I mentioned earlier, we are fortunate to have been in the final stages.

And be a in NHL regular season onto have delivered the vast majority of our teams game.

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

Given the contractual protections and all they send affiliate agreement.

We would expect it to continue to generate.

Santyl adjusted operating income and free cash flow.

Without any material negative impact to be NASA for fiscal 2020 from the law of those game.

That said.

Impacts of the coated 19, pendennis is larger than our company I'm trying to see.

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

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

Our plans to stay in close contact with our partners.

As we continue to monitor the situation.

I would like to ask ones I thinking on slightly.

Partners you was on shareholders for their support during this period.

Everyone has come together in a gray said he wasn't creativity.

And embrace but New York sports are all about.

I will now turn the call over the breath, who will take you through our financial results.

Thank you Andrea and good morning, everyone.

Let's discuss our financial results for the school.

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 $6.6 million decrease in affiliate revenue, primarily reflecting the impact of the decline in subscribers, partially offset by higher until we reach.

While the affiliate revenue decreased $6.6 billion was greater than the 3.1 billion dollar year over year decreased <unk> fiscal second quarter I would remind you done a results for second quarter benefited from a 2.3 million dollar favorable adjustment to affiliate revenue.

And as we've discussed on past earnings calls there were a variety of economic provisions in certain of our appeal, we contracts that can impact the affiliate revenue results in any given quarter.

Advertising revenue decreased approximately $3.5 million year over year due to lower sales related to my professional sports don't guest 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 two person as compared with the prior year quarter, primarily due to higher rights. These expense, mainly a result from contractual rate increases.

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

That's gina expenses of $25.8 million decreased $2.9 billion or 10% as compared with the prior year period.

This was 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 as Phoenix Mitch.

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 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 remain 3.1 times trailing 12 months adjusted operating income.

During the fiscal third quarter, we made a mandatory principal payment and $6.9 million in accordance with the terms more credit.

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

He meant in 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 your 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 about competence and the strength of our business.

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

The $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. Looking ahead, we will continue to maintain disciplined an opportunistic approach to capital allocation.

I will now turn the call back over dawn.

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.