Q4 2020 MSG Networks Inc Earnings Call
Good morning, My name is Nicole you know what are your conference operator today.
At this time I would like to welcome everyone to the image to networks' fiscal 2024th quarter and you're in the earnings conference call.
I would now like being in the conference call a richer everyday Investor Relations. Please go ahead sorry.
Thank you operator.
Good morning, and welcome to MSG Networks' fiscal 2024th quarter Yearend Conference call.
The company's president and CEO, Andrew Greenberg will begin this morning's call was a discussion of the company's operations.
Will be followed by virtue of financial results, Bret Richter companies, GBP, Chief Financial Officer and Treasurer.
After their prepared remarks, we will open up the call for questions.
If you do not have a copy of todays earnings release. It is available in the Investor section of the company's corporate website.
We signaled at all.
Today's discussion may contain statements that constitute forward looking statements. The meeting of the private Securities Litigation Reform Act at 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.
These include financial community perceptions of the company this business.
Operations financial condition, and the industry in which it operates.
Well as the factors describing the company's filings with the Securities Exchange Commission.
Including the sections entitled Risk factors, and management's discussion and analysis of financial condition 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'll discuss certain non-GAAP financial measures on today's call.
On pages five and six in today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income.
Adjusted operating income.
In addition on page eight of the earnings release, we provide a reconciliation of net cash provided by operating activities to free cash flow.
With that I'll now turn the call over to Andrea.
Thank you all right. Good morning, we appreciate everyone joining us for today's call.
In March the covered 19 pandemic suddenly challenged us to find new ways to serve our customers and our communities.
While we continue to pursue our call core financial and strategic objectives in an already rapidly evolving media landscape.
Despite these challenges and changes.
I'm proud to say that during fiscal Twentytwenty.
We were able to achieve several key goals and strengthen our company now and for the future.
Include delivering substantial free cash flow.
During important distribution.
10 doing to grow our non ratings based advertising revenue.
Enhancing our financial flexibility through a debt refinancing.
Throughout the pandemic.
We've been extremely proud of our colleagues.
With exemplified our strong culture and sense of purpose.
As they seamlessly transition to working from home.
Ensuring we continued to deliver our programming on all our platforms without interruption.
And with the return of live sports to our networks. Some of US have even return to our offices to bring viewers life telecasts.
Along with studio commentary from our talented team.
As an organization, we have become more nimble.
Discovered new efficiencies.
We expect these learnings will ultimately make us a stronger company.
Throughout this unprecedented times, we've seen the enduring popularity of live sports.
Which continues to reinforce the value of our exclusive live programming tourists affiliate partners and sand.
This important content along with our position in the New York DNA helped drive our renewals with two major affiliates this past year.
Four of our top five affiliates during the last three fiscal years.
Right now we see the pent up demand for like sports on full display as professional sports League have started to resume play.
For our company. This is not the return of like hockey and New original hockey programming.
Two of our team the Rangers me I wondered how did to Toronto sitting NHL families have qualifiers.
And MSG networks covered there over time in depth previews of those teams snapshot.
We also did you new original hockey programming to capitalize on the excitement, including around the NHL, bringing sand latest hockey news and information and MSG hockey I, Q and NHL seemed trivia show testing sands knowledge of their teams.
And once the games began we were proud to serve as the exclusive broadcast home in our markets for the Islanders and Rangers.
This included the teams exhibition snapshot.
As well as their qualifying round, which also featured comprehensive pre and post game coverage.
And our viewers can continue to follow the islanders as they compete in the first round the Stanley Cup playoff which began this week.
We also wrapped up the Rangers season, with an exclusive one on one with President John Davison.
Who shared his excitement for next season following the team winning the draft lottery.
Our next week, we welcome the return of Major League soccer as the New York Red Bulls continue their season.
Our goal. During this time has been to remain focused on finding ways to create new content that is accretive to our bottom line and that keeps viewers connected to the teams they love.
For example, during the Rangers and Islanders Stanley Cup qualifiers.
We introduced a number of unique activation, including virtual viewing parties that and they left to integrate life well do Japan's into our broadcast.
Tapping into the already strong sense of community among the loyal salaries of our team.
We delivered and at home version NFC 150.
Which recently included interviews with mix presently on rose.
New Devils coach Lindsay rough.
Nics legend Patrick Ewing.
Introduced new mix head coach Tom Thibadeau with a press conference an exclusive MSG networks interview.
We continue to leverage our.
Then since game library, creating opportunities for fans to not only relive defining moment, but also gain new insights.
For example in May as part of our programming block to commemorate the Fiftyth anniversary of the Knicks 1970 Championship.
We held special virtual Roundtable discussion hosted by Mike brings that featured Nics legend Willis Reid.
Well Clyde Frazier and build Bradley.
As they reflected on their championship Brian.
Turning to advertising.
With the league suspension.
We had fewer like game telecasts in fiscal 2020, which negatively impacted advertising revenue.
However, we remain confident in our long term prospects and continue to believe that we have meaningful advertising upside.
The man from advertisers for life sports remains robust.
Which was reflected an extremely strong sales for every one of our Rangers Islanders qualifying game.
The strong demand has continued into the Islanders first round playoff series.
We also remain optimistic about the prospects for our non ratings based advertising initiatives.
In fiscal 2019, we were able to double the size of branded content business, which grew again in fiscal Twentytwenty.
I had double digit percentage.
In addition, there has been strong ongoing demand from sponsors for MSG go our screening assay.
Which also saw year over year double digit percentage increase in revenue.
Well its robust utilization rate during the Rangers and Islanders returned to play games.
As the only our I send to provide a lifestyle module and interactive gaming honest platform. We are pleased with our ongoing improvements to the app.
Which are designed to increase customer engagement and enhance the value of the platforms sponsorship inventory.
And we continue to see sports gaming is a unique long term advertising and content opportunity, particularly since additional markets in our territory legalize mobile gaming.
We experienced a high level of demand from our sports gaming partners during the Stanley Cup qualifiers.
Including from leading brands like Draftkings and Fanduel.
And we expect to this momentum to continue.
With regard to subscribers.
As of May.
MSG and MSG plus.
I had a combined average approximately 6 million viewing subscribers.
Year over year decrease of 8.9%.
Our rate subscriber decline has accelerated in recent quarters.
Reflection of the changing media landscape.
We also believe that our most recent monthly subscriber levels reflect copas 19th impact on the economy.
And while we expect these dynamics will continue or not standing still.
We remain focused on monetizing our existing library of content and ours valuable media rights, including from new distribution opportunities.
Finally, I would just pointing out that cobot 19 created several moving pieces across both revenues and operating expenses.
The net impact which was positive for adjusted operating income in the quarter.
These results reflect a number of factor.
Including our analysis of our affiliate and rights agreements.
As well is the facts and circumstances as they exist today and our expectations for the 2000, 2021, and BA and NHL seasons.
As a reminder, at this time of the season suspensions, we were nearing the end of both leagues regular season.
We have since delivered additional game.
As part of the NHL restart.
We also currently expect full slate of San Diego and NHL games for the 2000 2021 season.
And while these factors resulted in a net positive contribution to our fourth quarter ally going forward, it's difficult to predict the ultimate impact Cobot 19 may have on our financial results.
Including with respect to subscribers affiliate and advertising revenue and right and other expenses.
Throughout this period of uncertainty we have been continually reminded of the strength of our employees partners and communities.
And the important role that like sports place in People's lives.
I want to thank everyone, including our viewers and shareholders for their continued support.
I will now turn the call over to Brett who will take you through our financial results.
Thank you Andrea.
Good morning, everyone.
Let's start by briefly discussing or full year fiscal 2020 financial results, then turn to results for fourth quarter.
For fiscal 2020 total revenues were $685.8 million.
The decrease of approximately 5% as compared with the prior year.
This decline was primarily driven by a decrease in affiliate revenue and to a lesser extent lower advertising.
Fiscal 2020, adjusted operating income was $321.4 million, which was approximately 4% lower as compared with the prior year.
A full year results were impacted by the decline in subscribers as well as by lower advertising revenue, which includes the impact if you would watch sports telecasts as a result of the suspension of the M.B. aid NHL 2000, 1920 seasons. This was partially offset by lower direct operating expenses also.
The result from the shortened and be in NHL regular seasons.
Turning to results for the fiscal 2024th quarter.
Total revenues of $152.1 billion decreased $16.2 million were approximately 10% as compared with the prior year period.
This was driven by an $8.3 million decrease in Detroit revenue, primarily reflecting the impact of the decline of subscribers and to a lesser extent the impact of a 2 million dollar on favorable battlefield adjustments, partially offset by higher affiliate reach.
2 million dollar unfavorable net affiliate adjustment for no we watch accrued affiliate rebates.
Advertising revenue decreased $7.2 million year over year.
Due to lower sales related to life professional sports telecast lowered that decrease deferred revenue related to ratings guarantees and other net advertising decreases.
The decrease in sales for wise professional sports telecast was primarily due to the absence of why then be eight NHL games in the quarter as compared to 16 regular season telecasts and three playoff telecast during the prior year period.
Direct operating expenses were $46.4 million decreased $23.7 billion worth 44% as compared with the probably your core primarily due to lower rights fees expense results will be impacted the shortened and be a in NHL regular seasons.
SGN expenses of $20.7 million decreased $5.7 million were 22% as compared with the prior year period. This was largely due to the absence of $3.6 million in expenses recorded in the prior year quarter, there were not indicative of our core expense base as well as lower advertising and marketing.
Costs and lower advertising sales commissions, partially offset by other net cost increases.
Adjusted operating income of $90.5 billion increased $14.1 billion were 18% as compared with the prior year period, primarily due to the decrease in direct operating expenses and to a lesser extent low restaurant expenses, partially offset by the decrease in revenues.
Reported free cash flow for the 12 months ended June Thirtyth 2020 was approximately $207.2 million.
Looking ahead to fiscal 2021.
So many me I'd be in NHL play for 2000 2021 regular seasons, we would expect fiscal 2021 advertising revenue results to be positively impacted by the returned to normal level or professional sports telecasts.
I would also note that the year over year comparability of quarterly advertising results in fiscal 2021, maybe impacted by a shift in the timing of the start of the 2021 regular seasons.
In addition advertising revenue in our seasonally quiet first quarter will benefit from the Rangers Islanders returning.
To complete the 2000 1920 seasons and as Andrea mentioned, we experienced robust demand for each teams returned to play games.
With respect to affiliate revenue or current expectation is that over the next two quarters in aggregate. We will have a similar affiliate revenue adjustment for potential affiliate rebates to what we reported in the fiscal fourth quarter.
On the expense so well our fiscal 2021 first quarter results will reflect the modest residual impact of rights fees reductions assuming the N.B. eight any cho pretty full 2021 regular seasons, we would expect to see higher rights fees expensive production costs on an annual basis versus fiscal 2020, that's what this.
This returns to more normalized expense run rate.
Overall, our expectations are based on a variety of factors, which may change.
Turning to our balance sheet.
As of June 32022, cash and cash equivalents were approximately $196.8 million.
Total debt outstanding was $1.09 billion and our $250 million revolver was undrawn.
Average interest rate for the quarter was approximately 2%.
Net debt at quarter end decreased by approximately $65 million to $889 billion, while our net leverage ratio decreased to 2.8 times trailing 12 months adjusted operating income.
During the fiscal fourth quarter, we made a mandatory principal payment of $6.9 million in accordance with the turns for credit agreement.
For fiscal 2021 or credit facilities provide for $38.5 million mandatory principal payments.
With regard to our share buyback authorization, we have not repurchase shares since April 1st and currently have $146 million remains.
Going forward, we will continue to maintain a disciplined an opportunistic approach to capital allocation.
I'll now turn the call back over to art.
Thank you Brett.
When we open up the call for questions.
At this time, if you'd like to ask an audio question you may do so by pressing star in the number one on your telephone keypad again, not a star one if your question has been answered any Whistler loop yourself from the Q at any time, you may do so by pressing the pound.
One moment far first question.
The first question will come from the line of John Jimmy This with Wolfe Research.
Hi, This is say filling in for John.
I had two questions.
You renewed two deals last year and there continues to be pressure on the bundle can you talk about the potential to be cheered and whether you see this as a risk going forward.
Adam you want to take that one.
Sure. So yes, I mean as you point out we've successfully renewed.
Uhhuh deals in the past fiscal year, we have long track record of successfully renewing our affiliate agreements.
Successfully renewed for their top five distributors over the past three fiscal years.
We're comfortable with the terms of the renewals, including the packaging it another protections.
As indicated in short continued expanded based distribution for our networks.
We think that our track record reflects the long term mutually beneficial relationships, we've built with our major affiliates and the importance and unique can well established value like our content.
Particularly in this highly competitive New York DNA.
Ultimately we believe this is all going to continue to surface, well and future renewals, where we would expect to continue to receive appropriate protections in fair value for our networks consistent with our history.
I'd also point out that there have been some well publicized recent renewals from other arsons around the country with major distributors, including new launches of new our son's worse, where status quo packaging it's been highlighted.
Great. Thanks, and I guess, one more on the expense side to what extent are their permanent cost reductions that you either executed on since it started coded or potentially.
Planning on as you finalize budgets for the rest of the or.
Well, we we've not announced any plans for layoffs or furloughs.
And with respect to other cost reduction measures were always looking for additional opportunities to operate more efficiently.
And as I indicated in our prepared remarks during our recent period of displacement tied to co bed.
Certainly identified a number of ways to work smarter and we're going to apply though is going forward to make a stronger company.
Great. Thank you.
Yes.
Our next question will come from the line Apollo, calling with Macquarie capital.
Okay.
Thanks, So much for taking my question I guess I was hoping to see if there was some color you might be able to provide on the virtual MPPD front, whether there's been any progress there or for any news you can talk to around.
[noise] conversations.
Jason distribution. Thanks, so much.
Adam.
Yes, sure I'll take this one so.
On the virtual and bpd side.
We're we're pleased that our networks were included in the launch of the New 18 TV service this past.
Fiscal year, that's a service obviously 18 T is invested in and.
Optimistic about and of course, we're continuing to pursue incremental distribution opportunities.
We're not going to get into specifics about that nature or.
Details about any discussions but.
Well I would also just say on the virtual IDBD front, it's an evolving but small segment of the pay television universe.
And frankly with when coupled with broadband.
The price point of some of these offerings has been driven up to be comparable to war in some instances greater than the pricing that you see from traditional distributors and and we substantially fewer channel. So we.
We believe the value proposition for some of these guys has become questionable and but that being said of course, where we're we're focusing on all opportunities for incremental distribution for our content.
Great. Thanks.
Next question will come from the line of Alexia Quadrani with JP Morgan.
Yes.
Good question her following up on your commentary about it at different start dates attempts Mcarthur 2021.
The season, what did December start to that season, creating impact or shift to your distribution revenue with the cost generalities, maybe elaborate on that a little patnaik touching advertising side Uh-huh My second question.
I'm not sure how much comment, but some recent press reports about the Devils honest, we're lucky if I ask once that New York answered.
Dealt with renewal with MSG networks.
Okay.
Yes.
Hi, Alexia so it's spread I'll take the first one I think so we did highlights if there are certainly certain aspects of.
Our financial results that are directly tied to the timing of the games advertising production costs and some of those will shift and you know with regards to overall contracts with our distributors and rights for that matter two things one in.
Recording our financials for this quarter, that's essentially what we assume which is a late calendar year start for the seasons and the Oh you the contracts at various provisions that relate to various circumstances.
Certainly our financials with whats whatever those circumstances are in the or analysis at the time, but again im looking forward, we've essentially assume that late season starts.
And I can take the the Devils question. So yes, we're not going to obviously comment on the BS and why portion, but I could say, where we're proud to have to be the exclusive local media partner for the Devils. We we have a strong relationship with them that.
Dates back decades, the 19 eighties.
We've renewed our agreement with them, many many times and and we have several years remaining on our current deal.
Thank you very much.
Nicole we have time for one last caller.
The next question will come from lineup, Michael Morris with Guggenheim.
Thanks. Good morning couple from me on the first is just on streaming.
And you know many networks is seen in increasing consumption on the streaming side versus the linear side I know, it's a little challenging for you in the quarter given that the disruption the games, but I'm curious if you can talk about any trends that you're seeing and streaming consumption also Andrew you mentioned.
You know you're not standing still you're looking at new distribution opportunities.
Can you expand it all unlike some of those maybe and then just finally.
Brett maybe to put a little bit of a finer point on it with expense.
With respect to the operating expenses in the fiscal fourth quarter and kind of the reduction there due to the fewer games.
Is it some of that just permanently gone with some of your peers. We've just seen some timing and sort of all of the costs expected to come back, but given that the knicks.
Not returning to the bubble.
Some of that cost just.
Become permanent savings.
And and then you know appreciate your guidance you gave us going forward. Thanks.
I'll take the MSG go question Mike to start.
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MSG go usage during the qualifying along with an all time high for both the Islanders and the Rangers.
Parents against them some interesting that we had the most unique viewers for a single game. We had the most minutes screened for a single again or audience engagement has been awfully high.
And all in all were.
Isn't that immensely please with the utilization of MSG go.
Customers advertisers they like products, we continue to make enhancement as we talked about in past quarters.
This past fiscal.
Enhance the signal quality of the screen, we added new additional features and we're finding that those interactive features are really driving engagement and length of town.
Seen as I as I mentioned in our prepared remarks.
In Korea, and the demand for advertising so all in all.
Yes, so that was.
Certainly one of our signing guys.
Im sorry, just not before that Oh, Yeah go ahead Sir.
Sure. It got go ahead, sorry, Oh I just wanted to make sure differentiating between the strength of go which is it's great detail and then what any of the new distribution, maybe whether it was kind of go specific.
Or or other.
New opportunities you may have been going through I apologize.
Sure sure.
Adam do you want to.
Let's talk about that yeah, yeah sure on the on new distribution opportunities I think there's just a variety of things that we're considering and and having discussions about obviously, there's just incremental distribution with Burke with virtual distributors. There are some traditional opportunities as well that we're looking at.
MSG go enhancements things that we're looking out there and also just opportunities with our with our content library and and with our games that debt that we consider.
All in all respects as far as how to best monetize our valuable rights. So all those things on the table. We're always look and we'll always look at things that make strategic and financial sense for the business.
And Mike I'll take the cost question, so with regards to our financials in the quarter and a lot goes in to.
Determining the financials for the quarter you know she could imagine every one of our contracts is different.
There are accounting guidelines so the impact.
We recognize certain expenses they were different time period considerations for contracts calendar your seasons, otherwise, but to the extent if you look at direct expenses to the extent.
[noise] costs are tied to the season.
And the teams are no longer playing we essentially though what we need to know to make those estimates we have one team that's continuing to play in the playoffs and.
Obviously, it's in the next few your with a full season, we'd expect the contracts to kick in and the cost come back.
With regards to other cost production and production related costs to the extent the games didn't get played those are obviously permanent savings, but again when I mean, a full season, we'd expect those costs to come back. So in summary to the extent, they're tied to the season in the seasons complete.
As a permanent costs.
Savings.
Great. Thank you guys appreciate it.
And with that I'll hand, the conference back of the for closing remarks.
Thanks, Nicole and thank you all for joining US we look forward to speaking with you on our next earnings call have a great day.
This does conclude today's conference call, we think if your participation and ask that you. Please disconnect your lines.
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