Q4 2020 Madison Square Garden Entertainment Corp Earnings Call
[music].
Good morning, My name is Christie and I'll be your conference operator today.
At this time I would like to welcome everyone to the MSG entertainment fiscal 2024th quarter and you're in earnings Conference call.
Later, we will conduct a question and answer session.
If you would like to ask a question at this time simply press Star then the number one on your telephone keypad to withdraw your question press the pound key. Thank you I'll now turn the call Ari Danes Investor Relations. Please go ahead Sir.
Thank you Christine good morning.
And welcome to MSG Entertainment fiscal 2024th quarter, and yearend earnings Conference call.
Our president and you Lustgarten will begin this morning's call with an update on the company's operations.
This will be followed by a review of our financial results with Mark Fitzpatrick, our EVP and Chief Financial Officer.
After our prepared remarks, we will open up the call for questions.
If you do not have a copy of today's earnings release. It is available in the Investor section of our corporate website.
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 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 there wasn't 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 and we should operate.
As well as the factor is describing the company's filings with the Securities and Exchange Commission.
Putting the sections entitled risk factors.
Management's discussion and analysis, a financial condition and results of operations contained therein.
The company disclaims any obligation to update any forward looking statements that may be disgusted during this 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 or airlines, a non-GAAP financial measure and with that I'll now turn the call over to Andy.
Good morning.
Thank you for joining us.
I know, we've all heard the word unprecedented many times over the past few months, but a truly husband and unprecedent here.
But no one could have anticipated.
Through mid March we are experiencing impressive momentum across the company.
The Christmas spectacular celebrated its highest grossing run ever.
Our booking business was on track to deliver a record number of a bench for the year.
How group was on its way to generating strong year over year.
In addition, we're full speed ahead on MSG sphere in Las Vegas.
Hearing for the 400 million dollar sales before.
And finalizing the details of our spinoff transaction.
And then in March the global pandemic.
Changing the outlook not only for a company, but the world.
Even with these difficult circumstances, we successfully completed the spin off of MSG Entertainment in April followed by the sale before coming back.
And despite the current environment, we remain confident in the strength and resilience of our process and believe that stop wishing MSG entertainment and its own company sets the stage for a long term value creation for our shareholders.
I'd like to spend a few minutes talking about how coping 19 has impacted our business and the steps, we're taking to position the company to whether these difficult comps.
Our shutdown began in mid March.
When each of our entertainment venues closed and stored you didn't pandemic. This was followed by the temporary closure of all Towergroup entertainment dining and nightly news and the cancellation of or Boston, calling music Festival, which was scheduled for memorial day weekend.
And last week, we announced that the seasons production of the Christmas spectacular has been canceled.
It was a very tough decision, we considered a number of factors, including a significant time an investment it takes them out the show.
Continued level of uncertainty just a few months out for when the show to traditionally start.
Taking this all into account we felt moving forward it was not worth the risk.
[laughter], given where our businesses today, we've been forced to make decisions some of them very difficult to ensure we are helping company for the future.
Tell eliminated essentially all of its venue Lauren stuff and manager positions in March and recently reduced its corporate stuff.
On May 31st we ended our financial support bent level employees at our performance bankers.
At the same time, we've made efforts to reduce discretionary spending <unk> continuing to review our operations.
Last week, we took additional measures, including significantly reducing our corporate workforce and cutting spending across all departments.
These actions reduced our go forward operating expenses by approximately $100 million on a run rate basis.
You also extended the atmosphere in Las Vegas.
In April we temporarily suspended construction on the venue due to kobin related impacts that would be outside of our control.
And that's the ongoing effects of the pandemic have continued to impact our operations, we revised our processes and our construction schedule.
And now have resumed work, but we've been timetable.
Enabling us to better preserve cash in the near term.
For fiscal 2001, we now expect to spend approximately half of what we previously anticipated spending.
We also expect that our new schedule will push the opening of MSG sphere, Las Vegas into calendar 2023.
We remain committed to bringing the state of the are they need to Las Vegas, but given the impact of the pandemic on our company. We're going to proceed at a more measured pace and we'll continue to be thoughtful about our liquidity.
We've made some tough decisions I believe these actions will allow us to conserve our cash successfully navigate these challenging times.
As of June Thirtyth, we had approximately 1.2 billion cash on hand.
We have essentially no debt aside from a relatively small amount related to talk group.
Like everyone else, we're learning more each day.
One thing we continue to believe in its community.
People will gather again to ship.
Okay.
Prior to the onset of coated you're benefiting from favorable industry dynamics that including steady growth in the supply of life events.
And rising demand from our customers for these experiences.
Our expectation is that when things do bounce back they will bounce back quickly.
For example, the majority of impacted events are venues have been or expected to be rescheduled to calendar 2021.
In fact, we currently have twice the number of events booked for calendar 21 than we did for 2020 at this time last year.
[noise] for rescheduled shows small ticket holders were offered the option for refunds most are choosing to hang onto their tickets.
And while we cannot assure you that these events will take place. It does highlight the pent up demand for artists who want to be on the road and from fans who wants to see these acts.
In addition college recently started reopening venues in five cities at reduced capacity.
We've been encouraged by the initial response.
While the road ahead is uncertain. We have every reason to believe that they need desire to be part of shared experiences will return when that happens our business will be ready.
It starts with our portfolio by contact venues anchored button on square Garden Marino venue, you own along with the development rights associated with the property.
In April the garden entered into a 35 year agreement to host home games of two with the most well franchise known franchises in professional sports the New York Knicks and Rangers.
And the garden fully reopened these arena license agreements will provide significant growing contractual revenue stream for company.
In addition to the garden, we expect the rest of our venue portfolio Radio City Music Hall, who loop Beacon in Chicago theatres to regain their industry, leading positions once we're able to reopen the doors.
The same goes for the Christmas spectacular.
A property we own.
It's played for a remarkable 87 consecutive years at radio City Music Hall.
And although this year's production has been canceled we're confident that will remain a holiday tradition for years to calm and look forward to welcoming gets back for the 2021 holiday season.
We also believe Towergroup will continue creating some of the most innovative premium hospitality experiences in entertainment dining at night industry.
And the Boston, calling your remain new Englands Premier outdoor music Festival.
And finally, we are bringing together all of our expertise in venue operations content creation and hospitality treat MSG sphere.
Which we continue to view as a transformative growth opportunity for our company.
[noise] I'd like to and by thanking our employees fans partners and shareholders for their continued support.
For decades, our venues had been the backdrop for some of the most memorable moments in sports and entertainment.
We've been working extremely hard to ensure that when our doors reopened guests can be confident that there is a safe and secure environment, where they can gather thanks again to share unforgettable experiences.
Before I finish electronic equipment quick moment to introduce our new Chief Financial Officer, Mark Fitzpatrick, who joined US in April.
Mark is a seasoned executive with more than 20 years of finance experience coding we work where he most recently served as the deputy Chief Financial Officer.
Operator that Mark spent 10 years at time Warner cable, where he held a variety of senior finance roles, including Chief Financial Officer of residential services.
I'm confident that after helping us get back up and running he'll play a key role ensuring long term success of our company.
And with that I'll turn the call over to Mark.
Thank you Andy and good morning, everyone.
I'm very excited about joining MSG entertainment.
The company with iconic venues at Marquis brand and I'm confident we'll whether this period of uncertainty.
I joined the company because I was inspired by division for the future and I look forward to working with the executive team achieving our long term goals.
Over the next few minutes I will provide additional details on our liquidity and go forward cash outflows as well as briefly discussing our recent results and segment reporting.
So let's start by walking through our current liquidity position and the actions we have been implemented to preserve flexibility. So we are ready to return to business as soon as possible.
First as Andy mentioned, we had 1.244 billion of cash and short term investments on our balance sheet as of June thirtyth.
Our counts are cash balances include approximately $200 million in deferred revenue and collections due to promoters.
These amounts reflect tickets seaweed and sponsorship related to future events.
Significantly a significant majority of deferred ticket revenue is for events that have been are expected to be rescheduled to calendar 2021 to date. Most people have opted to hold onto their ticket for these reschedule the bad but if requested we have provided to be fun.
In terms of suites and sponsorships.
We're in constant dialogue with our partners discussing ways to address these obligations to be a noncash mean, such as credit and make good.
However, if necessary we will provide cash refunds.
In terms of debt cows 384 million dollar bank term loan is our only debt outstanding and it was recently amended to suspend certain financial covenants through calendar 2021.
And as a reminder, it matures in may of 2024.
I would also like to note that we hold equity interest in both Draftkings and Townsquare media.
And in June we were able to monetize a portion of our Draftkings holdings for net proceeds of over $7 million.
Currently we own approximately 1.3 million shares of Draftkings and 3.2 million shares Townsquare media.
Now, let's turn to our expected cash outflows for fiscal 2021.
As Andy mentioned, we've implemented a series of cost saving measures to preserve our liquidity.
Since March we've cut down significantly on nonessential spending, including marketing training and TNT and reduced reliance and associated spending with third party providers.
In March.
Tell eliminate nearly all its venue staff and manager positions and recently introduced its corporate workforce.
At the end of May we ended our financial support for virtually all of our 6000 event based venue employees.
And last week, we reduced our full time workforce by approximately 350 position and eliminated an additional 50 open positions that we tended to fill this fiscal year.
I should note that as our business recoveries, we will bring back at portion of these initiatives to support our operations and the associated revenue.
Overall, these actions will significantly reduce our annual.
Annual operating expenditures.
While it will fluctuate on a month to month basis, we estimate that our monthly operational cash burn rate will be approximately $25 million a month on a going forward basis.
This compares to an average of approximately $35 million that we experienced in the fourth quarter of fiscal 2020.
I would note that our operational cash burn rate reflects our revenue that's direct operating and asked you expected.
It excludes severance cost and capital expenditures, including those related to the construction of the MSG sphere in Las Vegas, and capitalized spending on content and technology.
It also excludes working capital adjustments, including Pat potential cash refunds related to our deferred revenue and collections due to put motors.
In terms of the MSG sphere any noted earlier that we were lapping our construction timetable in Las Vegas.
As a result, we now it's bad to expand spots me half of what we've previously anticipated in fiscal 21.
As previously disclosed our cost estimate for the MSG sphere venue in Las Vegas is approximately $1.66 billion.
Through June Thirtyth project to date construction cost incurred were approximately 453 million, which includes nearly 70 million of a crude costs that were not paid as of June thirtyth and is net of $65 million received from the Las Vegas Sands.
Finally, I want to know that we can continue we.
Continue to actively pursue potential debt financing option up to $500 million to further bolster our la Quinta position and help finance MSC fear in Las Vegas.
Let's turn briefly to our business performance.
Before I start. Please note that fiscal 19 and physical 20 result through April 17 are based on carve out financials. After April 17 was which was the date of our spin off the results reflect the company on a standalone basis inclusive of the various intercompany agreements between.
Our company at MSG sports.
Second due to the impact of Koby 19. This school 20, especially the fourth Kate fourth quarter was not a true indication of the operating and financial potential above of our diversified mix of assets and revenue stream.
As a result this school 20 revenue was $763 million would only 9 million achieved in the fourth quarter and our adjusted operating loss was $43 million, including 803 million dollar loss in the fourth quarter.
In comparison for fiscal 19 revenue was $1.050 billion with 215 215 million of revenue in the fourth quarter and full year adjusted operating income of $104 million.
Prior to opening the call for questions I would also like to buy an overview of the two operated segment that we you to manage our business and this is the first time, we have reported with these segments.
Our 10-K, which we expect to found next week provides additional detail on these segment.
Our first segment is the entertainment segment. This is our live events business, which welcome nearly 6 million gas to over 1000 event in fiscal 19.
If if features our poll for our portfolio performance and you, including the MSG fear.
At Christmas spectacular starting the radio city Rockettes production, which last year last season generated record high revenues of approximately $130 million.
The Boston, calling music festival, and the revenue related to our arrangements with both MSG sports and MSG networks. These remains include our 35 year Arena license agreement and our 10 year sponsorship sales agreements with MSG sports and our multiyear advertising sales.
Actually the station remit with MSG networks.
Finally, this segment also food the cost of our corporate functions that of our transition services agreement with MSG sports at MSG networks.
Our second segment is cow group hospitality, which features are controlling interest in this globally recognized hospitality group.
In fiscal 2019.
How would the cow group generated over 250 million dollar <unk> dollars in revenue from its popular entertainment dining and nightclub venue.
Today Tout operates 28 venues around the world and is developing opportunities to expand in select markets.
In conclusion, while the entire industry continue to save a challenging in uncertain Road ahead, we remain confident that we have the financial flexibility to navigate through this unprecedented period and deliver long term growth and value creation for our shareholders.
With that I'll now turn the call back over to Ari.
Thank you Mark Christy can we open up the call for questions. Please.
Certainly at this time, if he would like to ask a question Press Star then the number one on your telephone keypad.
And your first question is from Brandon Ross of why should partners.
Hey, guys how are you doing.
Couple of questions first New York in Vegas, that's obviously been hit hard.
I'd events of 20 Twond. He wanted to get your outlook going forward for these cities as entertainment markets I guess, starting with Vegas <unk>.
Do you see that's changing to return profile for the sphere and then in New York How are you planning for the long term.
I guess with.
The permanent job cuts you did it's that is signal that your for see more permanent impairment from the pandemic and the other issues going on in New York.
And then I've a follow up.
Hey, Brandon Thanks.
We'll start with these two and then we'll go back your follow up its let's start at the top and Vegas. So.
I'll tell you or or or both our revenue in our projections have not changed because you know what has changed since our timing right. We've moved out as we've discussed.
We think big decisions.
That's one of the best if not the best entertainment market in the World.
Since.
Good morning, This project for long term.
<unk>.
People will need to get.
So feel safe well to consumers artists.
And our employees, but once that happens and we believe it will we think the markets are going to come back boring.
And our view is not changed.
We believe this year is going to be the most utilize venue and in our portfolio in terms of events.
We think the attractions business is going to play multiple times, a day and your round, which is a key part of our strategy.
We think the new immersive experiences will take advantage of the then you stated the our technology in a way that will choose live entertainment.
And were as we've talked about before very bullish on or sponsorship opportunities.
So while.
Both New York goodness, and all the U.S. or fighting through the pandemic right. Now we think life experiences are gonna come back Roaring once people feel sick.
I don't feel very bullish in New York similar message.
The New York is a.
Was the hot spot and the center of the epicenter of depends on making the start but as we could see it's been moving all over the country.
New York, specifically of all cities has been resilient through many difficult times over the course of its history.
I think new Yorkers are gonna come back strong.
Just proof that we haven't putting as I mentioned earlier, we have a backlog of lot of bookings for 2021, that's twice the size of where it was this time last year, that's made up of both.
Rescheduled events and new bookings, which tells me the artist wanted to be here.
And then when we offered fans the ability to refund there their tickets.
Present shows to keep their tickets, but does that say to me Sam's want to be coming to the events once they feel safe and once we open. So we feel really strong that spoke New York in Vegas will come rushing back once once we're able to be.
Open them running.
Great and then wanted to ask about venue rental pricing for this big backlog of shows that you've booked for 2021 have you taken cuts on.
And your rental pricing or shared risk with promoters.
And have there been any changes to the contract.
That you had signed on the dates that were rescheduled from 2020.
So.
Simple I love.
Oh, the economics supply and demand when you're supplies twice as high as you can figure out would you can think about pricing. So I guess the simple answer is no we haven't treats personable.
So we feel very soon and feel very good about the future.
Great. Thanks.
Thank you. Your next question is from John Janedis of Wolfe Research.
Thank you good morning, I had two guys one on the sphere and one on costs.
Thanks for the color on disappear I was hoping you could give us an update on the timing of the London sphere does that getting pushed down the road indefinitely and on Vegas, How do you think about the potential for our cost increase above and beyond the 1.6 or 7 billion given the delay and then separately on the hundred million of reduced run rate costs.
Yes, what extent those permanent or do the majority of those come back as you get back up and running.
[noise] why don't I don't know how are you doing jumped from first off I mean, why don't I starting on the pass over to Mark I'll start to London question. So.
We are currently working towards our planning approval with London Legacy Development Corporation.
We don't see the earliest we see getting a planning permission would be any autumn of 2020.
And as you work through this planning process or and design process or timeline will continue to evolve.
So I don't have any.
And to give you more on terms of our opening timeline, but 10 thought you were intended to open London. After Vegas. Once we have are planning approval. Once we have a designs filter and we are committed to bring it.
So your London, but.
It's it's going to be pushing us.
I think the other part of your questions on cost cuts Mark you want to.
That's correct.
Sure Hi, John I think your second question would just on the overall begun call.
Did that practice one extra.
I think there there are two pieces and costs, while but to be out of the vegas costs in the second on the hundred million Oh, the run rate cost reduction.
Although its permanent or a piece of those I assume come back as you guys get back up and running.
Sure I'll start with the biggest cost one I think we just on our <unk>.
Released today, we're still comfortable with the $1.6 billion total cost.
We are spending spreading the time to spend that but we are still comfortable the 1.6 billion. We think overtime, we're going to reevaluate some of the spending associated with the.
Different aspects that and we think to over it will be able to offset any potential cost increases and may actually be able to.
Dr. at lower but overall, we're still comfortable the 1.6 billion 1.66 billion.
And then in terms of your permit costs as I mentioned in my speech.
We took a comprehensive look at our operations to find out what we could eliminate.
We made it difficult decisions to but to eliminate some of our headcount to preserve cash and short were healthy for the future.
So we've reduced our workforce and spending across all our department.
Other business comes back some of that spending will obviously return we don't think all but will return as we think theres efficiencies and we'll be able to.
That does it into our go forward cost base.
So like every other company, we're going to continue to focus on it and make sure that we can.
Reduce our cost base going forward it increased the profitability of our business.
So we're we're excited about the future in terms of lowering our overall costs.
Great. Thank you.
Thank you. Your next question is from John Belton of Evercore.
Hi, Thanks, I just have one on I missed a Las Vegas fear project. So.
It looks like given the remaining capex associated with that project and the events of the last few months that you may no longer be able to fully self fund that project. So how is your view on financing strategy change you've spoken in the past about looking at an array of options for other venue projects like debt financing joint.
Ventures, and strategic equity partners, how are you thinking about those options as they pertain to Las Vegas, fear and potentially you might need to raise capital several quarters done a lot.
Sure. This is mark I'll answer that question first I'll, just remind you that we have over 1.2 billion in cash on our balance sheet as of June thirtyth.
And as we mentioned in our prepared remarks, we plan to raise another $500 million in debt.
Secondly in addition, we've changed the calendar, but MSG feared so I'll leave it to spend the capital expenditures over a longer period of time.
In terms of future appears in our as we've mentioned before our intent is to explore other options, including non recourse debt financing joint ventures equity partners any manage venue model.
Hope that answers your question.
So you're not necessarily looking into any of those options for Las Vegas at the moment.
Look we always always consider options, both potentially that makes sense that the company to strategically and financially, but we're not.
Currently looking in the Dobson's right now.
Got it thank you very much.
Alright.
Christy well take the next question.
Your next question is from Ben Swinburn of Morgan Stanley.
Thanks. Good morning, it's good to hear from everybody and hope everyone is doing well.
I have two questions.
Andy as you look at the portfolio of assets at this company, then think about kind of reopening over the next to no 612 months you know what if any changes there.
You know sort of.
Adjustments do you think you want to make or couldn't make or to the various offerings given we're going to be coming out at ASCO that situation, you know incrementally rather than flipping a switch and going back to pre called it I'm thinking about things like.
Like the Christmas spectacular reopening the garden, even sphere whichever they haven't built yet you know there there are changes you think about making.
Given just we're gonna be.
Dealing with the lingering effects of this one way or the other even cycle psychologically long term and then I was curious on the sponsorship and sweet front, how demand is holding up given the just the economic pressures we're seeing.
You know as you look at and others are multiyear contracts, you've got good visibility, but just give us a sense for Oh, you know what the demand looks like as you have have contracts come off and potential new sales anything you could tell us that would be helpful. Thank you.
Well Ben.
This is because this morning.
Terms of what changes are making toward venues and our events I mean.
Where we are following this extremely closely working with our government officials working with the leagues on the sport side, obviously got to their biggest tenant here at MSG Entertainment.
As well as all of our partners and our promote or partners.
And the first thing it's important to us as the safety of our.
I'll start actually started with the most important things the safety of our guests our employees and our artists right, but nothing nothing didn't start until there is it right that is number one point and as I think we've shown many times over we're the leader in terms of both amenities for our guests and.
Artist as well as safety and protocols so.
What I'd say to you is we're gonna do everything we can to make sure people feel safe, we're gonna do we're going to modify or venue as we need be.
But right now it's still early.
We don't know when we don't know what does to your point to ramp up will look like will it be capacity constraints will it be.
Spacing between patrons world and we're exploring every option and have a task force and looking at ways to deliver the best experience to our guests our order center employees.
That's a come back in terms of the future I know youve interest rate a Christmas show, obviously, we as I mentioned before this was a tough decision we waited until the last minute to we made the decision we do that for a reason because we believe in the demand at the show.
We just weren't we couldn't take on the risk of the Mt with such uncertainties in the short order and the long term, we feel very good about the return to the show and its appeal and its just a question of.
How quickly can we get to that long term not not Nelson for rockets Im just saying in terms of our total business and we think this is coming back we think people want life events.
I think if you look across the world and other countries up slowly started to open up the demand has been there I guess people at modify their behavior wearing masks.
Et cetera, but we'll.
We're going to stay on top of it and we're going to get this business back up and we feel that really give up its long term future.
Anything on sponsorships and sweep demand.
You know, it's still to be honest, it's still early yeah right.
It's a are these agreements are long term multiyear.
We've got great partners.
Who view us as long terms due to value of our business long term and we're working through stuff right now.
Got it Okay don't don't read anything negative or positive into its just too. So there's a lot of these are long as a long term a.
Relationships and long term relationships, John when you have a business and what we can deliver and we feel good about long term.
Got it thank you very much.
Thank you with that I'll turn the floor back of retiree danger, any additional or closing remarks.
Thanks, Christy and thank you all for joining US today, we look forward to speaking with you on our next earnings call have a good day.
Thank you. This does conclude today's conference call you may now disconnect.