Q1 2021 Madison Square Garden Entertainment Corp Earnings Call

Ladies and gentlemen, this is the operator today's conference call is scheduled to begin momentarily until that time. Your line will again be placed on musical. Thank you for your patience.

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Good morning, My name is Tamara and I will be your conference operator today at this time I would like to welcome everyone to the Madison Square Garden interest <unk> Corp. fiscal 2021 first quarter earnings conference call on.

This time, all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

And I'll like to turn the call over to Ari Danes Investor Relations. Please go ahead Sir.

Thank you good.

Good afternoon, and welcome to MSG Entertainment fiscal 2021 first quarter earnings Conference call.

Our president and he lost guard and will begin today's call with an update on the company's operations. This will be followed by a review of our financial results and 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 and is available on the Investor section of our corporate website. Please.

Please take note of the following day.

Today's discussion may contain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act from 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 and the 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 which it operates as well as the factors described in the Companys 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.

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 airline and non-GAAP financial measure.

And with that I'll now turn the call over to Andy.

Thank you Lori and good afternoon, everyone.

We are now several months into our first full year and the Standalone entertaining.

And while our business continues to be impacted by cold and 19, we're.

We are encouraged by the recent news about a vaccine and what it could mean for future reopening.

And when that day comes we are confident that the strength of our assets and the pent up demand for live Entertainment will drive a quick recovery of our business.

And that we are well positioned to create long term value for shareholders and.

Until then we're also confident that our company can navigate the current environment.

Our focus this fiscal year is on a number of key initiatives that we believe will position MSG entertainment for long term success.

Include preserving our company's strong liquidity position.

Making continued progress on the construction of MSG sphere, and Las Vegas.

And ensuring we're able to reopen our doors quickly toward us and guess when the time is right.

Our father entertainment venues have been closed since mid March due to the pandemic since.

Since then our top priority has been maintaining the strength of our balance sheet to protect our core business.

On our last earnings call. We noted that we were actively pursuing debt financing and we delivered on that goal.

Completing a $650 million this transaction coming at a time when our venues are closed underscores the value of our assets and the expectation that we will bounce back quickly once we're able to reopen.

This debt raise in addition to the extensive actions weve already taken to reduce operating expenses by approximately a 100 million on an annual basis.

Those actions include reducing our corporate work first by third and.

On cutting spending across all departments.

We've taken these actions to protect our core business and are confident and we have the financial flexibility to successfully navigate this period.

We've also taken additional steps to help preserve our liquidity.

As we shared last quarter, we've linked and our construction timetable for MSG sphere, and Las Vegas, and expect to open in calendar 2023.

At the same time, we continued to make important progress on the venues construction.

This fiscal year, our efforts will focus on several critical path elements. These include completing all superstructure concrete.

Continuation of structural steel erection and buildings yield on drew.

In addition to our progress and Las Vegas, we are preparing for the eventual return on the rest of our business.

Last week, the and being announced its 2021 season will start on December 22nd we.

We look forward to the next returning to the garden and we'll continue to watch for more information from me and yes.

Well also be eager to hear more about the Rangers were turned to play and the.

Slide show continues to finalize these plans.

With regards to concerts, while the current environment is fluid we've seen strong demand from both artists and promoters.

Total contract bookings up across all of our business.

This increase is led by the garden, which is currently pacing up approximately 50% for calendar 2021 versus.

Person at the same time last year for calendar 2020.

And while we do not currently have significant booking activity at our venues in the first half from calendar 2021, we have an impressive schedule and the back half of the year, which is shaping up to be one of the busiest ever.

I would also note that this booking strength is not just because of our reschedule defense.

We've also added many new shows tore calendar and.

In fact over one third of those times booked for 2021, our new rather than rescheduled.

In addition for the rescheduled shows approximately 75% and ticket holders have chosen to keep their tickets despite being provided with a refund auction.

So while we are eager for the day when we can safely welcome and guest back we remain optimistic about the pent up demand, we continue to see from both Argus and Sams.

Throughout the shutdown. We've also been encouraged by how fans are continuing to engage with our assets and brands.

For example, the Christmas spectacular starring the radio city, Rockettes, which and the tip of the year would be kicking off its holiday run. This week is still attracting significant interest from fabs.

Over the past several months rockettes rehearsal for last year's production rocked up over 100 million Facebook views.

Demonstrating the connection people feel to our brands and their desire to engage with our content.

In October we began our first ever virtual residency featuring fishes Trey Anastasio line from the Beacon theater, the Beacon jams, and Unprecedent and eight week series of and to be performances kicked off on October nine and has been a remarkable success each week.

We are excited for the next installment this Friday.

These opportunities are a great way to showcase talent as well as our venues.

Hoping and stay connected with fans and our team is continuing to have conversations with artists and partners on how we can create additional unique moments in this current environment.

Well on performance menus remain closed this past summer several of our top group venues did reopen their doors for delivery takeout outdoor dining and and some locations limited indoor dining.

In Las Vegas. This includes Marquis, which opened in June and has since since increasing the hours of operations due to customer demand.

This was followed and September by select New York restaurants, welcoming back, yes for it and were dining at 25% capacity.

And in October tell my club and Las Vegas reopened and limited capacity.

These venues are operating in it and that continually changing environment as seen by the recent government shutdown of indoor dining and Chicago, but even with the restrictions and place the demand we've seen has been encouraging.

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We look forward to the day, when we can fully reopen and all of our venues until then we will continue to work diligently to ensure that when we do open our doors our employees fans artists and partners can be confident that they are entering a safe and secure environment, where they will share and unforgettable experiences.

The Guardian recently served as an early voting on election day pull site for over 60000 eligible in New York City voters.

And I want to thank our staff along with the New York City Board and elections, which enabled us to play an important role and serving the community.

I'd like to and by saying.

Despite this difficult period, we remain optimistic about our company's future and are confident and our ability to navigate these times we.

We continue to be encouraged by line and grateful for our fans and partners enthusiasm for assets and Browns with debt I will now turn the call over to Mark.

Thank you Andy and good afternoon, everyone.

Today, I will review, our first quarter financial results.

And then provide more details on our recent debt financing and our go forward and pro forma liquidity position.

Let's start by briefly discussing our financial performance.

Due to cope and 19, the vast majority Doherty of our operations remained closed in the quarter, which resulted in minimal revenue and an adjusted operating loss.

For the quarter total revenues were $14.4 million and our adjusted operating loss was $67.7 million.

This compares to $178 million in revenue and an adjusted operating loss of 30.1 million and the first quarter of fiscal 2020.

As a reminder results for the first quarter of fiscal 2020 are based on carve out financials and do not include the impact and the various agreements between our company and MSG sports.

Therefore results are not directly comparable year over year.

We ended the first quarter with $965 million and cash which represented a net reduction of $279 million compared to our July June thirtyth balance of $1.244 billion.

This $279 million reduction included approximately 66 million of nonrecurring items or payments related to physical 20 activities incur.

Including $15 million of cash payments related to our August workforce restructuring.

15.5 million and taxes related to the gain on the foreign sale.

And $35 million related to fiscal 20 compensation payments.

The remaining 213 million was driven by $68 million of operational cash burn for the quarter from about 23 million per month, which was consistent with our previously disclosed expectations.

112 million capital expenditures, which primarily related to the construction of the MSG sphere Las Vegas.

Through September Thirtyth project to date constructions costs incurred on emphases here were approximately 556 million, which included nearly 72 million of accrued costs that were not paid as of September thirtyth and is net of $65 million that we received from the Las Vegas Sands.

As previously disclosed our cost estimate for the MSC sphere menu and Las Vegas is approximately $1.66 billion.

And finally, we had approximately $34 million related to other working capital outflows.

Included in this amount was approximately 10 million and net payments primarily related to deferred ticket revenue and collections due to promoters.

At quarter end, our cash balance includes 191 million in deferred revenue and collections do promoters as compared to 200 million as of June Thirtyth.

The majority of this cash cash relates to deferred ticket revenue and sweet and as Andy mentioned earlier today. Most people have opted to hold their tickets and request scheduled event, but if requested we have provided to be fun.

We also continued to be in close contact with our suite holders and sponsorship sponsors regarding ways to address their obligations non cash means such as credits and make good.

Let's turn to our go forward liquidity position and then he noted we recently raised $650 million to eight five year senior secured term loan issued a subsidiary of MSG Entertainment that owns and operates our core live entertainment Didnt.

But exclude the MSC sphere, and the Tao group.

The borrowing its current secured by our equity interest in certain number of venues and the Christmas spectacular, but excludes our interest and the Madison Square Garden Arena.

Currently the loan bears interest at 7%.

In addition, MSG sports recently terminated.

$200 million delayed draw term loan with our company, which removed and potential and they get they get near term use of cash for us.

We are pleased to have completed the debt financing and extinguished the delayed draw term loans with MSG sports and that materially enhances our liquidity position both.

Pro forma for these transactions, we had nearly $1.6 billion and cash as of September Thirtyth with no additional funding obligation to MSG sports.

We're we're confident that we have ample liquidity to protect our core business until our venues can be open and continue to find the emphases here in Las Vegas, which is scheduled to open in calendar 2023 with.

With that and I will now turn the call back over to Ari.

Thank you Mark.

And we open up the call for questions. Please.

As a reminder to ask you question you will need to press star one on your telephone to withdraw your question press the pound key please stand by while we compiled the Q day roster.

Our first question will come from brand and Ross with light shed partners. Please proceed with your question.

Hello, everyone.

[laughter] first wanted to ask what do you think your post pants and that cost structure is going to look like.

As you guys went through and cut I think it was a $100 million of run rate expenses did you find opportunities to maybe make some.

Some permanent reductions and right and leader in the future.

Thanks, Brendan it's Mark I'll take that one as Andy noted we did take out significant did take significant actions this summer to reduce our expenses by $100 million.

We strongly believe that our business will back that bounce back quickly once we can safely reopener venues and therefore, we do expect some expense those will return as we ramp up the business and to full operations.

However, we've been using this opportunity and this time to think about how we can more efficiently operator business and permanently reduced our expense base.

And while we do not why we do believe some and $100 million and cost savings will be permanent at this stage, it's too early to try and quantify it for you.

Okay got it maybe another one for you Mark you upsize your debt deal from 500 million to 650 million, even though you have plenty of liquidity and a fairly low burn rate.

Couple of things one is cash.

Can you remind us of what the interest rate was on that.

That is there anything to read into you fortifying your balance sheet for.

Sure currently the interest is that about 7% from it given where LIBOR and I think we just took advantage of the strong investor demand and take it then ban is and that to upsize. The facility. We believe it reflects the strength of our assets and the belief that we can when were able.

We can return on safely to reopen our venues and the business will back will bounce back quickly.

And while we are very encouraged by the recent back the news we thought it would be prudent to further.

Bolster our balance sheet to protect our core business and he's on certain time.

Okay.

Great and then just just one more let's say Las Vegas Sands is supposedly hoping to sell its vegas assets I guess, taking the Las Vegas out of the sense.

What does the change of control provisions looked like on your sphere agreement with them.

Hey, Britain and and Sandy.

So though.

Oh really simple.

You know.

The sales has been a great partner.

I don't we can't speculate on what's going to happen with the business like until you are on the ground lease has no change of control and we don't expect the agreements will not be affected by ownership.

Sure Great. Thank you guys.

Your next question will come from John Janedis with Wolfe Research. Please proceed with your question.

Thank you.

I guess, you guys kind of let the best and but on a practical level what does the vaccine news over the past week or so actually mean does it impact when you can start selling tickets are host events and the garden and to what extent you local governments dictate that time line.

He John So obviously, we're we're a very excited by the Black Sea news.

And so it makes us feel bullish about the future and but obviously, we need to be a little bit on.

Uh huh.

We need to see it and action and we need to get the best and the venue is up and running.

It will be.

The most important thing to us obviously is the health of our bolt on patrons our patrons our our artists are players.

And our employees, so we're going have to be very safe.

And were going on and we do and we will continue to work with federal local on but New York City and state to work on an opening plan.

But what I can tell you is also is that now we're feeling really good about and as I mentioned earlier, our back half of the calendar is going to be great.

And so just a question of what exactly those doors open and.

And can safely we welcome our fans back and adult and.

That's helpful. There and limit in terms of the the lead time, you need for going on on South and ticketing.

And we've had events go on sales and off and and within the same week now obviously got to Rudy.

I think the bigger question is.

Poor the touring business that generally a longer dated type of well then you know you have to you have to book you have to scale. It up you have to what gets the artist and pool and prepare the tour. So that takes a few months to roll through but we're a little different than the typical venue because we do have one off.

Events, we do other artists that we worked directly with us and so as soon as we.

Those things and cap and much quicker than a typical torso and I can give you an exact timeline, but.

You know once once we're ready to go we're we're gonna be ready to go on.

Thank you.

Thanks on role and we'll take one last caller.

All right and last question for the call will be coming from David Karnovsky with JP Morgan. Please proceed with your question.

Hi, Thank you I'm, just wondering how you're thinking about the long term impact this year return profile, specifically from changes to the Las Vegas Convention market and sat teaser reduction due to live and shifting to a virtual footprint and then you know how would that affect the standard and maybe how big is that.

Bechtel and Las Vegas as well.

So a lot of things David on what they're.

Thinking on over long term, we're very bullish about what is what did Las Vegas.

What is Las Vegas, Maeve in terms of <unk> and as an entertainment market. It is one of if not the entertainment capital and we we want to be there we feel really good about its long term prospects as you know we pushed back the timing of our opening which I think favors us because it gives more time for the vaccine to flow through.

People to feel good about coming back together again, and we'll be there ready to open and and.

And really ready to grow with with both the city and and entertainment business I think on the towel side yeah.

You know again towers or is an institution and Las Vegas.

And has been doing pretty well even in the current environment. So we feel very good about the long term.

On prospects of Las Vegas market, and our long term business model.

Okay, and then moving and similar on the chips into New York, but would you anticipate any near and long term shift in demand to the Christmas spectacular.

As a result, okay and just the visitation to this region and you know can you maybe say what percentage and tickets are sold king destination purchase for work to visitors from outside the U.S.

Sure so.

I'll say look this spectacular has had.

Around almost a million people a year for the last 10 years 10 seasons and a holiday tradition for over 90 years, we really.

It's.

Brain has never been and have never been stronger.

Typically those visitors come from a mix of New York City, the Tri State area.

Domestic tourism as well as international tourism.

And the mix changes, but we think on a long term basis, we see them and I mentioned earlier, we put up a just even a video of last year's rehearsal, which had over 100 million views on Facebook.

We started two we don't usually start so early but we started to sell group tickets for next year and the demand is strong and we just feel that we feel very good about the long term health of both loved entertainment and more importantly, this fabulous brand.

Okay, and then maybe business grow and one more as a follow on to John's. There can you just discuss David and likelihood that deal and hats and in some limited capacity and any channel are and be a games, either and the general arena or and suites and at some point the season and is it possible to have that even prior to.

On a full vaccine distribution.

It's it's look on it it's so difficult question to give you a straight answer guidelines are continually changing and.

Currently in New York, we could only have <unk> no. One in New York is a lot of fans and attendance EBITDA outside of New York City.

But you know.

We've been we've been very focused about how do we bring fans and both <unk> and fans are again, our players and our employees and safe and effective manner and we're going to continue to work with local officials to try to figure out how to to do that and get people and as quickly as possible.

But we're going to only do that and the safe and effective and safe manner. So I'd say, it's hard to give you the exact timing on but we're you know we're on.

We're hopeful that things are moving in the right direction.

Okay. Thank you.

And this will conclude that came to day portion of today's call I would now like to turn it back over to Ari day for closing remarks at this time.

Thank you all for joining US we look forward to speaking with you on our next earnings call have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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