Q2 2023 Madison Square Garden Sports Corp Earnings Call
Good morning, Thank you for standing by and welcome to the Madison Square Garden Sports Corp. Fiscal 2023 second quarter earnings Conference call. At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session if you'd like to ask you.
Question. During this time simply press star followed by the number one on your telephone keypad.
I would now like to turn the call over to Ari Danes Investor Relations. Please go ahead.
Thank you good morning, and welcome to MSG Sports fiscal 2023 second quarter earnings conference call to begin I would like to welcome our new President and C O David Hopkinson to today's earnings call.
David will provide an update on the company's strategy and operations. This will be followed by a review of our financial results with Victoria Mink, Our EVP, Chief Financial Officer and Treasurer.
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 investors section of our corporate website.
Please take note of the following.
Today's discussion may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Any such forward looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements.
Please refer to the company's filings with the SEC for a discussion of risks and uncertainties.
The company disclaims any obligation to update any forward looking statements that may be discussed during this call.
On pages four and five of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income or non-GAAP financial measure and with that I'll now turn the call over to David.
Thank you Ari and good morning, everyone.
I'm delighted to be here speaking with all of you today.
I look forward to meeting with many of you in the coming months.
Hi, I'm honored to have taken on the leadership role at MSG sports.
Our company has a collection of iconic professional sports assets.
And with significant opportunities for growth ahead.
I am excited to drive the business forward.
And realize its potential.
Our portfolio is highlighted by the Knicks and Rangers, who kicked off their 'twenty two 'twenty three regular season in October .
And following on last year's record financial performance.
I'm pleased to say that we have continued to build on that positive momentum this team.
As consumer and corporate demand remains robust.
The strength of our business is reflected in our fiscal second quarter results.
With revenue of $354 million, an increase of 22% year over year.
And adjusted operating income of $77 million up 38% as compared to the prior year period.
This growth was broad based.
With total revenues as well as her game revenues across tickets.
<unk>.
Sponsorship food and beverage and merchandise all year over year as compared to the fiscal 'twenty two second quarter.
As we look ahead, our strategy remains focused on continuing to execute well.
On our many opportunities for growth.
Offering new ticketing and creating the hospitality products.
So forging deeper relationships with our fans.
Strengthening our brand globally.
Based on our current trajectory, we are positioned to deliver year over year growth across key revenue lines. This fiscal year.
And our announcement in October to return $250 million to our shareholders reflected this momentum.
Coupled with our confidence in the underlying value of our marquee professional sports franchises.
And now let's discuss in detail how our business is performing.
Our teams are more than halfway through the NBA and NHL regular seasons.
Both the Knicks and Rangers have talented Rogers.
The Rangers Igor circuit.
Adam Fox and our Chinese Darren who participated in the NHL All star game this past weekend.
And the next Julius Randle, who was recently selected as a 2023 NBA all star.
Both teams are currently employed our contention and we look forward to the coming months of exciting competition.
We continue to be energized by our fans, whose enthusiasm for our teams have only grown stronger during the last few years.
Our average combined season ticket renewal rate is above 90%.
And we are also seeing strong sales of new season ticket packages.
As a reminder season tickets represent the significant majority of our ticketing revenue.
We're also pleased to say that our group and individual tickets sales have returned in full force, which reflects improving tourism as well as our enhanced results across dynamic pricing.
And improved efficiency in data analytics and marketing.
In fact average tickets sold per game for individuals and groups through the fiscal second quarter has not only significantly exceeded the prior year quarter.
As also exceed the pre pandemic second quarter of fiscal 'twenty.
This robust demand.
Combined with higher average ticket yields.
Rove substantial year over year growth in ticketing revenue this quarter.
With both the Knicks and Rangers maintaining their position amongst the leaders in average gate receipts. So far this season.
Beyond ticket sale, we have seen the enthusiasm from our fans again lead to increases in per capita spending across food and beverage and merchandise in the fiscal second quarter relative to last year, which as you may recall was a robust year for guest spending.
We are strengthening and growing our fan.
Using a multipronged approach to forge impactful direct relationships with our customers at multiple touch points and their experience.
On the merchandise front, we've continued to introduce the spoke product offerings to build connections with guests while driving business results.
We are once again partnering with popular street wear fashion brand such as shelf stable with the Raiders.
With the Knicks should create new collaborative collections. This season following prior year's success.
In fact in November we also named <unk>, founder and CEO Ronnie <unk> as.
As our first ever <unk> create a directory.
In addition to developing an in house line of products. Ronnie is focused on helping to provide a distinctive look and feel across our marketing content and merchandise initiatives.
We're extremely excited to have <unk> join us for this continued and expanded collaboration.
We believe we will further develop our global community around our iconic mixed Brett.
On the Ranger side, we recently welcomed thousands of our fans to Washington teams first ever opening practice at the garden.
Giving them the opportunity to get up close and personal with their favorite players and another great example of the unique ways in which we look to connect with and develop our next generation of fans.
Yes.
And our efforts to foster our fan community also extend outside of jewelry.
Across our social media platforms, we've been rolling out compelling exclusive content.
Excluding behind the scenes player interaction.
Locker room footage and lifestyle looking.
It's clear this content is resonating.
So far this fiscal year, we have added over 600000, net new social followers across both teams.
Bringing our combined total following to over $17 million.
Our social channels.
As we continue to demonstrate through Cobranded social media content.
Our global marketing partners view this social content as the unique Avenue.
Connect with both our avid and casuals denim.
Our marketing partners have also continued to demonstrate solid demand across all of our assets in fiscal 'twenty three.
In partnership with MSG Entertainment, the first half of the fiscal year was highlighted by extension with signature partners Verizon inspection.
As well as with other brands, such as Duncan and Jagermeister.
At the same time the company has made strides.
And expanding into new categories.
We welcomed leading insurance brokerage firm hub international at the signature partner earlier this year.
As a reminder.
Minder this fiscal year for the first time, we're also realizing the full run rate impact of our extensive deal with sports gaming company.
At MGM.
Sports book and draft case.
Our sponsorship momentum demonstrates the strength of our brand and our expansive reach in the New York market and beyond.
And with the MDA has expanded international sponsorship opportunity beginning this year, we are increasingly focused on growing our commercial opportunity globally for the next.
To that end, we recently announced.
The cruises as.
As the official cruise lines harder and first official global partner of the nurse.
We fully expect this global partnership will be the first of many and we remain confident in the reach and appeal of the Nic internationally.
Corporate demand has also extended to our premium hospitality.
We have seen robust renewals and new sales of suite licenses through the first half of the year.
Turning us for continued growth in this category.
On the media right side, we continue to see increases in local and National media rights fee due to annual contractual rate escalators.
And with the MDA media rights renewals coming due after the 'twenty four 'twenty five.
We remain confident in the opportunity ahead.
Before I turn the call over to Victoria I'd like to touch on the recent third party valuation for the Knicks and Rangers.
In December <unk> published its annual ranking of MDA seen valuation with the mix coming in at an estimated $6 6 billion.
<unk>, 8% from last year.
That same month Forbes updated if any chunky evaluations with the Rangers maintaining the top slot at $2 2 billion, a 10% increase year over year.
And there continues to be record transactions for professional sports franchise.
Evidenced by the recent Phoenix.
Just two months ago, the signs were valued by Forbes at an estimated $2 7 billion.
And now with a reported sale price of $4 billion.
The sons are delivering the highest ever sale for an NDA.
We feel great about our position.
<unk> two iconic franchises that have dedicated fan base and.
And play in the largest media market in the country.
We remain encouraged by the continued increases in estimated team valuation along with the transaction to continue to come in well above those estimates.
Our recent share buyback program is a demonstration of that confidence.
Recognizing the gap persists between the current trading price of our stock relative to the intrinsic value of our marquee force franchises.
And so with more than half of fiscal 2023 already behind us.
We're proud of how our business is performing.
And we remain confident in our ability to generate long term shareholder value.
With that I'll now turn things over to Victoria.
Thank you David and good morning, everyone.
I would like to start by reviewing our fiscal 2023 second quarter financial performance and then provide an update on our balance sheet.
Results for the fiscal second quarter reflect preseason play and the start of the 'twenty two 'twenty three regular seasons for the Knicks and Rangers.
In aggregate, we hosted 41 pre and regular season games across both teams as compared to 35 games last year to six more games, which positively impacted this quarter's results I'd.
I'd also note that our fiscal third quarter will reflect two additional home games, while our fourth quarter will reflect eight fewer regular season home games, both as compared to the prior year periods.
Turning to results for the fiscal second quarter total revenues were $353 7 million as compared to $289 6 million in the prior year period with increases across all key revenue lines.
Event related revenue of $142 $3 million increased 30% year over year.
This mainly consists of ticket related revenue as well as food beverage and merchandise sales.
All of which saw higher average per game revenue driven by the enthusiasm from our fans.
Increase in event related revenue also reflected the additional games played at the garden during the current year quarter as compared to the prior year period.
National and local media rights fees of $118 $2 million increased 5%.
Primarily due to the impact of contractual escalators, both our local and national media rights agreements.
Suites and sponsorship revenues of $81 million increased 38%.
Due to a higher number of games year over year as well as an increase in per game revenue for bulk suites and sponsorships.
These results reflect the demand we have seen for new suite licenses at the garden and robust renewables.
Sponsorship includes the full run rate impact of our sports betting partnerships and the impact of the Nhl's new digitally enhanced dashboards.
Adjusted operating income increased 38% to $76 $6 million as compared to the prior year period.
This improvement was driven by the increase in revenues, partially offset by an increase in direct operating expenses and to a lesser extent higher SG&A expenses.
The increase in direct operating expenses reflects higher team personnel compensation as.
As well as other team operating expenses.
The increase in SG&A expenses was primarily due to higher employee compensation, reflecting executive management transition costs recorded in the current year period, as well as higher marketing costs.
As we look ahead, we continue to expect our business to deliver growth across key revenue lines in fiscal 'twenty three while our ally will also reflect higher team operations expenses.
Turning to our balance sheet.
As David mentioned earlier in October we implemented a program to return approximately $250 million to our shareholders.
This was comprised of an approximately $173 million special cash dividend and a $75 million accelerated share repurchase program, which was completed in January .
In total the company repurchased approximately 456000 shares at an average price per share of approximately $164.
Having about 2% of class a common shares outstanding prior to the buyback.
We now have approximately $185 million remaining under our existing share repurchase authorization.
In connection with the special dividend and share repurchase the company borrowed an additional $55 million under the <unk> revolving credit facility and $160 million under the ranges facility.
<unk> $30 million in total was subsequently repaid during the quarter.
At the end of the quarter, we had $435 million of debt outstanding comprised of $260 million under the mix senior secured revolving credit facility and $145 million under the Ranger senior secured revolving credit facility and $30 million advanced from.
The NHL.
I would also add that in addition to the $30 million of total debt repayment in the quarter last week, we paid down an additional $13 million on the arrangements with Oliver.
Our quarter end cash balance of approximately $44 million represented a net increase of $37 million compared to our September 30 balance of $81 million.
With regards to liquidity as of December 31.
$164 million of liquidity comprised of $44 million of unrestricted cash and cash equivalents.
$120 million in borrowing capacity under the team's revolving credit facilities.
Based on the momentum we continue to scale the business and the growth opportunities ahead, we remain confident in our ability to drive long term value creation for our shareholders with that I will now turn the call back over to Ari.
Thank you Victoria, operator can we now open up the call for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
And your first question comes from the line of Brandon Ross from Light shed partners. Your line is open.
Hey, good morning, Dave.
David You mentioned, the Forbes valuations and those recent sales of teams at pretty hefty prices.
Most relevantly the Phoenix SUNS out.
But that's nothing really but illustrative for investors without a sell of the Knicks Rangers or at least a minority sale as a mark.
Are either of those things in your consideration set.
Well, hi, Brandon good morning.
Look let me, let me start by saying that we're as confident as ever in the value of our teams.
These are incredibly scarce assets <unk> got strong business fundamentals that we just reviewed and we believe they've got significant opportunities for long term growth. So.
As I mentioned in my remarks, we just don't think that is.
Appropriately reflected in our current stock price and that was one of the reasons that we.
I mean to the east the recent share repurchase.
Theres also changes in the ecosystem the NBA has.
Recently allowed for private equity.
To come into the marketplace as well as.
Sovereign wealth funds. So we've got no new pools of capital available. So yes to answer your question, we have no plans to sell either team and since you asked what the Knicks no current plans.
But we would certainly not rule out the possibility of selling a minority stake in the mix for the Ranger.
Got it thank you.
Your next question comes from the line of David Karnofsky from Jpmorgan. Your line is open.
Thank you David just given the potential for major bankruptcies in the resi space that could significantly impact distribution for the NHL NBA.
How are you thinking about risk to your own distribution over the next several years and the potential need to maybe adjust existing terms or payments you received if only to establish a wider or more sustainable carriage for your gains.
Yes, Thanks, David that's a good question.
If we take a step back we all know and we can see that the media landscape is evolving.
But we believe strongly in the value of live professional sports content, especially in the case of premium content like the Knicks and Rangers.
We're happy that we operate here in the nation's largest largest media market.
So that benefits us and benefits our partner MSG networks.
Sports rights we've seen.
Proven over and over is a great investment, especially over the long term. So we have confidence as we look ahead.
So answering your question specifically I want to flag for you that we've got long term local media contracts in place with our partner MSG networks.
And those agreements provide exclusive local distribution of all of our live content, including our digital rights.
MSG networks have been great partners, and we're really supportive of what <unk> been doing on the distribution front.
Including in terms of new digital offerings.
Recently, MSG networks announced plans to launch a direct to consumer offering in our market.
Product is designed to appeal to sports fans that do not currently subscribe through a traditional linear package.
We're also pursuing a variety of additional ways to increase engagement and grow our reach amongst our fan base, especially on social media.
A priority for us is delivering compelling exclusive social media content, giving our fans behind the scenes player interactions locker room footage live look ins and we think it's working we've added 600000, new social followers across both teams. So far just the season alone and now have a total <unk>.
Social media ecosystem of 17 million followers across our social channels.
Social is a priority for of ours pardon me social as a priority.
Us.
And as the media landscape evolves with more with DTC offerings, we're going to complement distribution outreach using social media.
Okay, and then maybe for Victoria.
Both the Knicks and Rangers as of today, our playoff teams, which means potentially playoff revenue.
How should investors think about potential use.
Fiscal year fiscal.
Fiscal year end cash flow, assuming you guys have do Brian .
Sure. Thanks, David.
Well first let me say, we are really looking forward to the coming months.
What should it be really exciting.
Competition.
Dan I would just as a reminder, we were really pleased last year with the financial impact of the Rangers playoffs performance, which drove significant increases in revenue and AOI for the 10 home games playoff games that we played.
So we are definitely excited interest in there of the season.
When we think about what to do with the potential of the excess cash flow our near term focus continues to be on.
Down debt and as we've talked about we borrowed.
$215 million. In addition to the cash on hand that we have generated in order to return $250 million to our shareholders.
As you've heard US discuss of course this return of capital was a reflection of the strength of our business.
Which has continued through this fiscal year so far.
As well as our confidence in the value of our sports franchises. So no.
When we look ahead and think about our capital priorities. They are generally the same.
Certainly near term is of course to maintain that appropriate liquidity to fund our operations and invest in our core business.
And importantly is to keep a strong balance sheet. So we will as I mentioned continue to focus on paying down debt in the near term trying to $30 million, we paid in the quarter and then another $15 million over the last week.
But third.
Our longer term capital considerations right. We would of course consider other uses of our cash flow over time, including another return of capital potentially in the future.
Thank you.
Your next question comes from the line of Ben Swinburne from Morgan Stanley . Your line is open.
Thanks, Good morning, David welcome to the call nice to meet you over the phone wanted to ask you about sort of the corporate demand backdrop, you mentioned really strong suite renewals and sponsorship trends, but we are seeing corporate spending pretty soft in the advertising marketplace, we're seeing layoffs, obviously and a lot of sectors like Tac.
Can you just tell us what youre seeing when you look out into the forward bookings and also just the nature of these multiyear contracts.
Would you have already seen a weakness in your business. If it were to show up or might that be ahead of us and then I just wanted to ask Victoria. She could maybe pick up on your last answer is there a way to think about leverage on at this company in terms of more traditional metrics, whether it's debt to EBITDA or debt value of the teams because I know you are paying.
And that but it would seem like you've got a lot of capacity. If you wanted to to use more but obviously the sort of leak.
Oversight plays a role as well so I'd be curious in your thoughts there. Thank you both.
Great. Thanks, Ben I'll tackle the first half of that and then I'll, let Victoria answered the second part of your question.
The short answer is no.
We're just not seeing an impact.
On our business other than a really strong demand for the product.
Look like you were really mindful of the broader macro environment.
But if I look across sort of three big sectors of our business all of them are really strong.
Ticketing.
As I mentioned, we had season ticket rules that exceeded 90% strong sales for both teams strong demand for new packages.
Strong group and individual ticket sales.
As I mentioned in my remarks.
<unk>.
The group and individual tickets sales exceeded last year's Q2, but they were also above the pre pandemic.
Q2 in 'twenty, so tickets on an individual basis look.
Better than ever.
Specifically with respect to corporate demand our business remains strong and.
If I think about sponsorships.
We're seeing as I mentioned, the full run rate of mobile sports gaming with our three partners in their first full year with us.
We see great demand for new offerings in the marketplace. The NHL introduce the digitally enhanced dashboards. This year, we're seeing great demand from.
Net inventory from our partners.
And have introduced the new partners.
The renewals and which spectrum Verizon Dunkin' Jaeger mind sure a new deal in hub. So we are seeing.
Strong demand from the corporate sector.
And we think we've got opportunity for headroom as well with both international.
That's an opportunity for the Knicks and patch.
<unk> yet to come for both Knicks and Rangers.
With respect to the suites and premium products, we had a great year for renewals.
Having a great year for new sales.
And in conclusion.
Yes, we're taking none of that for granted we're working hard every day.
While the economy like you do but so far we're seeing absolutely no no softening whatsoever and in fact really robust demand.
Great to hear from you.
Sure so.
Yes, sorry, we have not publicly provided an official target, but I will say it is certainly something that we are.
We're thinking about and that we that we are discussing internally.
Great and Youre correct. The liens do have oversight as to the amount of debt.
Either one of the teams.
Carey.
As we mentioned in a way we are and I feel very good about.
Our overall liquidity position and the amount of debt that we currently have outstanding again, we just think it's prudent to use our excess cash flow at this time.
Or just continue to pay it down given the overall cost of borrowing needs.
These days, but like I said it is certainly something that that we spend a lot of time thinking about that at the end of the day when I when I really take that step back.
It's really the trajectory of the business that we that we feel good about and our ability to generate free cash flow and.
And then it's the potential as to what we can do with that cash going forward again with some a variety of capital allocation and opportunities that are out there, including returning money to shareholders. As we did that we were very pleased to be able to do.
Great. Thank you.
Your next question comes from the line of Devin Briscoe from Wolfe Research. Your line is open.
Thanks, My question is related to the upcoming NBA National TV rights renewal the values that are being talked about or multiples higher than the current deal could you talk about how strong the flow through of incremental revenue to cash flow could be from a new deal and if and how it would change your capital allocation priorities.
Sure Devin.
No.
First off we continue to believe in the value of live sports.
And particularly as well as our leagues appeal domestically and internationally.
And we fully trust the NBA to maximize the opportunity when the time comes so just as a reminder.
<unk>, that's going to be after the $24 25 season, which is where the current agreement runs through so sort of what we're talking about would be out into our fiscal 'twenty six.
But specifically to answer your question in terms of that financial impact now all teams across the league with share equally in the increase from National media fees with a net impact of I would say roughly about half before revenue sharing dropping down to increase our AOE.
So certainly.
Some good potential for a positive financial impact.
And when I talked about the capital allocation policy, a little earlier, we're sort of focused a bit more on the near term in terms of the potential for excess cash flow on.
With clay off, but I think thinking out several years I think the priority is still remain the same in terms of maintaining a healthy balance sheet maintaining.
Liquidity for our ongoing operating needs and then again from a longer term perspective, which is I think some of what we're talking about here is that opportunity for additional returns of capital.
Thank you.
And your next question comes from.
Your next.
Comes from the line of Paul Golding from Macquarie Capital. Your line is open.
Thanks, So much I was hoping we could dive a little deeper into some of the comments earlier around the sponsorship space.
In terms of cohort is there any color you could give.
It's apparent that the mobile sports betting cohort.
Seemingly media as well has been strong but.
Are they.
Sort of mopping up any excess supplier inventory sort of in the spot market from others that might be weaker or.
Is it pretty much all spoken for in terms of the strength that they are able to deliver is the largest component of your sponsorship.
Revenue and then secondly, I just wanted to see if we could get a little more color on the Jersey patch sponsorship process. Thanks, so much.
Yes sure thing Paul those are those are really good questions with respect to the three <unk>.
Mobile gaming partners that we have draft kings that MGM in Caesars.
That was a big focus for us when that category was introduced we want to make sure that we were able to maximize that opportunity and we're really happy with where we landed there not just from a revenue perspective, but also from a brand perspective, we believe we found the right partners and the right mix to fully.
Profit from and benefit from that new opportunity.
We think about the partnerships business in those two dimensions that you mentioned one is category and one is inventory.
I was pleased to introduce hub.
As a signature partner of ours, new this season, which was an important category for us insurance brokerage as an important strategic category and I'm glad that we've filled that.
Opportunity with such a strong partner and good economics underpinning that deal. So we will continue to look for key categories that we can sell to the right partner on an exclusive basis on the right package.
When it comes to inventory the sort of the second half of your question on Jersey patches.
We currently are not playing with a patch on the Knicks Jersey, we've got that opportunity open and available.
And we believe that when the right deal presents itself, which we're working on a daily basis will conclude that.
For us it's about the right partner, the right economics, and we're prepared to sit and work that category.
Because it's such a strategic priority for us we want to make sure we get the right deal done.
With the Rangers, we're taking the exact same approach the NHL introduced that opportunity adjusted.
The beginning of this year.
We are watching the marketplace very closely.
Because baseball has also introduced the sleeve opportunity this year and so its a noisy marketplace out there I really believe that we've got to work this everyday and conclude the right deals not not the necessarily the quickest deal.
However, when we do so whether it's the next or the Rangers are ultimately both we've got material upside in our partnerships business.
Great. Thanks for the color.
And this ends our question and answer session. Mr. Ari Danes I'll turn the call back over to you for some final closing comments.
Thank you all for joining US we look forward to speaking with you on our next earnings call have a good day.
Okay.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
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