Q4 2023 Madison Square Garden Entertainment Corp Earnings Call

Good morning. Thank you for standing by and welcome to the Madison Square Garden Entertainment Corp Fiscal 2023 Fourth Quarter and Year End Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's remarks, there will be a question and answer session.

I would now like to turn the call over to Ari Daines, Senior Vice President, Investor Relations, Financial Communications and Treasury. Please go ahead.

Good morning and welcome to MSG Entertainment's fiscal 2023 fourth quarter and year-end earnings conference call. On today's call, Dave Burns, our EVP and Chief Financial Officer, will provide an update on the company's strategy and operations, as well as review our financial results for the period.

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.

In fact, since the completion of our spinoff, we have already reduced our Class A shares outstanding by approximately 6% by repurchasing shares from Sphere Entertainment. With our valuable portfolio of assets and established presence in an industry with strong fundamentals, we are confident in our ability to generate significant long-term value for our shareholders. Now let's review our key operational highlights from the past year. After three fiscal years impacted by the pandemic, we were pleased to host a full calendar of events at our venues in Fiscal 23, plus strong demand from consumers for shared experiences. That included a record number of concerts this fiscal year at both the...

total event-related revenues above pre-pandemic levels.

Consumers have also continued to demonstrate their willingness to spend on experiences in our venues they find valuable.

This includes food, beverage, and merchandise, where we saw per-cap spending finish over 10% higher than last year's results.

which, if you recall, were above pre-pandemic levels by a double-digit percentage.

As we look ahead to fiscal 24, we see no signs of this business slowing down.

This is particularly notable when comparing to fiscal 2023, which benefited from a number of rescheduled concerts due to the pandemic. This reflects our expectation of another robust slate of concerts, as well as a more complete return of family shows and special events, two categories whose recovery has lagged coming out of the pandemic. We're also looking forward to welcoming the Knicks and Rangers back to the Garden next month for the start of the preseason under our long-term arena license agreements with MSG Sports. For fiscal 24, the cash component of the arena license fees that we receive...

will be approximately $43 million, and will continue to grow 3% each and every year through fiscal 2055. Through these agreements, we also benefit from additional revenue and profit sharing from sponsorship, signage, tweets, food, beverage, and merchandise sales related to the NYX and Rangers.

And with how well the teams perform last season, including playoff appearances from both, we expect to see growth in these revenue streams in fiscal 24. Another area where we will look to build on this past year's momentum is the Christmas spectacular.

During fiscal 23, the production generated over $130 million in revenue for our company, the highest in its 89-year history, with approximately 930,000 tickets sold and record ticket yields, a testament to the enduring appeal of this holiday tradition.

As both demand and tourism make a more complete return post-pandemic, we believe we have the opportunity to drive higher sell-through as well as increase the number of shows over time.

To that end, we're currently on sale with 185 shows for the upcoming holiday season, compared to 181 shows this past year.

We will also continue to focus on growing the Rockets brand more broadly, including through social media, which enables us to forge stronger, more direct connections with fans throughout the year and opens up potential ancillary revenue opportunities.

We will also continue to focus on growing the Rockets brand more broadly, including through social media, which enables us to forge stronger, more direct connections with fans throughout the year and opens up potential ancillary revenue opportunities. Turning to marketing partnerships.

In fiscal 23, our business exceeded pre-pandemic levels as we saw continued demand from corporate partners for our entertainment brands.

We were pleased to reach renewal agreements this past year with signature partners, Verizon and Spectrum, while also expanding our roster through multi-year agreements with new partners such as Hub International, a leading global insurance brokerage firm, and QDC which became the presenting partner of the Christmas spectacular.

This same holds true for our premium hospitality business, which also exceeded pre-pandemic levels this past year, driven by strong renewal and new sales activity.

Given the strong demand we continue to see for corporate hospitality, this year we will be introducing two new event-level suites at Madison Square Garden.

This is in keeping with our goal to enhance and expand our premium offerings to create new monetization opportunities for our business.

So as we look to fiscal 24, with majority of our suites under multi-year agreements, along with new premium hospitality offerings, I'm pleased to say we expect another year of growth in this area of our business.

I'd like to now turn to our financial results for the quarter, as well as guidance for fiscal 24, and then close with the discussion of our capital allocation priorities.

With respect to our fiscal 2023-4th quarter, there are a number of factors which cause our financial results to not be fully comparable with the prior year quarter.

For example, we reported revenues of approximately $148 million, a decrease of $30 million as compared to the prior year quarter.

This decrease primarily reflects the absence of the Boston Calling music festival, which we sold earlier in the fiscal year.

Fewer nicks and rangers regular season games, mainly due to the timing of the NHL season in the prior year, and to a lesser extent, fewer playoff games in the fiscal 23-4th quarter, and the impact of the termination of our advertising sales representation agreement with MSG networks. These items, which are not indicative of the underlying strength,

number of events held at our venues. Fourth quarter A O I decreased by $20 million to a loss of 1 million.

This decrease reflects a $14 million year-over-year increase in SGNA expenses.

as well as the impact of lower revenues. I'd note that fourth quarter SG&A expenses are also not fully comparable on a year-over-year basis.

Results for the entire prior year fourth quarter are based on carve-out accounting, and do not reflect all of the SGNA expenses we would have incurred, how do we've been a standalone company for the entire period?

In comparison, the fiscal 23 fourth quarter reflects the company on a standalone basis after April 20th, the date of the spin through the end of the quarter.

We expect to generate revenues of between 900 and 930 million and AOI of between 160 and 170 million dollars. Moving on to our balance sheet and capital allocation priorities. As of June 30th, we had approximately $76 million of unrestricted cash and our debt balance was approximately 659 million, which includes the repayment of $10 million on our revolving credit facility during the quarter. Our year end cash balance also reflects our repurchase of approximately 840,000 MSGE Class A shares.

for $25 million, which occurred concurrently with a secondary offering of our shares in late June by the selling stockholder sphere entertainment.

Subsequent to the end of the quarter, we lent $65 million to sphere entertainment through the delayed draw-at-turn loan facility which was put in place at the time of our spin-off.

Earlier this month, sphere entertainment repaid the entire loan balance, including accrued fees and interest by delivering approximately 1.9 million MSGE class A shares to us, which served as an efficient buyback mechanism.

In the short time we have been a standalone public company, we have reduced our class A shares outstanding by approximately 2.8 million shares or 6%.

Approximately 160 to 170 million dollars in fiscal 24 A.O.I. and growing over time, estimated net interest payments in fiscal 24 of approximately 45 to 50 million based on current market rates, minimal cash taxes through fiscal 26 and capital expenditures that are primarily maintenance related. In terms of capital allocation priorities, we remain focused on paying down a portion of our debt balance and will also continue to look to opportunistically return capital to our shareholders.

In summary, we are proud of our performance in fiscal 23, delivering another year of unforgettable live experiences to our millions of guests. We now look ahead to our first full fiscal year as a standalone company with strong momentum in operations, numerous opportunities for growth, and enhanced strategic and financial flexibility, all of which leaves us confident in our ability to drive long-term shareholder value. With that, I will now turn the call back over to Ari.

Thank you Dave. Operator, can we open up the call for questions? Certainly. At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. And your first question comes from a line of David Karnofsky from JP Morgan. Your line is open.

Hi, thank you David when you when you look at the garden specifically, you know, how do you think about your ability to drive? higher venue utilization You know kind of beyond this upcoming fiscal year and what specifically do you think you can accomplish on residencies and multi-night runs?

And then just separately, last quarter you gave, I think, standalone company revenue guidance.

At 835 to 845 and I think was 145 to 155 just to clarify. Can you say how you performed against those targets? So we have the right base for fiscal 23. Thank you.

Sure, David. I'll take your second question first. On the standalone guidance that we put out earlier this year for MSG Entertainment, results finished revenue was on the high end of the range and AOI was right around the midpoint of the range.

And then on your second question regarding utilization, I know you're focused on the garden. I'd start by saying we're optimistic about our outlook for our bookings business, both near term and long term. As I mentioned earlier, we're currently projecting a low double digit.

which is a point that's important there. Stepping back, we have a terrific long-term track record of increasing the number of concerts at our venues, including the garden. Since 2015, which was the first year following the garden's renovation, we've had mid-single-digit annual growth in the number of concerts here at the garden, as well as across our other venues. And as we think about growing our bookings business on a go-forward basis, increasing venue utilization continues to be an important opportunity for us.

And for some context at the Garden, we hosted over 130 bookings events at the Garden this year, plus 96 Nixon Rangers games. So you know that total is 230 events.

which clearly indicates that there remains utilization upside at the garden.

We expect to benefit in future years from our continued industry growth as an increasing number of artists and acts continue to go on tour. And we'll continue to leverage our industry relationships to identify new events, including potential residencies and additional marquee sporting events.

And we'll continue to be creative in the ways we look to maximize our utilization, including multiple event types per day, while of course weighing what makes the most strategic and financial sense for the company. So with the Garden being our largest venue, we're going to be able to do that.

and most economically significant, we see increasing utilization as an important opportunity and we're confident in our ability to continue to grow the business.

Thank you. And your next question comes from a line of Brandon Ross from Light Shed Partners. Your line is open.

Hey, thanks for the questions. I guess in that last answer to David you spoke a lot about the potential for event growth but you haven't really said anything on this call about growing per event revenue.

Do you expect to grow the profitability per event and what are the levers to do that?

Sure, thanks, Brandon. Certainly growing per event revenues and profitability is a key focus of ours. If you look at the Christmas Spectacular, just taking this past holiday season, our sell-through rate was in the mid-80s. And as you can see, wizarding season is near, though.

And we expect to increase sell-through over time, including as tourism makes a more complete return here in New York.

We also believe there's ticket price upside as we continue to get smarter about dynamically pricing our inventory and as we work to reduce discounting.

And there aren't any material incremental costs to us from higher sell-through or ticket prices, so most of these benefits would fall on the bottom line.

In terms of our overall bookings business, we generate revenue as you know in a number of different ways including the rent we charge to use our venues.

ticketing fees and food and beverage and merchandise sales. And we see upside over time across all of these components on a per event basis.

Part of this is based on our expectations for higher sell-through across our concert business where we're pursuing a number of strategies to continue to drive increases over time. We're focused on maximizing guest experience at our venues and we're always exploring innovative ways to use technology.

to improve this experience, whether it's through ticketing, next generation audio, or introducing new ways for our guests to buy food and leverage merchandise, which also benefits our per caps. We're also focused on enhancing our marketing efforts to better cross promote.

our growing database of millions of customers. So we see continued upside on a per event basis, on our expectations around general ticket prices, price increases in the industry, which would have a positive impact on our rental ticketing fees.

So with all this in mind, I was certainly driving increases in revenue and profitability is an important aspect for our company's growth strategy.

Okay, and then, may as well ask the elephant in the room question. There's been a lot of talk about the Penn Station renovation the past few months. Can you just give an update on any discussions there and how MSGE might benefit if something did proceed?

We're obviously invested members of the community here and we're deeply committed to improving the Penn Station and improving Penn Station and the entire surrounding area.

And we will continue to collaborate closely with all of the various stakeholders to continue to advance this goal. Within your question, there's always the question of the theater and the noise around the sale there. And with regard to that, we will continue to pursue.

all options that make strategic and financial sense, but on the sale, we don't have anything specific to share today.

Got it. Thank you very much. You're welcome.

And your next question comes from a line of Steven Lazek from Goldman Sachs. Your line is open.

Hey great, good morning. Maybe just a follow-up on the Christmas spectacular for David. I think you mentioned the group market coming back nicely. I'm curious if you see upside to the 185 shows that you currently have on sale for this year and then maybe a part of that. I believe groups typically come in at a lower average ticket price.

How should we be thinking about the puts and takes of pricing for the spectacular in 2024? Is it still possible to grow revenue per show even as group demand comes back more fully?

Sure, Steven. Just stepping back, quick reminder, we saw record high revenue for the production this year, over 930,000 guests across 181 shows.

For this upcoming holiday run, we're currently on sale with 185 shows. This is a final run from November 17th through January 1st.

And while we're still early in the sales cycle, ticket sales are up over 40% compared to the same time last year with only the additional four shows on sale.

This increase at this point is being fairly equally driven by both group sales and individual ticket sales. And as you mentioned, the increase in group sales is particularly encouraging because this category has seen somewhat of a lagging recovery coming out of the pandemic.

And then for individual sales, that increase being driven by both domestic and international tourists as tourism continues to make a more complete return post-pandemic. And we're also seeing growth in individual sales among local residents.

With regard to your ticket pricing piece, you've heard me mention, we believe there's upside over time as we work to more effectively price our inventory. For this fiscal 2024, our effort is to balance ticket pricing with our goal of continuing to drive higher sell through.

So with strong signs of demand from all segments, we're growing more confident in our opportunity to drive higher sell through during this upcoming holiday run.

Great, thank you.

Well.

And your next question comes from the line of Ben Swinburne from Morgan Stanley . Your line is open.

Thanks. Good morning. Two questions. I guess first, Dave, can you talk a little bit about the guidance for 24 on the revenue side? We don't have a lot of long experience with guidance from MSG and Nick we're trying to get a sense for your visibility, particularly in the booking side, how much of the year.

Do you have line of sight on, you know, what sort of the range of outcomes, some of the puts and takes? What would be appreciative if you could give us some color there?

Sure.

So, visibility. In terms of concerts,

At this point, we have visibility into, you know, call it roughly over 70% of our bookings.

goal or target for the year. This would reflect almost 90% of the goal at the garden and that's because typical bookings lead time is longer at the garden, roughly six to nine months out. And then at our theaters we're more in the two-thirds of the way through our goal because that's what we're looking for.

We recently went on sale with 56 Cirque du Soleil holiday shows, both at the theater at MSG and in Chicago, which reflects more than 2 thirds of our annual goal for family shows.

With regard to special events, the bulk of our special events business takes place in the fourth quarter, so it is a little early here, but while early, we're already seeing encouraging signs for special events. Compare the last year, strong interest in some corporates, up fronts, award shows.

And lastly, for marquee events, we're expecting another robust year for college sports and boxing. We recently announced the annual Jimmy D Classic at the Garden, which takes place in December . So overall, we're feeling really good about our bookings calendar for fiscal 24 as we sit here today. We're totally excited about our finalavi topic for this year.

You know, we have seen some softness in places like theme parks and other areas of consumer spending that kind of surged out of the pandemic and then have kind of normalized and even gone backwards a little bit. I know you're not seeing it, but I just love, given your experience in the business, if you could talk about whether, you know, you're looking out for that as you move through this year and the comps get tougher, or do you think there's something unique about what consumers are experiencing in your venues that suggests, you know, there's sort of an underlying secular tailwind to the consumer spending growth on F&B and merch and things like that. Thank you.

We have seen some softness in places like theme parks and other areas of consumer spending that kind of surged out of the pandemic and then have kind of normalized and even gone backwards a little bit. I know you're not seeing it, but I just love giving your experience in the business if you could talk about whether you're looking out for that as you move through this year and the comps get tougher, or do you think there's something unique about what consumers are experiencing in your venues that suggests there's sort of an underlying secular tail into the consumer spending growth on F&B and merchant and things like that. Thank you. Got it.

First off, we're not seeing any slowdown. The trends have been really strong for us and continue to be exactly that. We continue to feel really good about demand in 24. As you've mentioned, that's reflected in our guidance. So for us specifically, we're not seeing any signs of consumer slowdown. If you just look at July , for the first month of this fiscal compared to July of last year.

We saw increases in the number of tickets sold to our concerts and higher F&B and merch per cap spending.

I'm trying to think what else, you know, we could add, the including recent data, there's been strong number of sellouts, some of our recent sellouts in June and July have been very strong. Dave Chappelle, the Eagles, the 1975, Matt Reif, Jeff John Oliver and Seth Meyers amongst others. And we mentioned the spectacular is up 40% compared to last year. So very generally, the early indicators for us continue to be really positive for 24 and we're not really seeing any slowdown in terms of consumer demand or spend. Great. Thank you so much. You're welcome, Ben. Your next question comes from the line of Devon Briscoe from Wolf.

music venues. I'm curious if you're seeing a similar improvement in expense trends and if you could help us think through the puts and takes to margins in 2024. And related to that, what kind of incremental margins should we be thinking about? And is there a margin level that you're targeting longer term? Sure, Devin. Yes, exactly.

we first first we expect strong multi-year growth across key revenue categories for us. Bookings, the Christmas Spectacular, suites, marketing partnerships, each of these carry attractive contribution margins for us. On your question on direct expenses, we did see some pressure coming out of the.

and technologies to help reduce our operating costs while still providing an improved guest experience. Digital ticket scanners, self-checkout terminals, things along those lines. And on the SG&A side, we feel our overhead that we currently have in place is sufficient to support.

If you look at our guidance for 24, it implies robust underneath growth and revenue, underlying growth in revenues and AOI for the year, but no significant change in margin per se.

There are some important facts to consider there. First, we have two significant non-recurring events to grow over in 24 versus 23. We had the NCAA Regionals in 23 and the League of Legends World Championship. Both of those were very profitable events for us.

And in addition, our 24 guidance includes the impact of our new corporate office lease, which runs through 2046, and we're required to straight line the rent expense over the term of the agreement as compared to the actual cash outlay, which will lag the rent expense for some time.

of headwind in AOI for us in 24.

And then normalizing for these items, our underlying AOI growth for fiscal 24 is even more robust and really reflects the inherent operating leverage that we have in our model.

Thanks, and as your cash balance grows beyond returning capital to shareholders through debt paydowns and repurchases, how big of an appetite do you have for M&A? We always evaluate opportunities that make M&A a better place to live.

in a strategic and financial sense for us, but right now we're not currently planning to acquire any additional venues or other entertainment properties. We're currently focused on the venues we have in our portfolio and maximizing their utilization and profitability.

Thanks, Devon. Thanks Devon. Operator, we'll take one last call.

And your final question comes from the line of David Joyce from Seaport Research Partners. Your line is open.

Thank you. Dave, could we drill down some more on the topic of residencies? I was wondering how that's shaping up by the various venues in your portfolio, and how should we model the range of number of events per artist going forward?

And finally, related to residencies, are there operational efficiencies from booking these? If you could just help us think about the economics from this aspect, that would be helpful. Thank you. Sure, David. We're in discussions with a number of acts for potential residencies at all of our venues.

And we're seeing that the appetite for residencies from artists is growing considerably. For them, residencies mean less travel and less wear and tear on the band. We're also seeing increased demand as artists and promoters recognize that they can play our venues for an extended period of time and sell out over the run.

Wong is one of several comedy residencies that we have slated for fiscal 24. Matt Rife's set for six shows at Radio City in February and Trevor Noah Nine Nights planned at the Beacon in October . I'd also add one of our strengths is our...

clearly our great relationship with artists and management. So we'll continue to leverage these relationships to attract top talent to our venues for more exclusive recurring programs with the goal of increasing utilization across our venues.

Great, thank you very much. You're welcome. And this concludes our question and answer session. Mr. Ari Daines, I turn the call back over to you for some final closing remarks. Thank you all for joining us. We look forward to speaking with you on our next earnings call. Have a good day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.