Q1 2025 Madison Square Garden Entertainment Corp Earnings Call
Speaker Change: Good morning. Thank you for standing by and welcome to the Madison Square Garden Entertainment Corp Fiscal 2025 First Quarter Earnings Conference Call. I would now like to turn the call over to Ari Danes, Senior Vice President, Investor Relations and Treasury. Please go ahead.
Ari Danes: Thank you. Good morning and welcome to MSG Entertainment's Fiscal 2025 First Quarter Earnings Conference Call.
Ari Danes: On today's call, Mike Grau, our EVP and Chief Financial Officer, will provide an update on the company's operations and review our financial results for the period. After our prepared remarks, we will open up the call for questions.
Ari Danes: 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.
Ari Danes: Today's discussion may contain forward-looking statements within the meaning of the private security's litigation reform act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks of uncertainties that could cause actual results to differ materially from those in the forward-looking statements.
Ari Danes: Please refer to the company's filings with the SEC for a discussion of risks and uncertainties.
Ari Danes: The company disclaims any obligation to update any forward-looking statements that may be discussed during this call.
Speaker Change: On pages 4 and 5 of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income, or AOI, a non-GAAP financial measure. And with that, I'll now turn the call over to Mike.
Thank you, Ari, and good morning, everyone.
Mike Grau: With our new fiscal year underway, we expect our portfolio of assets and brands to continue benefiting from demand for shared experiences.
Mike Grau: In our bookings business, the Garden recently saw a record number of concerts for a fiscal first quarter.
Mike Grau: Last month, we welcomed back the Knicks and Rangers to the world's most famous arena for the start of their 24-25 regular seasons. While later today, the Christmas Spectacular will kick off its 91st holiday season.
Mike Grau: Lastly, in our marketing partnership business, we recently announced a number of notable agreements while we also remain encouraged by the level of corporate demand for our premium hospitality offerings.
Let's now review some first quarter operational highlights.
Mike Grau: During the quarter, our venues hosted nearly 800,000 guests at over 120 events.
Mike Grau: This reflected lower per-concert revenues, primarily due to a mixed shift at the Garden from promoted events to rentals, which, all else being equal, generates similar AOI but lower revenues on a per-event basis.
It also reflected fewer concerts at our theaters.
Mike Grau: These decreases were partially offset by growth in the number of concerts at the arena, including an increase in the number of acts headlining the arena for the first time, which is one of our strategies to increase utilization.
Mike Grau: The increase in the number of concerts at the Garden is also noteworthy, since the prior year quarter included residencies from Phish and Dave Chappelle, as well as two additional Billy Joel concerts.
Mike Grau: From the demand side, consumers continue to demonstrate their desire for in-person shared experiences, with the majority of concerts across our venues once again sold out during our first quarter.
Mike Grau: In terms of in-venue spending, combined food, beverage, and merchandise per caps at concerts were down modestly year over year.
Mike Grau: I would also note that per cap spending for the quarter was up compared to the fiscal 24 full year average.
Mike Grau: Looking ahead, we have seen some slowing in our concert bookings pacing in recent weeks.
Mike Grau: That said, we are experiencing positive momentum across family shows, special events, and marquee sports, and continue to expect to grow our total number of bookings events this fiscal year.
Mike Grau: In terms of family shows, next week Annie will begin a combined 64 performances at the Chicago Theatre and the Theatre at MSG.
Mike Grau: We also have a number of upcoming high-profile special events, including the return of the Tony Awards to Radio City in June.
Mike Grau: And in our sports bookings business, next week we will welcome the UFC back to the Garden for what we expect to be one of the top grossing events in the arena's history.
Mike Grau: And next month, tennis returns to the Garden for the first time since 2018.
Mike Grau: With regard to the Nixon Rangers, the cash component of the arena license fees will be $44 million for this fiscal year, and these fees will continue to grow at 3% each year through fiscal 2055.
Mike Grau: And while still early, we are seeing positive momentum across our share of food, beverage, and merchandise at Nixon Rangers home games.
Mike Grau: Turning to the Christmas Spectacular. We are kicking off the 91st holiday season later today and this year's production will include new immersive elements as we continue to invest in improving the guest experience.
Mike Grau: Advanced ticket sales continue to outpace where we were at the same time last year. This reflects increases across individual and group sales, aided by the ongoing return of tourism to New York.
Mike Grau: In light of the demand we've seen so far, we have added two performances to this year's holiday season run, bringing the total number of shows currently on sale to 199.
This compares to 193 performances last year.
Mike Grau: We're also continuing to monitor ticket sales and may add performances to this year's run if demand warrants.
Turning to our Marketing Partnerships business.
Mike Grau: We recently announced a number of new deals, including Lenovo and its subsidiary Motorola, as well as the Department of Culture and Tourism Abu Dhabi.
We also recently signed an expanded renewal with Verizon.
Mike Grau: All of these deals are multi-year in nature and encompass a wide variety of our assets and brands.
Mike Grau: In terms of premium hospitality, we continue to see strong new sales and renewal activity for our suites.
Mike Grau: That includes our event-level club space, which was introduced last year and was recently expanded ahead of the 2024-25 season.
Speaker Change: So as you've just heard, we are seeing a number of puts and takes in our business so far this fiscal year.
Speaker Change: That includes some slowing and concert bookings pacings on one hand.
Speaker Change: and strengthen the Christmas Spectacular, Special Events, and Marquee Sports on the other hand.
Speaker Change: In addition, as we look ahead to the balance of the fiscal year, we now expect to incur additional expenses related to our recent decision to end our agreement with Oakview Group's Crown Properties Collection and bring sponsorship sales back in-house.
Speaker Change: As a result, we now anticipate delivering a mid-to-high single-digit percentage increase in adjusted operating income for fiscal 25.
Speaker Change: This reflected a decrease in revenues in our entertainment offerings and food, beverage, and merchandise categories, partially offset by growth in our arena license fees and other leasing categories.
Speaker Change: As I touched on earlier, the decrease in revenues from entertainment offerings primarily reflected lower concert revenues, mainly due to a shift in the mix of events at the Garden, from promoted concerts to rentals, and a decrease in the number of concerts at the company's theaters.
Speaker Change: This decrease was partially offset by an increase in the number of constants at the garden during the quarter.
Speaker Change: The decrease in food, beverage, and merchandise revenues primarily reflected the impact of lower per-concert food and beverage revenues at our venues and, to a lesser extent, fuel concerts at our theaters.
Speaker Change: This decrease was again partially offset by an increase in the number of concerts at the Garden during the quarter.
Speaker Change: First quarter adjusted operating income of $1.9 million, increased $2.1 million as compared to the prior year quarter.
Speaker Change: The increase in adjusted operating income primarily reflects a decrease in direct operating and SG&A expenses, partially offset by the decrease in revenues.
Speaker Change: Turning to our balance sheet. As of September 30th, we had $37 million of unrestricted cash, while our debt balance was $677 million.
Speaker Change: This reflected $622 million outstanding under our term loan and $55 million drawn on our revolving credit facility during the quarter.
Speaker Change: Our capital allocation priorities are unchanged. We remain focused on opportunistically returning capital and debt pay down.
Speaker Change: Since the end of the quarter, we have already paid down the full $55 million revolver balance, and we continue to expect to generate substantial free cash flow as we progress through fiscal 25.
Speaker Change: This is underscored by our current expectations for a mid-to-high single-digit percentage increase in AOI.
Speaker Change: Ongoing net interest payments which totaled $51 million for the trailing 12-month period.
Speaker Change: Our current status as a modest cash income taxpayer and capital expenditures, which include both maintenance CapEx as well as some incremental spend related to the Christmas Spectacular and suite renovations of the gardens.
Speaker Change: Thank you, Mike. And with that, Operator, can we now open up the call for questions?
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: Your first question comes from a line of Peter Henderson from Bank of America. Your line is open.
Speaker Change: Good morning and thank you for taking the question. So Mike, you mentioned that you've seen some slowing in the concert bookings in recent weeks. So maybe you could discuss the causes in your mind for that slowing and just also provide updated thoughts on concert bookings for the Garden as well as for the theaters.
Speaker Change: for the next quarter, as well as for the remainder of the year. And then finally, just where you stand on concert bookings now relative to this point last year for fiscal 2Q, 3Q, and 4Q.
Thanks.
Speaker Change: Sure, Peter. Good morning, and thanks for the question. So you're right, bookings have certainly slowed a little bit since we last spoke in August. Maybe I'll talk about it at the arena level and then at the theater level.
Speaker Change: At the arena, we have a tough year-over-year comp given the 11 extra Billy Joel shows in the prior year. And that's something we thought we would overcome. And right now, maybe a little less bullish in that regard.
Speaker Change: What we're seeing is a couple things. One is we have seen a little bit of a spike in cancellations.
Speaker Change: Each of these cancellations has a little story around it, sometimes it's artist help like Aerosmith and Steven Tyler.
Speaker Change: Other instances, like Black Keys and Jennifer Lopez, we had shows that were selling very well, in fact, in most instances sold out.
Speaker Change: But I think the biggest driver is just what we're seeing is just like a shortage of supply especially in the spring or what would amount to our fiscal third quarter.
We took a look in the New York DMA at...
Speaker Change: The announced arena level shows this year for that quarter, versus the actual shows the prior year, and it's down 50% plus in the New York DMA, so this is not something unique to the Garden, and given the booking windows, I think those numbers are fairly well developed. So there is just a scarcity of supply in the spring for arena level shows.
Speaker Change: some of that I do think is timing because when we take a look at our bookings right now for fiscal 26 for the back half of calendar 25 or our first two quarters of fiscal 26 we're actually ahead of where we were at this time last year
Speaker Change: It's admittedly on a small, a relatively small sample, but I think it's an interesting data point. So there's an element of timing to this, but we are seeing a shortage of supply there, which is driving some of the pullback.
Speaker Change: In terms of theaters versus the same time last year, you know, our 2Q bookings are down very very modestly essentially flat
Speaker Change: Third quarter we're seeing the same softness that we're seeing at the arena and then the fourth quarter were actually modestly up
Speaker Change: Now, unlike at the Arena, there are shorter booking windows at the theater, so these numbers will continue to develop, and I think there's more opportunity for us to be adding there. And again, if we look at the theater level, what we're looking at for the back half of calendar 25, we're up modestly, again on small numbers versus where we were at this time last year.
Speaker Change: So there is some timing to this and there is some scarcity of supply. So our expectations for fiscal 25 have come down a little bit since we last spoke in August, more so at the arena. Still a very robust bookings business, still premier venues, and still a lot of artists demand to play our businesses. So I do think this is more temporary in nature.
Thank you
Thank you. Thank you.
Speaker Change: Your next question comes from a line of David Karnofsky from JP Morgan. Your line is open.
Hi, good morning. Doug Wardlaw for David.
Speaker Change: First, with the Christmas Spectacular, can you dig in a bit more on ticket sale trends and how you're thinking about the opportunity to potentially add more shows? And then, I guess a little bit different from the last question, separate to concerts are the Knicks and Rangers. How does the booking pipeline look for content like family shows or other sporting events?
Thank you.
Speaker Change: Sure, Doug. Thanks for the questions. Um, so I'll take them in that order in terms of the Christmas show sales You know back in August we talked about the fact that we were up 16% year-over-year And when I say year-over-year, I mean this ticket sold at this point versus same point last year
Speaker Change: But at that point in time we were only like 10% of the way to our goal. We're now
Speaker Change: pushing up against halfway to our goal and we continue to be up 15% year over year so we've sustained that and I think it has a little more weight given that we again are halfway to our goal or right about there and again the variance is about half rate half volume so really very robust sales very encouraging signs
Speaker Change: We've sustained the momentum that we were seeing in August, so that gives us reason to believe that we have upside here compared to our initial expectations.
Speaker Change: We have added two shows on sale, since initially going on sale, and we'll continue to monitor the demand. And if demand warrants, and if the economics make sense, we do have opportunity to add a couple more shows in that regard.
Speaker Change: The current expectation, as we mentioned in our prepared comments, over a million guests, similar sell-through on more shows.
Speaker Change: And I would say over the longer term, we continue to see a lot of opportunity with the Christmas show across ticket yields. We're kind of priced below comparable entertainment options, if you think of a Broadway show as a comparable entertainment option. And even on sell-through and overall volume, we're still not yet at pre-COVID highs. So we think there's long-term runway with the Christmas show as well.
Speaker Change: In response to your second question, when we talk about bookings other than concerts, we tend to talk about it internally in three categories, family shows, special events, and then marquee sports, which is all sports other than Knicks and Rangers.
Speaker Change: In terms of family shows, we mentioned that we have the 64 Annie shows starting very shortly for the holiday season. We have a Riverdance 30th anniversary of 5 show run coming to Radio City. So pretty busy schedule in terms of family shows.
Speaker Change: Special events is a good story. This was an area that was a little bit weaker last year than we expected. It tends to be a little more heavily weighted to the fourth quarter, but we're already seeing very encouraging signs in 25. We mentioned the couple multi-night events coming to Radio City, including the Tony Awards. We're already seeing in the first quarter some corporate events.
Speaker Change: and things of that nature. So I think there's real upside here again versus our initial expectations.
And then in terms of marquee sports...
Speaker Change: UFC 309 coming to the Garden next week, and tennis coming to the Garden for the first time since 2018. So really a pretty good top-shelf lineup in marquee sports there too. So overall I'd say we have pretty strong momentum in all of those kind of non-concert booking categories.
Great, thank you.
Speaker Change: Your next question comes from a line of Stephen Lesik from Goldman Sachs. Your line is open.
Stephen Lesik: Hey, great. Thank you for taking the questions. Maybe just a follow-up on the new AOI guidance for Mike. Could you maybe talk a little bit about how you're thinking about the swing factors still at play that would either take you to the high end or low end of that guidance range for mid to high singles for the year? And then maybe as a part of that, it sounds like there's some added costs related to the shift away from Oakview. Curious if there's any way you could quantify that for us, the impact this year and then anything reoccurring on the expense side. Thank you.
Sure.
Speaker Change: So, Stephen, you know, in evaluating our outlook, we look, of course, at the upsides and the downsides, or the headwinds and the tailwinds, if you will.
Speaker Change: In terms of the challenges we're seeing, it's kind of the things we've been talking about. The concert bookings, the pacing of concert bookings, and some of that incremental overhead to bring sponsorship sales in-house. And then we do think we have upsides around the Radio City Christmas show, the special events and marquee sports that I just spoke to, as well as some kind of one-time OPEX pickups that we experienced in the first quarter.
Speaker Change: So at a high level, this is kind of where we're seeing some deviations from initial expectations.
Speaker Change: You know, in terms of what's going to push us to the high end or the low end of our outlook, I think it's just the magnitude of some of these, and the ones I would call out is the patience of concert bookings, you know, the low end of our range. We are allowing for some additional headwinds there.
Speaker Change: But it's just, you know, again, a magnitude question. I think same for the Christmas show. You know, at our high end, we're allowing for a lot of upside. At our low end, might be a little bit of upside. There's upside there for sure. And then sponsorship revenues, but we'll continue to monitor the pipeline and see what else we can monetize there. In response to your second question, we will be bringing sponsorship sales back in-house. There will be incremental overhead, but we're not going to offer up any specifics around that today.
Thank you. Thank you.
Great, thank you.
Speaker Change: Your next question comes from a line of Brandon Ross from Light Shed Partners. Your line is open.
Brandon Ross: Hey, thanks. Just a follow-up on Stephen's last question about OPU.
Brandon Ross: Can you just give us any color on why you parted ways with them and...
how to think about
Brandon Ross: Sponsorship Shell specifically going forward in the wake of that. Thank you.
Sure. So, Brandon, um...
Brandon Ross: You know, listen, we historically have always managed this function in-house.
Brandon Ross: About a year ago, we did make a decision to outsource this to Crown Properties Collection.
Brandon Ross: One year into the experiment, we've made a decision that we think actually the initial structure was the better one, and that's what's going to benefit us more for the long term.
Brandon Ross: And so we're going to be bringing it back in-house. There's really no more specifics to speak about in that regard. As far as the outlook for sponsorship sales, you know, we talked about we are seeing some decent traction right now. We had new deals announced with Motorola, Lenovo.
Brandon Ross: capitalized on the Knicks and the Rangers and their deep playoff runs last year. So we do feel like this is a destination site for those people who want to spend sponsorship and signage money.
Thank you.
Speaker Change: Your next question comes from a line of Peter Cepino from Wolf Research. Your line is open.
Speaker Change: Do you see artists moving up out of your theater portfolio faster than years ago? And more broadly, would you comment on the long-term outlook for the supply growth at the Garden as a key driver of long-term growth at that facility? Thanks.
Speaker Change: Sure, Peter. Thanks for the question. Listen, this is a strategy that we're actually pretty fond of internally. We think it makes a lot of sense.
Speaker Change: We leverage the fact that we do have portfolios at various levels. We have the Beacon with the 3,000 seat capacity, Radio City at 6,000 and then the Arena up to 21,000. So we think that positions us kind of uniquely to take artists earlier in their career trajectories and kind of shepherd them or walk them up the ladder, if you will, to the point where they're ready to play the Arena. And we've had a lot of success with that.
Speaker Change: More so probably current recently a lot of the acts that played in the first quarter were first time
Speaker Change: artists performing at the arena. Some of the success stories would be Olivia Rodrigo.
Speaker Change: Not a first-quarter story, but she played Radio City a couple years ago and did four sold-out arena shows in April that were very successful
Speaker Change: Noah Kahn, Lake Street Drive, also kind of graduated to the arena, if you will, in the first quarter from Radio City. And then we sometimes see an artist like a Sabrina Carpenter who goes straight to the arena side show. So I agree with you. I think there is a real good pipeline here. I think that's the...
Speaker Change: The premise of this strategy is having the venues at the different size points and creating that longer-term pipeline. And I do think that promises to create a little more supply as we move forward.
Speaker Change: I'd say these first-timer acts, maybe a little more variability, but that is tempered a little bit. I think our bookings team is just top shelf and have a really good feel for who is ready to play the arena or not. And it's just a really smart way to build pipeline. And I do think that is a source of long-term growth in terms of supply.
and the other two of us.
Speaker Change: Your next question comes from a line of Cameron Manson Perron from Morgan Stanley. Your line is open.
Speaker Change: Morning, thanks for taking the question. Mike, you called out lower per caps. I was wondering if you could elaborate on that. I'm guessing, given the demand for Christmas Spectacular, that that's not indicative of broader consumer health, but curious if you could provide some more color on those trends. Thanks.
Speaker Change: Sure, you know, we did talk about it, but I'll repeat just for the benefit of the question. We did see lower per caps in the first quarter.
Speaker Change: But it's really a function of kind of the mix of artists playing the venues compared to the prior year period there are certain artists
Speaker Change: which, either based on the nature of the actor, sometimes the nature of the show, the length of the show, and whether or not they have an intermission, that generate very high per caps. And we had a couple of those artists.
Speaker Change: in the first quarter last year. I think we cited Fish and Dave Chappelle.
Speaker Change: in our prepared comments, that have just notably higher average per caps. So we're up against a tough comp in that regard, and that's why food and beverage per caps, food and beverage and merch per caps, I should say, were down year over year, but they were actually up versus full year 24. So I wouldn't read a lot into the decline in...
The percaps, I think that's kind of a unique...
Speaker Change: unique dynamic driven by again the mix of shows that we saw in the prior year quarter versus this year quarter. If I look at the month of October alone already you know the food and bev and merch per cap spending at concerts was up as compared to October last year. I think we noted in our comments that early returns suggest the the per caps at the Knicks and Rangers games are you know have nice positive momentum. So I would not read anything into that as far as consumer demand goes.
Speaker Change: The other factors I would say, and these are the kinds of things we talk about when we're talking about consumer demand.
Speaker Change: is sell-through. The majority of our first quarter contracts sold out. Our overall sell-through for first quarter contracts was right about 90 percent flat, even maybe slightly up versus the prior year.
Speaker Change: From our perspective, consumer demand for these shared in-person live experiences remains very strong.
That's helpful.
Operator, we'll take one last caller.
Speaker Change: Your final question comes from the line of David Joyce from Seaport Research. Your line is open.
David Joyce: Thank you. Three questions actually. One is a bigger picture one on what you're seeing for the general health of the consumer across your various markets and properties.
David Joyce: Second question, back to the food and beverage and merch. I was wondering why the revenue was down but the OPEX was still flat year over year?
David Joyce: And then the final question is, given that you're heading into your strongest cash flow quarter of the year, and we haven't had really a capital return since a number of unusual opportunities last year related to the sphere, what are your plans for, excuse me, capital returns going forward? Thank you.
i
David Joyce: Sure, David, thank you for the questions. In terms of the health of the consumer, I would just revert back to the prior question when we talked about the consumer demand and the strength of seeing in sell-through, the temporary decline in per caps already reversing in October, and the health per caps of Nixon Rangers, and then the strong demand we're seeing at Radio City Christmas Show. So we don't have really concerns about the health of the consumer or the levels of consumer demand.
In terms of your question about food and beverage margins...
David Joyce: You're right, revenues were down year over year for some of the factors we cited in response to the previous question, kind of the lower concert per caps at the arena due to the tough comp. And despite this, the food and beverage direct top X was flat. So we definitely saw some margin compression there year over year.
I think if we get into the direct op-x [inaudible]
David Joyce: We're seeing margin compressions on higher labor costs, and that's driven by a new collective bargaining agreement.
David Joyce: This is not a surprise to us, and that's factored into all of our expectations for the year. We do have some levers here that we can pull to enhance F&B margins, and the F&B team is certainly very adept at that. We're constantly monitoring competitive pricing at other venues in the area, and that's kind of our main...
David Joyce: Changing pricing on select items on an event-by-event basis based on demand and the nature of the event and I think we have opportunities to expand that to additional food categories.
David Joyce: And then the last point I would cite on that would be the use of technology. I'm referring here to, you know, if you're in the arena, you see more and more of these self-service concession terminals.
David Joyce: And that has kind of a two-fold benefit. On a margin side, it does yield reduced labor costs. And then on a volume side, it does yield increased throughput, shorter lines. So it has really two benefits, and I think you'll start to see more and more of those in the garden as time goes on.
David Joyce: And then in response to your last question, you know, nothing new to report in terms of our capital allocation priorities. We continue to have two priorities, debt pay down
and then Return of Capital to Shareholders.
David Joyce: In terms of debt pay down, I mentioned that we did repay the $55 million revolver already this quarter, so the revolver is back down to zero.
David Joyce: We'll continue to make quarterly repayments on our term loan, which is about $4 million per. Other than that, the business should naturally de-lever based on our expectations of AOI growth. So I think we're well positioned in terms of debt pay down.
David Joyce: And then, you know, as you mentioned, we ended the quarter with $37 million of unrestricted cash, but we are entering our seasonally busiest stretch, and this is where we would expect cash to start to build. And so once our cash balance has built to a more appropriate level is when we'll start to have those decisions, and that's when we'll evaluate returning capital to shareholders.
David Joyce: The only other thing I would cite in terms of other uses of capital, and nothing new to the flag.
David Joyce: You know, big CapEx initiatives right now, we have invested CapEx I think pretty wisely in certain discrete projects around additions to the Christmas Spectacular to enhance the guest experience and some of the investments we've made around the event level club we introduced last year and renovating event and Lexus level suites which have very quick payback periods, very high ROIs. So smart investments but nothing new on that front.
Speaker Change: And that concludes our question and answer session. I will now turn the call back over to Ari Danes for closing remarks.
Ari Danes: Thank you all for joining us. We look forward to speaking with you on our next earnings call in February. Have a good day.
Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.