Business Wire | Feb 4, 2021 07:30AM EST

MSG Networks Inc. Reports Fiscal 2021 Second Quarter Results

Feb. 04, 2021

NEW YORK--(BUSINESS WIRE)--Feb. 04, 2021--MSG Networks Inc. (NYSE: MSGN) today reported financial results for the fiscal second quarter ended December 31, 2020.

Due to the COVID-19 pandemic, in March 2020, the 2019-20 NHL and NBA seasons were suspended. The leagues resumed play several months later, with the New York Rangers and Islanders participating in the NHL's return to play. The NHL and NBA subsequently completed their seasons in September and October 2020, respectively, which impacted each league's 2020-21 regular season. The NBA started its regular season on December 22, 2020 with a reduced schedule of 72 games, while the NHL regular season began on January 13, 2021 and has been reduced to a 56-game schedule. In the fiscal 2021 second quarter, the Company aired nine NBA telecasts as compared with 181 NBA and NHL telecasts in the prior year period.

For the fiscal 2021 second quarter, MSG Networks Inc. generated revenues of $146.2 million, a decrease of 22% as compared with the prior year period. In addition, the Company generated operating income of $65.7 million, a decrease of 6%; adjusted operating incomeof $73.8 million, a decrease of 4%; and net income of $41.5 million, an increase of 4%; all as compared with the prior year period.(1)

President and CEO Andrea Greenberg said, "With the 2020-21 NBA and NHL seasons underway, our schedule is once again filled with sports content from our teams. Despite the daily challenges of producing live games during this pandemic, we've remained focused on our long-term strategic objectives, including capitalizing on new opportunities to engage with fans."

Fiscal Year 2021 Second Quarter Results

(In thousands, except per share data) Three Months Ended

December 31,

2020

Revenues $ 146,239

Operating income 65,712

Adjusted operating income 73,780

Net Income 41,523

Diluted EPS $ 0.72

(1)See page 3 of this earnings release for the definition of adjusted operating income included in the discussion of non-GAAP financial measures.

Summary of Reported Results from Operations

Fiscal 2021 second quarter total revenues of $146.2 million decreased 22%, or $41.5 million, as compared with the prior year period. Affiliation fee revenue decreased $16.1 million, primarily due to the impact of a decrease in subscribers of approximately 7.5% and, to a lesser extent, unfavorable affiliate adjustments of $4.9 million recorded in the current year quarter, the absence of a $2.3 million favorable affiliate adjustment recorded in the prior year quarter and the impact of the previously disclosed non-renewal with a small Connecticut-based distributor as of October 1, 2020.(2) This was partially offset by higher affiliation rates.

Advertising revenue decreased $24.4 million primarily due to the delayed start of the 2020-21 NBA and NHL regular seasons, resulting in nine NBA telecasts in the fiscal 2021 second quarter compared with a regular NBA and NHL telecast schedule in the prior year period.

Other revenues decreased $1.0 million primarily due to the delayed start of the 2020-21 NBA and NHL regular seasons.

Direct operating expenses of $57.0 million decreased 32%, or $27.0 million, as compared with the prior year period driven by lower rights fees expense and, to a lesser extent, a decrease in other programming and production-related costs. The decline in rights fees expense was primarily due to the impact of the NHL's shortened 56-game schedule for the 2020-21 regular season and, to a lesser extent, the impact of the delayed start of the 2020-21 NBA and NHL regular seasons, partially offset by the impact of annual contractual rate increases. The decrease in other programming and production-related costs primarily reflects the impact of the delayed start of the 2020-21 NBA and NHL regular seasons.

Selling, general and administrative expenses of $21.7 million decreased 32%, or $10.3 million, as compared with the prior year period, primarily due to lower advertising sales commissions and advertising and marketing expenses.

Operating income of $65.7 million decreased $4.3 million, or 6%, and adjusted operating income of $73.8 million decreased $3.3 million, or 4%, both as compared with the prior year period, primarily due to the decrease in revenues, largely offset by the decrease in direct operating expenses and, to a lesser extent, the decrease in selling, general and administrative expenses.

About MSG Networks Inc.

MSG Networks Inc., a pioneer in sports media, owns and operates two award-winning regional sports and entertainment networks and a companion streaming service that serve the nation's number one media market, the New York DMA, as well as other portions of New York, New Jersey, Connecticut and Pennsylvania. The networks feature a wide range of compelling sports content, including exclusive live local games and other programming of the New York Knicks, New York Rangers, New York Islanders, New Jersey Devils and Buffalo Sabres, as well as significant coverage of the New York Giants and Buffalo Bills. This content, in addition to a diverse array of other sporting events and critically acclaimed original programming, has established MSG Networks as the gold standard in regional sports.

See page 3 of this earnings release for the definition of adjusted^ operating income included in the discussion of non-GAAP financial(1) measures.

Summary of Reported Results from Operations

Fiscal 2021 second quarter total revenues of $146.2 million decreased 22%, or $41.5 million, as compared with the prior year period. Affiliation fee revenue decreased $16.1 million, primarily due to the impact of a decrease in subscribers of approximately 7.5% and, to a lesser extent, unfavorable affiliate adjustments of $4.9 million recorded in the current year quarter, the absence of a $2.3 million favorable affiliate adjustment recorded in the prior year quarter and the impact of the previously disclosed non-renewal with a small Connecticut-based distributor as of October 1, 2020.(2) This was partially offset by higher affiliation rates.

Advertising revenue decreased $24.4 million primarily due to the delayed start of the 2020-21 NBA and NHL regular seasons, resulting in nine NBA telecasts in the fiscal 2021 second quarter compared with a regular NBA and NHL telecast schedule in the prior year period.

Other revenues decreased $1.0 million primarily due to the delayed start of the 2020-21 NBA and NHL regular seasons.

Direct operating expenses of $57.0 million decreased 32%, or $27.0 million, as compared with the prior year period driven by lower rights fees expense and, to a lesser extent, a decrease in other programming and production-related costs. The decline in rights fees expense was primarily due to the impact of the NHL's shortened 56-game schedule for the 2020-21 regular season and, to a lesser extent, the impact of the delayed start of the 2020-21 NBA and NHL regular seasons, partially offset by the impact of annual contractual rate increases. The decrease in other programming and production-related costs primarily reflects the impact of the delayed start of the 2020-21 NBA and NHL regular seasons.

Selling, general and administrative expenses of $21.7 million decreased 32%, or $10.3 million, as compared with the prior year period, primarily due to lower advertising sales commissions and advertising and marketing expenses.

Operating income of $65.7 million decreased $4.3 million, or 6%, and adjusted operating income of $73.8 million decreased $3.3 million, or 4%, both as compared with the prior year period, primarily due to the decrease in revenues, largely offset by the decrease in direct operating expenses and, to a lesser extent, the decrease in selling, general and administrative expenses.

About MSG Networks Inc.

MSG Networks Inc., a pioneer in sports media, owns and operates two award-winning regional sports and entertainment networks and a companion streaming service that serve the nation's number one media market, the New York DMA, as well as other portions of New York, New Jersey, Connecticut and Pennsylvania. The networks feature a wide range of compelling sports content, including exclusive live local games and other programming of the New York Knicks, New York Rangers, New York Islanders, New Jersey Devils and Buffalo Sabres, as well as significant coverage of the New York Giants and Buffalo Bills. This content, in addition to a diverse array of other sporting events and critically acclaimed original programming, has established MSG Networks as the gold standard in regional sports.

The approximately 7.5% year-over-year rate of subscriber decline excludes^ the impact of the previously disclosed non-renewal with a small(2) Connecticut-based distributor as of October 1, 2020.

Non-GAAP Financial Measures

We define adjusted operating income, which is a non-GAAP financial measure, as operating income before 1) depreciation, amortization and impairments of property and equipment and intangible assets, 2) share-based compensation expense or benefit, 3) restructuring charges or credits and 4) gains or losses on sales or dispositions of businesses. Because it is based upon operating income, adjusted operating income also excludes interest expense (including cash interest expense) and other non-operating income and expense items. We believe that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the Company without regard to the settlement of an obligation that is not expected to be made in cash.

We believe adjusted operating income is an appropriate measure for evaluating the operating performance of our Company. Adjusted operating income and similar measures with similar titles are common performance measures used by investors and analysts to analyze our performance. Internally, we use revenues and adjusted operating income measures as the most important indicators of our business performance, and evaluate management's effectiveness with specific reference to these indicators. Adjusted operating income should be viewed as a supplement to and not a substitute for operating income, net income, cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with U.S. generally accepted accounting principles ("GAAP"). Since adjusted operating income is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. For a reconciliation of operating income to adjusted operating income, please see page 6 of this release.

The Company defines Free Cash Flow ("Free Cash Flow"), which is a non-GAAP financial measure, as net cash provided by operating activities less capital expenditures, both of which are reported in our Consolidated Statement of Cash Flows. The Company believes the most comparable GAAP financial measure is net cash provided by operating activities. The Company believes that Free Cash Flow is useful as an indicator of its overall ability to generate liquidity, as the amount of Free Cash Flow generated in any period is representative of cash that is generated for debt repayment, investment, and other discretionary and non-discretionary cash uses. The Company also believes that Free Cash Flow is one of several benchmarks used by analysts and investors for comparison of the Company's generation of liquidity with other companies in the industry, although the Company's measure of Free Cash Flow may not be directly comparable to similar measures reported by other companies. For a reconciliation of Free Cash Flow to net cash provided by operating activities, please see page 8 of this release.

Forward Looking Statements

This press release may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties, and that actual results, developments and events may differ materially from those in the forward-looking statements as a result of various factors, including financial community perceptions of the Company and its business, operations, financial condition and the industry in which it operates and the factors described in the Company's filings with the Securities and Exchange Commission, including the sections titled "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 contained herein.

Conference Call Information:The conference call will be Webcast today at 10:00 a.m. ET at investor.msgnetworks.com Conference call dial-in number is 877-883-0832 / Conference ID Number 7719946 Conference call replay number is 855-859-2056 / Conference ID Number 7719946 until February 11, 2021

MSG NETWORKS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended Six Months Ended

December 31, December 31,

2020 2019 2020 2019

Revenues $ 146,239 $ 187,730 $ 303,602 $ 348,711

Direct operating 57,033 84,065 122,105 152,725 expenses

Selling, general and 21,692 32,022 44,219 54,342 administrative expenses

Depreciation and 1,802 1,680 3,630 3,407 amortization

Operating income 65,712 69,963 133,648 138,237

Other income (expense):

Interest income 488 906 965 2,834

Interest expense (5,143 ) (9,934 ) (10,362 ) (20,749 )

Debt refinancing - (2,764 ) - (2,764 )expense

Other components of net (206 ) (258 ) (413 ) (516 )periodic benefit cost

(4,861 ) (12,050 ) (9,810 ) (21,195 )

Income from operations 60,851 57,913 123,838 117,042 before income taxes

Income tax expense (19,328 ) (17,949 ) (47,304 ) (34,011 )

Net income $ 41,523 $ 39,964 $ 76,534 $ 83,031



Earnings per share:

Basic $ 0.72 $ 0.66 $ 1.34 $ 1.23

Diluted $ 0.72 $ 0.66 $ 1.33 $ 1.22

Weighted-average numberof common shares outstanding:

Basic 57,415 60,452 57,287 67,758

Diluted 57,721 60,825 57,550 68,144

MSG NETWORKS INC.

ADJUSTMENTS TO RECONCILE OPERATING INCOME

TO ADJUSTED OPERATING INCOME

(In thousands)

The following is a description of the adjustments to operating income in arriving at adjusted operating income as described in this earnings release:

* Share-based compensation expense. This adjustment eliminates the compensation expense relating to restricted stock units and stock options granted under our employee stock plan and non-employee director stock plan in all periods.

* Depreciation and amortization. This adjustment eliminates depreciation, amortization and impairments of property and equipment and intangible assets in all periods.

MSG NETWORKS INC.

ADJUSTMENTS TO RECONCILE OPERATING INCOME

TO ADJUSTED OPERATING INCOME

(In thousands)





The following is a description of the adjustments to operating income inarriving at adjusted operating income as described in this earnings release:



* Share-based compensation expense. This adjustment eliminates the compensation expense relating to restricted stock units and stock options granted under our employee stock plan and non-employee director stock plan in all periods.

* Depreciation and amortization. This adjustment eliminates depreciation, amortization and impairments of property and equipment and intangible assets in all periods.

Three Months Ended

Six Months Ended

December 31,

December 31,

2020

2019

2020

2019

Operating income

$

65,712

$

69,963

$

133,648

$

138,237

Share-based compensation expense

6,266

5,440

10,893

10,099

Depreciation and amortization

1,802

1,680

3,630

3,407

Adjusted operating income

$

73,780

$

77,083

$

148,171

$

151,743

Three Months Ended Six Months Ended

December 31, December 31,

2020 2019 2020 2019

Operating income $ 65,712 $ 69,963 $ 133,648 $ 138,237

Share-based compensation 6,266 5,440 10,893 10,099 expense

Depreciation and 1,802 1,680 3,630 3,407 amortization

Adjusted operating income $ 73,780 $ 77,083 $ 148,171 $ 151,743

MSG NETWORKS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

December 31, 2020

June 30, 2020

(unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

283,660

$

196,837

Accounts receivable, net

95,526

105,549

Related party receivables, net

6,978

14,190

Prepaid income taxes

225

461

Prepaid expenses

20,010

11,063

Other current assets

4,150

4,541

Total current assets

410,549

332,641

Property and equipment, net

7,912

8,758

Amortizable intangible assets, net

28,553

30,283

Goodwill

424,508

424,508

Operating lease right-of-use assets

14,538

17,153

Other assets

35,641

37,460

Total assets

$

921,701

$

850,803

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:

Accounts payable

$

309

$

2,115

Related party payables

2,203

1,472

Current portion of long-term debt

48,234

37,229

Current portion of operating lease liabilities

5,405

5,492

Income taxes payable

2,438

641

Accrued liabilities:

Employee related costs

10,159

14,187

Other accrued liabilities

7,716

10,116

Deferred revenue

2,172

2,753

Total current liabilities

78,636

74,005

Long-term debt, net of current portion

1,019,660

1,043,780

Long-term operating lease liabilities

11,037

13,780

Defined benefit and other postretirement obligations

25,208

25,860

Other employee related costs

5,470

5,149

Other liabilities

1,498

1,536

Deferred tax liability

248,064

239,542

Total liabilities

1,389,573

1,403,652

Commitments and contingencies

Stockholders' Deficiency:

Class A Common Stock, par value $0.01, 360,000 shares authorized; 43,460 and 43,122 shares outstanding as of December 31, 2020 and June 30, 2020, respectively

643

643

Class B Common Stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of December 31, 2020 and June 30, 2020

136

136

Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding

-

-

Additional paid-in capital

14,166

12,731

Treasury stock, at cost, 20,799 and 21,137 shares as of December 31, 2020 and June 30, 2020, respectively

(450,053

)

(457,363

)

Accumulated deficit

(24,738

)

(100,792

)

Accumulated other comprehensive loss

(8,026

)

(8,204

)

Total stockholders' deficiency

(467,872

)

(552,849

)

Total liabilities and stockholders' deficiency

$

921,701

$

850,803

MSG NETWORKS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

December 31, June 30, 2020 2020

(unaudited)

ASSETS

Current Assets:

Cash and cash equivalents $ 283,660 $ 196,837

Accounts receivable, net 95,526 105,549

Related party receivables, net 6,978 14,190

Prepaid income taxes 225 461

Prepaid expenses 20,010 11,063

Other current assets 4,150 4,541

Total current assets 410,549 332,641

Property and equipment, net 7,912 8,758

Amortizable intangible assets, net 28,553 30,283

Goodwill 424,508 424,508

Operating lease right-of-use assets 14,538 17,153

Other assets 35,641 37,460

Total assets $ 921,701 $ 850,803

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:

Accounts payable $ 309 $ 2,115

Related party payables 2,203 1,472

Current portion of long-term debt 48,234 37,229

Current portion of operating lease liabilities 5,405 5,492

Income taxes payable 2,438 641

Accrued liabilities:

Employee related costs 10,159 14,187

Other accrued liabilities 7,716 10,116

Deferred revenue 2,172 2,753

Total current liabilities 78,636 74,005

Long-term debt, net of current portion 1,019,660 1,043,780

Long-term operating lease liabilities 11,037 13,780

Defined benefit and other postretirement 25,208 25,860 obligations

Other employee related costs 5,470 5,149

Other liabilities 1,498 1,536

Deferred tax liability 248,064 239,542

Total liabilities 1,389,573 1,403,652

Commitments and contingencies

Stockholders' Deficiency:

Class A Common Stock, par value $0.01, 360,000shares authorized; 43,460 and 43,122 shares 643 643 outstanding as of December 31, 2020 and June30, 2020, respectively

Class B Common Stock, par value $0.01, 90,000shares authorized; 13,589 shares outstanding as 136 136 of December 31, 2020 and June 30, 2020

Preferred stock, par value $0.01, 45,000 shares - - authorized; none outstanding

Additional paid-in capital 14,166 12,731

Treasury stock, at cost, 20,799 and 21,137shares as of December 31, 2020 and June 30, (450,053 ) (457,363 ) 2020, respectively

Accumulated deficit (24,738 ) (100,792 )

Accumulated other comprehensive loss (8,026 ) (8,204 )

Total stockholders' deficiency (467,872 ) (552,849 )

Total liabilities and stockholders' deficiency $ 921,701 $ 850,803

MSG NETWORKS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

MSG NETWORKS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

Summary Data from the Statements of Cash Flows

Six Months Ended

December 31,

2020

2019

Net cash provided by operating activities

$

105,254

$

74,021

Net cash used in investing activities

(2,533

)

(1,758

)

Net cash used in financing activities

(15,898

)

(182,772

)

Net increase (decrease) in cash and cash equivalents

86,823

(110,509

)

Cash and cash equivalents at beginning of period

196,837

226,423

Cash and cash equivalents at end of period

$

283,660

$

115,914

Free Cash Flow

Summary Data from the Statements of Cash Flows

Six Months Ended

December 31,

2020 2019

Net cash provided by operating activities $ 105,254 $ 74,021

Net cash used in investing activities (2,533 ) (1,758 )

Net cash used in financing activities (15,898 ) (182,772 )

Net increase (decrease) in cash and cash 86,823 (110,509 )equivalents

Cash and cash equivalents at beginning of period 196,837 226,423

Cash and cash equivalents at end of period $ 283,660 $ 115,914

Free Cash Flow

Six Months Ended

December 31,

2020 2019

Net cash provided by operating activities $ 105,254 $ 74,021

Less: Capital expenditures (2,533 ) (1,758 )

Free cash flow $ 102,721 $ 72,263



Capitalization

December 31,

2020

Cash and cash equivalents $ 283,660

Credit facility debt^(a) 1,072,500

Net debt $ 788,840



Reconciliation of operating income to AOI for the trailing twelve-month period^(b)

Operating Income $ 290,379

Share-based compensation expense 20,029

Depreciation and amortization 7,386

Adjusted operating income $ 317,794



Leverage ratio^(c) 2.5x



^(a) Represents aggregate principal amount of the debt outstanding.

^(b) Represents reported adjusted operating income for the trailingtwelve-month period.

^(c) Represents net debt divided by adjusted operating income for the trailingtwelve-month period, which differs from the covenant calculation contained inthe Company's credit facility.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210204005429/en/

CONTACT: Kimberly Kerns Communications (212) 465-6442

CONTACT: Ari Danes, CFA Investor Relations (212) 465-6072