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Feb 2, 2018

The Madison Square Garden Company Reports Fiscal 2018 Second Quarter Results

Fiscal 2018 second quarter revenue of $536.3 million, up 20% versus prior year period
Fiscal 2018 second quarter operating income of $72.4 million, up 24% versus prior year period
Fiscal 2018 second quarter adjusted operating income of $118.0 million, up 23% versus prior year period

NEW YORK, Feb. 02, 2018 (GLOBE NEWSWIRE) -- The Madison Square Garden Company (NYSE:MSG) today reported financial results for the second quarter ended December 31, 2017

For the fiscal 2018 second quarter, the Company generated revenues of $536.3 million, an increase of 20% as compared with the prior year period.  In addition, the Company generated fiscal 2018 second quarter operating income of $72.4 million and adjusted operating income of $118.0 million, which represent increases of 24% and 23%, respectively, both as compared to the prior year second quarter. (1) (2)

Executive Chairman and CEO Jim Dolan said, "For the fiscal 2018 second quarter, we delivered strong year-over-year growth in revenues and adjusted operating income, fueled by our continued focus on providing the very best in live experiences.  Our performance this quarter was highlighted by strong bookings results, record revenue for the Christmas Spectacular and broad-based growth across our Sports segment.  With regard to our venue expansion strategy, we continue to make important progress on the design of our Las Vegas venue.  Looking ahead, we remain confident in our ongoing ability to deliver attractive long-term growth and value creation for our shareholders."

Results from Operations
Segment results for the quarters ended December 31, 2017 and 2016 are as follows:

 RevenuesOperating
Income (Loss)
Adjusted Operating
 Income (Loss)
$ millionsF'Q2
2018

 F'Q2
2017
 %   
Change
 F'Q2
2018

 F'Q2
2017
 %   
Change 
 F'Q2
2018

 F'Q2
2017
 %   
Change 
 
MSG Entertainment$271.2 $192.5 41% $74.5 $57.0 31% $81.9 $63.7 29% 
MSG Sports 265.1  252.7 5%  49.3  40.2 23%  55.1  47.2 17% 
Corporate and Other    NM  (45.5)  (38.7) (18)%  (19.0)  (14.9) (27)% 
Purchase accounting adjustments    NM  (5.9)  (0.2) NM     NM 
Total Company$536.3 $445.2 20% $72.4 $58.3 24%  $118.0 $96.0 23% 

Note: Does not foot due to rounding

  1. See page 3 of this earnings release for the definition of adjusted operating income (loss) included in the discussion of non-GAAP financial measures.
  2. Fiscal 2017 second quarter operating results did not include TAO Group, Counter Logic Gaming and Obscura Digital, which the Company acquired on January 31, 2017, July 28, 2017 and November 20, 2017, respectively.  Accordingly, the Company's results for fiscal 2018 are not directly comparable to fiscal 2017 results.  In addition, the Company records TAO Group's operating results in its consolidated statements of operations on a three-month lag basis.

MSG Entertainment

For the fiscal 2018 second quarter as compared to the prior year period, MSG Entertainment revenues of $271.2 million increased 41%.  The increase was primarily due to the inclusion of operating results for TAO Group and higher overall event-related revenues at the Company's venues, as well as an increase in revenues for the Christmas Spectacular Starring the Radio City Rockettes production.  The increase in event-related revenues was primarily due to higher revenues at The Theater at Madison Square Garden, the Forum, The Garden and The Chicago Theatre.   The increase in revenues for the Christmas Spectacular production was primarily due to higher ticket-related revenue, mainly as a result of higher average ticket prices and the impact of additional scheduled performances, partially offset by a decrease in average per-show paid attendance.

Fiscal 2018 second quarter operating income of $74.5 million increased 31% and adjusted operating income of $81.9 million increased 29%, both as compared to the prior year period.  The increases primarily reflect higher revenues, partially offset by an increase in direct operating expenses and higher selling, general and administrative expenses.  The increase in direct operating expenses was primarily due to the inclusion of TAO Group's operating results and higher overall event-related expenses at the Company's venues.  The increase in selling, general and administrative expenses was primarily due to the inclusion of TAO Group's operating results (including a management fee incurred by TAO Group payable to the Company) and higher corporate general and administrative costs and professional fees.

MSG Sports

For the fiscal 2018 second quarter as compared to the prior year period, MSG Sports revenues of $265.1 million increased 5%.  The increase in revenues was primarily due to higher sponsorship and signage revenues, professional sports teams' pre/regular season ticket-related revenue and food, beverage and merchandise sales, as well as higher local media rights fees from MSG Networks Inc., suite rental fees and league distributions.  This was partially offset by lower event-related revenues from other live sporting events. 

Second quarter operating income of $49.3 million increased 23% and adjusted operating income of $55.1 million increased 17%, both as compared to the prior year period.  The increases primarily reflect higher revenues, partially offset by an increase in direct operating expenses and selling, general and administrative expenses.  The increase in direct operating expenses was primarily due to higher other team operating expenses, net provisions for NBA and NHL revenue sharing expense, net provisions for certain team personnel transactions, and expenses associated with food, beverage and merchandise sales, partially offset by lower event-related expenses for other live sporting events and venue operating costs.

Corporate and Other

For the fiscal 2018 second quarter as compared to the prior year period, Corporate and Other's operating loss of $45.5 million and adjusted operating loss of $19.0 million increased 18% and 27%, respectively, primarily due to higher employee compensation and related benefits and the inclusion of certain selling, general and administrative expenses for Obscura Digital, partially offset by a management fee earned for providing management and strategic services to TAO Group.

Purchase Accounting Adjustments

For the fiscal 2018 second quarter as compared to the prior year period, operating expenses related to purchase accounting adjustments of $5.9 million increased $5.6 million, primarily due to the amortization of intangible assets and expense related to the step-up in value of leases for TAO Group.

Other Items
During the fiscal second quarter, the Company purchased a nearly 5-acre site in London, zoned for commercial and leisure use and adjacent to the Westfield Stratford City shopping center, for $79.5 million (£60.0 million).  This amount excludes transactional taxes, a significant majority of which is recoverable value-added tax.

As a result of the recently enacted Federal tax reform legislation effective January 1, 2018, which reduces the Company's federal tax rate to 21% from 35% and provides that future net operating losses have an indefinite carry-forward period, fiscal 2018 second quarter net income includes a non-cash income tax benefit of $113.5 million to reduce the Company's net deferred tax liabilities.

About The Madison Square Garden Company
The Madison Square Garden Company (MSG) is a world leader in live sports and entertainment experiences.  The company presents or hosts a broad array of premier events in its diverse collection of iconic venues: New York's Madison Square Garden, The Theater at Madison Square Garden, Radio City Music Hall and Beacon Theatre; the Forum in Inglewood, CA; The Chicago Theatre; and the Wang Theatre in Boston.  Other MSG properties include legendary sports franchises: the New York Knicks (NBA), the New York Rangers (NHL) and the New York Liberty (WNBA); two development league teams -- the Westchester Knicks (NBAGL) and the Hartford Wolf Pack (AHL); and one of the leading North American esports organizations, Counter Logic Gaming.  In addition, the Company features the popular original production - the Christmas Spectacular Starring the Radio City Rockettes - and through Boston Calling Events, produces New England's preeminent Boston Calling Music Festival.   Also under the MSG umbrella is TAO Group, a world-class hospitality group with globally-recognized entertainment dining and nightlife brands: Tao, Marquee, Lavo, Avenue, The Stanton Social, Beauty & Essex and Vandal.  More information is available at www.themadisonsquaregardencompany.com.

Non-GAAP Financial Measures

We define adjusted operating income (loss), which is a non-GAAP financial measure, as operating income (loss) 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, 4) gains or losses on sales or dispositions of businesses and 5) the impact of purchase accounting adjustments related to business acquisitions.  Because it is based upon operating income (loss), adjusted operating income (loss) 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 various operating units of our business without regard to the settlement of an obligation that is not expected to be made in cash.

We believe adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of our business segments and the Company on a consolidated basis. Adjusted operating income (loss) 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 (loss) measures as the most important indicators of our business performance, and evaluate management's effectiveness with specific reference to these indicators. Adjusted operating income (loss) should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), 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 (loss) 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 (loss) to adjusted operating income (loss), please see page 5 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 and rating agency 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.

Contacts:

Kimberly Kerns
Senior Vice President
Communications
The Madison Square
Garden Company
(212) 465-6442
Ari Danes, CFA
Senior Vice President
Investor Relations
The Madison Square
Garden Company
(212) 465-6072
 

Conference Call Information:
The conference call will be Webcast live today at 10:00 a.m. ET at www.themadisonsquaregardencompany.com
Conference call dial-in number is 877-347-9170 / Conference ID Number 7097567
Conference call replay number is 855-859-2056 / Conference ID Number 7097567 until February 9, 2018


CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

  Three Months Ended Six Months Ended
  December 31, December 31,
  2017 2016 2017 2016
Revenues $536,302  $445,150   $781,517  $626,845 
Direct operating expenses 311,881  266,673  435,617  378,080 
Selling, general and administrative expenses 121,440  94,260  227,878  171,281 
Depreciation and amortization 30,544  25,966  61,090  52,076 
Operating income 72,437  58,251  56,932  25,408 
Other income (expense):        
Earnings (loss) in equity method investments (2,608) (1,188) 2,117  (2,182)
Interest income  5,378  2,692  9,764  5,091 
Interest expense (3,798 ) (491) (7,509) (901)
Miscellaneous income (expense) (250) 1,405  (250) 1,405 
Income from operations before income taxes 71,159  60,669  61,054  28,821 
Income tax benefit (expense) 116,832   (3,248) 116,070  (314)
Net income 187,991  57,421  177,124  28,507 
Less: Net income (loss) attributable to redeemable noncontrolling interests (767)   133   
Less: Net loss attributable to nonredeemable noncontrolling interests (855) (305) (1,515) (593)
Net income attributable to The Madison Square Garden Company's stockholders  $189,613  $57,726  $178,506  $29,100 
Basic earnings per common share attributable to The Madison Square Garden Company's stockholders $8.03  $2.41  $7.57  $1.21 
Diluted earnings per common share attributable to The Madison Square Garden Company's stockholders $7.96   $2.39  $7.48  $1.20 
Basic weighted-average number of common shares outstanding  23,621  23,971  23,594  24,013 
Diluted weighted-average number of common shares outstanding 23,813  24,143  23,861  24,192 


ADJUSTMENTS TO RECONCILE OPERATING INCOME (LOSS) TO
ADJUSTED OPERATING INCOME (LOSS)

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

  • Share-based compensation expense. This adjustment eliminates the compensation expense relating to restricted stock units granted under our employee stock plan and non-employee director plan in all periods.
  • Depreciation and amortization.  This adjustment eliminates depreciation, amortization and impairments of property and equipment and intangible assets in all periods.
  • Other purchase accounting adjustments. This adjustment eliminates the impact of various purchase accounting adjustments related to business acquisitions, primarily fair value adjustments to favorable / unfavorable lease agreements of the acquiree.
  Three Months Ended Six Months Ended
  December 31, December 31,
  2017 2016 2017 2016
Operating income $72,437  $58,251  $56,932  $25,408 
Share-based compensation 13,912  11,743  26,816  20,098 
Depreciation and amortization1 30,544  25,966  61,090  52,076 
Other purchase accounting adjustments 1,133    2,324   
Adjusted operating income $ 118,026  $95,960  $147,162  $97,582 

1 Includes depreciation and amortization related to purchase accounting adjustments.


CONSOLIDATED OPERATIONS DATA
(Dollars in thousands)
(Unaudited)

REVENUES

        
  Three Months Ended  
  December 31,  
  2017 2016 % Change
MSG Entertainment $271,216   $192,485  41%
MSG Sports 265,086  252,665  5%
Corporate and Other     NM
The Madison Square Garden Company Total $536,302  $445,150  20%
       
  Six Months Ended  
  December 31,  
  2017  2016 % Change
MSG Entertainment $435,497  $303,183  44%
MSG Sports 346,020  323,662  7%
Corporate and Other     NM
The Madison Square Garden Company Total $781,517  $626,845  25%

OPERATING INCOME (LOSS) AND ADJUSTED OPERATING INCOME (LOSS)

             
  Operating Income (Loss)   Adjusted Operating Income (Loss)  
  Three Months Ended December 31,   Three Months Ended December 31,  
  2017 2016 % Change 2017 2016 % Change
MSG Entertainment $74,531  $56,976  31% $81,944  $63,655  29%
MSG Sports 49,324  40,205  23% 55,078  47,210  17%
Corporate and Other (45,541) (38,700) (18)% (18,996) (14,905) (27)%
Purchase accounting adjustments (5,877) (230) NM     NM
The Madison Square Garden Company Total $72,437  $58,251  24 % $118,026  $95,960  23%
             
  Operating Income (Loss)   Adjusted Operating Income (Loss)  
  Six Months Ended December 31,   Six Months Ended December 31,  
  2017 2016 % Change 2017 2016 % Change
MSG Entertainment $84,378   $49,920  69% $99,853  $62,594  60%
MSG Sports 69,016  49,522  39% 80,912  62,629  29%
Corporate and Other (85,215) (73,574) (16)% (33,603) (27,641) (22)%
Purchase accounting adjustments (11,247) (460) NM     NM
The Madison Square Garden Company Total $ 56,932  $25,408  124%  $147,162  $97,582  51%
              


CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)

  December 31,
 2017
 June 30,
 2017
ASSETS
    
Current Assets:    
Cash and cash equivalents $1,125,647  $1,238,114 
Restricted cash 23,332  34,000 
Accounts receivable, net 119,158  102,085 
Net related party receivables 1,524  2,714 
Prepaid expenses 44,132  23,358 
Other current assets 41,475  49,458 
Total current assets 1,355,268  1,449,729 
Investments and loans to nonconsolidated affiliates 247,586  242,287 
Property and equipment, net 1,235,133  1,159,271 
Amortizable intangible assets, net 256,892  256,975 
Indefinite-lived intangible assets 174,850  166,850 
Goodwill 392,621  380,087 
Other assets 51,921  57,554 
Total assets $3,714,271  $ 3,712,753 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY    
Current Liabilities:    
Accounts payable $38,416  $24,084 
Net related party payables 21,197  17,576 
Current portion of long-term debt, net of deferred financing costs 436   
Accrued liabilities:    
Employee related costs 69,651  138,858 
Other accrued liabilities 184,131  191,344 
Deferred revenue 390,056  390,180 
Total current liabilities 703,887  762,042 
Long-term debt, net of deferred financing costs 105,464  105,433 
Defined benefit and other postretirement obligations 44,919  52,997 
Other employee related costs 27,894  29,399 
Deferred tax liabilities, net 80,324   196,436 
Other liabilities 72,287  65,955 
Total liabilities 1,034,775  1,212,262 
Commitments and contingencies    
Redeemable noncontrolling interests 77,819  80,630 
The Madison Square Garden Company Stockholders' Equity:    
Class A Common stock, par value $0.01, 120,000 shares authorized; 19,025 and 19,014 shares outstanding as of December 31, 2017 and June 30, 2017, respectively 204  204 
Class B Common stock, par value $0.01, 30,000 shares authorized; 4,530 shares outstanding as of December 31, 2017 and June 30, 2017 45  45 
Preferred stock, par value $0.01, 15,000 shares authorized; none outstanding as of December 31, 2017 and June 30, 2017    
Additional paid-in capital  2,838,120  2,832,516 
Treasury stock, at cost, 1,422 and 1,433 shares as of December 31, 2017 and June 30, 2017, respectively (242,495) (242,077)
Retained earnings (accumulated deficit) 27,693  (148,410)
Accumulated other comprehensive loss (39,449) (34,115)
Total The Madison Square Garden Company stockholders' equity 2,584,118  2,408,163 
Nonredeemable noncontrolling interests 17,559   11,698 
Total equity 2,601,677  2,419,861 
Total liabilities, redeemable noncontrolling interests and equity $3,714,271  $3,712,753 


SELECTED CASH FLOW INFORMATION
(Dollars in thousands)
(Unaudited)

  Six Months Ended
  December 31,
  2017
 2016
Net cash provided by operating activities
  $63,267  $109,932
Net cash used in investing activities (143,872) (62,691)
Net cash used in financing activities (31,874) (81,213)
Effect of exchange rates on cash and cash equivalents 12   
Net decrease in cash and cash equivalents (112,467) (33,972)
Cash and cash equivalents at beginning of period 1,238,114  1,444,317 
Cash and cash equivalents at end of period $ 1,125,647  $1,410,345 


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Source: The Madison Square Garden Company

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