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Aug 16, 2018

The Madison Square Garden Company Reports Fourth Quarter and Fiscal 2018 Results

NEW YORK, Aug. 16, 2018 (GLOBE NEWSWIRE) -- The Madison Square Garden Company (NYSE: MSG) today reported financial results for the fourth quarter and fiscal year ended June 30, 2018.

For fiscal 2018, the Company generated revenues of approximately $1.6 billion, which represents an increase of 18% as compared to the prior year.  In addition, the Company generated operating income of $18.9 million, an increase of $79.2 million, and adjusted operating income (“AOI”) of $193.8 million, an increase of $96.2 million, both as compared to the prior year(1)(2).  For comparative purposes, please note that fiscal 2018 results include a full year of TAO Group results (as compared with two months for fiscal 2017), as well as $27.5 million in net provisions for team personnel transactions.  In addition, fiscal 2017 results include $30.5 million in non-recurring NHL and NBA distributions, $42.3 million in net provisions for team personnel transactions and a $33.6 million non-cash write-off.

For the fiscal 2018 fourth quarter, the Company generated revenues of $318.0 million, an increase of 4% as compared to the prior year quarter.  In addition, the Company generated an operating loss of $45.4 million and an adjusted operating loss of $2.5 million, which represent improvements of 51% and 94%, respectively, both as compared to the prior year quarter.  For comparative purposes, please note that fiscal 2018 fourth quarter results include $17.5 million in net provisions for team personnel transactions, as well as a full quarter of TAO Group results (versus two months of TAO Group results in the prior year quarter).  In addition, fiscal 2017 fourth quarter results include $15.0 million in non-recurring NHL and NBA distributions, $35.2 million in net provisions for team personnel transactions and a $33.6 million non-cash write-off.

Executive Chairman and CEO Jim Dolan said, “We had a solid fiscal 2018, driven by the performance of our bookings business, the Christmas Spectacular and sponsorships.  This past year we also took important steps to position the Company for continued growth as we unveiled our plans to build state-of-the-art venues - called MSG Sphere - in Las Vegas and London, and announced the exploration of a potential separation of our entertainment and sports businesses.  Looking ahead, we believe that our commitment to delivering premium live experiences for our customers and partners will continue to create long-term value for our shareholders.”

Results from Operations
Segment results for the quarters ended June 30, 2018 and 2017 are as follows:

  Revenues Operating
Income (Loss)
Adjusted Operating
Income (Loss)
$ millions F’Q4
2018
F’Q4
2017
%
Change
F’Q4
2018
F’Q4
2017
%
Change
F’Q4
2018
F’Q4
2017
%
Change
MSG Entertainment $ 185.6
$ 125.9
47% $ (0.4) $ (46.1) 99% $ 7.7
$ (39.2) NM
MSG Sports   132.5
  179.6
(26)%   4.5
  9.8
(54)%   10.1
  14.5
(30)%
Corporate and Other (3)   (0.2)  
NM   (43.9)   (44.2) 1%   (20.3)   (18.9) (8)%
Purchase Accounting Adjustments  
 
NM   (5.5)   (11.9) 54%  
 
NM
Total Company $ 318.0
$ 305.6
4% $ (45.4) $ (92.5) 51% $ (2.5) $ (43.6) 94%

Note: Does not foot due to rounding

(1) See page 5 of this earnings release for the definition of adjusted operating income (loss) included in the discussion of non-GAAP financial measures.
(2) The Company records TAO Group’s operating results in its consolidated statements of operations on a three-month lag basis. Fiscal 2018 fourth quarter financial results include TAO Group’s operating results for the period from January 1, 2018 to April 1, 2018 and fiscal 2017 fourth quarter financial results include TAO Group’s operating results for the period from February 1, 2017 to March 26, 2017 due to the timing of the acquisition. In addition, fiscal 2017 fourth quarter operating results did not include Counter Logic Gaming and Obscura Digital, which the Company acquired on July 28, 2017 and November 20, 2017, respectively. Accordingly, the Company’s results for fiscal 2018 are not directly comparable to fiscal 2017 results.
(3) Corporate and Other primarily consists of unallocated corporate general and administrative costs (including costs associated with business development initiatives) and unallocated venue-related depreciation and amortization expense, as well as inter-segment eliminations.

MSG Entertainment
For the fiscal 2018 fourth quarter as compared to the prior year period, MSG Entertainment revenues of $185.6 million increased 47%.  The increase was primarily due to higher event-related revenues and a full quarter of operating results for TAO Group.  The increase in event-related revenues was primarily due to higher revenues at The Garden, the Forum and Radio City Music Hall.

Fiscal 2018 fourth quarter operating loss of $0.4 million improved by $45.7 million and adjusted operating income of $7.7 million improved by $46.9 million. The improvement in operating income and adjusted operating income primarily reflects the increase in revenues, partially offset by higher selling, general and administrative expenses and direct operating expenses.

The increase in selling, general and administrative expenses was primarily due to a full quarter of TAO Group operating results, partially offset by other net expense decreases.  The increase in direct operating expenses primarily reflects higher overall event-related expenses at the Company's venues and a full quarter of TAO Group's operating results, as well as higher other net expenses, offset by the absence of a $33.6 million write-off of the remaining deferred production costs for the New York Spectacular production recorded in the prior year quarter.

MSG Sports
For the fiscal 2018 fourth quarter as compared to the prior year period, MSG Sports revenues of $132.5 million decreased 26%.  The decrease in revenues was primarily due to the absence of playoff-related revenues and, to a lesser extent, lower league distributions, mainly the result of the absence of $15.0 million in non-recurring NHL and NBA distributions.  In addition, professional sports teams' regular-season ticket-related revenue and food, beverage and merchandise sales decreased, which includes the combined impact of three fewer Knicks and Rangers home games versus the prior year quarter.  This was partially offset by higher sponsorship and signage revenues, local media rights fees from MSG Networks Inc., and suite rental fee revenue.

Fiscal 2018 fourth quarter operating income decreased by $5.2 million to $4.5 million and adjusted operating income decreased by $4.4 million to $10.1 million. The decrease in operating income and adjusted operating income was primarily due to lower revenues, offset by lower selling, general and administrative expenses and direct operating expenses.

The decrease in selling, general and administrative expenses primarily reflects the absence of severance-related costs associated with the separation agreement with a team executive recorded in the prior year quarter. The decrease in direct operating expenses was primarily due to lower playoff-related expenses and other net expense decreases.

Corporate and Other
For the fiscal 2018 fourth quarter, Corporate and Other operating loss of $43.9 million improved by $0.2 million, primarily due to lower depreciation and amortization expense, offset by higher selling, general and administrative expenses.  Fiscal 2018 fourth quarter adjusted operating loss of $20.3 million increased by $1.4 million, primarily due to higher selling, general and administrative expenses, mainly a result of higher professional fees, employee compensation and related benefits, the inclusion of Obscura Digital expenses associated with the Company’s business development initiatives and other net cost increases, partially offset by certain favorable adjustments related to contingent payments for the Company’s business acquisitions.

Purchase Accounting Adjustments
For the fiscal 2018 fourth quarter as compared to the prior year period, operating expenses related to purchase accounting adjustments decreased $6.4 million, primarily due to the absence of expense related to the step-up in value of TAO Group’s inventory.

Other Items
On June 27, 2018, the Company announced that its board of directors authorized the exploration of a possible spin-off that would separate the Company's sports businesses from its entertainment businesses.

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 Hulu 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 adjusted operating income (loss) to 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
Chief Communications Officer
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 2061378
Conference call replay number is 855-859-2056 / Conference ID Number 2061378 until August 23, 2018

THE MADISON SQUARE GARDEN COMPANY

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

    Three Months Ended   Twelve Months Ended
    June 30,   June 30,
    2018   2017   2018   2017
Revenues   $ 317,957     $ 305,574     $ 1,559,095     $ 1,318,452  
Direct operating expenses   209,179     230,593     945,428     861,381  
Selling, general and administrative expenses   123,199     138,674     472,305     410,039  
Depreciation and amortization   30,967     28,777     122,486     107,388  
Operating income (loss)   (45,388 )   (92,470 )   18,876     (60,356 )
Other income (expense):                
Loss in equity method investments   (9,209 )   (1,475 )   (7,770 )   (29,976 )
Interest income   6,594     3,740     21,582     11,836  
Interest expense   (3,941 )   (2,457 )   (15,415 )   (4,189 )
Miscellaneous income       51     303     1,492  
Income (loss) from operations before income taxes   (51,944 )   (92,611 )   17,576     (81,193 )
Income tax benefit   1,454     5,158     116,872     4,404  
Net income (loss)   (50,490 )   (87,453 )   134,448     (76,789 )
Less: Net income (loss) attributable to nonredeemable noncontrolling interests   (3,287 )   1,195     (6,518 )   304  
Less: Net loss attributable to redeemable noncontrolling interests   (1,150 )   (4,370 )   (628 )   (4,370 )
Net income (loss) attributable to The Madison Square Garden Company’s stockholders   $ (46,053 )   $ (84,278 )   $ 141,594     $ (72,723 )
Basic earnings (loss) per common share attributable to The Madison Square Garden Company’s stockholders   $ (1.94 )   $ (3.58 )   $ 5.99     $ (3.05 )
Diluted earnings (loss) per common share attributable to The Madison Square Garden Company’s stockholders   $ (1.94 )   $ (3.58 )   $ 5.94     $ (3.05 )
Basic weighted-average number of common shares outstanding   23,686     23,559     23,639     23,853  
Diluted weighted-average number of common shares outstanding   23,686     23,559     23,846     23,853  

THE MADISON SQUARE GARDEN COMPANY

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 and stock options 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.
  • Purchase accounting adjustments. This adjustment eliminates the impact of various purchase accounting adjustments related to business acquisitions, primarily fair value adjustments to inventory in fiscal 2017 and favorable / unfavorable lease agreements of the acquiree.
    Three Months Ended   Twelve Months Ended
    June 30,   June 30,
    2018   2017   2018   2017
Operating income (loss)   $ (45,388 )   $ (92,470 )   $ 18,876     $ (60,356 )
Share-based compensation   10,671     10,664     47,563     41,129  
Depreciation and amortization (1)   30,967     28,777     122,486     107,388  
Other purchase accounting adjustments   1,222     9,466     4,858     9,466  
Adjusted operating income (loss)   $ (2,528 )   $ (43,563 )   $ 193,783     $ 97,627  


(1) Includes depreciation and amortization related to purchase accounting adjustments.

THE MADISON SQUARE GARDEN COMPANY

CONSOLIDATED OPERATIONS DATA
(Dollars in thousands)
(Unaudited)

REVENUES

    Three Months Ended    
    June 30,    
    2018   2017   % Change
MSG Entertainment   $ 185,643     $ 125,937     47%
MSG Sports   132,485     179,637     (26)%
Inter-segment elimination   (171 )       NM
Total Madison Square Garden Company   $ 317,957     $ 305,574     4%
                     
    Twelve Months Ended    
    June 30,    
    2018   2017   % Change
MSG Entertainment   $ 780,726     $ 506,468     54%
MSG Sports     778,653       811,984     (4)%
Inter-segment elimination     (284 )         NM
Total Madison Square Garden Company   $ 1,559,095     $ 1,318,452     18%

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

    Operating Income (Loss)       Adjusted Operating
Income (Loss)
   
    Three Months Ended       Three Months Ended    
    June 30,       June 30,    
    2018   2017   % Change   2018   2017   % Change
MSG Entertainment   $ (437 )   $ (46,137 )   99%   $ 7,736     $ (39,153 )   NM
MSG Sports   4,515     9,762     (54)%   10,076     14,482     (30)%
Corporate and Other (1)   (43,922 )   (44,156 )   1%   (20,340 )   (18,892 )   (8)%
Purchase accounting adjustments   (5,544 )   (11,939 )   54%           NM
Total Madison Square Garden Company   $ (45,388 )   $ (92,470 )   51%   $ (2,528 )   $ (43,563 )   94%
                                         
    Operating Income (Loss)       Adjusted Operating
Income (Loss)
   
    Twelve Months Ended       Twelve Months Ended    
    June 30,       June 30,    
    2018   2017   % Change   2018   2017   % Change
MSG Entertainment   $ 86,019     $ (3,692 )   NM   $ 117,034     $ 21,970     NM
MSG Sports     126,564       119,134     6%     149,543       143,001     5%
Corporate and Other (1)     (170,715 )     (163,180 )   (5)%     (72,794     (67,344   (8)%
Purchase accounting adjustments     (22,992 )     (12,618 )   (82)%               NM
Total Madison Square Garden Company   $ 18,876     $ (60,356 )   NM   $ 193,783     $ 97,627     98%


(1) Corporate and Other primarily consists of unallocated corporate general and administrative costs (including costs associated with business development initiatives) and unallocated venue-related depreciation and amortization expense, as well as inter-segment eliminations.

THE MADISON SQUARE GARDEN COMPANY

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

    June 30,
 2018
  June 30,
 2017
ASSETS        
Current Assets:        
Cash and cash equivalents   $ 1,225,638     $ 1,238,114  
Restricted cash   30,982     34,000  
Accounts receivable, net   100,725     102,085  
Net related party receivables   567     2,714  
Prepaid expenses   28,761     23,358  
Other current assets   28,996     49,458  
Total current assets   1,415,669     1,449,729  
Investments and loans to nonconsolidated affiliates   209,951     242,287  
Property and equipment, net   1,253,671     1,159,271  
Amortizable intangible assets, net   243,806     256,975  
Indefinite-lived intangible assets   174,850     166,850  
Goodwill   392,513     380,087  
Other assets   45,713     57,554  
Total assets   $ 3,736,173     $ 3,712,753  
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY        
Current Liabilities:        
Accounts payable   $ 28,939     $ 24,084  
Net related party payables   13,675     17,576  
Current portion of long-term debt, net of deferred financing costs   4,365      
Accrued liabilities:        
Employee related costs   123,992     138,858  
Other accrued liabilities   180,272     191,344  
Deferred revenue   414,262     390,180  
Total current liabilities   765,505     762,042  
Long-term debt, net of deferred financing costs   101,335     105,433  
Defined benefit and other postretirement obligations   49,240     52,997  
Other employee related costs   53,501     47,913  
Deferred tax liabilities, net   78,968     196,436  
Other liabilities   56,905     47,441  
Total liabilities   1,105,454     1,212,262  
Commitments and contingencies        
Redeemable noncontrolling interests   76,684     80,630  
The Madison Square Garden Company Stockholders’ Equity:        
Class A Common stock, par value $0.01, 120,000 shares authorized; 19,136 and 19,014 shares outstanding as of June 30, 2018 and 2017, respectively   204     204  
Class B Common stock, par value $0.01, 30,000 shares authorized; 4,530 shares outstanding as of June 30, 2018 and 2017   45     45  
Preferred stock, par value $0.01,15,000 shares authorized; none outstanding as of June 30, 2018 and 2017        
Additional paid-in capital   2,817,873     2,832,516  
Treasury stock, at cost, 1,312 and 1,433 shares as of June 30, 2018 and 2017, respectively   (223,662 )   (242,077 )
Accumulated deficit   (11,059 )   (148,410 )
Accumulated other comprehensive loss   (46,918 )   (34,115 )
Total The Madison Square Garden Company stockholders’ equity   2,536,483     2,408,163  
Nonredeemable noncontrolling interests   17,552     11,698  
Total equity   2,554,035     2,419,861  
Total liabilities, redeemable noncontrolling interests and equity   $ 3,736,173     $ 3,712,753  

THE MADISON SQUARE GARDEN COMPANY

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

    Twelve Months Ended
    June 30,
    2018   2017
Net cash provided by operating activities   $ 220,647     $ 216,623  
Net cash used in investing activities   (182,357 )   (264,301 )
Net cash used in financing activities   (51,097 )   (158,525 )
Effect of exchange rates on cash and cash equivalents   331      
Net decrease in cash and cash equivalents   (12,476 )   (206,203 )
Cash and cash equivalents at beginning of period   1,238,114     1,444,317  
Cash and cash equivalents at end of period   $ 1,225,638     $ 1,238,114  

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Source: The Madison Square Garden Company