Msg Networks Inc. Reports FISCAL 2019 FIRST QUARTER RESULTS

The following excerpt is from the company's SEC filing.

Fiscal 2019 first quarter revenues of $164.5 million

Fiscal 2019 first quarter operating income of $78.9 million

Fiscal 2019 first quarter adjusted operating income of $84.6 million

NEW YORK, N.Y., November

 2, 2018

– MSG Networks Inc. (NYSE: MSGN) today reported financial results for the fiscal first quarter ended September 30, 2018.

For the fiscal 2019 first quarter, MSG Networks Inc. generated revenues of $164.5 million, an increase of 4% as compared with the prior year period. In addition, the Company generated operating income of $78.9 million, adjusted operating income

of $84.6 million and net income of $46.9 million.

President and CEO Andrea Greenberg said, “We had a strong start to fiscal 2019 driven by our continued commitment to building on our financial, operational and strategic successes. The

2018-19

NBA and NHL seasons are underway and we remain focused on leveraging our exclusive live game content, while we continue to innovate with new features and formats, to deliver meaningful value for our viewers, as well as our affiliates, advertisers and shareholders.”

Fiscal Year 2019 First Quarter Results

(In thousands, except per share data)

Three Months Ended

Revenues

164,464

Operating income

78,861

Adjusted operating income

84,582

Net Income

46,930

Diluted EPS

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 2019 first quarter total revenues of $164.5 million increased 4%, or $7.0 million, as compared with the prior year period. Affiliation fee revenue increased $6.5 million, primarily due to higher affiliation rates, partially offset by the impact of a low single-digit percentage decrease in subscribers versus the prior year period. Advertising revenue decreased $0.1 million, while other revenues increased $0.6 million as compared with the prior year period.

Direct operating expenses of $66.7 million increased 6%, or $3.6 million, as compared with the prior year period. The increase was primarily due to higher rights fees expense and, to a lesser extent, higher other programming-related costs. The increase in rights fees expense primarily reflects annual contractual rate increases and a full quarter impact of the

step-up

in expense related to the renewal of a rights agreement with the Buffalo Sabres, as compared to a partial quarter impact in the prior year period.

Selling, general and administrative expenses of $16.9 million increased 9%, or $1.3 million, as compared with the prior year period, primarily due to higher advertising and marketing costs, and employee compensation and related benefits (including share-based compensation expense).

Operating income of $78.9 million increased 3%, or $2.5 million, as compared with the prior year period, primarily due to the increase in revenues, partially offset by higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses (including share-based compensation expense).

Adjusted operating income of $84.6 million increased 3%, or $2.9 million, as compared with the prior year period, primarily due to the increase in revenues, partially offset by higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses (excluding share-based compensation expense).

About MSG Networks Inc.

An industry leader in sports production, and content development and distribution, MSG Networks Inc. owns and operates two award-winning regional sports and entertainment networks, MSG Network (MSGN) and MSG+, and a live streaming and video on demand platform, MSG GO. The networks are home to 10 professional sports teams, delivering live games of the New York Knicks; New York Rangers; New York Islanders; New Jersey Devils; Buffalo Sabres; New York Liberty; New York Red Bulls and the Westchester Knicks, as well as coverage of the New York Giants and Buffalo Bills. Each year, MSGN and MSG+ collectively telecast approximately 500 live professional games, along with a comprehensive lineup of other sporting events, including college football and basketball, and critically-acclaimed original programming. The gold standard for regional broadcasting, MSG Networks has won 152 New York Emmy Awards over the past ten years.

Non-GAAP

Financial Measures

We define adjusted operating income, which is a

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

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.

Contacts

Kimberly Kerns

Communications

(212)

465-6442

Ari Danes, CFA

Investor Relations

465-6072

Conference Call Information:

The conference call will be Webcast live today at 10:00 a.m. ET at

www.msgnetworks.com

Conference call

dial-in

number is

877-883-0832

/ Conference ID Number 1577714

Conference call replay number is

855-859-2056

/ Conference ID Number 1577714 until November 9, 2018

MSG NETWORKS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended

157,456

66,655

63,091

16,903

15,561

Depreciation and amortization

76,353

Other income (expense):

Interest income

Interest expense

(11,922

(10,643

Other components of net periodic benefit cost

(10,735

(10,172

Income from operations before income taxes

68,126

66,181

Income tax expense

(21,196

(25,024

Net income

41,157

Earnings per share:

Weighted-average number of common shares outstanding:

74,895

75,285

75,693

75,779

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.

81,725

CONSOLIDATED BALANCE SHEETS

June 30,

(unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

170,083

205,343

Accounts receivable, net

109,519

110,657

Related party receivables, net

12,100

Prepaid income taxes

Prepaid expenses

Other current assets

Total current assets

296,993

338,442

Property and equipment, net

10,029

Amortizable intangible assets, net

36,338

37,203

Goodwill

424,508

Other assets

38,926

39,430

Total assets

806,444

849,612

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

Current Liabilities:

Accounts payable

Related party payables

Current portion of long-term debt

72,414

Income taxes payable

18,507

Accrued liabilities:

Employee related costs

15,342

Other accrued liabilities

Deferred revenue

Total current liabilities

111,342

111,216

Long-term debt, net of current portion

1,024,914

1,118,017

Defined benefit and other postretirement obligations

25,647

28,170

Other employee related costs

Other liabilities

Deferred tax liability

246,046

241,417

Total liabilities

1,416,668

1,507,354

Commitments and contingencies

Stockholders’ Deficiency:

Class A Common stock, par value $0.01, 360,000 shares authorized; 61,235 and 61,017 shares outstanding as of September 30, 2018 and June 30, 2018, respectively

Class B Common stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of September 30, 2018 and June 30, 2018

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

Additional

paid-in

Treasury stock, at cost, 3,024 and 3,242 shares as of September 30, 2018 and June 30, 2018, respectively

(182,714

(195,881

Accumulated deficit

(421,666

(460,007

Accumulated other comprehensive loss

(6,623

(6,700

Total stockholders’ deficiency

(610,224

(657,742

Total liabilities and stockholders’ deficiency

SUPPLEMENTAL FINANCIAL INFORMATION

(Dollars in thousands)

Summary Data from the Statements of Cash Flows

Net cash provided by operating activities

62,978

52,419

Net cash used in investing activities

Net cash used in financing activities

(97,408

(20,074

Net cash provided by (used in) operations

(35,260

31,861

Cash and cash equivalents at beginning of period

141,087

Cash and cash equivalents at end of period

172,948

Less: Capital expenditures

Free cash flow

62,148

51,935

Capitalization

September 30, 2018

Credit facility debt

1,102,500

Net debt

932,417

Reconciliation of operating income to AOI for trailing twelve-month period

Operating Income

315,666

14,734

339,332

Leverage ratio

Represents aggregate principal amount of the debt outstanding.

Represents reported adjusted operating income for the trailing twelve months.

Represents net debt divided by annualized adjusted operating income, which differs from the covenant calculation contained in the Company’s credit facility.

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

MSG Networks director was just granted 6,460 restricted shares - Dec. 10, 2019
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