Msg Networks Inc. Reports FISCAL 2019 SECOND QUARTER RESULTS

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

Fiscal 2019 second quarter revenues of $192.9 million

Fiscal 2019 second quarter operating income of $78.4 million

Fiscal 2019 second quarter adjusted operating income of $85.8 million

NEW YORK, N.Y., February

 5, 2019 

– MSG Networks Inc. (NYSE: MSGN) today reported financial results for the fiscal second quarter ended December 31, 2018.

For the fiscal 2019 second quarter, MSG Networks Inc. generated revenues of $192.9 million, an increase of 6% as compared with the prior year period. In addition, the Company generated operating income of $78.4 million, adjusted opera ting income

of $85.8 million and net income of $43.8 million.

President and CEO Andrea Greenberg said, “We delivered solid second quarter results, highlighted by increases in both affiliate and advertising revenues. Our exclusive live sports programming drew increased interest from existing and new advertisers and advertising categories, and we continued to benefit from strong affiliate relationships and digital distribution. Looking ahead, we remain focused on capitalizing on our unique live content to create long-term shareholder value.”

Fiscal Year 2019 Second Quarter Results

(In thousands, except per share data)

Three Months Ended

Revenues

192,914

Operating income

78,350

Adjusted operating income

85,761

Net Income

43,838

Diluted EPS

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 second quarter total revenues of $192.9 million increased 6%, or $11.7 million, as compared with the prior year period. Affiliation fee revenue increased $7.8 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 increased $3.5 million, primarily due to higher sales generated from live professional sports programming. Other revenues increased $0.5 million as compared with the prior year period.

Direct operating expenses of $81.5 million increased 3%, or $2.6 million, as compared with the prior year period. The increase was primarily due to higher rights fees expense, mainly a result of annual contractual rate increases.

Selling, general and administrative expenses of $31.3 million increased 29%, or $7.0 million, as compared with the prior year period, primarily due to higher advertising and marketing costs, employee compensation and related benefits (including share-based compensation expense) and, to a lesser extent, higher advertising sales commissions.

Operating income of $78.4 million increased 4%, or $2.8 million, as compared with the prior year period, primarily due to the increase in revenues, partially offset by higher selling, general and administrative expenses (including share-based compensation expense) and, to a lesser extent, higher direct operating expenses.

Adjusted operating income of $85.8 million increased 4%, or $3.0 million, as compared with the prior year period, primarily due to the increase in revenues, partially offset by higher selling, general and administrative expenses (excluding share-based compensation expense) and, to a lesser extent, higher direct operating 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, with more than 150 New York Emmy Awards over the past 10 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 9083646

Conference call replay number is

855-859-2056

/ Conference ID Number 9083646 until February 12, 2019

MSG NETWORKS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Six Months Ended

181,222

357,378

338,678

81,470

78,902

148,125

141,993

31,294

24,311

48,197

39,872

Depreciation and amortization

75,586

157,211

151,939

Other income (expense):

Interest income

Interest expense

(11,693

(10,242

(23,615

(20,885

Other components of net periodic benefit cost

(10,684

(9,650

(21,419

(19,822

Income from operations before income taxes

67,666

65,936

135,792

132,117

Income tax benefit (expense)

(23,828

89,632

(45,024

64,608

Net income

155,568

90,768

196,725

Earnings per share:

Weighted-average number of common shares outstanding:

75,079

75,458

74,987

75,371

75,737

75,756

75,715

75,768

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.

82,807

170,343

164,532

CONSOLIDATED BALANCE SHEETS

June 30,

(unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

174,624

205,343

Accounts receivable, net

108,960

110,657

Related party receivables, net

20,788

12,100

Prepaid income taxes

Prepaid expenses

Other current assets

Total current assets

320,486

338,442

Property and equipment, net

10,029

Amortizable intangible assets, net

35,473

37,203

Goodwill

424,508

Other assets

40,422

39,430

Total assets

830,413

849,612

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

Current Liabilities:

Accounts payable

Related party payables

Current portion of long-term debt

85,539

72,414

Income taxes payable

Accrued liabilities:

Employee related costs

10,918

15,342

Other accrued liabilities

Deferred revenue

Total current liabilities

115,647

111,216

Long-term debt, net of current portion

993,685

1,118,017

Defined benefit and other postretirement obligations

25,835

28,170

Other employee related costs

Other liabilities

Deferred tax liability

248,444

241,417

Total liabilities

1,392,445

1,507,354

Commitments and contingencies

Stockholders’ Deficiency:

Class A Common stock, par value $0.01, 360,000 shares authorized; 61,287 and 61,017 shares outstanding as of December 31, 2018 and June 30, 2018, respectively

Class B Common stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of December 31, 2018 and June 30, 2018

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

Additional

paid-in

Treasury stock, at cost 2,972 and 3,242 shares as of December 31, 2018 and June 30, 2018, respectively

(179,561

(195,881

Accumulated deficit

(377,828

(460,007

Accumulated other comprehensive loss

(6,538

(6,700

Total stockholders’ deficiency

(562,032

(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

90,455

101,972

Net cash used in investing activities

(3,674

Net cash used in financing activities

(117,500

(40,273

Net increase (decrease) in cash and cash equivalents

(30,719

60,828

Cash and cash equivalents at beginning of period

141,087

Cash and cash equivalents at end of period

201,915

Less: Capital expenditures

(1,674

Free cash flow

88,781

101,101

Capitalization

Credit facility debt

1,083,750

Net debt

909,126

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

Operating Income

318,430

15,547

342,286

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:

Submission of Matters to a Vote of Security - Dec. 6, 2019
Securities to be offered to employees in employee benefit plans - Dec. 6, 2019

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