Fiscal 2018 third quarter revenues of $186.6 million
Fiscal 2018 third quarter operating income of $80.6 million
Fiscal 2018 third quarter adjusted operating income of $85.7 million

NEW YORK, May 03, 2018 (GLOBE NEWSWIRE) -- MSG Networks Inc. (NYSE:MSGN) today reported financial results for the fiscal third quarter ended March 31, 2018. 

For the fiscal 2018 third quarter, MSG Networks Inc. generated revenues of $186.6 million, an increase of 2% as compared with the prior year period.  In addition, the Company generated operating income of $80.6 million, adjusted operating income of $85.7 million and income from continuing operations of $46.9 million.(1)(2)

President and CEO Andrea Greenberg said, "Our third quarter financial results were highlighted by the continued growth of our affiliate revenue base, as we remain on track for another year of solid revenue, adjusted operating income and free cash flow generation.  This has been a year of meaningful progress for our Company as we successfully increased distribution on digital platforms and expanded our programming in an effort to broaden our viewership.  Looking ahead, we remain confident that we are well positioned to generate ongoing value for our shareholders."

Fiscal Year 2018 Third Quarter Results   
(In thousands, except per share data)
 Three Months Ended 
  March 31, 
  2018 
Revenues $186,568  
Operating income 80,584  
Adjusted operating income 85,725  
Income from continuing operations 46,935  
Diluted EPS from continuing operations                                                $0.62  
    
    
  1. See page 3 of this earnings release for the definition of adjusted operating income included in the discussion of non-GAAP financial measures.
  2. In the first quarter of fiscal year 2018, the Company adopted ASU No. 2017-07.  The adoption of this standard resulted in the non-service cost components of net periodic benefit cost to be presented separately in the income statement from the service cost component and the non-service cost components to no longer be included in the subtotal for operating income.  As this standard was applied retrospectively, the Company reclassified $0.4 million and $1.2 million of net periodic benefit cost from selling, general and administrative expenses and direct operating expenses to a separate line item within other income (expense) in the accompanying consolidated statements of operations for the three and nine months ended March 31, 2017.  Furthermore, all prior period amounts presented throughout this release reflect reclassifications made as a result of the adoption of ASU No. 2017-07.

Summary of Reported Results from Continuing Operations
Fiscal 2018 third quarter total revenues of $186.6 million increased 2%, or $3.3 million, as compared with the prior year period.  Affiliation fee revenue increased $4.9 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 $2.2 million, primarily due to a higher net increase in deferred revenue related to ratings guarantees, partially offset by other net advertising increases.  Other revenues increased $0.7 million as compared with the prior year period.    

Direct operating expenses of $80.3 million increased 6%, or $4.8 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 cost increases.  The increase in rights fees expense primarily reflects a step-up in expense related to the renewal of a rights agreement with the Buffalo Sabres, annual contractual rate increases and additional league fees related to streaming rights, partially offset by a shift in the timing of the recognition of certain other rights fees expense.

Selling, general and administrative expenses of $23.4 million increased 8%, or $1.7 million, as compared with the prior year period, primarily due to higher advertising and marketing costs and, to a lesser extent, other net increases.

Operating income of $80.6 million decreased 3%, or $2.9 million, as compared with the prior year period, primarily due to the increase in direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses (including share-based compensation expense), partially offset by the increase in revenues and, to a lesser extent, lower depreciation and amortization. 

Adjusted operating income of $85.7 million decreased 3%, or $2.7 million, as compared with the prior year period, primarily due to the increase in direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses (excluding share-based compensation expense), partially offset by the increase in revenues.

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 (MSG) 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, MSG 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 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 from continuing operations less capital expenditures, both of which are reported in our Consolidated Statement of Cash Flows.  Net cash provided by operating activities from continuing operations excludes net cash provided by operating activities of discontinued operations. 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 from continuing operations, 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
(212) 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 1588856
Conference call replay number is 855-859-2056 / Conference ID Number 1588856 until May 10, 2018


MSG NETWORKS INC.

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

  Three Months Ended Nine Months Ended
  March 31, March 31,
  2018 2017 2018 2017
Revenues $186,568  $183,247  $525,246  $512,471 
Direct operating expenses 80,322  75,528  222,315  206,227 
Selling, general and administrative expenses 23,383  21,669  63,255  59,964 
Depreciation and amortization 2,279  2,576  7,153  7,734 
Operating income 80,584  83,474  232,523  238,546 
Other income (expense):        
Interest income 1,195  741  3,072  2,017 
Interest expense (10,932) (10,204) (31,817) (29,433)
Other components of net periodic benefit cost (407) (420) (1,221) (1,186)
  (10,144) (9,883) (29,966) (28,602)
Income from continuing operations before income taxes 70,440  73,591  202,557  209,944 
Income tax benefit (expense) (23,505) (29,436) 41,103  (82,173)
Income from continuing operations 46,935  44,155  243,660  127,771 
Loss from discontinued operations, net of taxes       (120)
Net income $46,935  $44,155  $243,660  $127,651 
Earnings per share:        
Basic        
Income from continuing operations $0.62  $0.59  $3.23  $1.70 
Loss from discontinued operations        
Net income $0.62  $0.59  $3.23  $1.70 
Diluted        
Income from continuing operations $0.62  $0.58  $3.21  $1.69 
Loss from discontinued operations        
Net income $0.62  $0.58  $3.21  $1.69 
Weighted-average number of common shares outstanding:        
Basic 75,540  75,264  75,427  75,194 
Diluted 76,017  75,643  75,844  75,505 
             


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.
  Three Months Ended Nine Months Ended
  March 31, March 31,
  2018 2017 2018 2017
Operating income $80,584  $83,474  $232,523  $238,546 
Share-based compensation expense 2,862  2,389  10,581  7,438 
Depreciation and amortization 2,279  2,576  7,153  7,734 
Adjusted operating income $85,725  $88,439  $250,257  $253,718 
                 


MSG NETWORKS INC.

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

  March 31,
 2018
 June 30,
 2017
ASSETS (unaudited)  
Current Assets:    
Cash and cash equivalents $194,574  $141,087 
Accounts receivable, net 109,410  105,030 
Related party receivables, net 25,872  17,153 
Prepaid income taxes 4,261  14,322 
Prepaid expenses 6,215  6,468 
Other current assets 3,867  2,343 
Total current assets 344,199  286,403 
Property and equipment, net 8,796  11,828 
Amortizable intangible assets, net 38,068  40,663 
Goodwill 424,508  424,508 
Other assets 40,007  41,642 
Total assets $855,578  $805,044 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY    
Current Liabilities:    
Accounts payable $654  $1,241 
Related party payables 965  2,963 
Current portion of long-term debt 72,414  72,414 
Income taxes payable 23,990  11,483 
Accrued liabilities:    
Employee related costs 11,802  14,238 
Other accrued liabilities 15,151  10,050 
Deferred revenue 7,000  5,071 
Total current liabilities 131,976  117,460 
Long-term debt, net of current portion 1,136,121  1,240,431 
Defined benefit and other postretirement obligations 29,252  29,979 
Other employee related costs 2,975  3,930 
Other liabilities 5,427  5,597 
Deferred tax liability 243,168  351,854 
Total liabilities 1,548,919  1,749,251 
Commitments and contingencies    
Stockholders' Deficiency:    
Class A Common stock, par value $0.01, 360,000 shares authorized; 61,696 and 61,497 shares outstanding as of
March 31, 2018 and June 30, 2017, respectively
 643  643 
Class B Common stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of March 31, 2018 and June 30, 2017 136  136 
Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding    
Additional paid-in capital 3,211  6,909 
Treasury stock, at cost, 2,563 and 2,762 shares as of March 31, 2018 and June 30, 2017, respectively (184,449) (198,800)
Accumulated deficit (505,209) (746,539)
Accumulated other comprehensive loss (7,673) (6,556)
Total stockholders' deficiency (693,341) (944,207)
Total liabilities and stockholders' deficiency $855,578  $805,044 
         


MSG NETWORKS INC.

SUPPLEMENTAL FINANCIAL INFORMATION
(Dollars in thousands)
(Unaudited)

Summary Data from the Statements of Cash Flows

  Nine Months Ended
  March 31,
  2018 2017
Net cash provided by operating activities from continuing operations $164,851  $161,673 
Net cash used in investing activities from continuing operations (1,470) (2,576)
Net cash used in financing activities from continuing operations (109,894) (101,019)
Net cash provided by continuing operations 53,487  58,078 
Net cash used in discontinued operations   (976)
Cash and cash equivalents at beginning of period 141,087  119,568 
Cash and cash equivalents at end of period $194,574  $176,670 
     

Free Cash Flow

  Nine Months Ended
  March 31,
  2018 2017
Net cash provided by operating activities from continuing operations $164,851  $161,673 
Less: Capital expenditures (1,470) (2,576)
Free cash flow $163,381  $159,097 
     

Capitalization

   
  March 31, 2018
   
Cash and cash equivalents $194,574 
Credit facility debt(a) 1,215,000 
Net debt $1,020,426 
   
Reconciliation of operating income to AOI for trailing twelve-month period(b)  
Operating Income $308,874 
Share-based compensation expense 13,074 
Depreciation and amortization 9,715 
Adjusted operating income $331,663 
   
Leverage ratio(c) 3.1x
   
(a) Represents aggregate principal amount of the debt outstanding.
(b) Represents reported adjusted operating income for the trailing twelve months.
(c) Represents net debt divided by annualized adjusted operating income, which differs from the covenant calculation contained in the Company's credit facility.
 

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