Operator:
Good morning. My name is Christie and I will be your conference operator today. At this time I would like to welcome everyone to <b>The Madison Square Garden Company</b> MSG Fiscal 2016 Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. If you would like to ask a question during this time simply press star then the number one on your telephone keypad. To withdraw your questions press the pound key. Thank you.
I would now like to turn the call over to Ari Danes, Senior Vice President of Investor Relations for the Madison Square Garden Company. Please go ahead sir.
Ari Danes:Investor Relations:
Thank you, Christie. Good morning and welcome at the Madison Square Garden Company’s fiscal 2016 third quarter earnings conference call. Our President and CEO, Doc O’Connor will begin this morning’s call with the discussion of some of the Company’s recent highlights. This would be followed by review of our financial results with Donna Coleman, our EVP and Chief Financial Officer.
After our prepared remarks we will open up the call for questions. If you do not have a copy of today’s earnings release, it is available in the Investors section of our corporate website.
Please take a note of the following. Today’s discussion 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.
These include financial community perceptions of the company and its business, operations, financial condition, and the industry in which it operates, as well as the factors described in the company’s filings with the Securities and Exchange Commission, including the sections entitled 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 that may be discussed during this call. Let me point out that on page 4 of today’s earnings release, we provide consolidated and combined statements of operations and a reconciliation of adjusted operating cash flow or AOCF to operating income.
I would now like to introduce Doc O’Connor, President and CEO of The Madison Square Garden Company.
David O’Connor:President and Chief Executive Officer:
Thank you, Ari and good morning, everyone. For the fiscal third quarter we generated strong top line growth and excluding the impact of a non cash write-off and increase in total company AOCF both as compared to prior year’s third quarter. These solid underlying results reflect our continued success in delivering exceptional live experiences for our fans and partners.
As we previously discussed we see ample opportunities to continue growing our business both organically and through acquisition and development. We’ve been making progress on our venue expansion strategy and we’ve engaged in a number of discussions one of which may come to provision in a very near future. Another important area focus for our company in growing our portfolio of owned and operated content and a terrific example of this is our upcoming show the New York Spectacular Starring Radio City Rockettes.
We are now in the midst of preparing for the shows June, 15th debut and as you may know, we shifted the timing of the shows run from spring to summer to take advantage of the approximately 30% increase in tourism in New York City during the summer month. We are also using what we’ve learned from last year’s springs spectacular to build on and enhance this year’s show. In addition to re-imagining story line we look forward to giving our customers more of what they wants to see. This show was a love later to New York.
It’s landscapes, its landmarks, and it’s icons including the Radio City Rockettes the stars of the show.
As part of this effort we brought on board a new creative team that includes three time any award winning winner me and Michael as Director and choreographer and Drama Desk Award-winner Douglas Carter Beane as the shows writer. As we’ve seen from our results from morning with the continued evolution of the show we’ve also incurred a write-off. Donna will take you through this in greater detail, but I would note that we’re anticipating a successful summer run and that we continue to believe the show will become an annual New York tradition in valuable property for the company.
I’d now like to share some additional operating highlights starting first with our sports teams. The Rangers reached 101 points in the regular season and advance to the play offs for the sixth consecutive year and tenth time in the last 11 years. While we’re disappointed about the mix not making the play offs the team had a 15 win improvement this past season. Looking ahead we think the addition of young star -- who won three Eastern Conference Rookie of the month award this past season along with all star Carmelo Anthony provides the team with solid building blocks for future seasons.
The liberty led by 2015 WNBA all star -- child and league Rookie of the year runner up Kiah Stokes had 2015 regular season that was the best in team history and are now gearing up to the start of their 20th season with the team home opener on May 15 against the Dallas Wings.
Meanwhile our portfolio of venues continues to play host to over diverse array of artists and events with highlights for the third quarter including the Nickelodeon’s kids. The Nickelodeon kinds choice awards that the form for the second consecutive year. Bruce Springsteen for two sold out nights at the Garden 148 Annual Westminster Kennel Club Dog show. The BNP Paribas tennis showdown featuring Serena Williams and Caroline Wozniacki and the Big East Basketball championship for the 34th consecutive year which featured the --- wildcat who went on to win the NCAA championship.
Moving into the fourth quarter, last month we hosted several special events including the I Heart Radio Music awards at the forum. We are also honor to work with our partner Tribeca on this year’s Film Festival as Beacon Theatre once again served as the best drop for festival events including the festivals, anniversary screening of the film, Taxi Driver. We also welcome governor Andrew -- in the UFC to the Garden for a landmark build signing to legalize professional mix martial arts in New York.
First UFC event in the state will take place this November at the world’s most famous Arena and we look forward to this world class athletes becoming part of the Gardens story in history. Earlier this week Pro --- took to the Garden stage for two sold out nights and in the coming weeks we look forward to hosting Billy Joel popular Garden residency which is led to 36 sold out shows through December 2016. Our latest Residency with Jerry Seinfeld at the Beacon and Comedian Amy Schumer, staying in Peter Gabriel as well as the multi show run by the cure all at the garden.
We also recently announce that on August 28 the Garden will host the MTV video music awards for the first time ever. Madison Square Garden is known for inspiring the greatest performance to give their greatest performances and we have no doubt that the MTV VMA celebrated for this exciting and unexpected mix of music and entertainment will be unforgettable night and this special event will be followed six more memorable nights in September as a dull place the Garden as part of our 2016 tour. In summary we remain focused on delivering excellence across our operations while executing our plans for growth and long term value creation.
With that I will now turn the call over to Dana who will take you through our financial result.
Donna M. Coleman:Executive Vice President and Chief Financial Officer:
Thank you Doc and good morning everyone. As you know the Madison Square Garden company completed its spin off consignment C networks on September 30, 2015. Results for the fiscal 2016 third quarter reflects MSG’s financial result on a standalone basis including the companies post-spin cost structure and actual corporate general and administrative cost.
Fiscal 2015 third quarter results reflect the allocation of corporate general and administrative cost based on accounting requirements for the preparation of -- financial statement.
As a result prior year third quarter results do not reflect all of the actual expenses at the company would have incurred had it been standalone public company for that quarter. With that said now let’s go to our reported results as compared to the prior year period. For the fiscal 2016 third quarter the company generated total revenue $336.3 million an increase of 12% and IOCF loss of $23.8 million excluding the impact of $41.8 million non-cash right off which I will discuss in greater detail shortly IOCF would have been positive $18.1 million an increase of 8% as compared to the prior year quarter and MSG Entertainment revenue is up $73.2 million increase 19%. This increase was driven by higher event-related revenues at all of our company venues led by the Garden and Radio City Music Hall as well as higher Christmas Spectacular revenue and sponsorship signage and suite rental seem revenues.
As a reminder 12 Radio City Christmas spectacular performances play during the fiscal 2016 third quarter versus non during the prior year third quarter.
Partially offsetting the overall increase in revenue was the impact from our decision to shift the timing of the New York Spectacular from the spring to the summer. Last year the show debut on March 12 with 18 shows taking place during the fiscal third quarter. As Doc stated earlier this year the shows run will start on June 15. On a reported basis third quarter AOCF at MSG Entertainment for the loss of $53.4 million excluding the impact of $41.8 million write-off the AOCF loss at Entertainment would have been $11.6 million an increase of 4% versus the prior year quarter.
This small underling increase in the AOCF loss at the entertainment segment reflect higher SG&A expense and to a lesser extent higher direct operating expenses mostly offset by strong revenue growth.
Let me spend a few moments on the write-off as we have talk about we were please with last year’s spring Spectacular and have taken what we earn from this show and made some important and enhancements to this year’s production including a Reimagine story rhyme and in expanded role for the Rockettes. This evolution in the projection resulting in a number of prior scenes no longer being included in the show and therefore we wrote off any deferred production cost related to those things. I would note that this write-off is based on our decision to make creative changes to the production and as not driven by last year’s results our financial projections.
As Doc stated, we are looking forward to a successful summer run and continue to believe the New York Spectacular will become an annual on New York tradition and a valuable property for the company. At MSG Sports, third quarter revenues up $262.9 million increased 10%. This increase was primarily due to higher local broadcast rights fees due to the impact of the new long term media rights agreements for the Knicks and Rangers with MSG networks. In addition, segment revenues increased due to the new advertising sales representation agreement with MSG Networks and higher professional sports teams’ sponsorship, signage and ticket-related revenues.
Excluding the impact of the new long-term media rights and advertising sales representation agreements, MSG Sports revenues would have increased 2%, as compared to the prior year period.
MSG Sports AOCF of $42.5 million increased by 37%. This was primarily due to the increase in revenues and to a lesser extent a decrease in direct operating expenses partially offset by a higher SG&A expenses. The small decrease in direct operating expenses was primarily due to lower net provisions for certain team personnel transactions and lower event-related expenses associated with other live sporting events. This was partially offset by higher net provisions for NBA and NHL revenue sharing expense and NBA luxury tax, team personnel compensation costs, and other team operating expenses.
For both the MSG entertainment and MSG Sports segments the increase in SG&A expenses includes the impact of higher corporate general and administrative costs. We would again note that the both segments SG&A expense for the prior year third quarter do not reflect all of the actual expenses that the company would have incurred had it been a standalone public company during that period. Other AOCF which primarily includes unallocated corporate G&A expenses increased by $9.8 million to a loss of $12.8 million in the fiscal 2016 third quarter. This mainly reflects higher professional fees related to potential growth opportunities for the company as well as an increase in New York franchise tax a result of the change in New York state corporate tax legislation.
Turning now to a few housekeeping items for our fiscal fourth quarter. I would remind you that during the last year’s fourth quarter our sports segment benefited from the Rangers play-off run to the Eastern Conference finals which included 11 home play-off games as compared to two home play-off games this year. The prior year fourth quarter also benefited from a shift in the timing of certain player compensation costs which were accelerated from the fourth quarter to the third quarter. In addition, in our entertainment segment benefited in the prior year’s fourth quarter from a non- recurring insurance recovery of $3.6 million related to the Christmas Spectacular production.
Turning to our balance sheet, as of March, 31 total unrestricted cash and cash equivalents was approximately $1.45 billion. In terms of the company’s share repurchase program, during our fiscal third quarter we repurchased over 418,000 shares for $62.3 million. At an average price of about $149 per share. This brings the total under our current authorization to nearly $578 million or an average price of about $151 per share.
This amount represents about 2.5% of Class A shares upstanding.
With that I will now turn the call back over to Ari.
Ari Danes:
Thanks, Donna. Christy can you open up the call for questions.
Question & Answer
Operator:
Sure. As a remainder if you would like a question press star then the number one on your telephone keypad. And your first question comes from Ryan Fiftal of Morgan Stanley.
Ryan Fiftal:Morgan Stanley:
Great. Thank you. Good morning. Wanted to ask on the write down, last fall you guys laid out your growth strategy and one of the four pillars there was to expand owned IP and expand into new content.
So the new -- shows obviously been the flagship example of that you’ve clearly facing challenges there comminuting in this write down today. So I guess given the challenges you’ve seen there over the last couple of years is that give you any pause on the broader strategy does it influence your thoughts on risk power it’s for investing in a new IP or any other learning you have from that?
David O’Connor:
Well I think we have a great deal of learning’s from this process. But I don’t believe that it changes our belief that our content strategy involves a great long term assets play. Any creative endeavor of any kind any content play of any kind has inherent risks just ask any of our colleagues who make movies or television shows or broad way shows. But when you create something that works, something that excites entertains or transports an audiences.
You create incredible value. Look at the value of 83 year old Christmas Spectacular franchise and the Rockettes brand to our company. So is there some risk in trying to create a second Rockettes franchises absolutely, but we don’t take that risk lightly in anyway what so ever. Does it take time and experimentation to develop a sustaining show and a for any all events definitely if it was the risk undeniable absolutely.
We feel we given this show with best opportunity for success. We put together a fantastic creative team starting with our new Executive Vice President and productions Collin Engram, three time Emmy award winning director choreographer Mean Michael’s drama desk winning rider Doug Cartoon Been I had the pleasure a week ago of witnessing a rehearsal and we are very excited about what we have.
So from a creativity and a quality perspective we think we have a winner with this new show. We have move the show to summer to try to capitalize on the huge increase in tourism and city a 30% increase is substantial. Understanding that Radio City Music Hall and the experience of that incredible and one of a kind theater the types of experiences that people traveling to the city want to access.
We think the market is there as well as evidenced by the success of last year spring show 300,000 ticket sold and we’ve improved our marketing internally with great talent to ensure that we reach that market place. So we feel we have a real opportunity to here with this new show to build a very valuable long running and sustaining franchise a better date, better product, and better team to execute and as we said recently this is part of a larger strategy to grow our content business and if you look at the M&A landscape even in the last few days it continuous to highlight the long term value of original content and the live experience
Ryan Fiftal:
That’s very fair and then just one clarification on you mentioned there is an opportunity potentially in the near term I’m sorry if I missed it did you indicate if that was a venue acquisition or any other type of opportunity any color there would be helpful? Thank you
Donna M. Coleman:
I was referring specifically to our venue expansion strategy.
Operator:
Your next question is from Brandon Ross of BTIG.
Brandon Ross:BTI
Good morning thanks for taking the question. First a follow up on the $42 million write-off for Dana can you tell us how much cash then you’re going to have outlay to rebuild the elements that you are riding down of this show and how much cash you’ve spent in total on the development of the spectacular spring now summer I guess and then secondly I think the RFP’s for the Penn Station renovation we’re do a few weeks ago have you guys learned anything since that time any clarity on your ability to sell the --- at MSG or potentially on lot some value from your LA? Thanks
Donna M. Coleman:
Okay so I’m not sure this is in the order that you gave them but we in total over the years we’ve spent approximately $77 million building up to the New York spring spectacular show about amount of that $7 million have been amortized and at December 31 we had $70 million of deferred production cost that remained on our book we’ve taken the best of what was created during that process and we made some enhancements with Reimagine storyline as Doc mentioned we expected the role of expanded the world of our -- play there is obviously some additional investment required for those enhancements but we believe it seemed on in a very efficient and effective way to add the most value.
MSG:
On the second part of the question the RFP, the RFP deadline was April 22 and we are still awaiting information and updates April 22 and we are still waiting information and update from the governor’s office on those proposals. So we have no specific at this time. As the governor said from the outset of this there are number of different possibilities on Penn Station renovation some of them include us and some of them do not and so like everybody else we are waiting to hear the results of those proposals and associated with that with respect to --- again we don’t have any new information on how this plan might help us to monetize give us an opportunity to monetize our airway.
Thanks for the question Brandon. Christie will take the next call.
Operator:
Thank you. Your next question comes from Alexia Quadrani of JPMorgan.
Alexia Quadrani:JPMorgan:
Thank you. Just more broadly on your venue strategy sort of referring back to earlier comments of proposing in something I guess what you feel are the primary benefits of having scale in this space or is it about cost synergies and the ability to scale corporate cost to negotiate lower vendor fees et cetera or is that the opportunity more on the revenue side being able to drive higher sponsorship dollars and bringing in more act.
Ari Danes:
We think all of the above. As I have said before in previous calls we think that scale and the venue business matters as you mentioned it does give us the ability to leverage our fixed cost across increased revenue and number of venues. It also allows us to leverage our capabilities across different venues. But it also gives us the ability to leverage it gives us greater leverage to attract more high-end premium talent and shows.
When you increase the number of venues and you increase the number of shows that happened under those roofs. You increase the number of people that you touched and therefore the number of iballs that we captured all of which translates into more potential sponsorship revenue for us. It gives us greater ability to grow our content business and to control our own destiny better. New building if done right and we have a history of doing them right, create great long term asset values.
The forum is a perfect example of that. So yes we believe that greater scale in the venue business is a great strategy for us to pursue and we will continue to pursue our venue expansion strategy.
Alexia Quadrani:
And would you consider a venue with specialized in conventions or trade shows there are sort of non-entertainment or do you think you will stay with your core on extra kids entertainment sports events area?
David O’Connor:
We will stay with our core expertise of sports and entertainment but our new venues will likely focused on be and be directed towards entertainment only venues. The exhibition business is not in our current plan.
Alexia Quadrani:
Thank you very much.
Operator:
Thank you. Your next question is from David Miller of Topeka Capital Markets.
David Miller:Topeka Capital Markets:
Hey guys. Donna just the question on the buyback appreciate the clarity on the $78 million so far. I am just wondering my understanding was when you guide the separation from the mother company and you have the $1.47 billion that was transferred over that $525 million would be used to buy back stock and I am just wondering why the pace hasn’t increased. Sense I mean there is just a massive disconnect between intrinsic value of the company and the market price of the stock.
So I am wondering why you haven’t been more aggressive so far this year and should we can we give any kind of timeline on when you will complete the $525 million. Thank you very much.
Donna M. Coleman:
So you are completely correct when we did the spend we -- $525 million for the repurchase of shares and we do remain committed to that program. We are being thoughtful and diligent about the way we are repurchasing shares. I think that’s evidenced by our average share repurchase price which is about a $151 a share.
We are very pleased with the way we have executed on our repurchase program. We have a lot of confidence in the value of our assets and the growth of the company and we plan to continue our strategy which is to be opportunistic about the way we do our repurchases and diligent in our execution.
Ari Danes:
Thanks for the question David. Christy will take the next caller.
Operator:
Your next question comes from Michael Morris with Guggenheim Securities.
Michael Morris:Guggenheim Securities:
Thank you. Good morning guys. Couple of questions on advertising and sponsorships. First, advertisers are clearly dealing with a more fragmented market place and television and online.
In venue sponsorships seems to be immune or offer some stability there. Do you expect the revenue on that side of the business or you demand for that to grow at a faster rate than sort of overall industry advertising growth and how do you capture that can you share any plans for what you can do incrementally from here. That we would ultimately see come through the financials and then second there has been the recent announcement by the NBA that you’ll be able to sell -- sponsorships can you talk about just your thoughts on what means to the business and maybe what type of partner you would be looking for? Thanks.
David O’Connor:
Okay. On the first part, we have a terrific portfolio of globally recognized Marquee and signature partners. I can’t comment on the pace of growth relative to add market, but I can say that we think that there is a lot of opportunity to expand our partnerships first top as they come up for renewal and we’re very optimistic about our prospects here. Most of our signature partners and Marquee partners came the board as part of the Garden transformation and we think and they will say they’ve seen real value and partnering with us and for this reason we’re optimistic that the significant sponsorship revenue stream we created as part of the transformation is not only sustainable but we can grow as going forward and we’re confident about that based on our conversations with those same partners and we’re very confident that we’ll see growth there and we hope to share more on that with you shortly.
There other ways of growing our sponsorship portfolio. They’re still remain unsold categories for us to pursue we can create and increase our premium inventory and we’re looking with our existing partners and with new partners on how to increase our premium inventory in that way and also as we as I eluded to earlier with venue expansion new opportunities are created with every new venue that comes online on the Jersey sponsorship opportunity the legal only recently approved the sales of Jersey sponsorship and I will remind you that sponsorship starts with the 2017, ‘18 basketball season. So its early days yet we are still evaluating the size and scale of the opportunity and what potential partners might be a fit for that if and when we pursue.
Michael Morris:
Great thanks Doug.
Operator:
Thank you. Your next question is from John Janedis of Jefferies.
Analyst:
Hi this is actually Mike -- on for John. Doug with new festivals any announce for the summer of counter ‘16 how should we think about your interest in pursuing in any sort of new opportunity going forward and kind additionally are you exploring anything outside of New York. Thank you.
MSG:
We are evaluating the festival business and our potential place in it I will remind that we are in the festival business because of our partnership with Trebec Enterprises and the Tribec at film festival and they just recently completed a successful run about festival and we are looking for ways to expand their portfolio events as well as selectively and cautiously growing our festival business but we are not only looking at the festival business solely as large scale destination music events we are looking at those to be sure but we are looking at different types of festival we are looking at different sizes of festivals and we are indeed to your last question looking at new markets. We are a evaluating various ways of entering more robustly this business and we haven’t found the right fit to this moment but we are constantly looking at new opportunities.
Ari Danes:
Thanks Mike, Chris you’ll take the next caller.
Operator:
Thank you. Our next question comes from the David Joyce of Evercore ISI.
David Joyce:Evercore ISI:
The few questions couple of housekeeping. Could you please break out the amount of team personnel compensation expenses and secondly on CapEx seems to bit elevated there I was wondering what your investing in their anything from the New York Spectacular recognized than CapEx in another couple of --
Donna M. Coleman:
Sure so, we have this quarter we had team personal transactions of approximately $6.6 million. And in terms of CapEx, the no there is not real spending associated with the New York Spectacular our CapEx I guess when you are taking about CapEx are you talking about a year-to-date or a quarter.
David Joyce:
Just trying to back into the quarter.
Donna M. Coleman:
Okay, alright well we did have CapEx in the quarter it really wasn’t elevated I mean I think year-to-date we were a little bit higher than last year earlier in the year but this quarter we did have some expenditures related to some facilities improvements et cetera that was anything significant. $4 million I think in the quarter.
David Joyce:
And then could you remind us how the economics work for the rangers play offs what revenue do you share from the home gain is with the league and with the other team and vice versa through. for away games and there is the contribution still around 50% or so?
Donna M. Coleman:
I think it’s in your good rule of sum is that the ---- games are just over a $1 million and contribution to us and the third game amounts for each home game get significantly higher as we move into the right around. So last the ranger had 11 home games in the fourth quarter and this year we only have two. Hopefully that gives you some senses scale.
David Joyce:
Okay thanks and finally if you could just discuss presents which is or perhaps being acquired by AEG is that something that would be of interest to your business model or do you have to stay away from ---- management and but any non competes? Thanks.
MSG:
We are looking at opportunities in the marketplace constantly we are seeing numerous opportunities and great potential deal flow and but we look at these opportunities to the lands of strategic value and long-term assets value. On the --- specifically we are aware of the ---- opportunity we didn’t see that it met our criteria and the --- like other opportunities that and a number of the opportunities that we’ve seen. We concluded that it didn’t set our strategy or our threshold for long-term asset value. So we didn’t pursue on those basis.
Ari Danes:
Thanks David. Christy we will take the next caller.
Operator:
Your next question comes from Ben Mogil with Stifel.
Ben Mogil:Stifel:
Hi thanks for taking my question. So --- of the broadcasting side and I realize that obviously the RSN is on the other side of house and that’s not your business but when your own you achieve known and you sort to see these protractile disputes that you have seen in your New York alone Comcast and obviously in your --. As an owner obviously this is not what you want can you maybe talk about what you think is going on the market place as an owners not just you but believe in general what the -- moved over these issues.
David O’Connor:
We really have no comment on those negotiations and potential conflicts. Not in our control and not something that we are going to comment on this call.
Ben Mogil:
Okay. Fair enough. And then maybe on sort of just the larger when you look at the deals that - done there obviously been the proactive in terms of slicing a broadcast deals in many-many different ways. When you look as an owner obviously for the MBA and the NHL do you see a lot of not untapped opportunity would you see a lot of opportunity where going forward there are incremental rights and incremental packages that can be sold maybe talked very-very broadly about what kind of options are out there if you were in terms of green filed opportunities.
David O’Connor:
I am not sure I fully understand your question. But we have long term media deals with our media partners and we are very happy with the deals that exist.
Ben Mogil:
Yes so I should.
Ari Danes:
Hello. I think we lost him. Alright Christy we have time for one last caller.
Operator:
Thank you. Your final question is coming from --.
Analyst:
Hi this is --. As you look for growth opportunities going forward as ticketing an area you would be interested in and beside from that what characteristics would you be looking for an any potential opportunities?
David O’Connor:
We have an agreement with ticket master that and it’s a partnerships that we are quite happy with. Currently we are not evaluating any new business opportunities in the area of ticketing and don’t imagine that we will be acting on any potential opportunities in the near future.
Operator:
Thank you. With that I will turn the floor back over to Ari Danes for any closing remarks.
Ari Danes:
Thank you for joining us. We look forward to speaking with you on our year end conference call. Have a good day.
Operator:
Thank you. This does conclude today’s conference call. You may now disconnect.
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