Madison Square Garden Entertainment Corp.

Good morning. Thank you for standing by and welcome to the Madison Square Garden Entertainment Corp Fiscal 2023 Third Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's remarks, there will be a question and answer session. I would now like to turn the call over to Ari Daines, Senior Vice President, Investor Relations, Financial Communications and Treasury. Please go ahead.

Thank you. Good morning and welcome to MSG Entertainment's fiscal 2023 third quarter earnings conference call. On today's call, Dave Burns, our EVP and chief financial officer, will provide an overview of the business and strategy going forward, as well as financial highlights for the most recent quarter. 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 investor section of our corporate website. Please take note of the following. Today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Please refer to the company's filings with the SEC for a discussion of risks and uncertainties. the company disclaims any obligation to update any forward-looking statements that may be discussed during this call. On pages four and five of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income, or AOI, a non-GAAP financial measure. And with that, I'll now turn the call over to Dave.

Thank you, Ari, and good morning, everyone. With the successful completion of our spinoff, last month marked the start of an exciting new chapter for MSG Entertainment. As a pure play live entertainment company, we are poised to continue benefiting from strong consumer and corporate demand for shared experiences as we leverage the strength of our world-class assets and brands. Our venue portfolio is led by Madison Square Garden, the number one grossing venue of its size globally. Over its 143-year history, The Garden has been the setting for exceptional performances and one-of-a-kind moments, which have helped to define sports, entertainment, and culture. It is also home to two of the most recognized sports franchises in the world, the New York Knicks and Rangers. We also own or operate the Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theater, and the Chicago Theater, storage show places with rich histories and regularly ranked among the top grossing venues of their size in the world. Our venues are on track to host nearly 900 events and more than 5 million guests this fiscal year, which is our first full year of events since the onset of the pandemic. The majority of concerts at our venues, including in our third quarter, continue to sell out and per cap spending this year is pacing well ahead of last year's results. We also anticipate a solid increase in events in our bookings business for our fourth quarter. And while still early, we're currently projecting a double digit percentage increase in events for fiscal 24. In addition to our renowned venues, we also feature our wholly owned production, the Christmas Spectacular starring the Radio City Rockettes, which several months ago completed its remarkable 89th year. After two seasons impacted by the pandemic, we were pleased to see this year's production return for a complete run. We sold over 930,000 tickets across 181 shows, a testament to the show's enduring appeal. Average per show revenue was up 30% year over year and up over 10% compared to our last year before the pandemic. We also saw solid increases in food, beverage, and merchandise per caps while ticket yields for the show were at record levels, all of which led to the Christmas Spectacular generating over $130 million of revenue for our company this year. Aside from industry-leading venues and owned content, we also have valuable long-term arena license agreements in place with MSG Sports, which make the Garden the exclusive home of the Knicks and Rangers through fiscal 2055. As part of these agreements, we receive substantial recurring and growing arena license fees. For fiscal 23, these fees are expected to be approximately $42 million and will continue to grow 3% each and every year. Through these agreements, we also benefit from additional revenue and profit sharing from sponsorship, signage, sweets, food, beverage, and merchandise sales related to the Knicks and Rangers. In addition, Over 25% of our revenue base is related to our sponsorship and premium hospitality businesses, both of which are on track to deliver results this fiscal year that exceed pre-pandemic levels. Our marketing partnerships business has a proven track record of delivering compelling value for our partners, whether it's through our highly sought-after brands, our significant exposure in the largest media market in the country, or cross-selling opportunities with MSG Sports. Through our innovative offerings, we have built a roster of valuable multi-year marquee and signature level partnerships, which represent the majority of our sponsorship revenue. In addition, we offer a wide range of premium hospitality products from suites and private spaces with first class amenities to premier seating options, which allow us to cater to a variety of corporate customers. Our premium hospitality business also benefits from our substantial presence in New York City, home to the greatest number of Fortune 500 companies, along with our relationship with MSG Sports, providing our clients with access to Knicks and Rangers games in addition to the concerts and other marquee sporting events held at the Garden. And it's evident our customers see tremendous value in our offerings. with the majority of suite licenses under multi-year agreements with annual escalators. As we look ahead, we believe our company, with its unique portfolio of live entertainment assets and brands, is poised for continued growth. On the bookings front, we are focused on driving growth in per-event revenues and profitability, while also increasing the utilization of our venues. we will continue to look for ways to forge more direct relationships with customers and improve the guest experience, which we believe will help grow per event revenues. We will also look to increase the number of events at our venues in a variety of ways, including pursuing more multi-night shows, as well as exploring new event types, such as high-profile residencies that help build our base of events. Increasing the number of events, as well as introducing unique and attractive event types, We'll also better position our marketing partnerships and premium hospitality businesses for ongoing growth. We also plan to target under-penetrated or emerging sponsorship categories like we successfully did with sports betting last year, as well as explore ways to enhance and expand our hospitality offerings. With the Christmas Spectacular, we believe we have the opportunity to drive higher sell-through as well as increase the number of shows over time in both cases as demand and tourism make a more complete return post-pandemic. We are also focused on building the Rockettes brand, including via social media, where their following is rapidly growing, which demonstrates the brand's continued ability to reach new audiences, particularly a younger demographic. And we believe this will create a number of incremental revenue opportunities going forward, such as sponsorships. I'd now like to turn to our financial results and then close with a discussion of our capital allocation priorities. Since the spinoff was completed on April 20th, today's reported results for both the fiscal 23 and 22 third quarter are presented based on accounting requirements for the preparation of carve-out financial statements. For the quarter, we reported revenues of $201 million and AOI of $38 million. which represent increases of 4% and 13% respectively, both as compared to the prior year quarter. Excluding the impact of the elimination of our advertising sales representation agreement with MSG Networks, revenues would have increased 9% year-over-year. As you know, we published an investor presentation in February, which provided fiscal 2023 financial guidance for our company as if we had been a standalone independent entity from the start of the current fiscal year. With only one quarter remaining in fiscal 23, we are reiterating our expected AOI range of $145 to $155 million for the year, while refining our projected revenue range to $835 to $845 million. Moving on to our balance sheet and capital allocation priorities. At the time of our spinoff, we had approximately $113 million of unrestricted cash, and our debt balance was approximately $673 million. On a go-forward basis, we expect to generate significant free cash flow, which is underscored by the following expectations. Approximately $145 to $155 million in fiscal 23 AOI and growing over time. annual net cash interest expense of approximately 40 to 45 million based on current market rates, minimal cash taxes through fiscal 26, and capital expenditures that are primarily maintenance-related. In terms of capital allocation priorities, we are focused on paying down some of our debt balance and also plan to opportunistically return capital to our shareholders. In conjunction with our spinoff, our board of directors authorized a $250 million share repurchase program, which will be one option available to us in the future. In summary, we are excited as we embark on this new chapter for our business. With a portfolio of renowned venues and brands that are poised for growth and bolstered by the continued positive momentum of the live entertainment industry, we are confident that we are well positioned to drive long-term shareholder value. With that, I will now turn the call back over to Ari.