Madison Square Garden Entertainment Corp.

Good morning, thank you for standing by and welcome to the Madison Square Garden Entertainment Corp fiscal 2024 first 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 and Treasury. Please go ahead.

Thank you. Good morning and welcome to MSG Entertainment's fiscal 2024 first quarter earnings conference call. On today's call, Dave Burns, our EVP and chief financial officer, will provide an update on the company's operations and review our financial results for the 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 5 and 6 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. We are now several months into our first full year as a standalone company. and based on a number of positive signs across our business, we are increasingly confident in our ability to deliver robust revenue and AOI growth for fiscal 24. On the bookings front, our calendar continues to fill up and the garden, the theater at MSG, and the Beacon Theater are all now pacing to exceed our concert goals for the year. At the same time, advanced ticket sales for the Christmas Spectacular remain strong and we've added more shows to the upcoming holiday season run. And our premium hospitality business is tracking ahead of our expectations for the year, an example of strong ongoing corporate demand for our live entertainment offerings. We have also made meaningful progress on our commitment to return capital to shareholders. During the quarter, we repurchased 3.5 million of our Class A shares, This brings our total share repurchases since the completion of our spinoff last April to approximately 10% of Class A shares outstanding. I'd also note that in September, Sphere Entertainment sold the remainder of its retained interest in MSG Entertainment and no longer owns any of our Class A shares. With the continued strength we see across our unique portfolio of assets and brands, coupled with our focus on operational excellence, We remain confident in our ability to generate long-term growth and shareholder value. Now let's review our operational highlights from our fiscal first quarter. During the quarter, we hosted 130 events and welcomed more than 800,000 guests across an array of live entertainment events. On a year-over-year basis, our bookings results for our first quarter reflected a difficult comparison with the prior year period. which benefited from over 30 concerts that were rescheduled to the quarter from earlier dates that were postponed due to the pandemic. Excluding those rescheduled shows, the number of concerts at our venues increased by a mid-teens percentage year over year. I'd also note that the Garden hosted Harry Styles' historic 15-night residency in the prior year period. Despite those headwinds, The Garden was just two concerts shy of last year's record number of concerts for a fiscal first quarter at the venue, a testament to the sustained demand for live events. And given our current bookings momentum, we now expect the Garden to set another record for number of concerts at the arena on a full year basis. In addition to benefiting from the continued growth of the New York market, our success at increasing the Garden's utilization this year also reflects our efforts to grow the number of multi-night events at our venues. We are also seeing an increase in the number of first-time acts play in the garden. As you know, we have four venues in New York ranging in seating capacity from 2,800 to 21,000, which enables us to shepherd artists through the various stages in their careers. This fiscal year, there are a number of acts, including Olivia Rodrigo, Tyler Childers, and Niall Horan, who have previously performed at either the Beacon or Radio City that will soon headline the Garden for the first time in their careers. I'd also note that a number of these first-time acts are playing multiple nights at the Garden with strong ticket demand for their entire run. I would also add that the strong supply of concerts to our venues continues to be met by robust demand from consumers for shared in-person experiences. For example, Across all our venues, the majority of concerts were once again sold out during the quarter, while recent concert onsales continue to be strong. In addition to concerts, we continue to anticipate a strong year for family shows, a bookings category whose recovery has lagged coming out of the pandemic. This includes next month's return of Cirque du Soleil's holiday show, which last took place in 2021 with a shortened run due to the pandemic. We will be hosting 56 shows across the theater at MSG and the Chicago theater, and have been pleased with advanced ticket sales to date in both markets. In our marquee sports business, we will see the return of the UFC to the garden this weekend for what's projected to be one of the top grossing events in the arena's history. While next week, college basketball will make its return to the garden. Putting it all together, based on what we're seeing in our bookings calendar, we're on track for a low double-digit percentage increase in the number of events held at our venues this fiscal year. Last month, we also welcomed back the Knicks and Rangers to the Garden for the start of their 23-24 seasons. As a reminder, under our agreements with MSG Sports, we will receive $43 million in license fees this fiscal year, and these fees will continue to grow at 3% each and every year through fiscal 55. And while it is only a few weeks into the regular season, we are already seeing positive overall momentum across our revenue and profit sharing arrangements with MSG Sports. Turning to the Christmas Spectacular, which kicks off its 90th season next week. Ticket sales continue to pace well ahead of where we were at the same time last year. This reflects healthy demand from both individuals and groups, driven in part by the continued recovery of tourism to New York. With sell-through on a per-show basis currently on track to surpass our initial expectations, we're pleased to report that we now anticipate paid attendance reaching approximately 1 million guests this year, bringing us back to pre-pandemic levels. In light of the current level of demand, we have made the decision to add two performances to this year's holiday season run, bringing the total number of shows to 187. This compares to 181 performances last year. Furthermore, we're actively monitoring ticket sales, and depending on how demand continues to unfold, we may add more shows towards the end of this year's run. This year will mark the second year of the Christmas Spectaculars partnership with presenting sponsor QVC. This partnership is a great example of how we have leveraged our company's unique brands to expand our marketing partnership business, as well as reach new audiences. In addition, our recently announced arrangement with Oakview Group presents new opportunities to continue to expand our sponsorship business going forward. I'd also add that as part of our arrangement with OVG, our sponsorship business has transitioned to a more variable commission-based cost structure, which we find attractive. Turning to premium hospitality. Robust renewal and new sales activity has us poised for growth in this area of our business. In October, we opened our two new suite products at the Garden. The first, which is an event-level suite, has already been licensed in a multi-year agreement. And the second, which is an event-level club space, has a majority of seats already under contract, and we are making good progress on the remainder. Turning to our financial results. As you know, our company completed its spinoff from Sphere Entertainment in April of this year. Our fiscal 24 first quarter therefore marks the first complete quarter of results on a standalone basis. However, I'd note that first quarter results are not fully comparable on a year-over-year basis. Results for the prior year quarter are based on carved-out accounting and do not reflect all of the SG&A expenses we would have incurred had we been a standalone public company. For the fiscal 2024 first quarter, we reported revenues of $142.2 million a decrease of $4.2 million as compared to the prior year quarter. The decrease in revenues was primarily driven by lower event-related revenues, which reflects the difficult comparison with the prior year quarter that I mentioned earlier. First quarter adjusted operating income decreased by $12.2 million to a loss of approximately $700,000. This decrease primarily reflects the year-over-year increase in SG&A expenses, as well as the impact of lower revenues. As I mentioned earlier, first quarter SG&A expenses are not fully comparable on a year-over-year basis. Moving on to our fiscal 24 outlook. As you know, last quarter we provided guidance for fiscal 24, which included revenues of between $900 and $930 million, and adjusted operating income of between $160 and $170 million. With the level of visibility we have into our bookings calendar at this point in the year, along with the positive operating momentum we have seen across our business, we remain confident in our ability to achieve our revenue and AOI guidance ranges for fiscal 24. We are also updating our operating income guidance to between $85 and $95 million, primarily based on the impact of restructuring charges. In terms of our balance sheet, As of September 30th, we had approximately 37 million dollars of unrestricted cash and our debt balance was approximately 732 million. During the quarter, we amended our existing revolving credit facility to increase its capacity from 100 million to 150 million and subsequently drew down approximately 73 million dollars on that facility, including 50 million to fund our recent share repurchase. As we enter our seasonally strongest quarter, our capital allocation priorities are unchanged. We remain focused on opportunistically returning capital and debt pay down. Since the end of the quarter, we have already paid down $35 million of our outstanding revolver balance. And as I mentioned earlier, since our spinoff, we have repurchased approximately 10% of our Class A shares. That includes the $65 million delayed draw term loan repayment by Sphere Entertainment and our $50 million share repurchase during the quarter, following our initial $25 million share repurchase in June. We continue to have $110 million remaining under our current buyback authorization. So, in summary, our business continues to benefit from strong demand, and we're confident that we are on path to delivering our revenue and AOI guidance for fiscal 24. We remain focused on executing against our key strategic priorities and believe we are well positioned to generate long-term value for our shareholders. With that, I will now turn the call back over to Ari.

Thank you, Dave. Operator, can we open up the call for questions, please?

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment. And your first question comes from the line of Peter Cepino from Wolf Desert. Your line is open.

Hi, good morning. Two, if I may. First, last quarter you mentioned that you had visibility into about 70% of the targeted events across your portfolio and 90% at the Garden. So could you update us on how much visibility you have into bookings for 24 now that you're in the fifth month of the year? And then the other question is, About 2024 supply, now that you have more visibility into it, could you provide any additional color on what double digit event growth looks like across your venues or by event type, residencies and concerts and corporate events, et cetera? Thank you.

Sure. Thanks, Peter.

As you mentioned on our August call, we mentioned that we had visibility into over 70% of our concert bookings goals for the year. We have made significant strides since then. We now have visibility into over 90% of our goal. At the Garden, we're on track to exceed our concert expectations for the year, and we expect another record year for concerts at the Garden. At the theaters, we're now 90% of the way to our concert goal for the year, and we're pacing ahead of our expectations at the theater at MSG and at the Beacon Theater. As far as other areas of our bookings business, we will be hosting the 56th Cirque du Soleil holiday shows at the theater at MSG and in Chicago next month. And we're pleased with how advanced ticket sales are shaping up on the Cirque shows. Cirque did not run a holiday show at our venues last year. In terms of special events, the bulk of our special events business takes place in fiscal fourth quarter. We still have some work to do in this area, but we expect that portion of our business to grow this year also. So we feel really good about our bookings calendar for the remainder of fiscal 24. As far as your second question, which was the makeup of our anticipated double-digit event growth, I'd say Booking's event growth for this fiscal year is expected to be driven primarily by concerts and family shows, to a lesser extent, special events. And we anticipate growth at the Garden as well as across our theaters. I mentioned we're on track for a record year of concerts at the Arena and to exceed our goals at the theater here at the Garden and the Beacon. Family shows, I just mentioned Cirque. Cirque will be a significant driver of growth in the family show category. So we anticipate fairly broad-based bookings growth in this fiscal year.

Thanks very much.

You're welcome. Your next question comes from a lineup, Stephen Lasek from Goldman Sachs. You're live.

Hey, great. Thank you very much. Maybe first on the Christmas spectacular, you mentioned advanced sales were trending strong. Could you maybe talk a little bit more about what you're seeing on the advanced ticket sales side, particularly in the group market, which I think you called out last quarter is expected to come back stronger this year. And then more broadly, I'm curious what you would need to see out of demand over the next few weeks to maybe add more shows above the 187 you have slated today. Thank you.

Sure, Steven.

Today, the overall tickets sold for the Christmas Spectacular are pacing up high teens as compared to the same time last year, again, with six additional shows on sale this year versus the prior year. This is really being driven by healthy demand from both individuals and groups. The group ticket sales are currently pacing well above the overall sales you know, high teen percentage average. And you've heard us say this before, the increase in group sales is particularly encouraging as, you know, this category has seen a lagging recovery coming out of the pandemic. As far as individual ticket sales, we continue to see growth from both domestic and international tourists as tourism continues to make a more complete return post-pandemic. We're also seeing growth in individual sales among local residents, and it's just across the board. Given the demand we're seeing, we're now expecting approximately 1 million guests for this year's show. That'll bring us back to pre-pandemic levels of attendance. All of this reflects a sell-through rate of over 90% compared to a mid-80s sell-through rate last year. To your point, we're actively monitoring ticket sales. Depending on how demand continues to unfold, we may add more shows towards the end of the run. So we feel really good ahead of the show's opening next week.

Great. Thanks for that. And then maybe just on consumer demand more broadly, there's been a fair amount of concern just given the macro volatility we've seen over the last month or so. Could you talk a little bit more about some of the real-time indicators across your business, how they're tracking in November, particularly on the ticket sales or maybe even the per-cap side over the last few weeks?

Sure. We continue to see strong consumer demand for live entertainment at our venues. On the ticket sales front for our bookings business, in terms of the second half of fiscal 24, We're currently on sale with more concerts at our venues than we were at this time last year for the second half of fiscal 23. And of those on sales, a majority of those tickets are already sold. And sell-through on those shows is currently up a high single-digit percentage as compared to the second half of fiscal 23 at this same time last year. It includes a number of sold-out multi-night runs at the Arena, Radio City, and the Beacon Theater. In terms of per-cap spending, the year-over-year comparison in the first quarter is a little noisy because of the Harry Styles 15-night run at the Garden last year, which did see significant spending from fans on merchandise. So while merchandise per caps for this quarter were down year over year, F&B per cap spending was up meaningfully. And with that, if you look at the first quarter relative to last year's fourth quarter, as well as all of fiscal 23, combined food, beverage, and merchandise per caps were up. So we continue to see strong in-venue spending from our guests.

Great, thank you. You're welcome.

Your next question comes from a line of Brandon Ross from LightShed Partners. Your line is open.

Hey, thanks. I guess as we look at your guidance for the year, clearly increased venue utilization is a big part of it. And as we look out to the coming years beyond 2024, I was wondering if this can continue to be such a big driver for the business. I guess overall, what's your true capacity utilization for the venues, especially for the garden, including load in and load out and some of the things that take days away. And then how much of a lever are rental rates to potentially increase the utilization or on the other side, to take advantage of the busy times to maximize your profits.

Sure, Brandon.

To put the opportunity at the Garden in context, we hosted over 130 bookings events at the arena in fiscal 23, plus an additional 96 Knicks and Rangers games. So a total of roughly 230 events. If you look at that on a base of 365 days a year, and to your point, taking in, you know, load in and load out days, the venue had an effective utilization of, you know, roughly 70%. So there remains utilization upside at the garden. And given the outsized impact of incremental revenue at the garden, events at the garden on our revenue and AOI, increasing utilization at the arena would have a noticeable impact on our results. First, we expect to benefit in future years from continued industry growth as an increasing number of artists and acts continue to go on tour. And we'll also continue to leverage our industry relationships to identify new events, potential residencies, multi-night runs, and additional marquee sporting events and we'll continue to be creative in the ways we look to maximize utilization at the Garden. We have a track record of successfully driving event growth at our venues and you've heard us say this stat before. Since 2015, fiscal 2015, we've driven mid-single digit annual growth in the number of concerts at the Garden and across our other venues And this year, we've mentioned we're currently projecting a low double-digit percentage increase in events in our bookings business for fiscal 24, including growth in events at the garden. In terms of, you mentioned rental pricing, and if you're asking whether we consider lowering the rent to help increase utilization, that's not really something we're currently contemplating. The garden's a premier product, and our premier rates reflect that. We believe it's warranted for what we're able to deliver here, the unique location of the garden in the heart of Manhattan, and our ability to maximize ticket sales for artists, including across multi-night runs and residencies, as we continue to mention. We certainly don't think our rental rate disadvantages us in continuing to drive utilization. So with the garden being our largest venue and the most economically significant, we do see increasing utilization as an important opportunity, and we're confident that we have the ability to continue to grow this business.

Thank you. You're welcome.

Our next question comes from the line of Ben Swinburne from Morgan Stanley. Your line is open.

Thanks. Good morning. Two questions, Dave. One about kind of efficiency opportunities in the business and at the company, and another I wanted to ask about sort of the economics of the traditional kind of rental model you guys run versus the residencies that you're also doing. So you had some restructuring this quarter. I don't think investors think about your stock as sort of having kind of efficiency elements to it. It's more of a top-line story. So I'm curious if you could talk a little bit about how the company is thinking about opportunities to drive more efficiency on the cost side and any color you might want to add around the restructuring and the quarter that took place. And then, you know, you talked a bunch about Harry Styles. You guys have a number of residencies, but I think most of the business is a rental model. I was just wondering if you guys have a, if there's a better, if one is better than the other from either returns point of view or profitability point of view as we think about tracking your business over time. Thanks so much.

Sure. Thanks, Ben. The first part of your question focused on efficiencies and restructurings. We obviously had a charge that hit the quarter, and there's not really much to say about that other than that we're always looking for ways to improve our cost structure and improve our efficiency moving forward. We feel the actions that we took during the quarter are exactly that and will help us to continue to drive efficiency in the future. You asked the question about residencies and the efficiencies that they bring. There are certainly elements of that for our business. We've talked about the benefit of residencies and multi-night runs to artists as well. They're able to not have to load in and load out as much venue to venue and travel. It's appealing for them. And it certainly benefits us in terms of our offerings. We've had some success recently in residencies, and in the upcoming bookings calendar, we have a number of continued multi-night runs scheduled in the rest of the year. So I think there's efficiencies on both sides, both from an artist standpoint and for us as a business to continuing to lean in and drive that business, including helping us drive utilization, as I just mentioned.

Great. Thank you very much. You're welcome.

Our next question comes from the line of David Karnofsky from JP Morgan. Your line is open.

Hey, thank you. On the Penn Station renovation, I wanted to see if there was any update you could provide there. And just given there have been some press reports about offers for the Hulu Theater, is it possible to frame the materiality of that venue in terms of revenue and EBITDA? And then a separate question on capital allocation. David, you noted priority to pay down debt. Is there a target leverage range you have in mind? And the buybacks, how do you think about that? What governs when you would be in the market to repurchase shares?

Sure. Thanks, David. As far as a potential sale to theater, we have nothing to add on today's call. You know, we've said before, we are certainly committed to improving Penn Station and the surrounding area. We'll continue to work closely with all of the stakeholders involved in that. We always say that we'll consider options that make strategic and financial sense. We'll continue to do that, but nothing further to add on a potential sale sitting here today. And then your second part of that, as it relates to the AOI of our business, the significant majority of the company's economics are driven first and foremost by the garden and the Christmas spectacular production. And then the theater is an aggregate follow. So the theater at MSG obviously is one of our four theaters in the portfolio. It's one of three here in New York with different capacities. If needed, we believe we have the ability to shift some events from the theater at MSG to other theaters here in New York. Your question on leverage, I'd say, you know, first, our capital allocation priorities remain focused on returning capital to shareholders and debt pay down. As we mentioned since the spin, we've repurchased approximately 10% of our Class A shares, roughly $140 million, and we have $110 million remaining under our current authorization. know we'll continue to evaluate returning capital to shareholders as we move forward as far as debt pay down um our our our balance as of september 30th was approximately 732 2 million since the end of the quarter we've paid down 35 million of the revolver and we also expect to fully pay down a revolver by the end of the december quarter um from there you know we we expect to make our mandatory principal payments. And while we're not setting up a public leverage target, we expect our business to naturally de-lever as AOI increases over time. So with that, we believe we're well positioned to advance both of our capital allocation priorities.

Thank you. You're welcome.

And your next question comes

go ahead we have time for one last caller certainly your final question for today comes from the line of peter henderson from bank of america your line is open hi good morning and thank you for taking the question i'm just wondering are there any pandemic related reschedule shows in your fiscal second quarter through your fiscal fourth quarter for 24. uh sure peter thanks um yeah as we mentioned the the prior year first quarter included

30 concerts rescheduled to the period last year from earlier dates due to the pandemic. And the majority of those rescheduled concerts were at the Garden and Radio City, which are our largest revenue generating venues. The year over year decline was also heightened by seasonality of our business, with fiscal first quarter being our seasonally quietest in terms of bookings each year. And when we look into fiscal second quarter, we had nine pandemic-related schedule shows in the year-ago period also. All nine of those were at our smaller venues, the Beacon Theater and the Chicago Theater, so much smaller economic impact on our business. And we had no rescheduled shows in the third or fourth quarters last year. So the vast majority of the tough year-over-year comp from the pandemic-related rescheduling is behind us. And we're confident we're on track to deliver strong results on a full-year basis.

That's very helpful. And then just following up, I was wondering if you could provide an update on your sponsorship outlook for the fiscal year. And just sort of related to that, if you can give us a little more color on the OVG partnership. and how that will help to drive results.

Sure, Peter. First on sponsorship, you know, we're in a good place in terms of our core marquee and signature partners. Coming out of the pandemic, we renewed a number of key partners, Verizon, Spectrum, Anheuser-Busch, Lexus. We have one signature partner up for renewal this fiscal year. and can't get into the specifics of it, but that deal is essentially done. So you've heard us say our marketing signature partners represent the majority of our sponsorship revenue. With that, we have significant visibility into this business for the remainder of this fiscal year. In terms of new sales, we still have some work to do, and we'll keep you posted as we make progress. And you mentioned we recently announced our new sponsorship arrangement with Oakview Group. And we're working through that transition now. Overall, you know, we continue to have some work to do this fiscal year, but we remain bullish about the sponsorship part of our business over time. And then as far as Oakview Group, you know, while we've had success in growing our sponsorship business, last year's results exceeded pre-pandemic levels. In thinking about how to best position our sponsorship business for ongoing growth, we began discussing this new arrangement in place with Oakview. It's under a new entity known as Crown Properties Collection. Oakview Group plans to represent most of the important assets and brands in sports and live entertainment. And Crown Properties will lead global partnership and sponsorship sales for us. including our venues and our live entertainment properties. We will continue to provide expertise and advisory services to Crown, as well as retain partnership activation and fulfillment. So again, we believe there'll be a top-line economic benefit over time from working with a leader such as OBG. And I'd also add that, you know, part of this arrangement, our sponsorship business will now transition to more of a variable commission-based cost structure, which we find attractive.

And we have reached the end of our question and answer session. Mr. Ari Daines, I turn the call back over to you for some final closing remarks.

Thank you all for joining us. We look forward to speaking with you on our next earnings call. Have a great day.

This concludes today's conference call. Thank you for your participation.