Madison Square Garden Entertainment Corp.

Good morning. Thank you for standing by and welcome to the Madison Square Garden Entertainment Corporation fiscal 2024 third quarter earnings conference call. At this time, all participants are in a 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 Gaines, Senior Vice President, Investor Relations and Treasury. Please go ahead.

Thank you. Good morning and welcome to MSG Entertainment's fiscal 2024 third quarter earnings conference call. On today's call, Mike Graw, 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. During Q&A, we will also be joined by Phil D'Ambrosio, our EVP and treasurer. 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 five and six 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 Mike.

Thank you, Ari, and good morning, everyone. I'd like to start the call by saying how pleased I am to be joining you today. MSG Entertainment has a really strong portfolio of assets and a great team, and I feel privileged and excited to be working with everyone to ensure the company delivers on our key business objectives. I'm certainly very grateful for the opportunity and also very optimistic about our future prospects. Along those lines, there are less than two months left in our first full year as a standalone public company, And thanks to our strong results, we remain on track to deliver robust growth for fiscal 2024. In fact, the strong operating performance that led us to increase our full-year revenue and AOI guidance in February has continued. And we are now updating our financial forecast for fiscal 24, including an increase to our expected AOI range for the year, which I will discuss in more detail shortly. Two main areas are driving this financial performance. The Christmas Spectacular's 90th holiday season run, which ended in January, delivered yet another year of record-setting revenues for the production. And second, our booking business has continued to grow and remains set to achieve a low double-digit percentage increase in events for fiscal 24. This includes concert growth across all of our venues, with the Garden and Radio City both headed towards setting new records for a number of concerts in a year. The strength of our financial results has enabled us to repurchase a substantial amount of our Class A shares for this fiscal year. And as we look ahead, we remain confident that our business is positioned to continue generating long-term value for our shareholders. Let's now review some third quarter operational highlights. During the quarter, our portfolio of venues hosted more than 1.5 million guests at over 200 live events. A majority of these events were driven by our bookings business. which delivered a double-digit percent increase in total concerts versus the prior year quarter. A key contributor to this increase was a strong multi-night comedy schedule. This included a combined 55 nights across Radio City, the Beacon, and the Chicago Theater from such acts as John Oliver and Seth Meyers, Tina Fey and Amy Poehler, Jerry Seinfeld, and Ali Wong, among others. And as the volume of events at our venues continues to increase, we are pleased to see it matched by strong demand. For the third quarter, the majority of concerts at our venues were once again sold out. Sales of single-night suites increased significantly, and per-cap spending at concerts on food, beverage, and merchandise again increased on a year-over-year basis. Also during the third quarter, the Knicks and Rangers continued their 2023-24 regular seasons at the Garden. This included five more Knick home games in the current year, as compared to the prior year quarter. In addition to these extra matchups, Knicks and Rangers games followed the same trend we saw in our other live events, with increases in average per-game revenues for food, beverage, and merchandise sales. We also saw continued demand for our premium hospitality offerings. As we have previously discussed, the Garden introduced two new suite products this fiscal year, an event-level suite and a luxury event-level club space. We already noted that we secured a multi-year agreement for the event level suite earlier this year. And to add to that, we are now close to selling out the event level club space and have started adding more seats to help match the interest that we are seeing for this premium hospitality product. Before we talk about our financial results, a couple points regarding presentation and comparability. First, I'd like to note that we have revised our definition of adjusted operating income as it relates to the arena license fees with MSG Sports. We are no longer removing the non-cash portion of the arena license fees in our reconciliation of operating income to adjusted operating income, which is reflected in the financial results we've reported today for all periods presented, as well as in our financial guidance. You may recall that the arena license fees are recognized on a straight line basis over the life of the 35-year agreements, which equates to approximately $68 million a year. For fiscal 2024, this $68 million will be comprised of approximately $43 million of cash revenue and $25 million of non-cash revenue. We will continue to disclose the non-cash component of the arena license fees on a quarterly basis. And secondly, because the company completed its spinoff from Sphere Entertainment in April of last year, our fiscal third quarter results are not fully comparable on a year-over-year basis. Results for the prior year quarter are based on carve-out accounting and do not reflect all of the SG&A expenses we would have incurred had we been a standalone public company. Turning now to our financial results. For the fiscal 2024 third quarter, we reported revenues of approximately $228 million, an increase of 13% as compared to the prior year period. This reflected growth across our three revenue categories, entertainment offerings, food beverage and merchandise, and arena license fees. Revenues from entertainment offerings increased, primarily due to higher revenues from concerts and suite license fees, partially offset by the absence of the NCAA East Regional Tournament, which took place at the Garden in the prior year quarter. Higher food and beverage revenues were primarily due to an increase in the number of concerts held at our venues, as well as the impact of five more Knick games at the Garden during the quarter. This was partially offset by lower per-concert food and beverage revenues, which reflects a mixed shift to more concerts at our theaters during the current year quarter. And the increase in arena license fees reflects the impact of five additional NIC games in the quarter as compared to the prior year period. Third quarter adjusted operating income of $38.5 million decreased by $11.6 million as compared to the prior quarter. These AOI results include $13.2 million of non-cash arena license fees in the current year quarter, as compared to $12.1 million in the prior year period. The decrease in AOI primarily reflects higher SG&A expenses, and as I mentioned earlier, third quarter SG&A expenses are not fully comparable on a year-over-year basis. Moving on to our fiscal 24 outlook. Given the positive momentum in our business, we are updating our guidance for fiscal 24. We now expect revenues of between 940 and $950 million versus our prior range of between 930 and $950 million. The midpoint of this updated range reflects 11% revenue growth versus fiscal 2023. We also expect operating income for the year of between 100 and $110 million versus 95 to $105 million previously. An adjusted operating income is now expected to be between 200 and 210 million dollars. This compares to our previous range of 195 to 205 million dollars, with both prior and updated guidance having been adjusted to no longer remove the 25 million dollar non-cash portion of the ARENA license fees. Turning to our balance sheet. As of March 31st, we had approximately 28 million dollars of unrestricted cash. In addition, Our debt balance was approximately $630 million, consisting of a single-term loan facility with mandatory quarterly principal repayments of approximately $4 million per quarter. Looking ahead, we remain focused on our dual capital allocation priorities of opportunistically returning capital to shareholders and paying down debt. As a reminder, since our spinoff last year, we have repurchased approximately $140 million or about 10% of our outstanding Class A shares. We continue to have $110 million remaining under our current buyback authorization. In addition, subsequent to quarter end and through the end of April, we sold approximately 1.6 million shares in Town Square Media for net proceeds of approximately $15.6 million, as we continue to build our cash balance back up following our share repurchase and debt pay down activity earlier this fiscal year. In summary, we had another quarter that reflected the strength of our assets and robust demand for our business. And as we near the end of our first full year as a standalone company, we are continuing to offer consumers unforgettable experiences while delivering attractive growth for fiscal 24.