Madison Square Garden Entertainment Corp.

Good morning, thank you for standing by and welcome to the Madison Square Garden Entertainment Corp Fiscal 2025 First Quarter Earnings Conference Call. 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 2025 First 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 period. 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 Mike.

Thank you, Ari, and good morning, everyone. With our new fiscal year underway, we expect our portfolio of assets and brands to continue benefiting from demand for shared experiences. In our bookings business, The Garden recently saw a record number of concerts for a fiscal first quarter. Last month, we welcomed back the Knicks and Rangers to the world's most famous arena for the start of their 24-25 regular seasons. While later today, the Christmas Spectacular will kick off its 91st holiday season. Lastly, in our marketing partnership business, we recently announced a number of notable agreements, while we also remain encouraged by the level of corporate demand for our premium hospitality offerings. Let's now review some first quarter operational highlights. During the quarter, our venues hosted nearly 800,000 guests at over 120 events. But as you saw in this morning's earnings release, our bookings business saw lower concert-related revenues year over year. This reflected lower per-concert revenues primarily due to a mixed shift at the Garden from promoted events to rentals, which, all else being equal, generates similar AOI but lower revenues on a per event basis. It also reflected fewer concerts at our theaters. These decreases were partially offset by growth in the number of concerts at the arena, including an increase in the number of acts headlining the arena for the first time, which is one of our strategies to increase utilization. The increase in the number of concerts at the garden is also noteworthy, since the prior year quarter included residencies from Fish and Dave Chappelle, as well as two additional Billy Joel concerts. From the demand side, consumers continue to demonstrate their desire for in-person shared experiences, with the majority of concerts across our venues once again sold out during our first quarter. In terms of in-venue spending, combined food, beverage, and merchandise per caps at concerts were down modestly year over year. This mainly reflected the impact of higher per-cap shows in the prior year quarter. like Fish and Dave Chappelle's residencies at the arena. I would also note that per cap spending for the quarter was up compared to the fiscal 24 full year average. Looking ahead, we have seen some slowing in our concert bookings pacing in recent weeks. That said, we are experiencing positive momentum across family shows, special events, and marquee sports, and continue to expect to grow our total number of bookings events this fiscal year. In terms of family shows next week, Annie will begin to combine 64 performances at the Chicago theater and the theater at MSG. We also have a number of upcoming high profile special events, including the return of the Tony awards to radio city in June. And in our sports bookings business next week, we will welcome the UFC back to the garden for what we expect to be one of the top grossing events in the arena's history. And next month, Tennis returns to the garden for the first time since 2018. With regard to the Nixon Rangers, the cash component of the arena license fees will be $44 million for this fiscal year, and these fees will continue to grow at 3% each year through fiscal 2055. And while still early, we are seeing positive momentum across our share of food, beverage, and merchandise at Nixon Rangers home games. Turning to the Christmas Spectacular. We are kicking off the 91st holiday season later today, and this year's production will include new immersive elements as we continue to invest in improving the guest experience. Advanced ticket sales continue to outpace where we were at the same time last year. This reflects increases across individual and group sales aided by the ongoing return of tourism to New York. In light of the demand we've seen so far, we have added two performances to this year's holiday season run. bringing the total number of shows currently on sale to 199. This compares to 193 performances last year. We're also continuing to monitor ticket sales and may add performances to this year's run if demand warrants. Based on how we're pacing, we anticipate welcoming over 1 million guests to the Christmas Spectacular again this holiday season and expect to deliver another year of record revenues for the production. Turning to our marketing partnerships business, We recently announced a number of new deals, including Lenovo and its subsidiary Motorola, as well as the Department of Culture and Tourism Abu Dhabi. We also recently signed an expanded renewal with Verizon. All of these deals are multi-year in nature and encompass a wide variety of our assets and brands. In terms of premium hospitality, we continue to see strong new sales and renewal activity for our suites. That includes our event-level club space, which was introduced last year and was recently expanded ahead of the 2024-25 season. And we recently completed the renovation of a number of event and Lexus-level suites and are already seeing the benefit of incremental revenue from these refreshed spaces. So as you've just heard, we are seeing a number of puts and takes in our business so far this fiscal year. That includes some slowing in concert bookings pacings on one hand, and strengthen the Christmas Spectacular, special events, and marquee sports, on the other hand. In addition, as we look ahead to the balance of the fiscal year, we now expect to incur additional expenses related to our recent decision to end our agreement with Oak View Group's Crown Properties Collection and bring sponsorship sales back in-house. As a result, we now anticipate delivering a mid to high single-digit percentage increase in adjusted operating income for fiscal 25. Let's now review our first quarter financial results. For the fiscal 25 first quarter, we reported revenues of $138.7 million as compared to $142.2 million in the prior year quarter. This reflected a decrease in revenues in our entertainment offerings and food, beverage, and merchandise categories, partially offset by growth in our arena license fees and other leasing categories. As I touched on earlier, the decrease in revenues from entertainment offerings primarily reflected lower per-concert revenues, mainly due to a shift in the mix of events at the Garden, from promoted concerts to rentals, and a decrease in the number of concerts at the company's theaters. This decrease was partially offset by an increase in the number of concerts at the Garden during the quarter. The decrease in food, beverage, and merchandise revenues primarily reflected the impact of lower per-concert food and beverage revenues at our venues and, to a lesser extent, fewer concerts at our theaters. This decrease was again partially offset by an increase in the number of contracts at the Garden during the quarter. First quarter adjusted operating income of $1.9 million increased $2.1 million as compared to the prior year quarter. The increase in adjusted operating income primarily reflects a decrease in direct operating and SG&A expenses, partially offset by the decrease in revenues. Turning to our balance sheet, as of September 30th, We had $37 million of unrestricted cash while our debt balance was $677 million. This reflected $622 million outstanding under our term loan and $55 million drawn on our revolving credit facility during the 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 the full $55 million revolver balance, and we continue to expect to generate substantial free cash flow as we progress through fiscal 25. This is underscored by our current expectations for a mid to high single-digit percentage increase in AOI, ongoing net interest payments, which totaled $51 million for the trailing 12-month period, our current status as a modest cash income taxpayer, and capital expenditures, which include both maintenance capex as well as some incremental spend related to the Christmas Spectacular and suite renovations of the garden. So, in summary, we continue to be confident in the strength of our portfolio of live entertainment offerings and believe we are well positioned to deliver long-term value for our shareholders.