MSG Networks (MSGN) 4 Feb 202020 Q2 Earnings call transcript

Good morning. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the MSG Networks Fiscal 2020 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions]

to call like Danes, to now Relations. Investor would turn over the Ari I sir. ahead, go Please

remarks, Thanks, and President Good with quarter Greenberg, Christie. morning, begin review call a This Chief conference XXXX Networks Treasurer. and Financial will a company’s call. results we open Bret the of prepared up second will will discussion questions. fiscal of be followed The Richter, operations. of for morning’s Officer After financial by company’s this the and the EVP, their company’s Andrea welcome CEO, call to MSG

Litigation If constitute developments the business, events the this perceptions Analysis today’s of disclaims the of the not and as the call during the update are of of including Exchange company Commission, a you risks and that that include is financial Act statements forward-looking community various and to forward-looking the of meaning result in are uncertainties, factors results may forward-looking of involve Condition XXXX. the website. materially sections Discussion guarantees such entitled do Financial Investors as not well and release, industry company’s any and operations, its be any in and and note of Securities therein. that cautioned with the have obligation and the take following. Factors and Operations Risk Reform a Results factors. within and any the forward-looking Private The contained Today’s may corporate discussed statements financial results, copy Management’s available condition filings in which company Securities company’s operates, These of as statements Please it differ that earnings in from statements of those discussion future section may or the of statements performance Investors it contain actual described

release, today’s operating and statements we reconciliation Pages operating Lastly, adjusted discuss on today’s On and call. a of measures will X income. of we operations financial earnings X of provide to certain non-GAAP income consolidated

X Page operating provide on to of we addition, the by flow. free provided net cash of release, activities earnings reconciliation In a cash

I’ll call the Andrea. turn that, over With now to

Thank Ari, we second as eventful company well a for positions number quarter steps took we had We important fiscal morning. an of and believe the you, good that our future.

early debt, representing our As later A and XX% stock, discussed, shares financial we’ve in which that $XXX and transaction of previously with of in refinancing was This us a repurchased we outlook. of provides with followed outstanding the October, Class the our million our outstanding enhanced reflects approximately confidence long-term month flexibility.

we two And in largest our affiliate with successfully distributors. December, renewed agreements of

games we the decades; landscape; content markets of of live the the any in the country. most the our country; more many sheer importance telecast, York today’s in including and live renewals, New DMA, presence changing these span number which in deals in four are media drive competitive to our beneficial revenue, flow. top adjusted to operating helping We for cash completed distribution affiliates reach two of believe working mutually of there over goal This number and generating a demonstrates consistent have the income We our renewals are now with with our past partners track factors five with one relationships, than the RSN of increasing free record other of of our of us strength of years. that the robust

as will work us distribution also Looking but to not continue desirable agreements, well renew we to serve explore opportunities. position our ahead, we believe incremental only future

providing which is commitment focus local and our exclusive NBA begins with five to of Another compelling game coverage area teams. live our content, of NHL

and games, coverage. complemented scenes broadcast post will our and by we seasons, shows team regular behind XXXX/XXXX the game XXX pre For approximately the

and programming appeal, debuted our that to which our original theme pursue a summer. show, the last version return condensed increases including initially of fan engagement broadens continue and with programming MSG week We of popular XXX

for gaming. designed partnership of program recently soon DraftKings a XX-minute MSG’s new sports, collaboration by and us is being audience And unique DraftKings, part sports and we This in marketing airing to our we with interest media of highlights renewed meet be value part receive deals. entertainment will produced the of the our integrated by growing sponsorship

non-ratings-reliant us quarter, benefited the our content overall engagement the inventory. gaming Go, Sports partnerships the our a of to strong nation’s from some brands. of of arrangements customer top MSG to expanding user content, of past and advertising variety and be sports of continues with increase ultimately improving advertising enhance sponsorship we pursuit for branded of category also designed with experience sponsorship value and opportunities, betting further a This many the platform

experienced and while flow to to we year-over-year strength substantial rate compelling value coupled for compared free higher we that subscriber of advertisers, shareholders. decline our generate with a first well fiscal quarter, attractive positions create offerings are Finally, of us for cash and relationships, our our as the long-term our content confident

I turn over our the Bret, results. you take financial will through to will now call who

and Andrea, Thank good everyone. you, morning,

the was a our revenue, second by the to with million million partially favorable of $X.X rates, lesser prior revenues as of for million $X.X Let’s X% $XXX.X driven offset primarily decline of results recorded Total affiliate discussion decreased $X.X the a subscribers, financial start or quarter. and compared million quarter. with XXXX impact year a period. the the extent approximately a fiscal affiliate by decrease This adjustment higher in in reflecting in

sports timing million the with and $X.X a due of by content, per approximately ratings quarter. increases, This game lower outdoor to net live professional primarily primarily which increase and decreased net was year offset our This in billboards. include revenue for decline compared telecast our deferred prior revenue game decrease other as in guarantees Advertising to digital advertising initiatives, telecasts an year-over-year. MSG was our the sales and partially non-ratings-based Go from branded related

year were reflect lower, as the results of quarter. professional impact I would advertising to telecasts sports the will prior anticipate revenues note due in Fuse $XXX,XXX with that that quarter fiscal Other the primarily fees. absence we of currently additional media third compared

expenses revenue Fuse compared contractual $X.X primarily media. quarter, of year last the from Direct XXXX to X% mainly quarter million with prior as we or fiscal quarter, higher Our operating of million due increases. rate second expense, rights results was $XX.X recognized increased fees the

core expenses includes in employee advertising the $XX increases, benefits. and of the by indicative expenses was $XX.X cost of million operating professional increased SG&A I base. XX% This million Reported fees year million. $XXX,XXX XXXX, continuing prior as marketing X% $XX due current Adjusted operating the would December and in or prior cash higher with company’s year flow note and with the costs, was decrease expense direct expenses. primarily approximately as not offset the $XXX,XXX related XX, quarter SG&A in that are expense higher income increase other due the revenues ending partially from lower to compensation year operations decreased six for of in compared period. free the months to that compared primarily and period,

to our balance Turning sheet.

$XXX December debt XX, XXXX, total was cash cash outstanding our of undrawn. our $XXX billion As and and total $X.X approximately revolver equivalents was million were million,

rate interest Our X.X%. was approximately for average quarter the

times and end of end increased at quarter. by operating to as adjusted with our fiscal quarter trailing income compared X.X approximately at our first XX increased million, to the debt net $XXX months million X.X leverage ratio Net $XXX times

was fiscal our leverage increase million offset was of or our XX by in the partially a of the for our net primarily our This ratio million XX% $XXX debt approximately second A early common result October. our As generated position from in shares stock during of cash net flow and repurchase incremental operations reminder, quarter. Class approximately

As October part subsequent repurchase, our this our $XXX XXXX, to credit and $X.X five-year as on to of billion. we refinancing, last and earnings increased from quarter’s our discussed loan call, extended we term a for term facilities by the million amended

$XX.X credit next during Looking a provides XX forward, months. new of our in principal million for payments facility the mandatory total

Lastly, the capital and we disciplined maintain to share million on its continue looking to an will $XXX approach authorization. allocation. company opportunistic buyback ahead, has And remaining

turn over Ari. I the will back now call to

open for Thanks, can the call Bret. we Christie, questions. up

Goldberg question first Instructions] [Operator of America. Bank Bryan from of is your And

had the a called carriage agreements today. new I Thanks. you question on out

these going agreements sharing I are account? to well distributors? be be Have we did there packaged new As by like few guarantees any forwards distributors? existing there inventory go minimum focused any changed? And a you? – have Are Or a on we or are any differently deals by areas follow-up. about new these rates add changes into really distributor backwards should your long-term I’m on outlook, you to with think taking shifts then And the in these

that are that say increases, They comfortable let not Well, me the consistent But question, continued packaging deals the with say carriage. generally, Bryan. into and of agreement. expanded with terms. your Hi, get specifics flow. ensure On going our our rate to goals include basic we’re of revenue, other we in the – and AOI are robust protections and packaging creating wholly the positioning continued generally, renewal cash that other protections I’ll

just Okay, new of versus us great. could somewhat share to losses would on guess, be drivers could I could color quarter? the Any you if streaming secure the results platforms was I related great. on the sub wondering And in this efforts carriage views And quarter, you on YouTube. if your like update to share the you then the your subscriber accelerated September on

Sure, sure.

it by of case in acceleration of these again, our as And quarters, On some from disclosed the two – be distributors that has, the the has professional publicly the roll-off all came subscribers. just distributors that in one decline, impacted we the prior subscriber color, same virtually additional been to calls. previous referenced of continues the

OTT, want we impacted same So quarter. you to? dynamic this subscriber On believe the results our that Adam,

Yes.

we have So, to still discussions operators we we were been with This YouTube pay small only service new evolving but AT&T’s New out on you segment in including fairly past York, the or of New Hulu, to operators quarter, to being like regional is pleased those that distribution know, the continue in TV AT&T respect the rolled new with TV in forward that included currently universe. have to probably and which select available for rest footprint. but in York, markets, our product look of in

and Of course, all on exploring incremental focused forward. distribution pursuing remain we going opportunities

Great. Thanks a lot.

you. Thank

Our next of LightShed from question Ross is Partners. Brandon

offset protections move Thanks. this in agreement Verizon your you a and some what or And merchandising offering alternative. packaging is YouTube you TV guys. some I its And cause? look carriage this with impacting negotiations deals? and/or could place that to potentially morning, weakness that Verizon impacted this as how Hey, Verizon, recently maybe, on color by for made your how changes the have video may then you protections of recent give if match, your have theoretically the now shall those good to in mix some us in Maybe, and they’re business? would say,

I’ll on Yes, in jump it. Okay.

partner significant So, Verizon be advertiser long-standing the happen network on as a to They is a also of ours. well.

in As you just launched this probably January. know,

it’s really fairly So all new.

the we’re We’re still But Verizon with with it very discussing terms agreement. our of Verizon. comfortable

TV packages, not Fios our For networks the branded negatively were impacted.

of simplified pricing, than is As before. subscribers we’re side. to in a branded elimination Fios of on matter actually available we the What TV more were packages fees see now we fact, certain

On that’s one the price packages. look and channels, confident falls. that Ultimately, comfortable We in price comparable our see new have. – base to we package, the of will substantially how equation remain ultimately the that and With side, consumers TV think your decide point a we TV contract with fewer YouTube what value the value we at networks. and is of the protections of Fios that our the we’re price

Andrea would the was no discussions. just the concluded as impact in renewals, that say with far those to and to those reinforce, we as we’re have of on I I protections this have pleased comfortable said, we’re there there. And think, As recent renewals,

Thanks so much.

Thank you.

Your of is from JPMorgan. question Quadrani Alexia next

Karnovsky This is for David on Alexia.

seem the at X% down acceleration we decline with in an have would to would factoring expected looking QX, of in subs rate moving greater Just than X%. revenue imply adjustments down affiliate from to

results recent that wondering quarter? just if price in renewals might have or anything your impacted from factors there’s So the other such as

the end there period and that. there’s to – rate can quarter, was just were relationship But impact this in comparison large talked David. they’re on take we be the our these to And this agreements. them linear change. of consistently rate positive the complexity subscriber Yes, given course, there’s out. wholly We’ve I’ll adjustments. a revenue lot The of called And affiliate out quarter prior a in of year. primary that the sub. large enough, the call some a quarter. and When the renewals at isn’t We of any

Yes.

assuming announced allocation level had and where just you the of great. would How here? kind Any Okay. now And update the provided thinking offer then is of some summer, your over you recent about renewals – capital be the approaching are did stability. visibility stock tender levels you

Our plans haven’t for changed. capital allocation

it to We’re to balance going to balance that would and capital need be shareholder value. allocating strong thoughtful about with the we continue very enhance for efforts believe sheet a

I tender and wholly this were fiscal with sheet. the our balance refinancing both consistent of think year earlier our actions the that,

on I fit. it’s authorization, do was place forward, we’ll as think determination capital additional important dynamic will Looking in but have make basis, that and our tender, of we see we that time we put the at but a that allocate

you. Thank Okay.

Thank you.

question of Imperial Capital. Miller next is from Your David

company. really know, to the written the product, Hey, as guys. propagate Bret, I for sort public are value theme Bret, the not have intrinsic through our you the that of one one for continued of Andrea. recognizing research we’ve markets

the us these update? term guys the asking gone question going you we naivety it’s where give And to you other Obviously, give Coast New Andrea, engineer the buybacks, but overall but offers think feels it in Jersey, you you’ve private, landscape. What levers stands you And could New as sports Los – so in of that just you’ve do give update what And could an very the then, on prices? betting that, mobile of Thanks to of additional about talked should pull of at can could terms rather, I’m are appreciate. sports, you just in maybe, West additional additional with you Is you here Because the the loan, which legalization story out given over which it? for state tender probably juice this like in see is we’d process me going legalization over like slowly forward New the Angeles, an legal York? understand York. we on real in the much.

Bret, you want Okay. to?

I’ll Yes. take the one. first

to what’s that flexibility. with of regards So, future a engineering we think tenders, I I lot think have important is

our We have in put in significantly credit the facility, $XXX place million mandatory We’ve maintaining obligations. of terms prepayment buyback. on our which near term, five-year reduced the

the a to to in We for the flow, free what’s company we’ll pursuit cash right on evaluate shareholder basis. continue and continue go-forward of generate value

the on betting And sports mobile question.

As you betting Jersey, sports and capitalized in mobile is we’ve New legal indicated, that. on

York legalization New really It as product. the landscape York, Tied legal strong New New in We’re evolving not yet. to seeing the demand for York. Jersey is it’s to an New in

New if We also and upside demand are strong now. from following we’re Connecticut. closely becomes the we and – legal, seeing believe there of that just serve developments, is significant when but we if in gaming category portions legalized not York, It’s or

to So, demand. strong we expect continued see

Okay. Thank you.

you. Thank

Karasyov is question Vasily Your next from Cannonball of Research.

to about I the ask wanted the morning. side cost Good of equation.

that’s a midterm? essentially, there And pressures their given still where they or pressures Or how for margins going question on less what’s the line your mean pushed what – more think assuming often on? of the So revenue rights the current from costs teams stable with see be margin, business So your now on you do you renewing for in understanding your will do teams current the is, more the my top relationships are trends contracts? when is do TV forward? continue? going step-up historically, model Or Because rights evolving? fees in mindset

rights disclosed and professional long-term specifically, agreements and that in have XX we NBA that said are Rangers have Knicks product. our NHL the years. of We’ve we excess deals also Well, for the our for

fixed term. Those on left XX have all We rights more have step-ups in our deals fees. years than remaining

the years side into many for visibility to expense significant base have fee we right come. on our So,

Thank All you. right.

caller. last we have time one Christie, for

comes McTernan question Certainly, Bernie of Securities. final Rosenblatt your from

the Great. taking Thanks for questions.

with we you wondering agreement. over the was years, you or the should expect second being why And if color free how of on in done was XQ It in follow-up have And cash flow. two? year cash year? in the five And was were if a top could Just to next renewals we up then lower Should for? these provide carriage any hiatus past two lastly, I if prepared snapped the just mentioned on pick of can been the four a back? on long renewals over and the seasonality remarks, just detail half trough. the last year-over-year. flow flow some year then back it’s the free cash free expect seasonality There the also

you Adam, want to?

Yes.

Just than is in we’re not They say are renewals, to deals staggered our start the think prepared multiyear that. manner, generally all really more we could that’s in with to up come from to nature. disclose but I time gently time that

to regards the performance. with some with free expenses this to the starts related the it operational refinancing, QX flow, Bernie, in were with quarter tender. cash There activity that And obviously, our bank financial

us. of the of trails. capital up high use seasonality, a terms timing this Advertising quarter receipts ramped QX, In is working revenues for in of

which but the year, see estimated tax a do some new QX, aligned estimated as tax our and in year, we think timing fiscal that. you a used the payments XX payments be So, higher our moving reminder, not last in of our business. with tax We I changed that we’re estimated to That’s payments. is do one might June now, lap and thing noticing, to change. you tax The to to year beginning tax of QX, higher we year,

Thank Great. much. very you

to to Thank you. the I additional Ari turn for would Danes closing call or back any now over like remarks.

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

conference conclude does call. This you. Thank today’s

disconnect. now may You