Madison Square Garden Entertainment Corp. (NYSE:MSGE) Q1 2024 Earnings Call Transcript November 7, 2023
Madison Square Garden Entertainment Corp. misses on earnings expectations. Reported EPS is $-0.96 EPS, expectations were $-0.5.
Operator: 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 a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. I would now like to turn the call over to Ari Danes, Senior Vice President, Investor Relations and Treasury. Please go ahead.
Ari Danes: Thank you. Good morning, and welcome to MSG Entertainment’s fiscal 2024 first quarter earnings conference call. On today’s call, Dave Byrnes, 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 Investors 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.
Dave Byrnes: Thank you, Ari, and good morning, everyone. We are now several months into our first full year as a stand-alone 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 2024. On the bookings front, our calendar continues to fill up and the Garden, the theater at MSG and the Beacon Theatre are all now pacing to exceed our concert goals for the year. At the same time, advanced ticket sales for the Christmas Spectacular remained 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 spin-off 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 posted 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 a 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 gardens 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 and 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 on sales 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 the advanced ticket sales to date in both markets. In our marquee sports business, we will see the return of the USC 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 are 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 2023, 2024 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 2055.
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 Spectacular’s 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 Oak View 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 multiyear 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 2024 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 carve-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 2024 outlook. As you know, last quarter we provided guidance for Fiscal 2024, which included revenues of between $900 million and $930 million and adjusted operating income of between $160 million 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 2024. We are also updating our operating income guidance to between $85 million and $95 million, primarily based on the impact of restructuring charges. In terms of our balance sheet, as of September 30, we had approximately $37 million 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 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 paydown. 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 2024. 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.
Ari Danes: Thank you, Dave. Operator, can we open up the call for questions please?
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Q&A Session
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Operator: [Operator Instructions] And your first question comes from the line of Peter Supino from Wolfe Research. Your line is open.
Peter Supino: 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 2024 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.
Ari Danes: Sure. Thanks, Peter. As we mentioned on our August call, we mentioned that we had visibility into over 70% of our concert bookings goal 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 Theatre. As far as other areas of our bookings business, we will be hosting the 56 Surface 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 search 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 2024. As far as your second question, which was the makeup of our anticipated double-digit event growth. I’d say bookings 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 show.
I just mentioned, Cirque, that will – 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.
Peter Supino: Thanks very much.
Operator: Your next question comes from the line of Stephen Laszczyk from Goldman Sachs. Your line is open.
Stephen Laszczyk: 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 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 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.
Dave Byrne: Sure, Stephen. To date, 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 high-teen percentage average. And you’ve heard us say this before, the increase in group sales is particularly encouraging as 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.
