Business Context and Reporting Period
The filing is The Madison Square Garden Company’s unaudited Form 10-Q for the quarter and nine months ended March 31, 2017, its fiscal third quarter. The provided metadata identifies “Madison Square Garden Sports Corp.” and “2016 Q3,” but the filing itself identifies the registrant as The Madison Square Garden Company and the reporting period as fiscal 2017 Q3.
The company operates two reportable segments: MSG Entertainment, including venues, concerts, productions, TAO Group and Boston Calling Events, and MSG Sports, including the Knicks, Rangers, Liberty and other sports properties.
Financial Performance and Liquidity
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $386.0 million, up 15% | $1.013 billion, up 13% |
| Operating income (loss) | $6.7 million, versus $(56.9) million | $32.1 million, versus $(12.5) million |
| Net income (loss) | $(17.8) million, versus $(60.8) million | $10.7 million, versus $(18.9) million |
| Net income (loss) attributable to stockholders | $(17.5) million; $(0.74) per diluted share | $11.6 million; $0.48 per diluted share |
| Adjusted operating income | $43.6 million, versus $(23.8) million | $141.2 million, up 72% |
| Cash flow from operating activities | Not separately presented | $107.6 million, versus $86.0 million |
Revenue growth was driven by MSG Sports, which generated $308.7 million in third-quarter revenue, up 17%, and by MSG Entertainment, which generated $77.3 million, up 6%. Third-quarter operating margin was approximately 1.7%; nine-month operating margin was approximately 3.2%. Adjusted operating income margin was approximately 11.3% for the quarter and 13.9% for the nine months.
Cash and cash equivalents were $1.141 billion at March 31, 2017, down from $1.444 billion at June 30, 2016. Restricted cash was $32.6 million. Total assets were $3.736 billion and total liabilities were $1.150 billion. The company reported $105.3 million of long-term debt, net of deferred financing costs, related to the TAO acquisition.
Operating cash flow was $107.6 million. Investing cash outflow was $252.8 million, including $192.1 million for business acquisitions, principally TAO Group, and $31.8 million of capital expenditures. Financing cash outflow was $158.2 million, including $148.0 million of share repurchases. The company had approximately $377 million of revolving credit capacity, substantially undrawn, and stated that it had sufficient liquidity for operations, investments, acquisitions and planned repurchases.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue increased $49.7 million, while direct operating expenses declined $22.4 million. The improvement included the absence of a $41.8 million prior-year write-off related to New York Spectacular production costs.
- MSG Sports operating income increased $23.4 million to $59.9 million. Growth reflected the NBA’s new national media-rights agreements, an approximately $15.5 million non-recurring NHL expansion fee, higher ticketing and sponsorship revenue, and higher local media-rights fees. These benefits were partly offset by higher player compensation and league revenue-sharing costs.
- MSG Entertainment’s third-quarter operating loss narrowed to $7.7 million from $58.4 million, primarily because of the prior-year production-cost write-off and higher event revenue.
- Nine-month operating income improved to $32.1 million from an operating loss of $12.5 million. Nine-month adjusted operating income increased to $141.2 million from $82.1 million.
- Losses in equity-method investments increased to $28.5 million for the nine months, including a $20.6 million non-cash impairment of the Fuse Media investment.
- The company acquired controlling interests in Boston Calling Events on July 1, 2016 and TAO Group Holding LLC on January 31, 2017. TAO’s balance sheet was consolidated at March 31, 2017, but its operating results were excluded from the reported quarter and nine-month periods because results are recorded on a one-quarter lag.
Guidance, Outlook, Risks and Unusual Items
No quantitative full-year revenue or earnings guidance is provided in the filing. Management expects continued investment in live sports and entertainment, venues and related acquisitions, including a planned Las Vegas venue with at least 17,500 seats. The company also expects higher team personnel compensation and revenue benefits from the NBA national media-rights agreement.
- The planned 2017 presentation of the New York Spectacular was suspended while management reviewed its creative content and timing.
- TAO Group has a preliminary purchase-price allocation, a potential earn-out of up to approximately $25.5 million and redeemable noncontrolling interests initially valued at $85.0 million. TAO’s debt carries high floating-rate spreads and is subject to leverage, liquidity and fixed-charge coverage covenants.
- A payment-card security incident affected merchandise and food-and-beverage locations at several New York and Chicago venues. The company recorded an estimated liability and corresponding insurance receivable, but stated that the remaining potential amount payable cannot currently be reasonably estimated.
- Global Music Rights, an affiliate of the company’s equity-method investee, is involved in antitrust litigation with the Radio Music Licensing Committee. An interim licensing arrangement runs through September 30, 2017.
- Key operating risks include team performance and popularity, player injuries and compensation, NBA and NHL labor or rule changes, luxury tax and revenue-sharing adjustments, event attendance, venue competition, seasonality, economic conditions, acquisition execution, litigation, cybersecurity and the performance of nonconsolidated investees.
- The company’s stock repurchase authorization was $525.0 million; $148.0 million was spent during the nine months and $271.3 million remained available at March 31, 2017.
Most Important Facts for Investors to Verify
- Confirm the correct issuer and period: the filing is for The Madison Square Garden Company, fiscal Q3 2017, not clearly Madison Square Garden Sports Corp. or 2016 Q3.
- Assess the sustainability of revenue growth after excluding the approximately $15.5 million NHL expansion fee and considering the timing of NBA media-rights benefits.
- Review TAO Group’s first reported operating results beginning in the following quarter, including debt service, covenant compliance, earn-out obligations and the potential cost of minority-interest put options.
- Evaluate the cash impact of acquisitions, share repurchases, capital expenditures and the company’s reduced cash balance.
- Monitor the Fuse Media impairment, the GMR/RMLC litigation, the payment-card incident and insurance recoveries for potential future charges.
- Consider seasonality and the limited comparability of pre-Distribution results, which include carve-out allocations and may not reflect the costs of operating as a standalone public company.