Business Context and Reporting Period
This filing is for Madison Square Garden Entertainment Corp. (the filing entity; the request metadata references Sphere Entertainment Co.) for the quarter ended September 30, 2021, the first quarter of Fiscal Year 2022. The company operated through three reportable segments: Entertainment, MSG Networks, and Tao Group Hospitality.
The July 9, 2021 merger with MSG Networks Inc. was accounted for as a common-control transaction, with historical periods presented on a combined basis. The company was also continuing construction of MSG Sphere in Las Vegas.
Key Financial Metrics
| Metric | Three months ended September 30, 2021 | Prior comparable period | Change |
|---|---|---|---|
| Revenue | $294.5 million | $170.5 million | Up 73% |
| Operating loss | $(83.3) million | $(58.7) million | Loss widened $24.7 million |
| Net loss | $(84.3) million | $(40.6) million | Loss widened $43.7 million |
| Net loss attributable to shareholders | $(86.9) million | $(36.1) million | Loss widened $50.8 million |
| Basic and diluted loss per share | $(2.55) | $(1.06) | Unfavorable change |
| Adjusted operating income | $10.3 million | $6.7 million | Up 52% |
| Net cash used in operating activities | $(2.3) million | $(95.6) million | Improved $93.2 million |
| Capital expenditures | $137.3 million | $113.8 million | Up $23.5 million |
Reported operating margin was approximately negative 28.3%, net margin was approximately negative 28.6%, and adjusted operating margin was approximately 3.5%. Adjusted operating income is a non-GAAP measure and includes significant add-backs, including $37.2 million of merger and acquisition costs, $19.5 million of share-based compensation, $29.4 million of depreciation and amortization, and a $7.8 million impairment charge.
Segment Results
- Entertainment: Revenue increased to $34.2 million from $7.6 million as live events resumed, but adjusted operating loss widened to $71.4 million from $58.3 million, primarily due to higher costs and merger-related expenses.
- MSG Networks: Revenue declined 10% to $141.5 million and operating income declined 66% to $23.3 million. Adjusted operating income declined 25% to $55.8 million, reflecting lower subscribers, affiliate rebates, lower advertising revenue, and higher rights fees.
- Tao Group Hospitality: Revenue increased to $119.5 million from $7.2 million, substantially reflecting the Hakkasan acquisition and the reopening of venues. Adjusted operating income improved to $26.2 million from an adjusted loss of $9.1 million.
Liquidity, Debt and Cash Flow
- Cash and cash equivalents were $1.331 billion at September 30, 2021; cash, cash equivalents and restricted cash totaled $1.355 billion, down $184.5 million from June 30, 2021.
- Net cash used in operating activities was $2.3 million. Investing cash use was $137.0 million, primarily capital expenditures, and financing cash use was $44.8 million.
- Total principal outstanding under the MSG Networks, National Properties and Tao facilities was approximately $1.708 billion, excluding certain deferred financing costs and other debt items. Consolidated debt, net of deferred financing costs, was $1.621 billion.
- Debt maturities for the remainder of Fiscal Year 2022 totaled approximately $47.0 million, including $37.1 million under the MSG Networks facility, $4.9 million under the National Properties facility, and $5.0 million under the Tao facilities.
- The company stated that it believed available liquidity was sufficient to fund operations, debt service, and MSG Sphere development for the next 12 months. Approximately $283 million of cash represented advance customer proceeds, primarily for tickets, suites, and sponsorships.
Material Changes, Outlook and Risks
- COVID-19 restrictions eased during the quarter, allowing increased venue attendance and improved Tao operations; however, management stated that a return to normal operations remained uncertain. The 2021 Christmas Spectacular was scheduled for 160 shows versus 199 shows in 2019, and bookings were expected to remain affected through calendar 2021.
- MSG Networks resumed full regular-season telecast schedules, but Comcast stopped carrying the networks effective October 1, 2021. Management estimated that non-carriage reduced subscribers by approximately 10% and could reduce MSG Networks revenue and segment operating income by a comparable amount while unresolved.
- MSG Sphere at The Venetian was expected to open in calendar 2023. The company estimated total project costs, including core technology and soft costs, at approximately $1.865 billion, with approximately $976 million incurred through September 30, 2021. Remaining costs were expected to be funded primarily with cash on hand and operating cash flow, although additional capital could be required.
- Tao Group Hospitality recorded a $7.8 million impairment charge for certain Hakkasan venues that management decided to cease operating. The Hakkasan purchase price allocation remained subject to finalization of deferred taxes.
- The company faced substantial debt, floating-rate interest exposure, media-rights commitments of approximately $3.646 billion, operating lease liabilities of $450.1 million, construction cost and schedule risk, and ongoing exposure to COVID-19-related restrictions, staffing constraints, attendance trends, advertising demand, and sports-team performance.
- Merger-related shareholder litigation had been consolidated into two Delaware actions. The company could not estimate potential liability and recorded no accrual.
Important Facts to Verify
- Confirm the intended issuer name: the supplied filing is Madison Square Garden Entertainment Corp., not Sphere Entertainment Co.
- Verify the effect of Comcast’s MSG Networks non-carriage after October 1, 2021 on subscribers, revenue, and operating income.
- Track MSG Sphere construction spending, total cost estimates, funding needs, and the calendar 2023 opening target.
- Review debt maturities, covenant compliance, floating-rate exposure, and Tao’s covenant-waiver requirements after December 31, 2021.
- Assess whether live-event attendance, Christmas Spectacular performance, Tao venue demand, and MSG Networks advertising and affiliation revenue normalize.
- Monitor the outcome and potential exposure from the consolidated merger-related litigation.