MSGE - Madison Square Garden Entertainment Corp. Reports Fourth Quarter and Fiscal 2021 Results

Fourth Quarter Results Reflect Return of Live Events to the Company’s Venues

Tao Group Hospitality Achieves First Profitable Quarter Since Start of Pandemic

MSG Networks Acquisition Completed on July 9, 2021

Company Moves Forward with Greater Scale and Revenue Diversity, As Well As Enhanced Financial Flexibility

Madison Square Garden Entertainment Corp. (NYSE: MSGE) (“MSG Entertainment”) today reported financial results for the fourth quarter and fiscal year ended June 30, 2021.

The fiscal 2021 fourth quarter reflected the return of live events to the Company’s performance venues, following an easing of restrictions during the period. This included Madison Square Garden (“The Garden”) hosting three sold-out New York Knicks home playoff games in May and June, welcoming what was, at that time, the largest indoor crowds to gather in New York State since the start of the pandemic. This was followed by the Foo Fighters, which marked the first sold-out, 100% capacity concert at The Garden since March 2020, and which was one of several events throughout June at the Company’s venues. In addition, last month, the Company officially announced the return of the Christmas Spectacular Starring the Radio City Rockettes production to Radio City Music Hall, with 163 shows scheduled for the 2021 holiday season.

Capacity restrictions were also lifted in several U.S. markets for entertainment dining and nightlife venues in the fiscal fourth quarter, permitting Tao Group Hospitality’s U.S. portfolio – which expanded following its acquisition of Hakkasan Group in April – to operate at 100% capacity by the end of the period. This included Tao Group Hospitality’s two largest markets – Las Vegas, where capacity restrictions were lifted June 1, and New York, where capacity restrictions and social distancing requirements ended June 15. To help venues continue to operate safely at full capacity, municipalities have taken proactive steps to curb the impacts of the pandemic. In Las Vegas and Chicago, mask mandates for indoor public settings were announced in July and August, respectively, and, in New York City, proof of vaccination for all guests dining indoors or attending indoor events was announced earlier this month.

Executive Chairman and CEO James L. Dolan said, “Our Company successfully navigated the challenges of this past fiscal year. And while we continue to operate in a fluid environment, we remain cautiously optimistic as we prepare to meet the pent-up demand for live experiences and, after the MSG Networks acquisition, move forward with greater scale and enhanced financial flexibility to pursue growth opportunities and deliver long-term value for shareholders.”

Results from Operations

Results for the fiscal year ended June 30, 2021 reflect the impact of the COVID-19 pandemic. For fiscal 2021, the Company reported revenues of $180.4 million, as compared to revenues of $762.9 million in the prior year. ⁽¹⁾⁽²⁾ In addition, the Company had an operating loss of $450.2 million and an adjusted operating loss of $271.0 million in fiscal 2021, compared to an operating loss of $59.8 million and adjusted operating loss of $43.3 million in the prior year. ⁽³⁾⁽⁴⁾

For the fiscal 2021 fourth quarter, the Company reported revenues of $99.8 million, as compared to $9.0 million in revenues in the prior year quarter. In addition, the Company had an operating loss of $102.4 million and an adjusted operating loss of $70.0 million in the fiscal 2021 fourth quarter, compared to operating income of $94.4 million and an adjusted operating loss of $103.5 million in the prior year quarter. ⁽⁴⁾

Segment Results for the Quarters and Years Ended June 30, 2021 and 2020:

Entertainment

For the fiscal 2021 fourth quarter, the Entertainment segment generated revenues of $31.1 million, an increase of $22.6 million, as compared with the prior year period. Revenues this quarter reflect the Company’s various commercial arrangements with MSG Sports. This includes $8.3 million in arena license fee revenues; $3.3 million in revenues from food and beverage sales during New York Knicks and New York Rangers games at The Garden and the Company’s share of MSG Sports merchandise sold at The Garden; as well as a $2.2 million increase in revenues related to the Sponsorship Sales and Service Representation Agreements with MSG Sports. Advertising sales commission revenues from MSG Networks Inc. (“MSG Networks”) increased $4.9 million as compared with the prior year period. In addition, event-related revenues increased $3.5 million primarily due to select events held in the current year quarter as compared to no events in the prior year period.

Fiscal 2021 fourth quarter direct operating expenses of $31.4 million decreased 9%, or $3.0 million, as compared with the prior year quarter. Expenses this quarter reflect the impact of the Company’s spin-off from MSG Sports in the prior year period (see note 1 on previous page), as venue-operating related costs decreased $5.6 million and venue-related signage and sponsorship expenses decreased $1.5 million, primarily due to the impact of carve-out adjustments in the prior year period. These decreases were partially offset by an increase of $2.3 million in expenses associated with hosting Knicks and Rangers games in the current year quarter, pursuant to the Arena License Agreements with MSG Sports, and an increase of $1.8 million in event-related expenses at the Company’s venues.

Fiscal 2021 fourth quarter selling, general and administrative expenses of $83.0 million increased 9%, or $6.7 million, as compared with the prior year quarter. Expenses this quarter reflect an increase in professional fees of $5.9 million as compared with the prior year period, $4.1 million of which was associated with the Company’s acquisition of MSG Networks, and other cost increases. These increases were partially offset by a decrease in employee compensation and related benefits of $10.2 million, which included the impact of severance-related costs attributable to separation agreements in the prior year period.

Fiscal 2021 fourth quarter operating income decreased by $221.4 million to an operating loss of $103.2 million and adjusted operating loss decreased by $10.6 million to an adjusted operating loss of $79.6 million. The decrease in operating income reflects the impact of a $240.8 million gain on the sale of the Forum and associated settlements recorded in the fiscal 2020 fourth quarter. The improved adjusted operating loss primarily reflects the increase in revenues and, to a lesser extent, lower direct operating expenses, partially offset by higher selling, general and administrative expenses.

Tao Group Hospitality

For the fiscal 2021 fourth quarter, the Tao Group Hospitality segment generated revenues of $69.7 million as compared to $1.3 million in the prior year period. The portfolio of venues operated by Tao Group Hospitality prior to the acquisition of Hakkasan Group (which the Company refers to as the “legacy venues”) generated $42.1 million in revenues in the current year quarter as compared to $1.3 million in the prior year period, which reflects the easing of government-mandated capacity restrictions. Tao Group Hospitality acquired Hakkasan Group on April 27, 2021 and, as a result, revenues in the current year quarter included $27.6 million from Hakkasan Group in the post-acquisition period (April 28, 2021 through June 30, 2021).

Fiscal 2021 fourth quarter direct operating expenses of $35.3 million increased by $28.7 million as compared to the prior year quarter. The current year quarter included $12.3 million in direct operating expenses from Hakkasan Group in the post-acquisition period. In addition, employee compensation and related benefits increased $9.8 million, primarily reflecting a staffing increase at the legacy venues, while the cost of food and beverage at legacy venues increased $6.7 million, both as compared with the prior year period.

Fiscal 2021 fourth quarter selling, general and administrative expenses of $26.3 million increased by $17.7 million as compared to the prior year quarter. This primarily reflects $8.0 million in selling, general and administrative expenses from Hakkasan Group in the post-acquisition period; a $3.6 million increase in employee compensation and related benefits; a $1.6 million increase in restaurant expenses and supplies, repairs and maintenance, utilities and general liability insurance; a $1.2 million increase in marketing; and other net increases.

Fiscal 2021 fourth quarter operating income increased by $23.5 million to $2.9 million and adjusted operating income increased by $22.8 million to $9.8 million, both as compared to the prior year quarter. This primarily reflects the increase in revenues, partially offset by higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses. Fiscal 2020 fourth quarter operating loss included a net impairment charge of $4.8 million.

Liquidity

As of June 30, 2021, MSG Entertainment’s unrestricted cash balance was $1.17 billion, while MSG Networks’ cash balance was $348.2 million, for a total combined cash position of $1.52 billion. ⁽⁶⁾

On a combined basis, the Company’s total debt outstanding as of June 30, 2021 was $1.74 billion. ⁽⁶⁾ This was comprised of a $1.05 billion term loan at MSG Networks, a $646.8 million term loan at a subsidiary of MSG Entertainment and $43.8 million in credit facilities at Tao Group Hospitality.

MSG Entertainment’s cash balance at quarter-end included $232.9 million in deferred revenue and collections due to promoters, as compared to $193.9 million as of March 31, 2021. The increase in deferred revenue and collections due to promoters primarily reflects advance ticket sales for future events at the Company’s performance venues.

MSG Networks

The Company completed its acquisition of MSG Networks on July 9, 2021. The below is a summary of MSG Networks’ financial results for the fourth quarter and fiscal year ended June 30, 2021 on a standalone basis. MSG Networks’ financial information (along with a reconciliation of operating income to adjusted operating income) for the fourth quarter and fiscal year ended June 30, 2021 can be found starting on page 13 of this press release.

For fiscal 2021, MSG Networks generated total revenues of $647.5 million, a decrease of 6% as compared with the prior year. In addition, MSG Networks generated operating income of $262.0 million, a decrease of 11%, adjusted operating income of $287.0 million, a decrease of 11%, and net income of $156.3 million, a decrease of 16%, all as compared with the prior year.

For the fiscal 2021 fourth quarter, MSG Networks generated total revenues of $166.1 million, an increase of 9% as compared with the prior year quarter. Affiliation fee revenue decreased $9.7 million, primarily due to the impact of a decrease in subscribers of approximately 7%, an increase in unfavorable affiliate adjustments of $3.8 million and, to a lesser extent, the impact of the previously disclosed nonrenewal with a small Connecticut-based distributor as of October 1, 2020 ⁽⁷⁾ , partially offset by the impact of higher affiliation rates.

Advertising revenue increased $22.2 million, as compared with the prior year period, primarily due to sales related to live professional sports telecasts (including playoff games) in the current year quarter as compared to no telecasts in the prior year period due to the cancellation of games during the 2019-20 NBA and NHL seasons. Other revenues increased $1.4 million as compared with the prior year period.

Direct operating expenses of $66.4 million increased 43%, or $20.0 million, as compared with the prior year quarter. The increase reflects higher rights fees expense due to the impact of the cancellation of games during the 2019-20 NBA and NHL seasons in the prior year quarter and, to a lesser extent, the impact of the timing of the 2020-21 NBA and NHL regular seasons and annual contractual rate increases in the current year quarter. These increases were partially offset by the impact in the current year quarter of fewer NHL and NBA games made available for exclusive broadcast by MSG Networks during the NHL and NBA’s shortened 2020-21 regular seasons. In addition, other programming and production-related costs increased as compared to the prior year quarter, primarily due to the impact of professional sports telecasts taking place in the current year quarter versus none in the prior year quarter.

Selling, general and administrative expenses of $39.4 million increased 91%, or $18.7 million, as compared with the prior year quarter. The increase primarily reflects higher advertising and marketing expenses, advertising sales commissions and employee compensation and related benefits as compared with the prior year quarter, as well as $3.3 million of professional fees related to the acquisition of MSG Networks by MSG Entertainment, slightly offset by other net decreases.

Operating income of $58.4 million decreased 30%, or $24.6 million, and adjusted operating income of $63.8 million decreased 30%, or $26.7 million, both as compared with the prior year quarter, primarily due to the increase in direct operating expenses and selling, general and administrative expenses, partially offset by the increase in revenues.

About Madison Square Garden Entertainment Corp.

Madison Square Garden Entertainment Corp. (MSG Entertainment) is a leader in live entertainment. The Company presents or hosts a broad array of events in its diverse collection of venues: New York’s Madison Square Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall and Beacon Theatre; and The Chicago Theatre. MSG Entertainment is also building a new state-of-the-art venue in Las Vegas, MSG Sphere at The Venetian. In addition, the Company features the original production – the Christmas Spectacular Starring the Radio City Rockettes – and through Boston Calling Events, produces the Boston Calling Music Festival. The Company’s two regional sports and entertainment networks, MSG Network and MSG+, deliver a wide range of live sports content and other programming. Also under the MSG Entertainment umbrella is Tao Group Hospitality, with entertainment dining and nightlife brands including: Tao, Marquee, Lavo, Beauty & Essex, Cathédrale, Hakkasan and Omnia. More information is available at www.msgentertainment.com .

Non-GAAP Financial Measures

We define adjusted operating income (loss), which is a non-GAAP financial measure, as operating income (loss) before (i) adjustments to remove the impact of non-cash straight-line leasing revenue associated with the Arena License Agreements with Madison Square Garden Sports Corp., (ii) depreciation, amortization and impairments of property and equipment, goodwill and other intangible assets, (iii) amortization for capitalized cloud computing arrangement costs, (iv) share-based compensation expense or benefit, (v) restructuring charges or credits, and (vi) gains or losses on sales or dispositions of businesses and associated settlements, which is referred to as adjusted operating income (loss), a non-GAAP measure. In addition to excluding the impact of the items discussed above, the impact of purchase accounting adjustments related to business acquisitions is also excluded in evaluating the Company’s consolidated adjusted operating income (loss). We believe that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the various operating units of our business without regard to the settlement of an obligation that is not expected to be made in cash. We believe that given the length of the Arena License Agreements and resulting magnitude of the difference in leasing revenue recognized and cash revenue received, the exclusion of non-cash leasing revenue provides investors with a clearer picture of the Company's operating performance.

On July 9, 2021, we completed our acquisition of MSG Networks Inc. The financial results of MSG Networks will be incorporated in our financial results retrospectively for all periods presented. Certain financial metrics are included in this release, such as adjusted operating income, which is a non-GAAP financial measure. MSG Networks defines adjusted operating income as operating income before (i) depreciation, amortization and impairments of property and equipment and intangible assets, (ii) share-based compensation expense or benefit, (iii) restructuring charges or credits and (iv) gains or losses on sales or dispositions of businesses. Because it is based upon operating income, adjusted operating income also excludes interest expense (including cash interest expense) and other non-operating income and expense items. We believe that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of MSG Networks without regard to the settlement of an obligation that is not expected to be made in cash.

We believe adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of our business segments, including MSG Networks, and the Company on a consolidated basis. Adjusted operating income (loss) and similar measures with similar titles are common performance measures used by investors and analysts to analyze our performance. Internally, we use revenues and adjusted operating income (loss) as the most important indicators of our business performance, and evaluate management’s effectiveness with specific reference to these indicators. Adjusted operating income (loss) should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with U.S. generally accepted accounting principles (“GAAP”). Since adjusted operating income (loss) is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. For a reconciliation of operating income (loss) to adjusted operating income (loss), please see page 7 of this release.

Forward-Looking Statements

This press release may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties, and that actual results, developments and events may differ materially from those in the forward-looking statements as a result of various factors, including financial community and rating agency perceptions of the Company and its business, operations, financial condition and the industries in which it operates, the impact of the COVID-19 pandemic and the factors described in the Company’s filings with the Securities and Exchange Commission, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained therein. The Company disclaims any obligation to update any forward-looking statements contained herein.

Conference Call Information:

The conference call will be Webcast live today at 10:00 a.m. ET at investor.msgentertainment.com
Conference call dial-in number is 888-421-7163 / Conference ID Number 2256668
Conference call replay number is 855-859-2056 / Conference ID Number 2256668 until August 30, 2021

The following is a description of the adjustments to operating income (loss) in arriving at adjusted operating income (loss) as described in this earnings release:

• Non-cash portion of arena license fees from MSG Sports . This adjustment removes the impact of non-cash straight-line leasing revenue associated with the Arena License Agreements with MSG Sports.
• Share-based compensation . This adjustment eliminates the compensation expense relating to restricted stock units and stock options granted under the MSG Entertainment Employee Stock Plan, MSG Sports Employee Stock Plan and Non-Employee Director Plan in all periods.
• Depreciation and amortization. This adjustment eliminates depreciation and amortization of property and equipment and intangible assets in all periods.
• Restructuring charges. This adjustment eliminates costs related to termination benefits provided to employees as part of the Company's full-time workforce reductions.
• Gains or losses on disposal of assets . This adjustment eliminates the impact of gains or losses from the disposition of assets or businesses.
• Purchase accounting adjustments. This adjustment eliminates the impact of various purchase accounting adjustments related to business acquisitions, primarily favorable / unfavorable lease agreements of the acquiree.

The following is a description of the adjustments to operating income in arriving at adjusted operating income as described in this earnings release with respect to MSG Networks Inc.'s financial results:

• Share-based compensation expense. This adjustment eliminates the compensation expense relating to restricted stock units and stock options granted under MSG Networks Inc.'s employee stock plan and non-employee director stock plan in all periods.
• Depreciation and amortization. This adjustment eliminates depreciation, amortization and impairments of property and equipment and intangible assets in all periods.