Madison Square Garden Entertainment Corp
NYSE:MSGE
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Madison Square Garden Entertainment Corp
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Good morning. My name is Samaria, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Madison Square Garden Entertainment Corp. Fiscal 2021 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]
I would now like to turn the call over to Ari Danes, Investor Relations. Please go ahead, sir.
Thank you. Good morning, and welcome to MSG Entertainment's fiscal 2021 first quarter earnings conference call. Our President, Andy Lustgarten, will begin today’s call with an update on the company's operations. This will be followed by a review of our financial results with Mark FitzPatrick, our EVP and Chief Financial Officer. 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 Investor section of our corporate website.
Please take note of the following. Today's discussion 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. These include financial community perceptions of the company and its business, operations, financial condition, and the industry in which it operates, as well as the factors described in the company's filings with the Securities and Exchange Commission, including the sections entitled 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 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 a AOI, a non-GAAP financial measure.
And with that, I'll now turn the call over to Andy.
Thank you, Ari, and good afternoon, everyone. We are now several months into our first full year as a standalone entertainment company. And while our business continues to be impacted by COVID-19, we are encouraged by the recent news about a vaccine and what it could mean for our future reopening. And when that day comes, we are confident that the strength of our assets and the pent-up demand for live entertainment will drive a quick recovery of our business and that we are well-positioned to create long-term value for shareholders. Until then we are also confident that our company can navigate the current environment.
Our focus this fiscal year is on a number of key initiatives that we believe will position MSG Entertainment for long-term success. These include preserving our company's strong liquidity position, making continued progress on the construction of MSG Sphere in Las Vegas and ensuring we're able to reopen our doors quickly to artists and guests when the time is right.
Our five entertainment venues have been closed since mid-March due to the pandemic. Since then our top priority has been maintaining the strength of our balance sheet to protect our core business. On our last earnings call, we noted that we were actively pursuing debt financing and we've delivered on that goal, completing a $650 million raise. This transaction coming at a time when our venues are closed, underscores the value of our assets and the expectation that we will bounce back quickly once we're able to reopen.
This debt raise in addition to the extensive actions we've already taken to reduce operating expenses by approximately $100 million on an annual basis. Those actions include reducing our corporate workforce by one-third and cutting spending across all departments. We've taken these actions to protect our core business and are confident that we have the financial flexibility to successfully navigate this period. We've also taken additional steps to help preserve our liquidity.
As we shared last quarter we've lengthened our construction timetable for MSG Sphere in Las Vegas and expect to open in calendar 2023. At the same time, we continue to make important progress on the venue's construction. This fiscal year, our efforts will focus on several critical path elements. These include completing all superstructure concrete, the continuation of structural steel erection, and building steel-domed roof.
In addition to our progress in Las Vegas, we are preparing for the eventual return of the rest of our business. Last week, the NBA announced its 2021 season will start on December 22nd. We look forward to the Knicks returning to the Garden and we'll continue to watch for more information from the NBA. We're also eager to hear more about the Rangers' return to play as the NHL continues to finalize its plans.
With regards to concerts, while the current environment is fluid, we've seen strong demand from both artists and promoters with total concert bookings up across all of our venues. This increase is led by the Garden, which is currently pacing up approximately 50% for the calendar 2021 versus at the same time last year for calendar 2020. And while we do not currently have significant booking activity at our venues in the first half of calendar 2021, we have an impressive schedule in the back half of the year, which is shaping up to be one of the busiest ever.
I would also note that this booking strength is not just because of our rescheduled events. We've also added many new shows to our calendar. In fact, over one-third of the events booked for 2021 are new rather than rescheduled. In addition, for the rescheduled shows approximately 75% of ticket holders have chosen to keep their tickets despite being provided with a refund option. So while we are eager for the day when we could safely welcome guests back, we remain optimistic about the pent-up demand we continue to see from both artists and fans.
Throughout this shutdown, we've also been encouraged by how fans are continuing to engage with our assets and brands. For example, the Christmas Spectacular staring the Radio City Rockettes, which in a typical year would be kicking off its holiday run this week is still attracting significant interest from fans.
Over the past several months, the Rockettes' rehearsal for last year's production racked up over 100 million Facebook views, demonstrating the connection people feel to our brands and their desire to engage with our content.
In October, we began our first-ever virtual residency featuring Phish's, Trey Anastasio live from the Beacon Theatre. The Beacon Jams an unprecedented eight-week series of instrument performances kicked off on October 9th and has been a remarkable success each week. We are excited for the next installment this Friday.
These opportunities are a great way to showcase talent as well as our venues helping us stay connected with fans and our team is continuing to have conversations with artists and partners on how we can create additional unique moments in this current environment. While our performance venues remain closed this past summer, several of our TAO Group venues did reopen their doors for delivery, takeout, outdoor dining and in some locations limited indoor dining.
In Las Vegas, this includes Marquee, which opened in June and has since increased its hours of operations due to customer demand. This was followed in September by select New York restaurants welcoming back guests for indoor dining at 25% capacity. And in October, Tao Nightclub in Las Vegas reopened at limited capacity. These venues are operating in a continually changing environment as seen by the recent government shutdown of indoor dining in Chicago. But even with the restrictions in place the demand we've seen has been encouraging.
We look forward to the day when we can fully reopen all of our venues. Until then we will continue to work diligently to ensure that when we do open our doors, our employees, fans, artists and partners can be confident that they are entering a safe and secure environment where they will share an unforgettable experiences.
The Garden recently served as an early voting and Election Day poll site for over 60,000 eligible New York City voters and I want to thank our staff along with the New York City Board of Elections who enabled us to play an important role in serving the community.
I'd like to end by saying that despite this difficult period we remain optimistic about our company's future and are confident in our ability to navigate these times. We continue to be encouraged by and grateful for our fans' and partners' enthusiasm for our assets and brands.
With that I will now turn the call over to Mark.
Thank you, Andy and good afternoon everyone. Today, I will review our first quarter financial results and then provide more details on our recent debt financing and our go-forward pro forma liquidity position.
Let's start by briefly discussing our financial performance. Due to COVID-19, the vast majority of our operations remained closed in the quarter, which resulted in minimal revenue and an adjusted operating loss.
For the quarter, total revenues were $14.4 million and our adjusted operating loss was $67.7 million. This compares to $178 million in revenues and an adjusted operating loss of $30.1 million in the first quarter of fiscal 2020.
As a reminder, results for the first quarter of fiscal 2020 are based on carve-out financials and do not include the impact of the various agreements between our company and MSG Sports. Therefore, results are not directly comparable year-over-year.
We ended the first quarter with $965 million of cash, which represented net reduction of $279 million compared to our June 30 balance of $1.244 billion. This $279 million reduction included approximately $66 million of non-recurring items or payments related to fiscal 2020 activities, including $15 million of cash payments related to our August workforce restructuring, $15.5 million in taxes related to the gain on the Forum sale, and $35 million related to fiscal 2020 compensation payments.
The remaining $213 million, was driven by $68 million of operational cash burn for the quarter, or about $23 million per month which was consistent with our previously disclosed expectations; $112 million of capital expenditures, which primarily related to the construction of the MSG Sphere in Las Vegas.
Through September 30, project to-date construction costs incurred on MSG Sphere were approximately $556 million, which included nearly $72 million of accrued costs that were not paid as of September 30, and is net of $65 million that we received from the Las Vegas Sands. As previously disclosed, our cost estimate for the MSG Sphere venue in Las Vegas is approximately $1.66 billion.
And finally, we had approximately $34 million related to other working capital outflows. Included in this amount was approximately $10 million of net payments, primarily related to deferred ticket revenue and collections due to promoters. At quarter end, our cash balance included $191 million in deferred revenue and collections, due to promoters as compared to $200 million as of June 30. The majority of this cash relates to deferred ticket revenue and suites.
And as Andy mentioned earlier, today most people have opted to hold their tickets to rescheduled events. But if requested, we have provided refunds. We also continue to be in close contact with our suite holders and sponsors, regarding ways to address our obligations be it non-cash means, such as credit and make goods.
Let's turn to our go-forward liquidity position. As Andy noted, we recently raised $650 million through a five-year senior secured term loan issued as a subsidiary of MSG Entertainment that owns and operates, our core live entertainment businesses, but excludes the MSG Sphere and the TAO Group. The borrowing is being secured by our equity interest in certain of our venues, and the Christmas Spectacular, but excludes our interest in the Madison Square Garden Arena.
Currently, the loan bears interest at 7%. In addition, MSG Sports recently terminated its $200 million delayed draw term loans with our company, which removed a potential significant near-term use of cash for us. We are pleased to have completed the debt financing and extinguished the delayed draw term loans with MSG Sports, as it materially enhances our liquidity position.
Pro forma for these transactions, we had nearly $1.6 billion in cash as of September 30, with no additional funding obligation to MSG Sports. We're confident that we have ample liquidity to protect our core business until our venues can reopen, and continue to fund the MSG Sphere in Las Vegas, which is scheduled to open in calendar 2023.
With that, I will now turn the call back over to Ari.
Thank you, Mark. Can we open up the call for questions please?
[Operator Instructions] Our first question will come from Brandon Ross with LightShed Partners. Please proceed with your question.
Hello, everyone. First wanted to ask, what you think your post-pandemic cost structure is going to look like. As you guys went through and cut I think it was $100 million of run rate expenses, did you find opportunities to maybe make some permanent reductions and run leaner in the future?
Thanks, Brandon. It's Mark. I'll take that one. As Andy noted, we did take out -- did take significant actions this summer to reduce our expenses by $100 million. We strongly believe that our business will bounce back quickly once we can safely reopen our venues. And therefore, we do expect some expenses will return as we ramp up the business to full operations. However, we've been using this opportunity and this time to think about how we can more efficiently operate our business and permanently reduce our expense base. And while we don't have -- while we do believe some of the $100 million in cost savings will be permanent, at this stage it's too early to try and quantify it for you.
Okay. Got it. And maybe another one for you Mark. You upsized your debt deal from $500 million to $650 million even though you have plenty of liquidity and a fairly low burn rate. A couple of things. One is can you remind us of what the interest rate was on that debt? And is there anything to read into you fortifying your balance sheet further?
Sure. Currently the interest is at about 7% given where LIBOR is. I think we just took advantage of the strong investor demand and take advantage of that to upsize the facility. We believe it reflects the strength of our assets and the belief that we can -- when we're able we can return safely to reopen our venues the business will bounce back quickly. And while we are very encouraged by the recent vaccine news, we thought it would be prudent to further bolster our balance sheet to protect our core business in these uncertain times.
Great. And then just one more. Las Vegas Sands is supposedly hoping to sell its Vegas assets, I guess taking the Las Vegas out of the sands. What are the change of control provision look like on your Sphere agreement with them?
Hey, Brandon, it's Andy. So really simple. We -- Sands has been a great partner. I don't -- we can't speculate on what's going to happen at the business. But I can tell you the ground lease has no change of control and we don't expect -- the agreements will not be affected by ownership.
Thank you guys.
Your next question will come from John Janedis with Wolf Research.
Thank you. I guess you guys kind of led to this one. But on a practical level, what does the vaccine news over the past week or so actually mean? Does it impact when you can start selling tickets or host events at the Garden? And to what extent do local governments dictate that time line?
Hey, John. So obviously, we're very excited by the vaccine news. It's -- it makes us feel bullish about the future. And -- but obviously, we need to be a little bit -- we need to see it in action and we need to get the venues up and running. It will be -- the most important thing to us obviously is the health of our -- both our patrons, our artists, our players and our employees, so we're going to have to be very safe. And we're going to -- and we do and we will continue to work with federal, local both New York City and state to work on an opening plan. But what I can tell you also is that we're feeling really good about -- and as I mentioned earlier, our back half of the calendar is going to be great and so just a question of when exactly those doors open and we can safely re-welcome our fans back in the building.
That's helpful. Is there a limit in terms of the lead time you need for going on sale for ticketing?
I mean we've had events go on sale and -- within the same week. Now obviously that's a rarity. I think the bigger question is for the touring business that's generally a longer-dated type of event. You have to book it to scale it up. You have to get the artist on tour and prepare the tour. So, that takes a few months to roll through.
But we're a little different than a typical venue because we do have one-off events. We do have artists that we work directly with. And so as soon as we -- those things can happen much quicker than a typical tour, so I can't give you an exact timeline. But once we're ready to go we're going to be ready to run.
Thank you.
Thanks John. We'll take one last caller.
All right. Your last question for the call will be coming from David Karnovsky with JPMorgan. Please proceed with your question.
Hi. Thank you. Just wonder how you're thinking about the long-term impact of your return profile specifically from pension market if that sees a reduction due to events maybe shifting to a virtual footprint? And then how does that affect the Sphere and maybe how many of that would affect Las Vegas as well?
So, thanks David. Look I think over the long term we're very bullish about what does Las Vegas mean in terms of -- as an entertainment market. It is one of if not the entertainment capital. And we want to be there and we feel really good about its long-term prospects.
As you know we pushed back the timing of our opening which I think favors us because it gives more time for the vaccine to flow through people to feel good about coming back together again. And we'll be there ready to open and really ready to grow with both the city and the entertainment business.
I think on the TAO side again TAO is an institution in Las Vegas and has been doing pretty well even in the current environment. So, we feel very good about the long-term prospects of Las Vegas market and our long-term business model.
Okay. And then maybe just a similar one but shifting to New York. But would you anticipate any of your long-term shift in demand for the Christmas Spectacular as a result of changes to visitation in this region? And can you maybe say what percentage of tickets are sold to destination for us or for visitors from outside the U.S.?
Sure. So, I'll say look this Spectacular has had around almost a million people a year for the last 10 years -- 10 seasons, been a holiday tradition for over 90 years. We really -- its brand has never been stronger.
Typically, those visitors come from a mix of New York City the Tristate area domestic tourism as well as international tourism and the mix changes. But we think on a long-term basis, we see the demand. I mentioned earlier we put up a -- just even a video of last year's rehearsal which had over 100 million views on Facebook.
We started to -- we don't usually start so early, but we started to sell group tickets for next year. The demand is strong and we just feel very good about the long-term health of both live entertainment and more importantly this fabulous brand.
Okay. And then maybe I'll just throw in one more as a follow-up to John's. But can you discuss maybe the likelihood that you'll have fans in some limited capacity in NHL or NBA games either in the general arena or in suites at some point this season? Is it possible to have that even prior to kind of full vaccine distribution?
It's -- look it's a difficult question to give you a straight answer as guidelines are continually changing. And currently in New York we could only have -- no one in New York is allowed to have fans and attendants even outside of New York City. But we've been we've been very focused about how do we bring fans in both -- fans again, our players and our employees in a safe and effective manner and we're going to continue to work with local officials to try to figure out how to do that and get people in as quickly as possible. But we're going to only do that in a safe manner. So, it's hard to give you exact timing, but we're hopeful that things are moving in the right direction.
Okay. Thank you.
And this will conclude the Q&A portion of today's call. I would now like to turn it back over to Ari Danes for closing remarks at this time.
Thank you all for joining us. We look forward to speaking with you on our next earnings call. Have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.