Madison Square Garden Sports (MSGS) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for the quarter ended September 30, 2020, including balance sheets, statements of operations, cash flows, and equity, along with notes detailing accounting policies, the MSGE spin-off, and subsequent debt refinancing Consolidated Balance Sheets As of September 30, 2020, total assets were $1.22 billion, total liabilities $1.46 billion, and total equity a deficit of $239.9 million, with cash and equivalents decreasing significantly from June 30, 2020 Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $23,527 | $77,852 | | Total current assets | $96,100 | $128,278 | | Total assets | $1,219,366 | $1,233,798 | | Liabilities & Equity | | | | Total current liabilities | $312,444 | $290,254 | | Long-term debt | $350,000 | $350,000 | | Total liabilities | $1,459,259 | $1,437,233 | | Total equity | ($239,893) | ($203,435) | Consolidated Statements of Operations For the three months ended September 30, 2020, revenues increased to $57.0 million, and the net loss attributable to stockholders improved to $28.4 million, or ($1.18) per share, compared to the prior year Quarterly Statement of Operations (in thousands, except per share data) | Metric | Q1 FY2021 (ended Sep 30, 2020) | Q1 FY2020 (ended Sep 30, 2019) | | :--- | :--- | :--- | | Revenues | $57,038 | $49,850 | | Direct operating expenses | $39,786 | $18,419 | | Selling, general and administrative expenses | $42,996 | $85,910 | | Operating loss | ($27,404) | ($59,324) | | Loss from continuing operations | ($29,015) | ($40,191) | | Loss from discontinued operations, net of taxes | $0 | ($40,475) | | Net loss attributable to stockholders | ($28,417) | ($79,981) | | Basic loss per common share | ($1.18) | ($3.36) | Consolidated Statements of Cash Flows For the three months ended September 30, 2020, net cash used in operating activities increased to $57.5 million, resulting in a net decrease in cash, cash equivalents, and restricted cash of $64.5 million Quarterly Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($57,485) | ($34,234) | | Net cash used in investing activities | ($80) | ($74,236) | | Net cash used in financing activities | ($6,902) | ($23,946) | | Net decrease in cash, cash equivalents and restricted cash | ($64,467) | ($134,366) | Notes to Consolidated Financial Statements The notes detail the basis of presentation, the impact of COVID-19 and the MSGE spin-off, revenue recognition, leases, credit facilities, related party transactions, and subsequent significant debt refinancing in November 2020 - The company's primary business is the ownership and operation of sports teams, including the New York Knicks (NBA) and New York Rangers (NHL)[34] - The COVID-19 pandemic has materially impacted revenues from ticket sales, suite licenses, sponsorships, and food/beverage sales due to the suspension of events with fans at The Garden[41] - On April 17, 2020, the company completed the spin-off of Madison Square Garden Entertainment Corp. (MSGE), with historical entertainment business results now reported as discontinued operations[36][62] - Subsequent to the quarter end, on November 6, 2020, the company amended and restated its primary credit facilities, increasing total borrowing capacity and extending maturities to November 2023[176] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Q1 FY2021 financial results, highlighting a 14% revenue increase and narrowed operating loss, while emphasizing the ongoing COVID-19 impact and subsequent November 2020 credit facility refinancing to bolster liquidity Results of Operations For Q1 FY2021, revenues increased by $7.2 million (14%) to $57.0 million, and operating loss decreased by $31.9 million (54%) to $27.4 million, primarily due to deferred media rights and reduced SG&A post-MSGE spin-off Quarterly Financial Performance Summary (in thousands) | Metric | Q1 FY2021 | Q1 FY2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $57,038 | $49,850 | $7,188 | 14% | | Direct operating expenses | $39,786 | $18,419 | $21,367 | 116% | | SG&A expenses | $42,996 | $85,910 | ($42,914) | (50)% | | Operating loss | ($27,404) | ($59,324) | $31,920 | 54% | - The primary driver of the revenue increase was a $30.3 million rise in league distributions, mainly from national media rights fees related to the completion of the delayed 2019-20 seasons[204][206] - Adjusted operating loss, a non-GAAP measure, improved by $22.9 million (56%) to a loss of $17.8 million, compared to a loss of $40.6 million in the prior-year period[226] Liquidity and Capital Resources As of September 30, 2020, cash and cash equivalents were $23.5 million, with the company securing an additional $250 million in liquidity through debt refinancing in November 2020 to fund operations for the next 12 months - Cash and cash equivalents stood at approximately $23.5 million as of September 30, 2020[230][234] - In November 2020, the company secured an additional $250 million of liquidity through new financing arrangements, which amended and extended existing credit facilities and established a new one[228][234] - Current deferred revenue obligations were approximately $138.0 million as of September 30, 2020, primarily related to tickets, media rights, suites, and sponsorships for upcoming seasons[230] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on its variable-rate debt, where a 100 basis point increase would raise annual interest expense by approximately $3.5 million on $350 million outstanding debt - The company has interest rate risk exposure from its credit facilities, which have floating rates based on LIBOR, Federal Funds Rate, or Prime Rate[275][278] - As of September 30, 2020, a hypothetical 100 basis point increase in interest rates would increase annual interest expense by approximately $3.5 million on the $350 million of outstanding debt[278] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[279] - No material changes to internal control over financial reporting occurred during the quarter ended September 30, 2020[280] PART II. OTHER INFORMATION Legal Proceedings The company settled a derivative lawsuit concerning Executive Chairman James L. Dolan's compensation, effective October 8, 2020, involving his relinquishment of a one-time equity award, with other ongoing lawsuits not expected to have a material adverse effect - A derivative lawsuit regarding James L. Dolan's compensation was settled, with the settlement becoming effective on October 8, 2020[283] - Under the settlement, Mr. Dolan relinquished a one-time equity award granted in October 2018[283] Unregistered Sales of Equity Securities and Use of Proceeds As of September 30, 2020, approximately $260 million remained available under the $525 million Class A Common Stock share repurchase program, with no shares repurchased during the quarter - The company did not repurchase any shares of its Class A Common Stock during the quarter ended September 30, 2020[285] - Approximately $260 million remained available for repurchases under the existing stock repurchase authorization as of September 30, 2020[285] Exhibits This section lists exhibits filed with the Form 10-Q, including amended and new credit agreements for the Knicks and Rangers subsidiaries, and certifications by the CEO and CFO - Key exhibits filed include the amended and restated credit agreements for the Knicks and Rangers dated November 6, 2020[287] - A new credit agreement for Knicks Holdings, LLC, also dated November 6, 2020, was filed as an exhibit[287]