Madison Square Garden Sports (MSGS) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The financial statements detail the company's consolidated financial position, operations, and cash flows, highlighting increased liabilities, a wider equity deficit, and improved net income for the period Consolidated Balance Sheets Total assets remained stable, while total liabilities significantly increased due to higher long-term debt, widening the total equity deficit Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Dec 31, 2022 (Unaudited) | June 30, 2022 | | :--- | :--- | :--- | | Total Assets | $1,300,867 | $1,301,966 | | Cash and cash equivalents | $43,912 | $91,018 | | Total Liabilities | $1,687,279 | $1,447,343 | | Debt (Current) | $30,000 | $30,000 | | Long-term debt | $405,000 | $220,000 | | Total Equity | $(386,412) | $(145,377) | Consolidated Statements of Operations Revenues and net income increased for both the three and six months ended December 31, 2022, indicating improved operational performance Statement of Operations Summary (in thousands) | Period | Revenues | Operating Income | Net Income (Loss) | | :--- | :--- | :--- | :--- | | Three Months Ended Dec 31, 2022 | $353,694 | $51,518 | $21,836 | | Three Months Ended Dec 31, 2021 | $289,581 | $35,919 | $15,198 | | Six Months Ended Dec 31, 2022 | $377,783 | $15,620 | $3,309 | | Six Months Ended Dec 31, 2021 | $308,375 | $981 | $(1,687) | Consolidated Statements of Cash Flows Operating cash flow increased, while financing activities saw significant outflows for dividends and share repurchases, partially funded by increased borrowings Cash Flow Summary for Six Months Ended Dec 31 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $31,577 | $24,030 | | Net cash used in investing activities | $(1,314) | $(627) | | Net cash used in financing activities | $(76,123) | $(39,879) | | Net decrease in cash | $(45,860) | $(16,476) | - Major financing activities in the six months ended Dec 31, 2022 included a $170.7 million dividend payment, a $75.0 million accelerated share repurchase, and $185.0 million in net borrowings ($215M proceeds - $30M repayment)[19] Notes to Consolidated Financial Statements The notes detail business operations, revenue disaggregation, significant debt obligations, related-party transactions, and the accelerated share repurchase program - The company operates as a single segment, owning and operating sports teams including the New York Knicks and New York Rangers, with seasonal revenue disproportionately earned in the second and third fiscal quarters[33][36] Disaggregation of Revenue for Six Months Ended Dec 31 (in thousands) | Revenue Source | 2022 | 2021 | | :--- | :--- | :--- | | Event-related | $147,654 | $112,944 | | Media rights | $125,144 | $118,894 | | Sponsorship, signage and suite licenses | $85,835 | $61,704 | | League distributions and other | $19,150 | $14,833 | | Total revenues | $377,783 | $308,375 | - As of December 31, 2022, the company had $260 million outstanding under the 2021 Knicks Revolving Credit Facility and $145 million outstanding under the 2021 Rangers Revolving Credit Facility[84][95] - The Dolan Family Group beneficially owns 100% of Class B Common Stock and approximately 3.2% of Class A Common Stock, representing approximately 71.0% of the aggregate voting power[122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth drivers, increased operating expenses, improved adjusted operating income, liquidity impacts from dividends and share repurchases, and the absence of impairments Results of Operations Revenues increased by 22% driven by ticket, suite, and sponsorship income, while operating expenses rose, resulting in a 43% increase in operating income Key Financial Metrics Comparison (Three Months Ended Dec 31, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $353,694 | $289,581 | $64,113 | 22% | | Direct operating expenses | $225,702 | $192,847 | $32,855 | 17% | | SG&A expenses | $75,636 | $59,600 | $16,036 | 27% | | Operating income | $51,518 | $35,919 | $15,599 | 43% | - The increase in revenues was primarily driven by higher ticket-related revenues, suite license fees, and sponsorship, largely due to the Rangers playing six more regular season home games in the current period compared to the prior year[148][149] - The rise in direct operating expenses was mainly due to increased team personnel compensation related to roster changes for the Knicks and Rangers[153] Reconciliation of Operating Income to Adjusted Operating Income (in thousands) | | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Operating income | $51,518 | $35,919 | | Deferred rent | $12,202 | $11,179 | | Depreciation and amortization | $838 | $1,215 | | Share-based compensation | $11,619 | $7,354 | | Remeasurement of deferred compensation plan liabilities | $449 | — | | Adjusted operating income | $76,626 | $55,667 | Liquidity and Capital Resources The company's liquidity position, significant cash uses for dividends and share repurchases, and funding through increased borrowings are detailed - The company's Board of Directors declared a special dividend of $7.00 per share, resulting in payments of $170.7 million during the period[175] - A $75 million accelerated share repurchase (ASR) program was authorized and initiated in October 2022[176] - To fund the special dividend and ASR, the company borrowed an additional $55 million under the Knicks facility and $160 million under the Rangers facility in October 2022[178] - As of December 31, 2022, the company had approximately $44 million in cash and cash equivalents and $120 million of additional available borrowing capacity[171][173] Critical Accounting Policies Annual impairment tests for goodwill and indefinite-lived intangible assets were conducted qualitatively, concluding no impairments were identified - The annual impairment test for goodwill was conducted as of August 31, using a qualitative assessment, and no impairment was found[187][188] - The annual impairment test for identifiable indefinite-lived intangible assets (primarily sports franchises) was also conducted as of August 31, using a qualitative assessment, and no impairments were identified[189][191] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk from its variable-rate debt, where a 100 basis point increase would raise annual interest expense by $4.1 million - The company has potential interest rate risk exposure from its $405 million in outstanding borrowings under credit facilities, which bear interest at floating rates based on SOFR or other benchmarks[193][194] - A hypothetical 100 basis point increase in interest rates would increase the company's annual interest expense by approximately $4.1 million[194] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were effective[195] - No material changes to the company's internal control over financial reporting occurred during the quarter ended December 31, 2022[196] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various lawsuits, but management anticipates no material adverse effect from their resolution - The company is involved in various lawsuits, but management does not expect the outcomes to have a material adverse effect[199] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company completed a $75 million accelerated share repurchase program, with $185 million remaining available under its existing authorization - On October 28, 2022, the company entered into a $75 million Accelerated Share Repurchase (ASR) agreement with JP Morgan[200] - The ASR concluded on January 31, 2023, with a final average purchase price of $164.31 per share[200][203] - As of December 31, 2022, approximately $185 million remained available for future repurchases under the existing authorization[201] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and iXBRL financial statements - Filed exhibits include Sarbanes-Oxley Act certifications (Sections 302 and 906) and iXBRL data files for the financial statements[205]