Madison Square Garden Entertainment Corp. (MSGE) Q1 2027 Earnings Call Transcript

Good morning. Thank you for standing by, and welcome to the Madison Square Garden Entertainment Corp. Fiscal 2027 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. I would now like to turn the call over to Ari Daines, Senior Vice President, Investor Relations and Treasury. Ari, please go ahead.

Thank you, and welcome to MSG Entertainment's Fiscal 2027 First Quarter Earnings Conference Call. On today's call, David Collins, our EVP and Chief Financial Officer, will provide an update on the company's operations and review our financial results for the period. After our prepared remarks, we'll 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 forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Please refer to the company's filings with the SEC for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. On pages four and five of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income, or AOI, a non-GAAP financial measure. And with that, I'll turn the call over to David.

Thank you, Ari, and good morning, everyone. I'm pleased to report that we're off to a strong start in fiscal 2027. For our first quarter, we generated revenues of $217 million and adjusted operating income of $34 million. These results represent significant year-over-year increases as we continue to benefit from robust, ongoing demand for our offerings. This past quarter, that strength was most notably reflected in our bookings business, and looking ahead, we anticipate that demand will also drive another record-setting run for the Christmas Spectacular, along with robust growth in revenue and AOI for the full fiscal year 27. That confidence in our outlook for the business also led us to repurchase approximately $25 million of our Class A common stock this past quarter as we continue to look for opportunities to return capital to our shareholders. Let's now review some key operational highlights. During the quarter, we hosted over 1.3 million guests across 160 live events. This reflected broad-based booking strength from concerts, Performing art shows to special events. That included the start of Harry Styles' 30-night residency during the quarter, which helped us deliver a new record for the number of concerts in any quarter at the Garden. It also reflected a number of other unique events across our venues. That included Les Mis, Multinight Run, and the return of the New York Philharmonic at Radio City Music Hall, both utilizing the venue's groundbreaking audio technology, Sphere, Immersive Sound. In terms of consumer demand, the significant majority of our concerts were again sold out during the quarter. In addition, combined food, beverage, and merchandise per cap spending at concerts was up a double-digit percentage year-over-year. Looking ahead, we remain on track to grow the total number of events at our venues in fiscal 27. This includes our expectations for growth in concerts this year at the Garden and our theaters. With regards to the Knicks and Rangers, the team began their 26-27 regular seasons at the Garden last month, with the Knicks returning as defending NBA champions. I would also note that last week the Rangers business became a standalone public company after completing a spinoff from the Knicks business. The spinoff did not impact our arena license agreements with either team. This fiscal year, the cash component of the arena license fees from those agreements will be $47 million and will continue to grow at 3% each year through fiscal 2055. And while still early, we are seeing positive momentum across our share of food, beverage, and merchandise sales at Knicks and Rangers home games. Turning to the Christmas spectacular, the 93rd holiday season kicks off later today with 231 shows planned for this year's run. This represents the most shows ever in a season and compares to 215 performances last year. This year's production features several new elements, including the addition of a new Rockettes number. It also integrates multiple onstage cameras to give audiences different perspectives of the Rockettes in real time, as we leverage immersive technology to continue enhancing the experience. Based on the demand we are seeing, we anticipate welcoming over 1.2 million guests to the Christmas Spectacular this holiday season. And we are confident we are on track to deliver another year of record revenues for the production. Turning to marketing partnerships, we are seeing the positive momentum from Fiscal 26 carry over into this new fiscal year. And in terms of premium hospitality, we are again seeing strong new sales and renewal activity for suites at the Garden. We also recently completed the renovation of several event and Lexus level suites and are benefiting from the incremental revenue driven by these enhanced spaces. Lastly, on the Penn Station redevelopment, we continue to work towards definitive agreements with the master developer on the potential transfer of the Infosys Theater at Madison Square Garden as part of their plans. We will keep you updated as we have more to share. Now, let's turn to our financial results. For the fiscal 27 first quarter, revenues were $217.1 million, up 37% year-over-year. This primarily reflected an increase in revenues from entertainment offerings and, to a lesser extent, higher food, beverage, and merchandise revenues. The increase in revenues from entertainment offerings, as well as food, beverage, and merchandise, primarily reflected the increase in the number of concerts at the Garden during the quarter, as well as higher per-concert revenues. In addition, revenues from other live entertainment and sporting events increased year over year, primarily due to an increase in the number of events at the company's venues and higher per event revenue. These increases were partially offset by fewer concerts at our theaters. First quarter adjusted operating income of $34.3 million increased $27.2 million as compared to the prior year quarter. This primarily reflects the robust increase in revenues, partially offset by higher direct operating and SG&A expenses. Turning to our balance sheet, as of September 30th, we had $194 million of unrestricted cash, while our debt balance was approximately $571 million. With respect to fiscal 27, we continue to expect to generate significant free cash flow on an underlying basis. This will primarily be driven by our substantial and growing adjusted operating income, partially offset by ongoing net interest payments related to our credit facilities, which totaled $32 million in fiscal 26, our status as a full cash taxpayer, capital expenditures, which will reflect some incremental spend related to technology investments across the company, and select suite renovations at the garden. And the timing of working capital, including the partial reversal of the balance of our cash due to promoters due to the timing of events. You can see the start of that reversal in today's reported cash balance. As I mentioned earlier during the quarter, we repurchased approximately 314,000 shares of our Class A common stock for $25 million. Since our spinoff in 2023, we have repurchased approximately 6.4 million shares for $230 million. And going forward, we'll continue to explore ways to opportunistically return capital to shareholders. So in summary, we are off to a great start this fiscal year. We remain confident in both the near- and long-term outlook for our business and our ability to drive shareholder value. Before I turn the call back to Ari, I would like to take a moment to congratulate Josephine Vaccarello, who was recently named president of MSG Entertainment. Josephine, who has been with the company for nearly 30 years and previously served as executive vice president of Live, now oversees strategy and operations of multiple areas of our business. We look forward to having Josephine join us on future earnings calls. With that, I'll now turn the call back over to Ari.

Thanks, David. Operator, can we now open up the call for questions?

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Peter Henderson with Bank of America. Your line is open. Please go ahead.

Good morning, and thank you for taking the question. So with the Christmas Spectacular having its first show later today, as you mentioned, could you provide an update on sell-through trends and pricing, and then just any thoughts you have on how the season will progress? Thank you.

Yeah, good morning, Peter. Great. Thanks for the question. I mean, I have to say this year's production is seeing strong demand, and we are pleased to say that, you know, we expect to again host over 1.2 million guests at the show this holiday season. Advanced ticket revenue is currently pacing up as compared to the same time last year. Also, in terms of show count, we have 231 planned performances as compared to 215 last year, you know, and that equates to a mid-single-digit percent increase in show count for this year. In addition, the Christmas Spectacular continues to be a premium entertainment product and is still priced well below average ticket prices for comparable entertainment options. You know, with that said, you know, we continue to strategically manage, market, and price our ticket inventory to make sure that we maximize revenue for every show. I would again note that this year's show will include a new rocket scene as well as new immersive onstage camera technology that will... You know, it will give audiences a different perspective on the production. In addition, this will be the second season that the production is utilizing Radio City's groundbreaking audio technology, what we call Sphere Immersive Sound. You know, we believe that our continued innovation helps to drive increased in the show, and, you know, with that said, we remain... Confident in our ability to deliver strong growth in this business for this fiscal year. Thank you.

Thanks, Peter. We'll take the next caller.

Your next question comes from the line of Cameron Manson Perrone with Morgan Stanley. Your line is open. Please go ahead.

Thanks. Morning. I wanted to follow up on the concert outlook, specifically any color you could share regarding bookings pacing across the The venue portfolio through the remainder of Fiscal 27. And then, relatedly, you know, the night splits, I think, were pretty equal from the Harry Styles residency between Fiscal 1Q, Fiscal 2Q. Just any color you'd be willing to provide on how that run specifically contributed to the concert strength in the quarter would be appreciated. Thanks.

Sure, Cameron, thanks. You know, as far as the concert bookings, as I mentioned earlier, We had a robust fiscal first quarter with the Garden shattering our record for the number of concerts in any quarter at the venue. You know, looking ahead, we now have, we've slightly exceeded our concert booking goal at the Garden for this fiscal year, and we are over 80% of the way there across our venue portfolios. And, you know, our goal does contemplate growth at both the Garden and our theater. In the terms of the upcoming quarters, starting with the Garden, we continue to expect to be up in the December quarter in terms of the number of concerts, but we are currently pacing down in the back half of the year. However, we view that as just timing based on where concerts are landing during the fiscal year. At the theaters, We do continue to expect to be down in terms of the number of concerts in the December quarter. However, we are currently pacing up for the second half of fiscal 27. So I would say all in all, we feel good about our start and remain confident that we're on track for growth at both the Garden and the theaters for this year. As far as your question on the Harry Styles run, let me just say, Obviously, we were pleased to have hosted Harry Styles for his record-setting 30-night run, which ended just this past weekend. That run took place every Wednesday, Friday, and Saturday night at the Garden for 10 straight weeks. 16 of those shows fell in our first fiscal quarter, so a little over half of the residency. You know, in terms, you know, your question on incrementality. While it's difficult to answer that question with precision, we believe that the garden did deliver robust growth in the number of concerts year over year on an underlying basis. Obviously, Harry Styles' run was an additional positive on top of that underlying strength, but we do believe the garden delivered robust growth. So, you know, I would say the same also goes from a financial standpoint. So, you know, it's difficult to quantify, but I hope that's helpful.

That is helpful. Thank you.

Your next question comes from the line of David Karnofsky with J.P. Morgan. Your line is open. Please go ahead.

Hey, thank you. Just regarding emphasis theater, on a prior earnings call, you talked about potentially shielding tax gains with reinvestment. You talk a little bit more to the mechanics here. So, for instance, is there a time limit on when you'd have to invest? Do you have to use the full proceeds? And does that specifically have to be in New York City? Just any additional cover would be great. Thanks.

Yeah, great, David. Thanks. Good question. You know, as I had mentioned earlier, we are We're currently working through the definitive documents with the master developer team, and, you know, as of now, no decisions have been made in terms of the use of proceeds should the transfer actually be completed. You know, that said, we remain mindful of the potential tax implications related to the transfer of the emphasis theater. You know, as you alluded to in your question, you know, the primary way. For us to minimize the tax leakage would be to reinvest all of the potential proceeds in another domestic venue. So I would say that we are not limited to just the New York City market. However, I would also say that, you know, New York City is our core operating market. And, you know, with us having one less theater here, we would definitely most likely look to the New York market first. In terms of any time limit that you had mentioned, it would ultimately depend on, you know, how the transfer of the theater ends up being structured. But in any case, we would expect to have ample time to determine, you know, the appropriate path forward. So, you know, we will definitely have more to share with you as we move through the process.

Thank you.

Your next question comes from the line of Stephen Lassick with Goldman Sachs. Your line is open. Please go ahead.

Great. Thank you, David. Curious how you would characterize the pacing of concert sell-through and per cap spending so far this year, and maybe how it relates to what you saw this time last year. Just to be curious if you're seeing any signs of the broader macro volatility showing up in consumer demand or perhaps even audience demographic shifts. Thank you.

Great. Thanks, Stephen. You know, as always, we are certainly keeping a close eye on the macro environment, you know, especially given the macro volatility that you mentioned. You know, but I have to say, you know, we continue to see strong consumer demand. You know, there are a number of factors that I can share to support this view. You know, as I mentioned earlier, the significant majority of concerts at our venues were, again, sold out this past quarter. In addition, throughout the first fiscal quarter, we saw concerts perform better than we initially expected. We also saw combined F&B and merchandise per cap spending at concerts up double-digit percentages year over year. There are also a number of upcoming... Acts across our venues, that we've added additional shows due to strong demand, and when we look at the next two quarters, the sell-through rate for concerts is currently pacing ahead of where it was at the same time last year. You know, and lastly, you also heard me mention that we're seeing positive momentum in marketing partnerships and premium hospitality, and that includes strong new sales and renewals for suites. In fact, Our renewal rate for suite licenses this fiscal year is over 95%. So given all this, you know, even though we're paying close attention to the macro environment, you know, we continue to see strong demand from both consumers and our corporate clientele.

Great. Thank you.

Your next question comes from the line of David Joyce with Seaport Research Partners. Your line is open. Please go ahead.

Thank you. I was wondering if you could please provide some more color on your outlook for the bookings growth by category and anything that we can be looking forward to for additional residencies. Just more color about the next year. Thanks.

Sure. Thanks, David. Well, let me start by saying that our financial outlook for our bookings business this year is stronger than when we last spoke to you in August. Underlying that statement is our continued expectation for growth in the number of booking events in fiscal 27. Starting with our concert category, as we've discussed, we anticipate another year of concert growth at the Garden, as well as increases across our theaters, and we have continued to see concerts play off better than expected. In terms of special events, we are also expecting an increase in the number of events, along with improved per-event economics. In terms of our family and performing arts category, we are now anticipating fewer shows than we initially contemplated. However, we are now expecting more marquee sports events than before, and that puts us on a path towards robust growth in that category. And obviously, that includes... The NCAA regional tournament at the Garden in March. So, overall, we feel good about the outlook for our bookings business in fiscal 27.

Your next question comes from the line of Joe Stoff with Susquehanna. Your line is open. Please go ahead.

Thank you. David, maybe a finer point to that last question, and obviously related to others, but... You know, with the Harry Styles Residency done, can you update us really on kind of what the pipeline looks like to replace and or add on, whether it be this fiscal year or next?

Sure, Joe. Thanks. You know, let me just say, you know, we believe that there's a great value in bringing residencies to our venues, and as I've mentioned before, residencies build more of a recurring base of business for us, and they also increase visibility into our forward calendar. So, booking residencies remains a really important area for our booking business, and it is really a key focus of our team. You know, as you know, we have had a number of residencies across our venues in the first half of fiscal 27. Of course, that, you know, that includes Harry Styles' 30 nights at the Garden. We had Bon Jovi and Fish also at the Garden this past summer. We have Joe Hisaishi at Radio City, and Seth Miles and John Oliver, as well as Jerry Seinfeld, have their long-running residencies at the Beacon Theater. So, you know, just to reiterate, you know, we are off to a strong start in terms of concert bookings for Fiscal 27, and while it's early to discuss Fiscal 28 and beyond, Let me just say that we are continuing to have discussions with other artists about future residencies at all of our venues, including the Garden, and we will certainly keep you updated on that progress.

Thanks, Joe. Operator, we have time for one last caller.

Your final question comes from the line of James Callahan with Piper Sandler. Your line is open. Please go ahead.

Hi, thanks for the question here. David, as we move into 2027, how should investors think about free cash flow and therefore return on capital?

Sure, James. Thanks. You know, as I had mentioned earlier, you know, we continue to expect to generate significant free cash flow on an underlying basis in fiscal 27, and that will primarily be driven by our substantial and growing adjusted operating income. In terms of capital allocation, as you've heard us discuss, Before, you know, we have three key priorities. The first is ensuring that we continue to have a strong balance sheet. Second is to ensure we have appropriate flexibility to pursue any compelling opportunities, you know, if and when they arise. And our third priority remains to opportunistically return capital to our shareholders. So if we if we take a look at. A recent buyback, as an example, you saw in this past quarter that our stock price came down significantly, and we took advantage of that opportunity, and we repurchased $25 million of stock in September. You know, and going forward, we will continue to explore ways such as that to, you know, opportunistically return capital to our shareholders.

We have reached the end of the Q&A session. I will now turn the call back to Ari for closing remarks.

Thank you all for joining us. We will speak with you on our next earnings call. Have a good day.

This concludes today's call. Thank you for attending. You may now disconnect.