MSG 2014 4th Quarter and Fiscal Review

MSG has delivered good Q4 results. Revenue is up 10% to $371 million vs Q4 2014, fueled by a strong playoff performance by the NY Rangers and a 62% increase in revenue for the Entertainment division. MSG Media was flat for the quarter and the year, primarily due to the Knicks absence from the NBA playoffs. Revenue for the year is up 16% and hits all-time for MSG. The results helped push MSG’s stock price to a 52-week high.

If you go down the income statement, it starts getting a little messy. Operating income needs to be adjusted for a few one-time expenses (NHL compliance buyout of Brad Richards, management change, delayed in one of their large scale theatrical show). One of the key metric, AOCF, stood at $55 million, down 40% compared to Q4 2013. However, excluding the NHL compliance buyout, AOCF would have been $84.6 million. Basically, higher operating expenses masked an increase in revenue.

The Rangers are expected to have another good season. If the Knicks can make the playoff that would push the stock further up (more advertising, ticket sales, merchandise etc…)

In a conference call with analysts, new CEO Tad Smith was reluctant to talk about details regarding the future use of free cash flow. Smith is really good at dodging questions but the one the one thing he made it clear that they want to own more content and to monetize it. It’s not a surprise, but I expect more acquisitions before dividends and share buybacks. I would prefer the latter.

Ted Smith on free cash flow:
“Since I joined the company we’ve been conducting a strategic evaluation to determine where we should focus our efforts to drive continued growth for shareholders….We believe in the importance of owning content. Our ownership of sports franchises, live entertainment productions, and original programming allows us to benefit from increases in asset value, gives us control over how to manage our brands, and creates flexibility to pursue new ways to monetize our content. In addition, we are exploring ways to extend how our customers can consume our content…”

It’s also good to note that Fiscal 2015 will be the first full year in a long time where there’s no renovation at the MSG arena and that the arena is open year-round for business.

With no debt, completed renovations, lower CAPEX the sale of Fuse, a booked Forum, a competitive NY Rangers team, the restructuration of the Knicks, it will be interesting what MSG do will all that free cash flow. MSG doesn’t issue guidance, but some analysts suggest MSG would generate between $200 million and $250 million in free cash flow in fiscal 2015.

MSG RESULTS - Q4 and Fiscal 2014

MSG RESULTS - Q4 and Fiscal 2014

Links & Sources
Q4 2014 Madison Square Garden Earnings Conference call
Conference Call Script
Q4 and FY2014 Results

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