Release Date: August 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Madison Square Garden Entertainment Corp (MSGE, Financial) reported revenues of $959 million and adjusted operating income of $211.5 million for fiscal 2024, exceeding the high end of their guidance ranges.
- The company hosted approximately 6.3 million guests at over 960 live events, showing robust growth in the number of events held at their venues.
- The Christmas Spectacular production set a new record with nearly $150 million in revenue from over 1 million tickets sold across 193 performances.
- Strong demand for premium hospitality offerings, including new suite products, is expected to drive incremental revenue in fiscal 2025.
- The company anticipates a high single to low double digit percentage increase in adjusted operating income for fiscal 2025, driven by increased venue utilization and growing per event profitability.
Negative Points
- The company faces a tough comparison year-over-year due to the end of Billy Joel's residency, which will result in a revenue headwind as promoted deals are replaced by straight rentals.
- There is a headwind around corporate overhead due to a new office lease, which will create incremental SG&A expenses, particularly in the first half of fiscal 2025.
- The company's debt balance stands at approximately $626 million, with ongoing net interest payments related to their National Properties debt totaling $51 million in fiscal 2024.
- The fiscal fourth quarter results are not fully comparable on a year-over-year basis due to the company's spinoff from Sphere Entertainment, affecting the comparability of SG&A expenses.
- Despite strong performance, the company remains cautious about potential macroeconomic volatility and its impact on consumer demand for live entertainment experiences.
Q & A Highlights
Q: Can you provide an update on advanced ticket sales for the Christmas Spectacular and discuss the overall growth opportunities for the production?
A: We are currently on sale with 197 shows, up from 193 last year. Advanced ticket revenue is up about 18% compared to the same point last year, driven by both rate and volume. We see growth opportunities in show count, pricing, and sell-through. We have room to add more shows based on demand, and our ticket yields are improving. Last year's sell-through was around 90%, up from mid-80s the year prior, but still below peak seasons.
Q: What are the biggest drivers of margin expansion ahead for your business, and how do you see operating leverage flowing through in 2025?
A: We anticipate margin expansion in fiscal '25, driven by high-margin revenue streams such as bookings, the Christmas show, premium marketing partnerships, and shared revenue streams with MSG Sports. Despite some headwinds like corporate overhead, we expect to see growth in AOI margins. Our infrastructure is adequate to support this growth, and we have identified cost reduction opportunities.
Q: How much of a benefit did you see from the Knicks and Rangers postseason runs this quarter, and what could this mean for 2025?
A: Playoff games are very profitable and largely incremental. The food and beverage revenues from playoff games were a significant driver of the overall increase in the fourth quarter. The success of the Knicks and Rangers creates momentum into fiscal '25, benefiting shared revenue streams like food, beverage, and merchandise.
Q: How is booking activity pacing for fiscal '25, and what is the visibility on this?
A: We are pacing flat to the prior year, despite a tough comp with Billy Joel's residency. For the first quarter, we expect to be up modestly in the number of events. The second and third quarters are pacing on par with last year, and we have a strong pipeline for the fourth quarter. Overall, we expect to increase the number of events across our venues in fiscal '25.
Q: Can you elaborate on the opportunity for venue utilization improvement?
A: Utilization was strong in fiscal '24, with 250 events at the Garden and 520 events at our theaters. We see ample opportunity for growth, driven by residencies, multi-night runs, special events, and Marquee Sports. We are not up against any ceilings and expect to continue increasing utilization year over year.
Q: How should we think about the renewal cadence for sponsorships and premium marketing opportunities going forward?
A: Fiscal '25 is a strong renewal year with some large renewals, creating opportunities for upselling or new partnerships. We are bullish on sponsorships, benefiting from the success of the Knicks and Rangers and the high profile of our venues. We have seen proactive early renewals from some partners.
Q: How should we think about revenue growth in relation to the high single to low double-digit AOI guidance for fiscal '25?
A: We expect broad-based revenue growth across bookings, the Christmas Spectacular, premium hospitality, and sponsorships. Despite a revenue headwind from the Billy Joel deal, we anticipate growth in the number of events and higher average per-show revenue. Shared revenue streams with the Knicks and Rangers should also contribute to growth.
Q: Have you seen any signs of consumer weakening in current or forward bookings or per-caps?
A: We have not seen any slowdown in consumer demand. Advanced ticket sales for the Christmas Spectacular are up 18%, and sell-through rates for bookings are on par or better than last year. Per-cap spending on food, beverage, and merchandise at concerts was up double digits in the fourth quarter.
Q: Any updates on capital allocation and conditions for resuming buybacks?
A: We ended the year with $33 million in unrestricted cash and expect substantial free cash flow in fiscal '25. We will evaluate returning capital to shareholders and debt paydown as cash builds up. We have $110 million remaining under our current share repurchase authorization. We will continue mandatory quarterly principal payments on our debt and focus on high ROI investments.
Q: How do you see the mix of events changing between concerts or theaters versus the Garden in fiscal '25, and what might this mean for margins?
A: We expect event growth across concerts, family shows, special events, and Marquee Sports. We are pacing well to increase the number of concerts and have announced 64 holiday shows at our theaters. Special events and Marquee Sports are also expected to grow. Overall, we are positioned to grow the event count in fiscal '25, which should positively impact margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
