8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) August 21, 2019

MSG NETWORKS INC.

(Exact name of registrant as specified in its charter)

Delaware	1-34434	27-0624498
(State or another jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

11 Pennsylvania Plaza, New York, New York	10001
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area (212) 465-6400

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock	MSGN	New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Item 2.02 Results of Operations and Financial Condition.

On August 21, 2019, MSG Networks Inc. (the “Company”) announced its financial results for its fourth quarter and fiscal year ended June 30, 2019. A copy of the press release containing the announcement is included as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Exchange Act.

Item 9.01 Financial Statements and Exhibits.

(d)    Exhibits

99.1 Press Release dated August 21, 2019

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

MSG NETWORKS INC. (Registrant)
By:	/s/ Bret Richter

Name:	Bret Richter
Title:	Executive Vice President, Chief Financial Officer and Treasurer

Dated: August 21, 2019

EX-99.1

Exhibit 99.1

MSG NETWORKS INC. REPORTS

FOURTH QUARTER AND FISCAL 2019 RESULTS

Fiscal 2019 fourth quarter revenues of $168.4 million

Fiscal 2019 fourth quarter operating income of $70.2 million

Fiscal 2019 fourth quarter adjusted operating income of $76.4 million

NEW YORK, N.Y., August 21, 2019 - MSG Networks Inc. (NYSE: MSGN) today reported financial results for the fourth quarter and fiscal year ended June 30, 2019.

For fiscal 2019, MSG Networks Inc. generated revenues of $720.8 million, an increase of 3% as compared with the prior year. In addition, the Company generated operating income of $309.9 million, adjusted operating income of $335.4 million and net income of $186.2 million.⁽¹⁾

For the fiscal 2019 fourth quarter, MSG Networks Inc. generated revenues of $168.4 million, a decrease of 2% as compared with the prior year quarter. In addition, the Company generated operating income of $70.2 million, a decrease of 13%, adjusted operating income of $76.4 million, a decrease of 11%, and net income of $41.2 million, a decrease of 9%, all as compared with the prior year quarter.

President and CEO Andrea Greenberg said, “During fiscal year 2019, we successfully pursued incremental advertising opportunities, enhanced our programming line-up to broaden our appeal, and renewed several affiliate agreements, including one with a major distributor. While the media landscape is clearly evolving, as we look ahead, we remain firm believers in the value of live sports content and see continued opportunities to create long-term value for shareholders.”

Fiscal Year 2019 Fourth Quarter Results

(In thousands, except per share data)

	Three Months Ended
	June 30,
	2019
Revenues	$	168,362
Operating income		70,207
Adjusted operating income		76,384
Net Income		41,179
Diluted EPS	$	0.54

⁽¹⁾  See page 3 of this earnings release for the definition of adjusted operating income included in the discussion of non-GAAP financial measures.

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Summary of Reported Fiscal 2019 Fourth Quarter Results from Operations

Fiscal 2019 fourth quarter total revenues of $168.4 million decreased 2%, or $3.0 million, as compared with the prior year period. Affiliation fee revenue decreased $3.3 million, primarily due to the impact of a decrease in subscribers of more than 6.5% and, to a lesser extent, the absence of a favorable $1.2 million affiliate adjustment recorded in the prior year quarter, partially offset by the impact of higher affiliation rates.

Advertising revenue increased $0.9 million, as compared with the prior year period, primarily due to higher sales from the telecast of live professional sports programming (including playoff games) and, to a lesser extent, increased sales from the Company’s branded content initiatives, partially offset by a lower net decrease in deferred revenue related to ratings guarantees. Other revenues decreased $0.6 million as compared with the prior year period, primarily due to the absence in the current quarter of $0.8 million in fees related to Fuse Media.

Direct operating expenses of $70.1 million increased 2%, or $1.3 million, as compared with the prior year quarter. The increase was primarily due to higher rights fees expense, mainly a result of annual contractual rate increases. This was partially offset by a decrease in other programming-related costs.

Selling, general and administrative expenses of $26.3 million increased 33%, or $6.5 million, as compared with the prior year quarter. This increase reflects $3.6 million in expenses incurred in the current year quarter which are not indicative of the Company’s core expense base, as well as higher advertising and marketing costs and, to a lesser extent, higher employee compensation and related benefits (including share-based compensation expense).

Operating income of $70.2 million decreased 13%, or $10.4 million, as compared with the prior year quarter, primarily due to the increase in selling, general and administrative expenses (including share-based compensation expense) and direct operating expenses and, to a lesser extent, the decrease in revenues.

Adjusted operating income of $76.4 million decreased 11%, or $9.8 million, as compared with the prior year quarter, primarily due to higher selling, general and administrative expenses (excluding share-based compensation expense) and direct operating expenses and, to a lesser extent, the decrease in revenues. Excluding the impact of the $1.2 million affiliate adjustment, the absence of $0.8 million in Fuse Media fees, and the $3.6 million in expenses that are not indicative of the Company’s core expense base, fiscal 2019 fourth quarter adjusted operating income would have decreased by $4.2 million, or 5%, as compared with the prior year quarter.

About MSG Networks Inc.

MSG Networks Inc., a pioneer in sports media, owns and operates two award-winning regional sports and entertainment networks and a companion streaming service that serve the nation’s number one media market, the New York DMA, as well as other portions of New York, New Jersey, Connecticut and Pennsylvania. The networks feature a wide range of compelling sports content, including exclusive live local games and other programming of the New York Knicks, New York Rangers, New York Islanders, New Jersey Devils and Buffalo Sabres, as well as significant coverage of the New York Giants and Buffalo Bills. This content, in addition to a diverse array of other sporting events and critically acclaimed original programming, has established MSG Networks as the gold standard in regional sports.

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Non-GAAP Financial Measures

We define adjusted operating income, which is a non-GAAP financial measure, as operating income before 1) depreciation, amortization and impairments of property and equipment and intangible assets, 2) share-based compensation expense or benefit, 3) restructuring charges or credits and 4) gains or losses on sales or dispositions of businesses. Because it is based upon operating income, adjusted operating income also excludes interest expense (including cash interest expense) and other non-operating income and expense items. We believe that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the Company without regard to the settlement of an obligation that is not expected to be made in cash.

We believe adjusted operating income is an appropriate measure for evaluating the operating performance of our Company. Adjusted operating income and similar measures with similar titles are common performance measures used by investors and analysts to analyze our performance. Internally, we use revenues and adjusted operating income measures as the most important indicators of our business performance, and evaluate management’s effectiveness with specific reference to these indicators. Adjusted operating income should be viewed as a supplement to and not a substitute for operating income, net income, cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with U.S. generally accepted accounting principles (“GAAP”). Since adjusted operating income is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. For a reconciliation of operating income to adjusted operating income, please see page 6 of this release.

The Company defines Free Cash Flow (“Free Cash Flow”), which is a non-GAAP financial measure, as net cash provided by operating activities less capital expenditures, both of which are reported in our Consolidated Statement of Cash Flows. The Company believes the most comparable GAAP financial measure is net cash provided by operating activities. The Company believes that Free Cash Flow is useful as an indicator of its overall ability to generate liquidity, as the amount of Free Cash Flow generated in any period is representative of cash that is generated for debt repayment, investment, and other discretionary and non-discretionary cash uses. The Company also believes that Free Cash Flow is one of several benchmarks used by analysts and investors for comparison of the Company’s generation of liquidity with other companies in the industry, although the Company’s measure of Free Cash Flow may not be directly comparable to similar measures reported by other companies. For a reconciliation of Free Cash Flow to net cash provided by operating activities, please see page 8 of this release.

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Forward Looking Statements

This press release may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties, and that actual results, developments and events may differ materially from those in the forward-looking statements as a result of various factors, including financial community perceptions of the Company and its business, operations, financial condition and the industry in which it operates and the factors described in the Company’s filings with the Securities and Exchange Commission, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained therein. The Company disclaims any obligation to update any forward-looking statements contained herein.

# # #

Contacts:

Kimberly Kerns	Ari Danes, CFA
Communications	Investor Relations
(212) 465-6442	(212) 465-6072

Conference Call Information:

The conference call will be Webcast live today at 10:00 a.m. ET at www.msgnetworks.com

Conference call dial-in number is 877-883-0832 / Conference ID Number 4559683

Conference call replay number is 855-859-2056 / Conference ID Number 4559683 until August 28, 2019

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MSG NETWORKS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,						Twelve Months Ended June 30,
	2019			2018			2019			2018
Revenues	$	168,362		$	171,405		$	720,845		$	696,651
Direct operating expenses		70,064			68,767			300,274			291,082
Selling, general and administrative expenses		26,343			19,818			103,274			83,073
Depreciation and amortization		1,748			2,185			7,398			9,338
Operating income		70,207			80,635			309,899			313,158
Other income (expense):
Interest income		1,772			1,316			6,343			4,388
Interest expense		(12,316	)		(11,495	)		(47,589	)		(43,312	)
Other components of net periodic benefit cost		1,475			(489	)		244			(1,710	)
		(9,069	)		(10,668	)		(41,002	)		(40,634	)
Income from operations before income taxes		61,138			69,967			268,897			272,524
Income tax benefit (expense)		(19,959	)		(24,765	)		(82,715	)		16,338
Net income	$	41,179		$	45,202		$	186,182		$	288,862
Earnings per share:
Basic
Net income		0.55			0.60			2.48			3.83
Diluted
Net income		0.54			0.60			2.46			3.81
Weighted-average number of common shares outstanding:
Basic		75,152			75,243			75,069			75,381
Diluted		75,764			75,734			75,731			75,820

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MSG NETWORKS INC.

ADJUSTMENTS TO RECONCILE OPERATING INCOME

TO ADJUSTED OPERATING INCOME

(In thousands)

The following is a description of the adjustments to operating income in arriving at adjusted operating income as described in this earnings release:

• Share-based compensation expense. This adjustment eliminates the compensation expense relating to restricted stock units and stock options granted under our employee stock plan and non-employee director stock plan in all periods.

• Depreciation and amortization. This adjustment eliminates depreciation, amortization and impairments of property and equipment and intangible assets in all periods.

	Three Months Ended June 30,				Twelve Months Ended June 30,
	2019		2018		2019		2018
Operating income	$	70,207	$	80,635	$	309,899	$	313,158
Share-based compensation expense		4,429		3,398		18,087		13,979
Depreciation and amortization		1,748		2,185		7,398		9,338
Adjusted operating income	$	76,384	$	86,218	$	335,384	$	336,475

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MSG NETWORKS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

	June 30, 2019			June 30, 2018
ASSETS
Current Assets:
Cash and cash equivalents	$	226,423		$	205,343
Accounts receivable, net		108,349			110,657
Related party receivables, net		16,091			12,100
Prepaid income taxes		1,968			1,134
Prepaid expenses		2,003			4,489
Other current assets		5,286			4,719
Total current assets		360,120			338,442
Property and equipment, net		9,302			10,029
Amortizable intangible assets, net		33,743			37,203
Goodwill		424,508			424,508
Other assets		39,226			39,430
Total assets	$	866,899		$	849,612
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current Liabilities:
Accounts payable	$	907		$	1,460
Related party payables		941			785
Current portion of long-term debt		111,789			72,414
Income taxes payable		—			8,460
Accrued liabilities:
Employee related costs		15,466			15,342
Other accrued liabilities		13,898			8,129
Deferred revenue		185			4,626
Total current liabilities		143,186			111,216
Long-term debt, net of current portion		906,228			1,118,017
Defined benefit and other postretirement obligations		25,834			28,170
Other employee related costs		4,713			4,560
Other liabilities		2,310			3,974
Deferred tax liability		243,396			241,417
Total liabilities		1,325,667			1,507,354
Commitments and contingencies
Stockholders’ Deficiency:
Class A Common Stock, par value $0.01, 360,000 shares authorized; 61,287 and 61,017 shares outstanding as of June 30, 2019 and 2018, respectively		643			643
Class B Common Stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of June 30, 2019 and 2018		136			136
Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding		—			—
Additional paid-in capital		9,916			4,067
Treasury stock, at cost, 2,972 and 3,242 shares as of June 30, 2019 and 2018, respectively		(179,561	)		(195,881	)
Accumulated deficit		(282,414	)		(460,007	)
Accumulated other comprehensive loss		(7,488	)		(6,700	)
Total stockholders’ deficiency		(458,768	)		(657,742	)
Total liabilities and stockholders’ deficiency	$	866,899		$	849,612

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MSG NETWORKS INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(Dollars in thousands)

(Unaudited)

Summary Data from the Statements of Cash Flows

	Twelve Months Ended June 30,
	2019			2018
Net cash provided by operating activities	$	205,959		$	210,610
Net cash used in investing activities		(4,879	)		(3,724	)
Net cash used in financing activities		(180,000	)		(142,630	)
Net increase in cash and cash equivalents		21,080			64,256
Cash and cash equivalents at beginning of period		205,343			141,087
Cash and cash equivalents at end of period	$	226,423		$	205,343

Free Cash Flow

	Twelve Months Ended June 30,
	2019			2018
Net cash provided by operating activities	$	205,959		$	210,610
Less: Capital expenditures		(2,879	)		(3,724	)
Free cash flow	$	203,080		$	206,886

Capitalization

	June 30, 2019
Cash and cash equivalents	$	226,423
Credit facility debt(a)		1,021,250
Net debt	$	794,827
Reconciliation of operating income to AOI for trailing twelve-month period(b)
Operating Income	$	309,899
Share-based compensation expense		18,087
Depreciation and amortization		7,398
Adjusted operating income	$	335,384
Leverage ratio(c)		2.4x

^(a)  Represents aggregate principal amount of the debt outstanding.

^(b)  Represents reported adjusted operating income for the trailing twelve months.

^(c)  Represents net debt divided by annualized adjusted operating income, which differs from the covenant calculation contained in the Company’s credit facility.

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