Madison Square Garden Entertainment Corp. 2026 Q4 Earnings Call

Good morning, and welcome to MSG Entertainment's fiscal 2026 fourth quarter and year-end 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 Investors 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 4 and 5 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. With that, I'll now turn the call over to David.

Thank you, Ari, and good morning, everyone. Fiscal 2026 was an outstanding year for our company, with full-year revenues of more than $1 billion and adjusted operating income of $262 million. This represented increases of 13% and 18% respectively, driven by growth across all key areas of our business. In addition, we continued to execute on one of our core capital allocation priorities during the year, repurchasing approximately $25 million of our Class A common stock. In June, we announced the proposed transfer of the Infosys Theater at Madison Square Garden as part of the Penn Station redevelopment project, a transaction that, if finalized, would further our goal of creating long-term shareholder value.

As we head into fiscal 2027, we look to build on our operating momentum with a continued focus on growing the number of events across our venues, increasing per-event profitability, delivering another record-setting year for the Christmas Spectacular, and advancing our sponsorship and premium hospitality businesses. We also anticipate strong ongoing demand from consumers and partners alike, which we believe sets us up for another year of solid growth in revenues and AOI in fiscal 2027. Let's now review some key operational highlights. During fiscal 2026, we hosted approximately 6.4 million guests at nearly 960 live events. That included a strong fiscal fourth quarter, where we more than doubled the number of concerts at The Garden year-over-year, reflecting our efforts to drive utilization within the NBA playoff window. In terms of consumer demand, the majority of our concerts were again sold out during the quarter.

Looking ahead to fiscal 2027, we expect to grow the number of events at our venues year-over-year as we host a wide range of bookings across concerts, special events, family shows, and marquee sports. This includes a number of high-profile upcoming events, such as Harry Styles' residency with 30 dates from August through October and the return of the NCAA Men's Basketball East Regional to The Garden in March. Turning to the Christmas Spectacular production, during fiscal 2026, across 215 paid performances, we sold over 1.2 million tickets, the highest attendance in 25 years, leading to another record-setting year for the production with approximately $195 million in revenue. We are currently on sale with 230 shows for the 2026 holiday season, a new high in terms of number of performances in a year.

This year's show will feature the addition of a new Rockette scene as well as new immersive technology that will give audiences different perspectives of the production as we continue innovating going into our 93rd season. In terms of our agreements with MSG Sports, the Knicks and Rangers completed their 2025-2026 regular seasons during the quarter, with the Knicks advancing to the NBA playoffs and ultimately going on to win the NBA championship. For both our fourth quarter and full year, we saw robust growth on a per-game basis in our Knicks and Rangers shared revenue streams, including suites and food, beverage, and merchandise, which all benefit from the Knicks' postseason run. We expect this momentum to carry forward into fiscal 2027.

In addition, the cash component of the arena license fees will be approximately $47 million in fiscal 2027 and will continue to grow 3% each year through fiscal 2055. On the marketing partnerships front, we capitalized on several notable opportunities in fiscal 2026. We welcome new partners, including most recently a multiyear deal with Calci, while also reaching multiyear renewals with Lexus, Anheuser-Busch, and Infosys. In terms of premium hospitality, we again saw strong new sales and renewal activity for suites at The Garden. That included a number of Lexus-level suites that were renovated at the start of the fiscal year. We're continuing to build on this successful initiative by renovating several more suites to drive incremental revenue in fiscal 2027. As we look to the next fiscal year, we expect the positive momentum in both marketing partnerships and premium hospitality to continue.

Turning to the Penn Station redevelopment, in May, Amtrak selected Penn Transformation Partners, led by Halmar International and Skanska as the master developer team to redevelop Penn Station. We then announced in June that we had entered into a non-binding MOU with the master developer to transfer the Infosys Theater at Madison Square Garden. Our proposed agreement will also acknowledge that the arena will remain fully operational during the redevelopment. We believe the potential transaction, which remains subject to negotiation and definitive documents, makes strategic and financial sense for the company as we look to create long-term value for our shareholders. We look forward to working with the master developer team, and we will keep you updated as we have more to share. Now let us turn to our financial results. For the fiscal 2026 fourth quarter, revenues were $196.3 million, up 27% 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 number of concerts at The Garden during the quarter. In addition, we benefited from higher revenues subject to the sharing of economics with MSG Sports, including the benefit of the Knicks championship run in areas such as merchandise. Revenues from venue-related sponsorships, signage, and suite license fees also grew year-over-year. These increases were partially offset by fewer concerts at our theaters. Fourth quarter adjusted operating income of $18.6 million increased $19.9 million from an adjusted operating loss of $1.3 million in the prior year quarter. This significant year-over-year growth primarily reflects the robust increase in revenues, partially offset by higher direct operating and SG&A expenses.

Turning to our balance sheet, as of June 30, we had $294 million of unrestricted cash, while our debt balance was approximately $579 million. This cash balance includes a significant amount due to promoters, which reflects the robust concert activity ahead at our venues led by The Garden. With respect to fiscal 2027, we anticipate generating 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 2026. 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 our cash due to promoters balance as a result of the timing of events.

As I touched on earlier, we repurchased approximately 623,000 shares of our Class A common stock for $25 million during fiscal 2026. Since our spinoff in 2023, we have repurchased approximately 6.1 million shares in total for $205 million. Going forward, we will continue to explore ways to opportunistically return capital to shareholders. In summary, we saw strong demand across our business in fiscal 2026. We see this momentum continuing in fiscal 2027 and remain confident in our ability to deliver long-term shareholder value. I will now turn the call back over to Ari.

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