Good morning. Thank you for standing by and welcome to the Madison Square Garden Entertainment Corp. Fiscal 2023 Third Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers remarks there will be a question-and-answer session. I would now like to turn the call over to Ari Danes, Senior Vice President Investor Relations, Financial Communications and Treasury. Please go ahead.

Thank you. Good morning, and welcome to MSG Entertainment's fiscal 2023 third quarter earnings conference call. On today’s call Dave Byrnes, our EVP and Chief Financial Officer will provide an overview of the business and strategy going forward, as well as financial highlights for the most recent quarter. After our prepared remarks, we will 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. And with that, I’ll now turn the call over to Dave.

Thank you, Ari, and good morning everyone. With the successful completion of our spin-off, last month marked the start of an exciting new chapter for MSG Entertainment. As a pure-play live entertainment company, we are poised to continue benefiting from strong consumer and corporate demand for shared experiences as we leverage the strength of our world-class assets and brands. Our venue portfolio is led by Madison Square Garden, the number 1 grossing venue of its size globally. Over its 143-year history, the Garden has been the setting for exceptional performances and one of a kind moments, which have helped to define sports, entertainment, and culture. It is also home to two of the most recognized sports franchises in the world, the New York Knicks and Rangers. We also own or operate the Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre and the Chicago Theatre. Storage show places with rich histories and regularly ranked among the top grossing venues of their size in the world. Our venues are on track to host nearly 900 events and more than 5 million guests this fiscal year, which is our first full-year of events since the onset of the pandemic. The majority of concerts at our venues, including in our third quarter, continue to sell-out and per cap spending this year is pacing well ahead of last year's results. We also anticipate a solid increase in events in our bookings business for our fourth quarter and while still early, we are currently projecting a double-digit percentage increase in events for fiscal 2024. In addition to our renowned venues, we also feature our wholly-owned production, the Christmas Spectacular Starring the Radio City Rockettes, which several months ago completed its remarkable 89th year. After two seasons impacted by the pandemic, we were…

Thank you, Dave. Operator, can we open up the call for questions, please?

[Operator Instructions] And we have our first question from the line of Brandon Ross from LightShed Partners. Your line is open.

Good morning. Thanks guys for taking the question. Not to state the obvious here, but I think the biggest overhang on your stock the past few weeks has been Sphere's capital needs and the fact that they could potentially sell some of the retained stake to finance that business. If it comes for sale, would you be willing to mitigate the impact by buying some yourself? Especially, I asked that in conjunction with the free cash flow generation that you just spoke to and the buyback authorization. Thanks.

Sure. Thanks, Brandon. The short answer to your question is, yes. We're well aware that our stock has been volatile recently after initially performing well right after the spin. And as I mentioned earlier, opportunistically returning capital to shareholders is one of our priorities. That's why we put a $250 million share repurchase authorization in place at the time of the spin. So, if an opportunity to efficiently repurchase a sizable amount of our stock presented itself, of course, we would seriously look at it. Another thing to keep in mind is the delayed draw term loan facility we have in place with Sphere Entertainment Co. It's a relatively short-term $65 million facility. And if Sphere Co. decides to draw on the facility in the future, it has the ability to repay the loan using the retained [MSGE shares] [ph] it holds. So, this is actually – it's a novel feature of this loan and should Sphere Co. decide to pay using the retained shares, it would be another way for us to also efficiently repurchase a significant amount of our stock.

Great. In the prepared you spoke to double-digit event growth for 2024, since you're giving out a little bit of 2024 guidance. I was wondering if you could maybe give us a larger window across the growth drivers in 2024 across the business. Anything you're willing to get in Christmas Spectacular sponsorship suites, anything? Thanks.

Sure, Brandon. I'll start by saying that the demand for share experiences across our industry and especially here in New York remains really strong. We haven't seen any signs of slowdown. And given our unique portfolio of venues and content we're well-positioned to be a primary beneficiary. You heard me mentioned earlier the majority – that the majority of our concerts at our venues, including the third quarter continue to sell-out and recent on sales have remained strong. We anticipate solid increase in events in our venues in the fourth quarter, really driven by our concert slate and most notably here at the Garden. And as you mentioned for fiscal 2024, while we do expect to have more to share on our year-end earnings call in August, the very early signs are promising. We're currently facing ahead of where we were at the same time last year in concert bookings. Across all of our entire bookings business, we're currently expecting a double-digit percentage increase in events year-over-year in fiscal 2024. And while [they’re] [ph] in very early stages, the Christmas Spectacular ticket sales are up over 70%, compared to the same time last year. This is being driven by higher group sales, which is particularly encouraging from a category where we've seen lagging recovery coming out of the pandemic. But again, it is very early in the Christmas Spectacular sales cycle. From a corporate demand standpoint, we've built a momentum we're seeing this year in suites and sponsorships will carry over into 2024. And as you know, we have various profit and revenue streams related to the Knicks and Rangers and we see tailwinds to growth next year based on how both teams performed this season. So, it's really across virtually every area of our business we see the opportunities to drive continued growth next year.

Thanks so much.

And your next question comes from the line of Ben Swinburne from Morgan Stanley. Your line is open.

Good morning, Dave. I just wanted to clarify the double-digit events. I think you said it's across your entire booking business, but just to be specific, is that the whole portfolio? Does that include Knicks and Ranger games? Does that include Christmas Spectacular? And I had a follow-up.

Just bookings, not the Spectacular. All bookings except the Spectacular.

Okay.

And then… Your follow-up, Ben.

Yes. So, I was just curious, I think long-term, one of the biggest opportunities for the business is to just drive up utilization of your venues, particularly the Garden. Do you have a sense that you could share with us, sort of the historical growth you've seen? You talked about over 900 events or 900 events in the first full-year post-pandemic, but what's been the sort of CAGR if you look back over the last decade? And we know artists want to tour more, there's more demand, but I'm just trying to get a sense for what might be a sustainable growth rate longer-term for on the volume side? I would love your thoughts there. Thank you.

Okay. Thanks Ben. Look, we have a terrific long-term track record of increasing the number of concerts at our venues. If you look back, since the Garden transformation, the first fiscal year after the Garden transformation would have been 2015. We've driven mid-single-digit annual growth in the number of concerts at the Garden and across our other venues. As we think about growing the bookings business going forward, increasing venue utilization continues to be a significant opportunity for us. So, like for example, while the Garden is home to the Knicks and the Rangers, Radio City is our only other venue that has an anchor tenant, which is the Christmas Spectacular. The Garden is projected to host nearly 230 events this fiscal year, including Knicks and Rangers, and excluding the spectacular, our four theaters are on track for over [480 events] [ph]. So, our venues generally have a large slate of available dates to continue to work from. And in addition to benefiting just from our continued expected growth in our market, we're focused on utilization in a few different ways, more unique recurring events for example such as residencies and multi-night runs, which we've had some success with recently. Exploring new third-party events and additional event categories could be shows or expos or theatrical opportunities. And getting creative in the ways we look to maximize utilization, particularly at the Garden, we could host multiple event types per day. Of course, while also weighing, which events make the most strategic and financial sense for us always. So, we see increasing our venue utilization as a significant growth opportunity for the business.

Great. Thank you so much.

You're welcome.

And your next question comes from the line of David Joyce from Seaport. Your line is open.

Thank you. Dave, another question on the event volumes and capacity utilization. One item you didn't mention, which was a strategy employed in the past was looking to develop another owned property, such as, you know, the New York spectacular, which would, you smooth out the seasonality of the business, you know, because you would – you fill in some [underutilized parts] [ph] of the year. What might the management’s strategy be along those lines?

Sure, David. At this time, we have no plans to develop any new productions. As you know, we have a very unique franchise in the Christmas Spectacular. And we're focused on continuing to grow it organically. This includes driving higher sell-through and ticket yield, as well as I mentioned, just mentioned slowly increasing the number of shows over time as both demand and tourism make a more complete return post-pandemic. We're also focused on increasing revenue from marketing partnerships, as well as ancillary items like merchandise, we see an opportunity to create an expanded merchandise offering online and outside of the core Christmas Spectacular season. We're also focused on building the Rockettes brand more broadly. Whether that's through social media or other initiatives and partnerships, which we think will lead to incremental revenue opportunities, including sponsorship.

All right. Separate question. There was an article yesterday at [indiscernible] regarding a potential negotiations or talks to sell the theater, Madison Square Garden for a billion dollars to a developer. Do you have any comments on that, please?

All I'll say on this is, as invested members of our community, we're deeply committed to improving Penn station and the surrounding area. And we continue to collaborate closely with a wide range of stakeholders to advance the shared goal. With regard to the theater, we would always consider options that make strategic and financial sense to our company, but we have nothing more to share on this today.

Okay. Thanks. And if I can, just one final one. In thinking about, kind of back to the capacity utilization and the flow and supply of artists, what are you seeing in terms of artists that are developing through the social media and other digital platforms as they migrate up the, you know, the food chain and venues? Is that something that it is helping your business or might it drive us the strategy to be involved in more – in smaller venues again? Thanks.

Sure. Thanks, David. First, we're always working with growing or developing talent, whether they start via digital or other traditional channels. And a benefit of our venue portfolio is that it ranges in capacity from a little under 3,000 at the Beacon approximately 6,000 at Radio City and up to 21,000 at the arena. So, this enables us to shepherd artists through their various growth stages in their careers and work with them along those lines. In the past few years, we've hosted several viral social media acts. Olivia Rodrigo, for example, played at Radio City last fiscal year. Charlie Puth is playing there next month, after having played the Beacon last fall. And beyond this, we've seen a host of new acts playing our venues regardless of their original start. So, we feel really good about supply as our venues continue to attract wide range of genres, repeat acts, new acts, multi-night shows, etcetera.

Great. Thank you very much, Dave.

You're welcome.

Thanks David. Operator, we will take one last caller, please.

And your final question comes from the line of Devin Brisco from Wolfe Research. Your line is open.

Thanks for the question. I was wondering if you could help us bridge your AOI guidance to free cash flow. What is free cash flow conversion of this one-off MSG assets looked like historically? And how are you thinking about maintenance CapEx and future renovations?

Sure, Devin. I mentioned it earlier, but I'll repeat it. We expect our company to generate substantial free cash flow right from the start. We provided some parameters earlier to help with modeling approximately 145 million to 155 million in fiscal 2023 AOI and growing. Annual net cash interest expense of approximately 40 million to 45 million, based on current market rates. We also expect to be a minimal cash taxpayer through fiscal 2026. And CapEx in the near to intermediate term will be primarily maintenance related. And just to add some color on that, if you look at the carve-out financials in the Form 10, Fiscal 2022 CapEx was approximately 16 million, and fiscal 2023 year to date through March is about 12. So, tracking similar to last year, if that's helpful. And just some other, like as we look forward, we don't have plans to renovate any of our venues significantly. We have no current plans to acquire any additional venues. And as I mentioned earlier, one of our priorities is to pay down some of the debt that we took on during the pandemic. And while we're not setting a public leverage target at this time between growth in our business and robust free cash flow, we do expect to de-lever rapidly. Returning capital to shareholders is another of our priorities. We have the $250 million share repurchase in place and we'll take all variables into account in terms of our capital allocation decisions, including how the stock is performing and we'll continue to act in the best interest of the company and its shareholders.

Thank you. And how will the strategy for MSG change now that the separation is complete, if at all, what flexibility do you have now that you didn't have before?

Sure. I'd say that the strategy for this business is really no different than it was before. We're primarily focused on driving organic growth across our operations. Driving growth in per event revenues and profitability, increasing utilization at the venues, expanding our corporate partnerships businesses, maximizing revenue and profit for the Christmas Spectacular, and yes, we will also continue to look for ways to operate more efficiently, more effective marketing initiatives to how we operate the Christmas Spectacular for example. One thing that has changed as a result of the spin though is, we now have the flexibility as a standalone company to pursue a capital allocation strategy that's appropriate for the business. So, it's – this again includes a focus on debt pay down, opportunistically returning capital, which you've obviously heard us say several times today. So, we're excited for this new chapter for MSG Entertainment and we're confident that we're well-positioned to drive long-term shareholder value.

Thank you.

And we have reached the end of our question-and-answer session. Mr. Ari Danes, I'll turn the call back over to you for some final closing comments.

Thank you all for joining us. We look forward to speaking with you on our year-end call in August. Have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.