Madison Square Garden Entertainment Corp. (MSGE) Q3 2026 Earnings Report, Transcript and Summary

Good morning. Thank you for standing by, and welcome to the Madison Square Garden Entertainment Corp. Fiscal 2026 Third Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Ari Danes, Senior Vice President, Investor Relations and Treasury. Please go ahead.

Thank you. Good morning, and welcome to MSG Entertainment's Fiscal 2026 Third Quarter 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 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 David.

Thank you, Ari, and good morning, everyone. We're now in the final stretch of fiscal 2026, and I'm pleased to say that demand for our live entertainment offerings remain strong. For the company's fiscal third quarter, we generated revenues of $246 million and adjusted operating income of $46 million. Behind these results were a number of important drivers, including continued momentum in our concert business at the Garden, growth in marketing partnerships and suites and the last shows of this past season's record-setting Christmas spectacular run. Looking ahead, we expect to close out fiscal '26 on a positive note, led by a significant increase in the number of concerts at the Garden in our fiscal fourth quarter compared to last year. And we remain on track to deliver robust full year growth in revenue and AOI. What's especially encouraging is that we already see this momentum carrying into fiscal '27 with our concert calendar filling up, including Harry Styles 30-night residency at the Arena and the 2026 Christmas Spectacular production currently on sale. Let's now walk through some of the key operational highlights from the third quarter. During the quarter, our venues welcomed over 1.4 million guests at more than 165 events, reflecting the breadth and diversity of events we are bringing to our venues. That included a year-over-year increase in the number of concerts at the Garden, highlighted by several notable multi-night runs. That growth was partially offset by a decrease in the number of concerts across our theaters. From a demand standpoint, we continue to see the vast majority of concerts at our venues sell out. In addition, food and beverage per caps at concerts were up in the quarter, while merchandise per caps were down, both of which we primarily attribute to the mix of events. In our family show category, we welcomed back the Westminster Kettle Club to the Garden for the Dog shows 150th anniversary. And on the sports booking side, we had a busy quarter with college basketball, including St. John's and the Big East tournament along with boxing, professional bull riding and WWE. On the special events front, we faced a tough comparison against the prior year quarter, which benefited from Saturday Night Live's multi-day takeover of Radio City for its 50th anniversary special. However, we are looking forward to hosting the Tony Awards at the venue next month. Turning to the Christmas Spectacular. The show's 92nd holiday season concluded in January with a record-setting run, generating approximately $195 million in total revenues across 215 paid performances. 16 of those shows took place in our fiscal third quarter, delivering year-over-year growth in per show ticketing revenue. As I mentioned earlier, sales for the 2026 holiday season are now underway. With 230 shows currently on sale, we believe the production is well positioned to deliver growth again next fiscal year. Our fiscal third quarter also included the continuation of the Knicks and Rangers '25, '26 regular seasons at the Garden. And once again, we saw higher per game revenues across our various revenue and profit sharing arrangements with MSG Sports as compared to the prior year. And lastly, on the marketing partnerships and premium hospitality front, fiscal 2026 has been highlighted by several notable sponsorship announcements, while we have also seen strong new sales and renewal activity for Suites at the Garden this year. We remain on track for growth across both of these businesses in fiscal '26. Now let's turn to our financial results. For the fiscal '26 third quarter, we reported revenues of $246.3 million, an increase of 2% as compared to the prior year quarter. This reflected an increase in revenues from entertainment offerings, partially offset by lower arena license fees and other leasing revenues as well as a decrease in food, beverage and merchandise revenues. The increase in revenues from entertainment offerings primarily reflected growth in suite license fee revenues, including amounts subject to the sharing of economics with MSG Sports. As we discussed earlier, we also benefited from strong growth in the number of concerts at the Garden during the quarter. In addition, revenues from our Christmas Spectacular production increased year-over-year, primarily due to higher per show ticket revenue and one additional performance in the quarter, both as compared to the prior year period. The overall increase in revenues from entertainment offerings was partially offset by a decrease in revenues from other live entertainment and sporting events. This reflected a decrease in the number of events at our venues, including the absence of Saturday Night Live's 50th anniversary special and the final shows of Annie's extended holiday run in the prior year quarter. Additionally, as mentioned earlier, we saw a decrease in the number of concerts at the company's theaters this quarter. Arena license fees and other leasing revenues decreased year-over-year, primarily due to the Knicks and Rangers playing fewer home games during the fiscal third quarter, partially offset by higher other leasing revenues. Similarly, the modest decrease in food, beverage and merchandise revenues mainly reflected the impact of fewer Knicks and Rangers home games during the current year quarter, which was partially offset by higher food and beverage sales at concerts. Third quarter adjusted operating income of $46 million decreased $12 million as compared to the prior year quarter. This primarily reflects higher direct operating and SG&A expenses, partially offset by the increase in revenues. Turning to our balance sheet. As of March 31, we had $323 million of unrestricted cash, up from $157 million as of December 31. This increase reflects strong cash flow generation as well as an increase in cash due to promoters, primarily due to future events at the Garden. In addition, our debt balance at quarter end was $587 million. As a reminder, we have repurchased approximately 623,000 shares of our Class A common stock for $25 million fiscal year-to-date. We have approximately $45 million remaining under our current buyback authorization. And going forward, we will continue to explore ways to opportunistically return capital to shareholders. So in summary, as we approach the end of the fiscal year, we remain on a clear path to delivering a robust fiscal '26 and believe we are well positioned to drive long-term value for our shareholders. I will now turn the call back over to Ari.

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

[Operator Instructions]Your first question comes from the line of Peter Henderson with Bank of America.

So there have been several press reports recently around the Penn Station redevelopment. I think including some commentary from President Trump in the New York Post indicating that his preferred path for the project is to keep the Garden where it currently sits. And can you just update us on your conversations related to the Penn Station renovation and the impact to the Infosys theater?

Yes. Peter, thanks for the question. While I really don't want to comment on press reports, here's what I will share with you. The U.S. Department of Transportation and Amtrak, they continue to reiterate their intended project schedule. And based on that reported time line, RFP submissions were recently due from the three shortlisted bidders. So Amtrak is now expected to select a master developer this month and to announce the preliminary design in June. So as redevelopment of the area continues, we are fully committed to collaborating closely with all the stakeholders. But with that said, we don't really have much more to report than that, but we will certainly keep you posted as their progress.

Your next question comes from the line of Stephen Laszczyk with Goldman Sachs.

David, I was hoping you could give us an update on how you're thinking about the opportunity for capital returns. I think in the past, you've mentioned that you would think about taking an opportunistic approach to buybacks. It doesn't sound like there was stock bought back in the March quarter. Curious if there's been an opportunity since or if there's any more color you could provide on how you're thinking about either buybacks or dividends moving forward?

Sure, Stephen. Thanks for the question. In terms of buying back stock, we take a number of factors into account in determining when we repurchase shares. And that includes the forward outlook for our business, which remains very positive. However, sometimes even including subsequent to our last earnings call in February, opportunities to repurchase shares present themselves when we don't find ourselves in an open window period. So that said, if you look at our track record since our spin-off, you'll see that we have bought back a substantial amount of stock. And going forward, we will continue to look for opportunities within the context of our three broader capital allocation priorities, which once again, are maintaining a strong balance sheet, having appropriate flexibility to pursue growth opportunities when and if they arise and also opportunistically returning capital to our shareholders.

Great. And then maybe just on expenses. The underlying cost structure came in a bit elevated in the quarter. I was just hoping you could unpack some of that for us and then how we should be thinking about the expense lines or margins as we think into the balance of the year?

Sure. Great. Yes. No, there certainly were a number of moving parts this quarter. So let me walk you through it. To start, this past quarter included the impact of several million dollars of unanticipated costs spread across both direct and SG&A expense. This was driven by a few different items. For example, we incurred higher-than-expected health care benefit expenses due to generally higher overall health care costs as well as increased claims activity. You can see in today's results that our venue operating costs increased $2.4 million year-over-year, which reflects those higher health care expenses, including the impact of truing up some costs to our most recent estimate. In addition, the increase in direct operating expenses reflects the mix of events across our venues. For example, the year ago quarter had a number of multi-night runs, which came with lower costs and higher margins, for instance, the Saturday Night Live's 50th anniversary special at Radio City. So that was really a mix of events. In terms of SG&A expense, we also saw the impact of those higher health care costs there. And even excluding those costs, our SG&A expense grew this quarter was still elevated and above what we would expect our long-term expense growth rate to be. And that includes the impact of higher employee compensation, which is pretty consistent with what we've said in the past about higher labor costs this fiscal year. So I would say, overall, as we look ahead, we expect SG&A expense growth to begin to normalize on a year-over-year basis in our June quarter and also expect that to carry over into the start of our fiscal '27.

Your next question comes from the line of Cameron Mansson-Perrone with Morgan Stanley.

You highlighted a bit in the prepared remarks, but I was wondering if you could just elaborate on how concert bookings are pacing in the fiscal fourth quarter and maybe through the rest of the calendar year?

Sure. Great, Cameron. Thanks. First, I'd like to say again that we are headed for a strong end to fiscal 2026 at the Garden, and that will reflect a significant growth in the number of concerts at the Arena in our fiscal fourth quarter. In terms of the first half of fiscal '27, we continue to see a number of positive signs in concert bookings. At this stage, we have substantial visibility into the September quarter, where we are pacing well ahead at the Garden. In fact, we remain on track to shatter our record for number of concerts in any quarter at the venue, which, of course, includes the impact of the Harry Styles residency. And at our theaters, I would say we are currently pacing behind for the September quarter. However, as we've said in the past, the bookings window in our theaters is typically 3 to 6 months in advance. So we still have some time and are working to narrow that gap. Looking at the December quarter, it's still a bit early to discuss pacing for our theaters given the shorter booking window I just mentioned. But at the Garden, we are again pacing ahead. So all in, we are pleased with how our concert bookings are pacing so far for fiscal '27, and we continue to believe that Garden is likely headed towards another year of strong concert growth in fiscal '27. And while still very early, we see potential to drive growth for our theaters as well in the fiscal '27.

Your next question comes from the line of David Karnovsky with JPMorgan.

Maybe just given some of the recent macro rise in energy prices, it would be good to get your expanded view on demand, both as it relates to current or forward ticket sales or maybe what you're seeing in per caps?

Sure, David. We certainly are always keeping a close eye on the macro environment with everything going on in the world. And I have to say we continue to see strong consumer demand. A number of factors that support that. As I mentioned earlier, a vast majority of our concerts at our venues were again sold out this past quarter and overall F&B per cap spending at our concerts was up year-over-year. Year-to-date, we have continued to see concerts perform better than we initially expected. A number of our upcoming acts across our venues have also added additional shows due to strong demand. And when we look at the next 2 quarters, the sell-through rate for concerts is currently pacing ahead of where it was at the same time last year. So I would say, given all this, watching the macro environment, we continue to see strong demand from consumers.

Okay. And then I just wanted to see if you could update on your residency pipeline, both for the Garden and then maybe also the tears?

David, you came in a little staticky from our end, but I think you were asking about the residency pipeline. So we'll go ahead and answer that.

Sure. Sure, David. As far as residencies go, first, I'd like to reiterate that we are off to a strong start in terms of concert bookings for fiscal 2027. And that, of course, includes the Harry Styles residency at the Garden for 30 nights. I'd also like to add that we have Bonjovi for a 9-show residency and Fish for a 5-show residency at the Garden this summer. And at our theaters, Joe Hisaishi will be doing a 7-night residency at Radio City in August. Seth Meyers and John Oliver recently extended their long-running residency at the Beacon Theater into this fall. So you can see that we believe there's a great value in bringing residencies to our venues as we believe it builds more of a recurring base of business and also increases our visibility into the forward calendar. So I would say residencies remain an important area for our booking business. And while it's early to discuss fiscal 2028 and beyond, we are continuing to have discussions with other artists about future residencies at all the venues, including the Garden, and we will certainly keep you updated on our progress.

Your next question comes from the line of David Joyce with Seaport.

Given the Knicks strong progress in the playoffs again this year, can you discuss the benefits or headwinds to the Knicks advancing to the MSG Entertainment business?

Sure, David. Thanks for the question. I have to say we are excited to see the Knicks in the second round of the playoffs, and they are off to a great start. As you know, we benefit from playoff games at the Garden through our agreement with MSG Sports in a few ways. We share in revenue streams like F&B and merchandise as well as single night suite sales. As you know, we operate and manage the F&B services during all team events for which MSG shares 50% of the net profits with the Knicks and Rangers. We also operate and manage the team merchandise sales at the Garden and retain 30% of net revenues. And we also earn a commission on the sales of single night suites at the Garden during Knicks and Rangers games. So we benefit during the playoffs here. One other thing to point out as well is that we believe that strong team performance like the Knicks are having right now will benefit next year in the form of continued strong arena attendance, which will further benefit those shared revenue streams that I just mentioned with sports. I'd also mention from the bookings side, booking concerts during the playoff window continues to be an opportunity that we've been targeting to drive utilization at the Garden. And we've had success this fiscal year at doing so. As I mentioned earlier, we are expecting significant year-over-year growth in the number of concerts at the Garden in our fiscal fourth quarter, and that includes an increase in the number of concerts that we booked during the playoff window. So that's something that we're going to strive to continue to do. Operator we have time for one last caller.

Your next question comes from Joe Stauff with Susquehanna.

The value of your Christmas Spectacular asset, obviously, is important, continues to grow nicely. You're increasing show count this year 7%. How do you assess demand versus that 7% show count? This is going to be the third year in a row, certainly that you're increasing show count. So there is pretty significant, obviously, demand that continues to grow. How do you think about that? And you had mentioned advanced ticket sales. How much or how many of those tickets are sold already? And how does that evolve towards the opening of the show in the December quarter?

Thanks, Joe. Yes. So we see -- we definitely see growth potential for next year's Christmas spectacular through both more shows, as you mentioned, and higher average ticket yields. As you mentioned, we are on sale for 230 performances for the next holiday season, up from 215 last year, which translates, as you mentioned, mid-single-digit percentage increase in show count year-over-year. One of the things that's important to remember and where we see growth is that the Christmas spectacular continues to be a premium entertainment product, and we believe it's still priced well below average ticket prices for comparable entertainment options. So I think as we add shows, we will be thoughtfully managing marketing and pricing our ticket inventory to maximize revenue for each show. And in terms of advanced ticket sales, we initially went on sale just in March, and we'll begin marketing the production over the summer. So I think it's a little bit early in the sales cycle to discuss pacing as of now. But again, we are confident in the growth opportunity for this '26 holiday season.

We have reached the end of the Q&A session. I will now turn the call back to Arie for closing remarks.

Thank you all for joining us. We look forward to speaking with you on our next earnings call. Have a good day.

And this concludes today's call. Thank you for attending. You may now disconnect.