Good morning. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to The Madison Square Garden Company Fiscal 2018 Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session [Operator Instructions]. Thank you. I will now turn the call over to Ari Danes, Senior Vice President of Investor Relations for The Madison Square Garden Company. Please go ahead, sir.

Thanks, Christy. Good morning. And welcome to The Madison Square Garden Company's fiscal 2018 fourth quarter and year-end earnings conference call. Our President, Andy Lustgarten will begin this morning's call with a discussion of the potential spin-off transaction and the Company's operations. This will be followed by a review of our financial results with Donna Coleman, our EVP and Chief Financial Officer. 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 on the Investors section of our corporate Web site. Please take note of the following. Today's discussion 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. These include financial community perceptions of the Company and its business, operations, financial condition and the industry in which it operates, as well as the factors described in the Company's filings with the Securities and Exchange Commission, including the sections entitled 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 that may be discussed during this call. Lastly, 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, a non-GAAP financial measure. And with that, I will now turn the call over to Andy.

Thank you, Ari, and good morning everyone. For the fiscal 2018, we again delivered strong revenue and adjusted operating income results. At the same time, we remained focused on ensuring that our Company is lower positioned to drive ongoing growth and value creation for our shareholders. With this objective in mind, in June, we announced that our Board of Directors approved the plans to explore potential spin-off that would separate our sports business from our entertainment business. The pure play sports company would reflect the strong and steady financial performance of our sports businesses, driven by the New York Knicks and Rangers franchises, while the live entertainment company would capitalize on opportunities for growth, most notably through venue expansion. We believe the potential transaction would provide both companies with enhanced strategic and financial flexibility to pursue their own distinct business plan and capital allocation policy. We also expect the spin-off would enhance shareholder value by enabling investors to more clearly evaluate each company's assets and future potential. Assuming we proceed with the transaction, we presently expected MSG shareholders receive a tax-free pro rata distribution equivalent in aggregate to approximately two thirds economic interest in the pure play sports company. The remaining common stock would be equal to approximately one third economic interest in the sports company. This would be retained by the entertainment company, which we would expect -- we would use the shares to raise capital to fund its growth initiatives and/or exchange for common stock. We’ve not set a timetable for completion of this potential transaction, which would be subject to various conditions. We look forward to updating you on progress in the months ahead. Turning to our operations. As I mentioned earlier, we delivered strong underlying financial results at both our entertainment and sports segments for fiscal…

Thank you, Andy. Good morning everyone. I'd like to start by touching on our full-year results. For fiscal 2018, we generated total revenues of $1.6 billion and adjusted operating income of $193.8 million, which represent increases of 18% and 19% respectively, both as compared with the prior year. Excluding the impact of acquisitions and non-recurring items, we grew underlying revenue by a mid-single-digit percentage, while increasing AOI by a strong double-digit percentage in fiscal 2018. Turning to our fourth quarter results. For the fiscal 2018 fourth quarter, our Company generated total revenues of $318 million, an increase of 4% year-over-year and an adjusted operating loss of $2.5 million, which represent an improvement of $41 million as compared to the prior year quarter. At MSG Entertainment, revenues of $185.6 million increased 47%. This was primarily due to a significant increase in event related revenues at the Company's venues and a full quarter of TAO Group results. As a reminder the prior year quarter included two months of TAO results due to the timing of the acquisition. The increase in event related revenues was primarily due to higher revenues at the Garden, Forum and Radio City Music Hall. The increases at all three venues reflect healthy growth in the number of concerts held as compared to the prior year quarter. Excluding the impact of $33.6 million non-cash write-off in the prior year fourth quarter, MSG Entertainment AOI of $7.7 million improved $13.3 million. This was primarily due to strong growth and event related contribution at our venues and the impact of a full quarter of TAO Group results, partially offset by a decrease in contribution from Boston Calling events. At MSG Sports, revenues decreased 26% to $132.5 million. This was primarily due to the absence of play-off related revenues and lower lead…

Thank you, Donna. Christy, can we open up the call for questions.

[Operator Instructions] And your first question is from Brandon Ross of BTIG.

I have a couple on the spin. I know it's early. But how are you how are you guys thinking about how much of the retained interest in sports will be sold to raise capital for swap. If you could help us with what goes into that decision-making process. And then I have a follow-up.

You’re right, we’re still on the exploration stages of this transaction and our goal is to position the two companies for long-term success and value creation, and give ourselves financial flexibility. So as you know, we currently propose that the entertainment company will start with $1 billion of cash on hand and will retain a minority stake in the sports company. This will enhance our ability peruse our growth plans and also give us the ability to opportunistically exchange shares for our own stock. To your point where we ultimately end up in terms of raising capital versus exchanging shares really hasn’t been determined, and it will depend on a variety of factors that go into the decision process, including how the stock trades, the capital needs of the entertainment company and whether we decide to tap the debt market at some point. So there is still a lot to be determined in that regard.

And what's the potential for the tax leakage when you do sell those retained shares. How do you plan to shield those taxes?

Our cost basis is low, but we expect to be able to minimize that in a number of ways. For example, the recently enacted tax reform law allows us to accelerate depreciation on significant components of the MSG Sphere in Las Vegas, which will add to our NOL once we open the venue. We’re also exploring some other opportunities that are available to us. And of course to the extent we exchange some of the retained interest in the sports company for shares at the entertainment company that would be tax free.

So how do you think about the timing then of the retained interest? Do you want to wait a few years to minimize the tax leakage there by shielding the taxes with the greater NOL, or do you want to set a high watermark concurrent with the spend so that sports trades probably at a higher level?

I think it's a little early for us to comment specifically on timing. But I can't say we are always focused on maximizing shareholder value. So take those two messages together, but it’s very hard to say much more at this time.

Thank you. Your next question is from Bryan Goldberg of Bank of America Merrill Lynch.

So I was just wondering if you could share some perspective on how you’re thinking about the opportunity around legalized sports betting. How substantial it could be, what parts of your portfolio could benefit operationally? Would there be any meaningful complexities to navigate to go after the opportunities there? And then I've got a follow-up?

Happy to take the follow-up in a minute, so starting on sports gaming. Just take a step back and look at what's going on in Europe, and see the sponsorship and advertising dollars that go into the premier league and other European sports that excite us tremendously. That said sports, which I do feel bullish about, put that aside. We love and we're very excited about the impact of sports gaming on fan engagement and what the impact of that engagement does to in-venue, and also to both league and team media rights, which also will impact advertising as fans become even further engaged. So just the mix of both what we see on the ad market plus what we think it's going to do in fan engagement is very exciting to us. It’s still early, there is -- New Jersey, as you know, is legal. So which we're able to capture the benefit through our ad rep deals with the MSG Network and our carriage into the New Jersey market of our teams, and navigating through the legal environment in New York and the other market is complex. But we’re hopeful that New York will follow through with New Jersey, and we will be in a position to optimize and maximize our benefit from it.

And then on my follow-ups on the Sphere, I was wondering you said you’re refining your plans. Could you remind us what technological elements of the venues will be proprietary to MSG, and what your latest thoughts are in terms of owning or developing exclusive IP?

So let me start at the forefront, it’s hard for us to really give you all of our secret sauce of what we're doing here. Part of what we’re creating and has a lot of secret sauce and we’re focused on delivering something above and beyond. That said, what I can tell you is we’ve built a group called MSG ventures here internally who’s focused on identifying, developing technologies that affect live entertainment. Some of those we’ve showcased already at some of our events. In addition to that team, we’ve made a number of acquisitions, investments and partnerships. Obscura Digital was one for example. They’ve already played significant role in the Christmas Spectacular and their playing significant role in our creation of MSG Sphere. We’ve made investments in virtual-reality companies in new forms of acoustics. And last month we made a minority investment in digital technology company -- display company and that company will provide specific technologies for the Sphere. In addition to these investments, we're working with multiple experts in Audio/Video connectivity and other technologies. But one thing I can tell you is our strategy is in each of these investments and each of these partnerships is to either obtain expertise or attain strategic and/or ownership rights with related to the IT, or underlying technologies that we’re going to use them.

And one quick housekeeping item in the quarter, your equity income from the JVs swung meaningfully negative in the quarter year-on-year. I’m just wondering we don’t have a lot of visibility what’s going on there. Any notable ins and outs at Tribeca or the Azoff JV you could share with us?

There were a number of non-recurring items item that impacted the fourth quarter results this year. If I exclude those amounts, our share of earnings for the non-consolidated affiliates in the fourth quarter actually increased versus the prior year. And I’d also add on a full year basis if I exclude the non-recurring items in both years, we feel meaningful bottom line improvement relative to the prior year driven by progress in the Azoff MSG Entertainment joint venture.

Thank you. Your next question is from John Janedis with Jefferies.

Maybe one or so on the Sphere and then one separate one. On the Sphere, has the timing around n New Year’s opening changed. Can you provide any detail on the ground lease with the Sands, specifically as it relates to the payments of 25% at after-tax cash flow to the Sands of certain objectives are reached?

I’ll tell you, we are full speed ahead on Las Vegas on our plan for Las Vegas and for London. We've achieved a number of the achievements. Next month, we’ll be beginning site prep and we continue to refine on our design to make sure that we maximize the advantages from the two buildings that have very similar features. We have secured all the necessary entitlements in Las Vegas, a major milestone and are actively working on the construction permitting process. And our goal is to open as soon as we can and as early as possible, but we expect it to be in fiscal 2021. I think your other question was around hurdle rate and in the ground lease. So as you know we will obviously expect to start -- Sands has been a great partner. We are thrilled with them. They've facilitated all those permitting that we've already discussed. They were large part of how we were able to move so fast there. And we’re thrilled to be next door. The deal with Sands is a 50 year lease. We don’t pay any rent to Sands. And we -- at above certain objectives, they will receive 25% of access after-tax cash flow. We're not going to be disclosing exactly what those objectives are but I can tell you it's into the double-digit return area. In addition to the lease they’ve provided us with $75 million to help fund construction and to connect pedestrian bridge back to The Venetian and the other Sands properties, and we’re very excited.

And then maybe quickly, you spoke to the Pepsi agreement, not sure how much you can give. But how is this agreement incremental to the portfolio? And I guess more broadly can you give us any more update on the sponsorship renewal cycle?

So it’s probably better to start with the sponsors, just marketing partnership in general. We've had a great past two years. We've renewed partners Anheuser-Busch, Lexus, Delta Air Lines, Kia and Charter Communications. We've added Squarespace and as you mentioned, PepsiCo as a new partner. We never talk about specifics of any of our agreements. But I can tell you that our team has done a great job of renewing and expanding our partnerships. The Pepsi -- for example, the PepsiCo partnerships, not only includes the beverage brands but also includes snack brands and they’re going to be virtually -- they're going to be front and center across all of them MSG’s properties, so virtually all of MSG’s properties and that'll be starting in September 1st. Their deal is going to include naming rights for an eight-floor concourse and fan deck, which is new. And our success this year has led to double-digit increases in our sponsorship revenue. And we are confident that we're positioned well for the future.

The next question is from David Karnovsky of JPMorgan.

Just one on Boston calling, can you some additional detail there. I think you said it didn’t meet your expectation. I know this is mainly an attendance issue. And then how are you thinking about the festival for next year and potential expansion in the festival space in general? Thanks.

So we did see lower attendance this year. We believe that was partially related to the customer experience in 2017, our first year on site at the Harvard Athletic Complex, which we believe is an excellent site. But with any first-year festival, there are always hiccups. And in the past year, we really focused on correcting those hiccups and those hiccups were all around customer experience, ingress, egress, connectivity, food and beverage offering, we focused on that on tremendously this past year, and we believe in all the feedback we’ve received so far that it’s been corrected. And so we’re really bullish on the future. Boston calling is Boston and New England's premier music festival and we think it’s a great brand and we look forward to building on it.

The next question is from Amy Yong with Macquarie.

I guess just following up on the written profile for Sphere. Andy, can you talk about what we should expect and should we expect the same return profile on London? And I guess how do they compare to MSG Garden? I think a lot of us saw through the transformation obviously that was very successful. And then secondly, I think you mentioned in your prepared remarks the sale process of New York Liberty. What are some of the factor that you’re weighing when you’re looking for a buyer and what’s been the appetite to taking that team? Thanks.

So how we think about returns, we’re with both the London Sphere and the Las Vegas Sphere, as you know, we’re building a state-of-the-art venue. The key to the state of the art venue is the immersive experiences and most importantly driving the venue utilization. This utilization will drive attendance, ticket sales and sponsorship opportunities. There will be a wide variety of events from standard bookings, to new forms of content, to new forms of attraction, to product launches and special events. We think these two cities are ideal for all forms of those types of content. And in addition we’re focusing very heavily on creating a set of tools that makes the content very easy to be created for both internally and as well for third parties, which will let us drive a library of content that we can use across both venues. As I mentioned, we think sponsorship will be a very significant component to these venues. And we think there's been a numerous number of companies that are going to look for innovative ways to showcase the products and we’ll be the place for it. And we don't look exactly -- we don’t disclose our exact IRR expectations, but I can say we’re very excited and look to create a lot -- long-term shareholder value. I think your other question was regarding Liberty, so we are still in the process of finding the right owner. We're very focused on finding somebody who wants to take the brand and the team into the future and are still actively pursuing those buyers. And I have nothing further to talk about at this time. But we are fully committed to our strategy on this.

Thanks Amy. Christy, we have time for one last caller.

Sure. Your final question is from Ben Swinburne of Morgan Stanley.

Andy, I think you mentioned in your prepared remarks low double-digit organic growth in the concert booking business or the entertainment business. How do you think about the sustainability of that type of growth? You mentioned utilization was up a lot. Is there room to take that higher, and do you have the concert supply and visibility into keeping these top line growth rates going? And then I have a follow up on TAO.

So we've spent the last few years very focused on multi-venue multi-night bookings, and we've seen a strategy pay-off. The lot business, not only with us but across the industry, has been very strong and there is lot of tailwinds here pushing the acts to want to be on the road given that's where the economics lie for the acts. And being in the premium markets that we are, we stand the benefit from those tailwinds. And given the markets we are in and our strategy to push multi-night and multi-venue, we also stand the benefit. So while there is any -- on a yearly basis, we feel very strong. There could be always be quarterly or monthly movements based on timing of when our events are in the building and when the sports teams are, when last year we had 13 nights of Phish in the summer. So it's hard to replicate that every single summer. But as you think across the year, we feel very strong about the future of our bookings business.

And then just on TAO, now that you've got this -- basically the portfolio inside of MSG for a year and you look out. How has the business performed versus your expectations? What growth did you see organically in that portfolio? And along the same lines as the booking business, what's the outlook to keep that going from a growth rate perspective?

So we've been very happy with our TAO deal with our partnership. There has been a whole list of benefits we actually had and thought about when we did the transaction. They really pushed us on rethinking about experiences here in our venues. We’re thrilled with what they've done with 316. We expect to continue to grow that and replicate other types of ways to work together to push our base business. And also to push our business as grow in Vegas and in London. They are on their own, their growth profile -- the new venues they've been opening are we’re very pleased with. We think Singapore and other venues -- and Chicago and some of the other venues that are going to come will be successes. And so I think overall we’re pleased.

Thank you. And with that, I will turn the call back over to Ari Danes for any additional or closing remarks.

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

Thank you. This does conclude today's conference call. You may now disconnect.