Good morning. My name is Christie, and I'll be your conference operator today. At this time, I would like to welcome everyone to The Madison Square Garden Company Fiscal 2019 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 would now like to turn the call over to Ari Danes, Senior Vice President of Investor Relations for The Madison Square Garden Company. Please go ahead, sir.

Thanks, Christie. Good morning and welcome to The Madison Square Garden Company's fiscal 2019 fourth quarter earnings conference call. Our President, Andy Lustgarten will begin this morning's call with an update on the company's operations. This will be followed by a review of our financial results with Victoria Mink, 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 website. 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. On Pages 5 and 6 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. Lastly, on Pages 8 and 9 of the release, we present a reconciliation of AOI to AOI excluding the impact of ASC Topic 606, the new accounting standard for revenue recognition. And with that, I'll now turn the call over to Andy.

Thank you, Ari. Before I turn to our core business, I'd like to talk about where we stand with the Company's key strategic initiatives. We made significant progress on our plan to grow beyond our existing portfolio of assets by pioneering the next generation of entertainment with MSG Sphere, and as we execute on our vision for the state-of-the-art venues. We continue to actively pursue the proposed spin-off of our sports business; a transaction we believe would strengthen our financial flexibility and help drive long-term value creation for our shareholders. You heard us talk previously about the merits of the proposed spin-off. We remain confident that this separation would better highlight the unique value of the Knicks and Rangers franchises. We continue to expect that the entertainment company would retain an approximate one-third equity interest in the sports company. This equity stake will be used to help fund our growth plans and for other corporate purposes and would also be available for potential tax-free exchange for entertainment company shares, while we know this is taking longer than expected, we remain firmly committed to completing this important transaction which we now anticipate will happen in the first quarter of calendar 2020. The spin-off is of course, are still subject to various closing conditions including League and final MSG Board approvals. As I mentioned earlier, this transaction would strengthen our ability to execute on our plans for MSG Sphere, an initiative we continue to make meaningful progress off. In June, we announced that we engaged AECOM as our general contractor for MSG Sphere in Las Vegas. AECOM is known as a leading builder of stadium and entertainment facilities and we believe their experiences make them the ideal partner. In Las Vegas, we've reached significant milestones over the past several months, we completed…

Thank you, Andy, and good morning, everyone. Before I discuss our fourth quarter financial performance, I'd like to take a moment to discuss the update we provided on costs for our Las Vegas venue in this morning's earnings release. We disclosed that in May, our Board of Directors approved a preliminary construction budget of $1.2 billion. In addition, as part of the contractual process of setting the incentive benchmark for establishing AECOM's fees, AECOM has provided us with an initial proposal that together with additional core technology and soft costs results in a project cost estimate of $1.7 billion. We think AECOM's estimate is too high, and as part of the contractual process, we are reviewing and challenging our contractors estimates and assumptions. We believe as a result of this process that we will be successful in achieving significant cost reductions. Now turning to our fourth quarter results, on a reported basis MSG generated total revenues of $263.6 million and an adjusted operating loss of $34.9 million excluding the impact of the new revenue recognition accounting standard we would have generated total revenues of $326.2 million, an increase of 3%, and AOI of positive $3.7 million, an increase of $5 million, both as compared with the prior year quarter. At MSG Entertainment revenues of $174 million decreased 6% the largest driver of the decrease was lower event related revenues from concerts with a decrease at the Garden and Forum, partially offset by growth at the Beacon and Chicago theaters. In addition, we had a decrease in revenues for the Boston Calling festival, along with lower suite license fees, due to the new revenue accounting standard while segment revenues were also impacted by the wind down of Obscura's third-party business. These decreases were partially offset by higher TAO Group revenues and…

Thanks, Victoria. Christie, can we open up the call for questions.

[Operator Instructions] And your first question is from Bryan Goldberg of Bank of America Merrill Lynch.

Thanks. Thanks for the extra color on the Las Vegas Sphere opportunity. I was wondering, if you could dig a little into earnings power implications. Historically, it's been our observation that you've been able to generate double-digit cash on cash returns on capital projects like the transformation of the Garden and the Forum and I'm just wondering, given the size of the Las Vegas budget. Do you see a similar path towards double-digit returns on this level of spend or is there a different return profile we should have in mind? And then I have a quick follow-up.

Bryan, thanks for question. So let's -- I talked about it before, but I'll -- let me talk about it again in a little more detail. We believe this project, it's going to revolutionize live entertainment. We think that like any other venue it has the base levels of revenue, it has the ability to book concerts, it has the ability to book some sporting events just like any other venue, but then it has the ability to book co-host of new types of performances, those that we create through our traction business that we're going to run multiple times a day. And for the corporate events, it's going to be the host of anybody looking to launch a product, we're hopefully anybody looking at the launch a product and this will be the place to tell your story, and it will be a place where a sponsors need to reach these multi-million number of the fans coming to experience love story that's been told. The attraction business is something that doesn't exist, we're going to be taking people places where they've never gone before both experiencing at visually as well as feeling it, smelling it and hearing it and we think that this is going to create a whole new hosts of revenue that no other venue or no other -- no one else has and we really think this is going to be a killer.

Okay, thanks. And then I guess it's kind of like a housekeeping item, with respect to the incentive benchmark that you disclosed that you're negotiating with AECOM, when do you expect to land on a final benchmark figure, and is this an item you intend to disclose going forward.

Brian, it's Victoria. So the incentive benchmark has a tremendous amount of detail and information, a lot of estimates and assumptions. So at this point, we're in the middle of the contractually mandated period over which we can negotiate this incentive benchmark. So at this point, we think it could run into the fall. It also could be extended further and, of course, we will see when that's resolved with the appropriate disclosure would be at that time.

All right, thank you very much.

Thank you. Your next question is coming from Brandon Ross.

Hi guys, thanks for taking the questions. First, there is a pretty wide gulf between your $1.2 billion Spheres estimate and a AECOM's $1.7 billion. Maybe you could tell us what -- what gives you the confidence that the project will come in closer to your projection than theirs -- are there is may be specific cost areas that their projections seem too high. And then I have a follow-up.

Yes, sure, Brandon. So as I had just -- in answering Bryan question is indicating, and there is a tremendous amount of detail and estimates and assumptions, but let me just take a step back. The $1.2 billion cost estimate was for budgeting and forecasting purposes and it was based on schematic designs at that time. The $1.7 billion is based on an estimate from the contractor for fee setting purposes and it's part of a cost plus contract, with the contractor of course is incentivized to propose a higher cost estimate as it gives them a more favorable benchmark, but as we stated we think the estimate is too high, and we are in this process of reviewing and challenging those assumptions. We also plan to value engineer aspects of the project to further reduce costs. So we do believe as a result of both of these efforts that we'll be successful in achieving significant cost reductions. As an aside, there are a number of other benefits to a cost plus contract for example, we pay the cost of the actual materials and labor plus a negotiated percentage fee, which means we don't pay an estimated or fixed amount that typically includes a substantial cushion for the contractor, we're also able to negotiate a more -- play a more vigilant role in the negotiation process, which we believe will maximize the quality of the work and help manage the projects costs. Now this includes having full transparency into the selection of the negotiation with all of the labor and materials utilized by the subcontractors, so we -- we think this is going to be a very detailed process and that's why we are -- we believe there'll be some significant savings.

Great. And then just earlier in the call, you said that -- the time -- I think you said the timing of the spend would be pushed to calendar Q1 of '20, is there a specific reason or any more color that you could give for that?

So look -- we acknowledge, it's taken a little longer than we would have liked. We're fully committed to moving it forward, and it's just a process and we're working our way through it, but don't read into anything further than we're working our way through this process and where will -- we are anticipating have it done in first quarter.

Great, thanks guys.

Thank you. Your next question is from David Karnovsky of JPMorgan.

Hi, good morning. Just following up on the Spheres, the numbers you've given of $1.2 million to $1.7 million, can we assume that range is also appropriate to apply to the London Sphere and assuming that is the case, can you just update us on the overall financing for the projects? Thanks.

So, on the London Sphere with -- it will be largely similar to the Vegas Sphere but not identical, we are very focused as we talked about -- that have the internal or be replicable. So that we can share content across venues and leverage -- leverage that part of the business, so that we can drive utilization of both venues, but we're also very early in our design. It's a smaller piece of land and there will be things that are not identical and so we don't much -- we don't have a lot further in terms of cost estimates for London at this time.

Yes, and David, on some of the second part of your question, the entertainment company is going to start with over $1 billion of cash on hand which we have just about $1 billion on our balance sheet now, plus another $100 million or so in British pounds. So with the proposed spin-off, we also have the approximate one-third equity interest in the sports company. So we believe that's going to provide the company with significant financial flexibility to pursue these growth plans and as we said before, we will always explore additional ways to further strengthen our financial flexibility, if we believe that makes sense for the company.

Okay. And then just on TAO you called out higher revenues versus I think flat last quarter. Can you just break down that performance, a little bit, how much of this is driven by new venues relative to your existing locations. And then I think last quarter you had mentioned working with TAO management to operate the business more efficiently. Can you just update where you are in that process. Thanks.

Sure. Yes, so we're pleased. I mean, the TAO group returned to overall growth in the fourth quarter. We don't break out the profitability of the various businesses, but I can tell you that TAO generated a revenue increase of $4.6 million on a year-over-year basis in the fourth quarter, and just as a reminder, we report TAO Group's results on a three month lag. Yes, but when we think about the different mix on an overall basis, a lot of the revenue would drive on the $4.6 million was due to the opening of the TAO Chicago in September. So we've been really pleased with that -- with that venue, which has been somewhat offset by the impact of closing one venue after a 15-year run and another venue in New York area that was underperforming. So, a bit of a mix there, but I think overall, we have been working closely with the TAO management group, and I think that they really focused in its --certainly starting to show in the results, which are certainly trending better than they were earlier this fiscal year.

Thank you.

Thank you. Your next question is from David Miller of Imperial Capital.

Couple of questions. Andy, once the spin happens for Q1 of next year, what are your personal plans in terms of which side you expect to lead? And then I have a couple of follow-ups. Thanks.

We're still working through management structures of both entities. Jim being our Chairman and CEO, and we're working through the rest right now.

Okay. And then Victoria, I'm just still trying to parse out whether the miss on the sports line is due to Topic 606 or just lower suite revenue for the teams, the narrative, would you guys for a long time had been that just with the loyalty of the fan base, the suites we're always sold out regardless of key performance, but it feels like that's shifted a bit. I'm wondering if you agree with that or if this -- if this is all due to Topic 606. Thanks.

Sure. So, David, I mean Topic 606 has just been a theme throughout this entire year, unfortunate on a quarter-on-quarter base. It's just created so much noise, so and we're fortunate that this will be the last quarter of that noise but I will say on the -- if you exclude 606 and we look at the suites in Q4, they were basically flat and you obviously think some of the product was impacted by team performance a little bit, but on a full-year basis we did it mid-single-digit increases in our total suite revenue across the company. So I think we continue to be pleased with that, but obviously we look forward to an improving teams in fiscal '20.

Thank you. Your next question is from -- I'm sorry, go ahead.

Okay, Christie, we will take the next caller.

Your next question is from David Joyce of Evercore ISI.

Thank you. A couple of questions related to the Spheres, can you help us think about the phasing of the construction costs for Las Vegas and assuming London's cost is going to be in the same range, where are you on the process of getting the final approvals and really coming off with the budget there. Thank you.

Sure. Let me take the first part of that question, David. So, as we disclosed in the earnings release inception to-date we spent $109 million on this core construction costs, and we expect to see those cost ramping-up and our cash outflow ramping over the next few years until the opening in calendar 2021.

In terms of timing with London. So, we are in the middle of our planning application process, we've submitted it in March. We expect to hear the termination by the end of calendar 2019, but that could continue and become subject to further discussions with the planning authority; and once we assume, we will receive planning permission, we will then get further into design and eventually construction as quickly as we can, but there is clearly some work to be done.

Okay. And on the funding options for the Spheres, do you have any -- more tangible sense of the structure of monetizing that -- the third of the stake in the teams?

So, it's just -- we're not -- we have nothing more to report at this time on that. Well, I'm sorry, I can't give you more, but...

All right, thank you.

Thank you. Your next question is…

We'll take one last caller. Thanks.

Your final question is from Brett Harriss of G-Research.

Hi, thanks for taking the question. Just -- first a quick one, any update on the filing of the Form-10 for the separation. I guess, what are the gaining factors for that document at this point. And then just secondly, anything more you can see in the timing on the finalization of the construction cost for the Vegas Sphere, I guess, given the project already started, when do you expect to have a final cost estimate. Thank you.

Sure, Brett. We continue to work on the Form-10 and the various appropriate SEC filings as we move towards the proposed spin-off. I mean, now with our filing of our 10-K for The Madison Square Garden Company later today, we would expect to be doing our confidential filing in the next coming few months but in accordance with our timeline. And then as far as the overall Sphere costs, I don't think there is much to add beyond what I've previously addressed in the call.

Okay, thank you.

We have no further questions at this time, I will now turn the call 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.

Goodbye.

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