Madison Square Garden Entertainment Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In this MD&A, there are statements concerning the future operating and future financial performance of Madison Square Garden Entertainment Corp., (formerly MSGE Spinco, Inc.) (“MSG Entertainment”) and its direct and indirect subsidiaries (collectively, “we,” “us,” “our,” “MSG Entertainment,” or the “Company”). Words such as “expects,” “anticipates,” “believes,” “estimates,” “may,” “will,” “should,” “could,” “potential,” “continue,” “intends,” “plans,” and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements. Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to: • the level of our expenses, including our corporate expenses; • the level of our revenues, which depends in part on the popularity of the Christmas Spectacular Starring the Radio City Rockettes ( the “Christmas Spectacular”) , the sports teams whose games are played at Madison Square Garden (“The Garden”), and other events which are presented in our venues, and our ability to attract such events; • the on-ice and on-court performance of the professional sports teams whose games we host in our venues; • the level of our capital expenditures and other investments; • general economic conditions, especially in the New York City and Chicago metropolitan areas where we have business activities; • the demand for sponsorship and suite arrangements; • competition, for example, from other venues and sports and entertainment options, including of new competing venues; • our ability to effectively manage any impacts of a pandemic or other public health emergency (including COVID-19 variants) as well as renewed actions taken in response by governmental authorities or certain professional sports leagues, including ensuring compliance with rules and regulations imposed upon our venues, to the extent applicable; • the effect of any postponements or cancellations by third-parties or the Company as a result of a pandemic or other public health emergency due to operational challenges and other health and safety concerns (such as the partial cancellation of the 2021 production of the Christmas Spectacular ); • the extent to which attendance at our venues may be impacted by government actions, renewed health concerns by potential attendees and reduced tourism; • the impact on the payments we receive under the arena license agreements (the “Arena License Agreements”) that require the New York Knicks (the “Knicks”) of the National Basketball Association (the “NBA”) and the New York Rangers (the “Rangers”) of the National Hockey League (the “NHL”) to play their home games at The Garden as a result of government-mandated capacity restrictions, league restrictions and/or social-distancing or vaccination requirements, if any, at Knicks and Rangers games; • changes in laws, guidelines, bulletins, directives, policies and agreements, and regulations under which we operate; • any economic, social or political actions, such as boycotts, protests, work stoppages or campaigns by labor organizations, including the unions representing players and officials of the NBA and NHL, or other work stoppage; • seasonal fluctuations and other variations in our operating results and cash flow from period to period; • enhancements or changes to existing productions and the investments associated with such enhancements or changes; • business, reputational and litigation risk if there is a cyber or other security incident resulting in loss, disclosure or misappropriation of stored personal information, or disclosure of confidential information or other breaches of our information security; 21 • activities or other developments (such as pandemics, including the COVID-19 pandemic) that discourage or may discourage congregation at prominent places of public assembly, including our venues; • the acquisition or disposition of assets or businesses and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic transactions; • our ability to successfully integrate acquisitions, new venues or new businesses into our operations; • our internal control environment and our ability to identify and remedy any future material weaknesses; • the costs associated with, and the outcome of, litigation, including any negative publicity, and other proceedings to the extent uninsured, including litigation or other claims against companies we invest in or acquire; • the impact of governmental regulations or laws, changes in how those regulations and laws are interpreted, as well as the continued benefit of certain tax exemptions and the ability to maintain necessary permits or licenses; • the impact of any government plans to redesign New York City’s Penn Station; • the impact of sports league rules, regulations and/or agreements and changes thereto; • the substantial amount of debt incurred, the ability of our subsidiaries to make payments on, or repay or refinance, such debt under the National Properties Credit Agreement and our ability to obtain additional financing, to the extent required; • financial community perceptions of our business, operations, financial condition and the industries in which we operate; • the performance by Madison Square Garden Sports Corp. (together with its subsidiaries, as applicable, “MSG Sports”) of its obligations under various agreements with the Company and ongoing commercial arrangements, including the Arena License Agreements; • the tax-free treatment of the MSGE Distribution (as defined below); • our ability to achieve the intended benefits of the MSGE Distribution; • failure of the Company or Sphere Entertainment Co. (together with its subsidiaries, as applicable, “Sphere Entertainment”) to satisfy its obligations under transition services agreements, or other agreements entered into in connection with the MSGE Distribution; • lack of operating history as a stand-alone public company and costs associated with being an independent public company; • our status as an emerging growth company; and • the additional factors described under “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2023 filed on August 18, 2023 (the “2023 Form 10-K”). We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this document may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. All dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted. Introduction This MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s unaudited financial statements and accompanying notes thereto included in this Quarterly Report on Form 10-Q, as well as the Company’s audited consolidated and combined financial statements and notes thereto as of June 30, 2023 and 2022 and for the three years ended June 30, 2023, 2022 and 2021 (“Audited Consolidated and Combined Annual Financial Statements”) included in the 2023 Form 10-K, to help provide an understanding of our financial condition, changes in financial condition and results of operations . 22 Business Overview We are a live entertainment company comprised of iconic venues and marquee entertainment content. Utilizing the Company’s powerful brands and live entertainment expertise, the Company delivers unique experiences that set the standard for excellence and innovation while forging deep connections with diverse and passionate audiences. We manage our business through one reportable segment. The Company’s portfolio of venues includes: The Garden, The Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, and The Chicago Theatre. The Company’s business also includes the original production, the Christmas Spectacular. The Company also has an entertainment and sports bookings business, which showcases a broad array of compelling concerts, family shows and special events, as well as a diverse mix of sporting events, for millions of guests annually. The Company conducts a significant portion of its operations at venues that it either owns or operates under long-term leases. The Company owns The Garden, The Theater at Madison Square Garden, and The Chicago Theatre, and leases Radio City Music Hall and the Beacon Theatre. All of the Company’s revenues and assets are attributed to or located in the United States and are primarily concentrated in the New York City metropolitan area. MSG Entertainment Distribution On April 20, 2023 (the “MSGE Distribution Date”), Sphere Entertainment distributed approximately 67% of the outstanding common stock of the Company to its stockholders (the “MSGE Distribution”), with Sphere Entertainment retaining approximately 33% of the outstanding common stock of MSG Entertainment (in the form of Class A common stock, “Class A Common Stock”) immediately following the MSGE Distribution (the “Retained Interest”). As a result, the Company became an independent publicly traded company on April 21, 2023 through the MSGE Distribution. Following the completion of the secondary offering by Sphere Entertainment of the Company’s Class A Common Stock on September 22, 2023, Sphere Entertainment no longer owns any of the Company’s outstanding common stock. See Note 1 to the Company’s Audited Consolidated and Combined Annual Financial Statements for more information regarding the MSGE Distribution. Our MD&A is organized as follows: Results of Operations. This section provides an analysis of our unaudited results of operations for the three months ended September 30, 2023 and 2022. Liquidity and Capital Resources. This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the three months ended September 30, 2023 and 2022, as well as certain contractual obligations and off-balance sheet arrangements. Seasonality of Our Business. This section discusses the seasonal performance of our business. Recently Issued Accounting Pronouncements and Critical Accounting Estimates. This section discusses accounting pronouncements that have been adopted by the Company and recently issued accounting pronouncements not yet adopted by the Company. This section should be read together with our critical accounting policies, which are discussed in the 2023 Form 10-K under “Management's Discussion and Analysis of Financial Condition and Results of Operations — Recently Issued Accounting Pronouncements and Critical Accounting Estimates — Critical Accounting Estimates” and in the notes to the Audited Consolidated and Combined Financial Statements of the Company included therein. Factors Affecting Results of Operations The consolidated statement of operations for the three months ended September 30, 2023 is presented on a consolidated basis, as the Company became a standalone public company on April 21, 2023. The Company’s combined statement of operations for the three months ended September 30, 2022 was prepared on a stand-alone basis derived from the consolidated financial statements and accounting records of Sphere Entertainment, and is presented as a carve-out financial statement, because the Company was not a standalone public company prior to the MSGE Distribution. See Note 1 to the consolidated and combined financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for additional information. Our operating results are largely dependent on our ability to attract concerts and other events to our venues, revenues under various agreements entered into with MSG Sports, and the continuing popularity of the Christmas Spectacular . Certain of these factors in turn depend on the popularity and/or performance of the professional sports teams whose games we host at The Garden. 23 In addition, Fiscal Year 2024 will be impacted by increased rent expenses relative to Fiscal Year 2023 due to our new corporate office lease, which runs through 2046. Our Company’s future performance is dependent in part on general economic conditions and the effect of these conditions on our customers. Weak economic conditions may lead to lower demand for suite licenses and tickets to our live productions, concerts, family shows and other events, which would also negatively affect concession and merchandise sales, and lower levels of sponsorship and venue signage. These conditions may also affect the number of concerts, family shows and other events that take place in the future. An economic downturn could adversely affect our business and results of operations. Factors Affecting Comparability MSGE Distribution The condensed combined statement of operations for the three months ended September 30, 2022 includes allocations for certain support functions that were provided on a centralized basis and not historically recorded at the business unit level by Sphere Entertainment, such as expenses related to executive management, finance, legal, human resources, government affairs, information technology, and venue operations among others. As part of the MSGE Distribution, certain corporate and operational support functions were transferred to the Company and therefore, charges were reflected in order to burden all business units comprising Sphere Entertainment’s historical operations. These expenses were allocated on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of combined assets, headcount or other measures of the Company and Sphere Entertainment, which are recorded as a reduction of either direct operating expenses or selling, general, and administrative expenses. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating general corporate expenses, are reasonable. Nevertheless, the combined financial statements do not include all of the actual expenses that would have been incurred by the Company and may not reflect its combined results of operations, financial position and cash flows had it been a separate, standalone company during the periods presented. Actual costs that would have been incurred if the Company had been a separate, standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. See Note 1. Description of Business and Basis of Presentation to the condensed consolidated and combined financial statements included elsewhere in this document for additional information. The costs to operate our business as an independent, publicly-traded company, including pursuant to terms of the transition services agreement, are expected to vary from those historical allocations. Such costs principally relate to areas that include, but are not limited to: • corporate personnel overhead expenses as a result of the Company operating on a stand-alone basis; • professional fees associated with internal and external audits including compliance with Sarbanes-Oxley Act, tax, legal and other services; • anticipated executive compensation costs related to existing and new executive management and excluding future share-based compensation expense; and • fees for preparing and distributing periodic filings with the SEC. These costs will not be fully reflected in a complete year of the Company’s financial statements until the year ending June 30, 2024, because, for periods prior to April 20, 2023, the Company’s financial statements were presented on a carve-out basis. Advertising Sales Representation Agreement Termination Prior to December 31, 2022, the Company was a party to an advertising sales representation agreement (the “Networks Advertising Sales Representation Agreement”) with Sphere Entertainment’s subsidiary, MSGN Holdings, L.P. (“MSG Networks”), pursuant to which the Company had the exclusive right and obligation to sell MSG Networks advertising availabilities for a commission. The Networks Advertising Sales Representation Agreement was terminated effective as of December 31, 2022. As a result, after December 31, 2022, the Company no longer recognizes advertising sales commission revenue or the employee costs related to the Networks Advertising Sales Representation Agreement. For the three months ended September 30, 2022, the Company recognized $378 of revenues under the Networks Advertising Sales Representation Agreement. The termination of the Networks Advertising Sales Representation Agreement impacted the operating results of the Company for Fiscal Year 2023 and will impact the operating results of the Company on a go forward basis. 24 Results of Operations Comparison of the three months ended September 30, 2023 versus the three months ended September 30, 2022. Three Months Ended September 30, Change 2023 2022 Amount Percentage Revenues $ 142,212 $ 146,452 $ (4,240) (3) % Direct operating expenses (101,677) (101,662) (15) — % Selling, general, and administrative expenses (48,822) (40,114) (8,708) 22 % Depreciation and amortization (13,585) (15,985) 2,400 (15) % Restructuring charges (11,553) — (11,553) NM Operating loss (33,425) (11,309) (22,116) (196) % Interest income 851 1,510 (659) (44) % Interest expense (14,287) (11,427) (2,860) 25 % Other (expense) income, net (4,469) 886 (5,355) NM Loss from operations before income taxes (51,330) (20,340) (30,990) (152) % Income tax benefit 659 2,066 (1,407) NM Net loss (50,671) (18,274) (32,397) (177) % Less: Net loss attributable to nonredeemable noncontrolling interest — (372) 372 NM Net loss attributable to MSG Entertainment’s stockholders $ (50,671) $ (17,902) $ (32,769) (183) % _________________ NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful. Revenues Revenues for the three months ended September 30, 2023 decreased $4,240 as compared to the prior year period. The changes in revenues were attributable to the following: Three Months Ended September 30, 2023 Decrease in event-related revenues $ (8,270) Increase in revenues subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements 2,716 Other net increases 1,314 $ (4,240) For the three months ended September 30, 2023, the decrease in event-related revenues primarily reflects (i) lower revenues from concerts of $7,317 and (ii) lower revenues from other live entertainment and sporting events of $953. The decrease in event-related revenues from concerts was due to a decrease in the number of events at the Company’s venues as compared to the prior year period, partially offset by higher per-concert revenues in the current year period. For the three months ended September 30, 2023, the increase in revenues subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements primarily reflects higher suite license fee revenues. 25 Direct operating expenses Direct operating expenses for the three months ended September 30, 2023 increased $15 as compared to the prior year period. The changes in direct operating expenses were attributable to the following: Three Months Ended September 30, 2023 Increase in expenses associated with the sharing of economics with MSG Sports pursuant to the Arena License Agreements $ 2,380 Increase in direct operating expenses associated with the Arena License Agreements 507 Decrease in event-related direct operating expenses (4,737) Other net increases 1,865 $ 15 For the three months ended September 30, 2023, the increase in direct operating expenses associated with the sharing of economics with MSG Sports pursuant to the Arena License Agreements primarily reflects direct operating expenses incurred as a result of the increase in suite license fee revenues. For the three months ended September 30, 2023, the decrease in event-related direct operating expenses reflects (i) lower direct operating expenses from concerts of $4,219, and (ii) lower direct operating expenses from other live entertainment and sporting events of $518. The decrease in event-related direct operating expenses from concerts was due to a decrease in the number of events at the Company’s venues as compared to the prior year period, partially offset by higher per-concert expenses in the current year period. Selling, general, and administrative expenses For the three months ended September 30, 2023 selling, general, and administrative expenses increased $8,708 to $48,822 as compared to the prior year period. Results for the Fiscal 2024 first quarter reflect MSG Entertainment on a fully standalone basis. Results for the Fiscal 2023 first quarter reflect the allocation of corporate and administrative costs based on the accounting requirements for the preparation of carve-out financial statements. These results do not include all of the expenses that would have been incurred by MSG Entertainment had it been a standalone public company for the prior year period. This was the primary driver of the overall increase in selling, general and administrative expenses, partially offset by the impact of the Company’s transition services agreement with Sphere Entertainment. Depreciation and amortization For the three months ended September 30, 2023, depreciation and amortization decreased $2,400, or 15%, to $13,585 as compared to the prior year period primarily due to certain intangible assets being fully amortized and the disposal of a corporate aircraft during Fiscal Year 2023. Restructuring charges For the three months ended September 30, 2023, the Company recorded restructuring charges of $11,553 r elated to termination benefits for certain corporate executives and employees. No amounts were recorded as restructuring charges during the comparative prior year period. Operating loss For the three months ended September 30, 2023, operating loss was $33,425 as compared to $11,309 in the prior year period, an increase of $22,116. The increase in operating loss was primarily due to restructuring charges, an increase in selling, general, and administrative expenses, and a decrease in revenues as compared to the prior year period. Interest income For the three months ended September 30, 2023, interest income decreased $659, as compared to the prior year period primarily due to the impact of the MSGE Distribution, which impacted the year over year comparability since the prior year period included carve-out allocation costs and due to lower average balances in the Company’s cash, cash equivalents and restricted cash, partially offset by higher interest rates. Interest expens e 26 For the three months ended September 30, 2023, interest expense increased $2,860, as compared to the prior year period primarily due to higher interest expense incurred under the National Properties Credit Facilities. Other (expense) income, net For the three months ended September 30, 2023, other expense, net was $4,469 as compared to other income, net of $886 for the three months ended September 30, 2022, a decline of $5,355. The change was primarily due to (i) an increase in unrealized loss of $2,466 associated with the investment in Townsquare Media, Inc., (ii) lower gains of $2,265 associated with the investment in DraftKings Inc., and (iii) higher net periodic benefit costs of $1,026 associated with the Cash Balance Pension Plan. Income tax expense In general, the Company is required to use an estimated annual effective tax rate to measure the tax benefit or tax expense recognized in an interim period. Income tax benefit for the three months ended September 30, 2023 and 2022 of $659 and $2,066, respectively reflects an effective tax rate of 1% and 10%, respectively. The estimated annual effective tax rate is lower than the statutory federal tax rate of 21% primarily due to the offset of the valuation allowance. The estimated annual effective tax rate is revised on a quarterly basis. Adjusted operating income (“AOI”) The Company evaluates its performance based on several factors, of which the key financial measure is adjusted operating income (loss), a non-GAAP financial measure. We define adjusted operating income (loss) as operating income (loss) excluding: (i) the impact of non-cash straight-line leasing revenue associated with the Arena License Agreements with MSG Sports, (ii) depreciation, amortization and impairments of property and equipment, goodwill and intangible assets, (iii) share-based compensation expense, (iv) restructuring charges or credits, (v) merger, spin-off, and acquisition-related costs, including merger-related litigation expenses, (vi) gains or losses on sales or dispositions of businesses and associated settlements, (vii) the impact of purchase accounting adjustments related to business acquisitions, (viii) gains and losses related to the remeasurement of liabilities under the executive deferred compensation plan, and (ix) amortization for capitalized cloud computing arrangement costs. The Company believes that given the length of the Arena License Agreements and resulting magnitude of the difference in leasing revenue recognized and cash revenue received, the exclusion of non-cash leasing revenue provides investors with a clearer picture of the Company’s operating performance. Management believes that this adjustment is beneficial for other incremental reasons as well. This adjustment provides senior management, investors and analysts with important information regarding a long-term related party agreement with MSG Sports. In addition, this adjustment is included under the Company’s debt covenant compliance calculations and is a component of the performance measures used to evaluate, and compensate, senior management of the Company. The Company believes that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the Company’s business without regard to the settlement of an obligation that is not expected to be made in cash. The Company eliminates merger, spin-off, and acquisition-related costs, when applicable, because the Company does not consider such costs to be indicative of the ongoing operating performance of the Company as they result from an event that is of a non-recurring nature, thereby enhancing comparability. In addition, management believes that the exclusion of gains and losses related to the remeasurement of liabilities under the executive deferred compensation plan, provides investors with a clearer picture of the Company’s operating performance given that, in accordance with GAAP, gains and losses related to the remeasurement of liabilities under the executive deferred compensation plan are recognized in Operating (income) loss whereas gains and losses related to the remeasurement of the assets under the executive deferred compensation plan, which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities, are recognized in Other income (expense), net, which is not reflected in Operating income (loss). The Company believes AOI is an appropriate measure for evaluating the operating performance of the Company on a consolidated and combined basis. AOI and similar measures with similar titles are common performance measures used by investors and analysts to 27 analyze the Company’s performance. The Company uses revenues and AOI measures as the most important indicators of its business performance and evaluates management’s effectiveness with specific reference to these indicators. AOI should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with GAAP. Since AOI is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to AOI. The following is a reconciliation of operating loss to adjusted operating income (loss) for the three months ended September 30, 2023 as compared to the prior year period: Three Months Ended September 30, Change 2023 2022 Amount Percentage Operating loss $ (33,425) $ (11,309) $ (22,116) (196) % Non-cash portion of arena license fees from MSG Sports (a) (495) (519) 24 (5) % Depreciation and amortization 13,585 15,985 (2,400) (15) % Share-based compensation (excluding share-based compensation in restructuring charges) 6,177 7,410 (1,233) (17) % Restructuring charges 11,553 — 11,553 NM Merger, spin-off , and acquisition-related costs (b) 2,035 — 2,035 NM Amortization for capitalized cloud computing arrangement costs — 75 (75) (100) % Remeasurement of deferred compensation plan liabilities (145) (154) 9 NM Adjusted operating (loss) income $ (715) $ 11,488 $ (12,203) NM _________________ (a) This adjustment represents the non-cash portion of operating lease revenue related to the Company’s Arena License Agreements with MSG Sports. Pursuant to GAAP, recognition of operating lease revenue is recorded on a straight-line basis over the term of the agreement based upon the value of total future payments under the arrangement. As a result, operating lease revenue is comprised of a contractual cash component plus or minus a non-cash component for each period presented. Operating income on a GAAP basis includes lease income of (i) $829 of revenue collected in cash for the three months ended September 30, 2023, and $805 of revenue collected in cash for the three months ended September 30, 2022, and (ii) a non-cash portion of $495 for the three months ended September 30, 2023, and $519 for the three months ended September 30, 2022. (b) This adjustment represents non-recurring costs incurred and paid by the Company for the sale of the Retained Interest by Sphere Entertainment. NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful . Net loss attributable to nonredeemable noncontrolling interests For the three months ended September 30, 2023, the Company recorded $0 of net loss attributable to nonredeemable noncontrolling interests as compared to $372 of net loss attributable to nonredeemable noncontrolling interests for the three months ended September 30, 2022. These amounts represent the share of net loss of BCE that were not attributable to the Company. The Company disposed of its controlling interest in BCE on December 2, 2022. 28 Liquidity and Capital Resources Sources and Uses of Liquidity Our primary sources of liquidity are cash and cash equivalents, cash flows from our business operations and available borrowing capacity under the National Properties Revolving Credit Facility (as defined below) . Our principal uses of cash include working capital-related items (including funding our operations), capital spending, debt service, investments and related loans and advances that we may fund from time to time. We may also use cash to continue to repurchase shares of our Class Common A Stock pursuant to the share repurchase program authorized by our Board of Directors on March 29, 2023, of which there was $110,000 remaining as of September 30, 2023. Our decisions as to the use of our available liquidity will be based upon the ongoing review of the funding needs of the business, the optimal allocation of cash resources, and the timing of cash flow generation. To the extent that we desire to access alternative sources of funding through the capital and credit markets, challenging U.S. and global economic and market conditions could adversely impact our ability to do so at that time. We regularly monitor and assess our ability to meet our net funding and investing requirements. As of September 30, 2023, the Company’s unrestricted cash and cash equivalents balance was $37,179. The principal balance of the Company’s total debt outstanding as of September 30, 2023 was $732,405 and the Company had $44,254 of available borrowing capacity under its revolving credit facility. The principal balance of the Company’s total debt outstanding was reduced to $728,343 on October 2, 2023, upon completion of the required quarterly principal payment under the Company’s National Properties Term Loan Facility (as defined below). We believe we have sufficient liquidity from cash and cash equivalents, available borrowing capacity under our credit facilities and cash flows from operations to fund our operations and satisfy any obligations for the foreseeable future. In October 2023, the Company repaid $35,000 under the National Properties Revolving Credit Facility, as further discussed below. Financing Agreements See Note 9. Credit Facilities, to the financial statements included in “— Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussions of the Company’s debt obligations and various financing agreements. National Properties Facilities General. MSG National Properties, LLC (“MSG National Properties”), MSG Entertainment Holdings, LLC (“MSG Entertainment Holdings”) and certain subsidiaries of MSG National Properties are party to a credit agreement dated June 30, 2022 with JP Morgan Chase Bank, N.A., as administrative agent and the lenders and L/C issuers party thereto (as amended, the “National Properties Credit Agreement”), providing for a five-year, $650,000 senior secured term loan facility (the “National Properties Term Loan Facility”) and a five-year, $100,000 revolving credit facility (the “National Properties Revolving Credit Facility” and, together with the National Properties Term Loan Facility, the “National Properties Facilities”). On September 15, 2023, the National Properties Credit Agreement was amended to, among other things, increase the National Properties Revolving Credit Facility by $50,000 to $150,000. Up to $25,000 of the National Properties Revolving Credit Facility is available for the issuance of letters of credit. As of September 30, 2023 outstanding letters of credit were $15,646 and the remaining balance available under the National Properties Revolving Credit Facility was $44,254 . In October 2023, the Company made a principal repayment of $35,000 under the National Properties Revolving Credit Facility. Interest Rates. Borrowings under the current National Properties Facilities bear interest at a floating rate, which at the option of MSG National Properties may be either (a) a base rate plus an applicable margin ranging from 1.50% to 2.50% per annum, determined based on the total leverage ratio of MSG National Properties and its restricted subsidiaries (the “National Properties Base Rate”), or (b) adjusted Term SOFR (i.e., Term SOFR plus 0.10%) plus an applicable margin ranging from 2.50% to 3.50% per annum, determined based on the total leverage ratio of MSG National Properties and its restricted subsidiaries (the “National Properties SOFR Rate”). As of September 30, 2023, the additional rate used in calculating the floating rate was (i) 2.50% per annum for borrowings bearing the National Properties Base Rate, and (ii) 5.42% per annum for borrowings bearing the National Properties SOFR Rate. The National Properties Credit Agreement requires MSG National Properties to pay a commitment fee ranging from 0.30% to 0.50% in respect of the daily unused commitments under the National Properties Revolving Credit Facility. MSG National Properties is also required to pay customary letter of credit fees, as well as fronting fees, to banks that issue letters of credit pursuant to the National Properties Credit Agreement. The interest rate on the National Properties Facilities as of September 30, 2023 was 7.92%. Principal Repayments. Subject to customary notice and minimum amount conditions, the Company may voluntarily repay outstanding loans under the National Properties Facilities or terminate commitments under the National Properties Revolving Credit Facility, at any time, in whole or in part, subject only to customary breakage costs in the case of prepayment of Term SOFR loans. The National Properties Facilities will mature on June 30, 2027. The principal obligations under the National Properties Term Loan Facility are to be repaid in quarterly installments beginning with the fiscal quarter ended March 31, 2023, in an aggregate amount equal to 2.50% per 29 annum (0.625% per quarter), stepping up to 5.0% per annum (1.25% per quarter) in the fiscal quarter ending September 30, 2025, with the balance due at the maturity of the facility. On October 2, 2023, MSG National Properties made principal repayments of $4,062 under the National Properties Term Loan Facility. The principal obligations under the National Properties Revolving Credit Facility are due at the maturity of the facil ity. Under certain circumstances, MSG National Properties is required to make mandatory prepayments on loans outstanding, including prepayments in an amount equal to the net cash proceeds of certain sales of assets or casualty insurance and/or condemnation recoveries (subject to certain reinvestment, repair or replacement rights), subject to certain exceptions. Covenants. The National Properties Credit Agreement includes financial covenants requiring MSG National Properties and its restricted subsidiaries to maintain a specified minimum liquidity level, a specified minimum debt service coverage ratio and specified maximum total leverage ratio. The minimum liquidity level is set at $50,000, and is tested based on the level of average daily liquidity, consisting of cash and cash equivalents and available revolving commitments, over the last month of each quarter over the life of the National Properties Facilities. The debt service coverage ratio covenant began testing in the fiscal quarter ended December 31, 2022, and is set at a ratio of 2:1 before stepping up to 2.5:1 in the fiscal quarter ending September 30, 2024. The leverage ratio covenant began testing in the fiscal quarter ended June 30, 2023. It is tested based on the ratio of MSG National Properties and its restricted subsidiaries’ consolidated total indebtedness to adjusted operating income, with an initial maximum ratio of 6:1, stepping down to 5.5:1 in the fiscal quarter ending June 30, 2024 and 4.5:1 in the fiscal quarter ending June 30, 2026. As of September 30, 2023, MSG National Properties and its restricted subsidiaries were in compliance with the covenants of the National Properties Credit Agreement. In addition to the financial covenants discussed above, the National Properties Credit Agreement and the related security agreement contain certain customary representations and warranties, affirmative and negative covenants and events of default. The National Properties Credit Agreement contains certain restrictions on the ability of MSG National Properties and its restricted subsidiaries to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the National Properties Credit Agreement, including the following: (i) incur additional indebtedness; (ii) create liens on certain assets; (iii) make investments, loans or advances in or to other persons; (iv) pay dividends and distributions or repurchase capital stock (which will restrict the ability of MSG National Properties to make cash distributions to the Company); (v) repay, redeem or repurchase certain indebtedness; (vi) change its lines of business; (vii) engage in certain transactions with affiliates; (viii) amend their respective organizational documents; (ix) merge or consolidate; and (x) make certain dispositions. Guarantors and Collateral. All obligations under the National Properties Facilities are guaranteed by MSG Entertainment Holdings and MSG National Properties’ existing and future direct and indirect domestic subsidiaries, other than the subsidiaries that own The Garden and certain other excluded subsidiaries (the “Subsidiary Guarantors”). All obligations under the National Properties Facilities, including the guarantees of those obligations, are secured by certain of the assets of MSG National Properties and the Subsidiary Guarantors (collectively, “Collateral”) including, but not limited to, a pledge of some or all of the equity interests held directly or indirectly by MSG National Properties in each Subsidiary Guarantor. The Collateral does not include, among other things, any interests in The Garden or the leasehold interests in Radio City Music Hall and the Beacon Theatre. Contractual Obligations During the three months ended September 30, 2023, the Company did not have any material changes in its non-cancelable contractual obligations (other than activities in the ordinary course of business). See Note 8. Commitments and Contingencies, to the financial statements included in “— Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for further details on the Company’s contractual obligations. Cash Flow Discussion As of September 30, 2023, cash, cash equivalents and restricted cash totaled $39,516, as compared to $84,355 as of June 30, 2023. The following table summarizes the Company’s cash flow activities for the three months ended September 30, 2023 and 2022: Three Months Ended September 30, 2023 2022 Net cash provided by (used in) operating activities $ 1,378 $ (57,326) Net cash used in investing activities (55,490) (1,036) Net cash provided by financing activities 9,273 102,096 Net (decrease) increase in cash, cash equivalents and restricted cash $ (44,839) $ 43,734 30 Operating Activities Net cash provided by operating activities for the three months ended September 30, 2023 improved by $58,704 to $1,378 as compared to the prior year period, primarily due to (i) increase in related parties receivables and payables net, and (ii) increase in deferred revenue, partially offset by (i) increase in accounts receivable, net, and (ii) a decrease in accounts payable, accrued and other current and non-current liabilities. Investing Activities Net cash used in investing activities for the three months ended September 30, 2023 increased by $54,454 to $55,490 as compared to the prior year period primarily due to a loan to a related party under the DDTL facility, partially offset by additional proceeds received from the sale of investments in the current year period as compared to the prior year period. Financing Activities Net cash provided by financing activities for the three months ended September 30, 2023 decreased by $92,823 to $9,273 as compared to the prior year period primarily due to (i) a decrease in net transfers from Sphere Entertainment and Sphere Entertainment’s subsidiaries under carve-out accounting principles, (ii) increase in stock repurchases, and (iii) increase in taxes paid in lieu of shares for equity based compensation in the current period, partially offset by proceeds received from revolving credit facility in the current period. Seasonality of Our Business The revenues the Company earns from the Christmas Spectacular and arena license fees from MSG Sports in connection with the Knicks’ and Rangers’ use of The Garden generally means the Company earns a disproportionate share of its revenues and operating income in the second and third quarters of the Company’s fiscal year, with the first and fourth fiscal quarters being disproportionately lower. Recently Issued Accounting Pronouncements and Critical Accounting Estimates Recently Issued and Adopted Accounting Pronouncements See Note 2. Accounting Policies, to the financial statements included in “— Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussion of recently issued accounting pronouncements. Critical Accounting Estimates There have been no material changes to the Company’s critical accounting estimates. In addition to the critical accounting estimates disclosed below, see Note 17. Related Party Transactions to the 2023 Form 10-K for further details on corporate allocations recorded in the consolidated and combined financial statements. The preparation of the Company’s consolidated and combined financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Management believes its use of estimates in the consolidated and combined financial statements to be reasonable. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following: Revenue Recognition – Arrangements with Multiple Performance Obligations The Company enters into arrangements with multiple performance obligations, such as multi-year sponsorship agreements which may derive revenues for both the Company as well as MSG Sports within a single arrangement. The Company also derives revenue from similar types of arrangements which are entered into by MSG Sports. Payment terms for such arrangements can vary by contract, but payments are generally due in installments throughout the contractual term. The performance obligations included in each sponsorship agreement vary and may include advertising and other benefits such as, but not limited to, signage at The Garden and the Company’s other venues, digital advertising, and event or property specific advertising, as well as non-advertising benefits such as suite licenses and event tickets. To the extent the Company’s multi-year arrangements provide for performance obligations that are consistent over the multi-year contractual term, such performance obligations generally meet the definition of a series as provided for under the accounting guidance. If performance obligations are concluded to meet the definition of a series, the contractual fees for all years during the contract term are aggregated and the related revenue is recognized proportionately as the underlying performance obligations are satisfied. 31 The timing of revenue recognition for each performance obligation is dependent upon the facts and circumstances surrounding the Company’s satisfaction of its respective performance obligation. The Company allocates the transaction price for such arrangements to each performance obligation within the arrangement based on the estimated relative standalone selling price of the performance obligation. The Company’s process for determining its estimated standalone selling prices involves management’s judgment and considers multiple factors including company specific and market specific factors that may vary depending upon the unique facts and circumstances related to each performance obligation. Key factors considered by the Company in developing an estimated standalone selling price for its performance obligations include, but are not limited to, prices charged for similar performance obligations, the Company’s ongoing pricing strategy and policies, and consideration of pricing of similar performance obligations sold in other arrangements with multiple performance obligations. The Company incurs costs such as commissions to obtain its multi-year sponsorship agreements. The Company assesses such costs for capitalization on a contract by contract basis. To the extent costs are capitalized, the Company estimates the useful life of the related contract asset which may be the underlying contract term or the estimated customer life depending on the facts and circumstances surrounding the contract. The contract asset is amortized over the estimated useful life.