What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-07 compared with 2023-11-07 · 146 added, 119 removed, 230 unchanged (54% of the section changed)

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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”).

In this MD&A, there are statements concerning the future operating and future financial performance of Madison Square Garden Entertainment Corp.

(“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.

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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.

In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q 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.

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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.

Description of Business and Basis of Presentation 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.

This section provides an analysis of our unaudited results of operations for the three and six months ended December 31, 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.

This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the six months ended December 31, 2023 and 2022, as well as certain contractual obligations.

Seasonality of Our Business.

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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.

This section should be read together with our critical accounting estimates, 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 Annual 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.

The consolidated statement of operations for the three and six months ended December 31, 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 and six months ended December 31, 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.

Description of Business and Basis of Presentation 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.

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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.

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.

In addition, Fiscal Year 2024 has been and will continue to be impacted by increased rent expense 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.

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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.

The condensed combined statements of operations for the three and six months ended December 31, 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.

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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.

Description of Business and Basis of Presentation to the condensed consolidated and combined financial statements included elsewhere in this document for additional information.

Description of Business and Basis of Presentation to the condensed consolidated and combined financial statements included elsewhere in this Quarterly Report on Form 10-Q 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.

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• anticipated executive compensation costs related to existing and new executive management and excluding future share-based compensation expense;

• 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.

• fees for preparing and distributing periodic filings with the Securities and Exchange Commission.

These costs will not be fully reflected in a complete year of the Company’s financial statements until the year ending Fiscal 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

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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.

For the three and six months ended December 31, 2022, the Company recognized $8,424 and $8,802, respectively, 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.

Results of Operations

Comparison of the three months ended September 30, 2023 versus the three months ended September 30, 2022.

Comparison of the three and six months ended December 31, 2023 versus the three and six months ended December 31, 2022.

Three Months Ended

September 30, Change

December 31, Change

2023 2022 Amount Percentage

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Depreciation and amortization (13,205) (15,586) 2,381 15 %

Restructuring charges (11,553) — (11,553) NM

Operating loss

(33,425) (11,309) (22,116) (196) %

Gains, net on dispositions — 4,412 (4,412) NM

Restructuring charges (888) (7,359) 6,471 88 %

Operating income 137,423 113,443 23,980 21 %

Interest income 1,083 1,812 (729) (40) %

Interest expense (15,049) (13,205) (1,844) (14) %

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

(50,671) (18,274) (32,397) (177) %

Other income (expense), net 2,846 (2,172) 5,018 NM

Income from operations before income taxes 126,303 99,878 26,425 26 %

Income tax expense (1,054) (2,797) 1,743 62 %

Net income 125,249 97,081 28,168 29 %

Net loss attributable to nonredeemable noncontrolling interest — (181) 181 NM

Net loss attributable to MSG Entertainment’s stockholders

Net income attributable to MSG Entertainment’s stockholders $ 125,249 $ 97,262 $ 27,987 29 %

Six Months Ended

December 31, Change

2023 2022 Amount Percentage

Revenues $ 544,878 $ 502,332 $ 42,546 8 %

Direct operating expenses (304,438) (282,265) (22,173) (8) %

Selling, general, and administrative expenses

(97,211) (83,415) (13,796) (17) %

Depreciation and amortization (26,789) (31,571) 4,782 15 %

Gains, net on dispositions — 4,412 (4,412) NM

Restructuring charges (12,441) (7,359) (5,082) (69) %

Operating income 103,999 102,134 1,865 2 %

Interest income 1,935 3,322 (1,387) (42) %

Interest expense (29,336) (24,632) (4,704) (19) %

Other expense, net (1,625) (1,286) (339) (26) %

Income from operations before income taxes 74,973 79,538 (4,565) (6) %

Income tax expense (395) (731) 336 46 %

Net income 74,578 78,807 (4,229) (5) %

Net loss attributable to nonredeemable noncontrolling interest — (553) 553 NM

Net income attributable to MSG Entertainment’s stockholders $ 74,578 $ 79,360 $ (4,782) (6) %

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NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.

Revenues for the three months ended September 30, 2023 decreased $4,240 as compared to the prior year period.

Revenues for the three and six months ended December 31, 2023 increased $46,786 and $42,546, respectively, as compared to the prior year period.

The changes in revenues were attributable to the following:

Three Months Ended

September 30,

Decrease in event-related revenues

Increase in revenues subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements 2,716

Three Months Ended Six Months Ended

Increase in event-related revenues

$ 44,263 $ 35,993

Increase in revenues from the presentation of the Christmas Spectacular

17,880 17,822

Decrease in commissions due to termination of the Networks Advertising Sales Representation Agreement (8,424) (8,802)

Decrease in arena license fees from MSG Sports pursuant to the Arena License Agreements (7,296) (7,296)

(Decrease) increase in revenues subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements (2,479) 228

Other net increases 2,842 4,601

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.

$ 46,786 $ 42,546

For the three and six months ended December 31, 2023, the increase in event-related revenues primarily reflects (i) higher revenues from concerts of $28,851 and $21,534, respectively, and (ii) higher revenues from other live entertainment and sporting events of $15,412 and $14,458, respectively.

The increase in event-related revenues was due to an increase in the number of events at the Company’s venues as compared to the prior year period and, to a lesser extent, higher per-event revenues in the current year period.

The Company had 193 Christmas Spectacular performances during this year’s holiday season, of which 183 took place in the second quarter of Fiscal Year 2024, as compared to 181 performances in the prior year’s holiday season, of which 174 took place in the second quarter of Fiscal Year 2023.

For this year’s holiday season, more than 1,000,000 tickets were sold, as compared to more than 930,000 tickets sold in the prior year.

For the three and six months ended December 31, 2023, the increase in revenues from the presentation of the Christmas Spectacular production, as compared to the prior year periods, was primarily due to higher ticket-related revenues.

This reflected higher per-show revenue and, to a lesser extent, an increase in the number of performances as compared to the prior year periods.

The increase in per-show ticket-related revenues was due to higher average ticket yield and higher average per-show attendance as compared to the prior year periods.

For the three and six months ended December 31, 2023, the decrease in arena license fees was due to nine fewer Knicks and Rangers games played at The Garden in the current year period.

In the three and six months ended December 31, 2023, the Knicks and Rangers played a combined 32 and 34 pre/regular season games at The Garden, respectively, as compared to 41 and 43 combined pre/regular season games, respectively, in the prior year periods.

For the three months ended December 31, 2023, the decrease in revenues subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements primarily reflects lower food, beverage and merchandise sales at Knicks and Rangers games, which mainly reflects fewer Knicks and Rangers games played at The Garden as compared to the prior year period, partially offset by higher average per-game revenue.

For the six months ended December 31, 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, partially offset by lower food, beverage and merchandise sales at Knicks and Rangers games.

Direct operating expenses

Direct operating expenses for the three months ended September 30, 2023 increased $15 as compared to the prior year period.

Direct operating expenses for the three and six months ended December 31, 2023 increased $22,158 and $22,173 as compared to the prior year period.

The changes in direct operating expenses were attributable to the following:

Three Months Ended

September 30,

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

Other net increases

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.

Three Months Ended Six Months Ended

Increase in event-related direct operating expenses $ 19,843 $ 15,107

Increase in direct operating expenses associated with the Christmas Spectacular

(Decrease) increase in expenses associated with the sharing of economics with MSG Sports pursuant to the Arena License Agreements (319) 2,060

Other net (decreases) increases (968) 951

$ 22,158 $ 22,173

For the three and six months ended December 31, 2023, the increase in event-related direct operating expenses reflects (i) higher direct operating expenses from concerts of $12,697 and $8,478, respectively, and (ii) higher direct operating expenses from other live entertainment and sporting events of $7,148 and $6,629, respectively.

The increase in event-related direct operating expenses was due to an increase in the number of events at the Company’s venues as compared to the prior year periods and, to a lesser extent, higher per-event expenses in the current year periods.

For the three and six months ended December 31, 2023, the increase in direct operating expenses associated with the Christmas Spectacular production was primarily due to the increase in the number of performances as compared to the prior year periods, partially offset by lower average per-show expenses.

For the three months ended December 31, 2023, the decrease in direct operating expenses subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements primarily reflects lower food, beverage and merchandise sales at Knicks and Rangers games.

For the six months ended December 31, 2023, the increase in direct operating expenses subject to 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.

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.

For the three and six months ended December 31, 2023, selling, general, and administrative expenses increased $5,088 and $13,796, respectively, as compared to the prior year periods.

Results for Fiscal Year 2024 reflect MSG Entertainment on a fully standalone basis.

Results for the first six months of Fiscal Year 2023 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 periods.

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.

For the three and six months ended December 31, 2023, depreciation and amortization decreased $2,381 and $4,782, respectively, as compared to the prior year period primarily due to certain intangible assets being fully amortized in the current year as well as the disposal of a corporate aircraft during Fiscal Year 2023.

Gains, net on dispositions

Gains, net on dispositions for the three and six months ended December 31, 2023 were $0 as compared to a net gain of $4,412 in the three and six months ended December 31, 2022.

The net gain in the prior year periods was due to the gain on sale of the Company’s controlling interest in Boston Calling Events, LLC (the “BCE Disposition”), partially offset by the net loss on 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.

For the three and six months ended December 31, 2023, the Company recorded restructuring charges of $888 and $12,441, respectively, which r elated to termination benefits for certain corporate executives and employees.

For the three and six months ended December 31, 2022, the Company recorded restructuring charges of $7,359 which related to the termination benefits provided due to a

workforce reduction of certain executives and employees as part of Sphere Entertainment’s cost reduction program implemented in Fiscal Year 2023.

Operating income

For the three and six months ended December 31, 2023, operating income increased by $23,980 and $1,865, respectively.

The increase in operating income for the three months ended December 31, 2023 was primarily due to an increase in revenues and lower restructuring charges, partially offset by an increase in direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses, as compared to the prior year period.

The increase in operating income for the six months ended December 31, 2023 was primarily due to an increase in revenues, partially offset by an increase in direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses and restructuring charges, 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.

For the three and six months ended December 31, 2023, interest income decreased $729 and $1,387, respectively, as compared to the prior year period primarily due to (i) the impact of the MSGE Distribution, which impacted the year-over-year comparability of results since the prior year period included carve-out allocation costs and (ii) lower average balances in the Company’s cash, cash equivalents and restricted cash, partially offset by higher interest rates.

Interest expens e

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.

For the three and six months ended December 31, 2023, interest expense increased $1,844 and $4,704, respectively, as compared to the prior year period primarily due to higher interest rates on borrowings and higher revolver borrowings under the National Properties 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.

For the three months ended December 31, 2023, other income, net was $2,846 as compared to other expenses, net of $2,172 for the three months ended December 30, 2022, an increase of $5,018.

The change was primarily due to (i) an increase in unrealized gains of $3,175 associated with the investment in Townsquare Media, Inc., (ii) the absence of a $2,512 unrealized loss associated with the investment in DraftKings Inc.

recognized in the prior period, partially offset by (iii) higher net periodic benefit costs of $1,244 associated with the Company’s funded and unfunded and qualified and non-qualified defined benefit plans (the “Pension Plans”).

For the six months ended December 31, 2023, other expense, net increased $339 as compared to the prior year period.

The change was primarily due to (i) higher net periodic benefit costs of $2,096 associated with the Pension Plans, partially offset by (ii) a decrease in unrealized loss of $709 associated with the investment in Townsquare Media, Inc., and (iii) an increase in gains of $247 associated with the investment in DraftKings Inc.

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.

Income tax expense for the three and six months ended December 31, 2023 of $1,054 and $395, respectively reflects an effective tax rate of 1%.

Income tax expense for the three and six months ended December 31, 2022 of $2,797 and $731, respectively, reflects an effective tax rate of 3% and 1%, 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.

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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

analyze the Company’s performance.

AOI and similar measures with similar titles are common performance measures used by investors and analysts to 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.

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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:

The following is a reconciliation of operating income to adjusted operating income for the three and six months ended December 31, 2023 as compared to the prior year periods:

Three Months Ended

September 30, Change

December 31, Change

2023 2022 Amount Percentage

Operating loss $ (33,425) $ (11,309) $ (22,116) (196) %

Operating income $ 137,423 $ 113,443 $ 23,980 21 %

Non-cash portion of arena license fees from MSG Sports (a)

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7,773 6,555 1,218 19 %

Restructuring charges 11,553 — 11,553 NM

Gains, net on dispositions — (4,412) 4,412 NM

Restructuring charges 888 7,359 (6,471) (88) %

Amortization for capitalized cloud computing arrangement costs 448 29 419 NM

Remeasurement of deferred compensation plan liabilities 343 160 183 114 %

Adjusted operating income $ 150,960 $ 126,310 $ 24,650 20 %

Six Months Ended

December 31, Change

2023 2022 Amount Percentage

Operating income $ 103,999 $ 102,134 $ 1,865 2 %

Non-cash portion of arena license fees from MSG Sports (a)

(9,615) (12,929) 3,314 26 %

Depreciation and amortization 26,790 31,571 (4,781) (15) %

Share-based compensation (excluding share-based compensation in restructuring charges)

13,950 13,965 (15) NM

Gains, net on dispositions — (4,412) 4,412 NM

Restructuring charges 12,441 7,359 5,082 69 %

Merger, spin-off , and acquisition-related costs (b)

2,035 — 2,035 NM

Amortization for capitalized cloud computing arrangement costs — 75 (75) (100) %

Amortization for capitalized cloud computing arrangement costs 448 104 344 NM

Remeasurement of deferred compensation plan liabilities 198 6 192 NM

Adjusted operating (loss) income

$ (715) $ 11,488 $ (12,203) NM

Adjusted operating income $ 150,246 $ 137,798 $ 12,448 9 %

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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.

Operating income on a GAAP basis includes lease income of (i) $15,409 and $16,238 of revenue collected in cash for the three and six months ended December 31, 2023, respectively, and $19,416 and $20,220 of revenue collected in cash for the three and six months ended December 31, 2022, respectively, and (ii) a non-cash portion of $9,120 and $9,615 for the three and six months ended December 31, 2023, respectively, and $12,410 and $12,929 for the three and six months ended December 31, 2022, respectively.

(b) This adjustment represents non-recurring costs incurred and paid by the Company for the sale of the Retained Interest by Sphere Entertainment.

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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.

For the three and six months ended December 31, 2023, the Company recorded $0 of net loss attributable to nonredeemable noncontrolling interests as compared to $181 and $553 of net loss attributable to nonredeemable noncontrolling interests for the three and six months ended December 31, 2022.

These amounts represent the share of net loss of BCE that were not attributable to the Company.

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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.

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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).

As of December 31, 2023, the Company’s unrestricted cash and cash equivalents balance was $35,229.

The principal balance of the Company’s total debt outstanding as of December 31, 2023 was $633,750 and the Company had $132,409 of available borrowing capacity under the National Properties Revolving Credit Facility.

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

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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.

As of December 31, 2023 outstanding letters of credit were $17,591 and the remaining balance available under the National Properties Revolving Credit Facility was $132,409 .

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%.

The interest rate on the National Properties Facilities as of December 31, 2023 was 8.46%.

Principal Repayments.

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The National Properties Facilities will mature on June 30, 2027.

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 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 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.

The principal obligations under the National Properties Revolving Credit Facility are due at the maturity of the facil ity.

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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.

As of December 31, 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.

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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.

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).

During the six months ended December 31, 2023, the Company did not have any material changes in its non-cancelable contractual obligations other than the recognition of an additional lease obligation and right-of-use lease asset and activities in the ordinary course of business.

Property and Equipment, Net and Note 9.

Commitments and Contingencies, to the financial statements included in “— Item 1.

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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,

Net cash provided by (used in) operating activities

As of December 31, 2023, cash, cash equivalents and restricted cash totaled $37,572, as compared to $84,355 as of June 30, 2023.

The following table summarizes the Company’s cash flow activities for the six months ended December 31, 2023 and 2022:

Six Months Ended

Net cash provided by operating activities

$ 105,232 $ 69,336

Net cash used in investing activities

Net cash (used in) provided by investing activities

(62,731) 22,390

Net cash provided by financing activities

Net cash used in financing activities

(89,284) (553)

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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.

Net cash provided by operating activities for the six months ended December 31, 2023 improved by $35,896 to $105,232 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.

Net cash used in investing activities for the six months ended December 31, 2023 increased by $85,121 to $62,731 as compared to the prior year period primarily due (i) to a loan to a related party under the DDTL facility, and (ii) the absence of proceeds received from the dispositions of BCE and the corporate aircraft recognized in the prior year period, 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.

Net cash used in financing activities for the six months ended December 31, 2023 increased by $88,731 to $89,284 as compared to the prior year period primarily due to (i) an increase in principal debt repayments, (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 the National Properties Revolving Credit Facility and a decrease in net transfers from Sphere Entertainment and Sphere Entertainment’s subsidiaries under carve-out accounting principles in the current period.

Seasonality of Our Business

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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.

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.

There have been no material changes to the Company’s critical accounting estimates from those set forth in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis