What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2024-02-07 · 163 added, 115 removed, 261 unchanged (52% of the section changed)

40 unchanged sentences

• our status as an emerging growth company;

• 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”).

• 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 with the Securities and Exchange Commission (the “SEC”) 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.

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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”).

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, $0.01 par value per share (“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.

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Results of Operations.

This section provides an analysis of our unaudited results of operations for the three and six months ended December 31, 2023 and 2022.

This section provides an analysis of our unaudited results of operations for the three and nine months ended March 31, 2024 and 2023.

Liquidity and Capital Resources.

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.

This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the nine months ended March 31, 2024 and 2023, as well as certain contractual obligations.

Seasonality of Our Business.

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Factors Affecting Results of Operations

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.

The consolidated statement of operations for the three and nine months ended March 31, 2024 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 nine months ended March 31, 2023 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.

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MSGE Distribution

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.

The condensed combined statements of operations for the three and nine months ended March 31, 2023 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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• 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.

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

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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 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.

For the three and nine months ended March 31, 2023, the Company recognized $0 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 and six months ended December 31, 2023 versus the three and six months ended December 31, 2022.

Effective for the third quarter of Fiscal 2024, the Company modified its presentation of revenues and direct operating expenses.

Total revenue is now presented in three categories consisting of i) Revenues from entertainment offerings, ii) Food, beverage, and merchandise revenues, and iii) Arena license fees and other leasing revenues.

In addition, total direct operating expenses is now presented in two categories consisting of i) Entertainment offerings and leasing direct operating expenses and ii) food, beverage, and merchandise direct operating expenses.

Prior period financial information has been revised to conform with the current period presentation.

Comparison of the three and nine months ended March 31, 2024 versus the three and nine months ended March 31, 2023.

Three Months Ended

December 31, Change

March 31, Change

2024 2023 Amount Percentage

Revenues $ 402,666 $ 355,880 $ 46,786 13 %

Revenues from entertainment offerings

$ 146,221 $ 129,260 $ 16,961 13 %

Food, beverage, and merchandise revenues 45,380 39,954 5,426 14 %

Arena license fees and other leasing revenue

36,712 32,015 4,697 15 %

Total revenues 228,313 201,229 27,084 13 %

Direct operating expenses

Entertainment offerings, arena license fees, and other leasing direct operating expenses

(112,997) (90,296) (22,701) (25) %

Food, beverage, and merchandise direct operating expenses

(29,024) (24,837) (4,187) (17) %

Total Direct operating expenses (142,021) (115,133) (26,888) (23) %

Selling, general, and administrative expenses

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Depreciation and amortization (13,182) (14,798) 1,616 11 %

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

Loss, net on dispositions — (51) 51 NM

Restructuring charges (2,362) (2,461) 99 4 %

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Interest expense (14,425) (13,423) (1,002) (7) %

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

Other income, net 78 8,070 (7,992) (99) %

Income from operations before income taxes 2,797 21,793 (18,996) (87) %

Income tax expense (2) (73) 71 97 %

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

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

Net income attributable to MSG Entertainment’s stockholders $ 2,795 $ 21,720 $ (18,925) (87) %

Six Months Ended

December 31, Change

Nine Months Ended

March 31, Change

2024 2023 Amount Percentage

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

Revenues from entertainment offerings

$ 581,025 $ 524,331 $ 56,694 11 %

Food, beverage, and merchandise revenues 127,379 112,412 14,967 13 %

Arena license fees and other leasing revenue

64,787 66,818 (2,031) (3) %

Total revenues

773,191 703,561 69,630 10 %

Direct operating expenses

Entertainment offerings, arena license fees, and other leasing direct operating expenses

(375,786) (332,290) (43,496) (13) %

Food, beverage, and merchandise direct operating expenses

(70,673) (65,108) (5,565) (9) %

Total direct operating expenses

(446,459) (397,398) (49,061) (12) %

Selling, general, and administrative expenses

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Interest expense (43,761) (38,055) (5,706) (15) %

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

Other (expense) income, net (1,545) 6,784 (8,329) NM

Income from operations before income taxes 77,770 101,331 (23,561) (23) %

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

Revenues for the three and nine months ended March 31, 2024 increased $27,084 and $69,630, respectively, as compared to the prior year period.

The changes in revenues were attributable to the following:

Three Months Ended Six Months Ended

Increase in event-related revenues

Three Months Ended Change

2024 March 31,

Revenues from entertainment offerings

$ 146,221 $ 129,260 $ 16,961

Increase in revenues from the presentation of the Christmas Spectacular

Food, beverage, and merchandise revenues 45,380 39,954 5,426

Arena license fees and other leasing revenue

36,712 32,015 4,697

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

$ 228,313 $ 201,229 $ 27,084

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.

Nine Months Ended Change

2024 March 31,

Revenues from entertainment offerings

$ 581,025 $ 524,331 $ 56,694

Food, beverage, and merchandise revenues 127,379 112,412 14,967

Arena license fees and other leasing revenue

64,787 66,818 (2,031)

$ 773,191 $ 703,561 $ 69,630

Revenues from entertainment offerings

For the three months ended March 31, 2024 the increase in revenues from entertainment offerings was primarily due to (i) higher event-related revenues of $10,667 and (ii) an increase in revenues subject to the sharing economics with MSG Sports pursuant to the Arena License Agreements of $6,796.

For the three months ended March 31, 2024, the increase in event-related revenues reflects higher revenues from concerts of $16,855, primarily due to an increase in the number of concerts at the Company’s venues, partially offset by lower revenues from other live entertainment and sporting events (excluding the Knicks and Rangers) of $6,188, primarily due to the absence of a marquee sporting event that took place in the prior year period.

For the three months ended March 31, 2024, 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 revenue and, to a lesser extent, higher commissions on merchandise sales in the current year period.

For the nine months ended March 31, 2024, the increase in revenues from entertainment offerings was primarily due to (i) higher event-related revenues of $36,784, (ii) ticket related revenues from the presentation of the Christmas Spectacular production of $15,786, (iii) an increase in revenues subject to the sharing economics with MSG Sports pursuant to the Arena License Agreements of $9,520, partially offset by (iv) lower revenues of $8,802 due to the termination of the Networks Advertising Sales Representation Agreement.

For the nine months ended March 31, 2024, the increase in event-related revenues primarily reflects higher revenues from concerts of $30,191, due to an increase in the number of concerts at the Company’s venues, and to a lesser extent, higher average per-concert revenue in the current year period.

For the nine months ended March 31, 2024, the increase in revenues from the presentation of the Christmas Spectacular production, as compared to the prior year period, 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.

For the nine months ended March 31, 2024, 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 revenue and, to a lesser extent, higher commissions on merchandise sales, both as compared to the prior year period.

Food, beverage, and merchandise revenues

For the three months ended March 31, 2024, the increase in food, beverage and merchandise revenues was primarily due to higher food and beverage sales at Knicks and Rangers games, and to a lesser extent, higher food and beverage sales at concerts at the Company’s venues.

For the three months ended March 31, 2024, the increase in food and beverage sales at Knicks and Rangers games was primarily due to the impact of five more Knicks games played at The Garden, as compared to the prior year quarter, and to a lesser extent, higher average per-game revenues in the current year quarter.

For the three months ended March 31, 2024, the increase in food and beverage sales at concerts, was primarily due to the increase in the number of concerts held at the Company’s venues, as compared to the prior year period, partially offset by lower per-concert food and beverage revenues, which reflects a mix shift to more concerts at the Company’s theaters during the quarter.

For the nine months ended March 31, 2024, the increase in food, beverage and merchandise revenues was primarily due to higher food and beverage sales at concerts held at the Company’s venues, and to a lesser extent, higher food, beverage, and merchandise sales from the presentation of the Christmas Spectacular production.

For the nine months ended March 31, 2024 the increase in food and beverage sales at concerts was due to an increase in the number of concerts held at the Company’s venues and to a lesser extent, higher average per-concert revenues in the current year period.

Arena license fees and other leasing revenue

For the three months ended March 31, 2024, the increase in revenues was primarily due to higher arena license fees from MSG Sports pursuant to the Arena License Agreements due to five more Knicks games played at The Garden in the current year period.

For the nine months ended March 31, 2024, the decrease in revenues was due to lower arena license fees from MSG Sports pursuant to

the Arena License Agreements due to four fewer Knicks and Rangers games played at The Garden in the current year period, partially offset by an increase in other leasing revenue.

In the three and nine months ended March 31, 2024, the Knicks and Rangers played a combined 45 and 79 pre/regular season games at The Garden, respectively, as compared to 40 and 83 combined pre/regular season games, respectively, in the prior year periods.

Direct operating expenses

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.

Direct operating expenses for the three and nine months ended March 31, 2024 increased $26,888 and $49,061 as compared to the prior year period.

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

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

Three Months Ended Change

2024 March 31,

Entertainment offerings, arena license fees, and other leasing direct operating expenses (a)

$ 112,997 $ 90,296 $ 22,701

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.

Food, beverage, and merchandise direct operating expenses (a)

29,024 24,837 4,187

$ 142,021 $ 115,133 $ 26,888

Nine Months Ended Change

2024 March 31,

Entertainment offerings, arena license fees, and other leasing direct operating expenses (a)

$ 375,786 $ 332,290 $ 43,496

Food, beverage, and merchandise direct operating expenses (a)

70,673 65,108 5,565

$ 446,459 $ 397,398 $ 49,061

________________

(a) Venue operations and infrastructure costs are not specifically allocated to each revenue stream, but are instead attributed in their entirety to service revenue which is the Company’s principal revenue stream.

Leasing direct operating expenses materially consist of venue operations and infrastructure costs.

As a result, the Company combines service and leasing direct operating expenses as “Entertainment offerings, arena license fees, and other leasing direct operating expenses” for presentation purposes.

Direct Operating Expenses Associated with Entertainment Offerings, Arena License Fees and Other Leasing

For the three and nine months ended March 31, 2024, the increase in direct operating expenses associated with entertainment offerings, arena license fees, and other leasing reflects (i) higher event-related expenses of $12,038, and $24,978, respectively, (ii) higher expenses associated with the sharing economics with MSG Sports pursuant to the Arena License Agreements of $6,041, and $8,974, respectively, and (iii) higher venue operating costs of $2,584, and $1,094, respectively.

For the nine months ended March 31, 2024, the increase in direct operating expenses also reflects higher expenses related to the presentation of the Christmas Spectacular production of $4,337.

For the three and nine months ended March 31, 2024, the increase in event-related expenses was primarily due to higher direct operating expenses from concerts of $11,665, and $18,905, respectively, which was primarily due to the increase in the number of concerts at the Company’s venues and, to a lesser extent, higher per-concert expenses.

For the three and nine months ended March 31, 2024, the increase in 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.

Direct Operating Expenses Associated with Food, Beverage, and Merchandise

For the three months ended March 31, 2024, the increase in food, beverage and merchandise direct operating expenses was primarily driven by the related increase in food and beverage sales at Knicks and Rangers games and, to a lesser extent, the increase in food and beverage sales at concerts held at the Company’s venues.

For the nine months ended March 31, 2024,the increase in food, beverage and merchandise direct operating expenses was primarily driven by the related increase in food and beverage sales at concerts held at the Company’s venues and, to a lesser extent, the increase in food, beverage, and merchandise sales related to the presentation of the Christmas Spectacular production.

Selling, general, and administrative expenses

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.

For the three and nine months ended March 31, 2024, selling, general, and administrative expenses increased $9,823 and $23,619, 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.

Results for the first nine 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.

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Depreciation and amortization

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.

For the three and nine months ended March 31, 2024, depreciation and amortization decreased $1,616 and $6,397, 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.

(Loss) gains, net on dispositions

(Loss) gains, net on dispositions for the three and nine months ended March 31, 2024 were $0 as compared to a net loss of $51 and a net gain of $4,361 in the three and nine months ended March 31, 2023.

The net gains in the prior year nine month period were due to the gain on sale of the Company’s controlling interest in Boston Calling Events, LLC, partially offset by the loss on the disposal of a corporate aircraft during Fiscal Year 2023.

Restructuring charges

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.

For the three and nine months ended March 31, 2024, the Company recorded restructuring charges of $2,362 and $14,803, respectively, which r elated to termination benefits for certain corporate executives and employees.

For the three and nine months ended March 31, 2023, the Company recorded restructuring charges of $2,461 and $9,820, respectively 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.

For the three and nine months ended March 31, 2024, operating income decreased by $7,861 and $5,997, respectively.

The decrease in operating income for the three months and nine months ended March 31, 2024 was primarily due to an increase in direct operating expenses and higher selling, general and administrative expenses, partially offset by an increase in revenues and decrease in depreciation and amortization, as compared to the prior year period.

Interest income

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 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 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.

For the three and nine months ended March 31, 2024, interest income decreased $2,141 and $3,529, 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 expense

For the three and nine months ended March 31, 2024, interest expense increased $1,002 and $5,706, 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 income (expense), net

For the three months ended March 31, 2024, other income, net was $78 as compared to $8,070 for the three months ended March 31, 2023, a decrease of $7,992.

The change was primarily due to (i) a decrease in unrealized gains of $1,689 associated with the investment in Townsquare Media, Inc., (ii) the absence of a $5,104 unrealized gain associated with the investment in DraftKings Inc.

recognized in the prior period, and (iii) higher net periodic benefit costs of $1,079 associated with the Company’s funded and unfunded and qualified and non-qualified defined benefit plans (the “Pension Plans”).

For the nine months ended March 31, 2024, other income (expense), net decreased $8,329 as compared to the prior year period.

The change was primarily due to (i) an increase in unrealized loss of $980 associated with the investment in Townsquare Media, Inc., (ii)

the absence of a gain of $4,916 associated with the investment in DraftKings Inc.

recognized in the prior period, and (iii) higher net periodic benefit costs of $3,140 associated with the Pension Plans.

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 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.

Income tax expense for the three and nine months ended March 31, 2024 of $2 and $397, respectively, reflects effective tax rates of 0% and 1%, respectively.

Income tax expense for the three and nine months ended March 31, 2023 of $73 and $804, respectively, reflects effective tax rates of 0% 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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Adjusted operating income (“AOI”)

The Company has amended the definition of adjusted operating income so that the impact of the non-cash portion of operating lease costs related to the Company’s Arena License Agreements with MSG Sports is no longer excluded in all periods presented.

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.

(i) depreciation, amortization and impairments of property and equipment, goodwill and intangible assets,

(ii) share-based compensation expense,

(iii) restructuring charges or credits,

(iv) merger, spin-off, and acquisition-related costs, including merger-related litigation expenses,

(v) gains or losses on sales or dispositions of businesses and associated settlements,

(vi) the impact of purchase accounting adjustments related to business acquisitions,

(vii) gains and losses related to the remeasurement of liabilities under the executive deferred compensation plan, and

(viii) amortization for capitalized cloud computing arrangement costs.

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.

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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 income to adjusted operating income for the three and six months ended December 31, 2023 as compared to the prior year periods:

The following is a reconciliation of operating income to adjusted operating income for the three and nine months ended March 31, 2024 as compared to the prior year periods:

Three Months Ended

December 31, Change

March 31, Change

2024 2023 Amount Percentage

Operating income $ 16,803 $ 24,664 $ (7,861) (32) %

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

(9,120) (12,410) 3,290 27 %

Depreciation and amortization 13,182 14,798 (1,616) (11) %

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5,611 8,014 (2,403) (30) %

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

Loss, net on dispositions

Restructuring charges 2,362 2,461 (99) (4) %

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Remeasurement of deferred compensation plan liabilities 191 126 65 52 %

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

Six Months Ended

December 31, Change

Adjusted operating income (a)

$ 38,537 $ 50,179 $ (11,642) (23) %

Nine Months Ended

March 31, Change

2024 2023 Amount Percentage

Operating income $ 120,801 $ 126,798 $ (5,997) (5) %

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

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

Depreciation and amortization 39,972 46,369 (6,397) (14) %

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

13,950 13,965 (15) NM

19,561 21,979 (2,418) (11) %

Gains, net on dispositions — (4,361) 4,361 NM

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Amortization for capitalized cloud computing arrangement costs 836 169 667 NM

Remeasurement of deferred compensation plan liabilities 198 6 192 NM

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

Remeasurement of deferred compensation plan liabilities 389 132 257 195 %

Adjusted operating income (a)

$ 198,397 $ 200,906 $ (2,509) (1) %

(a) This adjustment represents the non-cash portion of operating lease revenue related to the Company’s Arena License Agreements with MSG Sports.

_________________

(a) The Company has amended the definition of adjusted operating income so that the impact of the non-cash portion of operating lease revenue related to the Company’s Arena License Agreements with MSG Sports is no longer excluded in all periods presented.

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) $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.

Adjusted operating income includes operating lease revenue of (i) $22,372 and $38,610 of revenue collected in cash for the three and nine months ended March 31, 2024, respectively, and $19,014 and $39,234 of revenue collected in cash for the three and nine months ended March 31, 2023, respectively, and (ii) a non-cash portion of $13,216 and $22,831 for the three and nine months ended March 31, 2024, respectively, and $12,149 and $25,078 for the three and nine months ended March 31, 2023, 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 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.

For the three and nine months ended March 31, 2024, the Company recorded $0 of net loss attributable to nonredeemable noncontrolling interests as compared to $0 and $553 of net loss attributable to nonredeemable noncontrolling interests for the three and nine months ended March 31, 2023.

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 approximately $110,000 remaining as of December 31, 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 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.

As of March 31, 2024, the Company’s unrestricted cash and cash equivalents balance was $28,008.

The principal balance of the Company’s total debt outstanding as of March 31, 2024 was $629,687 and the Company had $132,274 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.

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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 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 .

As of March 31, 2024 outstanding letters of credit were $17,726 and the remaining balance available under the National Properties Revolving Credit Facility was $132,274 .

Interest Rates.

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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 December 31, 2023 was 8.46%.

The interest rate on the National Properties Facilities as of March 31, 2024 was 7.93%.

Principal Repayments.

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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 December 31, 2023, MSG National Properties and its restricted subsidiaries were in compliance with the covenants of the National Properties Credit Agreement.

As of March 31, 2024, 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 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.

During the nine months ended March 31, 2024, 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.

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Cash Flow Discussion

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

As of March 31, 2024, cash, cash equivalents and restricted cash totaled $28,308, as compared to $84,355 as of June 30, 2023.

The following table summarizes the Company’s cash flow activities for the nine months ended March 31, 2024 and 2023:

Nine Months Ended

Net cash provided by operating activities

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Operating Activities

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.

Net cash provided by operating activities for the nine months ended March 31, 2024 decreased by $21,287 to $111,054 as compared to the prior year period, primarily due to lower net income in the current year period and changes in working capital which included (i) decrease in deferred revenue, (ii) increase in accounts receivable, net, and (iii) an increase in prepaid expenses and other current and non-current assets, partially offset by an increase in related party receivables and payables, net.

Investing Activities

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.

Net cash used in investing activities for the nine months ended March 31, 2024 increased by $85,886 to $72,625 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 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.

Net cash used in financing activities for the nine months ended March 31, 2024 increased by $9,282 to $94,476 as compared to the prior year period primarily due to (i) an increase in principal repayments on term loan and revolving credit facilities, (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 a decrease in net transfers to Sphere Entertainment and Sphere Entertainment’s subsidiaries under carve-out accounting principles in the current period and proceeds received from the National Properties Revolving Credit Facility.

Seasonality of Our Business

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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