Madison Square Garden Entertainment Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In this MD&A, there are statements concerning the future operating and future financial performance of Madison Square Garden Entertainment Corp. (“MSG Entertainment”) and its direct and indirect subsidiaries (collectively, “we,” “us,” “our,” “MSG Entertainment,” or the “Company”). Words such as “expects,” “anticipates,” “believes,” “estimates,” “may,” “will,” “should,” “could,” “potential,” “continue,” “intends,” “plans,” and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements. Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to: • the level of our expenses, including our corporate expenses; • the level of our revenues, which depends in part on the popularity of the Christmas Spectacular Starring the Radio City Rockettes ( the “Christmas Spectacular”) , the professional sports teams whose games are played at Madison Square Garden (“The Garden”) and other events which are presented in our venues, and our ability to attract such events; • the on-ice and on-court performance of the professional sports teams whose games we host in our venues; • the level of our capital expenditures and other investments; • general economic conditions, especially in the New York City and Chicago metropolitan areas where we have business activities; • the demand for sponsorship and suite arrangements; • competition, for example, from other venues and sports and entertainment options, including of new competing venues; • the effect of any postponements or cancellations by third-parties or the Company of scheduled events, whether as a result of a pandemic or other public health emergency due to operational challenges and other health and safety concerns or otherwise; • the extent to which attendance at our venues may be impacted by government actions, renewed health concerns by potential attendees and reduced tourism; • the impact on the payments we receive under the arena license agreements (the “Arena License Agreements”) that require the New York Knicks (the “Knicks”) of the National Basketball Association (the “NBA”) and the New York Rangers (the “Rangers”) of the National Hockey League (the “NHL”) to play their home games at The Garden as a result of government-mandated capacity restrictions, league restrictions and/or social-distancing or vaccination requirements, if any, at Knicks and Rangers games; • changes in laws, guidelines, bulletins, directives, policies and agreements, and regulations under which we operate; • any economic, social or political actions, such as boycotts, protests, work stoppages or campaigns by labor organizations, including the unions representing players and officials of the NBA and NHL, or other work stoppage; • seasonal fluctuations and other variations in our operating results and cash flow from period to period; • enhancements or changes to existing productions and the investments associated with such enhancements or changes; • business, reputational and litigation risk if there is a cyber or other security incident resulting in loss, disclosure or misappropriation of stored personal information, or disclosure of confidential information or other breaches of our information security; • our ability to effectively manage any impacts of a pandemic or other public health emergency (including COVID-19 variants) as well as renewed actions taken in response by governmental authorities or certain professional sports leagues, including ensuring compliance with rules and regulations imposed upon our venues, to the extent applicable; • activities or other developments (such as a pandemic or other public health emergency) that discourage or may discourage congregation at prominent places of public assembly, including our venues; 21 • the acquisition or disposition of assets or businesses and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic transactions; • our ability to successfully integrate acquisitions, new venues or new businesses into our operations; • our internal control environment and our ability to identify and remedy any future material weaknesses; • the costs associated with, and the outcome of, litigation, including any negative publicity, and other proceedings to the extent uninsured, including litigation or other claims against companies we invest in or acquire; • the impact of governmental regulations or laws, changes in how those regulations and laws are interpreted, as well as the continued benefit of certain tax exemptions and the ability to maintain necessary permits or licenses; • the impact of any government plans to redesign New York City’s Penn Station; • the impact of sports league rules, regulations and/or agreements and changes thereto; • the substantial amount of debt incurred, the ability of our subsidiaries to make payments on, or repay or refinance, such debt under the National Properties Credit Agreement and our ability to obtain additional financing, to the extent required; • financial community perceptions of our business, operations, financial condition and the industries in which we operate; • the performance by Madison Square Garden Sports Corp. (together with its subsidiaries, as applicable, “MSG Sports”) of its obligations under various agreements with the Company and ongoing commercial arrangements, including the Arena License Agreements; • the tax-free treatment of the Distribution (as defined below); • our ability to achieve the intended benefits of the Distribution; • failure of the Company or Sphere Entertainment Co. (together with its subsidiaries, as applicable, “Sphere Entertainment”) to satisfy its obligations under transition services agreements, or other agreements entered into in connection with the Distribution; and • the additional factors described under “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2024 filed with the Securities and Exchange Commission (the “SEC”) on August 16, 2024 (the “2024 Form 10-K”). We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this 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. Introduction This MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s unaudited financial statements and accompanying notes thereto included in this Quarterly Report on Form 10-Q, as well as the Company’s audited consolidated and combined financial statements and notes thereto as of June 30, 2024 and 2023 and for the three years ended June 30, 2024, 2023 and 2022 (the “Audited Consolidated and Combined Annual Financial Statements”) included in the 2024 Form 10-K, to help provide an understanding of our financial condition, changes in financial condition and results of operations . The Company reports on a fiscal year basis ending on June 30th (“Fiscal Year”). In this MD&A, the years ending and ended on June 30, 2025, 2024 and 2023, respectively, are referred to as “Fiscal Year 2025,” “Fiscal Year 2024” and “Fiscal Year 2023,” respectively. Our MD&A is organized as follows: Business Overview. This section provides a general description of our business, as well as other matters that we believe are important in understanding our results of operations and financial condition and in anticipating future trends. 22 Results of Operations. This section provides an analysis of our unaudited results of operations for the three months ended September 30, 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 three months ended September 30, 2024 and 2023, as well as certain contractual obligations. Seasonality of Our Business. This section discusses the seasonal performance of our business. Recently Issued Accounting Pronouncements and Critical Accounting Estimates. This section discusses accounting pronouncements that have been adopted by the Company and recently issued accounting pronouncements not yet adopted by the Company. This section should be read together with our critical accounting estimates, which are discussed in the 2024 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. Business Overview We are a live entertainment company comprised of iconic venues and marquee entertainment content. Utilizing the Company’s powerful brands and live entertainment expertise, the Company delivers unique experiences that set the standard for excellence and innovation while forging deep connections with diverse and passionate audiences. We manage our business through one reportable segment. The Company’s portfolio of venues includes: The Garden, The Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, and The Chicago Theatre. The Company’s business also includes the original production, the Christmas Spectacular. The Company also has an entertainment and sports bookings business, which showcases a broad array of compelling concerts, family shows and special events, as well as a diverse mix of sporting events, for millions of guests annually. The Company conducts a significant portion of its operations at venues that it either owns or operates under long-term leases. The Company owns The Garden, The Theater at Madison Square Garden, and The Chicago Theatre, and leases Radio City Music Hall and the Beacon Theatre. All of the Company’s revenues and assets are attributed to or located in the United States and are primarily concentrated in the New York City metropolitan area. MSG Entertainment Distribution On April 20, 2023, Sphere Entertainment distributed approximately 67% of the outstanding common stock of the Company to its stockholders (the “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 Distribution (the “Retained Interest”). As a result, the Company became an independent publicly traded company on April 21, 2023. 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. Description of Business and Basis of Presentation to the Company’s Audited Consolidated and Combined Annual Financial Statements for more information regarding the Distribution. Factors Affecting Results of Operations Our operating results are largely dependent on our ability to attract concerts and other events to our venues, revenues under various agreements entered into with MSG Sports, and the continuing popularity of the Christmas Spectacular . Certain of these factors in turn depend on the popularity and/or performance of the professional sports teams whose games we host at The Garden. Our Company’s future performance is dependent in part on general economic conditions and the effect of these conditions on our customers. Weak economic conditions may lead to lower demand for suite licenses and tickets to our live productions, concerts, family shows and other events, which would also negatively affect concession and merchandise sales, and lower levels of sponsorship and venue signage. These conditions may also affect the number of concerts, family shows and other events that take place in the future. An economic downturn could adversely affect our business and results of operations. 23 Results of Operations Total revenue is 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 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 months ended September 30, 2024 versus the three months ended September 30, 2023. Three Months Ended September 30, Change 2024 2023 Amount Percentage Revenues Revenues from entertainment offerings $ 115,081 $ 116,505 $ (1,424) (1) % Food, beverage, and merchandise revenues 18,975 23,261 (4,286) (18) % Arena license fees and other leasing revenue 4,658 2,446 2,212 90 % Total revenues 138,714 142,212 (3,498) (2) % Direct operating expenses Entertainment offerings, arena license fees, and other leasing direct operating expenses (86,466) (90,559) 4,093 5 % Food, beverage, and merchandise direct operating expenses (11,243) (11,118) (125) (1) % Total direct operating expenses (97,709) (101,677) 3,968 4 % Selling, general, and administrative expenses (45,746) (48,822) 3,076 6 % Depreciation and amortization (13,781) (13,585) (196) (1) % Restructuring credits (charges) 40 (11,553) 11,593 100 % Operating loss (18,482) (33,425) 14,943 45 % Interest income 372 851 (479) (56) % Interest expense (14,043) (14,287) 244 2 % Other expense, net (769) (4,469) 3,700 83 % Loss from operations before income taxes (32,922) (51,330) 18,408 36 % Income tax benefit 13,601 659 12,942 NM Net loss attributable to MSG Entertainment’s stockholders $ (19,321) $ (50,671) $ 31,350 62 % ________________________________________________________ NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful. Revenues Revenues for the three months ended September 30, 2024 decreased $3,498 as compared to the prior year period. Revenues from Entertainment Offerings For the three months ended September 30, 2024 the decrease in Revenues from entertainment offerings was primarily due to lower event-related revenues of $1,534. The decrease in event-related revenues reflects (i) lower revenues from concerts of $990, which reflects lower per-concert revenues due to a shift in the mix of the events at The Garden from promoted events to rentals and a decrease in the number of events at the Company’s theaters, partially offset by an increase in the number of concerts at The Garden, and (ii) lower revenues from other live entertainment and sporting events (excluding the Knicks and Rangers) of $543. Food, Beverage, and Merchandise Revenues For the three months ended September 30, 2024, the decrease in food, beverage and merchandise revenues was primarily due to lower food and beverage sales at concerts at the Company’s venues, as compared to the prior year period, which was primarily due to lower 24 per-concert food and beverage revenues and, to a lesser extent, the decrease in the number of events at the Company’s theaters, partially offset by the increase in the number of events at the Garden. Arena License Fees and Other Leasing Revenue For the three months ended September 30, 2024, the increase in revenues was due to other leasing revenue. Direct operating expenses Direct operating expenses for the three months ended September 30, 2024 decreased $3,968 as compared to the prior year period. Direct Operating Expenses Associated with Entertainment Offerings, Arena License Fees and Other Leasing For the three months ended September 30, 2024, the decrease in direct operating expenses associated with entertainment offerings, arena license fees, and other leasing primarily reflects lower event-related expenses of $3,488. The decrease in event-related expenses reflects (i) lower direct operating expenses from concerts of $3,103, primarily due to lower per-concert expenses due to a shift in the mix of events at The Garden from promoted events to rentals, partially offset by an increase in the number of events at The Garden, and (ii) lower direct operating expenses from other live entertainment and sporting events (excluding the Knicks and Rangers) of $385. Direct Operating Expenses Associated with Food, Beverage, and Merchandise For the three months ended September 30, 2024, the increase in food, beverage and merchandise direct operating expenses was primarily driven by an increase in food and beverage costs related to concerts held at the Company’s venues partially offset by a decrease in food and beverage costs related to other live entertainment and sporting events held at the Company’s venues. Selling, general, and administrative expenses For the three months ended September 30, 2024, selling, general, and administrative expenses decreased $3,076, as compared to the prior year period. The decrease was primarily due to (i) lower professional fees, mainly due to the absence of non-recurring costs incurred and paid by the Company in the prior year period for the sale of the Retained Interest by Sphere Entertainment; (ii) a decrease in employee compensation and benefits; and (iii) lower other costs, partially offset by higher rent expense. Depreciation and amortization For the three months ended September 30, 2024, depreciation and amortization increased $196, as compared to the prior year period primarily due to the increase in fixed assets in the first quarter of Fiscal Year 2025. Restructuring credits (charges) For the three months ended September 30, 2024, restructuring charges decreased $11,593, as compared to the prior year period, which reflects termination benefits provided in the prior year period due to a workforce reduction of certain executives and employees. Operating loss For the three months ended September 30, 2024, operating loss improved by $14,943. The improvement in operating loss for the three months ended September 30, 2024 was primarily due to lower restructuring charges and, to a lesser extent, a decrease in direct operating expenses, and selling, general and administrative expenses, partially offset by a decrease in revenues, as compared to the prior year period. Interest income For the three months ended September 30, 2024, interest income decreased $479, as compared to the prior year period primarily due to lower average balances and lower interest rates in the Company’s cash, cash equivalents and restricted cash. Interest expense For the three months ended September 30, 2024, interest expense decreased $244, as compared to the prior year period primarily due to lower average borrowings and lower interest rates under the National Properties Facilities (as defined below under Liquidity and Capital Resources). 25 Other expense, net For the three months ended September 30, 2024, other expense, net was $769 as compared to $4,469 for the three months ended September 30, 2023, a decrease of $3,700. The change was primarily due to (i) a change in unrealized gains to an unrealized loss of $5,348, net, associated with the investment in Townsquare Media, Inc., offset by (ii) the absence of a $1,548 gain associated with the investment in DraftKings Inc. recognized in the prior year period, and (iii) higher net periodic benefit costs of $207 associated with the Company’s funded and unfunded and qualified and non-qualified defined benefit plans. Income tax benefit 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, 2024 of $13,601, reflects an effective tax rate of 41%. The estimated annual effective tax rate exceeds the statutory federal tax rate of 21% primarily due to state taxes and excess tax deficiencies related to share-based compensation. The Company expects to utilize its net operating losses during Fiscal Year 2025 and as such will become a federal taxpayer by the end of Fiscal Year 2025. Income tax benefit for the three months ended September 30, 2023 of $659, reflects an effective tax rate of 1%. The estimated annual effective tax rate is lower than the statutory federal tax rate of 21% primarily due to a decrease in the valuation allowance, partially offset by state taxes. Adjusted operating income (loss) (“AOI”) During the third quarter of Fiscal Year 2024, the Company amended the definition of adjusted operating income so that 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. 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) 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) amortization for capitalized cloud computing arrangement costs and, (viii) gains and losses related to the remeasurement of liabilities under the executive deferred compensation plan. The Company believes that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the Company’s business without regard to the settlement of an obligation that is not expected to be made in cash. The Company eliminates merger, spin-off, and acquisition-related costs, when applicable, because the Company does not consider such costs to be indicative of the ongoing operating performance of the Company as they result from an event that is of a non-recurring nature, thereby enhancing comparability. In addition, management believes that the exclusion of gains and losses related to the remeasurement of liabilities under the executive deferred compensation plan, provides investors with a clearer picture of the Company’s operating performance given that, in accordance with GAAP, gains and losses related to the remeasurement of liabilities under the executive deferred compensation plan are recognized in Operating (income) loss whereas gains and losses related to the remeasurement of the assets under the executive deferred compensation plan, which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities, are recognized in Other income (expense), net, which is not reflected in Operating income (loss). The Company believes AOI is an appropriate measure for evaluating the operating performance of the Company on a consolidated basis. 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. 26 AOI should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with GAAP. Since AOI is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to AOI. The following is a reconciliation of operating loss to adjusted operating income (loss) for the three months ended September 30, 2024 as compared to the prior year periods: Three Months Ended September 30, Change 2024 2023 Amount Percentage Operating loss $ (18,482) $ (33,425) $ 14,943 45 % Share-based compensation (excluding share-based compensation included in restructuring charges) 6,262 6,177 85 1 % Depreciation and amortization 13,781 13,585 196 1 % Restructuring (credits) charges (40) 11,553 (11,593) (100) % Merger, spin-off , and acquisition-related costs (a) — 2,035 (2,035) NM Amortization for capitalized cloud computing arrangement costs 168 — 168 NM Remeasurement of deferred compensation plan liabilities 220 (145) 365 NM Adjusted operating income (loss) (b) $ 1,909 $ (220) $ 2,129 NM ________________________________________________________ (a) This adjustment represents non-recurring costs incurred and paid by the Company for the sale of the Retained Interest by Sphere Entertainment. (b) During the third quarter of Fiscal Year 2024, the Company amended the definition of adjusted operating income (loss) so that 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. Adjusted operating income (loss) includes operating lease revenue of (i) $854 and $829 of revenue collected in cash for the three months ended September 30, 2024 and 2023, respectively, and (ii) a non-cash portion of $470 and $495 for the three months ended September 30, 2024 and 2023, respectively. NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful . Liquidity and Capital Resources Sources and Uses of Liquidity Our primary sources of liquidity are cash and cash equivalents, cash flows from our business operations and available borrowing capacity under the National Properties Revolving Credit Facility (as defined below) . Our principal uses of cash include working capital-related items (including funding our operations), capital spending, debt service, investments and related loans and advances that we may fund from time to time. We may also use cash to continue to repurchase shares of our Class Common A Stock pursuant to the share repurchase program authorized by our Board of Directors on March 29, 2023, of which there was approximately $110,000 remaining as of September 30, 2024. Our decisions as to the use of our available liquidity will be based upon the ongoing review of the funding needs of the business, the optimal allocation of cash resources, and the timing of cash flow generation. To the extent that we desire to access alternative sources of funding through the capital and credit markets, challenging U.S. and global economic and market conditions could adversely impact our ability to do so at that time. We regularly monitor and assess our ability to meet our net funding and investing requirements. As of September 30, 2024, the Company’s unrestricted cash and cash equivalents balance was $37,307. The principal balance of the Company’s total debt outstanding as of September 30, 2024 was $676,563 and the Company had $76,174 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. Financing Agreements See Note 9. Credit Facilities, to the financial statements included in “— Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussions of the Company’s debt obligations and financing agreements. 27 National Properties Facilities General. MSG National Properties, LLC (“MSG National Properties”), MSG Entertainment Holdings, LLC (“MSG Entertainment Holdings”) and certain subsidiaries of MSG National Properties are party to a credit agreement dated June 30, 2022 (as amended, the “National Properties Credit Agreement”) with JP Morgan Chase Bank, N.A., as administrative agent and the lenders and L/C issuers party thereto, providing for a five-year, $650,000 senior secured term loan facility (the “National Properties Term Loan Facility”) and a five-year, $150,000 revolving credit facility (the “National Properties Revolving Credit Facility” and, together with the National Properties Term Loan Facility, the “National Properties Facilities”). Up to $25,000 of the National Properties Revolving Credit Facility is available for the issuance of letters of credit. As of September 30, 2024, outstanding letters of credit were $18,826 and the remaining balance available under the National Properties Revolving Credit Facility was $76,174 . 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, 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 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, 2024 was 7.45%. Principal Repayments. Subject to customary notice and minimum amount conditions, the Company may voluntarily repay outstanding loans under the National Properties Facilities or terminate commitments under the National Properties Revolving Credit Facility, at any time, in whole or in part, subject only to customary breakage costs in the case of prepayment of Term SOFR loans. The National Properties Facilities will mature on June 30, 2027. The principal obligations under the National Properties Term Loan Facility are to be repaid in quarterly installments beginning with the fiscal quarter ended March 31, 2023, in an aggregate amount equal to 2.50% per 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. Under certain circumstances, MSG National Properties is required to make mandatory prepayments on loans outstanding, including prepayments in an amount equal to the net cash proceeds of certain sales of assets or casualty insurance and/or condemnation recoveries (subject to certain reinvestment, repair or replacement rights), subject to certain exceptions. Covenants. The National Properties Credit Agreement includes financial covenants requiring MSG National Properties and its restricted subsidiaries to maintain a specified minimum liquidity level, a specified minimum debt service coverage ratio and specified maximum total leverage ratio. The minimum liquidity level is set at $50,000, and is tested based on the level of average daily liquidity, consisting of cash and cash equivalents and available revolving commitments, over the last month of each quarter over the life of the National Properties Facilities. The debt service coverage ratio covenant began testing in the fiscal quarter ended December 31, 2022, and was set at a ratio of 2:1 before stepping up to 2.5:1 in the fiscal quarter ended September 30, 2024. The leverage ratio covenant began testing in the fiscal quarter ended June 30, 2023. It is tested based on the ratio of MSG National Properties and its restricted subsidiaries’ consolidated total indebtedness to adjusted operating income, with an initial maximum ratio of 6:1, which stepped down to 5.5:1 in the fiscal quarter ended June 30, 2024 and steps down to 4.5:1 in the fiscal quarter ending June 30, 2026. As of September 30, 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. The National Properties Credit Agreement contains certain restrictions on the ability of MSG National Properties and its restricted subsidiaries to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the National Properties Credit Agreement, including the following: (i) incur additional indebtedness; (ii) create liens on certain assets; (iii) make investments, loans or advances in or to other persons; (iv) pay dividends and distributions or repurchase capital stock (which will restrict the ability of MSG National Properties to make cash distributions to the Company); (v) repay, redeem or repurchase certain indebtedness; (vi) change its lines of business; (vii) engage in certain transactions with affiliates; (viii) amend their respective organizational documents; (ix) merge or consolidate; and (x) make certain dispositions. Guarantors and Collateral. All obligations under the National Properties Facilities are guaranteed by MSG Entertainment Holdings and MSG National Properties’ existing and future direct and indirect domestic subsidiaries, other than the subsidiaries that own The Garden and certain other excluded subsidiaries (the “Subsidiary Guarantors”). All obligations under the National Properties Facilities, including the guarantees of those obligations, are secured by certain of the assets of MSG National Properties and the Subsidiary Guarantors (collectively, “Collateral”) including, but not limited to, a pledge of some or all of the equity interests held directly or 28 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, 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. See Note 6. Property and Equipment, Net and Note 8. Commitments and Contingencies, to the financial statements included in “— Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for further details on the Company’s contractual obligations. Cash Flow Discussion As of September 30, 2024, cash, cash equivalents and restricted cash totaled $37,613, as compared to $33,555 as of June 30, 2024. The following table summarizes the Company’s cash flow activities for the three months ended September 30, 2024 and 2023: Three Months Ended September 30, 2024 2023 Net cash (used in) provided by operating activities $ (27,359) $ 1,378 Net cash used in investing activities (6,690) (55,490) Net cash provided by financing activities 38,107 9,273 Net increase (decrease) in cash, cash equivalents and restricted cash $ 4,058 $ (44,839) Operating Activities Net cash flows from operating activities for the three months ended September 30, 2024 decreased by $28,737 as compared to the prior year period, primarily due to (i) an increase in Net income adjusted for non-cash items of $7,695, and (ii) a decrease in cash flows from changes in working capital of $36,432. The decrease in cash flows from changes in working capital were driven by negative net cash outflows from related party receivables and payables as compared to net cash inflows in the prior year period; a larger decrease in accounts payable, accrued and other current and non-current liabilities; and a smaller increase in deferred revenue, in each case as compared to the three months ended September 30, 2023. Investing Activities Net cash used in investing activities for the three months ended September 30, 2024 decreased by $48,800 to $6,690 as compared to the prior year period primarily due to (i) the absence of a loan to a related party under the DDTL Facility, partially offset by fewer 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, 2024 increased by $28,834 to $38,107 as compared to the prior year period primarily due to (i) the absence of stock repurchases in the current year period, partially offset by a decrease in proceeds received from the National Properties Revolving Credit Facility. Seasonality of Our Business The revenues the Company earns from the Christmas Spectacular and arena license fees from MSG Sports in connection with the Knicks’ and Rangers’ use of The Garden generally means the Company earns a disproportionate share of its revenues and operating income in the second and third quarters of the Company’s fiscal year, with the first and fourth fiscal quarters being disproportionately lower. Recently Issued Accounting Pronouncements and Critical Accounting Estimates Recently Issued and Adopted Accounting Pronouncements See Note 2. Summary of Significant Accounting Policies, to the financial statements included in “— Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussion of recently issued accounting pronouncements. 29 Critical Accounting Estimates There have been no material changes to the Company’s critical accounting estimates from those set forth in 2024 Form 10-K.