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. 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; 22 • 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, including potential legislation related to ticketing, 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 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 and 2024, respectively, are referred to as “Fiscal Year 2025” and “Fiscal Year 2024,” respectively. 23 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. Results of Operations. This section provides an analysis of our unaudited results of operations for the three and six months ended December 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, 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. 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 24 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. 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, arena license fees and other 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 six months ended December 31, 2024 versus the three and six months ended December 31, 2023. Three Months Ended December 31, Change 2024 2023 Amount Percentage Revenues Revenues from entertainment offerings $ 318,276 $ 318,286 $ (10) — % Food, beverage, and merchandise revenues 59,321 58,751 570 1 % Arena license fees and other leasing revenue 29,820 25,629 4,191 16 % Total revenues 407,417 402,666 4,751 1 % Direct operating expenses Entertainment offerings, arena license fees, and other leasing direct operating expenses (164,294) (172,012) 7,718 4 % Food, beverage, and merchandise direct operating expenses (32,780) (30,749) (2,031) (7) % Total direct operating expenses (197,074) (202,761) 5,687 3 % Selling, general, and administrative expenses (57,189) (48,389) (8,800) (18) % Depreciation and amortization (14,183) (13,205) (978) (7) % Restructuring credits (charges) 30 (888) 918 NM Operating income 139,001 137,423 1,578 1 % Interest income 365 1,083 (718) (66) % Interest expense (12,955) (15,049) 2,094 14 % Other (expense) income, net (1,045) 2,846 (3,891) NM Income from operations before income taxes 125,366 126,303 (937) (1) % Income tax expense (49,473) (1,054) (48,419) NM Net income $ 75,893 $ 125,249 $ (49,356) (39) % 25 Six Months Ended December 31, Change 2024 2023 Amount Percentage Revenues Revenues from entertainment offerings $ 433,357 $ 434,791 $ (1,434) — % Food, beverage, and merchandise revenues 78,296 82,012 (3,716) (5) % Arena license fees and other leasing revenue 34,478 28,075 6,403 23 % Total revenues 546,131 544,878 1,253 — % Direct operating expenses Entertainment offerings, arena license fees, and other leasing direct operating expenses (250,760) (262,571) 11,811 4 % Food, beverage, and merchandise direct operating expenses (44,023) (41,867) (2,156) (5) % Total direct operating expenses (294,783) (304,438) 9,655 3 % Selling, general, and administrative expenses (102,935) (97,211) (5,724) (6) % Depreciation and amortization (27,964) (26,789) (1,175) (4) % Restructuring credits (charges) 70 (12,441) 12,511 NM Operating income 120,519 103,999 16,520 16 % Interest income 737 1,935 (1,198) (62) % Interest expense (26,998) (29,336) 2,338 8 % Other expense, net (1,814) (1,625) (189) (12) % Income from operations before income taxes 92,444 74,973 17,471 23 % Income tax expense (35,872) (395) (35,477) NM Net income $ 56,572 $ 74,578 $ (18,006) (24) % ________________________________________________________ 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 and six months ended December 31, 2024 increased $4,751 and $1,253, respectively, as compared to the prior year period. Revenues from Entertainment Offerings For the three months ended December 31, 2024 the decrease in Revenues from entertainment offerings was primarily due to lower event-related revenues of $22,521 largely offset by (i) higher revenues from the presentation of the Christmas Spectacular production of $15,140, and (ii) higher revenues subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements of $7,706. The decrease in event-related revenues was due to (i) lower revenues from concerts of $17,599, which reflects lower per-concert revenues primarily 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 Garden, and (ii) lower revenues from other live entertainment and sporting events (excluding the Knicks and Rangers) of $4,922, which was primarily due to lower per-show revenues from other live entertainment events, partially offset by an increase in the number of other live entertainment events and higher per-show revenue for sporting events. The increase in revenues from the presentation of the Christmas Spectacular production was primarily due to an increase in ticket-related revenue, which reflected higher per-show revenue and, to a lesser extent, two additional performances as compared to the prior year period. The increase in per-show revenue was primarily due to higher average ticket yield and, to a lesser extent, higher average per-show attendance as compared to the prior year period. The Company had 200 Christmas Spectacular performances during this year’s holiday season, of which 185 took place in the fiscal 2025 second quarter, as compared to 193 performances in the prior year’s holiday season, of which 183 took place in the fiscal 2024 second quarter. For this year’s holiday season, approximately 1.1 million tickets were sold, as compared to more than 1.0 million tickets sold in the prior year. 26 For the three months ended December 31, 2024, the increase in revenues subject to the sharing of economics with MSG Sports pursuant to the Arena License agreements was primarily due to higher suite license fee revenues. For the six months ended December 31, 2024, the decrease in Revenues from entertainment offerings was primarily due to lower event-related revenues of $24,055 which was partially offset by higher revenue from the presentation of the Christmas Spectacular production of $15,151 and higher revenues subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements of $7,179. The decrease in event-related revenues reflects (i) lower revenues from concerts of $18,590, 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 Garden, and (ii) lower revenues from other live entertainment and sporting events (excluding the Knicks and Rangers) of $5,465 which was primarily due to lower per-show revenues from other live entertainment events, partially offset by an increase in the number of other live entertainment events and higher per-show revenue for sporting events. Food, Beverage, and Merchandise Revenues For the three months ended December 31, 2024, the increase in Food, beverage, and merchandise revenues was primarily due to (i) higher food and beverage sales at Knicks and Rangers games, (ii) higher food, beverage and merchandise sales related to the Christmas Spectacular production and (iii) other revenue increases, all as compared to the prior year quarter partially offset by (iv) lower food and beverage sales at concerts at the Company’s venues. The increase in food and beverage sales at Knicks and Rangers games was due to the impact of three more Knicks and Rangers games played at The Garden and, to a lesser extent, higher average per-game revenues in the current year quarter. The increase in food, beverage and merchandise sales related to the Christmas Spectacular production was due to higher average per-show revenues and, to a lesser extent, the impact of two additional shows, both as compared to the prior year quarter. The decrease in food and beverage sales at concerts was due to fewer concerts at The Garden and, to a lesser extent, lower per-concert revenues, both as compared to the prior year quarter. For the six months ended December 31, 2024, the decrease in food, beverage and merchandise revenues was primarily due to (i) lower food and beverage sales at concerts at the Company’s venues as compared to the prior year period partially offset by (ii) higher food and beverage sales at Knicks and Rangers games, and (iii) higher food, beverage and merchandise sales related to the Christmas Spectacular production. The decrease in food and beverage sales at concerts was due to fewer concerts at The Garden and, to a lesser extent, lower per-concert revenues, both as compared to the prior year period. The increase in food and beverage sales at Knicks and Rangers games was due to the impact of three more Knicks and Rangers games played at The Garden and, to a lesser extent, higher average per-game revenues in the current year period. The increase in food, beverage and merchandise sales related to the Christmas Spectacular production was due to higher average per-show revenues and, to a lesser extent, the impact of two additional shows, both as compared to the prior year period. Arena License Fees and Other Leasing Revenue For the three months ended December 31, 2024, the increase in revenues was due to higher arena license fees from MSG Sports pursuant to the Arena License Agreements due to three more Knicks and Rangers games played at The Garden in the current year period, and an increase in other leasing revenue. For the six months ended December 31, 2024, the increase in revenues was primarily due to other leasing revenue and, to a lesser extent, higher arena license fees from MSG Sports pursuant to the Arena License Agreements due to three more Knicks and Rangers games played at The Garden in the current year period. In the three and six months ended December 31, 2024, the Knicks and Rangers played a combined 35 and 37 pre/regular season games at The Garden, respectively, as compared to 32 and 34 combined pre/regular season games, respectively, in the prior year periods. 27 Direct operating expenses Direct operating expenses for the three and six months ended December 31, 2024 decreased $5,687 and $9,655, respectively 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 December 31, 2024, the decrease in direct operating expenses associated with entertainment offerings, arena license fees, and other leasing primarily reflects lower event-related expenses of $13,656, partially offset by an increase in direct operating expenses subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements of $6,560. The decrease in event-related expenses reflects lower direct operating expenses from concerts of $14,738, primarily due to lower per-concert expenses due to a shift in the mix of events at The Garden from promoted events to rentals, and to a lesser extent, a decrease in the number of events at The Garden, partially offset by higher direct operating expenses from other live entertainment and sporting events (excluding the Knicks and Rangers) of $1,082. 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. For the six months ended December 31, 2024, the decrease in direct operating expenses associated with entertainment offerings, arena license fees, and other leasing primarily reflects lower event-related expenses of $17,139, partially offset by an increase in direct operating expenses subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements of $5,975. The decrease in event-related expenses reflects (i) lower direct operating expenses from concerts of $17,837, primarily due to lower per-concert expenses due to a shift in the mix of events at The Garden from promoted events to rentals, and (ii) higher direct operating expenses from other live entertainment and sporting events (excluding the Knicks and Rangers) of $698. Direct Operating Expenses Associated with Food, Beverage, and Merchandise For the three months ended December 31, 2024, the increase in food, beverage and merchandise direct operating expenses was primarily driven by an increase in food and beverage costs related to Knicks and Rangers games at The Garden, higher food, beverage and merchandise costs related to the Christmas Spectacular production and other cost increases, partially offset by a decrease in food and beverage costs related to concerts, primarily at The Garden. For the six months ended December 31, 2024, the increase in food, beverage and merchandise direct operating expenses was primarily driven by higher food, beverage and merchandise costs related to Knicks and Rangers games at The Garden and the Christmas Spectacular production, which was partially offset by a decrease in food and beverage costs related to fewer concerts at The Garden. Selling, general, and administrative expenses For the three and six months ended December 31, 2024, selling, general, and administrative expenses increased $8,800 and $5,724, respectively, as compared to the prior year period. For the three months ended December 31, 2024, the increase was primarily due to (i) an increase in employee compensation and benefits, including, executive management transition costs of $4,544 recognized in the current year period, and (ii) higher rent expense. For the six months ended December 31, 2024, the increase was primarily due to (i) higher rent expense, and (ii) an increase in employee compensation and benefits, including executive management transition costs of $4,544 recognized in the current year period partially offset by (iii) a decrease in professional fees. Depreciation and amortization For the three and six months ended December 31, 2024, depreciation and amortization increased $978 and $1,175, respectively, as compared to the prior year period primarily due to the increase in fixed assets in the second quarter of Fiscal Year 2025. Restructuring credits (charges) For the three and six months ended December 31, 2024, restructuring charges decreased $918 and $12,511, respectively, 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. 28 Operating income For the three and six months ended December 31, 2024, operating income increased by $1,578 and $16,520, respectively. The increase in operating income for the three months ended December 31, 2024 was primarily due to a decrease in direct operating expenses and an increase in revenues, partially offset by higher selling, general and administrative expenses. The increase in operating income for the six months ended December 31, 2024 was primarily due to lower restructuring charges and, to a lesser extent, a decrease in direct operating expenses, and partially offset by an increase in selling, general and administrative expenses. Interest income For the three and six months ended December 31, 2024, interest income decreased $718 and $1,198, respectively, 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 and six months ended December 31, 2024, interest expense decreased $2,094 and $2,338, respectively, 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). Other (expense) income, ne t For the three and six months ended December 31, 2024, Other (expense) income, net increased $3,891 and $189, respectively, as compared to the prior year period. The changes were primarily due to (i) a change in unrealized gains to an unrealized loss of $3,279, net, associated with the investment in Townsquare Media, Inc., and (ii) higher net periodic benefit costs of $216 associated with the Company’s funded and unfunded and qualified and non-qualified defined benefit 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. The estimated annual effective tax rate is revised on a quarterly basis. Income tax expense for the three and six months ended December 31, 2024 of $49,473 and $35,872, respectively, reflects an effective tax rate of 39%. The estimated annual effective tax rate exceeds the statutory federal tax rate of 21% primarily due to state and local taxes and nondeductible officers’ compensation. The Company expects to utilize its net operating losses during Fiscal Year 2025 and as such will become a federal taxpayer. 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%. 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, partially offset by state and local 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, 29 (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 transaction 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 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 (expense) income, net, which is not reflected in Operating income. 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. 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 income to adjusted operating income for the three and six months ended December 31, 2024 as compared to the prior year periods: Three Months Ended December 31, Change 2024 2023 Amount Percentage Operating income $ 139,001 $ 137,423 $ 1,578 1 % Share-based compensation (excluding share-based compensation included in restructuring charges) 9,322 7,773 1,549 20 % Depreciation and amortization 14,183 13,205 978 7 % Restructuring (credits) charges (30) 888 (918) NM Merger, spin-off , and acquisition-related costs (a) 1,361 — 1,361 NM Amortization for capitalized cloud computing arrangement costs 201 448 (247) (55) % Remeasurement of deferred compensation plan liabilities (26) 343 (369) NM Adjusted operating income (b) $ 164,012 $ 160,080 $ 3,932 2 % Six Months Ended December 31, Change 2024 2023 Amount Percentage Operating income $ 120,519 $ 103,999 $ 16,520 16 % Share-based compensation (excluding share-based compensation included in restructuring charges) 15,584 13,950 1,634 12 % Depreciation and amortization 27,964 26,790 1,174 4 % Restructuring (credits) charges (70) 12,441 (12,511) NM Merger, spin-off , and acquisition-related costs (a) 1,361 2,035 (674) (33) % Amortization for capitalized cloud computing arrangement costs 369 448 (79) (18) % Remeasurement of deferred compensation plan liabilities 194 198 (4) (2) % Adjusted operating income (b) $ 165,921 $ 159,861 $ 6,060 4 % ________________________________________________________ (a) This adjustment represents non-recurring transaction costs incurred by the Company. (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 30 arrangement. As a result, operating le ase 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) $17,447 and $18,301 of revenue collected in cash for the three and six months ended December 31, 2024, respectively, and $15,409 and $16,238 for the three and six months ended December 31, 2023, respectively, and (ii) a non-cash portion of $9,514 and $9,984 for the three and six months ended December 31, 2024 and , respectively, and $9,120 and $9,615 for the three and six months ended December 31, 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 $85,000 remaining as of December 31, 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 December 31, 2024, the Company’s unrestricted cash and cash equivalents balance was $54,919. The principal balance of the Company’s total debt outstanding as of December 31, 2024 was $617,500 and the Company had $131,174 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. 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 December 31, 2024, outstanding letters of credit were $18,826 and the remaining balance available under the National Properties Revolving Credit Facility was $131,174 . 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 December 31, 2024 was 6.94%. 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 31 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 a 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 December 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. The National Properties Credit Agreement contains certain restrictions on the ability of MSG National Properties and its restricted subsidiaries to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the National Properties Credit Agreement, including the following: (i) incur additional indebtedness; (ii) create liens on certain assets; (iii) make investments, loans or advances in or to other persons; (iv) pay dividends and distributions or repurchase capital stock (which will restrict the ability of MSG National Properties to make cash distributions to the Company); (v) repay, redeem or repurchase certain indebtedness; (vi) change its lines of business; (vii) engage in certain transactions with affiliates; (viii) amend their respective organizational documents; (ix) merge or consolidate; and (x) make certain dispositions. Guarantors and Collateral. All obligations under the National Properties Facilities are guaranteed by MSG Entertainment Holdings and MSG National Properties’ existing and future direct and indirect domestic subsidiaries, other than the subsidiaries that own The Garden and certain other excluded subsidiaries (the “Subsidiary Guarantors”). All obligations under the National Properties Facilities, including the guarantees of those obligations, are secured by certain of the assets of MSG National Properties and the Subsidiary Guarantors (collectively, “Collateral”) including, but not limited to, a pledge of some or all of the equity interests held directly or indirectly by MSG National Properties in each Subsidiary Guarantor. The Collateral does not include, among other things, any interests in The Garden or the leasehold interests in Radio City Music Hall and the Beacon Theatre. Contractual Obligations During the six months ended December 31, 2024, the Company did not have any material changes in its non-cancelable contractual obligations (other than activities in the ordinary course of business). See Note 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 December 31, 2024, cash, cash equivalents and restricted cash totaled $55,219, as compared to $33,555 as of June 30, 2024. The following table summarizes the Company’s cash flow activities for the six months ended December 31, 2024 and 2023: Six Months Ended December 31, 2024 2023 Net cash provided by operating activities $ 85,499 $ 105,232 Net cash used in investing activities (16,282) (62,731) Net cash used in financing activities (47,553) (89,284) Net increase (decrease) in cash, cash equivalents and restricted cash $ 21,664 $ (46,783) Operating Activities Net cash provided by operating activities for the six months ended December 31, 2024 decreased by $19,733 as compared to the prior year period, primarily due to (i) an increase in Net income adjusted for non-cash items of $2,904, and (ii) a decrease in cash flows from changes in working capital of $22,637. 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 32 accounts payable, accrued and other current and non-current liabilities; and a smaller increase in Deferred revenue, in each case as compared to the six months ended December 31, 2023. Investing Activities Net cash used in investing activities for the six months ended December 31, 2024 decreased by $46,449 to $16,282 as compared to the prior year period primarily due to (i) the absence of a loan to a related party under the delayed draw term loan 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 used in financing activities for the six months ended December 31, 2024 decreased by $41,731 to $47,553 as compared to the prior year period primarily due to (i) an decrease in principal debt repayments, and (ii) decrease in stock repurchases, 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. Critical Accounting Estimates There have been no material changes to the Company’s critical accounting estimates from those set forth in the 2024 Form 10-K.