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 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 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, including the impact of a recession on our business; • 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; • activities or other developments that discourage or may discourage congregation at prominent places of public assembly, including our venues; • the acquisition or disposition of assets or businesses and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic transactions; • our ability to successfully integrate acquisitions, new venues or new businesses into our operations; • our internal control environment and our ability to identify and remedy any future material weaknesses; • the costs associated with, and the outcome of, litigation, including any negative publicity, and other proceedings to the extent uninsured, including litigation or other claims against companies we invest in or acquire; 22 • 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; • changes in international trade policies and practices, including tariffs, and the economic impacts, volatility and uncertainty resulting therefrom; • our ability to effectively manage any impacts of a pandemic or other public health emergency (including COVID-19 variants) as well as renewed actions taken in response by governmental authorities or certain professional sports leagues, including ensuring compliance with rules and regulations imposed upon our venues, to the extent applicable; • the 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 services agreements or 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 condensed and consolidated 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. 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 nine months ended March 31, 2025 and 2024. 23 Liquidity and Capital Resources. This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the nine months ended March 31, 2025 and 2024, 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 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 sports teams whose games we host at The Garden. The 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. 24 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 nine months ended March 31, 2025 versus the three and nine months ended March 31, 2024. Three Months Ended March 31, Change 2025 2024 Amount Percentage Revenues Revenues from entertainment offerings $ 160,214 $ 146,221 $ 13,993 10 % Food, beverage, and merchandise revenues 45,808 45,380 428 1 % Arena license fees and other leasing revenue (a) 36,443 36,712 (269) (1) % Total revenues 242,465 228,313 14,152 6 % Direct operating expenses Entertainment offerings, arena license fees, and other leasing direct operating expenses (107,995) (112,997) 5,002 4 % Food, beverage, and merchandise direct operating expenses (30,875) (29,024) (1,851) (6) % Total direct operating expenses (138,870) (142,021) 3,151 2 % Selling, general, and administrative expenses (52,112) (53,945) 1,833 3 % Depreciation and amortization (14,372) (13,182) (1,190) (9) % Impairment of long-lived assets (9,700) — (9,700) NM Restructuring charges (84) (2,362) 2,278 96 % Operating income 27,327 16,803 10,524 63 % Interest income 710 341 369 108 % Interest expense (11,800) (14,425) 2,625 18 % Other (expense) income, net (949) 78 (1,027) NM Income from operations before income taxes 15,288 2,797 12,491 NM Income tax expense (7,252) (2) (7,250) NM Net income $ 8,036 $ 2,795 $ 5,241 188 % 25 Nine Months Ended March 31, Change 2025 2024 Amount Percentage Revenues Revenues from entertainment offerings $ 593,571 $ 581,025 $ 12,546 2 % Food, beverage, and merchandise revenues 124,104 127,379 (3,275) (3) % Arena license fees and other leasing revenue (a) 70,921 64,787 6,134 9 % Total revenues 788,596 773,191 15,405 2 % Direct operating expenses Entertainment offerings, arena license fees, and other leasing direct operating expenses (358,755) (375,786) 17,031 5 % Food, beverage, and merchandise direct operating expenses (74,898) (70,673) (4,225) (6) % Total direct operating expenses (433,653) (446,459) 12,806 3 % Selling, general, and administrative expenses (155,047) (151,156) (3,891) (3) % Depreciation and amortization (42,336) (39,972) (2,364) (6) % Impairment of long-lived assets (9,700) — (9,700) NM Restructuring charges (14) (14,803) 14,789 100 % Operating income 147,846 120,801 27,045 22 % Interest income 1,447 2,275 (828) (36) % Interest expense (38,798) (43,761) 4,963 11 % Other expense, net (2,763) (1,545) (1,218) (79) % Income from operations before income taxes 107,732 77,770 29,962 39 % Income tax expense (43,124) (397) (42,727) NM Net income $ 64,608 $ 77,373 $ (12,765) (16) % ______________________________________________________ (a) Arena license fees and other leasing revenue are recognized on a straight line basis and are comprised of a contractual cash component plus or minus a non-cash component for each period presented. Arena license fees include operating lease revenue of (i) $21,746 and $40,048 collected in cash for the three and nine months ended March 31, 2025, respectively, and $22,372 and $38,610 for the three and nine months ended March 31, 2024, respectively, and (ii) a non-cash portion of $11,848 and $21,833 for the three and nine months ended March 31, 2025 respectively, and $13,216 and $22,831 for the three and nine months ended March 31, 2024, respectively. 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 nine months ended March 31, 2025 increased $14,152 and $15,405, respectively, as compared to the prior year period. Revenues from Entertainment Offerings For the three months ended March 31, 2025 the increase in revenues from entertainment offerings was primarily due to (i) higher revenues subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements of $6,250, (ii) higher revenues from the presentation of the Christmas Spectacular production of $4,907, and (iii) higher revenues from venue-related sponsorship, signage, and suite license fees of $4,628, partially offset by lower event-related revenues of $3,601. The increase in revenues of $6,250 subject to the sharing of economics with MSG Sports pursuant to the Arena License agreements was primarily due to higher suite license revenues (excluding the portion retained by the Company). The increase in revenues of $4,907 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, five additional performances as compared to the prior year quarter. The increase in per-show revenue was primarily due to higher average per-show attendance and, to a lesser extent, higher average ticket yield as compared to the prior year period. 26 The increase in revenues of $4,628 from venue-related sponsorship, signage and suite license fees was primarily due to higher suite license revenues (excluding the portion shared with MSG Sports pursuant to the Arena License agreements). The decrease in event-related revenues of $3,601 was due to (i) lower revenues from concerts of $21,912, which mainly reflects lower per-concert revenues primarily due to a shift in the mix of events at The Garden from promoted events to rentals and a decrease in the number of events at the Company’s venues, partially offset by (ii) higher revenues from other live entertainment and sporting events (excluding the Knicks and Rangers) of $18,311, which was primarily due to higher per-event revenues and an increase in the number of events at the Company’s venues. For the nine months ended March 31, 2025, the increase in revenues from entertainment offerings was primarily due to (i) higher revenues from the presentation of the Christmas Spectacular production of $20,058, (ii) higher revenues subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements of $13,429, and (iii) higher revenues from sponsorship and suites of $5,069, which was partially offset by lower event-related revenues of $27,656. The increase in revenues of $20,058 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 period. 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 period. The increase in revenues of $13,429 subject to the sharing of economics with MSG Sports pursuant to the Arena License agreements was primarily due to higher suite license revenues (excluding the portion retained by the Company). The increase in revenues of $5,069 from suites and sponsorship was primarily due to higher suite license revenues (excluding the portion shared with MSG Sports pursuant to the Arena License agreements). The decrease in event-related revenues of $27,656 was due to lower revenues from concerts of $40,502 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, partially offset by and higher revenues from other live entertainment and sporting events (excluding the Knicks and Rangers) of $12,846, which was primarily due to an increase in the number of events at The Garden and to a lesser extent, higher per-show revenues from other live entertainment and sporting events. Food, Beverage, and Merchandise Revenues For the three months ended March 31, 2025, the increase in food, beverage, and merchandise revenues was primarily due to higher food and beverage sales at other live entertainment and sporting events (excluding the Knicks and Rangers), partially offset by lower food and beverage sales at concerts. The increase in food and beverage sales at other live entertainment and sporting events was due to an increase in the number of events held at the Company’s venues and higher per-event revenues, both as compared to the prior year quarter. The decrease in food and beverage sales at concerts was primarily due to fewer concerts held at the Company’s venues as compared to the prior year quarter. For the nine months ended March 31, 2025, 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 other live entertainment and sporting events, (iii) higher food, beverage and merchandise sales related to the Christmas Spectacular production, and (iv) higher food and beverage sales at Knicks and Rangers games. The decrease in food and beverage sales at concerts was due to lower per-concert revenues and, to a lesser extent, fewer concerts at The Garden, both as compared to the prior year period. The increase in food and beverage sales at other live entertainment and sporting events was due to additional events at The Garden and, to a lesser extent, higher average per-event revenues in the current year period. The increase in food and beverage sales at Knicks and Rangers games was due to higher average per-game revenues in the current year period, and to a lesser extent, the impact of one combined additional Knicks and Rangers game played at The Garden. 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 seven additional shows, both as compared to the prior year period. 27 Arena License Fees and Other Leasing Revenue For the three months ended March 31, 2025, the decrease in revenues was due to lower arena license fees from MSG Sports pursuant to the Arena License Agreements due to a combined two fewer Knicks and Rangers games played at The Garden in the current year period, mostly offset by an increase in other leasing revenue. For the nine months ended March 31, 2025, 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 one combined additional Knicks and Rangers game played at The Garden in the current year period. In the three and nine months ended March 31, 2025, the Knicks and Rangers played a combined 43 and 80 pre/regular season games at The Garden, respectively, as compared to 45 and 79 combined pre/regular season games, respectively, in the prior year periods. Direct operating expenses Direct operating expenses for the three and nine months ended March 31, 2025 decreased $3,151 and $12,806, 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 March 31, 2025, the decrease in direct operating expenses associated with entertainment offerings, arena license fees, and other leasing primarily reflects lower event-related expenses of $8,977 and, to a lesser extent, a decrease in venue operating costs of $2,240, 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 $6,589. The decrease in event-related expenses of $8,977 reflects (i) lower direct operating expenses from concerts of $17,543, mainly due to lower per-concert expenses, primarily as a result of 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 Company’s venues partially offset by (ii) higher direct operating expenses from other live entertainment and sporting events (excluding the Knicks and Rangers) of $8,566, primarily due to higher per-event expenses and an increase in the number of events at the Company’s venues. The decrease in venue operating costs of $2,240 was primarily due to lower employee compensation and benefits and other cost decreases. The increase in direct operating expenses of $6,589 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 nine months ended March 31, 2025, the decrease in direct operating expenses associated with entertainment offerings, arena license fees, and other leasing primarily reflects lower event-related expenses of $26,116 and a decrease in venue operating costs of partially $3,703, offset by an increase in direct operating expenses subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements of $12,564. The decrease in event-related expenses of $26,116 reflects (i) lower direct operating expenses from concerts of $35,380, 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 $9,264. The decrease in venue operating costs of $3,703 was primarily due to lower variable operating costs. Direct Operating Expenses Associated with Food, Beverage, and Merchandise For the three months ended March 31, 2025, the increase in food, beverage and merchandise direct operating expenses was primarily driven by an increase in food and beverage costs related to other live entertainment and sporting events (excluding the Knicks and Rangers), partially offset by a decrease in food and beverage costs related to concerts at the Company’s venues. For the nine months ended March 31, 2025, the increase in food, beverage and merchandise direct operating expenses was primarily driven by higher food, beverage and merchandise costs related to other live entertainment and sporting events, 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. 28 Selling, general, and administrative expenses For the three and nine months ended March 31, 2025, selling, general, and administrative expenses decreased $1,833 and increased $3,891, respectively, as compared to the prior year period. For the three months ended March 31, 2025, the decrease of $1,833 was primarily due to a decrease in employee compensation and benefits partially offset by other net cost increases. For the nine months ended March 31, 2025, the increase of $3,891 was primarily due to (i) higher rent expense, and (ii) an increase in employee compensation and benefits, including executive management transition costs of $4,562 recognized in the current year period partially offset by (iii) decreases in professional fees and other costs. Depreciation and amortization For the three and nine months ended March 31, 2025, depreciation and amortization increased $1,190 and $2,364, respectively, as compared to the prior year period primarily due to the increase in fixed assets in the first and second quarter of Fiscal Year 2025. Impairment of long-lived assets For the three and nine months ended March 31, 2025, impairment of long-lived assets increased $9,700, as compared to the prior year period due to impairment losses recognized on the Company’s right-of-use assets due to the decision to stop utilizing one of the floors in its New York office in the third quarter of Fiscal Year 2025. Restructuring charges For the three and nine months ended March 31, 2025, restructuring charges decreased $2,278 and $14,789, 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. Operating income For the three and nine months ended March 31, 2025, operating income increased by $10,524 and $27,045, respectively, as compared to the prior year period. The increase in operating income for the three months ended March 31, 2025 was primarily due to an increase in revenues and, to a lesser extent, a decrease in direct operating expenses and restructuring charges, partially offset by an increase in impairment of long-lived assets. The increase in operating income for the nine months ended March 31, 2025 was primarily due to an increase in revenues, a decrease in direct operating expenses and lower restructuring charges, partially offset by an increase in selling, general and administrative expenses and impairment of long-lived assets. Interest income For the three and nine months ended March 31, 2025, interest income increased $369 and decreased $828, respectively, as compared to the prior year period. The increase in interest income for the three months ended March 31, 2025 was primarily due to higher average balances in the Company’s cash, cash equivalents and restricted cash for the quarter. The decrease in interest income for the nine months ended March 31, 2025 was primarily due to lower average balances for the first half of Fiscal Year 2025 and lower interest rates in the Company’s cash, cash equivalents and restricted cash. Interest expense For the three and nine months ended March 31, 2025, interest expense decreased $2,625 and $4,963, 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, net For the three months ended March 31, 2025, other expense, net was $949, as compared to other income, net of $78 in the corresponding prior year period. The change for the three months ended March 31, 2025 was primarily due to (i) a change in unrealized gains to an unrealized loss of $837 associated with the investment in Townsquare Media, Inc., and (ii) a change in unrealized gains to an unrealized loss of $278 associated with the Company’s Executive Deferred Compensation Plan. For the nine months ended March 31, 2025, other expense, net was $2,763, as compared to $1,545 in the corresponding prior year period. The change for the nine months ended March 31, 2025 was primarily due to (i) the absence of a $1,658 net gain associated with the investment in DraftKings Inc. recognized in the prior period, (ii) a decrease in dividend income of $455 associated with the 29 investment in Townsquare Media, as compared to the prior period, and (iii) a decrease in unrealized gains from the Company’s other investments of $323, as compared to the prior period, partially offset by (iv) a decrease in realized and unrealized loss of $1,232 associated with the investment in Townsquare Media. 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 nine months ended March 31, 2025 of $7,252 and $43,124, respectively, reflects an effective tax rate of 47% and 40%, respectively. 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 is a federal taxpayer. Income tax expense for the three and nine months ended March 31, 2024 of $2 and $397 , respectively, reflects an effective tax rate 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, 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 other long-lived assets, including right-of-use assets and related lease costs, (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 excludes impairments of long-lived assets, including right-of-use assets and related lease costs, as these expenses do not represent core business operating results of the Company. The Company believes that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the Company’s business without regard to the settlement of an obligation that is not expected to be made in cash. The Company eliminates merger, spin-off, and acquisition-related 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. 30 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 nine months ended March 31, 2025 as compared to the prior year periods: Three Months Ended March 31, Change 2025 2024 Amount Percentage Operating income $ 27,327 $ 16,803 $ 10,524 63 % Depreciation and amortization 14,372 13,182 1,190 9 % Impairment of long-lived assets 9,700 — 9,700 NM Share-based compensation (excluding share-based compensation included in restructuring charges) 6,250 5,611 639 11 % Restructuring charges 84 2,362 (2,278) (96) % Amortization for capitalized cloud computing arrangement costs 183 388 (205) (53) % Remeasurement of deferred compensation plan liabilities (45) 191 (236) NM Adjusted operating income $ 57,871 $ 38,537 $ 19,334 50 % Nine Months Ended March 31, Change 2025 2024 Amount Percentage Operating income $ 147,846 $ 120,801 $ 27,045 22 % Depreciation and amortization 42,336 39,972 2,364 6 % Impairment of long-lived assets 9,700 — 9,700 NM Share-based compensation (excluding share-based compensation included in restructuring charges) 21,834 19,561 2,273 12 % Restructuring charges 14 14,803 (14,789) (100) % Merger, spin-off , and acquisition-related costs (a) 1,361 2,035 (674) (33) % Amortization for capitalized cloud computing arrangement costs 552 836 (284) (34) % Remeasurement of deferred compensation plan liabilities 149 389 (240) (62) % Adjusted operating income $ 223,792 $ 198,397 $ 25,395 13 % ________________________________________________________ (a) This adjustment represents non-recurring transaction costs incurred by the Company. NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful . 31 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 $70,000 remaining as of March 31, 2025. 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 March 31, 2025, the Company’s unrestricted cash and cash equivalents balance was $88,953. The principal balance of the Company’s total debt outstanding as of March 31, 2025 was $613,438 and the Company had $131,633 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 March 31, 2025, outstanding letters of credit were $18,367 and the remaining balance available under the National Properties Revolving Credit Facility was $131,633 . 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 March 31, 2025 was 6.92%. Principal Repayments. Subject to customary notice and minimum amount conditions, the Company may voluntarily repay outstanding loans under the National Properties Facilities or terminate commitments under the National Properties Revolving Credit Facility, at any time, in whole or in part, subject only to customary breakage costs in the case of prepayment of Term SOFR loans. The National Properties Facilities will mature on June 30, 2027. The principal obligations under the National Properties Term Loan Facility are to be repaid in quarterly installments beginning with the fiscal quarter ended March 31, 2023, in an aggregate amount equal to 2.50% per 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. 32 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 March 31, 2025, 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 or the Beacon Theatre. Contractual Obligations During the nine months ended March 31, 2025, 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 March 31, 2025, cash, cash equivalents and restricted cash totaled $89,474, as compared to $33,555 as of June 30, 2024. The following table summarizes the Company’s cash flow activities for the nine months ended March 31, 2025 and 2024: Nine Months Ended March 31, 2025 2024 Net cash provided by operating activities $ 142,308 $ 111,054 Net cash used in investing activities (19,379) (72,625) Net cash used in financing activities (67,010) (94,476) Net increase (decrease) in cash, cash equivalents, and restricted cash $ 55,919 $ (56,047) Operating Activities Net cash provided by operating activities for the nine months ended March 31, 2025 increased by $31,254 as compared to the prior year period, primarily due to an increase in Net income adjusted for non-cash items of $22,679, and an increase in cash flows from changes in working capital of $8,575. The increase in cash flows from changes in working capital was primarily driven by (i) a smaller increase in accounts receivable as compared to the prior year period, due to the timing of cash collections, and (ii) an increase in the net operating lease liabilities in the current year period, as the Company took possession of additional office space in New York. These increases were partially offset by (iii) negative net cash outflows from related party receivables and payables, due to the timing 33 and settlement of the underlying related party transactions, (iv) a decrease in accounts payable, due to the timing of payments to vendors, (v) a decrease in accrued and other current and non-current liabilities, primarily as a result of timing of settlements with promoters, and (vi) a smaller increase in deferred revenue, due to the timing of billing and recognition of suite license and sponsor signage revenues, in each case as compared to the nine months ended March 31, 2024. Investing Activities Net cash used in investing activities for the nine months ended March 31, 2025 decreased by $53,246 to $19,379 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 nine months ended March 31, 2025 decreased by $27,466 to $67,010 as compared to the prior year period primarily due to (i) a decrease in principal debt repayments, and (ii) a decrease in stock repurchases, partially offset by (iii) 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.