Madison Square Garden Entertainment (US:MSGE)2024-08-16 20:08PART I Item 1. Business MSG Entertainment is a leading live entertainment company operating iconic venues and producing marquee content, managing its business through one reportable segment focused on guest experience and venue utilization - MSG Entertainment became an independent publicly traded company on April 21, 2023, following a distribution from Sphere Entertainment Co.56166 - The company's portfolio includes iconic venues such as Madison Square Garden, Radio City Music Hall, Beacon Theatre, and The Chicago Theatre729166 - MSG Entertainment produces the Christmas Spectacular Starring the Radio City Rockettes, which sold over 1 million tickets across 193 performances in Fiscal Year 2024, marking its 90th year725194 - The company hosts home games for the New York Knicks (NBA) and New York Rangers (NHL) at The Garden through long-term Arena License Agreements81620 - In Fiscal Year 2024, MSG Entertainment hosted over 960 events and approximately 6.3 million guests across its venues16 Overview Our Strengths Our Strategy Our Business Our Bookings Business Our Productions Our Venues Intellectual Property Our Community Supplier Diversity Regulation Competition Human Capital Resources Financial Information about Geographic Areas Available Information Item 1A. Risk Factors MSG Entertainment faces significant risks from intense competition, dependence on key productions and sports teams, economic downturns, operational challenges, substantial indebtedness, cybersecurity threats, and corporate governance issues - The company's business is highly sensitive to customer tastes and depends on its ability to attract popular artists and events, with competition being intense in the New York City market1168 - The Christmas Spectacular production accounted for 16% of revenues in Fiscal Year 2024, making the company's financial results significantly dependent on its continued success71101 - The Madison Square Garden Complex benefits from a real estate tax exemption, which was $42.2 million for Fiscal Year 2024, and its repeal could materially negatively affect the business7778 - As of June 30, 2024, the company had total indebtedness of $626 million, exposing it to significant interest rate risk and limiting financial flexibility108114 - Approximately 70% of the company's workforce (4,700 employees) is unionized, with 9% of CBAs expired as of June 30, 2024, and 12% expiring by June 30, 2025, posing risks of labor disputes62102441 - The Dolan Family Group controls approximately 63.7% of the total voting power, enabling them to prevent changes in control and influence corporate actions, and creating potential conflicts of interest due to overlapping directors and officers with affiliated entities141147 Risks Related to Our Business Economic and Operational Risks Risks Related to Indebtedness and Financial Condition Risks Related to Cybersecurity and Intellectual Property Corporate Governance Risks Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - No unresolved staff comments were reported149 Item 1C. Cybersecurity MSG Entertainment maintains a comprehensive cyber risk management program with oversight from the Audit Committee, addressing evolving threats and past incidents - The company has a cyber risk management program with regular system security testing, an incident response policy, employee training, and vulnerability analysis151 - The Chief Security Officer (CSO) leads the tactical incident response team, supported by senior management, and reports annually to the Audit Committee on cybersecurity risks151 - In November 2016, the company experienced a payment card issue affecting several venues, which was promptly fixed with enhanced security measures124151 Item 2. Properties MSG Entertainment owns the Madison Square Garden Complex and The Chicago Theatre, while leasing Radio City Music Hall and the Beacon Theatre - The company owns the Madison Square Garden Complex (1,100,000 sq ft) and The Chicago Theatre (72,600 sq ft)152 - Leased properties include Radio City Music Hall (577,000 sq ft) and the Beacon Theatre (57,000 sq ft), both in New York City152 Item 3. Legal Proceedings MSG Entertainment is involved in various lawsuits, but management believes their resolution will not have a material adverse effect on the company's financial position - Management does not believe the resolution of current lawsuits will have a material adverse effect on the Company153 Item 4. Mine Safety Disclosures This item is not applicable to MSG Entertainment - Item 4. Mine Safety Disclosures is not applicable153 PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities MSG Entertainment's Class A Common Stock trades on the NYSE, with no dividends paid in Fiscal Year 2024, and a share repurchase program utilized for $115 million - Class A Common Stock (MSGE) began trading on the NYSE on April 21, 2023155 - The company did not pay any dividends on common stock in Fiscal Year 2024 and has no current plans for cash dividends157 Stock Performance (April 21, 2023 - June 30, 2024) | Index | 4/21/23 | 6/30/23 | 6/30/24 | | :-------------------------------------- | :------ | :------ | :------ | | Madison Square Garden Entertainment Corp. | $100.00 | $108.49 | $110.45 | | Russell 2000 Index | 100.00 | 105.80 | 116.44 | | Bloomberg Americas Entertainment Index | 100.00 | 108.33 | 109.27 | - The Board authorized a $250 million share repurchase program on March 29, 2023. In Fiscal Year 2024, the company repurchased 3,525,314 shares for approximately $115 million, with $110 million remaining available159215 Performance Graph Issuer Purchases of Equity Securities Securities Authorized for Issuance Under Equity Compensation Plans Item 6. [Reserved] This item is reserved and contains no content Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews MSG Entertainment's financial condition and results for Fiscal Year 2024, highlighting revenue growth, liquidity, debt, capital expenditures, seasonality, and critical accounting policies Consolidated and Combined Results of Operations (FY2024 vs FY2023) | Metric | FY2024 ($ thousands) | FY2023 ($ thousands) | Change Amount ($ thousands) | Percentage Change | | :------------------------------------------------------------------- | :------------------- | :------------------- | :-------------------------- | :---------------- | | Revenues from entertainment offerings | 723,897 | 643,885 | 80,012 | 12% | | Food, beverage, and merchandise revenues | 162,092 | 135,933 | 26,159 | 19% | | Arena license fees and other leasing revenue | 73,276 | 71,678 | 1,598 | 2% | | Total revenues | 959,265 | 851,496 | 107,769 | 13% | | Entertainment offerings, arena license fees, and other leasing direct operating expenses | (475,502) | (420,301) | (55,201) | (13)% | | Food, beverage, and merchandise direct operating expenses | (93,334) | (79,628) | (13,706) | (17)% | | Total direct operating expenses | (568,836) | (499,929) | (68,907) | (14)% | | Selling, general and administrative expenses | (206,963) | (180,216) | (26,747) | (15)% | | Depreciation and amortization | (53,876) | (60,463) | 6,587 | 11% | | Gains, net on dispositions | — | 4,361 | (4,361) | NM | | Restructuring charges | (17,649) | (10,241) | (7,408) | (72)% | | Operating income | 111,941 | 105,008 | 6,933 | 7% | | Interest income | 2,976 | 7,244 | (4,268) | (59)% | | Interest expense | (57,954) | (51,869) | (6,085) | (12)% | | Other (expense) income, net | (4,672) | 17,389 | (22,061) | NM | | Income from operations before income taxes | 52,291 | 77,772 | (25,481) | (33)% | | Income tax benefit (expense) | 92,009 | (1,728) | 93,737 | NM | | Net income | 144,300 | 76,044 | 68,256 | 90% | | Net income attributable to MSG Entertainment's stockholders | 144,300 | 76,597 | 67,703 | 88% | - Revenues increased by $107.8 million (13%) in Fiscal Year 2024, primarily due to higher event-related revenues ($51.1 million), increased revenues from MSG Sports sharing economics ($17.2 million), and higher Christmas Spectacular production revenues ($15.8 million)191193194 - Net income increased by $68.3 million (90%) in Fiscal Year 2024, reaching $144.3 million, driven by revenue growth and a significant income tax benefit of $92.0 million due to a decrease in valuation allowance190205 Adjusted Operating Income (AOI) Reconciliation (FY2024 vs FY2023) | Metric | FY2024 ($ thousands) | FY2023 ($ thousands) | Change Amount ($ thousands) | Percentage Change | | :------------------------------------------------ | :------------------- | :------------------- | :-------------------------- | :---------------- | | Operating income | 111,941 | 105,008 | 6,933 | 7% | | Share-based compensation expense | 24,544 | 29,521 | (4,977) | (17)% | | Depreciation and amortization | 53,876 | 60,463 | (6,587) | (11)% | | Restructuring charges | 17,649 | 10,241 | 7,408 | 72% | | Gains, net on dispositions | — | (4,361) | 4,361 | NM | | Merger, spin-off, and acquisition costs | 2,035 | — | 2,035 | NM | | Amortization of capitalized cloud computing costs | 1,008 | 600 | 408 | 68% | | Remeasurement of deferred compensation plan liabilities | 452 | 121 | 331 | NM | | Adjusted operating income | 211,505 | 201,593 | 9,912 | 5% | - As of June 30, 2024, the company had $33.3 million in unrestricted cash and cash equivalents, $625.6 million in total debt, and $131.2 million in available borrowing capacity under its revolving credit facility215 - Net cash provided by operating activities decreased by $24.4 million in Fiscal Year 2024 compared to Fiscal Year 2023, primarily due to changes in working capital221 Introduction MSGE Distribution and Business Overview Revenue Sources Expenses Factors Affecting Results of Operations Factors Affecting Comparability Results of Operations Consolidated and Combined Results of Operations Liquidity and Capital Resources Seasonality of Our Business Recently Issued Accounting Pronouncements and Critical Accounting Policies Item 7A. Quantitative and Qualitative Disclosures about Market Risk MSG Entertainment is exposed to interest rate risk from variable rate debt and market risk from defined benefit pension plans, impacting annual interest expense and benefit costs - A hypothetical 200 basis point increase in floating interest rates would increase the company's interest expense by $12.5 million annually233 - Lower discount rates increase the present value of benefit obligations and usually increase the subsequent year's net periodic benefit cost for pension plans234 - A 25 basis point decrease in assumed discount rates would increase projected benefit obligations for Pension Plans by $3.14 million and Postretirement Plan by $30 thousand as of June 30, 2024234 - A 25 basis point decrease in the long-term return on pension plan assets assumption would increase net periodic pension benefit cost by $270 thousand for Fiscal Year 2024234 Potential Interest Rate Risk Exposure Defined Benefit Pension Plans and Other Postretirement Benefit Plans Item 8. Financial Statements and Supplementary Data This item indicates that the required financial statements and supplementary data are presented starting on page F-1 of the Annual Report on Form 10-K - Financial Statements and Supplementary Data are located starting on page F-1 of the report235 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported237 Item 9A. Controls and Procedures MSG Entertainment's management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2024 - Disclosure controls and procedures were effective as of June 30, 2024237 - Internal control over financial reporting was effective as of June 30, 2024, as concluded by management and audited by Deloitte & Touche LLP238 - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2024239 Evaluation of Disclosure Controls and Procedures Management's Report on Internal Control over Financial Reporting Changes in Internal Control over Financial Reporting Item 9B. Other Information The company reported no other information required by this item - No other information was reported239 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to MSG Entertainment - Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections is not applicable239 PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance will be incorporated by reference from the company's 2024 annual meeting proxy statement - Information on directors, executive officers, and corporate governance will be incorporated by reference from the 2024 proxy statement241 Item 11. Executive Compensation Information relating to executive compensation will be incorporated by reference from the company's 2024 annual meeting proxy statement - Information on executive compensation will be incorporated by reference from the 2024 proxy statement242 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and related stockholder matters will be incorporated by reference from the company's 2024 annual meeting proxy statement - Information on security ownership and related stockholder matters will be incorporated by reference from the 2024 proxy statement243 Item 13. Certain Relationships and Related Transactions, and Director Independence Information concerning certain relationships, related transactions, and director independence will be incorporated by reference from the company's 2024 annual meeting proxy statement - Information on certain relationships, related transactions, and director independence will be incorporated by reference from the 2024 proxy statement244 Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services will be incorporated by reference from the company's 2024 annual meeting proxy statement - Information on principal accountant fees and services will be incorporated by reference from the 2024 proxy statement245 PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the 10-K report, including various agreements and the Valuation and Qualifying Accounts schedule - The section includes a comprehensive list of exhibits, such as the Distribution Agreement, Tax Disaffiliation Agreement, and various employment and credit agreements249250251252253 Valuation and Qualifying Accounts (in thousands) | Account | Balance at Beginning of Period (FY2024) | Charged to Costs and Expenses (FY2024) | Charged to Other Accounts (FY2024) | Deductions (FY2024) | Balance at End of Period (FY2024) | | :---------------------------------------- | :-------------------------------------- | :------------------------------------- | :--------------------------------- | :------------------ | :-------------------------------- | | Allowance for doubtful accounts / credit losses | $(472) | $(579) | $— | $469 | $(582) | | Deferred tax valuation allowance | $(95,352) | $108,506 | $(13,154) | $— | $— | | Total | $(95,824) | $107,927 | $(13,154) | $469 | $(582) | | Account | Balance at Beginning of Period (FY2023) | Charged to Costs and Expenses (FY2023) | Charged to Other Accounts (FY2023) | Deductions (FY2023) | Balance at End of Period (FY2023) | | :---------------------------------------- | :-------------------------------------- | :------------------------------------- | :--------------------------------- | :------------------ | :-------------------------------- | | Allowance for doubtful accounts / credit losses | $(3,710) | $(81) | $— | $3,319 | $(472) | | Deferred tax valuation allowance | $(151,043) | $34,147 | $21,544 | $— | $(95,352) | | Total | $(154,753) | $34,066 | $21,544 | $3,319 | $(95,824) | | Account | Balance at Beginning of Period (FY2022) | Charged to Costs and Expenses (FY2022) | Charged to Other Accounts (FY2022) | Deductions (FY2022) | Balance at End of Period (FY2022) | | :---------------------------------------- | :-------------------------------------- | :------------------------------------- | :--------------------------------- | :------------------ | :-------------------------------- | | Allowance for doubtful accounts / credit losses | $(4,167) | $(166) | $— | $623 | $(3,710) | | Deferred tax valuation allowance | $(119,135) | $(31,679) | $(229) | $— | $(151,043) | | Total | $(123,302) | $(31,845) | $(229) | $623 | $(154,753) | Item 16. Form 10-K Summary This item is typically a summary of the Form 10-K, but the content provided in the report indicates it is reserved or not applicable, as the page content is part of the exhibits list Financial Statements and Notes Reports of Independent Registered Public Accounting Firm Deloitte & Touche LLP provided an unqualified opinion on MSG Entertainment's financial statements and internal control over financial reporting, identifying related party transactions as a critical audit matter - Deloitte & Touche LLP issued an unqualified opinion on the financial statements for the period ended June 30, 2024, and 2023265 - An unqualified opinion was also expressed on the effectiveness of internal control over financial reporting as of June 30, 2024266276 - The evaluation of related party transactions was identified as a critical audit matter due to the Dolan Family Group's control over MSG Entertainment and affiliated entities, requiring significant auditor judgment270271 Consolidated Balance Sheets The consolidated balance sheets show MSG Entertainment's financial position, with total assets increasing to $1.55 billion and total deficit improving to $(23.17) million in FY2024 Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2024 | June 30, 2023 | | :-------------------------- | :------------ | :------------ | | ASSETS | | | | Total current assets | $219,084 | $295,281 | | Property and equipment, net | $633,533 | $628,888 | | Right-of-use lease assets | $388,658 | $235,790 | | Total assets | $1,552,707 | $1,401,157 | | LIABILITIES AND DEFICIT | | | | Total current liabilities | $505,823 | $540,640 | | Long-term debt, net | $599,248 | $630,184 | | Operating lease liabilities, non-current | $427,014 | $219,955 | | Total liabilities | $1,575,872 | $1,470,629 | | Total deficit | $(23,165) | $(69,472) | - Cash, cash equivalents and restricted cash decreased from $84.36 million in FY2023 to $33.56 million in FY2024281 - Deferred tax assets, net, increased significantly from $0 in FY2023 to $68.31 million in FY2024, while deferred tax liabilities, net, decreased from $23.52 million to $0281 Consolidated and Combined Statements of Operations The statements of operations show MSG Entertainment's net income rising to $144.30 million in Fiscal Year 2024, driven by a 13% revenue increase and a significant income tax benefit Consolidated and Combined Statements of Operations (in thousands) | Metric | FY2024 | FY2023 | FY2022 | | :------------------------------------------------------------------- | :---------- | :---------- | :---------- | | Revenues from entertainment offerings | $723,897 | $643,885 | $483,340 | | Food, beverage, and merchandise revenues | $162,092 | $135,933 | $98,740 | | Arena license fees and other leasing revenue | $73,276 | $71,678 | $71,410 | | Total revenues | $959,265 | $851,496 | $653,490 | | Total direct operating expenses | $(568,836) | $(499,929) | $(417,301) | | Selling, general and administrative expenses | $(206,963) | $(180,216) | $(167,132) | | Depreciation and amortization | $(53,876) | $(60,463) | $(69,534) | | Operating income (loss) | $111,941 | $105,008 | $(5,648) | | Interest income | $2,976 | $7,244 | $7,150 | | Interest expense | $(57,954) | $(51,869) | $(53,110) | | Income tax benefit (expense) | $92,009 | $(1,728) | $70 | | Net income (loss) attributable to MSG Entertainment's stockholders | $144,300 | $76,597 | $(133,336) | - Basic EPS increased from $1.48 in FY2023 to $2.99 in FY2024, and diluted EPS increased from $1.47 to $2.97284 Consolidated and Combined Statements of Comprehensive Income (Loss) Total comprehensive income attributable to MSG Entertainment's stockholders significantly increased to $146.06 million in Fiscal Year 2024, primarily due to higher net income Consolidated and Combined Statements of Comprehensive Income (Loss) (in thousands) | Metric | FY2024 | FY2023 | FY2022 | | :------------------------------------------------------------------- | :---------- | :---------- | :----------- | | Net income (loss) | $144,300 | $76,044 | $(136,200) | | Other comprehensive income (loss), before income taxes | $2,131 | $(971) | $(1,385) | | Income tax (expense) benefit related to items of other comprehensive income | $(372) | $176 | $243 | | Other comprehensive income (loss), net of income taxes | $1,759 | $(795) | $(1,142) | | Comprehensive income (loss) attributable to MSG Entertainment's stockholders | $146,059 | $75,802 | $(134,478) | Consolidated and Combined Statements of Cash Flows The statements of cash flows indicate a net decrease of $50.80 million in cash, cash equivalents, and restricted cash in Fiscal Year 2024, driven by decreased operating cash and increased investing activities Consolidated and Combined Statements of Cash Flows (in thousands) | Activity | FY2024 | FY2023 | FY2022 | | :--------------------------------------------------------------------- | :---------- | :---------- | :----------- | | Net cash provided by operating activities | $111,266 | $135,694 | $95,351 | | Net cash (used in) provided by investing activities | $(62,371) | $30,305 | $45,440 | | Net cash used in financing activities | $(99,695) | $(144,217) | $(396,287) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(50,800) | $21,782 | $(255,496) | - Net cash provided by operating activities decreased by $24.43 million in FY2024, mainly due to a decrease in net income adjusted for non-cash items and changes in working capital221 - Net cash used in investing activities increased by $92.68 million in FY2024, driven by higher loans to related parties and the absence of proceeds from dispositions222 - Net cash used in financing activities decreased by $44.52 million in FY2024, primarily due to the absence of net transfers to Sphere Entertainment and increased proceeds from revolving credit facilities, partially offset by higher debt repayments and stock repurchases223224 Consolidated and Combined Statements of Equity (Deficit) The statements of equity show an improvement in total deficit to $(23.17) million in Fiscal Year 2024, primarily due to net income and share-based compensation Consolidated and Combined Statements of Equity (Deficit) (in thousands) | Metric | June 30, 2024 | June 30, 2023 | June 30, 2022 | | :------------------------------------------------------------------- | :------------ | :------------ | :------------ | | Common Stock | $525 | $519 | $0 | | Additional paid-in capital | $33,481 | $17,727 | $0 | | Treasury Stock | $(140,512) | $(25,000) | $0 | | Retained earnings (deficit) | $115,603 | $(28,697) | $0 | | Accumulated Other Comprehensive Loss | $(32,262) | $(34,021) | $(34,740) | | Total Madison Square Garden Entertainment Corp. Stockholders' Equity (Deficit) | $(23,165) | $(69,472) | $(1,475) | - Net income of $144.30 million and share-based compensation of $31.17 million contributed positively to equity in FY2024290 - Stock repurchases, inclusive of tax, amounted to $(116.39) million in FY2024, increasing treasury stock290 Notes to the Consolidated and Combined Financial Statements These notes detail MSG Entertainment's accounting policies, financial performance, and significant disclosures, including related party transactions due to the Dolan Family Group's control Note 1. Description of Business and Basis of Presentation - The financial statements for periods prior to April 21, 2023, are presented on a carve-out basis, derived from Sphere Entertainment's consolidated financial statements, and include allocations for centralized support functions294295 Note 2. Summary of Significant Accounting Policies Note 3. Dispositions Note 4. Revenue Recognition - Revenue is disaggregated into event-related offerings, sponsorship/signage/suite licenses, and other categories, with Arena License fees and other leasing revenue accounted for separately under ASC Topic 842345346 Total Revenues from Contracts with Customers (in thousands) | Revenue Source | FY2024 | FY2023 | FY2022 | | :------------------------------------------- | :---------- | :---------- | :---------- | | Event-related offerings | $625,364 | $532,308 | $372,552 | | Sponsorship, signage and suite licenses | $228,851 | $209,831 | $166,221 | | Other | $31,774 | $37,679 | $43,307 | | Total revenues from contracts with customers | $885,989 | $779,818 | $582,080 | | Arena license fees and other leasing revenue | $73,276 | $71,678 | $71,410 | | Total revenues | $959,265 | $851,496 | $653,490 | Note 5. Restructuring Charges - Restructuring charges increased to $17.65 million in FY2024 from $10.24 million in FY2023, primarily for termination benefits for corporate executives and employees201350 Note 6. Computation of Earnings per-Share Note 7. Investments Note 8. Property and Equipment, Net Note 9. Leases Note 10. Goodwill and Intangible Assets Note 11. Commitments and Contingencies Note 12. Credit Facilities - The company's total debt outstanding as of June 30, 2024, was $625.63 million, with $16.25 million maturing in Fiscal Year 2025215378 Note 13. Pension Plans and Other Postretirement Benefit Plans Note 14. Share-based Compensation Note 15. Equity Note 16. Income Taxes - The company reversed its deferred tax valuation allowance in FY2024, resulting in an income tax benefit of $108.51 million, based on management's assessment of future taxable income205416 Note 17. Related Party Transactions - Related party transactions are extensive due to the Dolan Family Group's control over MSG Entertainment, Sphere Entertainment, MSG Sports, and AMC Networks, involving various commercial agreements and shared services420421422423 Note 18. Additional Financial Information