Madison Square Garden Entertainment (MSGE) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, cash flows, and deficit, along with detailed notes explaining the company's business, accounting policies, and specific financial items for the three months ended September 30, 2024 and 2023 Condensed Consolidated Balance Sheets The balance sheets provide a snapshot of the company's financial position, showing an increase in total assets and liabilities, and a larger total deficit as of September 30, 2024, compared to June 30, 2024 | Metric | Sep 30, 2024 (in thousands) | Jun 30, 2024 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Total Assets | $1,610,327 | $1,552,707 | | Total Liabilities | $1,659,025 | $1,575,872 | | Total Deficit | $(48,698) | $(23,165) | Condensed Consolidated Statements of Operations The statements of operations show a significant improvement in net loss and operating loss for the three months ended September 30, 2024, compared to the prior year, despite a slight decrease in total revenues | Metric | Sep 30, 2024 (in thousands) | Sep 30, 2023 (in thousands) | Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :----------- | | Total Revenues | $138,714 | $142,212 | (2)% | | Total Direct Operating Expenses | $(97,709) | $(101,677) | 4% | | Selling, General, & Administrative Expenses | $(45,746) | $(48,822) | 6% | | Operating Loss | $(18,482) | $(33,425) | 45% improvement | | Net Loss | $(19,321) | $(50,671) | 62% improvement | | Basic and Diluted Loss per Share | $(0.40) | $(1.00) | 60% improvement | Condensed Consolidated Statements of Comprehensive Loss The comprehensive loss for the three months ended September 30, 2024, significantly improved compared to the prior year, reflecting the reduction in net loss and a positive other comprehensive income | Metric | Sep 30, 2024 (in thousands) | Sep 30, 2023 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Net Loss | $(19,321) | $(50,671) | | Other comprehensive income, net of income taxes | $356 | $197 | | Comprehensive Loss | $(18,965) | $(50,474) | Condensed Consolidated Statements of Cash Flows Cash flows from operating activities shifted from a net inflow to a net outflow, while investing activities saw a substantial reduction in cash used, and financing activities provided significantly more cash, leading to a net increase in cash, cash equivalents, and restricted cash | Activity | Sep 30, 2024 (in thousands) | Sep 30, 2023 (in thousands) | | :------- | :-------------------------- | :-------------------------- | | Net cash (used in) provided by operating activities | $(27,359) | $1,378 | | Net cash used in investing activities | $(6,690) | $(55,490) | | Net cash provided by financing activities | $38,107 | $9,273 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $4,058 | $(44,839) | | Cash, cash equivalents, and restricted cash, end of period | $37,613 | $39,516 | Condensed Consolidated Statements of Deficit The statements of deficit show an increase in the total deficit from June 30, 2024, to September 30, 2024, primarily due to the net loss for the period, partially offset by share-based compensation | Metric | Sep 30, 2024 (in thousands) | Jun 30, 2024 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Total Deficit | $(48,698) | $(23,165) | Notes to the Condensed Consolidated Financial Statements (Unaudited) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering business description, accounting policies, revenue recognition, restructuring, investments, property, goodwill, commitments, credit facilities, pension plans, share-based compensation, related party transactions, additional financial information, and subsequent events Note 1. Description of Business and Basis of Presentation MSG Entertainment is a live entertainment company operating iconic venues and producing content, which became an independent publicly traded company in April 2023, with seasonal financial results showing higher revenues in Q2 and Q3 - MSG Entertainment operates as a live entertainment company with iconic venues (Madison Square Garden, Radio City Music Hall, Beacon Theatre, The Chicago Theatre) and produces content like the Christmas Spectacular[15] - The company became an independent publicly traded entity on April 21, 2023, following a distribution by Sphere Entertainment Co., which subsequently divested all its common stock in MSG Entertainment by September 22, 2023[16][103] - The company's revenues are seasonal, with a disproportionate share earned in the second and third fiscal quarters due to the Christmas Spectacular and arena license fees from the New York Knicks and Rangers[17][144] Note 2. Summary of Significant Accounting Policies This note details the company's accounting policies, including revenue recognition from services, product sales, and leasing, and highlights upcoming FASB Accounting Standards Updates related to segment disclosures, income tax disclosures, and disaggregation of income statement expenses, which the company is currently evaluating - Revenue is generated from services (entertainment offerings), product sales (food, beverage, merchandise), and leasing transactions (arena license fees)[23][24] - The company defers certain costs to fulfill customer contracts and amortizes deferred production costs for proprietary shows over their performance period[26][32] - New FASB ASUs on reportable segment disclosures (effective FY2025), income tax disclosures (effective FY2026), and disaggregation of income statement expenses (effective FY2028) are being evaluated for their impact on consolidated financial statements[34][35][36] Note 3. Revenue Recognition This note provides a detailed disaggregation of revenue by performance obligations and categories, showing a decrease in total revenues from contracts with customers but an increase in arena license fees and other leasing revenue, with significant remaining performance obligations primarily from multi-year sponsorship and suite license agreements | Revenue Category | Sep 30, 2024 (in thousands) | Sep 30, 2023 (in thousands) | | :--------------- | :-------------------------- | :-------------------------- | | Event-related offerings | $89,182 | $94,990 | | Sponsorship, signage, and suite licenses | $38,938 | $39,815 | | Other | $5,936 | $4,961 | | Total revenues from contracts with customers | $134,056 | $139,766 | | Arena license fees and other leasing revenue | $4,658 | $2,446 | | Total revenues | $138,714 | $142,212 | - As of September 30, 2024, the company had approximately $601,000 thousand in remaining performance obligations, with 57% expected to be recognized over the next two years and 43% thereafter, primarily from multi-year sponsorship and suite license agreements[43] Note 4. Restructuring Credits (Charges) The company recorded restructuring credits of $40 thousand for the three months ended September 30, 2024, a significant improvement from charges of $11,553 thousand in the prior year, reflecting adjustments to previously accrued termination benefits | Date | Amount (in thousands) | | :--- | :-------------------- | | June 30, 2024 | $7,140 | | Restructuring credits | $(40) | | Payments | $(3,640) | | September 30, 2024 | $3,460 | - Restructuring charges decreased by $11,593 thousand year-over-year, primarily due to termination benefits provided in the prior year for a workforce reduction[118] Note 5. Investments The company's total investments increased to $7,042 thousand as of September 30, 2024, holding equity investments in Townsquare Media, Inc. and under its Executive Deferred Compensation Plan, having sold its investment in DraftKings Inc. during the first quarter of Fiscal Year 2024 | Metric | Sep 30, 2024 (in thousands) | Jun 30, 2024 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Townsquare Class A common stock | $1,287 | $1,438 | | Other equity investments (Deferred Compensation Plan) | $5,047 | $4,226 | | Equity method investments | $708 | $656 | | Total investments | $7,042 | $6,320 | | Metric | Sep 30, 2024 (in thousands) | Sep 30, 2023 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Unrealized loss — Townsquare | $(101) | $(5,449) | | Unrealized gain (loss) — Executive Deferred Compensation Plan | $220 | $(145) | | Realized gain from shares sold — DraftKings | $0 | $1,548 | | Realized gain from shares sold — Townsquare | $5 | $0 | | Total realized and unrealized gain (loss) | $124 | $(4,046) | Note 6. Property and Equipment, Net Property and equipment, net, increased to $642,338 thousand as of September 30, 2024, with depreciation expense for the quarter at $13,781 thousand | Category | Sep 30, 2024 (in thousands) | Jun 30, 2024 (in thousands) | | :------- | :-------------------------- | :-------------------------- | | Total Property and equipment | $1,588,198 | $1,565,611 | | Less: accumulated depreciation and amortization | $(945,860) | $(932,078) | | Property and equipment, net | $642,338 | $633,533 | - Depreciation expense for the three months ended September 30, 2024, was $13,781 thousand, slightly up from $13,585 thousand in the prior year[49] Note 7. Goodwill and Intangible Assets Goodwill and indefinite-lived intangible assets remained stable at $69,041 thousand and $63,801 thousand, respectively, as of September 30, 2024, with the company's annual impairment test finding no impairments | Asset Type | Sep 30, 2024 (in thousands) | Jun 30, 2024 (in thousands) | | :--------- | :-------------------------- | :-------------------------- | | Goodwill | $69,041 | $69,041 | | Trademarks | $61,881 | $61,881 | | Photographic related rights | $1,920 | $1,920 | | Total indefinite-lived intangible assets | $63,801 | $63,801 | - The company performed its annual qualitative impairment test for goodwill and indefinite-lived intangible assets during Q1 FY2025 and identified no impairments[51] Note 8. Commitments and Contingencies The company's commitments totaled $323,178 thousand as of June 30, 2024, with no material changes in non-cancelable contractual obligations during the quarter, and management believes the resolution of various lawsuits will not have a material adverse effect - Total commitments as of June 30, 2024, were $323,178 thousand, mainly contractual obligations[53] - Management believes the resolution of various lawsuits in which the company is a defendant will not have a material adverse effect[56][151] Note 9. Credit Facilities The company's National Properties Facilities include a $650,000 thousand term loan and a $150,000 thousand revolving credit facility, with total principal debt outstanding of $676,563 thousand and $76,174 thousand available under the revolving credit facility as of September 30, 2024, and the company was in compliance with all financial covenants | Metric | Sep 30, 2024 (in thousands) | Jun 30, 2024 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Current portion of long-term debt | $20,313 | $16,250 | | Long-term debt, net of deferred financing costs | $646,975 | $599,248 | | Total carrying value of debt | $676,563 | $625,625 | - The National Properties Facilities include a $650,000 thousand term loan and a $150,000 thousand revolving credit facility, maturing on June 30, 2027[58][60][134][136] - As of September 30, 2024, the company had $76,174 thousand available borrowing capacity under the National Properties Revolving Credit Facility and was in compliance with all financial covenants[58][61][134][137] Note 10. Pension Plans and Other Postretirement Benefit Plans This note details the net periodic costs for the company's defined benefit pension and postretirement plans, which were $840 thousand and $41 thousand, respectively, for the three months ended September 30, 2024, and also highlights a $3,300 thousand contribution to a qualified cash balance retirement plan | Metric | Sep 30, 2024 (in thousands) | Sep 30, 2023 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Pension Plans Net Periodic Cost | $840 | $633 | | Postretirement Plan Net Periodic Cost | $41 | $30 | - The company contributed $3,300 thousand to a non-contributory, qualified cash balance retirement plan for non-union employees during the three months ended September 30, 2024[69] - Compensation expense for the Executive Deferred Compensation Plan was $220 thousand for the three months ended September 30, 2024, compared to a credit of $145 thousand in the prior year[71] Note 11. Share-based Compensation Share-based compensation expense for the three months ended September 30, 2024, was $6,262 thousand, with $55,333 thousand of unrecognized compensation cost related to unvested RSUs and PSUs expected to be recognized over approximately 2.5 years | Metric | Sep 30, 2024 (in thousands) | Sep 30, 2023 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Share-based compensation expense | $6,262 | $6,177 | | Fair value of awards vested | $29,022 | $26,400 | - As of September 30, 2024, $55,333 thousand of unrecognized compensation cost for unvested RSUs and PSUs is expected to be recognized over a weighted-average period of approximately 2.5 years[75] Note 12. Related Party Transactions The Dolan Family Group maintains significant voting control over the company, with revenues from related parties increasing to $7,883 thousand for the three months ended September 30, 2024, and the company also gave notice to terminate a commercial agreement with Crown Properties Collection, LLC - The Dolan Family Group beneficially owns 100% of Class B Common Stock and approximately 4.1% of Class A Common Stock, representing about 63.6% of the company's aggregate voting power[77] - The company gave notice of termination for its commercial agreement with Crown Properties Collection, LLC (CPC) on September 20, 2024, and is negotiating the wind-down[79] | Metric | Sep 30, 2024 (in thousands) | Sep 30, 2023 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Revenues | $7,883 | $5,159 | | Operating expenses (credits), net | $(31,420) | $(38,921) | Note 13. Additional Financial Information This note provides supplementary details on cash, cash equivalents, restricted cash, and other balance sheet items, reporting an income tax benefit of $13,601 thousand for the quarter and $110,000 thousand remaining available under its stock repurchase program | Metric | Sep 30, 2024 (in thousands) | Jun 30, 2024 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $37,307 | $33,255 | | Restricted cash | $306 | $300 | | Total cash, cash equivalents, and restricted cash | $37,613 | $33,555 | - The company had an income tax benefit of $13,601 thousand for the three months ended September 30, 2024, reflecting an effective tax rate of 41%, primarily due to state taxes and excess tax deficiencies related to share-based compensation[90] - As of September 30, 2024, approximately $110,000 thousand remained available for repurchases under the $250,000 thousand Class A Common Stock repurchase program, with no shares repurchased in the quarter[91][152] Note 14. Subsequent Events Subsequent to the quarter end, the company paid down a total of $55,000 thousand of outstanding principal under the National Properties Revolving Credit Facility in October and November 2024 - The company paid down $55,000 thousand of outstanding principal under the National Properties Revolving Credit Facility in October and November 2024[92] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including a business overview, detailed analysis of operating results, liquidity and capital resources, seasonality, and accounting estimates, highlighting the improvement in operating and net loss despite a slight revenue decrease Business Overview MSG Entertainment is a live entertainment company managing iconic venues and producing content, with operating results highly dependent on attracting events, agreements with MSG Sports, and the popularity of the Christmas Spectacular, while economic conditions pose a potential risk to demand - The company's business is managed through one reportable segment, encompassing venues like The Garden, Radio City Music Hall, and The Chicago Theatre, and the Christmas Spectacular production[101] - Operating results are significantly influenced by the ability to attract concerts and events, revenues from agreements with MSG Sports, and the ongoing popularity of the Christmas Spectacular[104] - Weak economic conditions could negatively impact demand for suite licenses, tickets, concessions, merchandise, and sponsorship, potentially affecting future event volumes[105] Results of Operations For the three months ended September 30, 2024, total revenues decreased by 2% to $138,714 thousand, but operating loss improved by 45% to $(18,482) thousand, and net loss improved by 62% to $(19,321) thousand, primarily driven by lower restructuring charges and reduced operating and SG&A expenses | Metric | Sep 30, 2024 (in thousands) | Sep 30, 2023 (in thousands) | Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :----------- | | Total Revenues | $138,714 | $142,212 | (2)% | | Operating Loss | $(18,482) | $(33,425) | 45% improvement | | Net Loss | $(19,321) | $(50,671) | 62% improvement | | Adjusted Operating Income (Loss) | $1,909 | $(220) | NM | - Revenues from entertainment offerings decreased due to lower event-related revenues, reflecting a shift in event mix at The Garden and fewer events at theaters, despite an increase in the number of concerts at The Garden[110][111] - Selling, general, and administrative expenses decreased by $3,076 thousand, mainly due to lower professional fees (absence of non-recurring costs from Sphere Entertainment's retained interest sale), decreased employee compensation, and other cost reductions[116] - The company's operating loss improved by $14,943 thousand, primarily driven by lower restructuring charges and reduced direct operating and SG&A expenses, partially offset by a decrease in revenues[119] Liquidity and Capital Resources The company's liquidity is supported by cash, operating cash flows, and available borrowing capacity, with $37,307 thousand in unrestricted cash, $676,563 thousand in total debt, and $76,174 thousand available under its revolving credit facility as of September 30, 2024, which management believes is sufficient for future operations - Primary liquidity sources include cash and cash equivalents, cash flows from operations, and available borrowing capacity under the National Properties Revolving Credit Facility[131] | Metric | Amount (as of Sep 30, 2024, in thousands) | | :----- | :---------------------------------------- | | Unrestricted cash and cash equivalents | $37,307 | | Total debt outstanding (principal balance) | $676,563 | | Available borrowing capacity (National Properties Revolving Credit Facility) | $76,174 | - Net cash used in operating activities for the three months ended September 30, 2024, was $(27,359) thousand, a decrease of $28,737 thousand compared to the prior year, mainly due to changes in working capital[141] - Net cash used in investing activities decreased by $48,800 thousand to $6,690 thousand, primarily due to the absence of a loan to a related party under the DDTL Facility[142] - Net cash provided by financing activities increased by $28,834 thousand to $38,107 thousand, mainly due to the absence of stock repurchases, partially offset by decreased proceeds from the revolving credit facility[143] Seasonality of Our Business The company's business experiences seasonality, with a larger portion of its annual revenues and operating income typically generated in the second and third fiscal quarters, driven by the Christmas Spectacular and arena license fees - The company generally earns a disproportionate share of its annual revenues and operating income in the second and third fiscal quarters, driven by the Christmas Spectacular and arena license fees from the New York Knicks and Rangers[144] Recently Issued Accounting Pronouncements and Critical Accounting Estimates This section refers to Note 2 for details on recently issued accounting pronouncements and confirms that there have been no material changes to the company's critical accounting estimates since the 2024 Form 10-K - No material changes to the company's critical accounting estimates from those set forth in the 2024 Form 10-K[146] Item 3. Quantitative and Qualitative Disclosures About Market Risk There were no material changes to market risk disclosures related to pension and postretirement plans, and the company is exposed to interest rate risk, with a hypothetical 200 basis point increase in floating rates potentially increasing annual interest expense by $13,531 thousand - A hypothetical 200 basis point increase in floating interest rates would increase the company's annual interest expense on outstanding credit facilities by $13,531 thousand[147] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2024, and reported no material changes in internal control over financial reporting during the quarter - The company's disclosure controls and procedures were effective as of September 30, 2024[148] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended September 30, 2024[149] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various lawsuits, but management does not believe their resolution will have a material adverse effect on the company's financial position or operations - Management does not believe the resolution of current lawsuits will have a material adverse effect on the company[151] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has an authorized share repurchase program for Class A Common Stock, with $110 million remaining available as of September 30, 2024, and no shares were repurchased during the three months ended September 30, 2024 - A $250 million share repurchase program for Class A Common Stock was authorized, with $110 million remaining available as of September 30, 2024, and no repurchases were made in the quarter[152] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including employment agreements for key executives, certifications by the CEO and CFO, and the financial statements formatted in Inline Extensible Business Reporting Language (iXBRL) - The report includes employment agreements for key executives, CEO and CFO certifications (Sarbanes-Oxley Act), and financial statements formatted in Inline XBRL as exhibits[153] SIGNATURE Signature The report was officially signed on November 8, 2024, by Michael J. Grau, the Executive Vice President and Chief Financial Officer of Madison Square Garden Entertainment Corp - The report was signed by Michael J. Grau, Executive Vice President and Chief Financial Officer, on November 8, 2024[155][156]