Madison Square Garden Entertainment Corp. — Q2 FY2024 Form 10-Q
Reporting period: Quarter and six months ended December 31, 2023. Dollar amounts below are in millions unless stated otherwise. MSG Entertainment operates one reportable segment, with venues including Madison Square Garden, Radio City Music Hall, the Beacon Theatre and The Chicago Theatre, as well as the Christmas Spectacular and event-booking operations.
Financial performance
| Metric | Three months ended Dec. 31, 2023 | Year-over-year | Six months ended Dec. 31, 2023 | Year-over-year |
|---|---|---|---|---|
| Revenue | $402.7 | +$46.8; +13% | $544.9 | +$42.5; +8% |
| Operating income | $137.4 | +$24.0; +21% | $104.0 | +$1.9; +2% |
| Net income attributable to MSGE stockholders | $125.2 | +$28.0; +29% | $74.6 | -$4.8; -6% |
| Adjusted operating income (non-GAAP) | $151.0 | +$24.7; +20% | $150.2 | +$12.4; +9% |
| Operating margin | 34.1% | 31.9% prior year | 19.1% | 20.3% prior year |
Quarterly revenue growth reflected higher event-related revenue ($44.3 million) and Christmas Spectacular revenue ($17.9 million), partly offset by the loss of Networks advertising commissions and lower arena license fees. The company reported 193 Christmas Spectacular performances and more than 1 million tickets sold, versus 181 performances and more than 930,000 tickets in the prior-year season. Fewer Knicks and Rangers games at the Garden reduced arena license fees by $7.3 million for both the quarter and six-month period.
For the six months, higher revenue and lower depreciation were offset by increased direct operating and SG&A expenses, restructuring charges, and interest expense. Six-month interest expense was $29.3 million, up $4.7 million. The effective tax rate was approximately 1%, primarily reflecting the effect of a valuation allowance. Quarterly other income of $2.8 million included a $3.1 million unrealized gain on Townsquare shares; six-month other expense was $1.6 million.
Cash flow, debt and liquidity
- Six-month operating cash flow was $105.2 million, versus $69.3 million a year earlier. Capital expenditures were $11.2 million.
- Cash, cash equivalents and restricted cash fell to $37.6 million at December 31, 2023, from $84.4 million at June 30; unrestricted cash was $35.2 million. Investing cash outflow was $62.7 million, including a $65.0 million related-party loan, and financing cash outflow was $89.3 million.
- Debt principal outstanding was $633.8 million, including $617.5 million under the term loan. The credit facilities carried an 8.46% rate and mature June 30, 2027. The company repaid $98.2 million of debt principal during the half-year and had $132.4 million of revolver availability. It reported compliance with credit covenants.
- The company’s $150 million revolving facility has a $50 million minimum-liquidity covenant, alongside debt-service and leverage tests. A hypothetical 200-basis-point rate increase sustained for a year would increase interest expense by $12.7 million.
- Current liabilities exceeded current assets by approximately $287.8 million. Deferred revenue was $236.3 million, largely reflecting customer payments received before services are provided.
Changes, outlook and risks
- The company repurchased 3.525 million shares for approximately $115.5 million during the six months, with approximately $110 million remaining under its $250 million authorization. No shares were repurchased in the December quarter. Part of the six-month repurchase amount was noncash: Sphere Entertainment repaid a $65 million loan by delivering MSGE shares, which became treasury shares.
- A new corporate-office lease resulted in recognition of a $96.3 million lease obligation and an $88.6 million right-of-use asset. The company expects higher rent expense in FY2024; full rent payments under the new lease begin in the second half of FY2026. The lease runs through 2046.
- Six-month restructuring charges were $12.4 million, including $6.8 million of share-based compensation, related to termination benefits for executives and employees. The prior-year quarter included a $4.4 million net gain on dispositions, absent this year.
- Comparability is affected by the April 2023 spin-off: prior-year figures are carve-out results with allocated corporate costs and may not represent standalone expenses. The Networks advertising representation agreement ended December 31, 2022, eliminating related commissions and employee costs thereafter.
- No specific numerical guidance was provided. Management said it believes cash, operating cash flow and available borrowing capacity are sufficient to fund operations and obligations for the foreseeable future. Results are seasonal, with a disproportionate share of revenue and operating income generally earned in fiscal Q2 and Q3.
- Key risks cited include event attendance and demand, the Christmas Spectacular’s popularity, sports schedules and team performance, economic conditions, competition, labor disruptions, high floating-rate debt, and the company’s reliance on commercial arrangements with MSG Sports. Management said pending lawsuits are not expected to have a material adverse effect; outcomes remain uncertain.
Investor verification points
- Confirm the cash generation and working-capital profile, including the timing of promoter payments, receivables and deferred revenue.
- Monitor floating-rate borrowing costs, covenant headroom, scheduled debt repayments and the availability of revolving credit.
- Assess the sustainability of event and Christmas Spectacular attendance, revenue per event, and the effects of changing Knicks and Rangers schedules.
- Review share repurchases against liquidity needs, particularly given the company’s cash balance and remaining authorization.
- Track the new office lease’s expense and cash-payment ramp, plus restructuring costs and other standalone-company expenses.
- Consider related-party arrangements and the carve-out basis of prior-year comparisons when evaluating trends.