Sphere Entertainment Co.

11/06/2025 | Press release | Distributed by Public on 11/06/2025 15:38

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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;
•competition, for example, from other venues and sports and entertainment options, including new competing 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;
•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;
•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 by Sphere Entertainment Co. (together with its subsidiaries, as applicable, "Sphere Entertainment") of approximately 67% of the outstanding stock of the Company on April 20, 2023;
•failure of the Company or Sphere Entertainment to satisfy its obligations under various agreements with Sphere Entertainment, including the services agreement; and
•the additional factors described under "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended June 30, 2025 filed with the Securities and Exchange Commission on August 13, 2025 (the "2025 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, 2025 and 2024 and for the three years ended June 30, 2025, 2024 and 2023 (the "Audited Consolidated and Combined Annual Financial Statements") included in the 2025 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, 2026 and 2025, are referred to as "Fiscal Year 2026" and "Fiscal Year 2025," 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 months ended September 30, 2025 and 2024.
Liquidity and Capital Resources.This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the three months ended September 30, 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 2025 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.
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.
Results of Operations
Comparison of the three months ended September 30, 2025 versus the three months ended September 30, 2024.
Three Months Ended
September 30, Change
2025 2024 Amount Percentage
Revenues
Revenues from entertainment offerings
$ 131,310 $ 115,081 $ 16,229 14 %
Food, beverage, and merchandise revenues 22,837 18,975 3,862 20 %
Arena license fees and other leasing revenue(a)
4,115 4,658 (543) (12) %
Total revenues 158,262 138,714 19,548 14 %
Direct operating expenses
Entertainment offerings, arena license fees, and other leasing direct operating expenses(b)
(88,558) (86,466) (2,092) (2) %
Food, beverage, and merchandise direct operating expenses
(13,812) (11,243) (2,569) (23) %
Total direct operating expenses
(102,370) (97,709) (4,661) (5) %
Selling, general, and administrative expenses
(56,585) (45,746) (10,839) (24) %
Depreciation and amortization (14,074) (13,781) (293) (2) %
Impairment of long-lived assets (13,782) - (13,782) NM
Restructuring (charges) credits (1,190) 40 (1,230) NM
Operating loss (29,739) (18,482) (11,257) (61) %
Interest income 520 372 148 40 %
Interest expense (11,028) (14,043) 3,015 21 %
Other expense, net (172) (769) 597 78 %
Loss from operations before income taxes (40,419) (32,922) (7,497) (23) %
Income tax benefit 18,765 13,601 5,164 38 %
Net loss $ (21,654) $ (19,321) $ (2,333) (12) %
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(a) Arena license fees and other leasing revenueare 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 feesinclude operating lease revenue of (i) $879 and $854 collected in cash for the three months ended September 30, 2025 and 2024, respectively,and (ii) a non-cash portion of $445 and $470 for the three months ended September 30, 2025 and 2024, respectively.
(b) Venue operations and infrastructure costs are not specifically allocated to each revenue stream, but are instead attributed in their entirety to service revenue which is the Company's principal revenue stream. Leasing direct operating expenses materially consist of venue operations and infrastructure costs. As a result, the Company combines service and leasing direct operating expenses as "Entertainment offerings, arena license fees, and other leasing direct operating expenses" for presentation purposes.
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 months ended September 30, 2025 increased $19,548 as compared to the prior year period.
Revenues from Entertainment Offerings
For the three months ended September 30, 2025, the increase in revenues from entertainment offerings of $16,229 was primarily due to (i) higher revenues from concerts of $8,263 due to an increase in the number of concerts at the Company's theaters, an increase in the number of concerts at The Garden and higher per-event revenues, and (ii) higher revenues from other live entertainment and sporting events (excluding the Knicks and Rangers) of $6,806, primarily due to an increase in the number of events at The Garden.
Food, Beverage, and Merchandise Revenues
For the three months ended September 30, 2025, the increase in food, beverage, and merchandise revenues was primarily due to higher food and beverage sales at concerts of $2,460, and higher food and beverage sales at other live entertainment and sporting events (excluding the Knicks and Rangers) of $1,382.
The increase in food and beverage sales at concerts was due to higher per-event revenue and an increase in the number of events held at the Company's venues, both as compared to the prior year quarter.
The increase in food and beverage sales at other live entertainment and sporting events was primarily due to an increase in the number of events held at The Garden as compared to the prior year quarter.
Arena License Fees and Other Leasing Revenue
For the three months ended September 30, 2025, the decrease in revenues was due to lower related party sublease income for corporate office space.
Direct operating expenses
Direct operating expenses for the three months ended September 30, 2025 increased $4,661 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 September 30, 2025, the increase in direct operating expenses associated with entertainment offerings, arena license fees, and other leasing primarily reflects (i) higher direct operating expenses from other live entertainment and sporting events (excluding the Knicks and Rangers) of $4,835, primarily due to an increase in the number of events at The Garden as compared to the prior year period, partially offset by (ii) the decrease in venue operating costs of $1,287, primarily due to lower repairs and maintenance expenses and lower employee compensation and benefits, and (iii) lower direct operating expenses from concerts of $1,230, primarily due to lower per-event expenses as a result of a shift in the mix of events at The Garden from promoted events to rentals, partially offset by an increase in the number of events at the Company's venues.
Direct Operating Expenses Associated with Food, Beverage, and Merchandise
For the three months ended September 30, 2025, the increase in food, beverage and merchandise direct operating expenses was primarily driven by the related increase in food and beverage sales at concerts held at the Company's venues and the related increase in food and beverage sales from other live entertainment and sporting events (excluding the Knicks and Rangers).
Selling, general, and administrative expenses
For the three months ended September 30, 2025, selling, general, and administrative expenses increased $10,839 as compared to the prior year period primarily due to an increase in employee compensation and benefits.
Depreciation and amortization
For the three months ended September 30, 2025, depreciation and amortization increased $293 as compared to the prior year period primarily due to fixed asset additions made during Fiscal Year 2025 and the first quarter of Fiscal Year 2026.
Impairment of long-lived assets
For the three months ended September 30, 2025, impairment of long-lived assets increased $13,782 as compared to the prior year period, primarily due to impairment losses recognized on the Company's right-of-use lease assets in its New York corporate office in the first quarter of Fiscal Year 2026.
Restructuring charges
For the three months ended September 30, 2025, restructuring charges increased $1,230 as compared to the prior year period, which reflectstermination benefits provided in the first quarter of Fiscal Year 2026 due to a workforce reduction.
Operating loss
For the three months ended September 30, 2025, operating loss increased by $11,257 as compared to the prior year period, primarily due to an increase in impairment of long-lived assets, including right-of-use asset and related lease costs, selling, general, and administrative expenses, and direct operating expenses, partially offset by an increase in revenues.
Interest income
For the three months ended September 30, 2025, interest income increased $148 as compared to the prior year period, primarily due to higher average balances in the Company's cash, cash equivalents and restricted cash for the quarter.
Interest expense
For the three months ended September 30, 2025, interest expense decreased $3,015 as compared to the prior year period primarily due to lower average borrowing rates under the National Properties Facilities (as defined below under Liquidity and Capital Resources).
Other expense, net
For the three months ended September 30, 2025, other expense, net decreased $597 as compared to the prior year period primarily due to (i) lower net periodic benefit costs associated with the Company's funded and unfunded and qualified and non-qualified defined benefit plans, and (ii) an increase in unrealized gains associated with the Company's Executive Deferred Compensation Plan.
Income tax benefit
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 benefit for the three months ended September 30, 2025 of $18,765 reflects an effective tax rate of 46%. The estimated annual effective tax rate exceeds the statutory federal tax rate of 21% primarily due to state and local taxes and excess tax deficiencies related to share-based compensation, partially offset by nondeductible officers' compensation.
Income tax benefit for the three months ended September 30, 2024 of $13,601 reflects an effective tax rate of 41%. The estimated annual effective tax rate exceeds the statutory federal tax rate of 21% primarily due to state taxes and excess tax deficiencies related to share-based compensation.
Adjusted operating income ("AOI")
The Company evaluates its performance based on several factors, of which the key financial measure is adjusted operating income, a non-GAAP financial measure. We define adjusted operating income as operating loss excluding:
(i) depreciation, amortization and impairments of property and equipment, goodwill and other long-lived assets, including right-of-use lease 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 lease 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 loss 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, net, which is not reflected in Operating loss.
The Company believes AOI is an appropriate measure for evaluating the operating performance of the Company on a consolidated basis. AOI and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company's performance. The Company uses revenues and AOI measures as the most important indicators of its business performance and evaluates management's effectiveness with specific reference to these indicators.
AOI should be viewed as a supplement to and not a substitute for operating loss, net 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 loss, the most directly comparable GAAP financial measure, to AOI.
The following is a reconciliation of operating loss to adjusted operating income for the three months ended September 30, 2025 as compared to the prior year period:
Three Months Ended
September 30, Change
2025 2024 Amount Percentage
Operating loss $ (29,739) $ (18,482) $ (11,257) (61) %
Depreciation and amortization 14,074 13,781 293 2 %
Impairment of long-lived assets 13,782 - 13,782 NM
Share-based compensation 7,293 6,262 1,031 16 %
Restructuring charges (credits) 1,190 (40) 1,230 NM
Amortization for capitalized cloud computing arrangement costs 175 168 7 4 %
Remeasurement of deferred compensation plan liabilities 306 220 86 39 %
Adjusted operating income $ 7,081 $ 1,909 $ 5,172 NM
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NM - Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.
Liquidity and Capital Resources
Sources and Uses of Liquidity
Our primary sources of liquidity are cash and cash equivalents, cash flows from the operations of our businesses 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 A Common Stock pursuant to the share repurchase program authorized by our Board of Directors on March 29, 2023, of which there was $44,796 remaining as of September 30, 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, 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 September 30, 2025, the Company's unrestricted cash and cash equivalents balance was $29,950. The principal balance of the Company's total debt outstanding as of September 30, 2025 was $621,758 and the Company had $112,573 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 the National Properties Revolving Credit Facility and cash flows from operations to fund our operations and satisfy any obligations for the foreseeable future.
Financing Agreements
See Note 8. 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.On June 27, 2025, MSG National Properties, MSG Entertainment Holdings and certain subsidiaries of MSG National Properties entered into Amendment No. 4 ("Amendment No. 4") to the credit agreement dated June 30, 2022 (as amended, supplemented and otherwise modified prior to June 27, 2025, the "Prior National Properties Credit Agreement" and, as amended by Amendment No. 4, the "National Properties Credit Agreement") with JP Morgan Chase Bank, N.A., as administrative agent, and the lenders and letter of credit issuers party thereto, pursuant to which, among other things, (i) the term loan facility under the Prior National Properties Credit Agreement (the "Prior National Properties Term Loan Facility") was refinanced in its entirety with a five-year $609,375 senior secured term loan facility (the "National Properties Term Loan Facility") and (ii) the revolving credit facility under the Prior National Properties Credit Agreement (the "Prior National Properties Revolving Credit Facility" and, together with the Prior National Properties Term Loan Facility, the "Prior National Properties Facilities") was refinanced in its entirety with 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 September 30, 2025, outstanding letters of credit were $17,427 and the remaining balance available under the National Properties Revolving Credit Facility was $112,573. During October 2025, the Company paid $20,000 to fully settle the outstanding borrowings under the National Properties Revolving Credit Facility.
Interest Rates. Borrowings under the National Properties Facilities bear interest at a floating rate, which at the option of MSG National Properties may be either (a) Term SOFR plus an applicable margin ranging from 1.75% to 2.50% per annum, determined based on the total leverage ratio of MSG National Properties and its restricted subsidiaries, or (b) a base rate plus an applicable margin ranging from 0.75% to 1.50% 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 0.20% to 0.30% 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. As of September 30, 2025, the interest rates on the National Properties Term Loan Facility and the National Properties Revolving Credit Facility were 6.41% and 6.39%, respectively.
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 27, 2030. The principal obligations under the National Properties Term Loan Facility are to be repaid in quarterly installments beginning with the fiscal quarter ended September 30, 2025, in an aggregate amount equal to 5.00% per annum (1.25% per quarter) with the balance due at the maturity of the facility. The principal obligations under the National Properties Revolving Credit Facility are 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.
Covenants. The National Properties Credit Agreement includes financial covenants requiring MSG National Properties and its restricted subsidiaries to maintain a specified minimum debt service coverage ratio and specified maximum total leverage ratio. The debt service coverage ratio covenant is set at a ratio of 2.50:1. The leverage ratio covenant is tested based on the ratio of MSG National Properties and its restricted subsidiaries' consolidated total indebtedness to adjusted operating income, with a maximum ratio of 3.50:1. As of September 30, 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 Chicago Theatre or the leasehold interests in Radio City Music Hall or the Beacon Theatre.
Contractual Obligations
During the three months ended September 30, 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 5. Property and Equipment, Net and Note 7. 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 September 30, 2025, cash, cash equivalents and restricted cash totaled $30,471, as compared to $43,538 as of June 30, 2025. The following table summarizes the Company's cash flow activities for the three months ended September 30, 2025 and 2024:
Three Months Ended
September 30,
2025 2024
Net cash provided by (used in) operating activities $ 19,808 $ (27,359)
Net cash used in investing activities (6,798) (6,690)
Net cash (used in) provided by financing activities (26,077) 38,107
Net (decrease) increase in cash, cash equivalents, and restricted cash $ (13,067) $ 4,058
Operating Activities
Net cash provided by operating activities for the three months ended September 30, 2025 increased by $47,167 as compared to the prior year period, primarily due to higher net income adjusted for non-cash items of $7,118, and an increase in cash flows from changes in working capital of $40,049. The increase in cash flows from changes in working capital was primarily driven by (i) a smaller net cash outflow for accrued and other current and non-current liabilities settled, primarily as a result of lower employee related costs, and their associated payroll tax costs, and (ii) net cash inflows from related party receivables and payables, due to the timing and settlement of the underlying related party transactions. These increases were partially offset by (iii) an increase in payments for prepaid expenses and other current and non-current assets, primarily related to contractual revenue sharing expenses related to suite licenses paid to MSG Sports, and (iv) a decrease in accounts payable, due to the timing of payments to vendors, in each case as compared to the three months ended September 30, 2024.
Investing Activities
Net cash used in investing activities for the three months ended September 30, 2025 increased by $108 to $6,798 as compared to the prior year period primarily due to (i) the absence of proceeds received from the sale of investments, and (ii) a slight reduction in capital expenditures, both as compared to the prior year period.
Financing Activities
Net cash used in financing activities for the three months ended September 30, 2025 increased by $64,184 to $26,077 as compared to the prior year period primarily due to (i) an increase in stock repurchases, (ii) a decrease in proceeds received from the National Properties Revolving Credit Facility, and (iii) incremental principal repayments under the National Properties Revolving Facilities.
Seasonality of Our Business
The revenues the Company earns from the Christmas Spectacularand 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 2025 Form 10-K.
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