Sphere Entertainment Stock

Good morning. Thank you for standing by, and welcome to the Madison Square Garden Entertainment Corp. Fiscal 2026 Fourth Quarter and Year-End Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Ari Danes, Senior Vice President, Investor Relations and Treasury. Ari, please go ahead.

Thank you. Good morning, and welcome to MSG Entertainment's fiscal 2026 fourth quarter and year-end earnings conference call. On today's call, David Collins, our EVP and Chief Financial Officer, will provide an update on the company's operations and review our financial results for the period. After our prepared remarks, we'll open up the call for questions. If you do not have a copy of today's earnings release, it is available in the Investors section of our corporate website. Please take note of the following.

Today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Please refer to the company's filings with the SEC for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. On Pages 4 and 5 of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income, or AOI, a non-GAAP financial measure.

With that, I'll now turn the call over to David.

Thank you, Ari, and good morning, everyone. Fiscal 2026 was an outstanding year for our company with full year revenues of more than $1 billion and adjusted operating income of $262 million. This represented increases of 13% and 18%, respectively, driven by growth across all key areas of our business. In addition, we continue to execute on one of our core capital allocation priorities during the year, repurchasing approximately $25 million of our Class A common stock. And in June, we announced the proposed transfer of the Infosys Theater at Madison Square Garden as part of the Penn Station redevelopment project, a transaction that, if finalized, would further our goal of creating long-term shareholder value.

As we head into fiscal '27, we look to build on our operating momentum with a continued focus on growing the number of events across our venues, increasing per event profitability, delivering another record-setting year for the Christmas Spectacular and advancing our sponsorship and premium hospitality businesses. We also anticipate strong ongoing demand from consumers and partners alike, which we believe sets us up for another year of solid growth in revenues and AOI in fiscal '27. Let's now review some key operational highlights.

During fiscal '26, we hosted approximately 6.4 million guests at nearly 960 live events. That included a strong fiscal fourth quarter where we more than doubled the number of concerts at the Garden year-over-year, reflecting our efforts to drive utilization within the NBA playoff window. And in terms of consumer demand, the majority of our concerts were again sold out during the quarter. Looking ahead to fiscal '27, we expect to grow the number of events at our venues year-over-year as we host a wide range of bookings across concerts, special events, family shows and marquee sports. This includes a number of high-profile upcoming events such as Harry Styles residency with 30 dates from August through October and return of the NCAA Men's Basketball East Regionals to the Garden in March.

Turning to the Christmas Spectacular production. During fiscal '26 across 215 paid performances, we sold over 1.2 million tickets, the highest attendance in 25 years, leading to another record-setting year for the production with approximately $195 million in revenue. We are currently on sale with 230 shows for the 2026 holiday season, a new high in terms of number of performances in a year. This year's show will feature the addition of a new Rockettes scene as well as new immersive technology that will give audiences different perspectives of the production as we continue innovating going into our 93rd season.

In terms of our agreements with MSG Sports, the Knicks and Rangers completed their '25, '26 regular seasons during the quarter with the Knicks advancing to the NBA playoffs and ultimately going on to win the NBA Championship. For both our fourth quarter and full year, we saw robust growth on a per game basis in our Knicks and Rangers shared revenue streams, including suites and food, beverage and merchandise, which all benefit from the Knicks post-season run. We expect this momentum to carry forward into fiscal '27. In addition, the cash component of the Arena license fees will be approximately $47 million in fiscal '27 and will continue to grow 3% each year through fiscal 2055.

On the marketing partnerships front, we capitalized on several notable opportunities in fiscal '26. We welcome new partners, including most recently a multiyear deal with Kalshi, while also reaching multiyear renewals with Lexus, Anheuser-Busch and Infosys. And in terms of premium hospitality, we again saw strong new sales and renewal activity for suites at the Garden. That included a number of Lexus level suites that were renovated at the start of the fiscal year. We're continuing to build on the successful initiative by renovating several more suites to drive incremental revenue in fiscal '27. So as we look to the next fiscal year, we expect the positive momentum in both marketing partnerships and premium hospitality to continue.

Turning to the Penn Station redevelopment. In May, Amtrak selected Penn Transformation Partners, led by Halmar International and Skanska as the master developer team to redevelop Penn Station. We then announced in June that we had entered into a nonbinding MOU with a master developer to transfer the Infosys Theater at Madison Square Garden. Our proposed agreement will also acknowledge that the Arena will remain fully operational during the redevelopment. We believe the potential transaction, which remains subject to negotiation and definitive documents, makes strategic and financial sense for the company as we look to create long-term value for our shareholders. We look forward to working with the master developer team, and we'll keep you updated as we have more to share.

Now let's turn to our financial results. For the fiscal '26 fourth quarter, revenues were $196.3 million, up 27% year-over-year. This primarily reflected an increase in revenues from entertainment offerings and to a lesser extent, higher food, beverage and merchandise revenues. The increase in revenues from entertainment offerings as well as food, beverage and merchandise primarily reflected the increase in number of concerts at the Garden during the quarter. In addition, we benefited from higher revenues subject to the sharing of economics with MSG Sports, including the benefit of the next championship run in areas such as merchandise.

Revenues from venue-related sponsorships, signage and suite license fees also grew year-over-year. These increases were partially offset by fewer concerts at our theaters. Fourth quarter adjusted operating income of $18.6 million increased $19.9 million from an adjusted operating loss of $1.3 million in the prior year quarter. This significant year-over-year growth primarily reflects the robust increase in revenues, partially offset by higher direct operating and SG&A expenses.

Turning to our balance sheet. As of June 30, we had $294 million of unrestricted cash, while our debt balance was approximately $579 million. This cash balance includes a significant amount due to promoters, which reflects the robust concert activity ahead at our venues led by the Garden. With respect to fiscal '27, we anticipate generating significant free cash flow on an underlying basis. This will primarily be driven by our substantial and growing adjusted operating income, partially offset by ongoing net interest payments related to our credit facilities, which totaled $32 million in fiscal '26, our status as a full cash taxpayer, capital expenditures, which will reflect some incremental spend related to technology investments across the company and select suite renovations at the Garden and the timing of working capital, including the partial reversal of our cash due to promoters balance as a result of the timing of events.

As I touched on earlier, we repurchased approximately 623,000 shares of our Class A common stock for $25 million during fiscal '26. Since our spin-off in 2023, we have repurchased approximately 6.1 million shares in total for $205 million. And going forward, we'll continue to explore ways to opportunistically return capital to shareholders. So in summary, we saw strong demand across our business in fiscal 2026. We see this momentum continuing in fiscal 2027 and remain confident in our ability to deliver long-term shareholder value.

I'll now turn the call back over to Ari.

Thanks, David. Operator, can we now open up the call for questions?

[Operator Instructions] Your first question comes from the line of Peter Henderson with Bank of America.

Two, if I can, related. Can you just update us on the status of the Infosys Theater sale process? And if that sale occurs, how much of the venues event volume and associated economics like the sponsorship, do you believe you can recapture elsewhere in your portfolio?

Sure. Peter, thanks for the question. First, I'd like to congratulate Penn Transformation Partners on being selected to redevelop Penn Station. And as I had mentioned earlier, we believe that this potential transaction is in line with our goal of creating long-term value for our shareholders. So currently, we're working through the definitive documents with their team and we will keep you posted on that progress.

As it relates to our ability to redirect the theaters business, first, I would remind you that a significant majority of our company's economics are driven by the Garden and the Christmas Spectacular production. The theaters in aggregate follow those 2 revenue streams. That said, we are exploring all opportunities to maximize the economic benefit of this potential transaction, which does include analyzing our ability to shift events from the Infosys theater to our other theaters in New York. And I would say in terms of sponsorship and signage, our partnerships do generally allow us the flexibility within our business while protecting the value delivered to our partners. So similar to events, we are evaluating ways to leverage our other live entertainment assets for sponsorship and signage.

Your next question comes from the line of Brandon Ross with LightShed.

Just maybe a follow-up on the last one. Assuming the Infosys sale does go through, how do you guys expect to use the proceeds and limit tax leakage at the same time? And do those options include partnering with Sphere potentially on New York Sphere or Sphere elsewhere?

Thanks, Brandon. I would say with regard to the proposed transfer of the theater, our focus right now currently is on completing the proposed transaction. No decisions have been made at this stage in terms of the use of those proceeds should the transfer be completed. But with that said, we are certainly mindful of the potential tax implications related to the transfer of the theater. And as you may know, the primary way to minimize the tax leakage would be to reinvest the potential proceeds in another venue. So of course, we would evaluate venue opportunities in New York City market if they presented to us in the future. But I don't think we're in a position to speculate on any hypothetical venue transactions at this time.

I'd also add that any decision that we do make will be in line with our core priorities for capital allocation, which, as you know, are ensuring that we continue to have a strong balance sheet, that we maintain our flexibility to pursue compelling opportunities when they arise and lastly, to opportunistically return capital to our shareholders. So we will continue to make our decisions based on these priorities and we'll have more to share as we move through that process.

Thanks, Brandon. Operator, we'll take the next question.

Your next question comes from Stephen Laszczyk with Goldman Sachs.

I wanted to see if you could provide an update on the pacing of event bookings in 2027 across the portfolio. Just to be curious how much visibility you have into bookings potentially growing at the Garden year-over-year? And then I wanted to check in on the pacing of bookings around the theater footprint since we last caught up in the third quarter, how that's progressed since.

Sure, Stephen. In terms of our progress, we're almost 90% to our bookings goal for this year for the Garden and about 60% of the way there for -- 60% to our goal for our theaters. Our fiscal first quarter is already underway and we remain on track to shatter our record for the number of concerts in any quarter at the Garden. Obviously, that includes the impact of the Harry Styles residency. At our theaters, we are currently pacing behind for the September quarter. And looking at the December quarter, we are again pacing ahead at the Garden in terms of the number of concerts, but still behind at the theaters.

However, as I've discussed in the past, the booking window at our theaters is typically a 3 to 6 months in advance window. So we do still have time and we are definitely working to narrow that gap. So I would say, overall, all in, we feel good about our start to the year and expect to drive growth at both the Garden and our theaters in fiscal '27.

Your next question comes from the line of David Karnovsky with JPMorgan.

Thank you for the color on the upcoming year. As it relates to the Christmas show, can you just update on the sales pacing and price strategy? And you mentioned 230 show count. Is there any room to move that higher if the demand is there?

Sure, David. While it's still early in the sales cycle, our expectation is that we will grow ticketing revenue this year, which reflects both more shows and higher average ticket yields. As you mentioned, we are on sale with 230 performances right now for the 2026 holiday season, which is up from 215 last year and that translates to a mid-single-digit percentage increase in show count year-over-year. In addition, the Christmas Spectacular continues to be a premium entertainment product and is still priced well below average ticket prices for comparable entertainment options in the city. So given all that, we will continue to thoughtfully manage and market and price our ticketing inventory to maximize revenue for every show.

I would again note that this year's show will feature the addition of a new Rockettes scene as well as new immersive technology, which we believe will give audiences a different perspective of the production. So we continue to believe that our efforts to continue innovating the show will help drive increased interest and we remain confident in the growth opportunity for the '26 holiday season.

Your next question comes from the line of Cameron Mansson-Perrone with Morgan Stanley.

I wanted to ask a general one on residency models. Specifically, when you lost the Billy Joel residency, it took you some time to replace that activity. Obviously, found a great replacement in Harry Styles. But looking back on that, why was the situation with Billy Joel maybe unique? And what do you think you can do or have you done operationally to try to reduce similar volatility around residency changes year-to-year going forward?

That's a good question, Cameron. We believe there is great value, obviously, in bringing residencies to our venues. We believe it builds more of a recurring base of our business and it really also increases the visibility into our forward calendar. So bringing residency remains a really important area for our bookings business and a key focus of our team. With that said, every residency is going to look a little different, right? Artists want to put their own unique structure and spin on their residency. For example, Billy Joel, that was one concert per month where with Harry Styles, that means every Wednesday, Friday, Saturday for 10 straight weeks. So each one is going to look a little different.

I would also note that we also have a number of other residencies across our venues in the first half of fiscal '27. Bon Jovi and Fish have been at the Garden both this past month. Joe Hisaishi currently at Radio City and Seth Meyers and John Oliver as well as Jerry Seinfeld have each extended their long-running residencies at the Beacon Theatre. So I would reiterate that we are off to a strong start in terms of our concert bookings for fiscal 2027. And while it's a little early to discuss fiscal 2028 and beyond, we continue to have discussions with other artists about future residencies at all our venues, including the Garden. So we will certainly keep working on that and keep you updated on the progress.

Your next question comes from the line of David Joyce with Seaport.

I appreciate the color that you had an increase in Madison Square Garden sharing revenue from the Knicks championship run. Could you please detail the revenue and AOI components on the various business lines that contribute to that? Did the sponsorship provide some of that? I know you did mention merchandise, food and beverage, suites. If you could please help us understand what that contribution was?

Sure, David. First of all, I would say that we were very excited to see the Knicks win the NBA championship. As you mentioned, we benefit from those playoff games at the Garden through our agreements with MSG Sports. We share in revenue streams like F&B, merchandise, single night suite rentals. First of all, we operate and manage the F&B services during all team events. And MSG shares 50% of the net profits with the Knicks and Rangers. We also operate and manage the team merchandise sales at the Garden and retain 30% of net revenues. And we also earn commission on sales of single night suites at the Garden during Knicks and Rangers games.

So this year, we hosted 9 Knicks playoff games during the Teams Championship run. While that compares to the same number of games in the year ago period when the team advanced to the Eastern Conference finals, today's results reflect a $7.4 million increase in fourth quarter revenues related to our agreements with MSG Sports, which includes the impact of the championship run. So we believe that this reflects the enthusiasm we saw from fans throughout this year's championship run in those areas such as merchandise and F&B sales. And one thing I'd also like to say is we believe that, that strong team performance will benefit this upcoming year in the form of continued strong in arena attendance, which will further benefit our shared revenue streams with MSG Sports.

Thanks for the question, David. Operator, we'll take one last caller.

Your last question comes from the line of Joe Stauff with Susquehanna.

This is Eric Mondelblatt on for Joe. Just one from us. You gave some helpful details on the fiscal 2027 bookings outlook in aggregate. But could you talk about the bookings outlook by category across concerts, special events, family shows and marquee sporting events?

Thanks for the question, Eric. As I mentioned earlier, we expect to increase the number of bookings in fiscal '27. We expect that growth to be driven primarily by concerts and to a lesser extent, special events and marquee sports. For our concert category, our expectations include another year of concert growth at the Garden as well as increases across our theaters. I would say in terms of special events, we are also expecting an increase in the number of events along with improved per event economics. Looking at marquee sports, we expect to see modest event growth this coming year, which will include the NCA East Regional tournament returning to the garden in March, and that will be a significant multi-day event in our fiscal third quarter. And lastly, in terms of our family show category, I would say we faced a tough year-over-year comparison with the absence of Cirque du Soleil's holiday run at the Infosys Theater and the Chicago Theater that took place this past year.

However, we expect that to be largely offset by a variety of family and performing arts attractions in the year ahead, including the [indiscernible] production that just ran at Radio City Music Hall. So overall, we are expecting growth across a number of our bookings categories and feel really good about our bookings calendar for fiscal '27.

We have reached the end of the question-and-answer session. I will now turn the call back to Ari for closing remarks.

Thank you all for joining us. We look forward to speaking with you on our fiscal '27 first quarter earnings conference call. Have a good day.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning. Thank you for standing by, and welcome to the Madison Square Garden Entertainment Corp. Fiscal 2026 Third Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Ari Danes, Senior Vice President, Investor Relations and Treasury. Please go ahead.

Thank you. Good morning, and welcome to MSG Entertainment's Fiscal 2026 Third Quarter Earnings Conference Call. On today's call, David Collins, our EVP and Chief Financial Officer, will provide an update on the company's operations and review our financial results for the period.

After our prepared remarks, we will open up the call for questions. If you do not have a copy of today's earnings release, it is available in the Investors section of our corporate website. Please take note of the following. Today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Please refer to the company's filings with the SEC for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call.

On Pages 4 and 5 of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income, or AOI, a non-GAAP financial measure. And with that, I'll now turn the call over to David.

Thank you, Ari, and good morning, everyone. We're now in the final stretch of fiscal 2026, and I'm pleased to say that demand for our live entertainment offerings remain strong. For the company's fiscal third quarter, we generated revenues of $246 million and adjusted operating income of $46 million.

Behind these results were a number of important drivers, including continued momentum in our concert business at the Garden, growth in marketing partnerships and suites and the last shows of this past season's record-setting Christmas spectacular run.

Looking ahead, we expect to close out fiscal '26 on a positive note, led by a significant increase in the number of concerts at the Garden in our fiscal fourth quarter compared to last year. And we remain on track to deliver robust full year growth in revenue and AOI. What's especially encouraging is that we already see this momentum carrying into fiscal '27 with our concert calendar filling up, including Harry Styles 30-night residency at the Arena and the 2026 Christmas Spectacular production currently on sale.

Let's now walk through some of the key operational highlights from the third quarter. During the quarter, our venues welcomed over 1.4 million guests at more than 165 events, reflecting the breadth and diversity of events we are bringing to our venues.

That included a year-over-year increase in the number of concerts at the Garden, highlighted by several notable multi-night runs. That growth was partially offset by a decrease in the number of concerts across our theaters. From a demand standpoint, we continue to see the vast majority of concerts at our venues sell out.

In addition, food and beverage per caps at concerts were up in the quarter, while merchandise per caps were down, both of which we primarily attribute to the mix of events. In our family show category, we welcomed back the Westminster Kettle Club to the Garden for the Dog shows 150th anniversary.

And on the sports booking side, we had a busy quarter with college basketball, including St. John's and the Big East tournament along with boxing, professional bull riding and WWE. On the special events front, we faced a tough comparison against the prior year quarter, which benefited from Saturday Night Live's multi-day takeover of Radio City for its 50th anniversary special.

However, we are looking forward to hosting the Tony Awards at the venue next month. Turning to the Christmas Spectacular. The show's 92nd holiday season concluded in January with a record-setting run, generating approximately $195 million in total revenues across 215 paid performances. 16 of those shows took place in our fiscal third quarter, delivering year-over-year growth in per show ticketing revenue.

As I mentioned earlier, sales for the 2026 holiday season are now underway. With 230 shows currently on sale, we believe the production is well positioned to deliver growth again next fiscal year.

Our fiscal third quarter also included the continuation of the Knicks and Rangers '25, '26 regular seasons at the Garden. And once again, we saw higher per game revenues across our various revenue and profit sharing arrangements with MSG Sports as compared to the prior year.

And lastly, on the marketing partnerships and premium hospitality front, fiscal 2026 has been highlighted by several notable sponsorship announcements, while we have also seen strong new sales and renewal activity for Suites at the Garden this year. We remain on track for growth across both of these businesses in fiscal '26.

Now let's turn to our financial results. For the fiscal '26 third quarter, we reported revenues of $246.3 million, an increase of 2% as compared to the prior year quarter. This reflected an increase in revenues from entertainment offerings, partially offset by lower arena license fees and other leasing revenues as well as a decrease in food, beverage and merchandise revenues.

The increase in revenues from entertainment offerings primarily reflected growth in suite license fee revenues, including amounts subject to the sharing of economics with MSG Sports.

As we discussed earlier, we also benefited from strong growth in the number of concerts at the Garden during the quarter. In addition, revenues from our Christmas Spectacular production increased year-over-year, primarily due to higher per show ticket revenue and one additional performance in the quarter, both as compared to the prior year period.

The overall increase in revenues from entertainment offerings was partially offset by a decrease in revenues from other live entertainment and sporting events. This reflected a decrease in the number of events at our venues, including the absence of Saturday Night Live's 50th anniversary special and the final shows of Annie's extended holiday run in the prior year quarter.

Additionally, as mentioned earlier, we saw a decrease in the number of concerts at the company's theaters this quarter. Arena license fees and other leasing revenues decreased year-over-year, primarily due to the Knicks and Rangers playing fewer home games during the fiscal third quarter, partially offset by higher other leasing revenues.

Similarly, the modest decrease in food, beverage and merchandise revenues mainly reflected the impact of fewer Knicks and Rangers home games during the current year quarter, which was partially offset by higher food and beverage sales at concerts.

Third quarter adjusted operating income of $46 million decreased $12 million as compared to the prior year quarter. This primarily reflects higher direct operating and SG&A expenses, partially offset by the increase in revenues.

Turning to our balance sheet. As of March 31, we had $323 million of unrestricted cash, up from $157 million as of December 31. This increase reflects strong cash flow generation as well as an increase in cash due to promoters, primarily due to future events at the Garden.

In addition, our debt balance at quarter end was $587 million. As a reminder, we have repurchased approximately 623,000 shares of our Class A common stock for $25 million fiscal year-to-date. We have approximately $45 million remaining under our current buyback authorization.

And going forward, we will continue to explore ways to opportunistically return capital to shareholders. So in summary, as we approach the end of the fiscal year, we remain on a clear path to delivering a robust fiscal '26 and believe we are well positioned to drive long-term value for our shareholders. I will now turn the call back over to Ari.

Thanks, David. Operator, can we now open up the call for questions, please?

[Operator Instructions]Your first question comes from the line of Peter Henderson with Bank of America.

So there have been several press reports recently around the Penn Station redevelopment. I think including some commentary from President Trump in the New York Post indicating that his preferred path for the project is to keep the Garden where it currently sits.

And can you just update us on your conversations related to the Penn Station renovation and the impact to the Infosys theater?

Yes. Peter, thanks for the question. While I really don't want to comment on press reports, here's what I will share with you. The U.S. Department of Transportation and Amtrak, they continue to reiterate their intended project schedule. And based on that reported time line, RFP submissions were recently due from the three shortlisted bidders.

So Amtrak is now expected to select a master developer this month and to announce the preliminary design in June. So as redevelopment of the area continues, we are fully committed to collaborating closely with all the stakeholders. But with that said, we don't really have much more to report than that, but we will certainly keep you posted as their progress.

Your next question comes from the line of Stephen Laszczyk with Goldman Sachs.

David, I was hoping you could give us an update on how you're thinking about the opportunity for capital returns. I think in the past, you've mentioned that you would think about taking an opportunistic approach to buybacks.

It doesn't sound like there was stock bought back in the March quarter. Curious if there's been an opportunity since or if there's any more color you could provide on how you're thinking about either buybacks or dividends moving forward?

Sure, Stephen. Thanks for the question. In terms of buying back stock, we take a number of factors into account in determining when we repurchase shares. And that includes the forward outlook for our business, which remains very positive.

However, sometimes even including subsequent to our last earnings call in February, opportunities to repurchase shares present themselves when we don't find ourselves in an open window period. So that said, if you look at our track record since our spin-off, you'll see that we have bought back a substantial amount of stock.

And going forward, we will continue to look for opportunities within the context of our three broader capital allocation priorities, which once again, are maintaining a strong balance sheet, having appropriate flexibility to pursue growth opportunities when and if they arise and also opportunistically returning capital to our shareholders.

Great. And then maybe just on expenses. The underlying cost structure came in a bit elevated in the quarter. I was just hoping you could unpack some of that for us and then how we should be thinking about the expense lines or margins as we think into the balance of the year?

Sure. Great. Yes. No, there certainly were a number of moving parts this quarter. So let me walk you through it. To start, this past quarter included the impact of several million dollars of unanticipated costs spread across both direct and SG&A expense.

This was driven by a few different items. For example, we incurred higher-than-expected health care benefit expenses due to generally higher overall health care costs as well as increased claims activity.

You can see in today's results that our venue operating costs increased $2.4 million year-over-year, which reflects those higher health care expenses, including the impact of truing up some costs to our most recent estimate. In addition, the increase in direct operating expenses reflects the mix of events across our venues.

For example, the year ago quarter had a number of multi-night runs, which came with lower costs and higher margins, for instance, the Saturday Night Live's 50th anniversary special at Radio City. So that was really a mix of events.

In terms of SG&A expense, we also saw the impact of those higher health care costs there. And even excluding those costs, our SG&A expense grew this quarter was still elevated and above what we would expect our long-term expense growth rate to be. And that includes the impact of higher employee compensation, which is pretty consistent with what we've said in the past about higher labor costs this fiscal year.

So I would say, overall, as we look ahead, we expect SG&A expense growth to begin to normalize on a year-over-year basis in our June quarter and also expect that to carry over into the start of our fiscal '27.

Your next question comes from the line of Cameron Mansson-Perrone with Morgan Stanley.

You highlighted a bit in the prepared remarks, but I was wondering if you could just elaborate on how concert bookings are pacing in the fiscal fourth quarter and maybe through the rest of the calendar year?

Sure. Great, Cameron. Thanks. First, I'd like to say again that we are headed for a strong end to fiscal 2026 at the Garden, and that will reflect a significant growth in the number of concerts at the Arena in our fiscal fourth quarter.

In terms of the first half of fiscal '27, we continue to see a number of positive signs in concert bookings. At this stage, we have substantial visibility into the September quarter, where we are pacing well ahead at the Garden. In fact, we remain on track to shatter our record for number of concerts in any quarter at the venue, which, of course, includes the impact of the Harry Styles residency.

And at our theaters, I would say we are currently pacing behind for the September quarter. However, as we've said in the past, the bookings window in our theaters is typically 3 to 6 months in advance. So we still have some time and are working to narrow that gap.

Looking at the December quarter, it's still a bit early to discuss pacing for our theaters given the shorter booking window I just mentioned. But at the Garden, we are again pacing ahead.

So all in, we are pleased with how our concert bookings are pacing so far for fiscal '27, and we continue to believe that Garden is likely headed towards another year of strong concert growth in fiscal '27. And while still very early, we see potential to drive growth for our theaters as well in the fiscal '27.

Your next question comes from the line of David Karnovsky with JPMorgan.

Maybe just given some of the recent macro rise in energy prices, it would be good to get your expanded view on demand, both as it relates to current or forward ticket sales or maybe what you're seeing in per caps?

Sure, David. We certainly are always keeping a close eye on the macro environment with everything going on in the world. And I have to say we continue to see strong consumer demand. A number of factors that support that.

As I mentioned earlier, a vast majority of our concerts at our venues were again sold out this past quarter and overall F&B per cap spending at our concerts was up year-over-year. Year-to-date, we have continued to see concerts perform better than we initially expected.

A number of our upcoming acts across our venues have also added additional shows due to strong demand. And when we look at the next 2 quarters, the sell-through rate for concerts is currently pacing ahead of where it was at the same time last year. So I would say, given all this, watching the macro environment, we continue to see strong demand from consumers.

Okay. And then I just wanted to see if you could update on your residency pipeline, both for the Garden and then maybe also the tears?

David, you came in a little staticky from our end, but I think you were asking about the residency pipeline. So we'll go ahead and answer that.

Sure. Sure, David. As far as residencies go, first, I'd like to reiterate that we are off to a strong start in terms of concert bookings for fiscal 2027. And that, of course, includes the Harry Styles residency at the Garden for 30 nights.

I'd also like to add that we have Bonjovi for a 9-show residency and Fish for a 5-show residency at the Garden this summer. And at our theaters, Joe Hisaishi will be doing a 7-night residency at Radio City in August. Seth Meyers and John Oliver recently extended their long-running residency at the Beacon Theater into this fall.

So you can see that we believe there's a great value in bringing residencies to our venues as we believe it builds more of a recurring base of business and also increases our visibility into the forward calendar. So I would say residencies remain an important area for our booking business.

And while it's early to discuss fiscal 2028 and beyond, we are continuing to have discussions with other artists about future residencies at all the venues, including the Garden, and we will certainly keep you updated on our progress.

Your next question comes from the line of David Joyce with Seaport.

Given the Knicks strong progress in the playoffs again this year, can you discuss the benefits or headwinds to the Knicks advancing to the MSG Entertainment business?

Sure, David. Thanks for the question. I have to say we are excited to see the Knicks in the second round of the playoffs, and they are off to a great start. As you know, we benefit from playoff games at the Garden through our agreement with MSG Sports in a few ways. We share in revenue streams like F&B and merchandise as well as single night suite sales.

As you know, we operate and manage the F&B services during all team events for which MSG shares 50% of the net profits with the Knicks and Rangers. We also operate and manage the team merchandise sales at the Garden and retain 30% of net revenues. And we also earn a commission on the sales of single night suites at the Garden during Knicks and Rangers games.

So we benefit during the playoffs here. One other thing to point out as well is that we believe that strong team performance like the Knicks are having right now will benefit next year in the form of continued strong arena attendance, which will further benefit those shared revenue streams that I just mentioned with sports.

I'd also mention from the bookings side, booking concerts during the playoff window continues to be an opportunity that we've been targeting to drive utilization at the Garden. And we've had success this fiscal year at doing so.

As I mentioned earlier, we are expecting significant year-over-year growth in the number of concerts at the Garden in our fiscal fourth quarter, and that includes an increase in the number of concerts that we booked during the playoff window. So that's something that we're going to strive to continue to do.

Operator we have time for one last caller.

Your next question comes from Joe Stauff with Susquehanna.

The value of your Christmas Spectacular asset, obviously, is important, continues to grow nicely. You're increasing show count this year 7%. How do you assess demand versus that 7% show count?

This is going to be the third year in a row, certainly that you're increasing show count. So there is pretty significant, obviously, demand that continues to grow. How do you think about that?

And you had mentioned advanced ticket sales. How much or how many of those tickets are sold already? And how does that evolve towards the opening of the show in the December quarter?

Thanks, Joe. Yes. So we see -- we definitely see growth potential for next year's Christmas spectacular through both more shows, as you mentioned, and higher average ticket yields. As you mentioned, we are on sale for 230 performances for the next holiday season, up from 215 last year, which translates, as you mentioned, mid-single-digit percentage increase in show count year-over-year.

One of the things that's important to remember and where we see growth is that the Christmas spectacular continues to be a premium entertainment product, and we believe it's still priced well below average ticket prices for comparable entertainment options.

So I think as we add shows, we will be thoughtfully managing marketing and pricing our ticket inventory to maximize revenue for each show. And in terms of advanced ticket sales, we initially went on sale just in March, and we'll begin marketing the production over the summer.

So I think it's a little bit early in the sales cycle to discuss pacing as of now. But again, we are confident in the growth opportunity for this '26 holiday season.

We have reached the end of the Q&A session. I will now turn the call back to Arie for closing remarks.

Thank you all for joining us. We look forward to speaking with you on our next earnings call. Have a good day.

And this concludes today's call. Thank you for attending. You may now disconnect.

Good morning. Thank you for standing by, and welcome to the Madison Square Garden Entertainment Corp. Fiscal 2026 Second Quarter Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Ari Danes, Senior Vice President, Investor Relations and Treasury. Please go ahead.

Thank you. Good morning, and welcome to MSG Entertainment's Fiscal 2026 Second Quarter Earnings Conference Call. On today's call, David Collins, our EVP and Chief Financial Officer, will provide an update on the company's operations and review our financial results for the period. After our prepared remarks, we will open up the call for questions. If you do not have a copy of today's earnings release, it is available in the Investors section of our corporate website. Please take note of the following.

Today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Please refer to the company's filings with the SEC for a discussion of risks and uncertainties.

The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. On Pages 5 and 6 of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income, or AOI, a non-GAAP financial measure.

And with that, I'll now turn the call over to David.

Thank you, Ari, and good morning, everyone. For the company's fiscal second quarter, we reported revenues of $460 million and adjusted operating income of $190 million, both representing double-digit percentage increases year-over-year. These results were led by another record-setting year for the Christmas Spectacular in its 92nd holiday season run. This quarter's results also reflected growth across virtually every other aspect of our business. That included bookings, sponsorship and suites, as well as the various revenue streams related to the Knicks and Rangers. So with the successful first half of the year behind us, we're confident that we are well on our way to delivering robust growth in revenue and adjusted operating income this fiscal year.

Let's now review some second quarter operational highlights. During the quarter, our venues welcomed approximately 2.9 million guests at over 475 events which was led by this year's Christmas Spectacular production. Across its entire holiday season run, which ended in January, we had 215 paid performances of the Christmas Spectacular, an increase compared to the 200 shows we ran last year. In light of the demand we saw, we added several shows to this year's run and across 8.5 weeks of performances, we sold over 1.2 million tickets.

This reflected growth in both individual and group tickets and was the production's highest attendance in 25 years. We also saw a year-over-year increase in average ticket yields as we remain focused on strategically managing marketing and pricing our ticketing inventory. In addition, the enthusiasm from guests for this holiday tradition helped drive record level per caps on food, beverage and merchandise.

As a result of these positive factors, per show revenue increased by a mid-single-digit percentage as compared to fiscal '25 and the Christmas Spectacular generated approximately $195 million in total revenue this season. The 2025 season also marked the introduction at Radio City Music Hall of new groundbreaking audio technology called Sphere Immersive Sound. This system is now in use for all concerts at the venue following its debut last week with the New York Phil Harmonic.

Turning to bookings. During the fiscal second quarter, we saw an increase in the number of events year-over-year across our venues. This was primarily driven by growth in concerts at the company's theaters, family shows and marquee sporting events. However, the number of concerts at the Garden was down as compared to the prior year quarter due to the timing of events within the fiscal year.

On the family show front, Cirque du Soleil's Twas the Night Before, completed a 63 show run across the Chicago Theater and the Theater at Madison Square Garden in December. Helping to drive improved financial results in this category on a year-over-year basis. In Marquee sports, we welcome back UFC, WWE, and professional tennis to the Garden during the quarter, while our robust schedule of college sports also got underway. From a demand standpoint, the majority of concerts across our portfolio of venues were again sold out during the second quarter.

In terms of in-venue spending, merchandise per caps concerts were up in the quarter, while food and beverage per caps were down, both of which we primarily attribute to the mix of events. Looking ahead, we have continued to add a wide array of events to our calendar. That includes concerts across our venues, marquee sporting events at the Garden and special events like the Tony Awards, which will return to Radio City in June.

We also recently announced a 30-night Harry Styles residency at the Garden. This run will begin in August, setting us up for continued momentum in the first half of the next fiscal year. With regards to the Knicks and Rangers, the teams began their '25, '26 seasons at the Garden in October. So far, we have seen higher per game revenues across our various revenue and profit sharing arrangements with the teams as compared to the prior year.

Turning to our marketing partnerships business. Fiscal 2026 has been highlighted by a number of sponsorship announcements so far. For example, we recently reached a multiyear renewal with Anheuser-Busch, as well as an expanded multiyear partnership with Infosys. That includes making Infosys the official naming rights partner of the theater at Madison Square Garden, which is now called the Infosys Theater at Madison Square Garden.

These marketing partnerships demonstrate the headway we are making with our sponsorship sales effort back in-house. In terms of premium hospitality, we continue to see strong new sales and renewal activity for suites at the Garden, including for a number of Lexus level suites that were recently renovated. Our progress in these businesses puts us on track for growth across both marketing partnerships and premium hospitality in fiscal '26.

Now let's turn to our financial results. For the fiscal '26 second quarter, we reported revenues of $459.9 million, an increase of 13% versus the prior year quarter. This reflected increases in revenues from entertainment offerings, arena license fees and other leasing revenues, as well as food, beverage and merchandise revenues. The increase in revenues from entertainment offerings primarily reflected growth in the Christmas Spectacular production, mainly due to higher ticket-related revenues. This reflected 14 additional performances and higher per show revenues, both as compared to the prior year quarter.

In addition, revenues from other live entertainment and sporting events increased year-over-year due to higher per event revenues and to a lesser extent, an increase in the number of events held at the Garden. Revenues subject to sharing of economics with MSG Sports pursuant to the arena license agreements and revenues from venue-related sponsorships, signage and suite license fees also grew year-over-year.

I would also note that as a result of this year's schedule, the Knicks and Rangers played a combined four more home games during the fiscal second quarter as compared to the prior year quarter. This timing impact will reverse over the balance of the fiscal year. These increases were slightly offset by a decrease in revenues from concerts due to a decrease in the number of concerts at the Garden, which was mostly offset by higher per concert revenues and an increase in the number of concerts at the company's theaters.

The increase in food, beverage and merchandise revenues mainly reflected higher F&B sales at Knicks and Ranger Games, the Christmas Spectacular production and other live entertainment and sporting events. These increases were partially offset by lower F&B sales at concerts, primarily due to a decrease in the number of concerts at the Garden. Second quarter adjusted operating income of $190.4 million increased 16% as compared to the prior year quarter. This primarily reflects the increase in revenues partially offset by higher direct operating SG&A expenses.

Turning to our balance sheet. As of December 31, we had $157 million of unrestricted cash up from $30 million as of September 30, reflecting our strong cash flow generation during our seasonally busiest time of the year. In addition, our debt balances at quarter end was $594 million. This reflects the paydown of the full $20 million revolver balance during the quarter. As a reminder, we have repurchased approximately 623,000 shares of our Class A common stock for $25 million fiscal year-to-date. We have approximately $45 million remaining under our current buyback authorization. And going forward, we will continue to explore ways to opportunistically return capital to shareholders.

So in summary, with the continued momentum in our business, we are confident we are on a clear path to delivering a robust fiscal '26 and believe we remain well positioned to drive long-term value for our shareholders.

I will now turn the call back over to Ari.

Thank you, David. Operator, can we now open up the call for questions?

[Operator Instructions] Your first question comes from the line of Stephen Laszczyk from Goldman Sachs.

David, on the Christmas Spectacular nice performance this year. I was just curious if you could maybe talk a little bit more about the pricing sell-through and audience demographic trends that played out throughout the 2025 holiday season and how those might have compared to prior years for the Spectacular.

And then, looking ahead, I would also be curious to your thinking on the opportunity to grow the Spectacular from here? How much more headroom do you feel like still exists in things like show count and pricing as you look ahead into next year's run?

Great, Stephen. Thanks for the question. Yes, obviously, we had a great run this year. In this year's run, we saw a number of positive signs across ticket demand and pricing. And we continue to optimize our schedule, our pricing and our marketing for the production. And we believe we are set up for success in the future years.

On an overall basis, this year, per show revenue increased by a mid-single-digit percentage in that, and that reflected a number of positive factors, including growth in per show ticketing revenue, as well as record high food, beverage and merchandise per caps. The growth in per show ticketing revenue was driven by increased per show sell-through and as well as an improvement in average ticket prices. So if we take a look at the sell-through demand, demand was broad-based across the production with growth in both individuals and groups.

We also saw growth across every geographic category that we track with the one exception of international tourism, which was down versus last year. I'd add that the decline in international ticket sales is consistent with lower international tourism to New York this past holiday season. So while I think it may be a little premature to give specifics, based on the demand we saw this year, we believe there is room to again increase the Christmas show count for next holiday season.

We're also able to increase our average ticket yield by managing marketing and pricing our ticket inventory effectively. The Christmas Spectacular continues to be a premium entertainment product and it's still priced well below average ticket prices for comparable entertainment options. And going forward, we continue to believe that there are opportunities to improve our yields.

So overall, with that said, we're optimistic that there is continued ticket pricing upside along with the potential to increase our show count as we look ahead to next year and beyond.

Your next question comes from the line of Cameron Mansson-Perrone from Morgan Stanley.

Focusing in on the concert business, I'm wondering if you could give us an update on bookings trends more generally at the Garden and across the portfolio. How are those trending through the remainder of fiscal '26 and acknowledging it's early right now, any indication on pacing for early 27?

Sure. If we take a look at concert bookings for the rest of fiscal '26, first, let me reiterate that we had a successful first half of the year in our bookings business. We saw an increase in the total number of bookings in the fiscal first half, including for concerts with robust growth in our financial results year-to-date.

In terms of the rest of the fiscal year in our concerts business at our theaters, similar to what we had said on our last call, we do continue to pace behind for the March and June quarters. However, given that the typical booking windows for our theaters is 3 to 6 months, we are still actively booking concerts for the remainder of the fiscal year. And if we take a look at the Garden, we are currently pacing up strongly for both the fiscal third and fourth quarters. And in fact, we have now exceeded our concert bookings goal for the year at the Garden and that puts us on track for robust growth in the number of concerts at the arena this fiscal year.

As far as -- I think the second part of your question was how our concert bookings looking for the first half of 2027, I would say it's a bit early to discuss pacing for our theaters, given the short booking window that's typical there. However, with the Garden, we typically book 6 to 9 months out. So at this stage, we do have strong visibility into the September '26 quarter and increasing visibility into December '26 quarter.

In short, I would say that we are off to a really strong start at the arena. We are pacing well ahead in the first half of fiscal '27 as compared to the first half of fiscal '26. And that, of course, includes the impact of the recently announced Harry Styles residency, as well as a number of other notable acts, including multi-night runs from Bon Jovi and Rush as well as first-time headliners such as Olivia Dean, Alex Warren and Louis Tomlinson.

So Also, as you probably remember, the September 2025 quarter was a record for the number of concerts in any quarter at -- the Garden, and we are now on pace to shatter that record in the upcoming September quarter. So we are encouraged by the early indicators for next year and believe that the Garden is likely headed towards another year of really strong concert growth in fiscal '27.

Your next question comes from the line of Brandon Ross from LightShed Partners.

Just wanted to follow up on Cameron's question. We're in the second half of this question about fiscal a lot of residency activity there with 30 nights at Harry Styles and 9 nights of Bon Jovi, and who knows what else. Investors are trying to understand exactly how incremental this is going to be versus fiscal '26, both, I guess, in terms of the amount of nights filled and then the associated revenue.

So any color you could provide to help us get there, including if this is a promoted run or rental on the Harry Styles?

Okay. Sure. Brandon, thank you. Thanks for the question.

Well, first, let me say we are pleased to welcome back Harry Styles to the Garden for this record-breaking run. These 30 nights will start in late August and conclude in October, which is within our fiscal '27 first and second quarters. And the shows will take place every Wednesday, Friday and Saturday night of the Garden for 10 straight weeks during that period, and we are already seeing strong momentum in presales.

I don't know if you saw, but Ticketmaster reported $11.5 million registrations making this presell the largest ever presale for a single artist in the New York market. As it relates to our outlook for fiscal '27, while we don't think all 30 nights will be incremental, we do expect this to be a meaningful contributor to a concert growth at the Garden next year by taking place three nights per week. It still leaves a lot of available inventory in August and September, which is a time when the Knicks and Rangers seasons are not quite yet underway.

I would also say that New York is a unique market, and the Garden is a unique venue. And we have a good track record of booking and selling out shows that no matter what day of the week it may be, we can sell them. And we are already seeing positive signs outside of this residency with a number of other notable headlines announced, including several multi-night runs. So as I mentioned earlier, we are pacing well ahead for fiscal '27. So once again, we believe that Garden is likely headed towards another year of strong concert growth. And I think your last question was whether this was a co-promote or rental. This will be a rental deal.

Okay. And then first of all, there are more preregistrations for Harry Styles and people live in New York, pretty impressive.

Yes.

Okay. And then, first of all, the more preregistrations for Harry Styles and people live in New York City, pretty impressive. Yes. Then thinking about future years, should we expect these longer residencies to become an annual thing? Or is this really just a one-off year in fiscal '27?

Yes, sure. Yes. I mean let me say a few things. First, obviously, let me reiterate that we're off to a strong start in terms of bookings for '27. And now, of course, include the Harry Style residency for 30 nights. And we also have, as I mentioned before, Bon Jovi for a 9-show residency at the Garden this summer in -- in fact, we are in discussions for another potential residency at one of our theaters also in fiscal '27.

So you can see that we believe there's a great value in bringing residencies to our venues as it -- we view it as building more of a recurring base of business and it also increases our visibility into the forward calendar, which is really important to us as well. So this remains an important area for our booking business.

And I think while it's a little too early to discuss fiscal 2028 and beyond, we are continuing to have discussions with other artists about future residencies at all of our venues, including the Garden and we look forward to keeping you updated on that progress.

Your next question comes from the line of Peter Henderson from Bank of America.

Can you just talk about what you're seeing for consumer demand trends across the portfolio, both from an attendance and per cap perspective and just how they're tracking versus last quarter and maybe last year? And then also just looking forward what you're seeing in terms of on sale activity.

And then on capital returns, maybe can you talk about how you decide to lean in and how you size what you're going to return and what the key inputs are that you weigh, whether it be valuation or visibility into free cash flow or leverage comfort?

Sure. Thanks, Peter. Sure. Let's start with the consumer demand question. I mean, we certainly keep a close eye on the macro environment, but I have to say we continue to see strong consumer demand. There are a number of factors that support our view. I mean, first, of all, as we've discussed, we saw exceptional demand for the Christmas Spectacular's 2025 holiday run. We had another year of record revenues there. We had our highest attendance in 25 years and we had record high food, beverage and merchandise per caps.

In terms of bookings, the majority of our concerts at our venues were again sold out this past quarter and -- and year-to-date, we have seen concerts perform better than we initially expected, and a number of upcoming acts across our venues have added additional shows due to strong cement -- I'm sorry, strong demand. As we look at the next 2 quarters, the sell-through rate for concerts is currently pacing ahead of where it was the same time last year.

And I guess the last thing I would say is, as I mentioned earlier, the Ticketmaster reporting of 11.5 million registrations during the Harry Styles presale the largest ever presales or a single artist in New York, I would say, given all this, we continue to see strong demand from consumers for sure.

As far as your question about capital, as we've discussed before, here at MSG, we have three key priorities in terms of our capital allocation and that first one being ensuring that we have a strong balance sheet and at the quarter end, we had net debt of approximately $437 million, and we expect the business should naturally delever as it grows over time.

Second is to ensure we have appropriate flexibility to pursue compelling opportunities that come along and if -- and when they arise. In terms of capital projects, right now, there aren't any major ones to flag as we look out at the rest of the fiscal year. And I would say our third priority remains to opportunistically return capital to our shareholders. And as you all know, we repurchased $25 million of stock during the fiscal first quarter of this year, and we still have $45 million remaining under our current buyback authorization. And what I would say is going forward, we will continue to explore ways to return capital to our shareholders.

Your next question comes from the line of David Karnovsky from JPMorgan.

I wanted to see if there were any updates on the Penn Station process and whether that original May timeline is intact for a master developer selection and on a related basis, assuming there was some involvement for the theater at MSG, like how should investors think about the current contribution of that venue to the current company's financials?

And could shows like, sir, which you called out, get rerouted to like another one of your venues like the Beacon or Radio City in the event it needed to be?

Sure, David. Thanks for the question. As far as the plans on redevelopment, as you know, the U.S. Department of Transportation and Amtrak continue to reiterate their intended project schedule. As early as in January, they completed an initial step to select a short list of developers to participate in the RFP process. And -- and as far as we know, based on that RFP process, they are expected to select a massive developer by May 2026.

And I would say, as invested members of our community, we remain committed to improving Penn Station in the surrounding area. And as redevelopment of the area continues, we are committed to collaborating closely with all stakeholders that -- and I would say that's all -- we have to report at this time, but things seem to be still on target for that May 2026.

In terms of the theater at MSG, first, I'd remind you that the significant majority of our company's economics are driven first and foremost by the Garden and second, by the Christmas Spectacular with the theaters in aggregate following that. Also, the theater in MSG is one of four theaters in our portfolio and one of three in New York varying capacities and if needed, we believe that we have the ability to shift some events from the Infosys theater at MSG to our other theaters in New York.

Thanks, David. Operator, we have time for one last caller.

Your final question comes from the line of Peter Supino from Wolf Research.

Jack Stid on for Peter. Two questions for you, if I may. First, SG&A was elevated year-on-year. Could you unpack that for us? And how should we think about SG&A for the balance of the fiscal year?

Sure. Thanks, Jack. First, yes, let me say that SG&A expense results were a bit noisy this quarter and included a couple of nonrecurring items. The largest one, which we called out in the earnings release was $4 million in executive management transition costs. We had also reported executive management transition costs in the year ago quarter.

Additionally, the quarter included a onetime expense true-up of $2 million, which related to prior year periods. With that being said, even if we exclude the nonrecurring items, SG&A expense growth this quarter was elevated and above what I would expect our long-term expense growth to be. The growth reflects higher employee compensation, which is consistent with what we've said in the past about higher labor costs for this fiscal year.

And as we look to fiscal '26 for the rest of -- I'm sorry, rest of fiscal '26, we similarly expect the March quarter reflects higher labor costs on a year-over-year basis. In addition, I would note that we recently implemented a voluntary exit program at the company. This program is meant to support our goals around streamlining processes and supporting a more efficient and nimble organization.

As a result, we do expect to incur approximately $8 million in severance expense related to the program, primarily in the March quarter, and we expect that SG&A will start to normalize by our June quarter.

Got you. That's very helpful. And then secondly, you called out lower F&B per cap due to mix this quarter. Could you impact as well?

Sure. Let me just say both F&B and merchandise per cap can fluctuate quarter-to-quarter based on the mix of artists and genres. For example, Rock A typically generate higher F&B spend but lower merchandise spend, while Pop acts tend to show the opposite, primarily due to differences in audience demographics.

So using the Garden as an example, which obviously is our largest and most economically significant venue, last year in the second quarter, the Garden was more heavily weighted towards rock, while this year, the Garden featured a broader genre mix, including Pop acts.

So as a result, this quarter at the Garden, F&B per caps were down, but merchandise per caps were up year-over-year, partly due to this mix that I'm talking about. However, if you look at it on a combined basis at the Garden, food, beverage and merchandise per caps were up overall in the fiscal second quarter.

So the shift to merchandise sales more than offset the decrease in food and beverage at the arena. I would also note that for the artists that played the garden in both periods, we saw growth in their food, beverage and merchandise per cap. So overall, we continue to see strong consumer demand in this part of our business.

And that concludes our question-and-answer session. I will now turn the call back over to Ari Danes for closing remarks.

Thanks. We look forward to speaking with you on our May earnings call. Have a good day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning. Thank you for standing by, and welcome to the Madison Square Garden Entertainment Corp. Fiscal 2026 First Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Ari Danes, Senior Vice President, Investor Relations and Treasury. Please go ahead.

Thank you. Good morning, and welcome to MSG Entertainment's Fiscal 2026 First Quarter Earnings Conference Call. On today's call, David Collins, our EVP and Chief Financial Officer, will provide an update on the company's operations and review our financial results for the period. After our prepared remarks, we will open up the call for questions. If you do not have a copy of today's earnings release, it is available in the Investors section of our corporate website. Please take note of the following. Today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Please refer to the company's filings with the SEC for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. On Pages 4 and 5 of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income, or AOI, a non-GAAP financial measure. And with that, I'll now turn the call over to David.

Thank you, Ari, and good morning, everyone. We are several months into fiscal 2026, and I'm pleased to say we are off to a strong start. We continue to see broad-based strength across our business, most notably for bookings and this season of the Christmas Spectacular, both of which I will discuss in more detail shortly. And in light of the demand we're seeing, we are increasingly confident in our ability to drive solid growth in revenue and adjusted operating income this fiscal year. That confidence in both the near- and longer-term outlook for the business was behind our decision to repurchase approximately $25 million of our Class A common stock this past quarter as we continue to deliver on one of our core capital allocation priorities. Now let's review some first quarter operational highlights. During the quarter, our venues welcomed over 900,000 guests across 140 events.

That includes a new record for the number of concerts in any quarter at The Garden as we hosted a number of sold-out multi-night runs and welcomed new headlining acts to the arena this past quarter. From a consumer demand standpoint, the majority of concerts across our portfolio of venues were again sold out during the first quarter. In addition, food and beverage per cap at concerts at The Garden were up, while per cap at our theaters were down as compared to the prior year quarter, which we primarily attribute to the mix of events. Looking ahead, we are booking events at a steady pace and remain on track to grow the total number of events at our venues in fiscal '26. This reflects our expectations for growth in concerts this year, including at The Garden. On the family show front, Cirque du Soleil's Twas the Night Before will begin its holiday season run at the Chicago Theater and the Theater at Madison Square Garden next month.

And in terms of marquee sports, next week, we welcome UFC Back to the Garden, which will be followed next month by the return of the Garden Cup, marking the second consecutive year of tennis at the Arena. With regards to the Knicks and Rangers, the teams recently began their '25, '26 seasons at The Garden. This fiscal year, the cash component of the Arena license fees will be $45 million and will continue to grow at 3% each year through fiscal 2055. And while still early, we are seeing positive momentum across our share of food, beverage and merchandise sales at Knicks and Rangers home games. Turning to the Christmas Spectacular. The 92nd holiday season kicks off later today with 215 shows planned for this year's run. This compares to 200 performances last year. We continue to embrace new technologies, and this year's production will utilize Sphere Immersive Sound, the cutting-edge audio system we recently installed at Radio City.

The introduction of this technology is the next evolution in the venue's nearly 100-year legacy and will elevate the audio experience for artists and guests alike. Guests will experience the Christmas Spectacular with a new clarity and purity of sound that fully envelops the audience, and the system rolls out in January for all future events. In terms of advanced ticket sales, we continue to pace ahead of where we were at the same time last year. And based on the demand we are seeing, we anticipate once again welcoming over 1 million guests to the Christmas Spectacular this holiday season. We also continue to expect higher per show revenue, which combined with the increased number of shows, puts us on track to deliver another year of record revenues for the production. Turning to our marketing partnerships business. As you know, around this time last year, we made the decision to bring our sponsorship sales effort back in-house. With our internal sales teams now largely in place, we believe we are well positioned to capitalize on upcoming opportunities in fiscal '26 and beyond.

And in terms of premium hospitality, we continue to see strong new sales and renewal activity for our suites. We also recently completed the renovation of several Lexus level suites and are seeing the benefit of incremental revenue from these enhanced spaces. Now let's turn to take a look at our financial results. For the fiscal '26 first quarter, we reported revenues of $158.3 million, an increase of 14% versus the prior year quarter. This reflected an increase in revenues from entertainment offerings and to a lesser extent, higher food, beverage and merchandise revenues. The increase in revenues from entertainment offerings primarily reflected growth in the number of concerts at the company's theaters and at The Garden as well as higher per concert revenues. In addition, revenues from other live entertainment and sporting events increased year-over-year, primarily due to an increase in the number of events at The Garden. The increase in food, beverage and merchandise revenues mainly reflected higher F&B sales at concerts due to higher per concert revenues as well as the impact of more concerts at our venues.

F&B sales at other live entertainment and sporting events also increased year-over-year. First quarter adjusted operating income of $7.1 million increased $5.2 million as compared to the prior year quarter. This primarily reflects the increase in revenues, partially offset by higher SG&A and direct operating expenses. I would also note that the first quarter operating loss results include a noncash impairment charge of $13.8 million related to the company's operating lease at 2 Penn Plaza. Turning to our balance sheet. As of September 30, we had $30 million of unrestricted cash, while our debt balance was $622 million. This reflected $602 million outstanding under our term loan and $20 million drawn on our revolving credit facility. Since the end of the quarter, we have paid down the full $20 million revolver balance, and we continue to expect to generate substantial free cash flow as we progress through the year.

This reflects the following expectations for fiscal 2026: solid growth in adjusted operating income; ongoing net interest payments related to our national properties debt, which totaled $45 million in fiscal '25; our status as a full cash taxpayer; and capital expenditures, which will include incremental spend related to certain suite renovations at The Garden as well as enhancements at the Beacon Theatre and Radio City Music Hall, where we recently installed Sphere Immersive Sound. As I mentioned earlier, during the quarter, we repurchased approximately 623,000 shares of our Class A common stock for $25 million. Following these repurchases, we have approximately $45 million remaining under our current buyback authorization. And going forward, we will continue to explore ways to opportunistically return capital to shareholders. So in summary, we're seeing positive momentum across our business. We are increasingly confident in the company's trajectory this fiscal year, and we believe we are well positioned to drive long-term value for our shareholders.

I will now turn the call back over to Ari.

Thanks, David. Operator, can we now open up the call for questions?

[Operator Instructions] Your first question comes from the line of Stephen Laszczyk of Goldman Sachs.

Maybe starting first with the Christmas Spectacular. Just with the show kicking off today, would love to get your latest thoughts and views on how sell-through and pricing are trending heading into this holiday season? It seems like there's no shortage of debate around the consumer at the moment. Would just be curious what you're seeing in terms of demand out there and if there's any pockets worth calling out on either the positive or negative side? And then I have a follow-up.

Sure, Stephen. Thanks for the question. A few things to note about the Christmas Spectacular. First of all, this year's production is seeing very strong demand, and we're pleased to say that we expect to again host over 1 million guests at the show this holiday season. I want to also note that the Rockettes are celebrating their 100th year anniversary this calendar year, which is helping us to drive increased interest in the show for both our guests and our partners. Advanced ticket revenues are currently pacing up double digits as compared to this time last year, which reflects both higher individual and group ticket sales, and that is being driven by both higher volume and average ticket yield. So the progress in advanced tickets puts us almost halfway to our ticket revenue goal for this year already.

In terms of show count, we've added 4 more shows since our last earnings call, which includes 2 shows that were added just early this week due to the demand we've been seeing. And we now have 215 planned performances as compared to 200 last year, and that translates into a high single-digit percent increase in show count. And finally, Stephen, I would say the Christmas Spectacular is a premium entertainment product in the market and is still well priced, still -- I mean, priced well below average ticket prices for comparable entertainment options. And we are always strategically managing and pricing our ticketing inventory to maximize revenue for every show. So with all that said, we remain confident in our ability to deliver very strong growth with Christmas Spectacular this year.

That's great. That's all helpful. And just a quick follow-up on the show count point, adding 4 shows to 215 this year. Just would be curious, given the calendar this year, is there any opportunity to take that higher from this level? What would you need to see to maybe slot in a few more?

Yes. I mean we certainly are always open to looking. We'll see how sales go, but we are certainly always looking for that. And the way the demand is going, that's something we would consider for sure.

Your next question comes from the line of Peter Henderson of Bank of America.

Can you just provide updated thoughts on concert bookings for The Garden and the other properties? And also where you stand on bookings now relative to this point last year for fiscal 2Q, 3Q and 4Q?

Sure. Thanks, Peter. As I had mentioned earlier, we had a robust fiscal first quarter here at The Garden, setting a new record for the number of concerts in any quarter at the venue. looking ahead, we are booking events at a steady pace and remain on track to increase the number of booking events across all our venues in fiscal '26. In terms of concerts, we are pacing up on a full year basis versus fiscal '25 at both The Garden and our theaters. And in fact, we have already booked more concerts at The Garden for fiscal '26 than the actual number of concerts held at the venue all of last year. And across our venue portfolio, we are now nearly 85% to our concert booking goal for the year.

So as we look to the rest of the year at The Garden, we currently expect to be down in the December quarter at The Garden in terms of number of concerts. However, we view that as just timing of where concerts are landing during the fiscal year. And I would say we are pacing up for both fiscal third and fourth quarters. At the theaters, we currently expect to be up in number of concerts in the December quarter. And for the third and fourth quarters, we are currently pacing behind. But with that said, typically, the lead time for our theaters for bookings is 3 to 6 months. So we still believe we have time there. So I would say, overall, we feel really good about our start and remain confident in our path to growing the number of events at the venues this year.

Your next question comes from the line of David Karnovsky of JPMorgan.

On a prior call, you had noted some work to book major residency acts for '27 or fiscal '27. So I wanted to check in on where things stand with that. And then as a follow-on, just given the recent share repurchase activity, maybe you can update on how you're thinking about capital returns or allocations from here.

Sure, David. Thanks for the question. As far as the residency, we are definitely making progress to finalize a residency for next year. And we expect that we'll have more to share in the coming months. As we mentioned on our last call, and I will reiterate here, this residency would include a substantial number of dates at the arena and would create the potential for concert growth at The Garden in fiscal '27, which would be following what we expect is going to be a strong performance here in fiscal '26. So we look forward to sharing more details when we can and as soon as that's appropriate on that front. Talking about the capital returns, as you've heard us discuss before, we have 3 key priorities in terms of our capital allocation and the first being that we like to ensure that we have a strong balance sheet. At the quarter end, we had net debt of approximately $592 million, which translates into net debt leverage of approximately 2.6x.

As I mentioned earlier, we also -- at the end of the quarter, we repaid back $20 million we drew on our revolver during the quarter. So we should be able to continue to naturally delever the business as we grow. I would say our second priority is to ensure that we do have the appropriate flexibility to pursue compelling opportunities if and when they arise. In terms of capital projects, there aren't any major ones to flag at the moment as we look out for the rest of the fiscal year, but we'll always be on the lookout for that. And our third priority remains to opportunistically return capital to our shareholders. As we had said, we repurchased $25 million of stock during the fiscal quarter, and we have $45 million remaining under our current buyback authorization. So going forward, we will continue to explore ways to opportunistically return capital to our shareholders.

Your next question comes from the line of Peter Supino of Wolfe Research.

Jack Stid did here on for Peter. My question is, with Christmas Spectacular show count now at all-time highs, what's the next meaningful growth driver for that business? And longer term, is it feasible for the show to expand to future mini Sphere venues?

So thanks, Jack. And we definitely see a runway of growth across a number of areas related to Christmas Spectacular. As you mentioned, the show count going from 200 to 215, which is still below our highest level in years past. We also are continuing to get smarter about optimizing the calendar. So we think there's some more room to grow beyond that. Secondly, we continue to see opportunities to improve the show -- the per show revenues. As I mentioned earlier, the Christmas Spectacular is a premium product and it is still priced well below other comparable entertainment options in the area, and we continue to strategically manage and price our ticketing inventory. So we expect to see continued yield upside from here. We also see opportunities to drive revenue growth in areas such as F&B, merch and sponsorship as the Rockettes brand continue to grow.

For example, we recently named Sephora as our first-ever official beauty retailer of the Rockettes and Christmas Spectacular and also welcomed Dove as an official partner of the Rockettes and the Christmas Spectacular. And I would say, lastly, we remain focused on operating the show more efficiently, including levering technology, which will allow for margin expansion. As far as what you had mentioned about the Sphere and other productions, I would say, at this time, we have no plans to develop new productions, but we'll always consider opportunities that make sense for the business. And we truly believe we have a unique franchise in the Christmas Spectacular, and we are focused on growing it over the long term for sure.

Your next question comes from the line of Cameron Mansson-Perrone of Morgan Stanley.

Just one for me. Wondering if you could elaborate on transitioning that and sponsorship business back in-house. I think you mentioned that, that was done, but I wanted to confirm that. And just any color around how it's gone so far, how we should think about the kind of related cost and opportunity going forward from that change?

Sure. Thanks, Cameron. Yes, you heard correctly. As I mentioned, our internal sales team is now largely in place, and we believe we are well positioned to capitalize on opportunities in this fiscal and beyond to drive growth. So I would say, first of all, we have several premium sponsorship assets available, which include our naming rights at the theater at MSG, some notable presenting partnerships across the venues as well as a good inventory of outdoor signings. So we believe we have shown significant progress in this area of our business. For example, as I noted, in the prior question, we recently named Sephora as the first-ever official beauty retailer of the Rockettes and Christmas Spectacular, which is a great example of a new category for our sponsorship business, which is leveraging our unique assets. And we similarly recently welcomed Dove as an official partner of the Rockettes and Christmas Spectacular. So one other thing I'd mentioned, we also have a number of renewals coming up and are very optimistic about those. So I would say, overall, we're seeing positive momentum in this area of our business.

Your next question comes from the line of Joe Stauff of Susquehanna.

First question is with the new mayor, I was just trying to properly calibrate any new risks of higher taxes for MSG.

Okay. Sure. Thanks, Joe. I would say at this point, we are not going to speculate about hypotheticals regarding a new administration. But what I would say a few things, though. As it relates to city income taxes, I would note that any change would require action by the New York State legislature and the governor as well. Similarly, I would say that any repeal of The Garden property tax exemption would also require action by both houses of the New York State legislature and the governor. So as I said, we're not going to speculate on hypotheticals, but I just wanted to point that out.

Got you. So structurally, it does require the state. It's not something that can be done specifically from the city.

Correct.

And then maybe just a follow-up. I know you had answered in various ways, maybe questions on the consumer. But just wondering if you see any slowdown really in the buckets where maybe you would, which would be concessions and sales of merchandise. Just wondering if you see any pattern where -- whether it be recently or a trend where maybe that's softened up a bit.

Sure, Joe. We keep a close eye on the macro environment. And I have to say that we continue to see strong consumer demand. A few factors to point out that support our view. As I had mentioned earlier, we are seeing very strong demand for the Christmas Spectacular holiday season this year. And our advanced ticket revenues are pacing up double digits compared to this time last year. I would say in terms of our bookings, the majority of our concerts at our venues were again sold out this past quarter and a number of upcoming acts across our venues have added additional shows in the coming quarters due to strong demand. And when we look at the next 2 quarters, the sell-through rate for concerts is currently pacing in line of where it was this time last year. So as I mentioned, we keep a close eye on it, but we continue to see strong demand from consumers.

Thanks, Joe. Operator, we have time for one last question.

Your last question comes from the line of David Joyce of Seaport Research Partners.

A couple of questions, please. First, do you have any updates on the redevelopment and renovation of Penn Station? And secondly, if you could please comment on the bookings growth by event type, family versus sporting events versus concerts?

Sure, David. Thanks for the questions. As far as the redevelopment plans for Penn Station, let me just say that the U.S. Department of Transportation and Amtrak's announced in August a project schedule that includes select being a master developer by May of 2026 and beginning construction by the end of 2027. And that's the time line they reiterated last week. So from our perspective, as invested members of our community, we remain committed to improving Penn Station and the surrounding area. And as we've said before, we and our guests are already seeing benefits of some of the recent improvements, which have taken place in the surrounding area in The Garden. And as this redevelopment of the area continues, we are committed to collaborating very closely with all the stakeholders. And I would say that's all we'd probably say at this time.

From your question on the bookings growth, we continue to expect growth driven primarily by concerts, family shows and sports properties in our business. And as we've discussed, our concert category, we returned to concert growth at The Garden as well as continued increases across our theaters. And as I also mentioned earlier, we have already booked more concerts at The Garden for fiscal '26 than the actual number of concerts held at the venue last year. So feeling good about that. Looking at the rest of the bookings business in terms of our family show category, I would say, while we're not currently expecting growth in the number of events, we expect to see improved financial results, which is helped by the return of Cirque du Soleil for the holiday season at both the theater at MSG and the Chicago Theater next month.

And in terms of marquee sports, while we expect to see modest event growth this year, we are expecting another robust year of college basketball and boxing. And I would point out, that includes St. John's, who is ranked #5 in preseason college basketball rankings, and we have 13 games planned with St. John's at the arena versus 9 last year. And lastly, I would just say in terms of special events, we are expecting a modest increase in the number of events in fiscal 6 (sic) [ '26 ], but I would point out that we do face a tough comparison in this category in terms of financial results because of the absence of SNL's 50th anniversary special, which took place last year. But I would say, overall, we continue to expect growth across a number of our bookings category, and we feel good about our calendar for fiscal '26.

That concludes our Q&A session. I will now turn the conference back over to Ari for closing remarks.

Thank you all for joining us. We look forward to speaking with you on our next earnings call. Have a good day.

This concludes your conference call. You may now disconnect.