Q1 2025 Sphere Entertainment Co Earnings Call
Speaker Change: Good morning and thank you for standing by. Welcome to the Sphere Entertainment Company Fiscal 2025 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. I would now like to turn the call over to Ari Danes, Investor Relations. Please go ahead.
Ari Danes: Thank you. Good morning and welcome to SPHERE Entertainment's Fiscal 2025 First Quarter Earnings Conference Call. Today's call will begin with our Executive Chairman and CEO Jim Dolan, who will provide an update on SPHERE.
Ari Danes: Dave Byrnes, our Executive Vice President, Chief Financial Officer and Treasurer, will then review our financial results for the period. After our prepared remarks, we will open up the call for questions.
Speaker Change: If you do not have a copy of today's earnings release, it is available in the investor section of our corporate website. Please take note of the following.
Speaker Change: Today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Speaker Change: 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.
Speaker Change: Please refer to the company's filings with the SEC for a discussion of risks and uncertainties.
Speaker Change: The company disclaims any obligation to update any forward-looking statements that may be discussed during this call.
Speaker Change: On pages five and six 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 Jim.
Thank you, Ari. Good morning, everyone.
Speaker Change: When we opened Sphere a little more than a year ago, our goal was to redefine the live entertainment experience.
Speaker Change: We started that journey in Las Vegas and have made headway improving our SPHERES innovative business model.
Speaker Change: From the beginning, our vision also included a global network of venues.
Speaker Change: In October, we took an important step forward when we announced plans to bring the world's second sphere to Abu Dhabi.
Speaker Change: an international capital that welcomed more than 24 million visitors last year.
Speaker Change: The Abu Dhabi venue is expected to be similar in scale to SPHERE in Las Vegas, and under the terms of our partnership, the Department of Culture and Tourism Abu Dhabi will fully fund its construction.
Speaker Change: We will receive a franchise initiation fee, which grants them the right to build the venue using our intellectual property.
Speaker Change: In addition, our team plans to provide both pre- and post-opening services that leverage our expertise in infrastructure.
Speaker Change: And as part of a multi-year marketing partnership, the Experience Abu Dhabi brand is now an official partner of Sphere in Las Vegas.
Speaker Change: This is a significant milestone in expanding SPHERES' global footprint, and we look forward to sharing more details as we move forward.
Speaker Change: Turning back to SPHERE in Las Vegas, we remain focused on optimizing our operating model to maximize revenue while enhancing the guest experience.
Speaker Change: To that end, we continue to refine our strategy for the SPHERE experience, including show count and pricing.
Speaker Change: In September we debuted our second original production, VU2, an immersive concert experience.
Speaker Change: VU2 joins Postcards from Earth in our expanding library of experiential content.
Speaker Change: We are actively developing future productions and look forward to introducing new experiences to audiences in 2025.
Speaker Change: Beyond original content, strong consumer demand continues to drive concerts and events at SPHERE.
Speaker Change: This past quarter, we hosted the UFC, which became our highest-grossing single event so far. The Eagles recently extended their multi-month run again, with new dates into March.
Speaker Change: and next week we welcome back Formula One and the Las Vegas Grand Prix as part of our multi-year agreement.
Speaker Change: As we have said, running multiple event types on the same day is the focus of ours.
Speaker Change: We have started showing this beer experience on the same day as residencies. We plan to run it during the upcoming F1 event and throughout ANIMA's multi-day run, which begins around New Year's Eve.
Speaker Change: In addition, SPHERE continues to gain traction as a platform for corporate partners. In June, we hosted our first keynote event with Hewlett Packard, and we recently announced that Delta Air Lines will present at SPHERE during the Consumer Electronics Show in January.
Speaker Change: In terms of sponsorships, in October we announced Verizon as an official mobile wireless partner of Sphere. We also recently signed a multi-year marketing partnership with Ticketmaster.
Speaker Change: These partners, along with Experiance Abu Dhabi, will be integrated across various marketing assets, including the Exosphere.
Dave Byrnes: So with a year of operations under our belt, and a second SPHERE location now announced, we are moving in the right direction, and remain confident in the long-term outlook for this next-generation medium. With that, I will turn the call over to Dave.
Thank you, Jim, and good morning, everyone.
Dave Byrnes: Our Sphere segment generated first quarter revenues of approximately $127 million as we welcomed over 800,000 guests to 225 events, along with an adjusted operating loss of $26.3 million.
Dave Byrnes: These results were primarily driven by our original content category, the SPHERE Experience, which generated approximately $71 million in revenue.
across 207 shows in the first quarter.
Dave Byrnes: Our results also reflected 12 performances from Dead & Co. as well as the start of the Eagles multi-month run with four shows in September.
Dave Byrnes: In addition, fiscal first quarter results included the USC event and a corporate takeover, as well as advertising campaigns on the Exosphere.
Dave Byrnes: And with about half of the December quarter already behind us, we are seeing the Exosphere benefit from positive momentum in these last few months of the calendar year.
SG&A expenses for the first quarter were $105 million.
Dave Byrnes: As we previously discussed, the infrastructure that we have built out at the SPHERES segment, including in areas like Corporate and SPHERES Studios, as well as associated content and technology development, is designed to support a global network of SPHERES over time.
Dave Byrnes: Turning to MSG Networks, the segment generated $100.8 million in revenues and $16.1 million in AOI, which represent decreases of 9% and 36%, respectively, as compared to the prior year period.
Dave Byrnes: The decreases in revenue and AOI primarily reflect lower distribution revenue, primarily due to an approximately 13% decrease in subscribers, inclusive of the impact of MSG+.
Turning to our balance sheet.
Dave Byrnes: As of September 30th, we had approximately $540 million of unrestricted cash and cash equivalents.
Dave Byrnes: Our debt balance was approximately $1.36 million at quarter end. This reflected $259 million in convertible debt and the $275 million credit facility related to Sphere in Las Vegas.
Dave Byrnes: It also reflected approximately $825 million outstanding on the MSG Networks term loan, which, as a reminder, is debt that is recourse only to MSG Networks.
Dave Byrnes: As you know, MSG Networks is pursuing a refinancing through a workout with its lenders.
The debt matured on October 11th.
Dave Byrnes: However, MSG Networks has entered into a forbearance agreement which provides that, during the forbearance period, the supporting lenders will not exercise certain of their remedies under the MSG Networks credit facilities arising from non-payment of the debt on the maturity date.
Dave Byrnes: That period was initially scheduled to expire on November 8th and was recently extended through November 26th while the workout process continues.
Speaker Change: We will continue to keep you updated. And with that, we will now open the call for questions.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from a line of Brandon Ross from Lightshed. Your line is open.
Thanks. Hey, Jim.
Speaker Change: Exosphere Advertising really softened in the quarter after a pretty strong start last year. Any idea why? Do you think there's a structural issue or execution issue there? And what's your outlook for that piece of business going forward, besides the seasonal strengths that you called out in the preparatory?
Speaker Change: Yeah, Brandon, I do think that there's a structural issue, etc., and we've been busy
Speaker Change: You know, it's like a lot of things with this project, you know, it's the first pancake.
It's the first time we've done it, and we've learned.
and we're getting better at it.
Speaker Change: that come into play. I have to say, after the first year, you'd have to look at that sort of
Speaker Change: July-August period as being the softest time for SPHERE, sort of almost across the board. And then it starts to pick up momentum in September and we're starting to see some pretty strong results.
Speaker Change: Now, and going into the beginning of the year, you know, we're looking pretty good. So, but I mean, that's just part and parcel of starting something new.
Speaker Change: I wish that the day we lit it up, that we knew exactly how to run it, and exactly how to sell it, and exactly how to program it, etc., but that's just not the case.
So, more to come.
Speaker Change: Cool. And speaking of first pancakes, you launched your first immersive concert with VU2 in the quarter. I was wondering what your assessment is of how
Speaker Change: VU2s perform. Do you think immersive concerts is a viable category for you and have noticed improvements in attendance there? What can the company do to continue to ensure further improvement?
Well, look, the U2 concert actually was...
really kind of almost an experiment on our part.
Speaker Change: Right, because we didn't know what that product looked like. So...
Speaker Change: We shot it, we put it together, and yes, I think it's a viable product.
Thank you.
Speaker Change: How you program the product is something I think we're still
trying to figure out.
Do you program it like you program postcards from Earth?
All right, and then, of course, look.
Speaker Change: It really is an amazing product when you see it. You feel like you're at the concert.
Speaker Change: So, you know, we have some great bands that are coming in over the next year. And so I think we will continue to capture their concerts using our Big Sky technology, etc. How we then bring it to the public and market it, I think we're still...
trying to figure out what's the best way.
Speaker Change: I mean, I wish we could go back to 1965 and capture the Beatles. I'm pretty sure you'd all love to see a live Beatles concert like you were really there.
Speaker Change: That's one we probably can't do, but we do have some great acts and creating a library, right, of these kind of performances, I think.
Thanks.
Speaker Change: very valuable. Again, how we market it, how we schedule it, etc. That I'm not sure of.
Speaker Change: But I do think that the product is valuable, and I also think that it's going to be evergreen. You're not going to be able to see Bono 20 years from now live, except this way.
Speaker Change: Thank you. Look forward to hearing who those bands are. Thanks.
Speaker Change: Your next question comes from the line of David Karnofsky from J.P. Morgan. Your line is open.
David Karnofsky: Hey, thanks for the question. Jim, just on the back of the Abu Dhabi agreement, maybe you can discuss how this has impacted other partner conversations. Should we think of this as a catalyst? And is there anything you're willing to say on timing for future sphere announcements?
Speaker Change: having the getting the confidence of the people at Abu Dhabi right the and showing that we can build a second one although we already built the first one so you know I think it helps
Speaker Change: and we'll kind of see where it goes from there. But we're still, you know, you're wondering whether we're pushing the envelope still. We definitely still are. We definitely want to build in multiple places. We've built an organization.
Speaker Change: that can handle the construction of multiple spheres at the same time. And so, yeah, we're still moving.
Speaker Change: Okay. And then on that, I mean, just on the international model more broadly, should we look at Abu Dhabi as sort of representing sphere in the Middle East exclusively and therefore think of incremental locations as likely in kind of other parts of the world, or is it feasible to have multiple spheres in close proximity?
Okay, well, I'll tell you what, the...
I had a discussion with...
Speaker Change: with David Bramble-Smith about this, this morning about how we release information on the Abu Dhabi deal. So I'm going to ask David.
Speaker Change: to just take us through what we've revealed so far and what is basically anticipation of releasing more information about the Abu Dhabi deal.
Speaker Change: David? Sure. Thanks, Jim. With respect to the specific question on other spheres, potentially, as Jim mentioned, look, we're going to evaluate our international expansion across multiple regions, and we're not at a position right now to make any announcements about, you know, what the next region would potentially be.
Specifically on the Abu Dhabi deal,
Speaker Change: a number of different revenue streams, which we can talk about as well. But from an expansion point of view, I would think that, you know, as we evolve in our thinking, we'll obviously relay that back to the market in terms of what other areas.
Speaker Change: and, as Jim mentioned specifically, it is our intention to, over the next several years, roll out a number of SEERS.
Thank you.
Speaker Change: Your next question comes from the line of Peter Cepino from Wolf Research. Please go ahead.
Peter Cepino: Hi, good afternoon and thank you. You've caught me as I'm getting out of a taxi at the airport, so I'll try to spread your background out. But the question is about the revenue opportunity in Las Vegas.
Peter Cepino: I specifically wondered about residencies. There were 75 over the last year in Vegas, give or take. And I'm wondering if you think that's kind of the right number or if you see upsides to that over time and what you've learned about the availability and relevance of the concert talent and demand out there. Thank you.
Speaker Change: Oh, what was that last part? It kind of, that last part got jumbled. Whether 75 shows seems like the right number of residency shows in Las Vegas.
Oh, well.
Speaker Change: That's a good question. You know, I think we don't look at it that way. I think the way we look at it is how to maximize the revenue, right? This year we did 75.
Speaker Change: But I think a key component of it is that we ended the year doing what we call side-by-sides.
Speaker Change: So, if it's an Eagles show that's on Saturday and starts at 8 o'clock, we have a show in the afternoon.
Speaker Change: Postcards from Earth or BU2 or the other, you know, properties that we're developing and I think that's kind of key. If we can get, we can keep pursuing this side-by-side and our hope is that we can get
Speaker Change: two, right, two shows and then a concert all on the same day.
Speaker Change: Right, that's pretty good use of the capital, right, it's going to generate a lot of revenue and I'd probably do that all day long until the cows come home. So
We just have to see what we can do.
I thank all of you very much.
Speaker Change: was to be busy 365 days a year with multiple shows really changes the venue model.
Speaker Change: Right, that's what we wanted to do when we started this thing was to change the venue model, right? They create a lot more Opportunity for us, right? So basically, I don't know
Speaker Change: take the Knicks and the Rangers and the Christmas Spectacular and put it all into the same building and then add a bunch more concerts into it and you know, that's what we want to try and do.
Speaker Change: Following up on that, have you found that there's enough interest from
Speaker Change: performers who are big and popular enough to fill that building at the price point you require to have a bigger schedule than 75 if the physical constraints are manageable in the way you just described?
Yeah, I don't think that there's any, you know,
You know I don't think there's any
Speaker Change: impediment there. I think we have basically, right now we're struggling with 2025, just figuring out how we're going to get the people in who want to get in.
Speaker Change: Right, the acts that want to get in. So no, I don't, you know, I don't anticipate that.
Speaker Change: that that's going to be an issue. I think more importantly, what I said before, to get to do those with side-by-sides, right, really, you know, sort of turbo charges the entire model. So, but no problem with the axe.
Thank you.
Speaker Change: Your next question comes from the line of Daniel Duran from Morgan Stanley. Your line is open.
Speaker Change: Hello, good morning. Thank you for taking my question. So once the second sphere opens, what are the largest revenue opportunities for you from the content and services that you will be providing to your partner? And will these be revenue sharing agreements or have more of a fixed payment structure?
Thank you.
Speaker Change: Once again I'm going to turn this over to Mr. Smith who's going to keep us on the straight and narrow. Sure, so there are two components of the revenue stream. One will be fixed.
Mr. Smith: And what would be variable on the fixed side, and Jim mentioned this early on the call, it'll be the franchise initiation fee, the pre and post opening services, and the marketing partnership. And on the variable side, it will be the severe experiences and the royalty fee that we'll get for the IP that they're utilizing.
Mr. Smith: With respect to, if you look at Las Vegas, and obviously original content is very important, so we do expect severe experiences will be a big driver of revenue in Abu Dhabi as well.
Speaker Change: Got it. Thank you. And following up on that, on the sphere experiences, will the global, will the offer, the content offering be global or will the content be custom to each region or to each new sphere?
Speaker Change: Well, the answer to that question is yes, no, it will probably be both, but I do want to point out one thing that's sort of inherent in your question.
Speaker Change: Right, but we built this company not to operate one building in Las Vegas, right? The the a lot of the overhead and stuff that you see for instance
Speaker Change: and Dave's report. It's still about the growth of the company, particularly in the case of Abu Dhabi with our construction and development division, but also with our content creations.
Speaker Change: etc. So the more of these that we do, right, the more we utilize the investment that we made into the company itself to be able to do that.
Speaker Change: So that's one of the reasons why we, you know, we're really happy about Abu Dhabi and we're looking for the next one
Got it. Thank you very much.
Thank you. Thank you. Thank you.
Speaker Change: Your next question comes from a line of Peter Henderson from Bank of America. Your line is open.
Peter Henderson: Good morning and thank you for taking the question. Can you provide an update on the timing of the release of your next original production at Sphere? Any color you can provide related to the type of the content or the genre or even the cost would be helpful. And then I have a second question.
Well, now you're asking for the special sauce.
Speaker Change: And we don't do the special sauce, you're gonna have to wait with everybody else. I'll just tell you it's going to be great You'll love it. We'll tell you more about it later. Right, but no special sauce
Thank you.
Speaker Change: Okay, that's fair. Then I guess I saw in the release this morning that you've extended the workout for the MSG term loan. Can you just talk through your considerations in that process and what you believe will be the likely outcome? Do you think you're going to get a haircut to the debt?
Speaker Change: Sure, Peter, I'll take that. Yes, you're right, we extended the forbearance period through November 26th.
Speaker Change: and this gives us additional time as we continue to try to negotiate a restructuring agreement that's acceptable to all the parties involved and we'll keep you updated you know as we get further into that process.
Thank you.
Thanks Peter. Operator, we have time for one last caller.
Speaker Change: Certainly. Your final question comes from a line of David Joyce from Seaport Research Partners. Your line is open.
Speaker Change: Thank you. My first question is regarding the residencies for the next year, could you provide some color on the timing so we can think about the comparability of events here over a year and what genres those artists are and when they might go on sale?
Thank you. Bye.
again. Well, do you like the Eagles?
Speaker Change: You're going to see a lot of eagles for a while.
Good luck.
Speaker Change: But we haven't really announced anything else beyond that, but I will tell you we're
Speaker Change: Just to whet your appetite more and not give you an answer, we're struggling with how to squeeze everybody in through the fall.
who signed up.
Speaker Change: But we obviously have not made any announcements and I don't think today's the day we're going to do that. But like I said, we don't have any problem with Axe wanting to play the sphere. It's just getting them in and then making sure that we can do these side-by-side. It's really important.
Thank you for listening to us.
Speaker Change: On Abu Dhabi Sphere, could you provide some color on the timing in terms of when construction would start, how long the pre-opening fees would be accruing to Sphere Entertainment, and when you think it might be opening?
Speaker Change: Yeah, we have not disclosed yet when we think it'll be opening. Right now we're obviously in the phase of working with them on the pre-opening services so over the course of the near term that that's the real focus and we'll come back out when we have a sense of that better timing.
All right. Thank you.
Yep.
Speaker Change: And that concludes our question and answer session. I will now turn the call back over to Ari Danes 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.
Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.