Q1 2025 Sphere Entertainment Co Earnings Call
Good morning, and thank you for standing by welcome to the sphere Entertainment Company first quarter 2025 earnings Conference call. At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session I would now like to turn the call over to Ari Danes Investor.
Speaker Change: Relations. Please go ahead.
Speaker Change: Thank you good morning, and welcome to sphere Entertainments fiscal 2025 first quarter earnings conference call.
Speaker Change: Today's call, we will begin with our executive Chairman and CEO, Jim Don who will provide an update on the business Robert Langer, Our executive Vice President Chief Financial Officer, and Treasurer will then review our financial results for the period.
Speaker Change: 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 on the investors section of our corporate website.
Speaker Change: 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 SEC for a discussion of risks and uncertainties.
Speaker Change: 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 AOR.
Speaker Change: non-GAAP financial measures.
Jim Don: And with that I'll now turn the call over to Jim.
Jim Don: Thank you Ari and good morning, everyone.
Jim Don: We reported positive adjusted operating income in the March quarter for this segment.
Jim Don: And as we look ahead, we're confident that we can continue to drive growth this calendar year.
Jim Don: We'll get there by executing on the priorities we have previously outlined.
Jim Don: These include hosting an array of concerts and other third party events.
Jim Don: I think that go to market strategy, pretty exosphere, and sponsorships and driving operational and cost efficiencies across our business.
Jim Don: We are also focused on creating a diverse slate of original content for this new medium.
Jim Don: This past quarter, we welcomed over half a million guests to the sphere experience, bringing total revenues for our original content category to over $500 million.
Jim Don: Since its debut in October 23, please.
Jim Don: These results continue to demonstrate the importance of original content to spirits business model.
Jim Don: We have multiple projects in development and we remain on track to debut our next <unk> experienced this year.
Jim Don: We're also making progress in attracting a variety of music genres, there's fear this year, including our first country and pop residencies.
Jim Don: Due to strong consumer demand.
Jim Don: Routinely seen acts ads chose at the venue for example, both Dannon company and the Eagles are on pay.
Jim Don: For over 40 performances at the sphere.
Speaker Change: One of our Nashville Arena tours.
Speaker Change: Vision sphere is gaining traction as a platform for brands. This includes corporate takeovers or the venue. For example, this past January during CES, we hosted a keynote event from Delta Airlines, We also recently announced new marketing partnerships with Pepsi and Google.
Speaker Change: Both of these agreements include significant exposure on the Axa.
Speaker Change: Which has continued to see strong overall demand.
Speaker Change: Turning to MSG networks.
Speaker Change: One month MSG networks added lenders agreed to reduce and restructure the existing debt obligations.
Speaker Change: Proposed transaction would also see the Knicks and Rangers reduce their local rights fees with MSG networks.
Speaker Change: All parties have agreed to work together to support and finalize the transactions by June 2007.
Robert Langer: And with that I would like to turn the call over to Robert.
Robert Langer: Thank you Tim and good morning, everyone for the March quarter, we generated total company revenues of $286 million and adjusted operating income of $36 million.
Robert Langer: Our <unk> segment generated revenues of $157 $5 million as compared to $174 million in the prior year period.
Robert Langer: The decrease was mainly driven by lower revenues from the sphere experience as well as lower revenues from advertising campaigns on the extra sphere is.
Robert Langer: As a reminder, we benefited from the Super Bowl in Las Vegas in the prior year period, which included a record setting advertising week for the exosphere.
Robert Langer: These revenue decreases were partially offset by an increase in event related revenues 10 additional concerts in the quarter as well as the impact of the hotels corporate takeover during this year's CES.
Robert Langer: Results for the quarter also include the impact of revenues related to our plans to bring the world's second sphere to Abu Dhabi.
Robert Langer: Adjusted operating income of $13 1 million was up modestly as compared to $12 $9 million in the prior year period.
Robert Langer: This reflected the decrease in revenues and higher direct operating expenses more than offset by lower SG&A expenses.
Robert Langer: Increase in direct operating expenses was primarily due to higher event related expenses and then your operating cost partially offset by lower expenses associated with a superior experience.
Robert Langer: SG&A expenses for the March quarter.
Robert Langer: And $96 $4 million, a decrease of $12 $6 million year over year.
Robert Langer: This includes the impact of the company's focus on driving cost efficiencies this year.
Robert Langer: Turning to MSG networks, the segment generated $123 million in revenues and $22 $8 million from <unk> in the March quarter.
Robert Langer: This compares to $151 million in revenue and $48 $6 million in Hawaii in the prior year period.
Robert Langer: The decreases in revenue and a Y mainly reflect the impact of the non carriage period biopsies from January one through February 21.
Well as slower distribution revenue grew by approximately 11, 5% decrease in subscribers.
Robert Langer: Turning to our balance sheet and so for the end of the quarter, we had approximately $465 million of unrestricted cash and cash equivalents, including approximately $110 million at MSG networks.
Robert Langer: Our debt balance was approximately $1 $34 billion at quarter end.
Robert Langer: This reflected $259 million in convertible debt and the $275 million credit facility related to a theater in Las Vegas.
Robert Langer: It also included approximately $804 million under the MSG networks terminal.
Robert Langer: As Tim discussed MSG networks, and its lenders have reached a proposed amendment with respect to its outstanding debt.
Robert Langer: This proposed transaction would also result in amendments to the local rights agreements with the Knicks and Rangers.
Robert Langer: We'll continue to keep you updated as all parties work towards completing these proposed transactions by June 27th.
Robert Langer: And with that we'll now open the call for questions.
Speaker Change: At this time, if you would like to ask a question Press Star then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Brandon Ross: Your first question comes from Brandon Ross with light shed. Please go ahead.
Speaker Change: Yeah.
Brandon Ross: Hi, Thanks for taking the questions.
Speaker Change: One of them.
Speaker Change: Okay.
Speaker Change: Quarter wave.
Speaker Change: Okay great.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Paul.
Speaker Change: Yes.
Speaker Change: Right.
Speaker Change: Okay.
Speaker Change: Australia.
Jim Don: You get a better connection there Brandon you're coming across very choppy you want to try that one more time and if not maybe we'll circle back to you later in the call.
David Carney: Your next question comes from David Carney Basket with J P. Morgan.
David Carney: Please go ahead.
David Carney: Hi can you hear me.
David Carney: Jim would be interested to hear a bit more on what you're observing for the tourism market in Vegas right now just kind of given the macro has there been any notable change in visitation or spending worth calling out.
David Carney: And then for sphere <unk>.
Speaker Change: You have a sense of your original content or.
Speaker Change: Our resident sees the percentage of guests coming from international markets and any kind of mix shift there to date. Thank you.
Speaker Change: I can answer.
Speaker Change: Well, let me answer the first one maybe you can give me that second one again so.
Speaker Change: Look the Las Vegas has over 40 million visitors every year.
Speaker Change: So far.
Speaker Change: We've seen that international accounts for a little over 20% of the guests to sphere.
Speaker Change: And 10% for concerts.
Speaker Change: We really haven't seen any.
Speaker Change: Right.
Speaker Change: So I think you know.
Speaker Change: There's a lot there's a little bit of.
Speaker Change: Chicken little going on.
Speaker Change: And our economy with that right. Maybe later on we will see some substance to that.
Speaker Change: No.
Speaker Change: Uh huh.
Speaker Change: The reaction from the marketplace, but right now we're really not seeing it so.
Speaker Change: And even if we did it doesn't account for that big that big of a difference right.
Speaker Change: Yeah I think.
Speaker Change: In general when it comes to concerts demand.
Speaker Change: Seeds.
Speaker Change: Capacity.
Speaker Change: <unk>, so we have room to absorb any issues from that should they occur.
Speaker Change: What was the second part of your question.
Speaker Change: The second bar was on international visitation, but the first part was just on <unk>.
Speaker Change: Our demand generally.
Speaker Change: Yeah.
Speaker Change: And I'd just answer that yes.
Speaker Change: Thank you.
Speaker Change: Okay. Thanks, David.
Speaker Change: Your next question comes from Stephen laws with Chick with Goldman Sachs. Please go ahead.
Stephen Laws: Hey, Thanks for taking the questions Jim would be interested if you could talk a little bit about the opportunity you see for the new sphere experience shows from.
Stephen Laws: From the edge to drive higher revenues compared what that business is run rating at today, just curious any early expectations on drivers like show count pricing and sell through.
Stephen Laws: Would be curious in your thoughts there.
Stephen Laws: Yeah.
Stephen Laws: Well, we are you know I mean, the postcards from Earth Wars are what we call around here are first pancakes.
Stephen Laws: So, yes, we're expecting second pancake to be better able to add some blueberries.
Stephen Laws: Right.
Stephen Laws: Yeah, No I think you know.
Stephen Laws: Yes, both productions take.
Stephen Laws: Take better advantage of the medium right are going to be more experiential more impactful.
Stephen Laws: So therefore, a better products.
Stephen Laws: And along with a better product, yes comps, probably higher higher ticket prices.
Stephen Laws: Et cetera.
Stephen Laws: Yeah, we're expecting great things from both of those products. So.
Stephen Laws: So the answer is yes.
Stephen Laws: Yeah.
Stephen Laws: Thanks for that and then.
Stephen Laws: Maybe just on resident fees I'm not sure how much you can say at this point, but.
Stephen Laws: Would be curious on an update on the opportunity to add concert residencies in 'twenty five above and beyond what you have today and then any early look into the slate into 'twenty six.
Stephen Laws: So.
Stephen Laws: Yeah.
Stephen Laws: We try not to get ahead of the of the announcements right.
Stephen Laws: I'll give you an overall characterization.
Stephen Laws: We still are in a great position here.
Stephen Laws: Sure.
Stephen Laws: We're in discussions with multiple artists.
Stephen Laws: Where we have more demands novartis now we have availability in slots.
Stephen Laws: Yeah.
Stephen Laws: Which as you know it's good for us what we're trying to accommodate everything.
Stephen Laws: The other thing that's going on.
Stephen Laws: The artists who have been here are extending right.
Stephen Laws: Once they get used to playing the sphere right. It's for an artist it's a pretty good situation.
Stephen Laws: They don't have to travel they don't have all the overhead costs that go along with that.
Stephen Laws: Yes.
Stephen Laws: Similar kind of revenues that they do when they Mount a tour, but without a lot of the expenses and a lot of it on a lot of the headaches and then of course, it's probably most important is the experience that they are providing for the wrong fans, which is really over the top so.
Stephen Laws: Yeah.
Stephen Laws: I don't want to say I don't want to get ahead of ourselves in terms of announcements but.
Stephen Laws: But the pipeline is very full well put it that way.
Stephen Laws: Thank you.
Stephen Laws: Yeah.
Speaker Change: Your next question comes from Peter Zaffino with Wolfe Research. Please go ahead.
Peter Zaffino: Good morning. Thanks.
Stephen Laws: <unk> about your.
Peter Zaffino: Your expansion around the world.
Peter Zaffino: It is fair to assume that most of the conversations that you are having about future sphere spheres with parties outside of the United States.
Peter Zaffino: And if that's the case has the broader geopolitical tension led to any change in sentiment with these parties and specifically in Abu Dhabi.
Peter Zaffino: Sure.
Peter Zaffino: Yes, we're definitely talking worldwide.
Peter Zaffino: About sphere.
Peter Zaffino: We do have another initiative.
Peter Zaffino: <unk> is very important network for undertaking this year.
Peter Zaffino: And that is we're right in the middle of designing a smaller sphere right that would be deployable two markets inside and outside the U S.
Peter Zaffino:
Peter Zaffino: The strategy there is to build faster cheaper.
Peter Zaffino: Have a have a.
Speaker Change: Roy that not only justifies it.
Peter Zaffino: Hopefully investors enthusiastic.
Speaker Change: I'm enthusiastic.
Speaker Change: And so.
Speaker Change: So I mean, I expect that by the end of the year, we'll be talking about that new smaller sphere product as another way of expanding the business as well as continuing to build spheres like we are in Abu Dhabi and other markets.
Speaker Change: Thanks, Peter Operator, we'll take the next caller.
Peter Henderson: Your next question comes from Peter Henderson with Bank of America. Please go ahead.
Peter Henderson: Good morning, Thank you for taking the questions I have two first for Jim when you recently entered into the transaction support agreement with lenders.
Speaker Change: We can reduce the debt in local media rights agreements two.
Speaker Change: Fees for the Knicks and Rangers can you just discuss the long term plan for Emmis G N.
Speaker Change: And there's a potential for street strategic react transactions.
Speaker Change: Potentially an outright sale or merger with other orris ends.
Speaker Change: And then the second question is for Robert expenses for sphere came in better than forecast in the quarter and just wondering how you think about how we should think about cost moving forward and the opportunity for you to take out more costs. Thank you.
Speaker Change: All right.
Speaker Change: <unk> said it all.
Speaker Change: Alright.
Speaker Change: Okay.
Speaker Change: So.
Speaker Change: <unk>.
Speaker Change: In regards to the networks.
Speaker Change: Where we're pursuing a new model.
Speaker Change: Yeah.
Speaker Change: As you know a bit of a hybrid between the old traditional linear distribution and the <unk>.
Speaker Change: Streaming distribution.
Speaker Change: That is not I mean this is this is something that is facing the entire content world. It's not just us.
Speaker Change: So we have to learn how to.
Speaker Change: We are a business out of that.
Speaker Change: Yes.
Speaker Change: The idea of partnering with other.
Speaker Change: There are groups that are in the same business, probably I would say no.
Speaker Change: As of interest to us.
Speaker Change: All right.
Speaker Change: Well first we're happy to get through the restructuring because under the old structure. There was no way that we could have pursued that business.
Speaker Change: So, but they are so now having been through now getting through that and we're not through it until the end of June.
Speaker Change: Hum.
Speaker Change: We're going to focus on the new model, we're going to look at it.
Speaker Change: Yes, the possibilities are strategic partnerships, all keeping an eye on what will the consumer really latch onto unacceptable.
Speaker Change: As.
Speaker Change: A place to come to you all these great events.
Speaker Change: Robert.
Speaker Change: Peter on your question about cost. So this year, we're really quite focused on driving profitable growth and one of the priorities here is to optimize our infrastructure.
Speaker Change: This includes on the on the one hand to identify areas for potential cost efficiencies while on the other hand, we obviously want to maintain our structure, which can deliver on our vision for global network spheres, overtime, which which offer a diverse and you know kind of different diversity and exciting set of experiences to our guests.
Speaker Change: So heading into this year, we identified a number of areas where we.
Speaker Change: We're able to reduce our SG&A cost such as corporate support functions and that's what you see reflected in our Q1 results.
Speaker Change: As we are only our second full year of operations will obviously continuously look for other efficiency, where it makes sense for us I'd like to we'll also find new opportunities for growth and reinvestment as well.
Speaker Change: Thank you.
Speaker Change: Another question.
Speaker Change: Your next question comes from Brandon Ross with light Chet Brandon. Please go ahead ask Brad Greg.
Brandon Ross: Thank you.
Speaker Change: No one Brendan.
Speaker Change: Brendan Ross your line is open.
Speaker Change: I think Brandon it must be in Boston and I heard all of their Wi Fi and connectivity went down last night.
Speaker Change: Got it.
Speaker Change: Got it.
Alright.
Speaker Change: All right Brandon.
Speaker Change: So it was yesterday's data.
Speaker Change: Yeah.
Speaker Change: In anticipation of granted question I'd, just like to just talk about something.
Speaker Change: And that's really the entire business.
Speaker Change: When do you all look at this business and when you invest in it.
Speaker Change: It is not the venue business and facts.
Speaker Change: We built this business on a disruptive model.
Speaker Change: The that utilizes the value 365 days, a year right and even had multiple events during during the day so.
Speaker Change: Key to like concerts.
Speaker Change: The contracts would not be as profitable as original content right.
Speaker Change: On a constant day, we only did the concert right, but like with the Eagles right and with Luca.
Speaker Change: We're running two shows two original content shows on the same day.
Speaker Change: As the year.
Speaker Change: As the concert and that that makes for a very profitable day.
Speaker Change: And so.
Speaker Change: So when you look at the company and its and its development and when I looked at the company and its involvement it's all about growth right. It's all about our ability to take what we see as a great product and then expanded out across the globe.
Speaker Change: And so do not expect US right for instance is questions about how we use our capital right, it's going to primarily be towards growth right. So that we can make the business bigger and reach the goals that we have board versus you know that the necessarily returning cash.
Speaker Change: Little to shareholders right.
Speaker Change: Yes.
Speaker Change: Et cetera, so and.
Speaker Change: And I take a look at this new project.
Speaker Change: Only a small a sphere and there's a real real opportunity there's tremendous amounts of opportunity inside of this business inside of this medium and we'd be foolish to sit there and say okay. We're good here.
Speaker Change: And call it a day.
Speaker Change: So when you looked at the company that's how I think you should look at it that's how I look at it.
Speaker Change: Operator is there any other any other analysts in the queue.
Speaker Change: Yes. Your final question comes from David Joyce of Seaport Research Partners. David. Please go ahead.
David Joyce: Thank you I wanted to ask about the XO sphere and sponsorship could you. Please update us on the go to market strategy and your outlook there.
Speaker Change: Any further color on.
David Joyce: The sponge.
David Joyce: Sponsorship activations youre seeing or expecting that would all be helpful. Thank you.
Speaker Change: I think I think Jan Koster, our C. O I was on the call are you on the call Jack.
Speaker Change: Sir Amgen.
Speaker Change: Okay can you hear me.
Speaker Change: Randy.
Speaker Change: So this Brexit.
Speaker Change: Thanks, David.
Speaker Change: As Jim mentioned earlier on in his opening remarks, we have been taking a fresh look at our go to market strategy.
Speaker Change: That includes a number of focus areas. So we've been evaluating changes to our packaging and pricing.
Speaker Change: <unk> and expanding our relationships with our media agencies and really thinking about more targeted efforts related to the convention in conferences market in Vegas. So I think we're making progress on all of these areas. So first let me start with pricing and packaging.
Speaker Change: We're introducing new offerings and these offerings are really aimed at better maximizing value for our advertisers. So we've got new features like 15 seconds bumpers or 62nd AD spots instead of the previous 92nd 92nd ones. They were using and that's going to allow for more frequent exposure in delivery.
Speaker Change: Across better off across our social media platforms, which is highly advantageous to our advertisers.
Speaker Change: We are also making progress when it comes to media agencies, and we'll have more to announce in the coming months back looking to formalize those relationships. So that we really can lock in an upfront access to your AD buys so that we can create that recurring business model.
Speaker Change: The focus on convention and conference market, we are really seeing that resonating with our brands and so you saw that in this past quarter results and that reflected advertising buys during CES as well as the Adobe summit.
Speaker Change: And finally, when we think about sponsorships, we really remain focused on building that because it's again, it's just recurring but that business and as Jim mentioned earlier, we have announced multi year partnerships already this year with major brands like Google and Pepsi.
Speaker Change: So, we're making progress with brands and I really expect to have more to share in the coming months. So thanks for the question.
Speaker Change: Great. Thank you very much.
Speaker Change: Yeah.
Speaker Change: That will conclude our question and answer session I will now turn the call back over to Ari Danes for closing remarks.
Ari Danes: Thank you all for joining US we look forward to speaking with you on our next earnings call have a good day.
Ari Danes: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Ari Danes: [music].