Sphere Entertainment Co. (NYSE:SPHR) Q3 2024 Earnings Call Transcript

Sphere Entertainment Co. (NYSE:SPHR) Q3 2024 Earnings Call Transcript May 10, 2024

Sphere Entertainment Co. misses on earnings expectations. Reported EPS is $-1.33 EPS, expectations were $-0.35. Sphere Entertainment Co. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Sphere Entertainment Co. Fiscal 2024 Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Ari Danes, Investor Relations. Please go ahead.

Ari Danes: Thank you. Good morning and welcome to Sphere Entertainment's Fiscal 2024 Third Quarter Earnings Conference Call. Today's call will begin with our Executive Chairman and CEO, Jim Dolan, who will provide an update on Sphere. 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. 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 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.

James Dolan: Thank you, Ari, and good morning, everyone. As you know, Sphere was built with the idea of disrupting the traditional venue model. We saw this thesis begin to play out in the December quarter. Today, we reported results for our second full quarter of operations in Las Vegas. And while it is still early days, we're pleased with our progress and remain optimistic about our vision for this new medium. For the third quarter, Sphere welcomed nearly 1 million guests to more than 270 events. This event volume once again far exceeded the world's busiest venues. It also drove robust revenue and positive adjusted operating income for the Sphere segment for the second consecutive quarter. These results were led by The Sphere Experience featuring Postcard from Earth.

Since its October debut, the signature content category has already generated over $200 million in revenue. That includes more than $1 million in average daily ticket sales in both the second and third quarters. These results reinforce our belief in the value of original content. And we are now developing new cinematic offerings to strengthen this core category. On the concert front, headline acts are seeing the advantages of performing at Sphere. U2's 40 show run grew an audience on par with a national arena tour. Phish sold out its four nights in less than one hour. And Dead & Co. has already extended their upcoming residency. When we first launched Sphere, we outlined three content categories as the foundation for its business original content, concerts and residencies, and marquee sports and corporate events.

Stagehands setting up the equipment for a live entertainment event.

We are now looking forward to our first corporate keynote event with Hewlett Packard next month. This event will showcase how the venue's technology and offerings provide a compelling platform to educate and demonstrate. We believe that this corporate category will become an important and growing component for us. Our overall business strategy also focuses on maximizing venue utilization. Later in June, Sphere will welcome the NHL Draft, which would be the first live event televised from inside the venue. Over this multi-day run, we will also show The Sphere Experience, demonstrating our ability to efficiently host multiple event types on the same day. In addition, we continue to explore other event types, such as EDM shows that can run on the same day as original content.

Turning to the Exosphere, advertisers continue to see significant value in this platform. This is especially true during tentpole events in Las Vegas. We had two great examples this past quarter, the Consumer Electronics Show in January, followed by the Super Bowl in February. As we look ahead, we'll remain focused on exploring ways to maximize the potential of Sphere, not only in Las Vegas, but also around the world. Expansion discussions with international markets are progressing, and we look forward to sharing more in the future. So we're pleased with our results this past quarter and are confident in our plans for this next-generation medium. With that, I will now turn the call over to Dave.

David Byrnes: Thank you, Jim, and good morning, everyone. For the fiscal '24 third quarter, we generated total company revenues of approximately $321 million and adjusted operating income of $61.5 million. This included revenues of approximately $170 million and adjusted operating income of $12.9 million at the Sphere segment. These results were led by our original content category, The Sphere Experience, featuring Darren Aronofsky's Postcard from Earth, which generated over $100 million in revenue. The Sphere Experience ran 257 times in the third quarter versus 192 times in the December quarter. We also benefited from the conclusion of U2's multi-month run, with 15 performances during our third quarter compared to 23 in the December quarter.

And as Jim mentioned earlier, another positive impact on our results was continued strong performance for the Exosphere. In the third quarter, this included robust demand around the annual Consumer Electronics Show in January, followed by a record-setting advertising week leading up to the Super Bowl in February. SG&A expenses for the third quarter were $109 million as compared to $98 million in the December quarter. This primarily reflects corporate overhead and expenses related to Sphere Studios and associated content and technology development. Turning to MSG Networks. The segment generated $151 million in revenues and $48.6 million in AOI, which represent decreases of 6% to 17%, respectively, as compared to the prior year period. The revenue decrease reflects lower distribution revenue, primarily due to a 12.5% decrease in subscribers, inclusive of the impact of MSG+, partially offset by higher affiliate rates.

In addition, advertising revenue decreased year-over-year primarily due to lower per game advertising sales on the linear networks and lower branded content advertising, partially offset by advertising revenue related to MSG+. The decrease in AOI reflects lower revenue as well as higher direct operating costs, partially offset by lower SG&A expenses. So while the industry remains challenging, we continue to pursue incremental revenue opportunities like our direct-to-consumer app, MSG+, as we also remain focused on how we can operate our business more efficiently. Turning to our balance sheet. As of March 31st, we had approximately $681 million of unrestricted cash and cash equivalents. Our debt balance was approximately $1.4 billion as of quarter end, which reflected approximately $870 million outstanding on the MSG Networks' term loan, the $275 million credit facility related to Sphere in Las Vegas and $259 million in convertible debt.

With regard to the MSG Networks' term loan, we remain in discussions with our lenders regarding an extension of the credit facility on terms that would be satisfactory. And with that, I will now turn the call back over to Ari.

Ari Danes: Thanks, Dave. Operator, can we open up the call for questions, please?

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