Good morning! Thank you for standing by, and welcome to the Sphere Entertainment Fiscal 2024 fourth quarter and year-end earnings conference call. At this time, all participants are in 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.
Thank you. Good morning, and welcome to Sphere Entertainment's Fiscal 2024 fourth quarter and year-end 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 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. With that, I'll now turn the call over to Jim.
Thank you, Ari, and good morning, everyone. As we've said from the start, we believe Sphere is a new medium that has the potential to change the entertainment landscape for artists, guests, and partners. Fully realizing that vision will take time, but we are learning every day how to optimize Sphere's operating model. And with the close of fiscal 2024, we are pleased to look back and see real progress across multiple fronts. Since Sphere opened last September, we have welcomed millions of guests, hosted artists and blue-chip companies, and featured numerous brands on the Exosphere. Sphere has also become part of the global conversation, with worldwide recognition and extensive press and social media coverage. Our plan for Sphere is to create widespread demand for our offerings and drive utilization far in excess of traditional venues.
Our core component of that strategy is our content category, The Sphere Experience, which currently features Postcard from Earth. This category again generated more than $1 million in average daily ticket sales in our fourth quarter. Since premiering in October, The Sphere Experience has generated over $300 million in high-margin revenue. These results reinforce our confidence in original content as a key economic engine for Sphere. We are actively developing new cinematic experiences and expect to launch our next attraction in the coming weeks. We believe this expanding content library will benefit our Las Vegas business and strengthen our value proposition to new markets. On the concert front, artists continue to benefit from the drawing power of Sphere. Dead & Company just completed their 30-show run on Saturday night. The Eagles kick off their residency next month with a 20-show run through January.
We recently announced that Anyma will be our first EDM act with a multi-night run around New Year's. Both the Eagles and Anyma have been extended multiple times due to demand. Next month, in another first, Sphere will host the UFC, which will be the first live sports event in the venue. We are also making progress towards our goal, hosting multiple event types on the same day. The Sphere Experience ran on the same day as select Dead & Company concerts in July and August, and we believe that this had a positive impact on attendance for Postcard from Earth on those days. We also expect a similar schedule during the Eagles run and our upcoming EDM shows. In addition, we are not standing still in terms of innovation.
On July fourth, we marked the one-year anniversary of Exosphere by launching two new features: an official live stream called ExoStream, which is available 24/7 on our website, and ExoAudio, custom audio synced to Exosphere content that is available both on-site and online via the live stream. We also welcome Verizon as the presenting partner of the live stream, and we're pleased that the partners and advertisers continue to recognize the Exosphere as a high-impact platform for their brands. Finally, we remain focused on executing on our global vision for Sphere. Expansion discussions with international markets continue to progress, and we look forward to sharing more. So while we know it's still early days, we're positive about what we have achieved with Sphere, and we remain optimistic about what the future holds for this next-generation medium. And with that, I'll now turn the call over to Dave.
Thank you, Jim, and good morning, everyone. For the fiscal 2024 fourth quarter, we generated total company revenues of approximately $273 million and Adjusted Operating Income of $25.7 million. Our Sphere segment generated fourth quarter revenues of approximately $151 million, as we welcomed over 900,000 guests to more than 230 events.
... along with an AOI loss of $5.5 million. These results were driven by our original content category, the Sphere Experience, featuring Postcard from Earth, which generated approximately $74 million in revenue across 208 shows in the fourth quarter. They also reflected Phish's four-night run in April and the start of Dead & Company 's residency in May, with 18 performances during the quarter. Fourth quarter results also benefited from Hewlett-Packard's corporate keynote event and the NHL Draft, as well as advertising campaigns on the Exosphere. SG&A expenses for the fourth quarter were $102 million. This primarily reflects corporate overhead, as well as expenses related to Sphere Studios, associated content, and technology development.
Turning to MSG Networks, the segment generated $122 million in revenues and $31.1 million in AOI, which represent a decrease of 5% and an increase of 2%, respectively, as compared to the prior year period. The revenue decrease reflects lower distribution revenue, primarily due to a 13% decrease in subscribers, inclusive of the impact of MSG+. This was partially offset by higher affiliate rates and an increase in advertising revenue year-over-year, primarily due to higher per-game advertising sales on the linear networks and advertising revenue related to MSG+. The increase in AOI reflects lower SG&A expenses, partially offset by the decrease in revenues. Turning to our balance sheet. As of June thirtieth, we had approximately $560 million of unrestricted cash and cash equivalents.
Our debt balance was approximately $1.4 billion at quarter end. This reflected $259 million in convertible debt and a $275 million credit facility related to Sphere in Las Vegas. It also reflected approximately $850 million outstanding on the MSG Networks term loan, which, as a reminder, is debt that is recourse only to MSG Networks. As you know, we had been in discussions with our lenders regarding a potential refinancing of the MSG Networks credit facilities. However, we have been unable to reach an agreement with our lenders on a refinancing on a voluntary basis. As a result, MSG Networks has decided to pursue a refinancing through a workout with its existing lenders and has hired advisors to assist it with the process. We will keep you updated as appropriate.
With that, we'd be happy to take your questions.
Thank you. We will now begin the question and answer session. If you'd like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from the line of Brandon Ross from LightShed Partners. Your line is open.
Thanks for taking the question. I guess MSG Networks has stolen the day today with the workout. So, Jim, I wanted to ask you how the new NBA deal and the recent contest hearing of RSNs have changed your views on MSG Networks and the broader RSN industry? And I guess, related, are those influencing the approach that you're taking to this workout?
Well, I wouldn't say that the NBA deal helped the regionals or MSG Network. Well, just the opposite. In terms of the outlook, I'm gonna let Mr. Byrnes answer the outlook questions today. Yeah, no, I don't think that you know, speaking strictly from Network's point of view, losing you know, content is never good. And that was some very high-profile media content, so did not help our business at all.
And then, Brandon, on the workout part of that, you know, we can't speculate today how the process is going to go going forward. We mentioned Networks has hired advisors. The advisors are in touch with our lenders, and we're just gonna have to see how that plays out and keep you posted as we move forward.
Okay, great. And then, on the Exosphere advertising, it was a little lower than the building's first couple of quarters. I realize you had Super Bowl last quarter, but what are you seeing overall in terms of advertiser demand, and how has your approach to selling evolved? How can it improve?
Well, it can definitely improve. But we're just getting used to the marketplace. It's the first year of, you know, this product, and so we're learning more about it. I think our approach right now is going in the direction where we're putting together, you know, conventions, other things going on in the marketplace, right? Our pitches are much more branded. And we're still, you know, we're looking at the medium as being, you know, something that advertisers use to really introduce products, right? Further brands that are. And the pitches have changed in that way. Got it. Thank you.
Your next question comes from the line of Peter Henderson from Bank of America. Your line is open.
Yes, good morning. A question for Jim. So we've seen the market rumors around your content plans, and just sort of wondering if your plan or preferred model is to partner with other studios or to go it alone on content for the Sphere experience. And then can you just discuss the puts and takes for each of those?
Okay, I guess the answer to that is yes. Well, But the, you know, branded content certainly, you know, has its appeal, right? But the thing that probably is most important when we take a look at the content is that we use the medium well, that we continue to explore the medium. And if you can do that via branded content or via original content, the most important thing is, to me, is that it's experiential. That's what we want our customers to have when they come in the building. It's an experience. So if the branded content doesn't do that, then we're gonna shy away from it.
The business equation on a branded content is more expensive, and you have to make room for the IP owners in that. When you do your own, you know, you don't have that as much, and you reap more of the benefits. But of course, branded content also has, you know, a pre-instilled appeal to the marketplace. So you weigh one against the other.
Okay, great. And just a quick follow-up. Is there another path where you put out immersive concert content based on the residencies you have, just as a way to sort of extend those residencies and even provide additional
Yes.
Sort of reason for that?
We think there is, but it kinda goes back to my first answer, right? It's all about experience. So if you look at the concerts that we've had and the events that we've had in the, you know, in the Sphere so far, and you think of them as an experience, right? Then recording them actually in the Sphere itself is probably the most perfect place to make an experiential recording. So that suggests that there's a product there. Now, we haven't launched anything with that yet, and we're not prepared to announce anything today. But I expect you'll hear from us soon about that kind of content.
Great. Thank you.
Your next question comes from the line of Daniel Duran from Morgan Stanley. Your line is open.
Hi, good morning. Thank you for taking my question. Jim, I believe that on the last two earnings calls, you suggested we might hear soon about plans for an additional or multiple additional Spheres. Do you have any update for us today, or when do you think we might now expect to hear on the expansion of the Sphere portfolio to new markets? Thank you.
You know, the interesting thing about that question is, that topic is sort of, you know, I can't really say exactly when, right? Because then I'd be saying exactly when. Do I anticipate that we're gonna have something to say very soon? Yes, I do, right? And I think that's about all I can say, right? Other than you're gonna know when it happens.
Got it. Thank you. And just one follow-up. I believe Postcard was about a $85 million investment. Can you give us a sense of how much the other two in-process Sphere experiences comparing cost? Thank you.
Yeah, I think... Look, they probably won't be much more. They could be much less. We're still figuring out some of those dynamics. Postcards, we call Postcards the first pancake, right? You know what it's like to make the first pancake. The second pancake is always better, usually at least. And we won't spend, you know, we learned about a lot about where to spend our money on the first pancake. So, I would say that the next couple of efforts will be better, in terms of their appeal and how they use the medium, right?
In terms of what we spend to make them, you know, I think we're somewhat comfortable at the number that Postcard was made at. I don't think that we'll make it for much less because what we'll end up doing is, if we find we have more resources to put into it, then we'll make it even better. So, we're likely to stay in and around that range.
Got it. Thank you very much.
... Your next question comes from the line of David Karnofsky from JP Morgan. Your line is open.
Thank you. Maybe following up on the potential international locations. Jim, wanted to see if you could talk more about what role Sphere the company would play for these venues. I assume Sphere Studios would license content, but what other kind of corporate booking management functions do you think the central entity could or will provide?
Sure. It's actually this I tend to think about at least once a week. Because as we're going out to other marketplaces, right, and to other potential owners of Spheres, the question of, you know, we obviously bring the expertise of how to build a Sphere, right? But when you take a look at this last year, we're really gotten much better at operating a Sphere, right? And by the time we open up another Sphere, right, we'll really have gotten that operation down. And the...
But when I look at everything that's happened in the last year, I keep thinking to myself, well, the next guy is gonna really benefit from the fact that we, you know, that we learned this, and we learned that, and we changed this policy and this procedure, right? And we became efficient at this. I mean, one of the things that we talked about in the script, right, was what we call side by sides, right? That's where, you know, we have more than one event, right, in the Sphere on the same day. The next Sphere will automatically know how to do that because of what happened in the Sphere in Las Vegas. How to change...
How to set up, how to change out, how to move from one piece of content to another piece of content, right? And effectively bring in an audience for one, right, and then bring in an audience for another one and have them exit, and they do the experience, et cetera. The utilization of the building, that's, you know, that's a big piece of what the economic formula was for Sphere, was to build a building, right, that you could utilize 365 days a year and multiple times a day. So we've learned a lot this year. The next person to build one, to use us, will be us who builds it, obviously, will benefit from what we've learned in this year, particularly with things like side-by-sides.
Got it. And then, regarding some of the non-music events like the NHL or the upcoming UFC fight, interested to know what type of interest you're seeing for this type of show at the Sphere. And then can you maybe also speak to corporate demand, just following the Hewlett-Packard event you did? Thanks.
Okay, I'm gonna answer that in a slightly different way than you asked it. The, because the strategy, as I was just talking about, was that the Sphere is, you know, what are we programming on a day-to-day basis in the Sphere? Our anchor programming, right, is this, is our content. At the moment, Postcard from Earth. We can run Postcard from Earth 365 days a year, and run nothing else. We could do that. And that will generate X amount of revenue per day. So if you're sitting there and you're booking the venue, you would probably not book anything in there that made less than what you can do with your base content. Right? Now, your question is, is how many corporates do we have?
How many of you know residencies, et cetera. That's the formula, right? So corporates, we've actually had quite a bit of interest in corporates, right? But I will tell you that some of them have been a little shocked with the price tag, because they're actually competing with Postcard from Earth for utilization of the building. And so we basically say to them, "Sure, we'd love to rent you the building and have you do this, but we got to make at least as much money as Postcard," right? And that, you know, can be somewhat expensive for a corporate client.
Still, the ones with a lot of imagination and foresight, et cetera, are not daunted by those numbers because they see what they can do with the building. They see how they can display their, you know, their information. They think it's really cool to be in a Sphere. So that's sort of how it plays out.
Thank you.
Did that answer your question?
It does. Thanks, Jim.
Your next question comes from the line of Peter Supino from Wolfe Research. Your line is open.
Hi, good morning. I have a question on the Postcard from Earth and the Sphere traffic dynamics, and then another one on the MSG Networks refinancing. On the latter, if you could just help us with color on why the prior refinancing process didn't work and why you decided on this new workout strategy. Then on Postcard, wondering if you can share any data or analysis with us on what drives visitors to the Sphere. And what does that mean as you transition from Postcard and from year one to whatever comes next, and year two, when more people will have been there once? Thank you.
... Why don't you do the-
All right. Peter, Peter, I'll take the first part of that. Last time we spoke, we mentioned that we were in discussions with our entire bank group to amend and extend Networks' credit facilities. We had strong support from a number of our larger relationship banks to participate in the refinancing. However, we were just unable to get sufficient overall support from the full lender group to complete the full syndication. And that's what led us to where we are here right now in the workout.
And on the second part of that, that second that feels sort of like the chicken and egg question. Is it the egg or is it the inside of the egg? And look, I think that it's a bit of a combination of both. I mean, it's a very interesting building to see from the outside, and it dominates the landscape, right? And that clearly makes people really want it. But then they ask questions like, "Well, what's inside?" Right? "And what does it do?" Right. And then you take a look at things like the social media, right, and how this product only being a year old, right? You could go at almost anywhere in the world and say, "Sphere," and people know what it is, know where it is, right?
And many of them know what it does. And every time we do something like Dead & Company, it just, you know, blossoms out again, and a whole new group of people learn all about what the Sphere can do, right? So are they there for the building? Are they there for the content? I think it's a combination of both. You did mention that a lot of people have seen it, right? Well, a lot of people have seen it from the outside, but actually, not a lot of people have seen it from the inside. So there's still plenty of marketplace available there. And then, as we keep changing up the content, and then when we promote it, and we do more residencies and more events, et cetera, it just continues to add on to that.
I mean, I don't, I don't think you could peg it to be one thing versus, versus the other.
We look forward to more pancakes. Thank you.
There you go.
Operator, we'll take-
I'm surprised with that.
We'll take one last caller, operator.
Certainly. Your final question comes from the line of David Joyce from Seaport Research Partners. Your line is open.
Thank you. Jim, my first question's on the residency pipeline. I was wondering if you could help provide some more color into and visibility into 2025. After the Eagles, what other, you know, groups are you talking to? And can you announce, or what genres are they? And what's involved with the creative that they put on and, you know, the kind of the lead time that they need to work with you on that?
What was the last part of that? About the content?
How much lead time do you need on creative?
Oh, how much time do you need on creative on it?
Yeah.
Okay. Well, we're obviously not going to make any, you know, announcements today about who's coming. You did ask it in a way that I can. The about categories, right? So you can expect something in the country category coming in 2025, right? That will whet people's appetite. Hey, look, it takes, you know, anywhere from three to six months to get ready to do one of these, right? It depends on what you're trying to achieve. So, you know, we're about that, we're at least that far out. I think that you're gonna see. I think the Eagles are not going to be satisfied with a 20-show run, and neither will their fans at. But, you know, we haven't announced anything yet in terms of that.
The interesting thing about the Eagles show, though, if you might have noticed, is that they basically play on for two weeks, and then they go off for two weeks. So when we get to 2025, likely is that we will fill in the two weeks that they're not playing, right, with another high-profile premier-type act, probably with a woman again. And that's as much as I'm gonna say about that. There's still-
Great. I appreciate that.
There's not a demand from the artist, by the way.
Okay. Another question on sponsorship. If you could talk about how talks are progressing with other partners. I know you mentioned earlier Verizon is, you know, sponsoring, you know, the live streams. But I was wondering how that side of the business is evolving, and how does Crown Properties new JV play into that? Thank you.
Crown Properties really started actively working on this, what, six months ago, Dave?
Yeah, towards the end of calendar 2023.
Right. So, they're now starting to really get, you know, get into the swing of things. If you know anything about that business at all, it takes a while to build up, you know, pitches and client lists and all that. So we're starting to see some interesting new clients, right? You know, I don't know. We'll just see. We'll see how they do. I have a feeling that they're gonna do well, but I'm not out there selling. They are.
All right. Thank you.
That concludes our question and answer session. I will now turn the call back over to Mr. Ari Danes for some 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 today's conference call. Thank you for your participation. You may now disconnect.