Thank you for holding, and welcome everyone to the Sphere Entertainment Company fiscal 2024 first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press the star one. Thank you. I will now turn the call over to Ari Danes, Investor Relations. Mr. Danes, please go ahead.
Thank you. Good morning, and welcome to Sphere Entertainment's fiscal 2024 first quarter earnings conference call. Today's call will begin with our Executive Chairman and CEO, James Dolan, who will provide an update on Sphere. This will be followed by an update from Andrea Greenberg, President and CEO of MSG Networks. I will then conclude with a review of 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 investor section of our corporate website. Please take a 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 four and five 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 James.
Thank you, Ari, and good morning, everyone. Our company's next chapter officially got underway with the opening of Sphere in Las Vegas at the end of September. Many years in the making, Sphere's debut drew the world's attention, generating significant press and social media coverage. In fact, our estimated total reach in the days immediately after opening was approximately $7 billion per day. Guests, artists, advertisers, and potential sponsors are now able to experience firsthand this new product, and we are very happy with the response. Our journey with Sphere is just beginning, and while it will take some time for Sphere to realize its full potential, we're off to a great start. As you know, U2 opened the venue and are now in the midst of their multi-show run.
Every U2 show so far has been sold out, and in light of the demand, we recently announced that we are adding 11 more shows. This will take the band's run at Sphere into February with a total of 36 performances. The incredible response to U2's run at Sphere has only increased interest from the artist community to play the venue, and we're having conversations with artists across a wide variety of genres, including discussing runs of varying lengths. We expect to host two additional residencies in the second half of this fiscal year and look forward to sharing more detail. As you're aware, we have designed Sphere to be busy 365 days a year, with multiple events per day on many days.
A core component of that strategy is the Sphere Experience, which debuted on October 6 featuring Postcard from Earth from Academy Award-nominated director Darren Aronofsky. We've been very pleased with the reception to the Sphere Experience from our guests, as well as the critical acclaim Postcard from Earth has received for its captivating visuals and use of the venue's immersive technologies to engage the senses and enchant our audiences. This has translated into strong ticket sales to date. Through the end of October, we have grossed over $1 million in average daily ticket sales each day. As we learn more about our audiences and the venue, we're already planning ways to continue enhancing this signature content category. This is the first of what will be different iterations of the Sphere Experience.
That includes populating the atrium with additional technology exhibits and, in time, introducing new cinematic content as we keep Sphere at the forefront of innovative experiences. U2 and the Sphere Experience will both take a brief pause next week when we welcome Formula One and its inaugural Las Vegas Grand Prix to our grounds. We're excited to showcase Sphere to the millions of Formula One fans that will be watching around the world. As part of our agreement, F1 will have a multi-day takeover of Sphere, including the use of the Exosphere to display race-related content and compelling brand activations. As I'm sure you've seen, our momentum has been building with respect to advertising on the Exosphere. In early September, we welcomed our first official brand campaign with YouTube in support of NFL Sunday Ticket.
YouTube's two-week campaign creatively transformed the Exosphere into helmets of all 32 teams ahead of the start of the NFL season. This was quickly followed by campaigns from other prominent brands, including PlayStation, Meta, Xbox, and Coca-Cola, as well as artistic content from renowned artist, Refik Anadol... As anticipated advertising campaigns on the Exosphere are being shared widely on social media, this amplifies the platform's overall reach well beyond the millions of tourists and local residents in Las Vegas, significantly enhancing the value proposition for our partners. We have a healthy pipeline of advertising commitments for the Exosphere, and over the coming months, you will see a constant rotation of impactful campaigns from many prominent global brands. In fact, we are expecting a record-setting revenue week for the Exosphere around Super Bowl in Las Vegas this February.
We are also in active discussions with a number of blue-chip brands about potential marketing partnerships and look forward to sharing more on our progress. In summary, we are already seeing Sphere's ability to inspire awe and wonder, and the venue has become a landmark destination in Las Vegas. But we've only just begun to scratch the surface and are excited by how much further we can take this new entertainment medium in the future, including to new markets. So while you should not expect the venue to reach its full economic potential right away, our momentum is building with artists, promoters, sponsors, and guests from across the globe, and we remain confident in the long-term outlook for Sphere. Before I turn the call over to Andrea, we announced last Friday that Gautam Ranji resigned from his position as EVP, Chief Financial Officer, and Treasurer, effective November 3rd.
We thank him for all of his contributions during his time at the company and wish him well in his future endeavors. With that, I will now turn the call over to Andrea.
Thank you, James, and good morning. With the 2023-2024 NBA and NHL regular seasons underway, we are excited to be back with extensive coverage of our five professional sports teams: the New York Knicks, Rangers and Islanders, New Jersey Devils, and Buffalo Sabres. We are also pleased to announce that we've recently reached a multi-year rights renewal with the New Jersey Devils. This extension, which begins next season, enables MSG Network to continue to offer a full slate of Devils games, as well as compelling pre- and post-game coverage and other Devils-related programming across all of our platforms. This season, local fans now have the opportunity to watch our award-winning programming not only through their traditional linear TV package, but also through our new direct consumer and authenticated streaming service, MSG+, which launched in June.
This product allows us to reach the millions of homes in our region who do not currently receive our network through linear TV. In addition to authenticated subscribers of participating TV operators, fans have the option to subscribe to MSG+ directly by purchasing a monthly subscription for approximately $30 or an annual subscription for approximately $310. They also have the option to purchase single games for $9.99 each, a first-of-its-kind offering for any regional sports network. Leading up to the start of the season, we began marketing our offerings through targeted linear, social, and digital channels. While it's still early, we are pleased with the initial interest we have seen so far, including for our per-game offering, which offers a unique avenue for entry point transactions, wider reach, and upsell opportunities.
As we add subscribers and learn more about their streaming behavior, we will further enhance our marketing strategies to even more effectively grow and sustain our subscriber base. On the advertising front, we plan to build on last year's success, which included record advertising revenue for our teams during the regular season and growth across our non-ratings-based initiatives. We've started the season with a strong base of returning advertisers under multi-year commitments and have already made strides in new sales with the introduction of our D2C offerings, including MSG+'s new presenting partnership with League. So while the media landscape continues to evolve, we believe with our premium content and commitment to innovation, we are uniquely positioned to continue driving value for partners, advertisers, and viewers alike. With that, I will now turn the call back over to Ari.
Thank you, Andrea. As you're aware, Sphere Entertainment completed the spin-off of MSG Entertainment in April and completed the sale of its majority interest in Tao Group Hospitality in May. Our fiscal 2024 first quarter financials, therefore, represent the first quarter of results on a fully standalone basis. I'd also note that these results are not fully comparable on a year-over-year basis. While results for the prior year first quarter reflect MSG Entertainment and Tao Group Hospitality as discontinued operations, the prior year period does include certain corporate overhead costs that Sphere Entertainment did not incur after the date of the spin and does not expect to occur in future periods, but did not meet the criteria for inclusion in discontinued operations.
Turning to our results, on a total company basis, we generated revenues of $118 million and an adjusted operating loss of $57.9 million for the fiscal 2024 first quarter. The Sphere segment generated revenues of $7.8 million and an adjusted operating loss of $83.1 million. Revenues primarily reflected event-related revenues from concerts at the end of the quarter, as well as the launch of Exosphere advertising campaigns in early September.
... The adjusted operating loss of $83.1 million primarily reflected SG&A expenses, including corporate overhead, expenses related to Sphere Studios, and associated content and technology development, as well as costs related to operating the Las Vegas venue. With the venue now open, Sphere's impact on our financial results will really begin to show in our fiscal second quarter, including U2's multi-month run, the debut of the Sphere Experience, featuring Postcard from Earth, the impact of additional Exosphere advertising campaigns, and Formula One's multi-day takeover in November. Turning to MSG Networks, the segment generated $110.2 million in revenues and $25.2 million in AOI, which represent increases of 10% and 24% respectively, as compared to the prior year quarter.
The decrease in AOI primarily reflected lower affiliate revenue and higher rights fees expenses, partially offset by lower SG&A expenses. Turning to our balance sheet. As of September 30th, we had approximately $434 million of unrestricted cash and cash equivalents, and our debt balance was approximately $1.2 billion. During the quarter, we received $65 million of proceeds from the delayed draw term loan with MSG Entertainment, which we then repaid using approximately $1.9 million retained MSGE shares. We also received approximately $257 million in proceeds from the sale of our remaining approximately 8.2 million share position in MSGE. With that, operator, can we now open up the call for questions?
Certainly. At this time, if you'd like to ask a question, please press star one on your telephone keypad. Our first question comes from the line of Brandon Ross with LightShed Partners. Your line is open.
Thanks. Hey, James. With the Sphere, you're in completely uncharted territory now, and I'm sure things have been a little bit different than what you expected since the opening. Can you tell us what's exceeded your expectations and what's disappointed you or may need some fine-tuning?
Hi, how are you? You know, it's, well, mostly it's been good. The product, you know, came out and was very well-received. That's probably the most important thing that, you know, that you look at with it, at least from my point of view. The social media thing sort of really surprised us. That... I mean, we thought we would do well, but it really went globally. And so that aspect of the business is exceeded it. On the opposite side, I'd say it's mostly operational, right?
The things like ingress, egress, turnover time between the concert and the Sphere attraction, all are, you know, had its challenges in the opening, but seems to be getting better. We're really, the whole marketing model is we're still learning so much right now. You know, but, the, you know, as I said in my comments, what we're doing on an annual—on a daily basis for ticket sales is, is pretty good. Not as good as I'd like it to be, but it's still early, and there, there's a lot more refining to do when, you know, the, what the capacities are, when the shows are running, that those kinds of things. So I, I expect those numbers to improve.
But all in all, I'd have to say it was a pretty good success. That we're pretty happy with the opening.
Okay, great. You've been clear that Las Vegas is gonna be the first of many Spheres. Since you opened, has there been any movement in negotiations for additional locations, and maybe what regions of the world should we expect, the next set of venues?
Well, there is certainly a great deal of interest. Substantive discussions with several markets. None which I can discuss or reveal today, but I will say that it does look like Sphere will be a global brand. And so you should expect expansion globally rather than just in the U.S. market.
Great. And then if I could just sneak one more in. I have to ask, is there anything more you could share on why your CFO resigned?
You know, look, I think, you know, it's as you started off your question with, I mean, it's a new business. It's pretty challenging. You know, I think we both came to the conclusion that it probably wasn't a great fit. And thus, you know, we're met, you know, there's a change coming. But I don't, you know, there's no issues with the reporting or any of that stuff. That's all, you know, that's all in good shape. It's much more about, you know, just the fit. There's a lot. I will say the CFO's job at Sphere has a heavy operational component that probably we didn't foresee. The role probably did get him.
So we're moving on. You know, I don't expect much to change.
Thank you.
Ben Swinburne with Morgan Stanley, your line is open.
Hey, James. Good morning. Couple of questions-
Good morning.
Sticking with the uncharted territory theme from Brandon. As we track the business this year, in the early quarters, how should we think about the amount of revenue you need to generate a profit against the kinda cost base that we're seeing at Sphere? And do you think we'll see that revenue during the fiscal 2024 year, or do we need to think about maybe a longer duration?
Yeah, sure. That look, Ben, you know, the Sphere's already profitable. So, it kinda depends on how you calculate it.
I'm looking at the segment, I guess. Yeah.
You know, the question is, is it gonna be profitable enough to justify the capital expense that we put in? You know, and-
Yeah.
... And we do think it will be, but it's gotta develop the, you know, I, you know, watch the... If I'm watching the company, I'm looking at, you know, how is the Sphere Experience doing, right? Are sales continuing to hold up, right? The artists, you know, I mean, the U2 thing is just sort of off the charts, right?
Mm-hmm.
I think it's challenged a lot of artists, right, to match that, so you're liable to see, you know, more great residencies coming. You know, those are the components that will make the project successful. I will say that the way we designed this business was for the Sphere itself to support the expense structure underneath it. So that there doesn't have to be expansion in order to justify the expenses that go along with the business, particularly the production expenses, et cetera. So but, you know, it's fine-tuning an economic equation.
you know, we're bullish that we are gonna have more Spheres, and that, of course, will expand our revenue base, which we can justify the expense base on. And we'll probably get, you know, more aggressive, you know, as we roll out more Spheres, we'll get more aggressive with content, and, you know, keep trying to make the product bigger, greater, more appealing. I think there's a lot of room for that in this project.
That's helpful. So just to make sure I understand, your, your expectation is that the Sphere segment can be profitable with just the Las Vegas Sphere. It's not built needing more Spheres. Am I hearing you right?
That's correct. But, you know, I mean, look, if you, you know, if you spend like a drunken sailor on the content... You're gonna have, you know, it's gonna be a little, you know, it's gonna be a little difficult. You gotta, you gotta be a little disciplined and moderate, but you still wanna have great product. You still wanna explore the medium and, and push it, et cetera. So there's that balance. And, you know, we are - we're paying a lot of attention to it, and I, I think that balance will have a lot to do with how successful the company is.
Yep. Terrific. Thanks so much.
David Karnovsky with JP Morgan, your line is open.
Hey, thank you. Just a few on Sphere. You know, assuming there are more Sphere builds, maybe financed by your partners, how do you think construction costs might compare to the initial venue, you know, given how much impact the pandemic had? You know, can you lower that expense that the capital return profile for partners potentially looks different?
Yes. I mean, you know, the team always talks about what they call the first pancake effect. Right? So the first pancake, you know, was a little difficult. But, so we're moving on to our second pancake, and we do expect it to cost less. We also think we can make improvements in the product, too.
Okay. And then, just following up on the original content, I'm interested, how long do you envision a show like Postcard running? And at what point do you start to think about replacing that show? And I don't know if you could ballpark kind of a figure for what production expense should look like for some of your originals. Thank you.
So, right now, you know, we're thinking that the current show will run about a year. That the... But look, I wanna point out that just if we put in a new show, which we will do, it doesn't obsolete the old show. The, especially as you talk about new spheres, right, et cetera, the you know, those marketplace obviously haven't seen the you know, Postcards, et cetera. So I mean, it will still be very viable there. And the way the Las Vegas market is, I expect that we'll do versions of Postcards for years to come, but probably in less and less number of exhibitions on an annual basis as we feather in the new content.
So what was the other part of your question? Or was there another part?
If you could ballpark the production expense and, you know, whether that would be incremental-
Oh, so yeah.
Yeah.
So the production, like the one with Darren, again, that's another sort of first pancake kind of thing, that I expect that we'll be able to do more exploration of the medium, but also I think we will definitely be able to reduce costs, and what it takes to produce, you know, produce these shows.
Thank you.
David Joyce with Seaport Research Partners, your line is open.
Thank you. A few questions for you please, James. First, what are your early learnings on the Postcard from Earth in terms of what are the variables that you might fine-tune in terms of number of events, pricing, the seating capacity? I'll have some follow-ups.
Well, I think we started off, David, pretty conservative, right? With all those factors, you know, number of shows, capacity, et cetera. We're starting to explore expanding the, look, you know, the thing about the Sphere Experience is that, you know, the margin on it is really, really high. 'Cause you've already invested, obviously, in the building, you've already invested in the content, the creation of the content, and the actual cost of running the experience is very, very low. So, you know, so we're trying to obviously maximize out the number of customers that come in, what they want. I think we priced low to start off with, right?
So, I think there's probably some pricing flexibility in that. But the marketing is also, you know, we're really still learning about that. The Las Vegas market is, I mean, it wasn't a perfect market for us to open in, right? Because it has an ever-regenerating marketplace of customers, right? The up to, like, 50 million people come through that market every year. And so, you know, our ability to reach those people, right, and sell them a ticket and interest them in our product, that we're still refining. So I think there's upside both in all those parameters: marketing, number of shows, price per show, price per ticket, et cetera.
Those are the things that we're, you know, we're studying heavily now, and I expect to see improvement.
Okay, great. And the second question is on naming rights. That's already referred to as the Sphere at the Venetian, but there are other naming opportunities surrounding the asset?
There are. You know, I think the, I think we're gonna be pretty careful about that. That the, look, the, the, the Sphere has already, you know, has a sort of global profile, right? That the, And so, you know, we don't want to, we don't want to, lose any of that. So the, the, so, naming rights, you know, would have to be something that's consistent with that kind of, of strategy. So it, it's, it's not, not, not purely financial in terms of its consideration.
Understood. And finally, curious about the Exosphere advertising opportunity and the logistics, basically. Like, how many ads could you run or how long are the ad campaigns typically going to be? Or also, I'd be interested in understanding what's the production time and the expense involved in producing an ad?
So, in the production time, I don't think it's really that much different for advertisers than other mediums, right? That the, I mean, you can do it really fast if you, if you need to, right? That the, but, you know, most advertisers, the clients are, you know, take their time, they're thoughtful about it. I will say that, you know, it's a different medium. You know, it's spherical, right? The, the, it's three-dimensional. And so your, your content has to conform to that. You can't take, you know, a flat-screen advertising, you know, content and just place, place it on the Sphere. It doesn't look good, and it, and, you know, the, it, it won't bring you the value that you're, that, you know, that you're spending on. That the, you know...
I mean, when an advertiser comes on the Sphere, and they do a great piece of content on it, right, it goes viral right away. And you know, the advertiser gets all this real extra benefit and a lot of exposure, right? So, but you have to do content that does that. So, you know, some advertisers are spending a lot of time and money on making sure that they're, you know, that they have something that will be, you know, will really resonate with, you know, the marketplace. The others are a little quicker. They need to get their message out.
But all of them seem to be, you know, wanting to get that, you know, that global sort of push with it. And so they're, you know, they're paying attention to their creative. We've seen some really great creative from some of our advertisers, sort of blowing us away. And it's interesting because, I mean, they—I don't want to talk too much about it, but some of it they've done through our Sphere Studios, some of it they did on their own, right? And, you know, the results so far are pretty good.
... And do you have any requirements for minimum ad campaign length or, yeah, requirements on how many ads per day or per hour are aired?
Well, this isn't exactly an answer to your question, but we do have a kind of a standing rule with our sales force that 50% of the inventory is dedicated to art and community. And the other 50% is dedicated to sponsorship. So that, you know, so if you're visiting Las Vegas or you're looking at it on your social media, right, there's always something interesting on it. You know, again, keep trying to, you know, reach the global community. And, you know, so far that's been pretty successful. But I think we're gonna stick to that 50/50 formula, right?
Because I think in the long run, that will, you know, make the product a lot more valuable.
Appreciate it. Congratulations.
Thank you. Thanks, David. Operator, we'll take one more caller.
Our final question comes from the line of Paul Golding with Macquarie Capital. Your line is open.
Thanks so much. Maybe a different angle of attack here. On networks, a few questions. I guess, could you give any color on the uptake of subs for the OTT product across the three pricing tranches? And then I have a couple follow-ups.
Hi, Paul. Well, while MSG+ initially launched back in June, we've really only began our targeted marketing efforts at the beginning of the season, so it's still relatively early for meaningful numbers. But I can say we're very pleased with the initial response, including for the early demand we're seeing for our per-game offerings. We've, as I mentioned, seen robust advertiser interest. We have a new presenting partnership with the League. They're a new advertiser to our brand. So, all in all, we continue to expect MSG+ to be value accretive to our business.
Thanks, Andrea. And then, in the prepared remarks, you noted the Devils' rights renewal. We've seen pressure in the RSN space to the downside. We've seen pressure in the national rights space to the upside. Any call you could give on how this deal shook out for you on rights fees?
Sure. You know, we've had a long and productive relationship with the Devils. I can say we're pleased with the renewal terms. Those terms begin next season. We can't get into specifics, but certainly in having these discussions, both we and the Devils are mindful of the changing pay TV environment.
Great. And if I could sneak one last one in here on networks, just conscious of the networks debt, the October 2024 maturity. Any progress there on refinancing or anything that we should keep in mind as that date approaches?
Hi, Paul, it's Ari. So with respect to the refinancing of the networks term loan, it remains early in the process. As you noted, the loan matures in October of 2024. We are in constant contact with our lenders. There are a number of potential options with respect to the ultimate refi, and we'll know more in the coming months.
Great. Thank you.
This ends the Q&A session. I will now turn the call back over to Ari Danes for closing comments.
Thank you all for joining us. We look forward to speaking with you on our next earnings call. Have a good day.
Goodbye.
This concludes the Sphere Entertainment Company fiscal 2024 first quarter earnings conference call. We thank you for your participation. You may now disconnect.