Good morning. Thank you for being here, and welcome to the Madison Square Garden Entertainment Corp. Fiscal 2023 First Quarter Earnings Conference Call.

Thank you. Good morning, and welcome to MSG Entertainment's Fiscal 2023 First Quarter Earnings Conference Call. David Byrnes, our EVP and Chief Financial Officer will begin today's call with an update on the company's proposed spin-off transaction as well as a discussion on our Entertainment and Tao Group segments. This will be followed by an update from Andrea Greenberg, President and CEO of MSG Networks. Dave 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 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. And with that, I'll now turn the call over to Dave.

Thank you, Ari, and good morning, everyone. Since our last call, I'm pleased to share that we have made significant progress on the potential separation of our businesses into two publicly traded companies. As you know, in August, we announced that our Board of Directors authorized the exploration of a potential tax-free spinoff of our traditional live entertainment and media businesses. Last month, our company submitted an initial confidential Form 10 registration statement with the SEC regarding the proposed transaction. We are also continuing to make progress in evaluating a number of areas, including potential organizational structure and the division of corporate overhead between the two companies. Assuming we move forward with the spin-off, the live entertainment and media company would take on the name Madison Square Garden Entertainment Corp, while the remaining parent company consisting of our MSG Sphere and Tao Group businesses would be renamed MSG Sphere Corp. At this time, we have not set a timetable for completion of this potential transaction which would be subject to various conditions, including final board approval. We continue to be confident that this separation would create enhanced flexibility for both companies to pursue their own distinct business and capital allocation strategies while providing investors with greater visibility into each company's businesses and growth prospects. This includes the unique opportunity we have with MSG Sphere, where in Las Vegas, we remain on track to open MSG Sphere at the Venetian in the second half of calendar '23. Work continues on the exterior of the venue with the installation of the LED mega panels on the Exosphere, where crews have been progressing from the top of the venue down. And inside, we are continuing to build out the interior spaces, including the atrium and hospitality areas as we prepare for the installation of some of the venue's signature immersive technology features. This includes the interior display plane, which will be the highest resolution LED screen in the world at more than 160,000 square feet or bigger than three football fields. This display will wrap up over and behind the audience, creating a fully immersive visual environment at an unparalleled scale and a powerful canvas for artists and partners to showcase captivating content and storytelling in new ways. As we move forward through the final phases of construction, we have adjusted our project cost estimate to approximately $2.175 billion, from our prior estimate of $2 billion, which primarily reflects the ongoing impact of inflation and global supply chain pressures as well as the overall complexity of the project. We continue to expect to fund the remaining construction costs from cash on hand and cash flow from operations. This includes the impact of our plans to implement a cost reduction program across our businesses and reduce and/or defer certain discretionary capital projects. We also continue to have revolver capacity available to us if needed. While the project costs have increased, we are drawing closer to the completion of construction and remain as confident as ever in the revenue and AOI opportunity that we have in Las Vegas with MSG Sphere. We will continue to update you on our progress. Now I'd like to review operational highlights from our first quarter, starting with the Entertainment segment. Fiscal 2023 is expected to be the first full year of events at our venues since fiscal '19, and we got off to a fast start in our first quarter, hosting over 150 events and more than 1 million guests across our performance venues. This included a number of multi-night runs in the quarter highlighted by Harry Styles' 15-night sold-out residency, which helped contribute to a record number of first quarter concerts at the Garden. Robust demand from artists and promoters to play our venues has been matched by eagerness from fans who want to see their favorite shows in person. Ticket sales remained strong and the significant majority of concerts held at our venues in the first quarter were sold out. Looking ahead, our bookings calendar for fiscal '23 continues to fill up and we are tracking towards meeting our robust targets for the year. This includes a busy schedule for our sports bookings business. Last month, the Knicks and Rangers kicked off their '22, '23 seasons at the Garden, while the Hulu Theater welcomed the League of Legends World Championship, which spanned 12 events across three weekends. And this coming Saturday, the UFC is set to return to the Garden for what's projected to be one of the top grossing events in the Arena's history. Turning to productions. After the Christmas Spectacular was cut short last season due to operational challenges from the pandemic, we are excited for this time-honored holiday tradition to return on November 18 for its 89th year. Advanced ticket sales for the 181-show run have been performing well and are pacing ahead of last year on a per-show basis, helped by improving tourism which at this time last year was significantly impacted by the pandemic. This year's production will feature new immersive elements as we continue to explore unique ways to integrate technology to ensure the production remains a vibrant asset for our company. We also look for unique opportunities that showcase the Rockettes brand to a wider audience which this year includes the Hallmark Channel's all new movie, A Holiday Spectacular, set to premiere later this month. This film will feature the Rockettes and various performance numbers on stage at Radio City. We are pleased to be partnering with the Hallmark Channel to bring together these two iconic holiday brands. Turning to marketing partnerships. Our first quarter was highlighted by significant renewals with signature partners, Verizon and Spectrum. At the same time, we have expanded our partner roster into new categories, forming multiyear agreements with brands such as Hub International, a leading global insurance brokerage firm, as well as QVC, which is the new presenting partner for the Christmas Spectacular. Our premium hospitality business is also off to a strong start, helped by continued improvements in New York City office occupancy. Just a few months into fiscal '23, we have already exceeded our annual goal for suite renewals and are closing in on our target for sales of new licenses. The success we have had in renewing and adding corporate partners in recent months has placed us firmly on a path for sponsorship and suites revenue to exceed results for fiscal '19, our last full year before the pandemic. Turning to Tao Group, where our first quarter results reflected strong performance in New York and Las Vegas. This is especially impressive considering the challenging comparison with the year-ago quarter, which benefited from enthusiasm around the reopening of live entertainment in our markets. In addition, this quarter's results included the impact of a number of new venues such as Lavo restaurant in Los Angeles and San Diego, as well as the reopening of Tao Beach in Las Vegas after a multiyear renovation. Tao has also made progress on its pipeline of new projects remaining on track to open over 10 new branded locations this fiscal year. In fact, last week, Tao debuted two new branded locations with two more to follow within the next month at the new Moxy Hotel on New York City's Lower East Side. And as we look towards the end of this calendar year and into the next, Tao will also be expanding its presence in places such as the Middle East, Las Vegas, and Miami. The Las Vegas and New York markets are models where Tao Group has strategically executed its hub strategy, leveraging a centralized infrastructure to optimize and expand operations across the network of venues. Tao remains focused on its growth plans, including projects already underway with this strategy in mind. For example, Tao's upcoming restaurant in Miami, planned to open during the second half of the fiscal year, will be their second of, hopefully, several locations in this market, which we think is prime to be another hub in Tao's portfolio. We are also excited that today, Tao Group in partnership with Unicorp National Developments now plans to open the first-ever Tao-branded hotel. Tao has been a proven leader in the entertainment, dining, and nightlife space for more than 20 years, including operating more than 40 branded locations inside existing hotels across the world. This project, which is expected to open in calendar 2025, will complete Tao Group's 360-degree approach to full-service entertainment experiences and showcase its flagship brand in a whole new way. So in summary, we are pleased with our strong start to the year and look to continue building off this momentum. With that, I will now turn the call over to Andrea.

Thank you, Dave, and good morning. With the recent start of the NBA and NHL regular seasons, we are again poised to deliver unparalleled coverage of the New York Knicks, Rangers, and Islanders, New Jersey Devils, and Buffalo Sabres, with hundreds of live games across MSG Networks and MSG GO this season. I am proud that last month, our continued commitment to programming excellence was once again recognized with 10 New York Emmy Awards, which was top among New York area RSNs and brings MSG Networks' total to an impressive 299 Emmys in our history. As to our financial results, we continue to experience a decline in subscribers this quarter. And as a reminder, this was the last quarter for which year-over-year comparability was impacted by our nonrenewal with Comcast. That said, as the NBA and NHL seasons continue, we hope to build on successes we had last year, which included record advertising revenue for our teams and all-time high levels of viewership and engagement on our streaming app, MSG GO. We expect advertising results this year to be driven by a robust sports gaming category from all five of our sports betting partners, growth from other national brands, including Airbnb, Amazon, Disney+, Netflix, and Chipotle, and a strong core of returning advertisers. On the programming front, new and expanded initiatives this year include 12 Betcasts across Knicks and Rangers games, the addition of Live Pickleball and over 30 local high school football games. And we will continue to explore new ways to offer and monetize our content while working to reach new audiences. In that regard, we are progressing in the design and development of our direct-to-consumer offering and remain on track to launch in the second half of the current NBA and NHL seasons. So while the media landscape is certainly evolving, we continue to believe in the value of our premium content and our ability to innovate to drive value for partners, advertisers, and viewers alike. With that, I'd like to turn the call back over to Dave.

Thank you, Andrea. Let's now review our financial results for the fiscal first quarter. On a total company basis, we generated revenues of $401.2 million and adjusted operating income of $2.8 million. The Entertainment segment had $147.1 million in revenue, a significant improvement over last year's COVID-impacted quarter, primarily reflecting our busy schedule of events. Adjusted operating loss for the Entertainment segment was $44.4 million. This result reflects the strength of our bookings calendar, the seasonality of our business as the Knicks and Rangers' regular seasons didn't begin until October, and the impact of expenses related to MSG Sphere as we prepare for the opening of MSG Sphere at the Venetian. Turning to MSG Networks. The segment generated $122.5 million in revenue and $32.9 million in AOI. AOI decreased on a year-over-year basis in the quarter primarily reflecting lower affiliate revenue as well as higher rights fees expense, which reflects the absence of reductions in media rights fees related to the shortened 2020, 2021 NHL seasons recorded in the prior year quarter and the impact of contractual rate increases in the current year period. These were partially offset by a decrease in SG&A primarily due to lower advertising and marketing expenses. Finally, Tao Group generated revenues of $132.7 million and adjusted operating income of $14.6 million. The increase in revenues versus the prior year quarter includes the impact of new openings and venues that had been closed in the prior year period due to COVID-19 as well as higher comparable venue revenues. The decrease in AOI also reflects the impact of increased staffing at the venue and corporate level as the business returns to normal operations as well as higher food and beverage costs, including the impact of inflation, which the team has been working hard to mitigate. Turning to our balance sheet. As of September 30, we had approximately $441 million of cash on hand and our debt balance was approximately $1.76 billion. And lastly, with respect to MSG Sphere at the Venetian, our project to-date construction costs through September 30 were approximately $1.78 billion, which includes approximately $226 million of accrued costs that were not paid as of September 30 and are net of the $65 million received from the Venetian. With that, I will now turn the call back over to Ari.

Thanks, Dave. Operator, can we open up the call for questions, please.

With the CapEx budget up again, can you walk us through your liquidity position and how you'll be able to financially get this project completed? And then maybe as part of that, can you speak to the magnitude and buckets of the cost reductions that you had mentioned? And whether or not this is going to impact the spin timing since presumably the MSGN cash flow is helping to fund this program.

Sure, thanks, Brandon. We are confident that we have enough liquidity from our cash reserves and cash flow from operations to finish constructing the Sphere at the Venetian in Las Vegas. I want to highlight a few points. First, we are currently in the strongest seasonal period of our fiscal year, with the upcoming Christmas Spectacular, peak months for our bookings business, and the impact of the Knicks and Rangers seasons. We expect to generate significant cash flow from our core operations, which we will continue to use for MSG Sphere. Additionally, while our plans are still being finalized, we do intend to implement a substantial cost reduction program across our businesses and are considering reducing or postponing some discretionary capital projects. Beyond our cash reserves and cash generated from our operations, we also have available capacity under our revolvers if necessary. Furthermore, after the spin, Sphere will retain a one-third interest in SpinCo, which could be used in a tax-free exchange offer, as well as for raising capital for general corporate purposes if needed. To address the cost reduction efforts, we are currently in the middle of this process and cannot provide specific details at this moment. However, we are examining all of our businesses to ensure they are positioned for future success. Lastly, regarding the spin, we are actively working on it and making significant progress. We submitted our initial Form 10 at the end of last month and will continue to move the process forward. That is where we stand on the spin.

I wanted to delve a little deeper into the Sphere. The enthusiasm for it is obvious. I've been through it a few months ago and excited for it to open for two reasons. One, because it's exciting, and two, once it's open, the budget can stop going up. Can you just give us a little greater detail around how much of that is spent or contracted at this point versus how much of that budget may still remain in some variable state?

Sure, David. Regarding the construction project, we are addressing the effects of inflation and global supply chain challenges across multiple areas. As a reminder, we previously discussed that we have numerous work packages that were competitively bid to contractors several months ago, with actual costs being determined on a time and materials basis. This is how we are managing the project. As materials are delivered and work progresses, we are noticing certain costs increasing in various work streams. Additionally, this project is incredibly complex and unprecedented. As we advance, we have had to refine about one-third of our design plans or adjust our overall approach due to its complexity, which adds to the costs. In recent weeks, for some of the aforementioned reasons, we have encountered higher costs in areas such as the venue's interior spaces, the installation of immersive technologies, including the interior display plane, and the installation of the Exosphere. It’s important to note that we are constructing the largest LED screen in the world on the exterior, which measures 580,000 square feet, and the highest resolution LED screen, which is the size of three football fields, on the interior. So, in many of these unique construction areas, we are learning and adapting as we proceed. In response to your question about our status and future trajectory, after a comprehensive review of our project costs to date and our estimates for completion, we have revised our construction estimates to $2.175 billion. Currently, we have about eight to nine months left for primary construction. The end is in sight, and we will continue to manage every aspect of the construction with a strong focus.

That's helpful. And as my follow-up, if I may. With respect to Tao margins, I think those came in just a bit different from what we were looking for. Can you just talk about some of the puts and takes with Tao profitability and sort of what went on in the quarter and what we can expect, please?

Sure. Yes, margins for this quarter were down year-over-year, and this reflected the impact of increased staffing at the venue, coming out of COVID and the pandemic last year, they've continued to ramp up their venues. So the increased staffing at the venue and the corporate level as the business has started to return to normal operations as well as the continued impact of inflation on food and beverage costs. So our team is proactively managing the business to mitigate the impact of inflation in a number of ways, including menu engineering. Looking forward, our current expectation is that from a margin standpoint for Tao, our first quarter will be the toughest year-over-year comparison. And as the year progresses, we expect that margin headwind to ease. And I guess I'll just add, as we've mentioned before, we expect Tao's average long-term margins to settle in the mid-teens on a percentage basis with some potential fluctuation within the quarters.

I wanted to ask about the Tao Hotel in Orlando. Is this a licensing deal? Or are you taking a more active management role? And then what other opportunities do you see to extend the brand to kind of these adjacent hospitality areas?

We are excited by today's announcement, as we believe this represents a natural evolution for Tao's growth strategy. The Tao-branded hotel in Orlando will be a multifaceted property that includes a Tales and Bistro restaurant, rooftop pool experiences, and various other hospitality spaces. It will serve as the anchor for O-Town West, a $1 billion mixed-use community development spanning 350 acres in Orlando. Regarding the terms of the deal, it's important to note that Tao will not be responsible for any capital funding, including preopening expenses. Tao will operate its flagship restaurant under economic terms similar to our typical managed deals, receiving a share of venue revenue and profit. Additionally, Tao will manage the food and beverage services at the hotel for a share of revenue and profit, and will receive a licensing fee for the use of the Tao brand and related intellectual property. This hotel is expected to open in 2025. We are looking forward to the development over the next few years. To answer the second part of your question, while the Orlando hotel is currently our only planned hotel concept, we are in very early-stage discussions with other developers about possible Tao-branded hotels in additional markets.

Okay. And then just separately on the Sphere, wondering if at this point, you can maybe talk through how you see the sponsorship model for the venue. I would assume the LED display, there's no kind of shortage of inventory to sell? And maybe you could speak to kind of early demand trends and what interest looks like at this point?

Sure. The Sphere offers a significant number of sponsorship opportunities and has ample inventory due to its large physical size and the digital Exosphere. We are currently in discussions with potential corporate partners from various industries and are noticing strong interest in suites and sponsorships. It's particularly promising that many of these conversations are with our existing major sponsors at MSG entertainment venues, indicating that companies value event sponsorship at the Sphere. Like the Garden, the Sphere will present diverse sponsorship tiers, from lucrative founding partnerships to official partnerships and shorter transactional campaigns. The inventory is substantial, especially given the branding opportunities on the largest LED screen globally. There will be various options ranging from traditional suites to our amazing atrium and immersive gallery spaces. The Exosphere will feature 580,000 square feet of fully programmable LED panels, visible not just to millions visiting Las Vegas or attending our events but also establishing it as an iconic landmark that creates vast opportunities for social content beyond Las Vegas. It will serve as a powerful platform for brands, and we anticipate that major sponsorship deals will include inventory from the Exosphere. Although some aspects may be difficult to imagine without experiencing the Sphere firsthand, we expect strong demand for all sponsorship and inventory options. As with our other venues, we will creatively explore new and impactful inventory. We are optimistic about sponsorship opportunities, especially in Las Vegas, which is the top entertainment destination. We believe the Sphere will be the leading immersive experience in the city, and companies and brands will want to be associated with it.

Could you update us on how you're thinking about the long-term return on capital for Sphere based on the higher budget? It'd be great to hear your thoughts on opportunities across revenue streams given the higher CapEx and any color on costs that are flowing through now and long-term margin potential would be helpful.

Sure. Thanks. First, we remain confident in MSG Sphere in Vegas that it will generate substantial revenues and AOI and at attractive margins once we open. We're focused on three key categories for content that will drive high venue utilization. First, one being original transactions, which will run multiple times a day and take full advantage of the venues' technologies, performances such as concerts and residencies, marquee sporting events, corporate events, and expos. We already just talked about the opportunities that Sphere will provide for companies to showcase their brands, the Exosphere, premium hospitality spaces, and club spaces obviously, will create additional revenue opportunities for us. And we remain energized and enthused by the ongoing discussions we're having with potential partners, including leading filmmakers and global artists for the concert residencies and potential corporate partners. We remain on track to open the venue in the second half of calendar '23. And now that we're within that time frame, we do expect to start sharing more directly positive news on items like original content, sponsorships, and corporate partnerships like the one we announced with Formula One and announcing music residencies at MSG Sphere in the near term. With regard to specific financial guidance, that is something that the management team and I continue to think through and evaluate, but at this time, we don't have anything more to share for this call.

Great. My second question is related to the busy calendar of the bets that you're seeing. From here, is there still capacity to host more events at the Garden and your other venues? Or is the growth opportunity primarily going to be driven by pricing power and mix of events going forward?

Sure. You're right. We're looking forward to what really should be an outstanding bookings year throughout the course of fiscal '23. It's been great so far. As we think about growing our bookings business, we're focused on two areas: increasing utilization and growing per event profitability. So first, on utilization, as a reminder, the Garden is obviously home to the Knicks and the Rangers, Radio City Music Hall is our only other venue with an anchor tenant, which is a Christmas Spectacular, which occupies that space for only a couple of months of the year. So our performance venue generally have a large slate of available dates to work from. We are increasing utilization in several ways. This includes more recurring programming such as longer residencies and multi-night runs like you saw recently with Harry Styles. We're also exploring new events and additional event categories like shows, expos, theatrical opportunities, and so on. We're also creative in the ways that we look to maximize utilization, particularly at the Garden, including hosting multiple event types per day, while always, and of course, we're weighing which events make the most strategic and financial sense for the company. And then when it comes to event profitability, we're focused on continuing to maximize the guest experience at our venues from the way customers buy food, beverage, merchandise to how we market and process tickets, which helps drive increases in our already high sell-through levels. We strive to give our customers the best experience in the industry. And we believe this approach will help drive improvements and profitability and continue repeat visitors to our venues. Hopefully, that's helpful.

Operator, we have time for one last caller.

I wanted to ask maybe not Tao specific but Tao and the live events part of the business. It sounds like, at least from the Tao perspective, there are marginal headwinds in the near term. So I wanted to ask maybe more holistically for the business, how you see labor and food and beverage inflationary pressure at this point? Is it transitory in the near to medium term? Or do you see this now as more structural going forward? And then I have a quick follow-up on Sphere.

Sure, Paul. We talked to the Tao pieces, as you mentioned. With respect to the core live entertainment business, we did have some staffing issues coming out of the pandemic, but really like the rest of the industry, but those have largely subsided at this point in time. I wouldn't say we are seeing anything structural across our core entertainment business. Tao, we already talked to. So I don't have a whole lot to add to the Tao answer, and really nothing specific or alarming that we're seeing in our live entertainment space at all.

Great. And then looking at Sphere, any info you can give around how you plan to market the studio or the uniqueness of this format to potential promoters and tours, given how specific it is to your venue given the state-of-the-art design.

Sure. We've discussed that the Sphere will introduce a completely new form of entertainment. It will be the first large venue capable of providing immersive experiences for up to 20,000 people simultaneously with advanced multisensory technologies. This includes various attractions that we plan to run several times a day to maximize venue usage, along with concert residencies that will enhance our event offerings. To create this content, we are actively collaborating with creators and artists at our studio in Burbank to bring these immersive experiences to life at the Sphere. The studio has an ultra-high resolution LED and carrier screen, which is scaled down to a quarter of the full resolution of what is at the Sphere in Vegas, and it showcases the immersive sound features of the Sphere. We are excited about the possibilities, and these developments are currently underway. Tours are continuously moving through both the studio and the Sphere in Vegas, and we are working closely with artists and global performers to develop what we believe will be extraordinary content for the Sphere in Vegas.

And this ends our question-and-answer session. I will now turn the call back over to Ari Danes for some final closing remarks.

Thank you, and thank you all for joining us. We will speak 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.