Thank you for holding, and welcome everyone to the Sphere Entertainment Company Fiscal 2024 First Quarter Earnings Conference Call. 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, Jim 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 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 4 and 5 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.

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 extend 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. We are having conversations with artists across a wide variety of genres, including discussions about runs of varying lengths. We expect to host 2 additional residency fees 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 of 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 the signature content category. This is the first of what will be different iterations of the Sphere experience. This includes populating the atrium with additional technology exhibits and at times 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 1 and its inaugural Las Vegas Grand Prix to our grounds. We're excited to showcase Sphere to the millions of Formula 1 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 display to create 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 U2 in support of NFL Sunday Ticket. U2's 2-week campaign creatively transformed the Exosphere and the 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, enhancing 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. However, we've only just begun to scratch the surface and are excited about how much further we can take this new entertainment media in the future, including to new markets. Thus, 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 3. We thank him for all of his contributions during his time at the company and wish him well in his future endeavors. And with that, I’ll turn the call over to Andrea.

Thank you, Jim, and Good morning. With the 2023-24 NBA and NHL regular season underway, we are excited to be back with extensive coverage of our 5 professional sports teams: the New York Knicks, Rangers, and Islanders, New Jersey Devils, and Buffalo Sabres. We are also pleased to announce that we recently reached a multi-year rights renewal with the New Jersey Devils. This extension, which begins next season, enables MSG Networks 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-to-consumer and authenticated streaming service MSG+, which launched in June. This product allows us to reach the millions of homes in our region that 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 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 Aleve. So, while the media landscape continues to evolve, we believe that 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 results on a fully stand-alone 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 1'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 decreases 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 30, 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.

Our first question comes from the line of Brandon Ross with LightShed Partners.

Jim, 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 disappointed you or may need some fine-tuning?

Well, mostly it's been good. The product came out and was very well received. And that's probably the most important thing that you look at with it, at least from my point of view. The social media aspect really surprised us. We thought we would do well, but it really went global. So that aspect of the business has exceeded expectations. On the opposite side, I'd say it's mostly operational challenges, like ingress, egress, and turnover time between the concert and the Sphere attraction. All had challenges during the opening but seem to be getting better. We're learning so much right now about the whole marketing model. As I said in my comments, our daily ticket sales are pretty good, not as good as I'd like them to be, but it's still early, and there's a lot more we are finding to do in terms of capacities and schedules. I expect those numbers to improve, and all in all, I have to say it was a pretty good success. We are very happy with the opening.

Okay. Great. And you've been clear that Las Vegas is going to 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?

There is certainly a great deal of interest and substantive discussions with several markets. None of which I can discuss here today, but I will say that it does look like Sphere will be a global brand. So we should expect expansion globally rather than just in the U.S. market.

Right. 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?

Yes. Look, as you started your question, it’s a new business and it's pretty challenging. I think we both came to the conclusion that it probably wasn't a great fit. That's why there's a change. But there are no issues with reporting or any other operational aspects. It’s more about the fit. The CFO's job at Sphere has a heavy operational component that we probably didn’t foresee, so we're moving on. I don't expect much to change.

Ben Swinburne with Morgan Stanley.

Couple of questions, 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 kind of 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?

Sure. Look, Ben, the Sphere is already profitable, it kind of depends on how you calculate. The question is whether it will be profitable enough to justify the capital expense that we put in. We do think it will be, but we need to develop the business and watch how the Sphere Experience does. Our ticket sales continue to hold up, and the U2 aspect is really off the charts. I think this will challenge a lot of artists to match that. So you're likely to see more great residencies coming. These are the components that will make the project successful. I will say, we designed this business for the Sphere itself to support the expense structure underneath, so that there doesn't have to be expansion in order to justify the expenses associated with the business, particularly the production expenses, etc.

That's helpful. So just to make sure I understand, 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 I mean, if you spend excessively on content, it's going to be difficult. You've got to be a little disciplined but still want to have great product. We want to explore and innovate as much as we can. There’s a lot of room for growth in this project.

David Karnovsky with JPMorgan.

Just a few on Sphere. Assuming there are more Sphere builds financed by your partners, how do you think construction costs might compare to the initial venue given how much impact the pandemic had? Can you lower that expense so the capital return profile for partners looks different?

Yes. The team always talks about what they call the first pancake effect. The first pancake is a little difficult. 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 can ballpark a figure for what production expenses should look like for some of your originals.

Right now, we're thinking that the current show will run about a year. However, I want to point out that if we introduce a new show, it doesn't necessarily obsolete the old show, especially as we discuss new Spheres which obviously haven’t seen Postcards. I expect there will always be new versions of Postcards for years to come but probably less and less exhibitions on an annual basis as we introduce new content. Regarding production expense, I expect we will be able to reduce costs for future productions.

David Joyce with Seaport Research Partners.

A few questions for you, please, Jim. First, what are your early learnings on Postcard from Earth in terms of the variables you might fine-tune regarding number of events, pricing, and seating capacity?

We started off pretty conservatively, but we're starting to explore expanding the number of shows and capacities. The margin on the Sphere Experience is very high because we've already invested in the building and in content creation. Running the experience is very low cost. We're trying to maximize customer attendance. We probably priced low initially, giving us flexibility for pricing adjustments. Our marketing is something we are refining significantly since the Las Vegas market is ideal for us. With about 50 million annual tourists, our potential audience is huge.

Okay. Great. And the second question is on naming rights. The venue is already referred to as the Sphere at The Venetian, but are there other naming opportunities surrounding the asset?

We will be careful with that. The Sphere already has a global reputation, and we don't want to jeopardize that. Naming rights have to align with our strategy and not purely be financial.

Understood. And finally, curious about the Exosphere advertising opportunity and the logistics. How many ads could you run? How long are the ad campaigns typically? What is the production time and expense involved in producing an ad?

The production time isn’t much different for advertisers than in other media. You can produce ads quickly if needed, but most advertisers take their time. It’s a different medium; it’s spherical, it’s 3-dimensional. Your content must be tailored for that. If done well, it can go viral quickly, providing great exposure. Some advertisers have spent significant resources on creating impactful content that resonates with the marketplace. We're really impressed with what our advertisers are creating.

Do you have any requirements for minimum ad campaign lengths or requirements on how many ads per day or per hour?

We maintain a standing rule with our sales force that 50% of our inventory is dedicated to art and community, while the other 50% is focused on sponsorship. This ensures that visitors, whether in Las Vegas or seeing it on social media, always find something interesting to engage with. Thus far, this has been successful, and we plan to stick to our 50-50 formula as it adds long-term value to our product.

Thanks, Dave. Operator, we'll take one more caller.

Our final question comes from the line of Paul Golding with Macquarie Capital.

Maybe a different angle of attack here. On Networks, a few questions. I guess, could you give any color on the uptake of subscriptions for the OTT product across the 3 pricing tiers? And then I have a couple of follow-ups.

Well, while MSG+ initially launched back in June, we've really only begun our targeted marketing efforts at the beginning of the season. So it’s still early for meaningful numbers. But I can say we're very pleased with the initial response, especially in the early demand we're seeing for our per-game offering. We have robust advertiser interest, and we're excited about our new partnership as well. We continue to expect MSG+ to be accretive to our business.

In the prepared remarks, you noted the Devils' rights renewal. We've seen pressure in the RSN space to the downside and pressure in the national rights space for the upside. Any color you could give on how this deal shook out for you on rights fees?

Sure. We've had a long and active relationship with the Devils. I can say we’re pleased with the renewal terms, which begin next season. While I can't provide specific details, both we and the Devils are mindful of the changing pay-TV environment during these discussions.

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?

With respect to the refinancing of the Networks’ term loan, it remains early in the process. As you noted, the loan matures in October. We are in constant contact with our lenders. There are a number of potential options for the ultimate refinancing, and we'll know more in the coming months.

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.