Good morning. Thank you for standing by and welcome to the Sphere Entertainment Company Earnings Call for the period ended December 31, 2024. At this time, all participants are in a 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 earnings conference call. Today's call will begin with our Executive Chairman and CEO, Jim Dolan, who will provide an update on Sphere. Robert Langer, 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 on 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 Jim.

Thank you, Ari, and good morning, everyone. As we begin our calendar 2025, we're focused on a number of core priorities to drive profitable growth. These include developing new productions as we look to build our original content library, showcasing a diverse set of concert residencies and other corporate and marquee events, optimizing the go-to-market strategy for the Exosphere and sponsorships, and driving operational and cost efficiencies across our business. As you know, another component of our strategy is market expansion. In Abu Dhabi, our plans are moving forward. Our team is now working closely with our partner, DCT Abu Dhabi, in areas that include venue design and preconstruction planning. We are also in discussions with other markets as we pursue our vision for a global network of spheres. In Las Vegas, the Sphere experience saw improvements in sell-through and stronger sequential results in December. This reflects our ongoing efforts to refine both our schedule and pricing to maximize revenue and enhance the guest experience. The Sphere experience has now generated over $450 million in high-margin revenue. We continue to make progress on our next experience and look forward to sharing more ahead of its debut this year. We also continue to see interest from a diverse set of artists who want to play the Sphere. Our first country artist, Kenny Chesney, will begin a 15-show run in May, and the Backstreet Boys will start an 18-show residency this summer. In terms of core partners, we saw solid advertising demand for the Exosphere at the end of 2024, which has continued into the new year. Operationally, we have brought our sponsor-driven advertising sales efforts back in-house. And as we build our team, we will also be evaluating our go-to-market strategy for the Exosphere and for our sponsorship assets. I'd now like to introduce Robert Langer, our new EVP, Chief Financial Officer and Treasurer; Robert was previously with Disney, where he served in a range of financial leadership roles for over 25 years. His finance and strategy experience in Media and Entertainment is an asset to our business, and we're pleased to have him on board. With that, I'll turn the call over to Robert.

Thank you, Jim, and good morning, everyone. I'm pleased to join you all here today in my new role at Sphere Entertainment. For the December quarter, we generated total company revenues of $308.3 million and adjusted operating income of $32.9 million. Our Sphere segment generated revenues of $169 million and an adjusted operating loss of $800,000. These results were primarily driven by our original content category with Sphere experience, which generated $87 million in revenue across 190 shows in the December quarter. Our results already reflected performances from the Eagles as well as five Anima shows at the end of the quarter. In addition, December quarter results included Formula One's takeover for the Las Vegas Grand Prix and additional multi-day corporate takeovers, ongoing advertising campaigns on Exosphere, and revenues related to our plans to bring the world's second Sphere to Abu Dhabi. SG&A expenses for the December quarter were $119 million. This includes the impact of $12.4 million of executive management transition costs and nonrecurring costs related to MSG Networks. Excluding the $4.6 million cash component of executive management transition costs, the Sphere segment would have generated adjusted operating income of $3.8 million. With respect to the March quarter, I would like to remind you that the Sphere segment benefited from the Super Bowl in Las Vegas last year, which included a record-setting advertising week for the Exosphere. However, and as discussed earlier, we continue to see solid underlying demand for the Exosphere so far this calendar year. Turning to MSG Networks. The segment generated $139.3 million in revenues and $33.7 million in AOI in the December quarter. This compares to the $146.4 million in revenue and $37.3 million in AOI in the prior year period. The decreases in revenue and AOI mainly reflect lower distribution revenue driven by an approximately 11.5% decrease in subscribers, inclusive of the impact of MSG Plus. As you know, on January 1, Altice USA dropped MSG Networks from its lineup. However, on February 22, MSG Networks reached a new multiyear agreement with Altice that returned its programming to the over one million subscribers impacted. In connection with the preparation of our 10-KT filing and in light of the ongoing industry challenges facing MSG Networks, we reassessed the fair market value of the MSG Networks business and recently took a $61.2 million noncash goodwill impairment charge, which you can see in today's operating income results. Turning to the balance sheet. As of December 31, we had approximately $502 million of unrestricted cash and cash equivalents, including approximately $104 million at MSG Networks. Our debt balance was approximately $1.36 billion at quarter end. This reflected $259 million in convertible debt and a $275 million credit related to Sphere in Las Vegas. It also reflected approximately $829 million outstanding on the MSG Networks term loan, which, as a reminder, is recourse-only to MSG Networks. In February, MSG Networks made a principal repayment of $25 million using cash at MSG Networks, bringing total principal outstanding on the term loan to approximately $804 million. Since October, we have been in our forbearance period, which currently runs through March '26. Before I conclude, I would like to remind you that we have shifted to a new fiscal year ending December 31. This morning, we filed a transition report for the six-month period, which ended December 31, 2024. The next full 12 months fiscal year will run from January 1, 2025, through December 31, 2025. And with that, we'll now open the call for questions.

Thank you. We will now begin the question-and-answer session. Your first question comes from David Karnovsky from JPMorgan. Your line is open.

Thank you for the question. Jim, for the Sphere experience, is there any incremental detail you can give around the planned third show, how you plan to launch or market that? And then related to this, just as that new content rolls on, what's your vision in terms of adjusting the overall show count or maybe the availability of post cards in U2? Thank you.

Thanks, David. Well, I don't want to let the cat out of the bag. I'm going to have to dance around the first part of your question. The new experience, which we will not name, will take advantage of the different features that we built inside the Sphere, more so than anything we've done in the past. So, the immersive nature of it but the experiential nature of it will be significantly more and significantly enhanced from the post card experience that we put together. Let's see, what else can I tell you about it? It will be iconic. We expect to have announcements about it next month, or later this month. As far as the U2 goes, that's an interesting product because it is essentially attending the concert without having a band there. The BUT was the first of those. But we have been recording other bands. The sort of interesting part about this is it's not expensive at all. In fact, to record a full performance of the band costs roughly less than $0.5 million. And then there are editing costs, etc. So, the cost of that product is quite low. I expect that we'll continue to build up the library with that, and you'll be seeing those kinds of experiences for years to come in the Sphere. Let's see, what was the rest of your question? Or did that cover it?

It was about how the overall kind of show count might change or how we might see maybe the postcard show count change once the new show starts? Thank you.

Well, likely you'll see a significantly reduced show count for post cards, but it won't go away. I expect that move on post cards in Abu Dhabi as well as VU2. It is evergreen products and there's no reason for it to disappear. Having said that, the way that we designed the Sphere business is for our competition to occur between concerts, attractions, corporates, etc. The winner is the one who brings us the most amount of AOI. So that's how the decisions will be made.

Your next question comes from the line of Brandon Ross from LightShed Partners. Your line is open.

Thanks for taking the questions, good morning. Jim, on networks, you did get the Altice deal done, but the landscape remains very challenged. In your view, what's the best way to go about fixing your RSN business and setting it up for long-term success? Do license fees need to come down? What's the right capital structure? Or does the industry just need a totally different local rights model?

Good question. I don't think we know the answer to that. And I don't think it's a question that's unique to MSG Networks. I think it's a question that really goes to all of the content providers right across the landscape. And we're still seeing it. Obviously, there's a reduction in cable subscribers and the launch of the streaming product. But in the end, it comes down to monetization of product and what's the best way to monetize it. Clearly, the traditional methods that did a great job of monetizing are no longer as viable as they used to be. So, we do have to find a way forward, but I don't think that that's clear yet.

Okay. And then in the prepared remarks, you mentioned your aim to drive cost efficiencies. Could you elaborate on that? You've been running the business for what, 18 months now and presumably have a better handle on what the cost structure at the Sphere segment needs to be? Are there opportunities to take cost out at this point?

Yes. Well, it has just about been 18 months to the day that. And remember that it's a brand-new business. No one's ever operated a business like this before. So yes, I think there's opportunities to take costs out. You should expect a lot of that this year with an improved bottom line. I think we will become more efficient with content. We're more efficient with how we operate the business, how we schedule the shows really across the board. This upcoming year will obviously be our best year yet, but it will reflect a significant change in our efficiency and our results to the bottom line. That's what we're expecting.

Great, thank you very much.

Your next question comes from the line of Peter Anderson from Bank of America. Your line is open.

Good morning and thank you for taking the question. Two, just on the expansion opportunities, if I may. First, can you provide us with an update regarding the planned Abu Dhabi Sphere, including estimated construction costs when the venue is expected to open etc.? The second one is, I think you mentioned discussions with other markets in your prepared remarks. Just curious if you can provide an update on expansion efforts and whether or not you're considering expanding or currently in discussions to expand domestically? Thanks.

Right, I think I'll have a bigger answer as part of that one.

Maybe I'll take the second part. With respect to Abu Dhabi, we're working very closely with DCT Abu Dhabi, our partner, on venue design and preconstruction planning. We expect to share more details, including site location, as you mentioned, estimated opening timing once DCT has finalized plans, so we're not prepared to do that yet and we need to do that in conjunction with them. In terms of construction costs, we continue to work with DCT to finalize those plans. Look, we've learned a lot during the construction of the Sphere in Las Vegas, and we'll apply those learnings to Abu Dhabi. Most importantly, our partner in Abu Dhabi is fully funding the construction project. As far as expansion goes beyond Abu Dhabi, we're currently working on the architecture for a smaller sphere, which we think will be deployable to more markets somewhere in the 5,000-seat range. We're looking to take advantage of the content we've created already and the business we've built already and bring it out to other markets. I anticipate that by year-end, we'll have more to say about that. Right now, we're in the planning and design phase.

Your next question comes from the line of Peter Supino from Wolfe Research. Your line is open.

Good morning, everybody. A question about the residency business. In the first half of 2025 the Sphere is set to host 55 shows. I think there were 37 in the first half of last year. Wondering what you've learned that might allow you to host more residency shows this year? And then I'll have another one, if you would.

Sure. I mean we have a desire to do those concepts. The artist has a desire to play the sphere. It's driven by a bunch of different factors. Probably most importantly is the experience that the fans have, particularly having to do with the sound, which is really the best sound in the world. Bands value that, which drives most bands to want to come and play the Sphere. We know that the content costs are high for a band, but they're offset by the fact that it's a residency. A touring band has to go to 50 cities, pay for all the transportation, lighting, and everything. Move from place to place. You compare that cost against the cost of content, and I actually think content is less expensive. The bottom line for the band is they do better. So, that's part of what drives the band.

On the same subject, I wonder if longer term, if the main gating factor to residency and constant growth event volumes at even higher levels is the produced content. Is that right? And if so, is there an opportunity to make progress on making it easier to create the content?

Yes and no. I've already addressed the content question, so I don't see that as a significant hurdle. The real challenge to hosting more concerts, though I hesitate to call it a barrier, is the ongoing competition. New shows, including corporate events, are vying for time slots during the weekdays inside the Sphere. If anything is likely to limit concerts, it would be that.

Your next question comes from the line of Ben Swinburne from Morgan Stanley. Your line is open.

Thanks. Good morning, Jim. I wanted to continue discussing the topic of revenue mix and optimizing monetization at the Sphere. As we consider the long-term revenue growth drivers for the business, how do you view the impact of the ramped-up residencies alongside ongoing investments in experiences? Specifically, what do you anticipate will be the major contributors to the company's top line for the Sphere in 2024? Additionally, do you think the situation regarding residencies in Las Vegas will differ for Abu Dhabi and the wider Sphere network as time progresses? Thank you.

Wow. Okay. Let's try to parse that question apart. Between Abu Dhabi and Las Vegas, I do not think that Abu Dhabi will be a carbon copy of Las Vegas when it comes to things like residencies, etc., although I definitely believe there will be residencies in Abu Dhabi. I think that the content has to be customized to the marketplace. The marketplace in Abu Dhabi is going to be different than the marketplace in Las Vegas. So I think that there will be some differences. I think bottom line, it's going to be just as robust of a product in Abu Dhabi as it is in Vegas but probably with a different mix of content. What was the rest of your question?

Basically, just trying to understand how you see Vegas' revenue growth over time? You did over $600 million in calendar '24.

So short term, meaning like this year, right, the biggest opportunities are in the operating efficiencies and how well we exploit the marketplace. The nuts and bolts of operating the business, I think that short term is going to provide a boost. Longer term, it's an interesting competition, right? If I had to pick one, I would probably say that the expansion of more spheres is probably the one I think will deliver the most. Essentially, it's a bit of a franchise model. What we make to play in Las Vegas will play everywhere else. And so therefore, you get to spread the capital cost out across the base. As far as the overall business equation goes, I think that's probably the best opportunity. There are plenty of other opportunities that are there and probably some we don't know yet, but that would be my number one.

That's very helpful. If I could ask a follow-up, maybe to Robert, on the sort of liquidity-free cash flow front. Obviously, we'll see how networks play out here in the next couple of months, but that's still a cash-generating asset for the company today. Can you just talk about how we should think about your liquidity position and kind of funding Sphere particularly if we sort of remove networks from the equation as we look at the next year or two? Thanks for your help.

Sure, Ben. As I mentioned earlier in the prepared remarks, we're actually quite comfortable with our liquidity position. We ended the year with slightly above $500 million in cash balance, $104 million was at MSG Network. So, we have $400 million in unrestricted cash and equivalents at the Sphere segment. As Jim pointed out, we're optimistic regarding both the revenue side for our calendar year this year, driven by new offerings at the Sphere segment, but also the residences in the Exosphere, which we see on a good track, as well as cost initiatives we are putting in place on both the operational side and on the overhead side. We believe that we have the potential to drive our adjusted operating income in a meaningful way this year. This will put us in a great position to invest both short and long term in content and technology. So, overall, we think we're in a very sound position here.

Thank you.

Operator, we have time for one last caller.

Your final question comes from the line of Dave Joyce from Seaport Research Partners. Your line is open.

Thank you. A couple related to sponsorship. Jim, you alluded to earlier that you brought the sponsorship sales efforts back in-house. But how does that change the go-to-market strategy for the sponsorship and for the Exosphere, if you could drill down on that a bit more? And then also related to that, what are the largest untapped opportunities for sponsorship, including various types of naming rights? Thanks.

So I'm going to turn that over to my Chief Operating Officer, Jen, who's in charge of making it all work.

Thank you, David. So, as Jim mentioned earlier, we've brought ourselves back in-house, and we're building out that team. In combination with a year of learnings under our belt, we think we're positioned well for long-term success. We really continue to see a significant amount of solid interest from brands to advertise on the Exosphere. With all those learnings, we're going to take a fresh look at our go-to-market strategy. We will be looking at adjusting pricing and packaging. We're going to focus on establishing and expanding relationships with CMOs and media agencies directly. We're also looking at more targeted efforts that are aligned with the convention market in Vegas. It's premature to say, but we are definitely more confident in the upside from here. Let me get to your second question.

Just what the largest untapped opportunities are, including various types of naming rights.

We've announced a number of deals already, Verizon, Ticketmaster, Experience Abu Dhabi. There's a lot of opportunity. In terms of ongoing discussions, the Exosphere is always going to be a big draw when we have those conversations, as well as other premium inventory opportunities like entitlements and integration when we consider various spaces within that beautiful venue. The Sphere is a premium global brand. So, we're going to continue to be protective of that brand and thoughtful in terms of who we partner with from a sponsorship standpoint. Naming rights and the potential there still remains, but I think there's going to be a pretty high bar if we move forward.

I don't really think, to be honest, that you're going to ever see a name in front of The Sphere. You may see a name after the Sphere. Right now, you see a name after the Sphere. But I don't think that you'll ever see a name in front of it, just like there's no name in front of Madison Square Garden. The value of the brand equity is too high to sacrifice that for a naming opportunity.

Makes sense. Thank you very much.

And that concludes our question-and-answer session. I will now turn the call back to Ari Danes for 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.