Sphere Entertainment (SPHR) 9 May 222022 Q3 Earnings call transcript

Good morning. Thank you for standing by and welcome to the Madison Square Garden Entertainment Corp. Fiscal 2022 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. now Senior turn Vice would to call I Danes, Ari President, Instructions] like the to over [Operator Investor Relations. ahead. go Please

review Thank Financial segments. of Officer the to This welcome begin today's quarter will David morning Entertainment a CEO of fiscal will our an Good open discussion with Byrnes update questions. Chief third call. financial earnings remarks, conclude and from of and MSG MSG by and President then prepared EVP company's Networks. call XXXX conference followed you. the Entertainment's be with and up for Tao Group Greenberg, a our results our for period. will David Andrea the After call will we

income Commission, The of is Please On consolidated of the now AOI discussed results corporate Securities and that available Securities a of Act financial our Exchange do obligation contain well I'll be note discussion within take section the may earnings of in Condition factors meaning And and David. the cautioned of you operating If have it adjusted a Investors website. reconciliation five measure. not the non-GAAP forward-looking statements described that statements copy of pages Management's Financial of may operations disclaims are the Private following. of and as constitute XXXX. Today's statements over Investors in a Reform release, of release, today's operating Litigation earnings any that and factors. to as that, and community guarantees to and and the the six uncertainties. and we of condition, from update income the statements statements as forward-looking in Risk Analysis and during future with filings this which of and industry result business, of turn risks its contained or involve today's call the performance with financial or And company's operates, results financial therein. those to that forward-looking are results, may operations, of any Discussion call. differ statements forward-looking sections events and provide These materially Factors company operations any developments, include a various actual the it not perceptions in such the company entitled including the

Ari you, to begin am morning to and you by like momentum Group good segments. Thank discussing we Tao positive the and across everyone. generating pleased I would are Entertainment join and Hospitality our today

entertainment to Group's again pre-pandemic is demand roaring has of results our fans the and The come business in core or last outlook areas. sour Our to from continue which once its above year key also This for since important levels in back thriving plays this many desire experiences benefiting expect offerings, strength artists is we pent-up shared unique and delivering live business for to gather. to are business live Tao restrictions from portfolio at that its With seen capacity their from lifted markets. bright. were

and dining last will on of new global experiences. company's for the premium for our immersive an next moving MSG At acquisition is expansion year Hakkasan we forward. as cemented time, place leader one chapter, to hospitality Tao's which a medium addition, entirely its in we progress meaningful continue that believe Sphere, make In well-positioned same deliver

of activations process. open programmable our Earth. surrounds their and to largest for panels, create be LED feet LED XXX-foot-tall brands, Our later partners Las key our approximately venue this showcase construction square We will in Steel second on remains in the and XXXX. the buildings screen first display an plan in ultimately to venue covered MSG XXX,XXX to month, calendar milestone with steel will structure This unique fully top It half spherical be impactful promote Vegas forming content. of Sphere the Exosphere a off on track

opening for As the make interest creation we're by been of we've This original with residencies venue, seeing the about our with attractions the of and from with energized promoters platform's the artists of includes venue, the at partners, the way in filmmakers discussions towards global corporate see events marquee potential capabilities leading value we with potential partners. out. concert immersive substantial inside who and

into Sphere's exciting high-profile In MSG both fact, starting for prime Formula inaugural for sports Prix. and we recently next major FX's partnership reinforces multiyear circuit opportunity Vegas market's with along the destination year's for position the position company and FX. X, a events presents as and with entry formed MSG Sphere Las Grand Vegas Las the an entertainment our

activations sports opportunities We of partnership of showcase hospitality audience potential grounds the broadcast global fans world. able There both event fans will watching thousands FX and And of as for integrated include takeovers venue to will venue display also LED and exterior entertainment and for beyond Sphere and to in-person Tao the a significant content are this Group. around race our of the as be advertising. race-related access the our to MSG to well give

shareholders. be forward We prominent just on pleased our believe start We the to us. partnership long-term global confident growth to starting drive that with such the Entertainment sharing for and value are corporate operational I'd third are we quarter, for that progress through months our type this go that of from ahead to our the this our highlights event is overall creation now remain look company segment. With in MSG a part of and Sphere will and positioning more like

essentially for These the demonstrating postponement which million in welcomed of guests attendance Still, during on pre-Omicron for the of January. to originally our been events in attending it returned to the Omicron XX sporting been dip cancellation resilient the with caused impact events were We had in the the the as percentage levels caps venues and pleased not Rangers attendance home Knicks variant, also even have beverage pre-pandemic a our a hosted buyers quarter. variant the York and the ticket level short-lived venues double-digit filled of our again resulted results percentage levels merchandise in by again or about and also this had New demand food inside events games. we would scheduled including exceeded live strong guests of aggregate, with stronger quarter was by past nearly February, nearly by XXX and our per spending In events events Our entertainment. and marquee concerts, venues quarter variety and strong the of wide were X.X quarter. this past live

to Knicks our the overall to skew event third quarter bookings with at we with Rangers weeks. now seasons count theaters ahead, greater Garden. in pleased given And weekend. exceed also for their I'm into a Calling fiscal fourth results for sales Festival Looking performing final regular that expect looking Music head anticipated positive our have completed maintain the Boston a this We're forward we Day have in been well, few Memorial our to the our albeit ticket the and to the return towards momentum share quarter, stretch of as

benefiting reconnect we've in marketing look with consumer to seeing activity with from as to demand, pleased addition partnerships, companies also we're been In strong consumers. the

gaming year, market were ground York Betting running hit earlier With partners to role and New capture this meaningful play share. the thrilled the of Sportsbook, launch in BetMGM we and Mobile our important in an Sports Caesars first helping

brands we and During forward agreement, DraftKings significant leverages representation this into in assets entire step of our past Sports. quarter, multi-year a a through that took assets across the agreement entering another and our by deal with the portfolio MSG

for premium office which more a returned believe We business on where also exceeding and offerings, a premium the us Increased a say, suites into have go-forward about complete levels be towards partnerships demand with I'm sponsorship in opportunity as plays strengths. firmly now renewed comeback, will is meaningful basis. and makes would we entertaining place, And to revenue corporate to proud to levels. spoken our before has employees sports betting more drive pre-pandemic hospitality, these that three pre-pandemic corporate the there be has extended our best-in-class how return our to in also

such Moving also Tao from live York. Group, in return New particularly benefited now Las and key of as to which markets has experiences, Vegas

with Tao operations lifted key last and quarter. of fiscal Similar up from to guest quarter, restrictions of a in Lavo benefit Hakkasan average acquisition track check last sizes we continuing the over since the demand summer, the Tao a in stage launching third Tao's started key months, the in grand new temporary business, celebrating had markets a on robust in business. for pick were March, start to pre-pandemic pipeline reopening strategic Angeles total revenue openings sets next strong the above growth completely year, and February spending, levels. since posted a highest expansion, robust a Tao and Omicron Although, which Tao the entertainment continues at believe has to And capacity meaningfully again fourth of for our be renovated of the business monthly in Tao Las impact Los we Vegas. its which continues its Beach XX engine to venue recently expect to also

Vegas I over proud and now look prepare With Andrea. we the open Tao we will road excited our and shown Las we for resiliency are our as back call ahead, the in segments, to to MSG of So we're has the particularly quarter Group business year. that, as Entertainment on about turn the Sphere next

Thank you, morning. David, and good

environment results which saw per our game With Comcast, post-season now post-game the the both in reflect successfully quarter While playoff exceptionally ago the increases with revenue an revenue live our pleased each advertising we of reflect NBA we growth are how delivered puts regular-season we airing and non-renewal and while dynamic the extensive to one year by a in NHL once in year, affiliate strong round revenue year teams. The strong every to Network our teams. we've last our path rounds. impact playoff and results, again advertising schedule for percentage with a compared on NHL game on performance, five NHL for third delivering adapted, been with all start Rangers NBA regard and advertising of And in pre- record full week, to past first to MSG quarter, we advertising financial games, has coverage operating a sell-through the rates fiscal this period in for driven as us Rangers continue double-digit this quarter. are telecast

significant continue Go with with advertising content we non-ratings outdoor as addition, MSG digital branded based to our and sales. In success initiative year-over-year increases boards in have well as

In of for and represented percentage third from these revenue fact, fiscal total doubled meaningful advertising our revenue quarter. a initiatives year-over-year

regular into content While demand ways produced spot related driver in the through both casts each our sports betting past we've five We important a And has rotating throughout providing quarter of been odds game. coverage and and an by NBA programming. guests NHL innovative remains mobile tennis, this winding were bet expanded and DraftKings sports, insights, broad-based curated as across golf, including incorporated which traditional boxing. categories down, MMA the betting sponsored and buys betting betting our other baseball, into and with experts seasons shows cast strategies, soccer, updated each

categories, versus continue clients growth advertisers. technology, from last wide to increased us in joined Carvana, fast or either them including new among and as also all New retail their see We Balance Gamble, spend Dunkin' other Amazon, Indeed, Procter & and a year range food. of

and interesting centered programming around game length and stories. and gaming pioneers athletes complement other content with and shows to to original Empowerment pieces local sports tune professional and Black the Women's iconic daily of addition front, coverage celebrating expand quarter heroes, each built Month this our unique important highlights in related History live live past with On our month

value our ahead drive in in call that, on over final the partners we and and This As remain fiscal develop back direct-to-consumer for look affiliates, creativity. a the good to to ongoing uniqueness to our this programming we our content products new includes With of turn regard teams, I'll efforts including confident which year make David. of quarter the to beyond, our and advertisers, now offering progress. with we to viewers, to continue

Thank you, Andrea.

financial review performance. now quarter third our Let's

the quarter. total quarter, million segment $XXX.X our Sports revenue, as operating of busy as we the This impacted in generated in second at COVID opening For Entertainment we Entertainment the MSG of prepare was the improvement offset entertainment million of reflects The last $XX.X The severance half million, revenues related a $XXX.X period. and for adjusted result as segment operating of by had for significant in related calendar Sphere well content income arena over reflecting impact development current performance the to well strong license impact with costs and agreements loss our our schedule $XX.X across business, year MSG suites sponsorships. the performance Sphere during as technology, strong the the expenses of and of the as Venetian MSG primarily quarter, Adjusted XXXX, year's events of of million. and core

Sphere Entertainment quarter. Excluding have delivered segment costs, would and positive severance for the the related AOI

Networks. million MSG The million million in AOI. generated decrease of and $XX.X year-over-year revenue, to Turning a $XXX.X in segment $XX.X

As with by rights partially growth expenses has normalized telecast season levels revenues. schedules fees and reflects increased offset affiliate programming Andrea reflects lower to including revenue, advertising NBA direct regular of impact discussed, the costs decrease NHL in this revenues returned the and also in The in Networks operating of decrease AOI as MSG year. full strong production

income $X.X and adjusted million Group million. Tao Finally, $XXX.X revenues generated operating of of

of the part the see new variant and while quarter has working food Tao's also the impact. reflected some both hard was while As inflation, Omicron related to recent early I costs venues. to planned AOI to the and impacted beverage team pre-opening by mitigate mentioned third continue And before, costs been

balance to our sheet. Turning

were through our to XXst were the of MSG cash As $X costs on that was and $XXX billion, paying hand and our project billion. which March costs not we of Sands. respect billion from of of $XX Las as March approximately debt XXst, Sphere, had million $X.X received net Vegas to-date approximately XXst, With million balance is approximately $X.X accrued of includes construction March

approximately estimate $X.XXX reminder, our is for Sphere cost disclosed a previously billion. MSG As

in With continuing aggressively to XXXX. as planned manage second the are of we Ari. towards calendar back turn to the will venue the over opening work costs the I of half We that, now call

we up David. call for open you can Thank the Operator, questions?

you. Thank

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

Your open. line is

to to with little content. you questions. talk seeing Thanks And And wanted about ask the I third-party and noted it's know deeper doing spoken we expect investors as do for artists what the a of, little who bit Good dig the days, see for content those on you're interest production, that productions in residencies inside morning. should some I daytime your but FX? brands you've from you can of about there may taking the that early consumers Sphere. for sort or and Sphere like you're a

Sure Brandon. It's Dave.

people new be MSG immersive technologies. the that will large-scale Sphere an up entertainment will XX,XXX venue going media. to multi-sensory first for at before say it's It us introduce deliver entirely experiences once heard You've the use and to to

than For example it XXX,XXX every it football audio beam-forming world's the sound to will more have a and in than with high-resolution deliver display clear plane, fields, house. which speakers system crystal seat is three larger largest the will

our for of to the experience. will attractions, which it partners, to utilization the in this really Sphere studio artists, Las the having sitting events. does of our immersive base the in content quality content MSG produce develop, times global are and and year-round close optimize MSG think and day for be out at as without sound the house original the content complete to artists venue engineering that the no headset teams which XD preview will of Vegas as for as Studios. And unique So this and content, as and pause An to Burbank leading benefit without are to headset, include creative that is to higher and keep will will a it residencies, where well filmmakers you're which technologies, specifically the other potential with our having well we'll developed recurring in to we'll experiences and create We're matter discussions as create completing as currently concert these drive we're to studio partners being this And of us run running multiple venue help attractions fully Las be be Vegas. added high will enable build test able Sphere. attractions the And is designed that important production the utilization Sphere. able including

in and we're events with like really future deal. partner events attractions, to we more other corporate the So, concert residencies, news One across and share you by energized exciting the possibilities additional have the to marquee expect Formula fully original

towards the go as forward. we we As share venue's next advance more we opening year will

press the base Sphere cost How the you Can is And else. timeline then, think venue? the construction quarter. the to going expenses? the replaced right. for costs, in and get out structure going costs something how we All And come us you Sphere in by costs us of release, called to going about give opening the ramp maybe do cost just understand of the those on to we off Our additional be a operating forward? help as nature

Sure.

Entertainment loss performance business, relate content and also has are profitable results, Sphere at we're including for First core entertainment for headcount off, reflects include live expenses the AOI that quarter, results looking out the these related also primarily development, segment our the traditional as in initiatives. responsible to to the These building for strong Sphere. results the the folks and expenses --

mentioned that As as earlier, costs in well severance the segment us would the quarter. expenses excluding earlier Sphere Entertainment positive this as have I had quarter, hit some related AOI

As some both to expect ready staffed content the do venue make headcount increase, venue kind opening, and Las get to I'm we for closer and to appropriately to we getting Vegas of development go. continued is sure the feedback and

gear of And the we management, the leverage beverage also will security, that a of food half generate open overhead So as in would and that the staff that margins we attractive revenue venue. of of and we're and would lot all be second this the we once and inclusive We'll open of up AOI infrastructure this like said, now. the we substantial XXXX. venue with And include expect place. carrying areas at levels merchandise venue we in that expertise to to have and biggest currently fully

focused we're on The is just of So successful at MSG execution Sphere our the while Las Vegas XXX% starting point. Venetian,

As the model to world. And capital-light extend footprint we've talked venue this include pursuing anticipate MSG example. about opportunities a to around Sphere's before, other for markets venue could we managed

opportunity So design upfront of leverage like us making will things investment network see look broader to construction as does our efficiently further for will and we're expansion we of allow and get compelling it a you the forward updating and to And a we long-term And as value we global – this what is content, substantial to expertise the venues. create our across technology we Sphere, progress. shareholders. in this into

Thank Great. you very much.

Brandon. Thanks,

Our next question comes from from David Karnovsky JPMorgan. line the of

line Your is open.

pricing some addressable market then has just wanted the be viable see given on could with RSN you. framework in business, early to Sports about I around further as upfront is costs? put their if see distributors there And Thanks. views any for the any around DTC to that price $XX market? you for Do or whether model this? Thank Bally continue Andrea, update you you of you point networks. And potential provide NYC talks kind

going our product Hi, continue to the on not we evaluating spoken last specs. tell good on technical David, comment potential we've that product, our progress well, pricing in the I you to I'm Sinclair make since is type, but what can call,

the plan mentioned, from We you focused mindful distributors and very derive focused we're as and traditional very – that any looking developing And the last and mentioned in our on partnerships have we of we're considerations that relationships. have linear But we're our with business. those we other of ours on we're value very, grateful I at. and mindful major yes, looking forward quarter as

any for make have our that the say plan, take progress to we'll specifics any into So ours that offering continues through that on we don't and good as ahead. to months look to in DTC of other our to we work continue you to I consideration. than have we ensure more more continue plans

the Tao would at current broadly or forward you Are And be seeing bookings demand the would the more just to businesses. for inflation? caps softening Entertainment or consumer indicate corporate Okay. signs And kind due or or that anything either then level. economy across in per of question level David Thanks. that for of

I At we're Dave. the I'd is is would answer this overall. not in point – take time this say, no. spending seeing slowdown I'll any in it. And

earlier, anticipated We events. fourth looks our to quarter. As the exceed we third event with quarter up venues the count, fiscal strong with results about spoke mentioned continue fill how to for overall our

right fill will now We have schedule terms events. our of usual. we're And in looking robust seeing also earlier XXXX XXXX, a than up out booking into

numerous market margin be share demand for versus The the XXXX I'd had nights and significant sellouts in Radio two businesses. The arena track on consumer York say wide at pre-pandemic Taylor leader the Amanda New So venues. spending concerts was growth We've to recently City many our front, across Garden Fornite broader the others. run. a seen Serrano We and We also the our had had of Katie on Garden at Fish with market by in We've fight, the are and set Rodrigo calendar great. strong there. Olivia

Overall, Our strong. at are on both Tao. and cap said percentages venues average sales up the check F&B have our as we've per sizes Merch well as remained at recent as double-digit spending

on suites. the record we've is a go-forward we've sponsorships and So even towards as basis levels on returned headed -- to And pre-pandemic talked and Networks year. about advertising for side corporate a MSG

are positive overall So slowdown at point. any not this we seeing and

you. Thank

the Thanks, David. will question. next we Operator, take

Macquarie next question the from Golding comes The Paul from Capital. line of

Your open. line is

any be revenue? what Thanks consumer that sort wondering mix Just there understand, prior the to were was you current corollary so part of as underpinning is of, to on much. us a understand forward as the Great. Thanks the contracted corporate revenue develop? the backstop I much. should could weakness if going business so historical if the question, help of to the or or

-- question -- get significant revenue. your contractual the I we answer question have is Paul. to we that Sure,

team are and as partners adding as timing up renewals. total come you've suites, of suite multiyear staggered about heard revenue, affiliate And our of revenue So and when in part renewing the they of sponsorships new us well they're signage and a for as of percentages talk job which terms all of great marketing has agreements partners. significant done our are holders

also We long-term MSG remaining over with arena those agreements years deals. have on Sports license with XX

are has anything is backdrop the quarters spending that last ultimately with us few to experiences the shown spend So willing people that And find they is valuable. on us. if

Thanks.

Paul. Thanks, last take Operator, will we one caller.

We have a Katz from question Jefferies. David from

Your line open. is

morning, Good taking questions. Thanks Hi. everyone. just for to back networks on my wanted business. I the circle

the about us clarity And know, earlier more there's expectation For an bit one understanding just respect sort would and to you a With of of development underpinning that around experiential and if the question what just much helpful. about for perspective a longer-term leisure or little could et long-term anyway, was those of so be business? cetera. Sphere, the vision leisure but is assets assets that the I talk networks, the

are of in local Well, remain believed and power an we always we sports. firm Sure. clearly professional We've and popularity sports. in invested understand that live believers changing. live professional organization, things the But in as

We have, We asset. what of these unique a we gains year. hundreds broadcast each believe is

to We number unique we And television us, long-term to this product. premium have rights operate one market. the exclusive

to continue categories. seen content this across demand to advertising we year, exceptional apropo we've discussing, our expect we've that, as been and So that for broad

believe of us evolves. which model is a We long also innovation, we going the well have – as serve have to history we

programming. to continue mobile other success year. been broadcast productions as a and that our create monetize new including interactive is heard casts this and branded revenue in Just over the more doing introduced demographics. with alternative experimented sports programming, with partners. new We've produce and we've We've advertising in content, And betting We've continue gaming products sports new Go. you've contributor advertising new of to unique we've content. to MSG new big last to to geared bet are couple And more will our with and opportunities specific our on created years, capitalized

at activate customers, So back, create step that and to new and of direct-to-consumer and about touched talked make on our we new on, ways said rights which with valuable you continue good products our we've our and us on to you work opportunity continue our we to And we we're partners looking we've the a that, innovative provide that which to really ways. now product, when believe is to one progress. as continue in

end So unique we rights at have. that to that to the of on suited we're think continue day, we these very capitalize well the very

follow I up just And if does cost With of chain revolve Understood. just and the a as and one detail Sphere, as the in availability. our around to question. respect supply flow, with labor cost, well could discussion lot availability

budget getting and relates stands as to it the that about development talk and completed Sphere could comfort time level As on your it there on as please? today, just you well

Dave. It's David. Thanks, Sure.

really First have along building made is off, we Sphere. The great we're what's nicely made -- we progress. coming and excited about ahead MSG for

we're the has -- aspect had And larger been where pre-pandemic -- purchased including MSG The aggressively essentially construction began, and continue items for every the of evaluating we construction lines continuing team working continually time the can. project. of our already times, really to alternatives securing focused main with the closely of is supply which on project chain a complex Sphere includes very lead manage complete. lot we and previously, Other managing is we've areas, such the said since majority main all a steel as As structural and it. with structure suppliers, developing our progress-wise, concrete we the of

a will done happening as there later I've this of Exosphere on the macro and we're that continue Steel my That not course, As month. level things be remarks, planning to building. we're the surrounds what out also some top in electronics And say great prepared certain to through, to is be I'll through mentioned we're immune doing venue is construction to manage can for second working half about and in on all detail. opening the we're the team the 'XX. continue we regarding every of single project we in But that the example. our progress calendar excited make to

you very much. Thank Perfect.

You’re welcome.

turn remarks. any for back Now, over to Ari call Danes closing the I

year-end our forward in us. you you a call Thank Have look for joining good all to day. We on speaking with August.

Good bye.

call. concludes for today's conference This you participating. Thank

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