Sphere Entertainment (SPHR) 9 Feb 232023 Q2 Earnings call transcript

Good morning. Thank you for standing by and welcome to the Madison Square Garden Entertainment Corp. Fiscal 2023 Second 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. Instructions] [Operator

like President call and Investor go now Danes, to Treasury. turn ahead. Vice Senior Relations, to would over the Ari Please I Financial Communications

second to Good well EVP our as Group spin-off, update President Financial today's segments. Entertainment's update and discussion CEO This on period. be you. begin Chief results conference welcome a will with Thank and fiscal Dave of morning, Dave an Greenberg, and XXXX entertainment for followed as with call of Networks. from quarter Officer MSG TAO Byrnes, the earnings call. Andrea proposed conclude MSG an a and our of by the then our will will review company's financial

the call for After prepared our questions. up remarks, we open will

If today's have available our you it is section of the corporate website. a release, copy in earnings Investors of not do

of of statements uncertainties performance the take and and Securities that Litigation the statements. statements materially Please of involve to from actual forward-looking or note could Act differ within Any Today's discussion in forward-looking of those results the risks future Private not contain guarantees the XXXX. may such meaning results following. cause Reform are forward-looking

SEC to to company for Please with during uncertainties. call. statements discussed this any discussion filings the that and refer forward-looking disclaims of risks company's update a obligation the The any may be

reconciliation income X earnings operating non-GAAP we of release, a measure. a and and provide or today's X of statements pages adjusted of financial operating AOI, On operations to income consolidated

Dave. turn call to I that, now And the will with over

proposed on an made begin good today's you, have like with spin-off. I'd our we progress and to Ari, Thank toward the update morning, everyone. call

our our the are announced plan Sphere, for businesses pursuing from MSG spin-off business and traditional live December a in a businesses. MSG we Group separation know our you of and Networks TAO As entertainment now revised of

to optimal with for One Arena Christmas Madison drive Garden value strategic of and structure revised as live a the flexibility Spectacular assets each that pure-play company companies maximizing portfolio financial enhanced creates includes would entertainment two be a the production. We distinct believe shareholder long-term and this is with it Square growth.

The experiences. generation around Sphere, will MSG growth entertainment next of deliver that pursue would the other state-of-the-art global opportunities venues

Last month, with statement month. structure revised the Form expect submitted for this our available an later amended to confidentially we XX Form spin SEC file first publicly and XX the

that entertainment our to investor of the on plan will new also which We company, presentation projections live issue business. illustrate profitability core an include certain entertainment the financial

end March We conditions and of are moving swiftly the various subject including final to anticipate Board by the approval. spin-off completing

to open make are MSG Sphere We September. also continuing and significant in venue to progress around the expect

Exosphere on of social. be not the end are the In of total, currently of significant the the LED project fully by LED shared XXX,XXX will and on Las a feet LED square iconic on only track milestone. be construction, photographed terms lighting, become In Exosphere programmable world's global this finish installing we seen marking the month by to creating largest screen, Vegas, landmark, an that visiting also but to millions

unparalleled have impactful and testing showcase the started be already will this Vegas content. Las and believe screens for to original and an canvas We these brands artists illuminated when skyline, on

immersive foot around resolution the the venue, of and interior begun be creating will highest environment, the XXX,XXX which in over audience screen world. the up installation the visual will Inside have square LED fully display we wrap and LED plane, a

areas elevate entirely the also continuing venues that We and spaces interior an hospitality to the suites new are level. hospitality of will build-out the including,

we the an a it that expect the must-visit anything, at Sphere, in Attending for become unlike destination Vegas. visits event MSG anywhere will audience and global be Las will world

and attractions, corporate to include, for immersive marquee sporting events from Sphere plans residencies, original events. a range MSG of content wide to Our music

All take venue's advantage full the of technologies. will which, state-of-the-art of

We four residencies are annually. targeting six at for Sphere MSG number headliners iconic and between active are discussions in and with of artists a

also reason Venetian to our become utilized We our we plan a Sphere times key why portfolio. a showcase highly the will at MSG the believe most original multiple venue day year-round, immersive in attractions,

you've we've incredibly we coming details MSG we're prominent heard and energized interest specifically to seeing by As to the us from in before, discuss share the filmmakers Sphere, content create weeks been for plan remain Sphere, our confident on a from the opportunity We original the in look details Hollywood director. to months. coming ever sharing in forward as more and debut leading attraction, we as with

we total, Now, we remains the more artists as where continued starting robust. Entertainment included XXX with hosted busy our this venues let's That quarter demand schedule from the quarter. concerts, our guests alike highlights, start across than momentum events million our over X.X operational both strong segment, of and the of performance fans review second In another year. from and

In once our out. of fact, again held the sold majority concerts venues were at

back welcome for to Rangers the XXXX quarter Knicks Garden, start their the past this We of regular XXXX seasons. the were pleased and to also

as fill As half before continues ahead towards since pandemic. the second the first look to calendar we of head completing fiscal up, bookings we our XXXX, our to of full year

productions. These and percentages the than fewer season sold benefited $XXX XXX,XXX XXXX, double-digit holiday up which XXXX and XXXX tradition. make to despite of achieved XXX the the this popularity pandemic. to over the XXth the Last month, City and Christmas New of pandemic fiscal way tourism, results across we beloved Spectacular, three Turning results revenue from was both performances as York was its per This continues show's demonstrate the and first and completed run last versus its also fiscal holiday by following years fiscal the tickets full back revenues million. total exceeded Average successfully in enduring improving unaffected season XX revenue performances. show season, clearly, levels more

on increased per We sold sales, to tourists, of a XX% tickets group basis, category, heavily the to over year-over-year. see as number tourist-driven were as pleased individual well show a both

demand business. corporate across seen also have We remain our strong

for before earlier is successful business of partnerships The announcements full our the pandemic. renewals exceed partnership this Following results new XXXX, true our but new products marketing Lounges our fiscal licenses on exceeded year, same we renewals sales a Sportsbook HUB year for remains our goals suite path key annual to where the across premium Caesars and a Loft. last two on premium and have also not other and slate now only hospitality,

Turning Tao to Group.

strong second results performance Tao's restaurants. reflected Our quarter slate of across

second Omicron demand Tao's events a the which during the faced reminder, the of the dampened during impact ago for As quarter, season. operations variant, disrupted and holiday year business corporate

another and to in the for of see of This return year, in New business, returning banquet entertaining demand sign key the markets. pleased York, high-margin the our particularly corporate we Las were Vegas

In which new addition, number LAVO impact this last restaurant LAVO quarter's Los Diego, Angeles, of the San of in which results and in March in opened including June. opened reflected a venues

City's the Hotel, Tao the New side also example a market. opened York another locations Lower four within East on during Moxy on of strategy at great Tao building quarter, new branded its HUB

well, on XX As locations Vegas, quarter, Tao pipeline foothold the to end By make the new in the to projects. have to restaurant branded in around before other XXXX These Las waterfront the looking new expected along followed a another total one the year, progress start we locations. world fiscal a will projects ahead, of company's three beyond. market openings its of growing of with look opened new the to end including fiscal we Tao in there as Miami be continues of Tao's slate by expanding is fiscal that third as presence and

nightlife and four more branded locations in XX in over a continents since powerhouse, a into transformed XXXX. truly across dining acquired than With and majority growing, entertainment, markets we Group has XX Tao interest global

know, potential we sale Tao. time the and value of shareholder explore a you that regularly maximize now our to interest As is to evaluate ways appropriate believe in

is growth interest Tao's success there in this will process from potential While result significant a assurance opportunities buyers. future have no and recent transaction, generated

we you additional keep information to We share. will have as updated

summary, In pursue we with our second we spin-off to of shareholder are fiscal are drive year, and MSG to forward including our value. confident our we Sphere as the us continue opportunities and position the strategic that positive initiative half to long-term will look momentum pleased well planned

the call With will over to now that turn I Andrea.

Thank the our slate five behind-the-scenes we professional live and of good morning. post-game full sports delivering of our a are once comprehensive teams along again coverage, you, of footage a regular point NHL and host NBA across halfway seasons, games for the pre- programming At Dave and unique audiences. and with other

We multiyear one have affiliates. distributors also including several recently our completed renewals of largest agreement a with with

well basis. this telecasts, experienced a increase as per year, revenue. delivering again to advertising advertising we in on subscribers reflected compared of prior as the in we a build game while decline in live advertising results, our revenue continue financial on This timing and sponsorship success as game in year-over-year to quarter, growth continued the our growth both to As

are of our advertisers from betting auto categories impact of core including five full from as our rate increased sports and benefiting such partners demand We strong insurance. and returning run the

increasing also continue see viewers. benefits partners initiatives content executing We platform's increases as to additional pleased distribution we are advertiser product, And significant and been content branded on several the demand have MSG and our non-ratings-based in new with for to year-over-year in our our Go opportunities. recognize reaching

'XX, course first one over XX Rangers Knicks NHL DraftKings across have In bet planned casts ever seasons. December, cast our the by we bet aired and we presented of games the 'XX of

ad-supported recently original streaming we on Sports of channel, is MSG expected Sports addition, nationally available currently from free TV with which zone zone, features content launch other mix distributors to programming a new shortly. our In library. MSG a launched Flex

our time, a this sports progressing and for other our the of offering programming same direct-to-consumer including fast The and non-game national the product we've At pricing current audience. type, new our content introduction technical provides archived us increases monetize to opportunities been requirements. incremental the gaming in and to channel and of original development exposure

what We optimal of content with advertising gained look would in insight and product Through partners. discussions we've valuable distribution into this, potential remain like. an ongoing all

can a we our best example, authenticated integration DXC current streamlined create new to have our to at Go users integrate which MSG how for implement For experience platform product decided we this with launch.

per annual, and look preliminary sharing monthly future. subscriptions near the game including to offer very and in to more plan details pricing forward We

realize So product of to overall summer and of the as we prior the positions consideration, DXC MSG+ launch opportunity. us take believe expect full we this into the we over factors best potential which our to now next season, to these start

I'd we've the in business. in stronger outlined the program After identified we the have mindful business also strategic moment we our to of result acknowledge thorough remain will going evolving ecosystem which on put efficiencies, operate in operating ground. to and believe cost We review, recent savings activities cost certain a we've reduction forward. like which take a certainly our implemented meaningful

to Dave. like I'd that With back call to over turn the

Andrea. you, Thank

company total of a Now we of an let's On adjusted and basis, review fiscal our financial XXXX increase operating Xnd quarter second and $XXX.X to income quarter. the as million generated XX% fiscal respectively million, XXXX XX% revenues results. $XXX.X compared of

impacted our reminder, bookings and the number which demand to a of a the shortened prior temporary year events of quarter at postponed canceled in was by resulted and the and Tao. Omicron in As Christmas a impact operations both Spectacular, run business a variant

Starting the significantly segment, up in both million year-over-year Knicks revenues calendar. we the and $XXX.X bookings our increases Rangers Spectacular, million, These AOI strength with of continued generated Christmas of seasons, start the and a the primarily of full basis. on driven Entertainment run by a and were of $XX.X

anticipate the expenses over the company's as planned as prepare to AOI remainder of year the costs related Sphere continuing opening. Sphere MSG also to to We increase of the related fiscal we impact the as for well planned spin-off. reflected costs

higher and XX% segment to the as Turning prior in to Networks, in decrease $XXX.X respectively were and AOI production These in million costs. $XX.X advertising MSG primarily revenue higher generated of million programming decreases rights well reflected expense as by as year in affiliate lower compared revenue. The and offset period. and growth fees X% partially revenue the AOI other

entertainment comparable $XXX openings. results venue Finally, prior in X% as new driven The year AOI million as of was the respectively revenue corporate increase also and level as well XX% up and reflect revenues higher Tao period. costs impact of by labor as Group of venue the to well AOI, revenues and compared as generated costs. higher higher $XX.X million

Turning sheet. balance to our

balance cash As XXst, recent at on the had quarter. Sphere MSG of completed approximately approximately restricted million cash financing our was our $XXX and we billion of $X.XX debt of the end reflecting hand and December

the remains $XX XXst $XXX of Sphere XXst December paid MSG project of Our construction net while were December estimate construction Venetian. cost were $X to-date for through million the $X.XXX is and approximately million accrued which billion as costs includes billion, received of that costs not approximately from

our earlier, which respect a as well and number Andrea cost have entertainment the and on savings strategic which announced we now implemented And restructuring in segments. of lastly, quarter targeted our and to been last review touched This charge includes the with in of Networks a million resulted across second and efficiencies reduction program, have cost quarter a completed we $XX.X identified have of MSG as headcount reductions, initiatives. other non-labor-related fiscal businesses now

now over Ari. I call will back that the turn With to

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

Instructions] [Operator comes line the question Your of LightShed from Ross from first Brandon Partners.

open. Your line is

substantial the morning. what looking generate wanted when and after start us the open forward them will to you can I revenue, are this is to September. of good cycle? opening taking and and Sphere Hey Thanks think I to say confidence CapEx door with immediate questions. that, certainly for the in give building But the building investors all

Thanks. Sure, Brandon.

Let the saying once Las revenues, in good of way make confident Sphere, those sponsors that We're generate we me a our that, the are working have Look, on quite feel to it's expect industry, the news whether open. income Vegas and to have partners adjusted progress plans we're you it's with extend operating substantial in bit and by to to opening. relationships Sphere towards promoters, share MSG and where best as making will with artists, we we start and our others, appropriate. relationships and we

one in not regard. we're starting So from square that

wide are variety venue September. help types, residency event have active regarding us in we music where and including the first residencies, of in expect on discussions to content touch a We're plans. Let's our open with

vary I'd of length residency residency. four on obviously also add and headliners that between that, we're the targeting six the depending could every year

for We is with November Grand Formula which doing inaugural Las Vegas also Prix. in market a see, the like multi-day opportunity takeover One, major events their

continue plans given annually. million a opened is being the attractions weeks, that the run the key it in as multiple to Vegas from our also And component times We've the originals tourists we venue. XX-plus we year-round. And original which announcing these talked attractions we of to about at Vegas will briefly that Hollywood visit mentioned expect leading coming really be earlier Sphere. And the we I another around the first we to market original utilization drive that our believe, debut to director, time attraction the these perfect high day for a expect

of founding of campaigns terms to the and have hospitality also XX throughout tiers, duration. be premium advertising, the VIP hospitality, In in and have We'll to to additional way Sphere that the areas will sponsorship partners, partnerships, a sponsorship variety ranging suites lucrative premium tend transactional all venue. from shorter official

XXX progress Just Vegas we're for November, making on front Las VIP and suites, potential the in that hosted first-look we partners a event. of in terms

with during we brands. into now CES corporate speaking the potential hosted we world's good January, major translate we're those the in have from the across days really feel very of every some industry of about leading we CES on During opportunity for to and conversations partnerships. site And tours each representatives partners

the the will the Las companies is immersive and brands offers. with to that associated for and one one Vegas Sphere number number are the experience. destination that going entertainment be city want to experience And be

with to forward about on of we remain confident have you. of Las all that, in all Vegas, sharing with look and So news positive the opportunity we we more this

kind that us know, return know, Tao, you valuation asset? I for. don't out in Great. But what and could much you're how broad thinking hoping expect of this been point, the has maybe on get what interest maybe strokes in you so far? and you frame-up valuation I can know if at I'm residency think the exact on help you there just for what but price sale

try I help can the the I'll to best with Sure. question. valuation

$XXX value reminder, we a for at XXXX. a an time interest TAO $XXX to that as of Just XX.X% in enterprise in equated approximately million paid And originally that million. majority

Our branded since over four reflected business into is Pakistan has has and a and scale business that interest financial that's across approximately XXXX XX% its results. XX locations transformed in TAO the is and powerhouse this The grown today. continents, TAO is global for combined now it

of and And $XX had is believe nearly in The at In have this management TAO long domestically of both through fiscal result the just bidding have has of we'll is best continue and their as multiple phenomenal a its internationally. process million million. And moving of bidders. revenue to the AOI they updated and employees. It's the have additional enviable venues. venue news. portfolio XXXX, to We team of the we extremely forward process interest point, keep and with TAO's all $XXX grow business. business also you robust way portfolio an brands significant we're this, a as from And

much. so Thanks Cool.

Brandon Thanks,

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

open. is line Your

Hi. Thanks. have remind to rights Andrea, on the anyway package you us the you games DXC product, want. can if you

financial So you to then Season does again? for Would be quarter this or investors And how think a it sell should this a model instance, accretive or reach for about could the half One, of product? need scale? certain in EBITDA

talked Hi, consumer game they subscriptions. outset offerings be David. other of our said the about and before. types remarks launch. at Well, if but we'll make likely as Will at we certainly offering prepared after annual the sense, per evaluate monthly in Yes, rights launch, we've

they're to of with supportive As depth the we're reviewed entirely what we've doing. and leagues rights, our and plans

without us among subscribing fans to that offering. definitely region consumer receive are the that specifics, will of know It's in to homes be DXC we it in there We've don't for accretive. do opportunities our today certainly don't value As a that your And of networks. the that getting extensive in terms millions we second MSG+, believe question there's receive into today bundle shown in research. the interest conducted

from We potential GO a that additional available, because combination provides number believe us combined that MSG also platforms allow we'll increased utilization with our which of we'll subscribers by authenticated MSG+ MSG+ that in be offering monetization for into will with will on benefit of the fulsome single the platforms greater on opportunities. be

also our our GO. learnings business programming, our in from MSG staffing, We efficiencies existing our with with and have many technology place today our

So accretive. specifics be MSG+ certainly into we will in getting value short believe that without

acts economic I'm And generally. then any update you could concert, separately, residency the just curious, just given well see at to for, live And know events do that difference the like acts if that really places David, of, versus at were pipeline, demand service in the sort City you selling wanted you on theater. demand we see mega Garden smaller or headwinds, Radio

Sure, David. Thanks.

of we're held me pleased Let venues from Garden at was that concerts the by that at really sold to out. theaters. were during remains demand And and majority the across A fans quarter all just of saying say our both the start robust. artists and the case our

of out Average obviously, attendance line show through at of the in our has coming quarter, with each the pandemic. benefited last pent-up been second from demand venues, which, year,

haven't seen we anything being that sustained. enthusiasm other So than

As and this of half to calendar repeat year a acts fiscal year XXXX, of up. theaters continues continue multi-night And second range shows. attract this or new we to to our look act, wide the ahead genres, fill calendar our

last RBD Bono and several see at to Janet Jackson, strong the the including activity others. We've over months, also recent at multi-night the sellouts few arena, like from of Madonna, continued Beacon on-sales certain on-sale some the

at year So about this point. beyond and the we of the feel remainder really good

you. Thank

You’re welcome.

And question Brisco Devin from Research. from comes next line the Wolfe your of

open. is line Your

of or Tao if to sale undergo are Thanks Why sale more what Group. use And plans process? about other time proceeds completed? decision right you the construction the fund allocation not, to a a your for part the to now of rationale Sphere proceeds initiatives? with capital the Is explore is Sphere the to of this is question. bit talk Could assuming

Sure. Thanks, Devin.

value. it interest know, you I XXXX, just powerhouse into reflected As today clearly results. to company, We and exploring mentioned, our explore in the our it's in interest the track record it's we is have a of potential a in the to of believe Board, as is maximize that since And that majority our Tao. appropriate bought now sale in time this its financial shareholder team, ways management transformed global Tao regularly

construction of sale, MSG the from start use the liquidity appropriate fact the proceeds let are of in saying terms with potential Vegas. that the of by we Las have the to in that Sphere we comfortable And me complete

on cash sheet. substantial have balance We the

we generating business positive cash Our operating revolver and have needed. flow capacity, is if

MSG ground Networks, And with we stronger reduction even just our recent at the business is program that cost completed, today. on including

-- SphereCo sale. can of at SphereCo, So, with move that the financial allocate provide the entity, typically, see flexibility, really, proceeds evaluates all period. we We benefiting with The after enhanced businesses as spin-off would Tao would sale to the opportunities provide forward sale capital. appropriately those

question Networks. on Thanks. MSG And I have a second

how As a closer linear to affiliate outside consumers reaching there is with the streams, or the way Will DXC linear rates bundle? launch you move a while distributors cannibalize at also DXC progressing? your are incremental discussions launch, all, to protect

we Thanks we've offer before, DXC have existing our in to agreements contemplate. for distribution that the flexibility partners way in indicated product the as this current we question. the Well, our to and

pricing we bundle. in That our to And continued remain for there said, the DXC including the very However, including we'll product certainly we'll mindful linear that believe of those the more value take those near that very, of our traditional partnerships. including say our in product remains derive into business, and from value future. offering, we offering, about consideration. that very important indicated we We've the have pricing most that the the important partnerships, very

you. Thank

Devin. we'll last caller. one Operator, take Thanks,

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

is line Your open.

opportunity the program, to see you each and those, entertainment And wanted you specifically more I the reductions? first color costs? where across much. in so more of mentioned the off, little a it's trying cost networks. capital could maybe to the I More ask on what SpinCo around entertainment drove on you cut we of what know sort headcount guess, I could business. give if or Thanks, reduction get there. that? just capital forward, less, we'll allocation the allocation strategy follow-up from legacy going -- Thanks. spin, of spin. where And post background have a the to But then go understand, from you on kind did

Paul. Sure,

First and in reduction restructuring efficiencies say number million resulted That MSG reductions, which $XX.X of a charges of both in that while not Networks. on we the specifics, your you that quarter. included the across, headcount we're providing cost question, I'll identified entertainment see second targeted

We meaningful of and number reductions. initiatives has we implemented as cost expect in mentioned going will forward, also identified nonlabor-related a savings result And cost these Andrea that particularly at Networks. MSG

capital is our On adequate allocation to SpinCo. first for as Yes, your for priorities allocation capital question think we business liquidity operations. that maintain fund about always the to

you Second to sheet. took And business balance the currently pandemic. the under entertainment we live that is have million $XXX a facility. ensure on outstanding little There's know a than that strong during less debt as

including our in return SpinCo. So capital. cash priority we explore uses of flow down would other be of would we the term, third certainly debt expect over nearer for pay And then time,

that. note Just on a

for with expect We certain just this on rapid on this presentation strong allow that And well-positioned will projections issue we on annual and for plan basis SpinCo AOI illustrate an point, to deleveraging to be starts for an investor financial that SpinCo will which that SpinCo. cash, generate profitability. will expectation note again, our with

will to for cash delever, of SpinCo. then position So SpinCo again, quickly which open uses other we this potential door will flow the well think for

Great. you Thank much. so

Thanks. You’re welcome, Paul.

us. you look good joining our Have forward We for a call. on earnings to day. Well, with next thank speaking all you

you call. for participation. today's concludes your Thank conference This

You may now disconnect.