Sphere Entertainment Co.

Good morning and thank you for standing by. Welcome to the Sphere Entertainment Company's second quarter 2025 earnings conference call. 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 second quarter 2025 earnings conference call. Today's call will begin with our Executive Chairman and CEO, Jim Dolan, who will provide an update on the business. 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 in the investor 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 five and six 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 said from the start, our goal was to design and operate a venue that's busy 365 days a year with multiple events on most days. And while we started in Las Vegas, our strategy has always included a global network of sphere venues. This year, our priorities have been to continue enhancing our operating model in Las Vegas, drive long-term profitability for the business, and advance our plans to bring Sphere to Abu Dhabi and additional markets around the world. Our original content category, the Sphere Experience, has been one of the key profit drivers of the business, and we remain focused on developing a diverse slate. Our next experience, the Wizard of Oz at Sphere, will be the best example to date of experiential content in this new media. we will be utilizing innovative technologies like AI. And that innovation will continue with the production of our next Sphere experience, From the Edge, which we expect to debut in 2026. In terms of early demand for The Wizard of Oz at Sphere, we have sold over 120,000 tickets to date and expect to reach 200,000 by the opening later this month. We're also seeing increasing demand from artists across a variety of genres. which are driving renewed interest in their music by playing Sphere in Las Vegas. We have continued to add shows to our calendar and now expect to host more than 100 concerts this year, up from 70 in 2024. We are also making progress building a recurring base of revenues. In terms of corporate events, this past June, Hewlett Packard held a keynote at Sphere for the second consecutive year. and we're now in discussion with a number of companies that have held events at Sphere and are looking to return. We're also expanding our roster of advertisers on the ExoSphere. This includes securing advertising commitments as part of a new multi-year sponsorship. With regards to our expansion plans, we recently entered into agreements related to the construction, development, and operation of Sphere Abu Dhabi, and are now finalizing the pre-construction phase with the Department of Culture and Tourism. At the same time, discussions are ongoing with a number of other international markets regarding large-scale spheres. In addition, we have now completed our design and business model for small-scale spheres, which could be built faster and at lower cost, and are already in the market having discussions with potential partners. I will now turn the call over to Robert, who will take you through our financial results and MSG Network's debt restructuring.

Thank you, Jim, and good morning, everyone. For the June quarter, we generated total company revenues of $282.7 million and adjusted operating income of $61.5 million. Our SEER segment generated revenues of $175.6 million as compared to $151.2 million in the prior year period. This growth was mainly driven by an increase in event-related revenues, with additional corporate events and nine additional residency shows held in the current year quarter, partially offset by the absence of a marquee sporting event. It also reflects the impact of revenues related to bringing the world's second sphere to Abu Dhabi. These revenue increases were offset by lower revenues from the sphere experience, which was primarily due to lower average patrol revenues offset by an increase in the number of total performances. Adjusted operating income for our sphere segment was $24.9 million and increased $30.4 million year-over-year. This reflected the increase in revenues as well as lower SG&A expenses, partially offset by higher direct operating expenses. The increase in direct operating expenses includes higher event-related expenses and higher expenses associated with the sphere experience. both driven by an increase in the number of events year over year. SG&A expenses for the June quarter were $96.4 million, a decrease of $5.7 million year over year. This includes the impact of the company's focus on driving cost efficiencies this year. As Jim discussed, we are making progress on executing on our core priorities to drive profitable growth in our sphere segment. While we are still a nascent business where results can fluctuate quarter to quarter, we remain pleased with our overall trajectory and continue to see significant long-term growth potential in its sphere. Turning to MSG networks, the segment generated $107.1 million in revenues and $36.5 million in AOI in the June quarter. This compares to $122.2 million in revenues and $31.1 million in AOI in the prior year period. The decrease in revenues stems from lower distribution revenue driven by an approximately 13% decrease in subscribers, partially offset by the impact of higher affiliation rates. The increase in AOI reflects lower direct operating expenses, partially offset by the decrease in revenues and higher SG&A expenses. On June 27th, MSG Networks completed a restructuring of its credit facilities. In connection with that restructuring, MSG Networks also completed amendments to its media rights agreements with MSG Sports and certain other professional sports teams. Direct operating expenses include the impact of reduction in media rights fees as a result of these amendments, including retroactive adjustments for the 2024-25 season recorded in this second quarter. Turning to our balance sheet, under MSG Networks debt restructuring in June, its prior $804 million term loan was replaced with a new $210 million term loan facility, which will mature in December 2029. This debt remains non-recourse to the parent company. Upon closing, MSG Networks also made a cash payment of $80 million to the lenders, which was comprised of $65 million from MSG Networks and a $15 million capital contribution from the company. After MSG Networks' debt restructuring, our net debt at the end of the quarter was down to approximately $388 million, which reflects $356 million of unrestricted cash and $744 million in principal debt outstanding. In addition to MSG Network's new term loan, our debt balance at quarter end included $259 million in convertible debt and a $275 million credit facility related to Sphere in Las Vegas. And with that, we'll now open the call for questions.

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Brandon Ross with LightShed Partners.

Hey, guys. Thanks for taking the questions. Jim, you finished your prepared remarks by saying you'd completed your plans for the smaller spheres. I was hoping you could tell us more about them, anything you want to share, including the business model, the cost, potential markets, and thoughts on who might be the right partners for that?

Okay. Well, it's an elongated question. The smaller spheres are the important thing was the design, right, and at least I thought it was. And the design of these spheres is quite similar to our large sphere in Vegas with a couple of improvements. But the business model is quite similar, which is to keep the venue busy 365 days a year. All the content that's created for Sphere in Vegas and eventually Abu Dhabi will also play in any of these small spheres. We've completed the design of it. We've also completed the business model. And the business model is designed along a franchise kind of approach. So we are out in the marketplace now, right, beginning to expose potential investors to the business model and looking at different locations for small spheres. These things, these spheres will be less expensive, much less expensive than Las Vegas was. They'll also be faster. They can get built faster. My hope would be that we could build a small sphere in a little over two years from when we break ground. And so we're starting. And it all does follow the same model. The content, which is created out of Sphere Studios, will be, as I said, playable in all Spheres. So at some point, as we build these, you will see postcards from Earth. You will see Wizard of Oz. You will see from the Edge and other products that we create for large Sphere will play in the small Spheres, too.

Okay, and just to clarify, you said that they would be on the franchise model, so that means Capital Light. Are you guys going to contribute capital to the minispheres?

Yeah, we think Capital Light that the, you know, I won't completely eliminate the notion that we'll have some, you know, stub investment, et cetera, in order to help it, but, you know, our strategy really is to is to get this thing moving and to open a lot of the. So, no, it won't be investing. And we shouldn't. We've proven out the model with Vegas. We'll prove it out again in the other ones. And it should become easy to invest in because you'll have a pretty solid path going forward.

Thanks for taking the question. Sure.

Our next question comes from David Kornosky with JP Morgan.

Thank you. Jim, you noted tickets sold to date for Wizard of Oz, but can you help provide some context around that, maybe how the pre-sales compared to postcard and maybe stepping back, what just kind of underlies your confidence generally about transitioning the audiences to the new content?

Sure. You know, up until this point, we've sold about, actually today, I think we're at 127,000. And we're entering that period that we're quite familiar with from the Christmas Spectacular show, which is that in the three weeks prior to the event, right, better than 50% of the tickets get sold. Now, if you apply the same ratios to Wizard of Oz, that the, you know, we should start to actually see ticket sales ramp up from here, that the, and, you know, and that's how our marketing is set up, et cetera. But, I mean, look, you've got, we've got to open the show, and like, like, a little bit like Postcards from Earth, nobody quite knows what they're going to see. until we open it. We're very proud of the product. We think it's groundbreaking. We think that it's going to draw a lot of attention and that people who come to Vegas are going to want to go. Right now, the sphere sees 7% of the total visitors to Las Vegas see the sphere. My I think that we should look to get well over 10% with the Wizard of Oz and the and, you know, that just turns into more success for the product.

You know, once Woz is live, I just curious how you're thinking about the library content you referenced before in the context of smaller spheres, but how would you think about the amount of view to or postcard shows from here?

Say again, please.

Just wondering how you're thinking about utilizing your your existing shows to and postcard.

OK, so look, all of the shows that we've created so far, right, are created with the notion of them being evergreen. So it would not surprise me if 10 years from now in Abu Dhabi, you go and you could see it showing a postcard from Earth. That's actually quite likely. As really we're the only ones who are creating experiential, immersive content like we are, you know, you know i think those those products will get used again and again as long as they're not dated and they're not they they um and as we get better at them i will have more of a of a slate for each one of the spheres likely you'll see certain days right in a small sphere like friday's wizard of oz day saturday is is from the edge day um uh and uh interspersed with uh corporates and probably some concerts.

Thank you. Our next question comes from Steven Lasik with Goldman Sachs.

Good morning. This is Antara for Steven. Thanks for taking the questions. A couple on concert residencies. First, as you're looking into 2026, you've had some good diversification this year of the genre types that we've seen with Backstreet and Zac Brown. Do you expect more new genres to come next year and then maybe longer term, if you could touch on what the upper limit might be for these residencies? You mentioned over 100 this year. Just wondering what that might look like over the next year or two. Thank you.

Well, there are some key things to that that are probably most important to us. is that the way the residencies are constructed, the way the performances are constructed, that we're able to run things like Wizard of Oz two or three times during the day and then shift into the concert in the evening and variations off of that theme. So as long as we can do that, we can keep on taking more concerts. But you should understand the way the business was designed was to create contention between the different acts that appear at the sphere, between, you know, Wizard of Oz and the Backstreet Boys and the Eagles and even corporates, et cetera. They're all buying for days, right, and screen time. And we will... most likely decide that based on what gets us the best grosses. So the Wizard of Oz is going to be interesting to watch because it could very well be that the Wizard of Oz is doing so well that it nudges out one or two concerts, or a corporate, because I wouldn't rent the venue to somebody or $1.5 million or $2 million if I can do $4 million with the product that I already have that's already paid for. So that's the contention. And that was, you know, by design. So, I mean, I will say that the big-name concerts, right, do bring in, you know, people who haven't been to the sphere before or are interested in the act. And so there's, you know, a little bit of loss leader thinking on that, although I wouldn't call it a loss. Maybe a less leader thing on it. But that's what we manage. That's what Jen manages.

Great. Thank you.

Our next question comes from Peter Cepino with Wolf Research.

Hi. Good morning. I'll try to work through three questions with you, if you don't mind. The first is, whether you foresee future Sphere experiences being based on owned IP, or should we look at The Wizard of Oz as a template? Will you possibly, or do you intend to have many movies that are recreated for the Sphere?

That's a very good question, because I'm not sure what the answer is yet. I know it's on the slate for the next year, and, you know, we're, I mean, for one thing, it's Wizard of Oz, was not an inexpensive project. And on top of which we think it's going to have a high demand. So how long do I run the Wizard of Oz? Right. I mean, ultimately we'll run Wizard of Oz forever, but who gets the screen time? Right. Follow up on Wizard of Oz is a feature called From the Edge, which is very, very different than the Wizard of Oz. It has little or no AI in it. Right. But has the... utilizes heavily live capture, which will create even more of an experience inside of the sphere itself. So what comes after that? We're actually talking to several different, you know, IP holders and coming up with some of our own IP. I don't think we're really very stuck on who owns the IP. It's more the question of what the cost of the IP is. right the uh um and uh you know the wizard of oz model is is pretty good um where we like our deal with warner brothers and we think it's one of the interesting things about it is pretty much everybody who has come to the sphere like all the acts and now i think even wizard of oz that you find a renewed public interest in the ip so there's a benefit to the ip holder to licensing the licensing to the sphere because they see other revenue streams increase, et cetera. Like, you know, for instance, like the Backstreet Boys appearing at Spear and then their record sales going up and their bookings going up, et cetera. And, you know, Grateful Dead, others, the same kind of thing. So, you know, it's so I think we're basically somewhat indifferent to who owns the IP, what we're more

focused on is that we put together a great show uh following up on that subject of content actually first a digression i have a jimmy chin coffee table book in my house and i think you could sell some of those in the lobby of the sphere after the movie but uh the question is has ai made the production of the wizard of oz easier and how much cheaper and efficiently do you think you can recreate films in the future well first off without ai

I don't think we would have done the Wizard of Oz. We couldn't have gotten it to the resolutions. We couldn't have gotten it to the immersion levels, et cetera, that we did without Google and their AI. But in doing that, we broke a lot of new ground in AI. And I do think that technology is going to be used Again and again, I don't know that it will always be by us. I rather doubt it, although we do have first dibs for a while. And then the question is, you know, what's the IP, right? I mean, is it, you know, is it gone with the wind, right? Does that have enough appeal to bring in the kind of audiences? I mean, it's hard for me to imagine a better product than Wizard of Oz right now, but you never know. um and we are we are uh in active discussions with lots of ip holders who are interested in seeing their ip turned into this i will say that the the you know the ai for for wizard of oz was difficult difficult for everybody at all right because we did a lot of things for the first time outpainting resolutions all the things that go along with with with using the ai were all done for the first time. So they should be definitely a lot easier the second time. But I don't have any specific plans to tell you about with that.

All right, thanks. And my last question relates to the price of a ticket to the Wizard of Oz. It's a lot higher than a ticket to Postcard from Earth when that went on sale. Could you unpack what gave you the confidence to take prices up?

Well, look, we're still, I think, either at or below the average of ticket in Las Vegas for the major shows like O and The Stare, et cetera. So, you know, I think initially with Postcards from Earth, we wanted to make entry really easy, right, just to get people, you know, familiar with the product, to get it being talked about, et cetera. But I think since the product has proven itself, I think it's certainly worth the price, the ticket price. And so that's why we went forward with the pricing.

Your next question comes from Peter Henderson with Bank of America.

Yes, good morning. Thank you for taking the questions. I want to start with one on SPHERE and then have a follow-up on MSGN. So just want to touch upon your opening comments around international expansion. Can you provide any additional color on those conversations and whether or not they're in sort of early or advanced stages? And I believe that you mentioned for the international expansion that you're focused on full-size spheres and just want to confirm that.

We'll do both. I don't think we're particularly, you know, You know, it has to match the market size, right? And market is judged by, you know, what the population is in the market to start off with, and then things like tourism, et cetera. So, you know, you don't want to build a smaller facility that will get overrun. You don't want to build a bigger facility that will get underused. So you kind of got to match it up. As far as the individual markets, we are in discussions with a bunch of different marketplaces. I don't really have a lot more color to add to you today. Maybe at the next quarter's review, we'll have something more to say.

Okay. Thank you. And then on MSG Networks, just wondering, with the restructuring now complete, do you have any updated thoughts on the possibility for a strategic transaction there?

Well, I think that we're considering it, looking at it, trying to figure out the marketplace. I will say that I think we're big believers in a consolidated marketplace with sports. In other words, one place for you to go to to see all of your teams in your marketplace, that product has a lot of power with the consumer. Right. So, um, you know, we're, uh, you know, we have with, between us and, uh, and the yes network, we have most of the teams, right. That the, uh, um, I wouldn't mind getting the rest. Um, it's really only one that they, um, but, uh, you know, in, in terms of, uh, you know, what a transaction like that would look like and what the ownership structures would look like, you know, we don't have enough meat on the bone yet to say. Thank you.

Operator, we have time for one last caller.

Your final question comes from David Joyce with Seaport Research Partners.

Thank you. A couple, please. Could you please update us on the sponsorship and advertising trajectory? Any thoughts on the forward demand and the progress on the exosphere? Granted, it was down 3% and a quarter. What were the puts and takes on that? And then maybe you could tie that into a second question on the Las Vegas overall market visitation being down. What are you seeing in terms of the impacts on that for the September quarter? Thank you.

I think I'm going to give both of those to Jack. Okay. Let me take your first one, the forward demand on Exosphere and sponsorship. So we're continuing to make progress on our evolving go-to-market approach and establishing this recurring book of business when we think about sponsors and advertisers on the Exosphere. We've seen some early successes with our new packages, including 60-second spots that gives our advertisers even more exposure. We've also been rolling out some more comprehensive in-venue packages. That includes IPTVs, atrium surfaces. And again, this is a complementary to our Exosphere advertising and gives just even more value to our partners. During this quarter, we also secured a deal with a media agency to drive upfront ad buys. Again, that's directly going against, you know, the priority to build more recurring revenue base. To that point as well, we've expanded our roster of ad sponsors and have announced several multi-year sponsorships agreements. So, I mean, I think we're making progress here and we continue to see significant demand in that area of the business.

I will say that if you remember, we changed our representation at the beginning of this year. So it almost felt like we were starting from ground zero in some way. We have not fully, you know, gapped that group, although we're well on our way to doing it. So I think, you know, building a sales force, having been a salesman for a long time, is not an easy thing to do. And getting it rolling again, et cetera. And I think we're making really good progress.

Stapp, And then your second question on impact of Las Vegas visitation, you know, so we're mindful of the Vegas visitation trends, but Stapp, You know, as Jim said before, we are focused on positioning the business for long term growth. Stapp, And a lot of the priorities that we've been focused on the past two quarters, you know, building original experience late Debra Kustic- diversifying artists in the venue and establishing the recurring book of business is really where our focus is and as a nascent visit you're going to business you're going to see. Debra Kustic- fluctuations quarter to quarter and that's going to vary based on a number of factors, whether in market or not so That being said, we remain pleased with the overall trajectory of the business and we're going to continue to see significant long term growth.

All right, thank you very much.

That concludes our Q&A session. I'll now turn the conference back over to Ari Daines 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. You may now disconnect.