Thank you for holding, and welcome everyone to the Sphere Entertainment Company Fiscal 2024 First Quarter Earnings Conference Call. [Operator Instructions]. I will now turn the call over to Ari Danes, Investor Relations. Mr. Danes, Please go ahead.

Thank you. Good morning, and welcome to Sphere Entertainment's Fiscal 2024 First Quarter Earnings Conference Call. Today's call will begin with our Executive Chairman and CEO, Jim Dolan, who will provide an update on Sphere. This will be followed by an update from Andrea Greenberg, President and CEO of MSG Networks. I will then conclude with a review of our financial results for the period. After our prepared remarks, we will open up the call for questions. If you do not have a copy of today's earnings release, it is available in the Investors section of our corporate website. Please take note of the following. Today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Please refer to the company's filings with the SEC for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. On Pages 4 and 5 of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income, or AOI, a non-GAAP financial measure. And with that, I'll now turn the call over to Jim.

Thank you, Ari, and Good morning, everyone. Our company's next chapter officially got underway with the opening of Sphere in Las Vegas at the end of September. Many years in the making, Sphere debut drew the world's attention, generating significant press and social media coverage. In fact, our estimated total reach in the days immediately after opening was approximately [ 7 billion ] per day. Guest, artists, advertisers and potential sponsors are now able to experience firsthand this new product, and we are very happy with the response. Our journey with Sphere is just beginning. And while it will take some time for Sphere to realize its full potential, we're off to a great start. As you know, U2 opened the venue and are now in the midst of their multishow run. Every U2 show so far has been sold out. And in light of the demand, we recently announced that we are adding 11 more shows. This will take the bands run its Sphere into February with a total of 36 performances. The incredible response to U2s run at Sphere has only increased interest from the artist community to play the venue. And we're having conversations with artists across a wide variety of genres, including discussing runs of [ varying links ]. We expect to host 2 additional residence fees in the second half of this fiscal year and look forward to sharing more detail. As you're aware, we have designed Sphere to be busy 365 days a year with multiple events per day on many days. A core component of that strategy is the Sphere experience which debuted on October 6, with featuring Postcard from Earth from Academy of Nominated Director, Darren Aronofsky. We've been very pleased with the reception of the Sphere experience from our guests as…

Thank you, Jim, and Good morning. With the 2023, '24 NBA and NHL regular season is underway, we are excited to be back with extensive coverage of our 5 professional sports team, the New York Knicks, Rangers and Islanders, New Jersey Devils and Buffalo Sabres. We are also pleased to announce that we recently reached the multiyear rights renewal with the New Jersey Devils. This extension, which begins next season, enables MSG Networks to continue to offer a full slate of Devils games as well as compelling pre- and post-game coverage and other Devils related programming across all of our platforms. And this season, local fans now have the opportunity to watch our award-winning programming not only through their traditional linear TV package, but also through our new direct-to-consumer and authenticated streaming service MSG+ plus, which launched in June. This product allows us to reach the millions of home in our regions who do not currently receive our network through linear TV. In addition to authenticated subscribers of participating TV operators, fans have the option to subscribe to MSG+ directly by purchasing a monthly subscription for approximately $30 or an annual subscription for approximately $310. They also have the option to purchase single games for [ $9.99 ] each, a first-of-its-kind offering for any regional sports network. Leading up to the start of the season, we began marketing our offerings through targeted linear, social and digital channels. And while it's still early, we are pleased with the initial interest we have seen so far including for our per game offering, which offers a unique avenue for entry point transactions, wider reach and upsell opportunities. As we add subscribers and learn more about their streaming behavior, we will further enhance our marketing strategies to even more effectively grow and sustain our subscriber base. On the advertising front, we plan to build on last year's success which included record advertising revenue for our teams during the regular season and growth across our non-ratings-based initiatives. We've started the season with a strong base of returning advertisers under multiyear commitments and have already made strides in new sales with the introduction of our D2C offerings, including MSG+ new presenting partnership with Aleve. So while the media landscape continues to evolve, we believe with our premium content and commitment to innovation, we are uniquely positioned to continue driving value for partners, advertisers and viewers alike. With that, I will now turn the call back over to Ari.

Thank you, Andrea. As you're aware, Sphere Entertainment completed the spin-off of MSG Entertainment in April and completed the sale of its majority interest in Tao Group Hospitality in May. Our fiscal '24 first quarter financials, therefore, represent the first quarter results on a fully stand-alone basis. I'd also note that these results are not fully comparable on a year-over-year basis while results for the prior year first quarter reflect MSG Entertainment and Tao Group Hospitality as discontinued operations. The prior year period does include certain corporate overhead costs that Sphere Entertainment did not incur after the date of the spin and does not expect to occur in future periods, but did not meet the criteria for inclusion in discontinued operations. Turning to our results. On a total company basis, we generated revenues of $118 million and an adjusted operating loss of $57.9 million for the fiscal '24 first quarter. The Sphere segment generated revenues of $7.8 million and an adjusted operating loss of $83.1 million. Revenues primarily reflected event-related revenues from concerts at the end of the quarter as well as the launch of Exosphere advertising campaigns in early September. The adjusted operating loss of $83.1 million primarily reflected SG&A expenses, including corporate overhead, expenses related to Sphere Studios and associated content and technology development as well as costs related to operating Las Vegas venue. With the venue now open, Sphere's impact on our financial results will really begin to show in our fiscal second quarter, including U2's multimonth run, the debut of the Sphere Experience featuring Postcard From Earth, the impact of additional Exosphere advertising campaigns and Formula 1's multiday takeover in November. Turning to MSG Networks. The segment generated $110.2 million in revenues and $25.2 million in AOI, which represent increases (sic) [ decreases ] of 10% and 24%, respectively, as compared to the prior year quarter. The decrease in AOI primarily reflected lower affiliate revenue and higher rights fees expenses, partially offset by lower SG&A expenses. Turning to our balance sheet. As of September 30, we had approximately $434 million of unrestricted cash and cash equivalents, and our debt balance was approximately $1.2 billion, During the quarter, we received $65 million of proceeds from the delayed draw term loan with MSG Entertainment, which we then repaid using approximately 1.9 million retained MSGE shares. We also received approximately $257 million in proceeds from the sale of our remaining approximately 8.2 million share position in MSGE. With that, operator, can we now open up the call for questions.

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

Jim, with the Sphere you're in completely uncharted territory now. And I'm sure things have been a little bit different than what you expected since the opening. Can you tell us what's exceeded your expectations? And what disappointed you or may need some fine-tuning?

It's -- well, mostly it's been good. The product they came out and was very well received. And that's probably the most important thing that you look at with it at least from my point of view. The social media things sort of really surprised us that the -- and we thought we would do well. But it really went globally. And so that aspect of the business has exceeded it. On the opposite side, I'd say it's mostly operational right, things like ingress, egress, turnover time between the concert and the Sphere attraction, all our -- had its challenges in the opening, but seems to be getting better. We're really -- the whole marketing model is -- we're still learning so much right now. But as I said in my comments and what we're doing on an annual -- on a daily basis on ticket sales is pretty good, not as good as I'd like it to be, but it's still early, and there's a lot more we're finding to do when -- what the capacities are when the shows are running, those kinds of things. So I expect those numbers to improve. And -- but all in all, I have to say it was a pretty good, I mean, there's success. They were pretty happy with the opening.

Okay. Great. And you've been clear that Las Vegas is going to be the first of many Spheres. Since you opened, has there been any movement in negotiations for additional locations? And maybe what regions of the world should we expect the next set of venues?

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

Right. And then if I could just sneak one more in. I have to ask, is there anything more you could share on why your CFO resigned?

Yes. Look, the -- I think it's -- as you started off your -- your question with, I mean, it's a new business. It's pretty challenging the -- and I think we both came to the conclusion that it probably wasn't a great fit. And thus we -- there's a change coming. But I don't -- there's no issues with reporting or any of that stuff. That's all. That's all in good shape. It's much more about just the fit. There's a lot. I will say the CFO's job at Sphere years has a heavy operational component that probably we didn't foresee. The [indiscernible] them. So we're moving on. And there, I don't expect much to change.

Ben Swinburne with Morgan Stanley.

Couple of questions, sticking with the unchartered territory theme from Brandon. As we track the business this year in the early quarters, how should we think about the amount of revenue you need to generate a profit against the kind of cost base that we're seeing at Sphere? And do you think we'll see that revenue during the fiscal '24 year? Or do we need to think about maybe a longer duration?

Yes, sure. Look, Ben, the Sphere is already profitable. It kind of depends on how you calculate.

I'm looking at the segment, I guess.

Yes. The question is, is it going to be profitable enough to be to justify the capital expense that we put in. And we do think it will be, but it's got to develop the watch -- if I'm watching the company, I'm looking at how is the Sphere Experience doing, right? Our sales continuing to hold up, right? The artists -- I mean the U2 thing is just sort of off the charts, right? And I think it's challenged a lot of artists, right, to match that. So you're liable to see more great residencies coming. And those are the components that will make the project successful. I will say that -- now the way we designed this business was for the Sphere itself to support the expense structure underneath so that there doesn't have to be expansion in order to justify the expenses that go along with the business, particularly the production expenses, et cetera. The -- so -- but it's fine-tuning an economic equation. And we're bullish that we are going to have more Spheres and that, of course, will expand our revenue base were to justify the expense base on, and we'll probably get more aggressive as we roll out more Spheres, we'll get more aggressive with content and keep trying to make the product bigger, greater, more appealing, they -- I think there's a lot of room for that in this project.

That's helpful. So just to make sure I understand, your expectation is that the Sphere segment can be profitable with just the Las Vegas Sphere. It's not built needing more Spheres. Am I hearing you right?

That's correct. But I mean, look, if you spend like a drunken sailor on the content you're going to -- it's going to be a little -- it's going to be a little difficult. You've got to be a little disciplined and moderate, but you still want to have great product. We still want to explore the medium and push it, et cetera. So there's that balance. And we're paying a lot of attention to it. And I think that balance will have a lot to do with how successful the company is.

David Karnovsky with JPMorgan.

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

Yes. I mean the team always talks about what they call the first pancake effect, right? So the first pancakes, a little difficult. So we're moving on to our second pancake. And we do expect it to cost less. We also think we can make improvements in the product, too.

Okay. And then just following up on the original content. I'm interested, how long do you envision a show like Postcard running? And at what point do you start to think about replacing that show? And I don't know if you can ballpark kind of a figure for what production expense should look like for some of your originals.

Right now, we're thinking that the current show will run about a year, but look, I want to point out that the just if we put in a new show, which we will do, it doesn't obsolete the old show the -- especially as you talk about new Spheres, et cetera, those marketplace obviously haven't seen Postcards, et cetera. So I mean, it will still be very viable there. And the way the Las Vegas market is, I expect that will new versions of Postcard for years to come, but probably a less and less number of exhibitions on an annual basis as we feather in the new content. So -- what was the other part of your question...?

No, if you could ballpark the production expense and whether that would be incremental?

So the -- again, the production like the one with Darren, again, that's another sort of first pancake kind of thing that -- I expect that we'll be able to do more exploration of the medium, but also I think we will definitely be able to reduce costs, and what it takes to produce these shows.

David Joyce with Seaport Research Partners.

A few questions for you, please, Jim. First, what are your early learnings on the Postcard from the Earth in terms of what are the variables that you might fine-tune in terms of number of events, pricing, the seating capacity? And then I have some follow-ups.

Well, I think we started off, David, pretty conservative. But with all those factors, a number of shows, capacity, et cetera, we're starting to explore, expanding the -- look, the thing about the Sphere Experience is that the margin on it is really, really high because you've already invested obviously, in the building, you've already invested in the content, the creation of the content, the actual cost of running the Experience is very, very low. So the -- so we're trying to obviously maximize out the number of customers that come in. What they were -- I think we priced low to start off with, right? So I think there's probably some pricing flexibility in that. But the marketing is also -- we're just -- we're really still learning about that. The Las Vegas market is -- I mean it was a perfect market for us to open it, right? Because it has an ever regenerating marketplace of customers, right? They're up to like 50 million people come through that market every year. And so our ability to reach those people right, the -- and sell the ticket and interest them in our products, that we're still refining. So I think there's upside both in all those parameters, marketing, number of shows, price per show, price per ticket, et cetera. Those are the things that we're studying heavily now, and I expect to see improvement.

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

There are -- I think we're going to be pretty careful about that. They -- look, the Sphere has already has a sort of global profile right, that they -- and so we don't want to lose any of that -- so the -- so naming rights would have to be something that's consistent with that kind of strategy. So it's not purely financial in terms of its consideration.

Understood. And finally, curious about the Exosphere advertising opportunity and the logistics basically. How many ads could you run? Or how long are the ad campaigns typically going to be? Or also, I'd be interested in understanding what's the production time and the expense involved in producing an ad?

So in the production time, I don't think it's really that much different for advertisers than other mediums, right? But I mean you can do it really fast that you need to, right? The -- but most advertisers to clients are -- take their time they're thoughtful about it. I will say that it's a different medium. It's spherical, right? It's 3-dimensional. And so your content has to perform to that. You can't take a flat screen advertising content and just place on Sphere. It doesn't look good on it, and it won't bring you the value that you're spending on that -- I mean, when an advertiser comes on the Sphere, and they do a great piece of content on it, right, it goes viral right away. And the advertiser gets all this real extra benefit and a lot of exposure, right? So -- but you have to do content that does that. So there the -- some advertisers are spending a lot of time and money on making sure that they have something that will be really the -- resonate with the marketplace. The others are a little quicker. They need to get there their message out, but all of them seem to be wanting to get that global sort of push with it. And so they're paying attention and they're creating. We're seeing some really great creative from some of our advertisers sort of blowing us away. And it's interesting because I mean I don't want to talk too much about it, but some of it they've done through our Sphere Studios, some of it they did on their own, right, that they -- and the results so far, pretty good.

And do you have any requirements for minimum ad campaign lengths or requirements on how many ads per day or per hour, are you?

Well, the -- this isn't exactly an answer to your question, but the -- we do have a kind of a standing rule that with our sales force that, 50% inventory is dedicated to art and community -- and the other 50% is dedicated to sponsorship so that the -- so if you're visiting Las Vegas or you're looking at it on your social media, right, there's always something interesting out of tale. Again, even to trying to reach the global community. And so far, that's been pretty successful. But the -- but I think we're going to stick to that 50-50 formula, right? Because I think in the long run, that will make the product lot more valuable.

I appreciate it. Congratulations.

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

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

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

Well, while MSG+ initially launched back in June, we've really only begun our targeted marketing efforts at the beginning of the season. So it's still relatively early for meaningful numbers. But I can say we're very pleased with the initial response, including for the early demand we're seeing for our per game offering. We've -- as I mentioned, seeing robust advertiser interest. We have a new presenting partnership with [ the leads ]. They're a new advertiser to our brand. So all in all, we continue to expect MSG+ to be while you are accretive to our business.

And then in the prepared remarks, you noted the Devil's rights renewal, we've seen pressure in the RSN space to the downside, we've seen pressure in the national rights space for the upside. Any color you could give on how this deal shook out for you on rights fees?

Sure. We've had a long and active relationship with the Devil's. I can say we're pleased with the renewal terms. Those terms begin that season. We can't get into specific but certainly, in having these discussions, both we and the Devil's are mindful of the changing pay-TV environment.

Great. And if I could sneak one last one in here on Networks. Just conscious of the Networks' debt, the October '24 maturity. Any progress there on refinancing or anything that we should keep in mind as that date approaches?

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

This ends the Q&A session. I will now turn the call back over to Ari Danes for closing comments.

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

Good bye.

This concludes the Sphere Entertainment Company Fiscal 2024 First Quarter Earnings Conference Call. We thank you for your participation. You may now disconnect.