SPHERE ENTERTAINMENT CO. REPORTS FISCAL 2024 SECOND QUARTER RESULTS
- The company reported an increase in revenues for the fiscal second quarter, with a significant increase in revenues for the Sphere segment.
- Sphere Entertainment Co. reported an adjusted operating income of $51.4 million for the fiscal second quarter.
- The company reported an operating loss of $159.7 million for the fiscal second quarter.
- The MSG Networks segment reported a decrease in total revenues for the fiscal second quarter.
Insights
The reported increase in revenues for Sphere Entertainment Co. is a strong indicator of successful market penetration and consumer interest in their Las Vegas venue. The sell-out shows, including U2's extended run and announcements from other renowned bands, suggest robust demand for live entertainment experiences. This is significant as it reflects a potential shift in consumer spending towards live events post-pandemic, which could influence similar businesses to invest more in experiential offerings.
The formation of Gotham Advanced Media and Entertainment hints at a strategic pivot towards streaming services, aligning with broader industry trends where content distribution is increasingly digital. This could have long-term implications for content delivery and audience engagement, potentially opening new revenue streams and partnerships.
The financial results indicate a remarkable 97% increase in total revenues year-over-year, driven by the Sphere segment's performance. However, the operating loss has also increased significantly, primarily due to higher impairment and operating expenses. The non-cash impairment charge related to ceasing the London Sphere project is a critical factor investors should consider, as it reflects management's decision-making and risk assessment capabilities.
MSG Networks' revenue decline and subscriber decrease could be concerning, suggesting a need to reassess the segment's strategy in a competitive media landscape. The launch of MSG+ and the joint venture GAME could be pivotal in mitigating these declines, but it remains to be seen how these initiatives will affect the bottom line in future quarters.
The convertible senior notes offering completed in December 2023 is a strategic financial maneuver that provides Sphere Entertainment with capital for growth initiatives. Investors should note the interest rate and conversion features of these notes, as they will impact future cash flows and potentially dilute existing shareholders. The intended use of proceeds suggests a focus on expansion, but it also raises questions about the company's liquidity and debt management strategies.
The decrease in litigation-related expenses in the MSG Networks segment is a positive development, reducing legal risk and potentially freeing up resources for core business activities. However, ongoing or future litigation could still pose financial and reputational risks.
Since opening on September 29, 2023, Sphere in
- U2 has continued its multi-month run at Sphere, with every show sold-out to date. After extending multiple times due to strong demand, U2 will conclude its run at Sphere early next month with its 40th show;
- Renowned bands Phish and Dead & Co. each announced upcoming multi-night performances to take place at Sphere;
- The Sphere Experience featuring Postcard from Earth debuted on October 6, 2023, grossing over
one million dollars in average daily ticket sales on days The Sphere Experience took place in the fiscal 2024 second quarter; - Sphere launched campaigns from numerous global brands on the Exosphere during the quarter and was a prominent feature of Formula 1's inaugural Las Vegas Grand Prix in November.
In addition, MSG Networks is now more than halfway through the 2023-24 NBA and NHL regular seasons, marking the first year of availability of MSG+, MSG Networks' direct-to-consumer subscription and authenticated steaming service. Last month, MSG Networks and the YES Network announced the formation of Gotham Advanced Media and Entertainment (GAME), a new 50/50 streaming joint venture which will explore new streaming products and provide a scalable solution to third party content owners looking to connect with their own fans.
For the fiscal 2024 second quarter, the Company reported revenues of
Executive Chairman and CEO James L. Dolan said, "Sphere is a next-generation medium intended to disrupt the traditional venue model. With positive adjusted operating income at the Sphere segment in our first full quarter of operations in
Segment Results for the Three and Six Months Ended December 31, 2023 and 2022: | ||||||||||||||||
(In millions) | Three Months Ended | Six Months Ended | ||||||||||||||
December 31, | Change | December 31, | Change | |||||||||||||
2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||
Revenues: | ||||||||||||||||
Sphere | $ 167.8 | $ 0.6 | $ 167.2 | NM | $ 175.6 | $ 1.3 | $ 174.3 | NM | ||||||||
MSG Networks | 146.4 | 158.9 | (12.5) | (8) % | 256.6 | 281.4 | (24.8) | (9) % | ||||||||
Total Revenues | $ 314.2 | $ 159.5 | $ 154.6 | 97 % | $ 432.2 | $ 282.7 | $ 149.5 | 53 % | ||||||||
Operating Income (Loss)(1) | ||||||||||||||||
Sphere | $ (83.0) | (134) % | (80) % | |||||||||||||
MSG Networks | 34.2 | 33.2 | 1.0 | 3 % | $ 62.9 | 61.2 | 1.7 | 3 % | ||||||||
Total Operating Loss | $ (49.7) | NM | (128) % | |||||||||||||
Adjusted Operating Income (Loss):(1)(2) | ||||||||||||||||
Sphere | $ 14.1 | $ (60.9) | $ 75.0 | NM | $ (69.0) | $ 56.0 | 45 % | |||||||||
MSG Networks | 37.3 | 47.7 | (10.4) | (22) % | 62.5 | 81.0 | (18.5) | (23) % | ||||||||
Total Adjusted Operating Income | $ 51.4 | $ (13.2) | $ 64.6 | NM | $ (6.4) | $ (44.0) | $ 37.5 | 85 % |
Note: Does not foot due to rounding. NM — Absolute percentages greater than | |
(1) | For the three and six months ended December 31, 2022, results from continuing operations include certain corporate overhead expenses that the Company did not incur in |
(2) | See page 4 of this earnings release for the definition of adjusted operating income (loss) included in the discussion of non-GAAP financial measures. |
Sphere
For the fiscal 2024 second quarter, the Sphere segment reported revenues of
For the fiscal 2024 second quarter, the Sphere segment had direct operating expenses of
Fiscal 2024 second quarter selling, general and administrative expenses of
In addition, fiscal 2024 second quarter results included an increase in impairment and other losses, net, of
Fiscal 2024 second quarter operating loss of
MSG Networks
For the fiscal 2024 second quarter, the MSG Networks segment reported total revenues of
Distribution revenue decreased
As a result of the launch of MSG+ in June 2023, distribution revenue now includes both affiliation fee revenue earned from MSG Networks' distributors for the right to carry the Company's networks as well as revenue earned from subscriptions and single game purchases on MSG+. In addition, total subscribers includes both affiliate subscribers as well as monthly and annual subscribers of MSG+.
Fiscal 2024 second quarter direct operating expenses of
Fiscal 2024 second quarter selling, general and administrative expenses of
Fiscal 2024 second quarter operating income of
Other Matters
On December 8, 2023, the Company completed an offering of
About Sphere Entertainment Co.
Sphere Entertainment Co. is a premier live entertainment and media company. The Company includes Sphere, a next-generation entertainment medium powered by cutting-edge technologies to redefine the future of entertainment. The first Sphere venue opened in
Non-GAAP Financial Measures
We define adjusted operating income (loss), which is a non-GAAP financial measure, as operating income (loss) before ((i) depreciation, amortization and impairments of property and equipment, goodwill and intangible assets, (ii) amortization for capitalized cloud computing arrangement costs, (iii) share-based compensation expense or benefit, (iv) restructuring charges or credits, (v) merger and acquisition-related costs, including merger-related litigation expenses, (vi) gains or losses on sales or dispositions of businesses and associated settlements, (vii) the impact of purchase accounting adjustments related to business acquisitions, and (ix) gains and losses related to the remeasurement of liabilities under the Company's Executive Deferred Compensation Plan. We believe that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of our business without regard to the settlement of an obligation that is not expected to be made in cash. We eliminate merger and acquisition-related costs, when applicable, because the Company does not consider such costs to be indicative of the ongoing operating performance of the Company as they result from an event that is of a non-recurring nature, thereby enhancing comparability. In addition, management believes that the exclusion of gains and losses related to the remeasurement of liabilities under the Company's Executive Deferred Compensation Plan, provides investors with a clearer picture of the Company's operating performance given that, in accordance with
We believe adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of our business segments and the Company on a consolidated basis. Adjusted operating income (loss) and similar measures with similar titles are common performance measures used by investors and analysts to analyze our performance. Internally, we use revenues and adjusted operating income (loss) as the most important indicators of our business performance, and evaluate management's effectiveness with specific reference to these indicators. Adjusted operating income (loss) should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with GAAP. Since adjusted operating income (loss) is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. For a reconciliation of operating income (loss) to adjusted operating income (loss), please see page 6 of this release.
Forward-Looking Statements
This press release may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties, and that actual results, developments or events may differ materially from those in the forward-looking statements as a result of various factors, including financial community perceptions of the Company and its business, operations, financial condition and the industries in which it operates and the factors described in the Company's filings with the Securities and Exchange Commission, including the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained therein. The Company disclaims any obligation to update any forward-looking statements contained herein.
Contacts:
Ari Danes, CFA Investor Relations and Financial Communications (212) 465-6072 | Justin Blaber Financial Communications (212) 465-6109 |
Grace Kaminer Investor Relations (212) 631-5076 |
Conference Call Information:
The conference call will be Webcast live today at 10:00 a.m. ET at investor.sphereentertainmentco.com
Conference call dial-in number is 888-800-3155 / Conference ID Number 8089430
Conference call replay number is 800-770-2030 / Conference ID Number 8089430 until February 12, 2024
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) | ||||||||
Three Months Ended | Six Months Ended | |||||||
December 31, | December 31, | |||||||
2023 | 2022 | 2023 | 2022 | |||||
Revenues | $ 314,157 | $ 159,541 | $ 432,164 | $ 282,670 | ||||
Direct operating expenses | (159,766) | (90,400) | (244,265) | (165,820) | ||||
Selling, general, and administrative expenses | (115,520) | (104,415) | (202,664) | (199,046) | ||||
Depreciation and amortization | (80,031) | (7,386) | (94,290) | (13,519) | ||||
Impairment and other (losses) gains, net | (117,235) | 1,000 | (115,738) | 3,000 | ||||
Restructuring charges | (1,287) | (8,075) | (4,678) | (8,075) | ||||
Operating loss | (159,682) | (49,735) | (229,471) | (100,790) | ||||
Other income (expense): | ||||||||
Interest income | 5,926 | 2,669 | 10,304 | 6,002 | ||||
Interest expense | (25,828) | — | (25,828) | — | ||||
Other (expense) income, net | (1,130) | (1,355) | 41,066 | (1,770) | ||||
Loss from continuing operations before income taxes | (180,714) | (48,421) | (203,929) | (96,558) | ||||
Income tax benefit | 7,466 | 21,113 | 97,753 | 22,947 | ||||
Loss from continuing operations | (173,248) | (27,308) | (106,176) | (73,611) | ||||
Income (loss) from discontinued operations, net of taxes | — | 97,865 | (647) | 100,125 | ||||
Net (loss) income | (173,248) | 70,557 | (106,823) | 26,514 | ||||
Less: Net loss attributable to nonredeemable noncontrolling | — | (56) | — | (466) | ||||
Less: Net income attributable to redeemable noncontrolling | — | 3,029 | — | 4,153 | ||||
Net (loss) income attributable to Sphere Entertainment Co.'s | $ (173,248) | $ 67,584 | $ (106,823) | $ 22,827 | ||||
Basic (loss) earnings per common share | ||||||||
Continuing operations | $ (4.91) | $ (0.79) | $ (3.02) | $ (2.13) | ||||
Discontinued operations | $ — | $ 2.74 | $ (0.02) | $ 2.79 | ||||
Basic (loss) earnings per common share attributable to Sphere | $ (4.91) | $ 1.95 | $ (3.04) | $ 0.66 | ||||
Diluted (loss) earnings per common share | ||||||||
Continuing operations | $ (4.91) | $ (0.79) | $ (3.02) | $ (2.13) | ||||
Discontinued operations | $ — | $ 2.74 | $ (0.02) | $ 2.79 | ||||
Diluted (loss) earnings per common share attributable to Sphere Entertainment Co.'s stockholders | $ (4.91) | $ 1.95 | $ (3.04) | $ 0.66 | ||||
Weighted-average number of common shares | ||||||||
Basic | 35,309 | 34,684 | 35,110 | 34,544 | ||||
Diluted | 35,309 | 34,710 | 35,110 | 34,609 |
ADJUSTMENTS TO RECONCILE OPERATING INCOME (LOSS) TO
ADJUSTED OPERATING INCOME (LOSS)
(In thousands)
(Unaudited)
The following is a description of the adjustments to operating loss in arriving at adjusted operating income (loss) as described in this earnings release:
- Share-based compensation. This adjustment eliminates the compensation expense relating to restricted stock units and stock options granted under the Sphere Entertainment Employee Stock Plan, MSG Sports Employee Stock Plan, MSG Networks Employee Stock Plan, as amended and assumed by Sphere Entertainment, and Sphere Entertainment Non-Employee Director Plan in all periods.
- Depreciation and amortization. This adjustment eliminates depreciation and amortization of property and equipment and intangible assets in all periods.
- Restructuring charges. This adjustment eliminates costs related to termination benefits provided to certain executives and employees.
- Impairment and other losses (gains), net. This adjustment eliminates non-cash impairment charges and the impact of gains or losses from the disposition of assets or businesses in all periods.
- Merger and acquisition related costs. This adjustment eliminates costs related to mergers and acquisitions, including merger-related litigation expenses and litigation-related insurance recoveries, in all periods.
- Amortization for capitalized cloud computing arrangement costs. This adjustment eliminates amortization of capitalized cloud computing arrangement costs.
- Remeasurement of deferred compensation plan liabilities. This adjustment eliminates the impact of gains and losses related to the remeasurement of liabilities under the Company's executive deferred compensation plan.
Three Months Ended | Six Months Ended | |||||||
December 31, | December 31, | |||||||
2023 | 2022 | 2023 | 2022 | |||||
Operating loss | $ (159,682) | $ (49,735) | $ (229,471) | $ (100,790) | ||||
Share-based compensation | 11,916 | 16,355 | 16,799 | 27,845 | ||||
Depreciation and amortization | 80,031 | 7,386 | 94,290 | 13,519 | ||||
Restructuring charges | 1,287 | 8,075 | 4,678 | 8,075 | ||||
Impairment and other losses (gains), net | 117,235 | (1,000) | 115,738 | (3,000) | ||||
Merger and acquisition related costs, net of insurance | 380 | 5,486 | (8,663) | 10,136 | ||||
Amortization for capitalized cloud computing | 22 | 127 | 44 | 248 | ||||
Remeasurement of deferred compensation plan | 245 | 154 | 138 | — | ||||
Adjusted operating income (loss) | $ 51,434 | $ (13,152) | $ (6,447) | $ (43,967) |
SEGMENT RESULTS (In thousands) (Unaudited) | ||||||
BUSINESS SEGMENT RESULTS | ||||||
Three Months Ended December 31, 2023 | ||||||
Sphere | MSG | Total | ||||
Revenues | $ 167,799 | $ 146,358 | $ 314,157 | |||
Direct operating expenses | (67,338) | (92,428) | (159,766) | |||
Selling, general and administrative expenses | (97,804) | (17,716) | (115,520) | |||
Depreciation and amortization | (78,044) | (1,987) | (80,031) | |||
Impairment and other losses, net | (117,235) | — | (117,235) | |||
Restructuring charges | (1,287) | — | (1,287) | |||
Operating (loss) income | $ (193,909) | $ 34,227 | $ (159,682) | |||
Reconciliation to adjusted operating income: | ||||||
Share-based compensation | 10,985 | 931 | 11,916 | |||
Depreciation and amortization | 78,044 | 1,987 | 80,031 | |||
Restructuring charges | 1,287 | — | 1,287 | |||
Impairment and other losses, net | 117,235 | — | 117,235 | |||
Merger and acquisition related costs, net of insurance recoveries | 200 | 180 | 380 | |||
Amortization for capitalized cloud computing arrangement costs | — | 22 | 22 | |||
Remeasurement of deferred compensation plan liabilities | 245 | — | 245 | |||
Adjusted operating income | $ 14,087 | $ 37,347 | $ 51,434 | |||
Three Months Ended December 31, 2022 | ||||||
Sphere | MSG | Total | ||||
Revenues | $ 643 | $ 158,898 | $ 159,541 | |||
Direct operating expenses | — | (90,400) | (90,400) | |||
Selling, general and administrative expenses | (74,759) | (29,656) | (104,415) | |||
Depreciation and amortization | (5,749) | (1,637) | (7,386) | |||
Other gains | 1,000 | — | 1,000 | |||
Restructuring charges | (4,087) | (3,988) | (8,075) | |||
Operating (loss) income | $ (82,952) | $ 33,217 | $ (49,735) | |||
Reconciliation to adjusted operating (loss) income: | ||||||
Share-based compensation | 13,056 | 3,299 | 16,355 | |||
Depreciation and amortization | 5,749 | 1,637 | 7,386 | |||
Restructuring charges | 4,087 | 3,988 | 8,075 | |||
Other gains | (1,000) | — | (1,000) | |||
Merger and acquisition related costs | (58) | 5,544 | 5,486 | |||
Amortization for capitalized cloud computing arrangement costs | 83 | 44 | 127 | |||
Remeasurement of deferred compensation plan liabilities | $ 154 | $ — | $ 154 | |||
Adjusted operating (loss) income | $ (60,881) | $ 47,729 | $ (13,152) |
SEGMENT RESULTS (In thousands) (Unaudited) | ||||||
Six Months Ended December 31, 2023 | ||||||
Sphere | MSG | Total | ||||
Revenues | $ 175,578 | $ 256,586 | $ 432,164 | |||
Direct operating expenses | (75,143) | (169,122) | (244,265) | |||
Selling, general and administrative expenses | (181,954) | (20,710) | (202,664) | |||
Depreciation and amortization | (90,421) | (3,869) | (94,290) | |||
Impairment and other losses, net | (115,738) | — | (115,738) | |||
Restructuring charges | (4,678) | — | (4,678) | |||
Operating (loss) income | $ (292,356) | $ 62,885 | $ (229,471) | |||
Reconciliation to adjusted operating (loss) income: | ||||||
Share-based compensation | 14,904 | 1,895 | 16,799 | |||
Depreciation and amortization | 90,421 | 3,869 | 94,290 | |||
Restructuring charges | 4,678 | — | 4,678 | |||
Impairment and other losses, net | 115,738 | — | 115,738 | |||
Merger and acquisition related costs, net of insurance recoveries | (2,502) | (6,161) | (8,663) | |||
Amortization for capitalized cloud computing arrangement costs | — | 44 | 44 | |||
Remeasurement of deferred compensation plan liabilities | 138 | — | 138 | |||
Adjusted operating (loss) income | $ (68,979) | $ 62,532 | $ (6,447) | |||
Six Months Ended December 31, 2022 | ||||||
Sphere | MSG | Total | ||||
Revenues | $ 1,293 | $ 281,377 | $ 282,670 | |||
Direct operating expenses | — | (165,820) | (165,820) | |||
Selling, general and administrative expenses | (151,950) | (47,096) | (199,046) | |||
Depreciation and amortization | (10,264) | (3,255) | (13,519) | |||
Other gains | 3,000 | — | 3,000 | |||
Restructuring charges | (4,087) | (3,988) | (8,075) | |||
Operating (loss) income | $ (162,008) | $ 61,218 | $ (100,790) | |||
Reconciliation to adjusted operating (loss) income: | ||||||
Share-based compensation | 22,842 | 5,003 | 27,845 | |||
Depreciation and amortization | 10,264 | 3,255 | 13,519 | |||
Restructuring charges | 4,087 | 3,988 | 8,075 | |||
Other gains | (3,000) | — | (3,000) | |||
Merger and acquisition related costs | 2,691 | 7,445 | 10,136 | |||
Amortization for capitalized cloud computing arrangement costs | 160 | 88 | 248 | |||
Adjusted operating (loss) income | $ (124,964) | $ 80,997 | $ (43,967) |
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) (Unaudited) | ||||
December 31, | June 30, | |||
2023 | 2023 | |||
ASSETS | ||||
Current Assets: | ||||
Cash, cash equivalents, and restricted cash | $ 627,827 | $ 429,114 | ||
Accounts receivable, net | 179,964 | 112,309 | ||
Related party receivables, current | 24,047 | 26,405 | ||
Prepaid expenses and other current assets | 46,810 | 56,085 | ||
Total current assets | 878,648 | 623,913 | ||
Non-Current Assets: | ||||
Investments in nonconsolidated affiliates | 50,906 | 394,519 | ||
Property and equipment, net | 3,287,933 | 3,307,161 | ||
Right-of-use lease assets | 86,599 | 84,912 | ||
Goodwill | 456,807 | 456,807 | ||
Intangible assets, net | 16,353 | 17,910 | ||
Other non-current assets | 106,038 | 87,793 | ||
Total assets | $ 4,883,284 | $ 4,973,015 | ||
LIABILITIES AND EQUITY | ||||
Current Liabilities: | ||||
Accounts payable, accrued and other current liabilities | $ 391,903 | $ 515,731 | ||
Related party payables, current | 23,407 | 56,446 | ||
Current portion of long-term debt, net | 890,110 | 82,500 | ||
Operating lease liabilities, current | 14,727 | 10,127 | ||
Deferred revenue | 78,381 | 27,337 | ||
Total current liabilities | 1,398,528 | 692,141 | ||
Non-Current Liabilities: | ||||
Long-term debt, net | 521,413 | 1,118,387 | ||
Operating lease liabilities, non-current | 109,296 | 110,259 | ||
Deferred tax liabilities, net | 272,447 | 379,552 | ||
Other non-current liabilities | 116,436 | 88,811 | ||
Total liabilities | 2,418,120 | 2,389,150 | ||
Commitments and contingencies | ||||
Equity: | ||||
Class A Common Stock (1) | 283 | 278 | ||
Class B Common Stock (2) | 69 | 69 | ||
Additional paid-in capital | 2,365,913 | 2,376,420 | ||
Retained earnings | 105,213 | 212,036 | ||
Accumulated other comprehensive loss | (6,314) | (4,938) | ||
Total stockholders' equity | 2,465,164 | 2,583,865 | ||
Total liabilities and equity | $ 4,883,284 | $ 4,973,015 |
_________________ | |
(1) | Class A Common Stock, |
(2) | Class B Common Stock, |
SELECTED CASH FLOW INFORMATION (In thousands) (Unaudited) | ||||
Six Months Ended | ||||
December 31, | ||||
2023 | 2022 | |||
Net cash (used in) provided by operating activities | $ (48,238) | $ 54,965 | ||
Net cash provided by (used in) investing activities | 973 | (575,909) | ||
Net cash provided by financing activities | 245,973 | 229,175 | ||
Effect of exchange rates on cash, cash equivalents, and restricted cash | 5 | (505) | ||
Net increase (decrease) in cash, cash equivalents, and restricted cash | 198,713 | (292,274) | ||
Cash, cash equivalents, and restricted cash from continuing operations, beginning of period | 429,114 | 760,312 | ||
Cash, cash equivalents, and restricted cash from discontinued operations, beginning of period | — | 85,698 | ||
Cash, cash equivalents, and restricted cash at beginning of period | 429,114 | 846,010 | ||
Cash, cash equivalents and restricted cash from continuing operations, end of period | 627,827 | 366,748 | ||
Cash, cash equivalents and restricted cash from discontinued operations, end of period | — | 186,988 | ||
Cash, cash equivalents, and restricted cash at end of period | $ 627,827 | $ 553,736 |
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SOURCE Sphere Entertainment Co.
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