Earnings call transcript: Sphere Entertainment Co Q4 2024 misses EPS forecast

Sphere Entertainment Co (SPHR), with a market capitalization of $1.56 billion, reported its fourth-quarter 2024 earnings, revealing a larger-than-expected loss. The company posted an earnings per share (EPS) of -$3.49, missing the forecasted -$2.37. Despite a revenue beat with $308.3 million against a $289.41 million forecast, the company’s stock fell by 3.73% in pre-market trading, reflecting investor concerns over the earnings miss. InvestingPro analysis indicates the company remains unprofitable over the last twelve months.

Key Takeaways

• Sphere Entertainment Co reported a larger-than-expected loss in Q4 2024.
• Revenue exceeded expectations, reaching $308.3 million.
• Stock price declined 3.73% following the earnings release.
• The company is focusing on expanding its Sphere experiences and content library.
• Operational efficiencies are expected to improve profitability in 2025.

Company Performance

Sphere Entertainment Co reported a challenging quarter, with a significant EPS miss, despite exceeding revenue expectations. The company continues to innovate with new productions and is planning further Sphere experiences. Sphere Entertainment’s unique venue offerings and competitive position in the concert residency model remain critical to its strategy.

Financial Highlights

• Revenue: $308.3 million, above the forecast of $289.41 million.
• EPS: -$3.49, below the forecast of -$2.37.
• Adjusted operating income: $32.9 million.
• Cash position: approximately $520 million.
• Debt balance: approximately $1.36 billion.

Earnings vs. Forecast

Sphere Entertainment’s actual EPS of -$3.49 fell short of the -$2.37 forecast, marking a significant miss. However, the revenue of $308.3 million surpassed expectations of $289.41 million, indicating strong performance in certain segments.

Market Reaction

Following the earnings announcement, Sphere Entertainment’s stock dropped by 3.73% in pre-market trading, reflecting investor disappointment over the EPS miss. The stock’s movement is notable given its 52-week range of $32.10 to $51.83, suggesting volatility in response to earnings results.

Outlook & Guidance

Sphere Entertainment is optimistic about 2025, expecting improved profitability through operational efficiencies and expanded Sphere experiences. The company is pursuing a global Sphere network, with plans for a new venue in Abu Dhabi currently in pre-construction.

Executive Commentary

CEO Jim Dolan expressed confidence in the company’s future, stating, "We expect this upcoming year will obviously be our best year yet." He emphasized the low cost of content production, highlighting the company’s strategic focus on efficient growth and long-term success.

Risks and Challenges

• Continued losses could impact investor confidence and stock performance.
• High debt levels may pose financial risks.
• Market competition in the entertainment sector remains intense.
• Economic conditions could affect consumer spending on entertainment.

Q&A

During the earnings call, analysts inquired about content production costs and the company’s sponsorship strategies. Executives addressed challenges in traditional media distribution and detailed plans for future Sphere experiences, highlighting the company’s focus on innovation and market expansion.

Full transcript - Sphere Entertainment Co (SPHR) Q2 2025:

Conference Operator: Good morning. Thank you for standing by, and welcome to the Sphere Entertainment Company Earnings Call for the period ended 12/31/2024. At this time, all participants are in a listen only mode. After the speakers’ remarks, there will be a question and answer session. I would now like to turn the call over to Ari Daines, Investor Relations.

Please go ahead.

Ari Daines, Investor Relations, Sphere Entertainment: Thank you. Good morning, and welcome to Sphere Entertainment’s earnings conference call. Today’s call will begin with our Executive Chairman and CEO, Jim Dolan, who will provide an update on Sphere 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 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 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.

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: Thank you, Ari, and good morning, everyone. As we begin our calendar twenty twenty five, we’re focused on a number of core priorities to drive profitable growth. These include developing new productions as we look to build our original content library, showcasing a diverse set of concert residencies and other corporate and marquee events, optimizing the go to market strategy for the exosphere and sponsorships, and driving operational and cost efficiencies across our business. As you know, another component of our strategy is market expansion. In Abu Dhabi, our plans are moving forward.

Our team is now working closely with our partner DCT Abu Dhabi in areas that include venue design and pre construction planning. We are also in discussions with other markets as we pursue our vision for a global network of SPHERES. In Las Vegas, the SPHERES experience saw improvements in sell through and stronger sequential results in the December. This reflects our ongoing efforts to refine both our schedule and pricing in order to maximize revenue and enhance the guest experience. The Sphere experience has now generated over $450,000,000 in high margin revenue.

We continue to make progress on our next Sphere experience and look forward to sharing more ahead of its debut this year. We also continue to see interest from a diverse set of artists who want to play the Sphere. Our first country artist, Kenny Chesney, began a 15 show run in May, actually begins a 15 show run-in May. And the Backstreet Boys will start an 18 show residency this summer. In terms of corporate partners, we saw solid advertising demand for the exosphere at the end of twenty twenty four, which has continued into the new year.

Operationally, we have brought our sponsorship and advertising sales efforts back in house. And as we build out this team, we will also be evaluating our go to market strategy for the exosphere and for our sponsorship assets. I’d now like to introduce Robert Langer, our new EVP, Chief Financial Officer and Treasurer. Robert was previously with Disney (NYSE:DIS) where he served in a range of financial leadership roles for over twenty five years. His finance and strategy experience in media and entertainment is an asset to our business and we’re pleased to have him on board.

With that, I’ll turn the call over to Robert.

Robert Langer, Executive Vice President, Chief Financial Officer and Treasurer, Sphere Entertainment: Thank you, Jim, and good morning, everyone. I’m pleased to join you all here today in my new role at Sphere Entertainment. For the December, we generated total company revenues of $308,300,000 and adjusted operating income of $32,900,000 Our Sphere segment generated revenues of $169,000,000 and an adjusted operating loss of $800,000 These results were primarily driven by our original content category, the Sphere Experience, which generated $87,000,000 in revenue across 190 shows in the December. Our results also reflected 12 performances from The Eagles as well as five anime shows at the end of the quarter. In addition, December results included Formula one’s takeover for the Las Vegas Grand Prix, an additional multi day corporate takeover, ongoing advertising campaigns on the exosphere and revenues related to our plans to bring the world’s second sphere to Abu Dhabi.

SG And A expenses for the December were $119,000,000 This includes the impact of $12,400,000 of executive management transition costs and non recurring costs related to MSG Networks (NYSE:MSGN). Excluding the $4,600,000 cash component of executive management transition costs, the Sphere segment would have generated adjusting operating income of $3,800,000 With respect to the March, I would like to remind you that the Sphere segment benefited from the Super Bowl in Las Vegas last year, which included a record setting advertising week for the Exosphere. However, and as discussed earlier, we continue to see solid underlying demand for the Exosphere so far this calendar year. Turning to MSG Networks, the segment generated $139,300,000 in revenues and $33,700,000 in AUI in the December. This compares to the $146,400,000 in revenue and $37,300,000 in AUI in the prior year period.

The decreases in revenue in The UAE mainly reflect lower distribution revenue driven by an approximately 11.5 decrease in subscribers, inclusive of the impact of MSG plus As you know, on January 1, Altice USA dropped MSG Networks from its lineup. However, on February 22, MSG Networks reached a new multi year agreement with Altice that returned its programming to the over 1,000,000 subscribers impacted. In connection with the preparation of our 10 KT (NYSE:KT) filing and in light of the ongoing industry challenges facing MSG Networks, we reassessed the fair market value of the MSG Networks business and recently took a $61,200,000 non cash goodwill impairment charge, which you can see in today’s operating income results. Turning to our balance sheet, as of December 31, we had approximately $5.00 $2,000,000 of unrestricted cash and cash equivalents, including approximately $104,000,000 at MSG Networks. Our debt balance was approximately 1,360,000,000 at quarter end.

This reflected $259,000,000 in convertible debt and the $275,000,000 credit facility related to Sphere in Las Vegas. It also reflected approximately $829,000,000 outstanding on the MSG Networks term loan, which as a reminder is debt that is recourse only to MSG Networks. In February, MSG Networks made a principal repayment of $25,000,000 using cash at MSG Networks, bringing total principal outstanding under the term loan to approximately $8.00 $4,000,000 As you know, MSG Networks is pursuing a refinancing through a workout with its lenders and since October has been in a forbearance period, which currently runs through March 26. Before I conclude, I would like to remind you that we have shifted to a new fiscal year ending December 31. This morning, we filed a transition report for the six months period, which ended 12/31/2024.

The next full twelve months fiscal year will run from 01/01/2025 through 12/31/2025. And with that, we’ll now open the call for questions.

Conference Operator: Thank you. We will now begin the question and answer session. Your first question comes from the line of David Karnovsky from JPMorgan. Your line is open.

David Karnovsky, Analyst, JPMorgan: Thank you for the question. Jim, for the Sphere experience, is there any incremental detail you can give around the planned third show? How you plan to launch or market that? And then related to this, just as that new content rolls on, what’s your vision in terms of adjusting the overall show count or maybe the availability of postcards in U2? Thank you.

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: Hi, David. Well, I don’t want to cut out of the bag, so I’m going to have to dance around the first part of your question. The new experience, which we will not name, we’ll take advantage of the different features etcetera that we’ve built into the sphere, more so than anything we’ve done in the past. So the immersive nature of it, the but the experiential nature of it will be significantly more and significantly enhanced from the postcard experience that we put together. The, let’s see what else can I tell you about it?

It will be iconic. We expect to have announcements about it next month or later this month is the I guess it’s March. As far as BU2 goes, that’s an interesting product because we it is essentially attending the concert without having the band there. And so the BUT was the first of those. But we have been recording other bands.

And the sort of interesting part about this is it’s not expensive at all. In fact, to record a full performance of the band is roughly less than $500,000 And then there’s editing costs, etcetera. So the cost of that product is quite low. And I expect that we’ll continue to build up the library with that and you’ll be seeing those kinds of experiences for years to come in the sphere. Let’s see.

What was the rest of your question or did that cover it?

David Karnovsky, Analyst, JPMorgan: It was about how the overall kind of show count might change or how we might see maybe the postcard show count change once the new show starts? Thank you.

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: Well, what likely is that you’ll see a significantly reduced show count for postcards, but it won’t go away. And in fact, I expect that we’ll be showing postcards in Abu Dhabi as well as BU2. The, it is Evergreen Products. There’s no reason for it to disappear. Having said that, the way that we design the Sphere business is for a competition to occur between concerts, attractions, corporates, etcetera.

And of course, the winner is the one who brings us the most amount of AOI. So that’s how the decisions will be made. Thank you.

Conference Operator: Your next question comes from the line of Brandon Ross from LightShed Partners. Your line is open.

Brandon Ross, Analyst, LightShed Partners: Thanks for taking the questions. Good morning. Jim, on Networks, you did get the LT still done, but the landscape remains very challenged. In your view, what’s the best way to go about fixing your RSN business and setting it up for long term success? Do license fees need to come down?

What’s the right capital structure? Or does the industry just need a totally different local rights model?

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: Good question. I don’t think we know the answer to that question. They, and I don’t think it’s a question that’s unique to MSG Networks. I think it’s a question that really goes to all of the content providers, right, across the landscape. And we’re still seeing it, right?

I mean, obviously, there’s a reduction in cable subscribers, right? There’s the launch of the streaming product, right? But in the end, it comes down to monetization of product and what’s the best way to monetize the product. Clearly, the traditional methods, which really did a great job of monetizing the product, are no longer as viable as they used to be. So we do have to find underway, but I don’t think that path is clear yet.

Brandon Ross, Analyst, LightShed Partners: Okay. And then in the prepareds, you mentioned your aim to drive cost efficiencies. Can you elaborate on that? You’ve been running the business for, what, eighteen months now and presumably have a better handle on what the cost structure at the Sphere segment needs to be. Are there opportunities to take costs out at this point?

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: Yes. Well, not been I guess it has been just about eighteen months to the day. And remember that it’s a brand new business that the no one’s ever operated a business like this before. So yes, I think there’s opportunities to take the big costs out. I think actually that you should expect a lot of that this year with an improved bottom line.

And I think we’ll become and we are becoming more efficient, more efficient with content, we’re more efficient with how we operate the business, how we schedule the shows, the really across the board. And so I think that this upcoming year will obviously be our best year yet, but it will reflect a significant change in our efficiency and our results to the bottom line. That’s what we’re expecting.

Brandon Ross, Analyst, LightShed Partners: Great. Thank you very much.

Conference Operator: Your next question comes from the line of Peter Henderson from Bank of America. Your line is open.

Peter Henderson, Analyst, Bank of America: Good morning and thank you for taking the questions. Two just on the expansion opportunities, if I may. First,

Peter Cipino, Analyst, Wolfe Research: can

Peter Henderson, Analyst, Bank of America: you provide us with an update regarding the planned Abu Dhabi sphere, including estimated construction costs, when the venue is expected to open, etcetera? And then the second one is, I think you mentioned discussions with other markets in your prepared remarks. And just curious if you can provide an update on expansion efforts and whether or not you’re considering expanding or currently in discussions to expand domestically? Thanks.

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: All right. I think Digger I’ll let Digger answer the first part of that one. Maybe I’ll take the second part.

Digger, Sphere Entertainment: Sure. With respect to Abu Dhabi, we’re working very closely with DCT Abu Dhabi, our partner on venue design and pre construction planning. We expect to share more details, including site location, as you mentioned, and estimated opening timing once DCT has finalized those plans, so we’re not prepared to do that yet and need to do that in conjunction with them. In terms of construction costs, we continue to work with DCP to finalize those plans. Look, we’ve learned and Jim has mentioned this before, we learned a lot during the construction of the Sphere in Las Vegas and we’ll apply that obviously to those learnings to Abu Dhabi.

Most importantly and as a reminder, our partner in Abu Dhabi is fully funding the construction project.

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: As far as expansion goes, beyond Abu Dhabi, we’re currently working on the architecture for a smaller sphere, which we think will be deployable to more markets. Somewhere in the 5,000 seat range, the But we’re looking to take advantage of the content we’ve created already and the business we’ve created already and bringing it out to other markets. So I anticipate by year end we’ll have more to say about that. But right now we’re in the planning and design phase. Thank you.

Conference Operator: Your next question comes from the line of Peter Cipino from Wolfe Research. Your line is open.

Peter Cipino, Analyst, Wolfe Research: Hey, good morning, everybody. A question about the residency business. In the first half of twenty twenty five, the Sphere is set to host 55 shows. I think there were 37 in the first half of last year. We’re wondering what you’ve learned that might have allowed you to host more residency shows this year and then have another one

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: if you would. Sure. I mean, the, it’s really I mean, we have a desire to do those concerts. And the artist has a desire to play the sphere. And it’s driven by a bunch of different factors.

Probably one is most importantly is the experience that the fans have in the scheme, particularly having to do with the sound, which is really the best sound in the world. So bands that value that, which is honestly most bands, really want to come and play the sphere. Now we know that the content costs, right, are high for a band, but they’re offset by the fact that it’s a residency. So a band that is a touring band has to go to 50 cities, right, pay for all the transportation, all of the lighting, everything moved from place to place. And you compare that cost up against the cost of content, and I actually think content is less expensive.

And so the bottom line for the band is they do better. And so that’s part of what drives the demand.

Peter Cipino, Analyst, Wolfe Research: On the same subject, I wonder if longer term, if the main gating factor to residency and concert growth events volumes at even higher levels is the produced content. And is that right? And if so, is there an opportunity to make progress on making it easier to make the content?

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: Yes and no and yes. The, I already kind of answered the content question, right? So that the, I mean, I don’t really see that as being a big barrier. What I really see as the barrier to more concerts and it’s not it’s I don’t know if barrier is the right way. It’s this competition is going to continue to go on, right?

The, the new show, right, corporates, etcetera, all vying for use days the inside of the sphere. And so if there’s anything that’s going to limit concerts, it’s probably going to be that.

Peter Cipino, Analyst, Wolfe Research: That’s a good problem.

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: Yes, it is.

Conference Operator: Your next question comes from the line of Ben Swinburne from Morgan Stanley (NYSE:MS). Your line is open.

Peter Cipino, Analyst, Wolfe Research: Thanks. Good morning, Jim. Wanted to continue this sort of topic of kind of mix of revenues and sort of optimizing monetization at the Sphere. When you think about the longer term revenue growth drivers for the business, how do you sort of I don’t know if you’ll rank them for us, but now that you’ve ramped up the residencies, but you’re continuing to invest in experiences, what do you think as we look at the 2024 revenue base really drives the top line for the company on the Sphere side? And do you think that the residency that, that answer to that question in Vegas is going to be different for the Abu Dhabi and sort of the network of spheres over time?

Thank you.

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: Wow, okay. Let’s try and parse that question apart. Between Abu Dhabi and Las Vegas, I do not think that Abu Dhabi will be a carbon copy of Las Vegas when it comes to things like residences etcetera. Although I definitely believe there will be residences in Abu Dhabi. But I think that the content has to be customized to the marketplace.

And the marketplace in Abu Dhabi is going to be different probably than the marketplace in Las Vegas. So I think that there will be some differences. I think bottom line, it’s going to be just as robust of a product and Abu Dhabi as it is in Vegas, but probably with a different mix of content. All right. Let’s see.

Now what was the rest of your question?

Peter Cipino, Analyst, Wolfe Research: Basically, just trying to understand how you see Vegas’ revenue growth over time. You did over $600,000,000

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: in

Peter Cipino, Analyst, Wolfe Research: calendar twenty four.

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: So, short term meaning like this year, right, I think that the biggest opportunities are in the operating efficiencies and how well we exploit the marketplace, right? The nuts and bolts of operating the business, I think that’s that short term is going to provide a boost. Longer term, the it’s an interesting competition right about but if I had to pick one, I would probably say that the expansion of more spheres is probably my one I think will deliver the most. I mean essentially it’s a bit of a franchise model, right? And what we make to play in Las Vegas will play everywhere else.

And so therefore you get to spread the capital costs out across a greater base. And so as far as like the overall business equation goes, I think that’s probably best opportunity. But there are plenty of other opportunities that are there and probably some we don’t know yet. But that would be my number one.

Peter Cipino, Analyst, Wolfe Research: That’s very helpful. If I could ask a follow-up maybe to Robert on the sort of liquidity free cash flow front. Obviously, we’ll see how Networks plays out here in a couple of months, but that’s still a cash generating asset for the company today. Can you just talk about how we should think about your liquidity position and kind of funding sphere, particularly if we sort of remove Networks from the equation as we look at the next year or two? Thanks for your

Robert Langer, Executive Vice President, Chief Financial Officer and Treasurer, Sphere Entertainment: help. Sure, Ben. As I mentioned kind of early in the prepared remarks, we are actually quite comfortable with our liquidity position. We at year end, we ended the year end with slightly above $500,000,000 in cash balance, $104,000,000 was at MSG Networks. So we have $400,000,000 in unrestricted cash and equivalents at the Sphere segment.

As Tim was pointing out, we’re actually optimistic in regard both the revenue side kind of for our calendar year this year, driven by kind of new offerings at the Sphere segment, but all the residency and the Exosphere, which we see on a good track, as well as kind of your cost initiatives which we’re putting in place both on the operational side as well as kind of on overhead side. So we do believe that, we have the potential to drive adjusted operating income in a meaningful way this year. And this will put us in a great position to invest both short and longer term in content and technology. So kind of overall, we think we are kind of in a very sound position here.

Peter Cipino, Analyst, Wolfe Research: Thank you.

Ari Daines, Investor Relations, Sphere Entertainment: Thanks, Ben. Operator, we have time for one last caller.

Conference Operator: Your final question comes from the line of David Joyce from Seaport Research Partners. Your line is open.

Ben Swinburne, Analyst, Morgan Stanley: Thank you. A couple related to sponsorship. Jim, you alluded to earlier that you brought the sponsorship sales efforts back in house, but how does that change the go to market strategy for the sponsorship and for the Exosphere, if you could drill down on that a bit more? And then also kind of related to that, what are the largest untapped opportunities for sponsorship, including various types of naming rights? Thanks.

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: So I’m going to turn that over to my Chief Operating Officer, Jen, who’s in charge of making it all work. Let them have it, Jen. Thank you, David.

Ari Daines, Investor Relations, Sphere Entertainment0: So as Jim mentioned earlier, we’ve, brought our sales efforts back in house and we’re building out that team. So that in combination with the year of learnings under our belt, we think we’re positioned well for long term success. We really continue to see a lot of solid interest from brands to advertise on the exosphere. And with all those learnings, we’re going to take a fresh look at our go to market strategy. So we will be looking at adjusting pipe pricing and packaging.

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: We’re going

Ari Daines, Investor Relations, Sphere Entertainment0: to focus on establishing and expanding relationships with CMOs and media agencies directly. And we’re going to look at more targeted efforts that are aligned with the convention market in Vegas. So, it’s premature to say, but we are definitely more confident in the upside from here. Let me get your do you have a second question?

Ben Swinburne, Analyst, Morgan Stanley: Just what the largest untapped opportunities are including various types of naming rights?

Ari Daines, Investor Relations, Sphere Entertainment0: So, we’ve announced a number of deals already, Verizon (NYSE:VZ), Ticketmaster, Experience, Abu Dhabi. There’s a lot of opportunity. And in terms of ongoing discussions, the exosphere is always going to be a big draw when we have those conversations, as well as other premium inventory opportunities like entitlements and integration when we think about the various spaces within that beautiful venue. And Sears is a premium global brand. So we’re going to continue to be protective of that brand and thoughtful in terms of who we partnership partner from with from a sponsorship standpoint.

Naming rates and the potential there still remains, but I think that’s going to be a pretty high bar if we move forward there.

Jim Dolan, Executive Chairman and CEO, Sphere Entertainment: I don’t really think, to be honest, that you’re going to ever see a name in front of the sphere. The you may see right now you see a name after the sphere, Venetian, right? But I don’t think that you’ll ever see a name in front of it, just like there’s no name in front of Madison Square Garden. The value of the brand equity is too high, right, to sacrifice that to a naming opportunity.

Ben Swinburne, Analyst, Morgan Stanley: Makes sense. Thank you very much.

Conference Operator: And that concludes our question and answer session. I will now turn the call back over to Ari Daines for closing remarks.

Ari Daines, Investor Relations, Sphere Entertainment: Thank you all for joining us. We look forward to speaking with you on our next earnings call. Have a good day.

Conference Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.

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