Earnings call transcript: Sphere Entertainment sees modest revenue decline in Q1 2025

Sphere Entertainment Co. (SPHR) reported its first-quarter 2025 earnings, revealing a slight miss in both earnings per share (EPS) and revenue compared to forecasts. The company posted an EPS of -$2.27, narrowly missing the expected -$2.26. Revenue came in at $280.6 million, below the anticipated $285.01 million. According to InvestingPro analysis, the stock is currently trading at an attractive Price-to-Book ratio of 0.45, though the platform’s Fair Value calculations suggest the stock may be slightly overvalued at current levels. Despite the minor shortfall, Sphere Entertainment’s stock showed resilience, with a pre-market increase of 0.59%, reflecting a $0.18 rise to $29.96.

Key Takeaways

• Sphere Entertainment’s revenues decreased primarily due to lower performance in the Sphere experience and advertising sectors.
• The company emphasized cost efficiencies, reducing SG&A expenses by $12.6 million.
• Sphere welcomed over 500,000 guests to its experiences, highlighting strong demand.
• Development of smaller Sphere models and a new Sphere in Abu Dhabi are underway.
• New marketing partnerships with Pepsi and Google were announced.

Company Performance

Sphere Entertainment’s performance in Q1 2025 was marked by a decline in total revenues, largely driven by reduced earnings from its Sphere and MSG Networks segments. Despite these challenges, the company reported a modest increase in adjusted operating income, thanks to effective cost management strategies. The Sphere segment saw revenues drop from $170.4 million to $157.5 million, while MSG Networks’ revenues fell from $151 million to $123 million.

Financial Highlights

• Total revenue: $280.6 million, down year-over-year.
• EPS: -$2.27, slightly missing the forecast of -$2.26.
• Adjusted operating income: $36 million, reflecting cost efficiencies.
• Cash and equivalents: $465 million.
• Total debt: $1.34 billion.

Earnings vs. Forecast

Sphere Entertainment’s Q1 2025 earnings showed a minor miss, with EPS at -$2.27 against a forecast of -$2.26, and revenue at $280.6 million compared to an expected $285.01 million. The revenue shortfall of approximately 1.5% was primarily attributed to weaker-than-expected performance in the Sphere experience and advertising revenues.

Market Reaction

Despite the earnings miss, Sphere Entertainment’s stock experienced a slight uptick, with a pre-market increase of 0.59%. InvestingPro data shows the stock has demonstrated significant volatility, with a beta of 1.5, while delivering a strong 9.81% return over the past week despite a challenging -32.02% six-month performance. The stock’s resilience suggests investor confidence in the company’s strategic initiatives and cost management efforts. The current stock price remains well above its 52-week low of $23.89, indicating a stable position within its trading range.

Outlook & Guidance

Looking ahead, Sphere Entertainment is focusing on expanding its Sphere model globally, with a new location planned in Abu Dhabi. The company is also exploring smaller, more deployable Sphere models to enhance its international presence. Continued emphasis on original content and strategic partnerships, such as those with Pepsi and Google, are expected to drive future growth.

Executive Commentary

CEO Jim Dull emphasized the company’s innovative approach, stating, "We built this business on a disruptive model that utilizes the venue three hundred and sixty-five days a year." He also highlighted the profitability of original content over concerts, noting, "Concerts would not be as profitable as original content."

Risks and Challenges

• Declining revenues in key segments like Sphere and MSG Networks.
• High total debt of $1.34 billion, which could impact financial flexibility.
• Potential challenges in international expansion and market penetration.
• Dependence on tourism and economic conditions in key markets like Las Vegas.
• Competition from other entertainment venues and content providers.

Q&A

During the earnings call, analysts inquired about Sphere Entertainment’s international expansion strategy and its go-to-market approach for the Exosphere. The company addressed these concerns by outlining plans for strategic transactions and cost optimization efforts, reinforcing its commitment to driving profitable growth.

Full transcript - Sphere Entertainment Co (SPHR) Q1 2025:

Conference Operator: Good morning, and thank you for standing by. Welcome to the Spear Entertainment Company First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ remarks, there will be a question and answer session. 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 fiscal twenty twenty five first quarter earnings conference call. Today’s call will begin with our Executive Chairman and CEO, Jim Dull, 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 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 Dull, Executive Chairman and CEO, Sphere Entertainment: Thank you, Ari, and good morning, everyone. Today, we reported positive adjusted operating income in the March for the Sphere segment. And as we look ahead, we’re confident that we can continue to drive growth this calendar year. We will get there by executing on the priorities we have previously outlined. These include hosting an array of concerts and other third party events, optimizing the go to market strategy for the Exosphere and sponsorships, and driving operational and cost efficiencies across our business.

We are also focused on creating a diverse slate of original content for this new medium. This past quarter, we welcomed over half a million guests to the Sphere experience, bringing total revenues for our original content category to over 500,000,000 since its debut in October of twenty three. These results continue to demonstrate the importance of original content to Sphere’s business model. We have multiple projects in development, and we remain on track to debut our next Sphere experience this year. We’re also making progress in attracting a variety of music genres for the Sphere this year, including our first country and pop residencies.

Due to strong consumer demand, we have routinely seen acts ad shows at the venue. For example, both Dead and Company and the Eagles are on pace for over 40 performances at the Sphere, the equivalent of a national arena tours. In addition, Sphere is gaining traction as a platform for brands. This includes corporate takeovers of the venue. For example, this past January, during CES, we hosted a keynote event from Delta Airlines.

We also recently announced new marketing partnerships with Pepsi and Google. Both of these agreements include significant exposure on the exosphere, which has continued to see strong overall demand. Turning to MSG Networks. Last month, MSG Networks and its lenders agreed to reduce and restructure its existing debt obligations. The proposed transaction would also see the Knicks and Ragers reduce their local rights fees with MSG Networks.

All parties have agreed to work together to support and finalize the transactions by June 27. And with that, I would like to 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. For the March, we generated total company revenues of $280,600,000 and adjusted operating income of $36,000,000 Our Sphere segment generated revenues of $157,500,000 as compared to $170,400,000 in the prior year period. The decrease was mainly driven by lower revenues from the Sphere experience as well as lower revenues from advertising campaigns on the Exosphere. As a reminder, we benefited from the Super Bowl in Las Vegas in the prior year period, which included a record setting advertising week for the exosphere. These revenue decreases were partially offset by an increase in event related revenues with 10 additional concerts in the quarter as well as the impact of Delta’s corporate takeover during this year’s CES.

Results for the quarter also include the impact of revenues related to our plans to bring the world’s second Sphere to Abu Dhabi. Adjusted operating income of $13,100,000 was up modestly as compared to $12,900,000 in the prior year period. This reflected the decrease in revenues and higher direct operating expenses more than offset by lower SG and A expenses. The increase in direct operating expenses was primarily due to higher event related expenses and venue operating costs, partially offset by lower expenses associated with the Sphere experience. SG and A expenses for the March were $96,400,000 a decrease of $12,600,000 year over year.

This includes the impact of the company’s focus on driving cost efficiencies this year.

: Turning to MSG Networks, the segment generated $123,000,000 in revenues and $22,800,000 in AOI in the March. This compares to $151,000,000

Robert Langer, Executive Vice President, Chief Financial Officer and Treasurer, Sphere Entertainment: in revenue and $48,600,000 in AOI in the prior year period. The decreases in revenue and AOI mainly reflect the impact of the non carriage period by Altice from January 1 through February 21 as well as lower distribution revenue driven by an approximately 11.5% decrease in subscribers. Turning to our balance sheet. As of the end of the quarter, we had approximately four sixty five million dollars of unrestricted cash and cash equivalents, including approximately $110,000,000 at MSG Networks. Our debt balance was approximately $1,340,000,000 at quarter end.

This reflected $259,000,000 in convertible debt and a $275,000,000 credit facility related to Sphedr in Las Vegas. It also included approximately $8.00 $4,000,000 under the MSG Networks term loan. As Tim discussed, MSG Networks and its lenders have reached a proposed amendment with respect to its outstanding debt. This proposed transaction would also result in amendments to the local rights agreements with the Knicks and the Rangers. We’ll continue to keep you updated as all parties work towards completing these proposed transactions by June 27.

And with that, we’ll now open the call for questions.

Conference Operator: Your first question comes from Brandon Ross with LightShed. Please go ahead.

Brandon Ross, Analyst, LightShed: Hi, thanks for taking the questions. I thought one of the more interesting announcements in the quarter was to work with Google and create a new product. And just wanna hear a little bit more about that relationship. And it made me wonder, could be more generally here, whether it’s lowering the cost or I know a barrier for all of it.

Ari Daines, Investor Relations, Sphere Entertainment: Next question and come back to him so we can get a better connection. Yeah. Will do. Brandon, you’re coming across very choppy. Do want to try that one more time?

And if not, maybe we’ll circle back to you later in the call.

Conference Operator: Your next question comes from David Karnovsky with JPMorgan.

Brandon Ross, Analyst, LightShed: Jim,

David Karnovsky, Analyst, JPMorgan: would be interested to hear a bit more on what you’re observing for the tourism market in Vegas right now, kind of given the macro. Has there been any notable change in visitation or spending worth calling out? And then for Sphere, do you have a sense of your original content or residencies, the percentage of guests coming from international markets, and, you know, any kind of

Ari Daines, Investor Relations, Sphere Entertainment: mix shift there to date? Thank you.

Jim Dull, Executive Chairman and CEO, Sphere Entertainment: I can answer the well, let me answer the first one. Maybe you can give me that second one again. So that they look. The the Las Vegas has over 40,000,000 visitors every year. So far, we’ve seen that the international accounts for a little over 20% of the guests to spear and, then 10% for concerts.

We really haven’t seen any change. Right? So I think, you know, there’s a lot there’s a little bit of, chicken little going on in in our economy with that. Right? Maybe later on, we’ll see some substantive, you know, reaction from the from the marketplace.

But right now, we’re we’re really not seeing it. So and and even if we did, it doesn’t account for that bit that big of a of a difference. Right? And, you know, I think, in general, when when it comes to concerts, demand exceeds the,

: you

Jim Dull, Executive Chairman and CEO, Sphere Entertainment: know, capacity. So we we have room to absorb any issues from that should they occur. What was the second part of your question?

David Karnovsky, Analyst, JPMorgan: The second part was on international, visitation, but the first part was just on, forward demand, generally.

Jim Dull, Executive Chairman and CEO, Sphere Entertainment: Did I just answer that?

Ari Daines, Investor Relations, Sphere Entertainment: Yes. Thank you. Okay. Thanks, David.

Conference Operator: Your next question comes from Steven Lasechuk with Goldman Sachs. Please go ahead.

Steven Lasechuk, Analyst, Goldman Sachs: Hey, thanks for taking the questions. Jim, would be interested if you could talk a little bit about the opportunity you see for the new Sphere experience shows, OZ and From the Edge to drive higher revenues compared to what that business is run rating at today. Just curious any early expectations on drivers like show count pricing sell through. Would be would be curious in your thoughts there.

Jim Dull, Executive Chairman and CEO, Sphere Entertainment: Well, we we are you know, I mean, the the postcards from Earth was our what we call around here our first pancake. So, yes, we’re expecting the second pancake to be better. Maybe we’ll add some blueberries in. The the but yeah. No.

I I think, you know, both productions take, take better advantage of the medium, right, are gonna be more experiential, more impactful, and, so, therefore, a better product. And along with a better product, yes, comes probably higher higher ticket prices, etcetera. And, yeah, we’re expecting, great things from both of those products. So I think the answer is yes.

Steven Lasechuk, Analyst, Goldman Sachs: Thanks for that. And then, maybe just on residencies. I’m not sure how much she can say at this point, but, would be curious in an update on the opportunity to add concert residencies in ’25 above and beyond what what you have today, and then any early look into the slate into ’26?

Jim Dull, Executive Chairman and CEO, Sphere Entertainment: So, you know, we’re we we try not to get ahead of the of the announcements. Right? The the but I’ll give you an overall characterization with the we still are in a great position here. We’re we’re in discussions with multiple artists. We have we’re we have more demand from artists than we have availability of slots that they, which is, you know, is good for us, but we’re trying to accommodate everything.

The the the other thing that’s going on is, like, the artists who have been here are extending. Right? They they they you know, once they get used to playing the spear, right, it’s for for an artist, it’s a pretty good situation. They don’t have to travel. They don’t have all the overhead costs that go along with that.

They they get similar kind of of revenues that they do for when they mount a tour, but without a lot of the expenses and a lot of the and a lot of the headache. And then, of course, probably most important is the experience that they’re providing for their own fans, which is really over the top. So, you know, simply, you know, I don’t want like I said, I don’t wanna get ahead of, of ourselves in terms of announcements, but, but the pipeline is very full. I’ll put it that way.

Steven Lasechuk, Analyst, Goldman Sachs: Thank you.

Conference Operator: Your next question comes from Peter Cipino with Wolfe Research. Please go ahead.

Jim Dull, Executive Chairman and CEO, Sphere Entertainment: Good morning. Thanks. A question about your sphere expansion around the world. Is it fair to assume that most of the conversations that you are having about future sphere spheres, are are with parties outside of The United States? And if that’s the case, has the broader geopolitical tension led to any change in sentiment with these parties and and, specifically in Abu Dhabi?

Thanks. Sure. That the yes. We’re definitely talking worldwide about Sphere. But we do have another initiative that I think is is very important that we’re we’re undertaking this year.

The and that is we’re in the right in the middle of designing a smaller Sphere, right, that would be deployable to, to markets inside and outside The US. The, the strategy there is to build faster, cheaper, have a have a ROI that, you know, not only justifies it, but makes hopefully investors enthusiastic. I’m enthusiastic that they and so, I mean, I expect that by the end of the year, we’ll be talking about that new smaller sphere product as as another way of expanding the business as well as continuing to build spheres like we are in in Abu Dhabi and in other markets.

Ari Daines, Investor Relations, Sphere Entertainment: Thanks, Peter. Operator, we’ll take the next caller.

Conference Operator: Your next question comes from Peter Henderson with Bank of America. Please go ahead.

: Good morning. Thank you for taking the questions. I have two. First for Jim, when you recently entered into the transaction support agreement with lenders that is going to reduce the debt and local media rights agreements to fees for the next and the rangers. Can you just discuss the the long term plan for for MSGN and and the potential for street strategic react transactions, including, you know, potentially an outright sale or merger with other RSNs?

And then the second question is for Robert. Expenses for Spear came in better than forecast in the quarter. I’m just wondering how you think about how we should think about cost moving forward and the opportunity for you to take out more costs. Thank you.

Jim Dull, Executive Chairman and CEO, Sphere Entertainment: Alright. I’ll go first. You go second. Alright. So in regards to the the networks, the the were we’re pursuing a new model.

The the the which is, you know, a bit of a hybrid between the old traditional linear distribution and the and the streaming distribution. And that has not I mean, this is this is something that’s facing the entire content world, not just us. Not the so we have to learn how to how to make a a real a business out of that. Let the and the idea of partnering with other other groups that are in the same business probably, I would say, you know, is of interest to us. The the but, you know, we’re first, we’re happy to get through the restructuring because under the old structure, there was no way that we could have pursued that business.

So that they so that they so now having been through now getting through that, and we’re not through it till the June, that they we’re gonna we’re gonna focus on the new model. We’re gonna look at at the yes. And possibilities of strategic partnerships, all keeping an eye on, you know, what will the consumer really, you know, latch onto and accept as as a place to come to all these great events. Robert, go ahead.

Robert Langer, Executive Vice President, Chief Financial Officer and Treasurer, Sphere Entertainment: And, Peter, on your question about, cost. So this year, we’re, we’re really quite focused on driving profitable growth, and one of the priorities here is to optimize our infrastructure. This includes on the on the one hand to identify areas for potential cost efficiencies, while on the other hand, we obviously wanna maintain our structure where which can deliver on our vision for global network of spheres over time, which which offer a diverse and, you know, kind of different immersive and exciting set of experiences to our guests. So heading into this year, we identified a number of areas where we are able to reduce our SG and A cost, such as corporate support functions, and that’s what you see reflected in in our q one results. As we are only out of our second full year of operations, we’ll obviously continuously look for other efficiency where it makes sense for us, But like we’ll also find new opportunities for growth and reinvestment as well.

Brandon Ross, Analyst, LightShed: Thank you.

Jim Dull, Executive Chairman and CEO, Sphere Entertainment: Another question?

Conference Operator: Your next question comes from Brandon Ross with LightShed. Brandon, please go ahead. Back, Brandon.

Ari Daines, Investor Relations, Sphere Entertainment: You on, Brandon?

Conference Operator: Brandon Ross, your line is open.

Jim Dull, Executive Chairman and CEO, Sphere Entertainment: I think Brandon must be at Boston. I heard all their Wi Fi and connectivity went down last night. Alright. How are you guys? Well, we are, Brandon.

Wait. Wait. Wait. When you all look at this business and when you you invest in it, the it is not the venue business. In fact, it the you know, we built this business on a disruptive model.

The the that utilizes the venue three hundred and sixty five days a year. Right? And even had and had multiple events during, you know, during the day. So, you know, key to, like, concerts, the the concerts would not be as profitable as original content. Right?

The the if if on a concert day, we only did the concert. Right? But, like, with the Eagles, right, the and with the dead, we’re running two shows two original content shows on the same day as the as the, you know, as the concert, and that that makes for a very profitable day. The the and so so when you look at the company and its and its development, when I look at the company and its development, it’s all about growth. Right?

It’s all about our ability to take what we see as a great product and then expand it out across the globe. And when so do not expect us, right, for instance, in questions about how we use our capital. Right, it’s gonna primarily be towards growth, right, so that we can make the business bigger and and reach the goals that that we have for it versus, you know, the the necessarily returning capital to shareholders, right, the the etcetera. So and I take a look at this new new new project of building a smaller sphere, and there’s a real, I think, real opportunity. There’s tremendous amounts of opportunity inside of this business, inside of this medium, and we’d be foolish to sit there and say, okay.

We’re good here and and and and call it a day. And so when you look at the company, that’s how I think you should look at it. That’s how I look at it.

Ari Daines, Investor Relations, Sphere Entertainment: Operator, is there any other analysts in the queue?

Conference Operator: Yes. Your final question comes from David Joyce of Seaport Research Partners. David, please go ahead.

Jim Dull, Executive Chairman and CEO, Sphere Entertainment: Thank you. I wanted to ask about the Exosphere and sponsorship. Could you please update us on the go to market strategy and your outlook there? Any further color on sponsorship activations you’re seeing or expecting, that would all be helpful. Thank you.

I think I think Jen Foster, our COO, is on the call. Are you on the call, Jen?

Jen Foster, Chief Operating Officer, Sphere Entertainment: Yes, sir. I am,

Brandon Ross, Analyst, LightShed: Jen. Okay.

Jen Foster, Chief Operating Officer, Sphere Entertainment: Can you hear me?

Jim Dull, Executive Chairman and CEO, Sphere Entertainment: Ready to he’d be ready to answer this question?

Jen Foster, Chief Operating Officer, Sphere Entertainment: Sure. Thanks, David. So as Jim mentioned earlier, in his opening remarks, we have been taking a fresh look at our go to market strategy, and that includes a number of focus areas. So we’ve been evaluating changes to our packaging and pricing, establishing and expanding our relationships with our media agencies, and really thinking about more targeted efforts, related to the convention and conferences market in Vegas. So I’m I’m pleased to say we’re making progress in all of these areas.

So first, when we start with pricing and packaging, we’re introducing new offerings, and and these offerings are really aimed at better maximizing value for our advertisers. So we’ve got new features like fifteen second bumpers or sixty second ad spots instead of the previous ninety sec ninety second ones we were using, and that’s gonna allow for more frequent exposure and delivery, across better across our social media platforms, which is, you know, highly advantageous to our advertisers. We are also making progress when it comes to media agencies, and we’ll have more to announce in the coming months, but looking to formalize those relationships so that we really can lock in those upfront access to your ad buys so that we can create that recurring business model. The focus on convention and conference market, we are really seeing that resonating with our brands. And so you saw that in this past quarter results, and that reflected advertising buys during CES as well as the Adobe Summit.

And finally, when we think about sponsorships, we really remain focused on building that because, again, it’s this recurring book of business. And as Jim mentioned earlier, we’ve announced multiyear partnerships already this year with major brands like Google and Pepsi. So we’re making progress with brands, and I really expect to have more to share in the coming months. So thanks for the question.

Jim Dull, Executive Chairman and CEO, Sphere Entertainment: Great. Thank you very much.

Conference Operator: That will conclude our question and answer session. I will now turn the call back over to Ari Danes 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: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.

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