Good morning. Thank you for standing by and welcome to the Madison Square Garden Entertainment Corp. Fiscal 2022 Third Quarter 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 Danes, Senior Vice President, Investor Relations. Please go ahead. .

Thank you. Good morning and welcome to MSG Entertainment's fiscal 2022 third quarter earnings conference call. David Byrnes our EVP and Chief Financial Officer will begin today's call with a discussion of the company's Entertainment and Tao Group segments. This will be followed by an update from Andrea Greenberg, President and CEO of MSG Networks.

David 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 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, and events may differ materially from those in the forward-looking statements as a result of various factors.

These include financial community perceptions of the company and its business, operations, financial condition, and the industry in which it operates, as well as the factors described in the company's filings with the Securities and Exchange Commission, including the sections entitled 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 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 David..

Thank you, Ari and good morning everyone. I am pleased to join you today and would like to begin by discussing the positive momentum we are generating across our Entertainment and Tao Group Hospitality segments.

Our core live entertainment business is once again thriving and delivering results that are at or above pre-pandemic levels in many important areas. The outlook for this business is bright. With our unique portfolio of live offerings, we expect to continue benefiting from the pent-up demand from artists to sour and from their fans to gather.

This desire for shared experiences also plays to Tao Group's strength which has seen its business come roaring back since capacity restrictions were lifted last year in its key markets.

In addition, Tao's acquisition of Hakkasan last year cemented its place as a global leader in premium dining and hospitality one that is well-positioned for expansion moving forward.

At the same time, we continue to make meaningful progress on our company's next chapter, MSG Sphere, which we believe will deliver an entirely new medium for immersive experiences. Our first MSG Sphere venue remains on track to open in Las Vegas in the second half of calendar 2023.

We plan to top off the buildings Steel Exosphere later this month, a key milestone in our construction process. This 366-foot-tall spherical steel structure surrounds our venue and will ultimately be covered with approximately 580,000 square feet of fully programmable LED panels, forming the largest LED screen on Earth.

It will be an impactful display for partners to showcase their brands, create unique activations and promote content. As we make our way towards the opening of the venue, we've been energized by the interest we're seeing from potential partners.

This includes discussions with leading filmmakers about the creation of original immersive attractions with global artists for concert residencies at the venue, with promoters of marquee events and with potential corporate partners, who see substantial value in the platform's capabilities inside and out.

In fact, we recently formed an exciting multiyear partnership for MSG Sphere with Formula 1, starting with next year's inaugural Las Vegas Grand Prix.

F1's entry into Las Vegas reinforces the market's position as the destination for major sports and entertainment events and MSG Sphere's prime position along the circuit presents a high-profile opportunity for both our company and F1.

We will be able to showcase the venue to a global audience of entertainment and sports fans both in-person and watching broadcast of the event around the world.

And this integrated partnership will give F1 significant access to the venue and our grounds for thousands of race fans as well as takeovers of our exterior LED display for race-related content activations and advertising. There are also potential hospitality opportunities beyond MSG Sphere to include Tao Group.

We are pleased that MSG Sphere will be such a prominent part of this global event and believe this type of corporate partnership is just the start for us.

We look forward to sharing more on our overall progress in the months ahead and remain confident that we are positioning our company to drive long-term growth and value creation for our shareholders. With that I'd now like to go through operational highlights from our third quarter, starting with the Entertainment segment.

Our venues were again filled this past quarter with a wide variety of live events including concerts, marquee sporting events and New York Knicks and Rangers home games. In aggregate, we hosted nearly 170 events and welcomed nearly 1.3 million guests to our venues during the quarter.

These results would have been even stronger had it not been for the Omicron variant, which resulted in the postponement or cancellation of about 30 events originally scheduled in the quarter and also caused the dip in attendance in January.

Still, the impact of the variant on attendance was short-lived and by February, the percentage of ticket buyers attending our events had essentially returned to pre-Omicron levels demonstrating the resilient demand for live entertainment.

We were also pleased with the strong level of spending by our guests inside our venues as food beverage and merchandise per caps again exceeded pre-pandemic levels by a strong double-digit percentage this past quarter.

Looking ahead, we expect to maintain our positive bookings momentum in our fiscal fourth quarter with the overall event count anticipated to exceed results for our third quarter, albeit with a greater skew towards our theaters given the Knicks and Rangers have now completed their regular seasons at the Garden.

We're also looking forward to the return of the Boston Calling Music Festival in a few weeks. And I'm pleased to share that ticket sales have been performing well, as we head into this final stretch for Memorial Day weekend.

In addition to benefiting from strong consumer demand, we've also been pleased with the activity we're seeing in marketing partnerships, as companies look to reconnect with consumers.

With the launch of Mobile Sports Betting in New York earlier this year, we were thrilled to play an important role in helping our first gaming partners BetMGM and Caesars Sportsbook, hit the ground running and capture meaningful market share.

During this past quarter, we took another significant step forward by entering into a multi-year agreement with DraftKings in a deal that leverages the assets across our entire portfolio and through our representation agreement, the assets and brands of MSG Sports.

We have spoken before about how meaningful the opportunity in sports betting would be for us and I'm proud to say, with these three partnerships in place, that our sponsorship revenue is now firmly exceeding pre-pandemic levels on a go-forward basis.

Increased corporate demand has also extended into premium hospitality, where our suites business has also returned to pre-pandemic levels. And as more employees return to the office and corporate entertaining makes a more complete comeback, we believe there will be a renewed drive towards best-in-class premium offerings, which plays to our strengths.

Moving now to Tao Group, which has also benefited from return of live experiences, particularly in key markets such as Las Vegas and New York.

Although, Omicron had a temporary impact on operations and demand at the start of the fiscal third quarter, Tao's business started to pick up again in February and in March, Tao posted its highest monthly revenue total since capacity restrictions were lifted in key markets last summer, which we believe sets the stage for a strong fourth quarter.

Similar to our entertainment business, Tao continues to benefit from robust guest spending, with average check sizes continuing to track meaningfully above pre-pandemic levels.

And since the acquisition of Hakkasan last year, Tao continues its strategic expansion, recently launching Lavo in Los Angeles and celebrating the grand reopening of a completely renovated Tao Beach in Las Vegas. Tao also has a robust pipeline of new venue openings over the next 12 months, which we expect to be a key growth engine for the business.

So as we look back on the quarter for our Entertainment and Tao Group segments, we are proud of the resiliency our business has shown and we're excited about the road ahead, particularly as we prepare to open MSG Sphere in Las Vegas next year. With that, I will now turn the call over to Andrea..

Thank you, David, and good morning. While the operating environment has been a dynamic one this year, we are pleased with how we've adapted, successfully delivering full regular-season telecast schedule for our five NBA and NHL teams.

And with the start of NHL post-season last week, we are now airing live on MSG Network every Rangers first round playoff games, an extensive pre- and post-game coverage for each Rangers game in all playoff rounds.

With regard to our fiscal third quarter financial performance, while affiliate revenue in the period continue to reflect the impact of our non-renewal with Comcast, we once again delivered exceptionally strong advertising results, which puts us on a path to a record year in advertising revenue for our NBA and NHL teams.

The strong advertising results we saw this past quarter, reflect double-digit percentage growth in per game advertising revenue driven by increases in both rates and sell-through as compared to the year ago quarter.

In addition, we continue to have success with our non-ratings based advertising initiative with significant year-over-year increases in branded content as well as outdoor digital boards and MSG Go sales.

In fact, revenue from these initiatives doubled year-over-year and represented a meaningful percentage of total advertising revenue for our fiscal third quarter.

While demand has been broad-based across categories mobile sports betting remains an important driver through both traditional spot buys and the innovative ways in which we've incorporated betting related content into our programming.

We produced five bet casts this past quarter each sponsored by DraftKings with a rotating cast of curated experts and guests providing betting insights, strategies, and updated odds throughout each game.

And as the NBA and NHL regular seasons were winding down, our betting shows expanded coverage into other sports, including baseball, golf, tennis, soccer, MMA and boxing. We also continue to see growth from clients in a wide range of other categories, including among them technology, retail and fast food.

Amazon, Indeed, Carvana, Procter & Gamble, Dunkin' and New Balance all either increased their spend versus last year or joined us as new advertisers.

On the programming front, in addition to our live professional sports and gaming related shows other highlights this past quarter centered around Black History Month and Women's Empowerment month with original content pieces celebrating local heroes, iconic athletes and pioneers each built to complement our live game coverage and expand daily length of tune with unique interesting and important stories.

As we look ahead to the final quarter of this fiscal year and beyond, we remain confident in the uniqueness of our content and in our creativity.

This includes our ongoing efforts to develop new programming products to drive value for our affiliates, advertisers, teams, partners and viewers, including with regard to a direct-to-consumer offering on which we continue to make good progress. With that, I'll now turn the call back over to David. .

Thank you, Andrea. Let's now review our third quarter financial performance. For the quarter, we generated total revenues of $460.1 million and adjusted operating income of $46.5 million, a significant improvement over last year's COVID impacted quarter.

The Entertainment segment had $194.6 million in revenue, primarily reflecting the impact of our arena license agreements with MSG Sports and our busy schedule of events during the quarter, as well as strong performance across suites and sponsorships. Adjusted operating loss for the Entertainment segment was $10.7 million.

This result reflects the strong performance of our core entertainment business, offset by expenses related to MSG Sphere content development and technology, as we prepare for the opening of MSG Sphere at The Venetian in the second half of calendar 2023, as well as the impact of severance related costs in the current year period.

Excluding Sphere and severance related costs, the Entertainment segment would have delivered positive AOI for the quarter. Turning to MSG Networks. The segment generated $167.6 million in revenue, a decrease of $10.3 million year-over-year and $50.8 million in AOI.

As Andrea discussed, the decrease in revenues reflects lower affiliate revenue, partially offset by strong growth in advertising revenues.

The decrease in AOI also reflects the impact of increased direct operating expenses as MSG Networks has returned to normalized levels of programming and production costs including rights fees with full NBA and NHL regular season telecast schedules this year.

Finally, Tao Group generated revenues of $108.6 million and adjusted operating income of $6.5 million. As I mentioned before, the early part of Tao's third quarter was impacted by the Omicron variant while AOI also reflected pre-opening costs related to both recent and planned new venues.

And while food and beverage costs continue to see some inflation, the team has been working hard to mitigate the impact. Turning to our balance sheet. As of March 31st, we had approximately $1 billion of cash on hand and our debt balance was approximately $1.7 billion.

With respect to MSG Sphere, our project to-date construction costs through March 31st, were approximately $1.3 billion, which includes $178 million of accrued costs that were not paying as of March 31st and is net of the $65 million received from Las Vegas Sands.

As a reminder, our previously disclosed cost estimate for MSG Sphere is approximately $1.865 billion. We are continuing to aggressively manage costs as we work towards the planned opening of the venue in the second half of calendar 2023. With that, I will now turn the call back over to Ari..

Thank you David.

Operator, can we open up the call for questions?.

Thank you. Our first question comes from the line of Brandon Ross from LightShed Partners. Your line is open..

Good morning. Thanks for taking the questions. I wanted to talk or ask a little bit about the Sphere. And you noted you're seeing some third-party interest in what you're doing with content.

And I know it's early days, but can you dig a little deeper on the content that we as investors and consumers should expect to see inside of the Sphere from your production, sort of, those daytime productions that you've spoken about for artists who may do residencies there and for brands like F1?.

Sure Brandon. It's Dave. You've heard us say before that the MSG Sphere will introduce an entirely new entertainment media. It will be the first large-scale venue to deliver immersive experiences for up to 20,000 people at once and it's going to use multi-sensory technologies.

For example it will have a high-resolution display plane, which is larger than three football fields, the world's largest beam-forming audio system with more than 160,000 speakers and it will deliver crystal clear sound to every seat in the house.

So think of it as headset quality sound without the headset, no matter where you're sitting in the house and other 4D technologies, which will complete the immersive experience.

We're currently having discussions with potential partners, including leading filmmakers and global artists, to create content that will be specifically designed for the MSG Sphere.

And this does include original attractions, which we'll be able to run multiple times a day year-round and the attractions will really drive the high utilization of the venue as well as concert residencies, which will help build out our recurring base of events.

And to create and produce this content, we're close to completing our studio in Burbank MSG Sphere Studios. And this is for our creative production and engineering teams as well as artists and partners to develop, optimize and preview these unique content experiences that are being developed for Sphere.

An important added benefit of the studio is it will enable us to keep higher utilization at the Las Vegas venue as we'll be able to fully test content without having to pause the attractions that are running in Las Vegas.

So, we're really energized by the possibilities and we fully expect to have more exciting news to share with you in the future across original attractions, concert residencies, other marquee events and additional corporate partner events like the Formula One deal.

As we advance towards the venue's opening next year we will share more as we go forward..

All right. And then, in the press release, you called out additional Sphere costs in the quarter.

Can you help us just understand the nature of those expenses? And maybe give us a timeline on how the cost base is going to ramp as we get to the opening of the venue? Our construction costs, operating costs going to come off and be replaced by something else.

How do we think about the cost structure for Sphere going forward?.

Sure. First off, looking at the Entertainment segment results for the quarter, the AOI loss reflects strong and profitable performance for our traditional core live entertainment business, and also has -- the results also include expenses related to Sphere.

These Sphere expenses in the results, primarily relate to content development, including headcount as we're building out the folks that are responsible for these initiatives.

As I mentioned earlier, the Entertainment segment would have had positive AOI this quarter, excluding Sphere costs as well as some severance related expenses that hit us earlier in the quarter.

As we get closer to the Las Vegas venue opening, we do expect headcount to increase, both for continued content development and I'm getting some kind of feedback and to make sure the venue is appropriately staffed and ready to go.

So this would include areas like venue management, security, food and beverage and merchandise that we will staff as we gear up to open the venue in the second half of 2023. We'll also leverage a lot of the expertise and infrastructure that we currently have in place.

And with all of that said, we fully expect to generate substantial levels of revenue and AOI and at attractive margins once we open the biggest venue. And this would be inclusive of the overhead that we're carrying now. So while we're 100% focused on the successful execution of MSG Sphere at The Venetian, Las Vegas is just our starting point.

As we've talked about before, we anticipate pursuing capital-light opportunities to extend MSG Sphere's venue footprint to other markets around the world. And this could include a managed venue model for example.

So what this does is it will allow us to efficiently leverage the upfront investment we're making in things like content, technology and construction and design expertise across a broader network of venues. And we see this global expansion of the Sphere, as a compelling opportunity to create substantial long-term value for our shareholders.

And we will – and we look forward to updating you further as we get into our progress..

Great. Thank you very much..

Thanks, Brandon..

Our next question comes from the line of David Karnovsky from JPMorgan. Your line is open..

Thank you. Andrea, I wanted to see if you could update further on the potential DTC model for networks.

Do you continue to be in talks with distributors about this? And is there any early framework you provide around addressable market or upfront costs? And then just given Bally Sports has put some pricing around their RSN business, any views whether you see that $20 price point as kind of viable for the NYC market? Thanks..

Hi, David, well, I'm not going to comment on Sinclair but what I can tell you is that since we've spoken on the last call, we continue to make good progress in evaluating our potential product, the product type, pricing our technical specs. We have other considerations we're looking forward – we're looking at.

But yes, as you mentioned and as I mentioned, last quarter in developing any plan of ours we're very mindful of our traditional linear business. And we're very, very mindful and focused on the partnerships that we have with our major distributors and grateful and focused on the value that we derive from those relationships.

So as we work through our plan, we continue to look to ensure that any DTC offering of ours continues to take that into consideration. I don't have any more specifics for you other than to say that we continue to make good progress on our plans and we'll have more in the months ahead..

Okay. And then just for David more broadly across the Entertainment or Tao businesses. Are you seeing anything in kind of forward bookings or current per caps that would indicate signs of softening demand due to the economy or inflation? And that question would be for either at the consumer level or corporate level. Thanks..

I would – this is Dave. I'll take it. And I'd say, the answer is no. At this point in time we're not seeing any slowdown in spending overall. As we spoke about earlier, our venues continue to fill up with events. We mentioned how strong our fiscal fourth quarter looks with overall event count, anticipated to exceed the results for the third quarter.

We will have a robust 2022 in terms of events. And looking out into 2023, right now we're also seeing our booking schedule fill up earlier than usual.

So I'd also say on the broader market front, arena concerts in New York are on track for significant growth in calendar 2022 versus the pre-pandemic with the Garden set to be the market share leader by a wide margin there. We've seen strong consumer demand and spending across our businesses. We've had numerous sellouts recently at our venues.

We had the Fornite Fish run. The Katie Taylor and Amanda Serrano fight, The Garden was great. We had two nights of Olivia Rodrigo at Radio City and many others. Our recent on sales have remained strong. Overall, spending at our venues are up double-digit percentages both F&B and Merch per cap as we've said as well as average check sizes at the Tao.

So -- and even on the corporate side as we've talked about we've returned to pre-pandemic levels on a go-forward basis for sponsorships and suites. And MSG Networks advertising is headed towards a record year. So overall positive and we are not seeing any slowdown at this point. .

Thank you..

Thanks, David. Operator, we will take the next question. .

The next question comes from the line of Paul Golding from Macquarie Capital. Your line is open. .

Great. Thanks so much.

I was wondering as a corollary to the prior question, if you could help us understand the current or historical mix of corporate revenue as part of the business or contracted revenue? Just to understand, sort of, what the underpinning the backstop is on the consumer going forward if there were to be any weakness that should develop? Thanks so much..

Sure, Paul. I get -- the question is that we -- to answer your question we have significant contractual revenue. So affiliate revenue, suites, sponsorships and signage revenue are significant percentages of our total and they're all part of multiyear agreements which are staggered in terms of the timing of when they come up for renewals.

And as you've heard us talk about our team has done a great job of renewing marketing partners and suite holders as well as adding new partners. We also have long-term arena license agreements with MSG Sports with over 30 years remaining on those deals. So ultimately the backdrop is people are willing to spend on experiences that they find valuable.

And if the last few quarters has shown us anything that spending is with us. .

Thanks. .

Thanks, Paul. Operator, we will take one last caller. .

We have a question from David Katz from Jefferies. Your line is open. .

Hi. Good morning, everyone. Thanks for taking my questions. I wanted to just circle back on the networks business. For us anyway, there's just so much clarity and understanding around experiential leisure about the leisure assets the development of those assets and the Sphere, et cetera.

With respect to the networks, if you could talk a bit more about what the long-term vision or expectation is for that business? And I know, an earlier question was sort of one underpinning of that but just a little longer-term perspective would be helpful..

Sure. Well, we clearly understand that things are changing. But as an organization, we remain firm believers in the power and popularity of live local professional sports. We've always invested in and believed in live professional sports. We have, what we believe is a unique asset. We broadcast hundreds of these gains each year.

We have exclusive long-term rights to this premium product. And unique to us, we operate the number one television market. So apropo to that, as we've been discussing, we've seen exceptional advertising demand for our content this year, and we expect that to continue across broad categories.

We also have – we have a long history of innovation, which we believe is going to serve us well as the model evolves. Just over the last couple of years, we've capitalized on new opportunities to monetize our content. We've introduced new programming, including new sports betting programming.

And as you've heard mobile sports gaming is a big contributor to our success in advertising revenue this year. We've created new and continue to create new interactive products with MSG Go. We've experimented with and will continue to produce alternative broadcast bet casts and other unique productions that are geared to specific demographics.

And we've been doing more and more in branded content, with our advertising partners. So when you step back, we believe that our rights provide us with a really valuable opportunity to continue to create new products and to activate our customers, and our partners in new and innovative ways.

And one of the ways that, we're looking at now that we've talked about as you touched on is our direct-to-consumer product, which we've said we continue to work on and on, which we continue to make good progress. So at the end of the day, we think that we're very well suited to continue to capitalize on these very unique rights that we have..

Understood. And if I could follow up with just one detail question. With respect to the Sphere, just in our flow, a lot of the discussion does revolve around supply chain availability and cost, as well as labor cost and availability.

As it relates to the Sphere development and getting that completed on time and on budget as it stands today, could you just talk about your comfort level there as well please?.

Sure. Thanks, David. It's Dave. First off, we made -- we have made great progress. The building is really coming along nicely and we're excited about what's ahead for MSG Sphere. As we've said previously, MSG Sphere is a complex construction project and we continue -- we're continuing to aggressively manage every aspect of it.

The team has been very focused on supply chain and managing lead times, really since the construction began, which includes working with our -- closely with our suppliers, continually evaluating time lines and developing alternatives where we can.

And progress-wise, pre-pandemic we had already purchased a lot of the larger items including securing the majority of the main structural steel for the project. Other areas, such as concrete of the main structure is all essentially complete.

As I've mentioned in my prepared remarks, we're also planning to top out the Steel Exosphere as that surrounds the building. That will be done later this month. I'll say of course, we're not immune to what is happening on a macro level and there continue to be some things that we're working through, regarding certain electronics for example.

But our team is doing all we can to manage through the project in every single detail. And we continue to make great progress on the construction and we're excited about opening the venue in the second half of calendar '23..

Perfect. Thank you very much..

You’re welcome..

Now, I turn the call back over to Ari Danes for any closing remarks..

Thank you all for joining us. We look forward to speaking with you on our year-end call in August. Have a good day..

Good bye..

This concludes today's conference call. Thank you for participating. You may now disconnect..