Sphere Entertainment Co. Third Quarter 2026 Earnings Conference Call - SPHERE ENTERTAINMENT CO

Good morning, and thank you for standing by. Welcome to the Sphere Entertainment Co. third quarter 2026 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's 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. Good morning and welcome to Sphere Entertainment's third quarter 2026 earnings conference call. Today's call will begin with our Executive Chairman and CEO, Jim Dolan, who will provide an update on our 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 four and five of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income or AOI, a non-GAAP financial measure. And with that, I'll now turn the call over to Jim. Thank you, Ari, and good morning, everyone. For today's call, I'd like to focus on two areas that remain important to our long-term vision for Sphere, our plans for a global network of Sphere venues and developing a diverse slate of original content. In Abu Dhabi, construction is moving forward. The venue's underground infrastructure is currently being installed. Procurement is also underway, with the general contractor starting to award key contracts. Construction remains on track to be completed by the end of 2029. Last week, the public incentive package for SPHERE at National Harbor was passed by the local county government. However, there remains an additional county vote related to the package, which is expected to take place no later than February. We are also working through a number other open items before we turn back to the financing for the balance of the project we'll continue to keep you updated at the same time we remain in discussion with a significant number of other markets around the world that includes advancing our plans for the next sphere project which we anticipate will be located in the us we expect to have more news to share on this project in the coming months. Moving to original content. Production is well underway on the Rocky Horror Picture Show. Rocky Horror will expand our content slate to a new genre and help drive the number of sphere experience showings to a high next year. We expect to debut the production by the end of March, which would be the fastest time to market for a sphere experience. This reflects the technology advancements we've made in content production, as well as our learnings from The Wizard of Oz. Since late September, we've been showing an enhanced version of The Wizard of Oz, which has been well received. The show has now sold over 4.3 million tickets for approximately $540 million in ticket sales since its debut last year. With respect to From the Edge, We have completed a substantial portion of the production, and while we have determined that the original concept didn't work, we're exploring ways to create an immersive experience with the footage captured. At the same time, we continue to have active discussions with Hollywood Studios to use existing IP for future sphere experiences. So, in summary, we continue to advance our plans for additional venues and content as we move closer to our goal of a global network of Sphere venues. And with that, I'll turn the call over to Robert, who will take you through our financial results. Thank you, Jim, and good morning, everyone. For the September quarter, we generated total company revenues of $274.3 million and a trusted operating income of $39.2 million. Our sphere segment generated revenues of $198.9 million, an increase of 14% compared to the prior year period. This growth was mainly driven by the sphere experience, reflecting additional performances and higher peripheral revenues. In the current year quarter, the sphere experienced included 241 performances of the visit of Oz, as compared to a combined 220 performances of The Visit of Oz, Postcard from Earth, and year two an immersive concert film in the prior year quarter. As a reminder, the Visit of Oz launched on August 28, 2025, in the year-ago period. We also saw revenue growth in extra advertising, sponsorship, and suite license fees, as well as concert residencies. Third quarter adjusted operating income for our sphere segment was $32.4 million, as compared to $17.1 million in the per year quarter, this reflected the increase in revenues, partially offset by a direct operating and SG&A expenses. The increase in direct operating expenses was primarily driven by the sphere experience, reflecting higher per-show expenses as well as additional performances. As mentioned, the current year quarter solely reflected the visits of Oz as compared to the visits from Oz, Postcard from Earth, and VU2 in the prior year quarter. SG&I expenses for the third quarter were $98.3 million, an increase of $5.6 million as compared with the prior year quarter. This was primarily due to higher employee compensation and related benefits. This increase was partially offset by the impact of mark-to-market adjustments for certain share-based compensation awards, driven by the decrease in company stock price during the quarter. Turning to MSG networks, the segment generated $75.4 million in revenues and $6.8 million in EUI in the third quarter. This compares to $88.4 million in revenues and $19.3 million in AOI in the prior year period. These year-over-year results primarily reflect an approximately 15.5% decrease in subscribers. In addition, in connection with the company's annual goodwill impairment test, we recently reassessed the fair market value of the MSG Networks business. And in light of the ongoing challenges facing MSG networks, we took a non-cash goodwill impairment charge which you can see in today's operating income results turning to our balance sheet as of september 30th our sphere business had approximately 501 million dollars of unrestricted cash and cash equivalents 259 million dollars in convertible debt and the 275 million dollar term loan related to sphere in las vegas at msg networks as of September 30th net debt was approximately $80 million. This included $106 million outstanding on the MSG Networks term loan, which, as a reminder, is debt that is recourse only to MSG networks. And with that, we'll now open the call for questions. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, Please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you're muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of David Karnofsky with JP Morgan. Your line is open. Please go ahead. Hey, thank you. Jim, on the prior earnings call, you spoke to an expectation for an announcement on sphere expansion, if not by the end of 26, then by Q1 of next year. So just wanted to check in on that and see if that timeline is how you're still thinking about new location announcements. Yes. No, that's the, the we're you know, I think likely is still this quarter, right. The rather than next quarter. And you know we're still, we're all still on track. So stay tuned. Okay. And then, you know in the, few months we've obviously seen a jump in this interest rates today uh notwithstanding but can you just discuss how that impacts any discussion around uh national harbor financing or even just uh sphere expansion conversations generally well i'd answer that but bigger signal signaling me across the table that he really wants to answer that sure say yeah david so um the The interest rate environment has not affected any of our expansion conversations. As we look at all of our discussions, nothing's been slowed down or paused due to interest rates. Our potential partners, they recognize the attractive ROI of a sphere venue based on the proof and business model in Las Vegas, and that really is the conversations we have with them. With respect to National Harbor, as Jim mentioned, we're working through a number of open items before we turn back to the financing, and we'll keep you posted on that. Your next question comes from the line of Brandon Ross with LightShed Partners. Your line is open. Please go ahead. Hey, thanks for taking the questions. Jim, WOS has been really successful, but the results you're showing is clearly maturing. Do you need a faster cadence of bigger studio IP to ensure that the sphere experience stays fresh and exciting and you said uh in the prepared you were having discussions what are the puts and takes to getting uh those discussions finalized well um first up i mean is wise maturing i guess a little bit but it's maturing the the but i expect that that 10 years from now we'll still be showing laws somewhere in one of our in one of our spheres that they uh um so um so there's still a great deal of value left in that content um and uh and then you know for instance we have rocky horror that we're working on now which is going great i'm very excited you all need to learn the time work but you know when we go to rocky horror doesn't mean that we'll stop showing wizard of oz right rocky horror is kind of a little more adult programming right so likely we'll run rocky horror more towards the later part of the day and and have showings of uh wizard of oz the earlier part of day for more family uh oriented you know product as far as uh you know negotiating for uh for the ip from from studios to that kind of product i mean it's it's uh just what you think it would be. It's a give and take, and it's the usual thing, which is that they either want to check or they want to participate. We generally don't do both. So if you want to take a risk with us, sure, but you take the risk with us. But if you wanna guarantee sure money, then that's what you do. And I think that you'll see the overall cost kind of stay where it is. It seems appropriate for what we're doing. Great. And you mentioned quickly that From the Edge was having some issues. Can you tell us more about why that original concept didn't work and if it means anything for the non-studio concepts as opposed to what we just discussed yeah well look from the edge we went to the edge and unfortunately we went over the edge so that the um and you know we learned a lot from it we got some great uh some great content over it but overall that the concept It wasn't strong enough and wasn't, you know, honestly executed well enough, right, to warrant it, you know, taking up the space in Sphere. I mean, you Know, and this, I think you're going to see this dynamic go on and become stronger and stronger as the business grows, which is that the most valuable thing is the slots, right? The airing slots in the Sphere itself. So it has to be content that's worthy of that. And we already have, you know, content like Wizard of Oz. We didn't actually think that what we were going to produce with From the Edge was going to outperform a Wizard of Ozz or a Rocky, right, or a concert, etc. And so therefore, we didn't move forward with it. But we'll repurpose the content until we get something that comes up to that level. Perfect. Thank you. Your next question comes from the line of Matt Condon with Citizens Bank. Your line is open. Please go ahead. Great. Thanks for taking the questions. Jim, I just wanted to follow up on your comments from last quarter that you expect three to four sphere experiences playing by the end of 2027. Is that still the expectation? Yes. And you already know some of them, right? But we are still working on more content. And just to give you an update on that, what we are seeing, for instance, with Rocky Horror, is we're seeing that we're able to produce it a little less expensively, a little more efficiently. So it's going to be like Rocky Horror will cost less money and will be faster to market from concept inception. And I expect that that trajectory will continue for quite a while. Great. That's helpful. And then maybe just given the recent weakness in Las Vegas visitation, it's hard to think about the underlying trends for The Wizard of Oz. You know, are you still seeing evidence that Sphere is maintaining a relatively consistent share of visitors, or is there some more natural moderation in demand as the production matures? Not sure. Can you – I'm not sure what you're asking there. I mean, I was just talking about the Las Vegas market, which, you know, it had a less than stellar summer. Of course, if you were in Las Vegas this summer, you would understand why, because it was about 110 degrees. But we're continuing to learn more about the Las Vegas market, and we are also – that learning is transferring into other markets that we're looking at for spheres. The seasonality of it, things like conventions coming in, coming out. I mean, did this convention hit? Did it not hit? Those kinds of things. And we're continuing to build algorithms that tell us and predict what the market's going to do. Given that, I don't think anybody expected as much of a fall off this summer. But I will tell you that the algorithms say that it's going to be a very strong fourth and first quarter. And so we'll continue to refine the model. So the Wizard of Oz, as well as I'm sure Rocky Horror, et cetera, will be market-sensitive. I mean, it's not like, you know, we've had 4 million people, I think, in this seat see the Wizard of Oz. There's, you Know, over 40 million people that visit Vegas every year. So we still got another $36 million to burn through. And then we have new content for them, et cetera. But the overall performance of Spear and that content is definitely market sensitive. Your next question comes from the line of Peter Cepino with Wolf Research. Your line is open. please go ahead. Hi, this is Logan Ingress on for Peter. Jim, on your film strategy, so far your licensed IP has been older library content like Wizard of Oz and Rocky Horror. Are you also open to licensing newer splashier IP, or do you think licensed IP will primarily remain older library contact that studios aren't actively monetizing elsewhere? Yeah, it's a good question, right? I mean, there's a couple of factors involved with it. But I will tell you that we don't rely on the popularity of IP, right, to drive ticket sales. It's much more about how much of an experience we can create for the customer, and that's what sells. And, of course, then there's the sphere itself. I mean, the people just want to come. I mean I think we could show the three little pigs in there, and we'll still get people coming because they want to go to the sphere. They want to see what it is. They want experience, et cetera. But the selection of IP, right, is, you know, that's what we look for is what we can create with an experience. The older content is kind of interesting because, you Know, it's the ability to take something like The Wizard of Oz from the 30s and turn it into something from, you know, That's Present Day with all the bells and whistles that come with it that make it really interesting. The newer content, it's still going to be – no matter what content it is, if it's been film or TV related, it is going to require something called up-resing. It's because of the nature of the screen. It's a four-acre screen. And even if you take like a 4K product, right, of which there isn't really a lot of out there, and you stretch it onto that screen, it becomes quite fuzzy, et cetera. So we need to use the AI and the tools that we've developed in order to up-res those. So, you know, the new products could be interesting if we can create enough of an experience, right? If it's an outer space product, right, we really want you to feel like you're in outer space. So if we can achieve that, then we'll consider the product. Great. Thank you. Your next question comes from the line of Stephen Lasik with Goldman Sachs. Your line is open. Please go ahead. Great. thank you. Jim, thinking longer term, could you give us an update on the conversations you're having around new Sphere franchises around the world? What markets are top of mind? What regions are top-of-mind? And what the timeline could potentially look like as you look out to expand the Sphere network outside the U.S.? Thank you. Yeah. You know, we continue to develop and refine the model that we look at to go into other marketplaces. I will say that one of the big factors is environment, right? In other words, when we were looking to build in London, we loved the London market. We thought the London marketplace was going to do great, et cetera. But what we didn't take into account enough was the environment, which in this case was the governmental environment. So as we look at each one of the marketplaces, we're assessing, you know, how much market there is. I mean, take a look at a market like Tokyo with 90 million people, right? That's a pretty good marketplace. But then you also have to take a Look at the governmental aspects and how long it will take to build and do they really want a project like ours? And those all go into factoring, you Know, whether we're going to go forward or not. But I will say that, you know, we have the financing available, right? So financing really isn't an issue. So then the next question is, which market, how good of a market will be, how long it will take to build, and how expensive it will be to build. Those are all factors that go into it. we're getting better at being able to analyze markets and determine what we think will be good and what might be problematic. And I think you'll see by our next announcement that we're doing pretty well with it. And we're only going to pick markets where we think we can be very successful. Thank you. Your next question comes from the line of Cameron Manson Perrone with Morgan Stanley. Your line is open. Please go ahead. Thank you. Morning. Jim, I wanted to follow up on something you said about Rocky Horror earlier, which is just about kind of day partying and the outlook for that to fulfill kind of later in the night or evening slot. Do you see potential for that to be screened more frequently than just the late night part? And how do you think about weighing the balance between wizard of oz and and moving rocky into earlier day parts well it's look it's really all an algorithm right that the uh you know um it's knowing you know it's known who's in the market um at that particular time that the and you know which one will feel to them more and you Know the more data we can get on that will help us continue to to schedule, right, with some products like Wizard of Oz, you know, the mornings aren't, you know – are really – are possible. Sundays might be better because it's a more family-oriented product. You know, showing Rocky Horror Picture Show at 11 a.m. on a Sunday morning, right, the people who we really want to have go to Rocky Horror Picture Shows, particularly in Vegas, they're not awake yet. You couldn't get them to do anything at 11 o'clock in the morning. So, I mean, we're just going to continue to work on the algorithm and attempt to maximize ticket sales. Understood. That's helpful. And then separately, any update on the outlook for Exosphere and your broader sponsorship business as we look forward to the fourth quarter and into 27? I'm going to give that one to Jen Goster. So we continue to see great momentum in this area of our business, you know, significant growth in this category this quarter. And typically, this is probably our slowest quarter from a seasonal perspective. We watch, you know, major brands like Google bringing forth their viral campaign featuring global K-pop band like BTS to bring these high-impact moments that are often built in the zeitgeist of what's happening. And I think that's really attractive to brands, and we continue to see a strong pipeline there. as we think about the next quarter which is probably seasonally our strongest quarter we continue to make progress expanding those roster of official partners we recently announced lift to our growing list of sponsors and we've got a strong pipeline of deals behind them so we expect to share more in the coming months but again we you know we see this area of our business with substantial growth opportunity for 2027 and beyond you know just to add to that there's two aspects of the exosphere, right, that are continuing to show improvement. One of which is that we're seeing more and more companies, products, et cetera, want to debut their products and their announcements on the sphere. Because, you know, it's not just the Vegas market. It's a viral market. And when you take your product, whether it's a new movie or a new hard product, et cetera, and you put it on Sphere, you get a lot of coverage really worldwide. So the other thing that actually that I'm really kind of happy about is that our sponsors themselves have really embraced the medium. So if you take a look at their content, at what they're putting up on the Sphere. It's interesting. It is exciting. That's what we want for the ExoSphere. We want people to keep looking at the ExoSphere and see, well, what's on it now? And who did this? And what does it look like? And we're really seeing, like I said, the sponsors embrace that. They're investing in the content and putting some pretty amazing stuff up on the sphere. Thanks for the questions, Cam. Operator, we have time for one last follow-up. Your final question comes from the line of Peter Henderson with Bank of America. Your line is open. Please go ahead. Good morning, and thank you for taking the question. So just wondering, as you look ahead to the calendar 27, as Wizard of Oz mature a bit further and you face tougher comparisons, do you expect the Las Vegas sphere business to grow year over year? And just how should we think about contributions from concert residencies, sponsorship, and new content to driving growth in 2027? Well, we definitely expect growth. But, you know, where it comes from, we're learning still about, you know, how to maximize revenue at Sphere, both from Exosphere to what content is inside from residencies, et cetera. So I expect most of the growth to come from that. When we built the sphere, the model was for a venue that was busy 365 days a year. And we've achieved that. Literally every day of the year is busy. So the capital you invested in the project, there's a much quicker, better payoff. to it. So, but we'll continue to work on utilization because it's utilization. And then of course, how many tickets you sell per event, et cetera, that is going to drive the growth sphere. Thank you. We have reached the end of the Q&A session. I will now turn the call back to Ari for closing remarks. Thank You all for joining us. We look forward to speaking with you on our next earnings call. Have a good day. This concludes today's call. Thank you for attending. You may now disconnect.