Sphere Entertainment Co. (SPHR) Q1 2027 Earnings Report, Transcript and Summary

Good morning, and thank you for standing by. Welcome to the Sphere Entertainment Co Third Quarter 26 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, Investor Relations. Please go ahead.

Good morning, and welcome to Sphere Entertainment's Third Quarter 26 Earnings Conference Call. Today's call will begin with our Executive Chairman and CEO, James 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 the call for questions. If you do not have a copy of today's earnings release, it is available in the Investor 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 2000. 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 4 and 5 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 will now turn the call over to Jim.

Thank you, Ari, and good morning, everyone. For today's call, I would like to focus on 2 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 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 of other open items before we turn back to the financing for the balance of the project. We will 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 U.S. 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 new 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 have made in content production as well as our learnings from the Wizard of Oz. Since late September, we have 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 did not work, we are 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, we move closer to our goal of a global network of Sphere venues And with that, I will 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 million adjusted operating income of $39.2 million Our Sphere segment generated revenues of $199 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 experience, included 241 performances of the Wizard of Oz. As compared to a combined 220 performances of The Wizard of Oz, Postcard from Earth and the u 2 immersive concert film in the prior year quarter. As a reminder, Wizard of Oz launched on 08/28/2025 in the year ago period. We also saw revenue growth in Exosphere advertising, sponsorship, and Sphere 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 prior year quarter. This reflected the increase in revenues, partially offset by higher 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 Wizard of Oz compared to showing of The Wizard of Oz, Postcard from Earth in U2 in the prior year quarter. SG&A expenses for the third quarter were $98.3 million. An increase of $5.6 million as compared to 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 AOI, 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 noncash goodwill impairment charge which you can see in today's operating income results. Turning to our balance sheet, of September 30, Sphere business had approximately $501 million of unrestricted cash and cash equivalents. $259 million in convertible debt, and a $275 million term loan related to Sphere in Las Vegas. At MSG Networks, of September 30, net debt was approximately $80 million. This included $106 million outstanding on the MSG network term loan which, as a reminder, is that is recourse only to MSG Networks. And with that, now open the call for questions.

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 1 again. We ask that you up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question comes from the line of David Karnovsky with JPMorgan. Your line is open. Please go ahead.

Hey. Thank you. Jim, on the prior earnings call, you would spoke to an expectation for an announcement on Sphere expansion. If not by the end of 20 sixth, then by Q1 of next year. So just wanted to check-in on that and see if that timeline is how you are still thinking about new location announcements.

Yes. Now that the we are you know, I think likely is still this quarter. Right, the. Rather than next quarter. And you know, we are still we are still on track. So stay tuned.

Okay. Then, you know, in the last few months, we have obviously seen a jump in this interest rates today, notwithstanding, but can you just discuss how that impacts any discussion around National Harbor financing or even just sphere expansion conversations generally?

Well, I would answer that but bigger signal. Signaling me across the table that he really wants to answer.

Sure. Say. Yeah, David. So the interest rate environment has not affected any of our expense and 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 proven business model in Las Vegas, and that really is the conversations we have with them. With respect to National Harbor, as Jim mentioned, we are working through a number of open items. Before we turn back to the financing. We will keep you posted on that. Thanks.

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, Oz has been really successful, but the results here 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 in the prepared, you were having discussions What are the puts and takes to getting those discussions finalized?

Well, the first off, I mean, is Oz maturing? I guess a little bit, but it is maturing. The. But I expect that 10 years from now, we will still be showing Oz somewhere in 1 of our in 1 of our spheres. That the so there is still a great deal of value left to in that content. And then, you know, for instance, we have Rocky Horror that we are working on now, which is going great. I am very excited. You all need to learn the time warp. Got it. You know, when we go to Rocky Horror, does not mean that we are gonna stop showing Wizard of Oz. Right? Rocky Horror is kind of a little more adult programming. Right? So, likely, we will run Rocky Horror more towards the later part of the day and have showings of Wizard of Oz earlier part of the day for more family oriented, you know, product. As far as you know, negotiating for the IP from studios for that kind of product. I mean, it is. it is just what you think it would be. it is a give and take, and it is the usual thing, which is that you know, they either wanna check or they wanna participate. We generally do not do both. The so if you wanna take a risk with us, sure. Right? The. But if you take the risk with us, I mean, the if you want, you know, you know, guarantee, sure, money, then that is what you do. And you know, I think that you will. We will see the overall cost, you know, kinda stay where it is. The it seems appropriate for what we are doing.

Great. And you mentioned quickly that From the Edge was having some issues Can you tell us more about why that original concept did not work and if it means anything for the nonstudio concepts as opposed to what we just discussed.

Yeah. Well, look. From the Edge, we went to the edge, unfortunately, we went over the edge. The and, you know, we learned a lot from it. We got some great--some great content over it, but overall, the concept did--was not strong enough and was not, honestly, executed well enough, Right? The to warrant it, you know, taking up the space in Sphere. I mean, that the. You know, and this, I think you are 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 available slots in the SPEAR itself. It has to be content that is worthy of that. We already have, you know, content like Wizard of Oz We did not actually think that what we were gonna produce with. From the Edge was going to outperform The Wizard of Oz or a Rocky right, or a concert, etcetera. And so, therefore, we did not we did not move forward with it. But what we purpose 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 3 to 4 sphere experiences playing by the end of 27. This still the expectation?

Yes. That the and you already know some of them. Right? That the and. But we are, you know, we are still working on more content. And just to give you an update on that, the what we are seeing, for instance, with Rocky Horror, is we are seeing that the that we are able to produce it a little less expensively, a little more efficiently. So it is gonna be like, Rocky Horror will cost less money and will be faster to market. From concept inception. So. And I expect that trajectory will continue you know, for quite a while.

Great. that is helpful. And then maybe just given the recent weakness in Las Vegas visitation, just how are you thinking 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 am not sure what you are asking there. I mean, the. I was just talking about the Las Vegas market, which, you know, that they you know, it had 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 are--we are continuing to learn more about the Las Vegas market, and we also--that learning is transferring into other markets that we are 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 are continuing to build algorithms that tell us and predict what the market's going to do. Given that, I do not think anybody expected as much of a fall off this summer, but I will tell you that the algorithms say that it is gonna be a very strong fourth and first quarter. And so we will continue to refine the model. The Wizard of Oz, as well as a picture of etcetera, will be market sensitive. No. The I mean, the. it is not like, you know, the. We have had 4 million people, I think it is, see the Wizard of Oz. That there is, you know, over 40 million people that visit the that visit Las Vegas every year. So we still got another 36 million to burn through. The. And then we have new content for them, etcetera. But the overall performance of Sphere and that content is definitely market sensitive.

Your next question comes from the line of Peter Supino with Wolfe Research. Your line is open. Please go ahead.

Hi. This is Logan Angress on for Peter. Jim, on your film strategy, so far, your license IP has been older library content like Wizard of Oz and Rocky Horror. Are you also open to licensing newer splashier or do you think licensed IP will primarily remain older library content that studios are not actively monetizing elsewhere.

Yeah. I. The it is a good question. Right? I mean, there is a couple of facts involved with it. I mean. But I will tell you that we do not rely on the popularity of IP. Right? We. To drive ticket sales. it is much more about how much of an experience we could create for the customer and that is what sells. And, of course, then there is the sphere itself. I mean, the people just wanna come. I mean, I think we could, you know, we could show The 3 Little Pigs in there. And we will still get people coming because they wanna go to the sphere. They wanna see what it is. They wanna experience it, etcetera. But the selection of IP right, is you know, that is what we look for is what we can create with an experience. The older content is kinda interesting because you know, it is the ability to take something like The Wizard of Oz from the thirties and turn it into something from, you know, that is that is present day with all that. The bells and whistles that come with it that make it really interesting. The newer content it is it is still going to be no matter what content it is. If--if it is been film or TV related, it is gonna require something called up-ressing. Right? The. it is because of the nature of the screen. it is a 4-acre screen. And even if you take, like, a like, a 4K product, right, of which there is not really a lot of out there, that they. And you stretch it onto that screen, it becomes quite fuzzy, etcetera. So we need to use the AI, the tools that we have developed in order to up-ress those. The so you know, it is the new product could be interesting if we could create enough of an experience. Right? If we--if it is an outer space product, right, we really want you to feel like you are in outer space. If we can achieve that, that they--then we will consider the product. Great. Thank you.

Your next question comes from the line of Stephen Laszczyk 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 are 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 US? 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 the you know, 1 of the big factors is environment. Right? In other words, you know, we loved. When we were looking to build in London, we loved the London market. We thought the London market was gonna do great. Etcetera. But what we did not take into account enough was the environment which in this case was the governmental environment that the so as we look at each 1 of the marketplaces where assessing, you know, how much market there is I mean, you take a look at a market like Tokyo with 90 million people. Right? that is a pretty good marketplace. But that they. But then you also have take a look at the governmental aspects and how long it will take to build, and do they really want a venue like ours. The. And those all go into factoring you know, whether we are gonna go forward or not. But I will say that, you know, it does it you know, we really. We have the financing available. Right? The so financing really is not an issue. That they. 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 are 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 will see by our next announcement that we are we are we are doing pretty well with it. And I think we are we are only gonna pick markets where we think we can be very successful. Thank you.

Your next question comes from the line of Cameron Mansson-Perron 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 kinda dayparting and the outlook for that to be. To fill kinda later in the night or evening slot Do you see, like, 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 moving Rocky into earlier dayparts.

Well, it is. Look. it is it is really all an algorithm. Right? The you know, it is knowing, you know, it is knowing who is in the market. At that particular time that they. And, you know, which 1 will appeal to them more And, you know, the more data we can get on that will help us continue to schedule, right, our. The. With some products like Wizard of Oz, you know, the mornings are not. You know, are really. Are possible. Sundays might be better because it is more family oriented product. You know, they. Showing Rocky Horror Picture Show at 11:00 a.m. on a Sunday morning. Right? The people who we really wanna have to go to Rocky Horror Picture Shows, particularly in Vegas, they are not awake yet. So, obviously, you could not get them to do anything at 11:00 in the morning. So, I mean, the. We are just gonna continue to work on the algorithm and attempt to maximize ticket sales. Understood. that is 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 2027? I am gonna give that 1 to Jennifer Koester.

So we continue to see great momentum in this area of our business. Significant growth in this category this quarter and 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 that are offering them built in the zeitgeist of what is happening. And I think that is 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 Lyft to our growing list of sponsors, and we have got a strong pipeline of deals behind them. So we expect to share more in the coming months, but, again, we know, we see this area of our business with substantial growth opportunity for 2027 and beyond.

You know, just to add to that, there is there is 2 aspects of the exosphere. Right, that are continuing to show improvement. The 1 of which is that we are we are seeing more and more companies, products, etcetera, want to debut their, you know, their products and their announcements on the sphere. Because, you know, it is not just the Vegas market. it is a viral market. And when you take your product, whether a new movie or a new hard product, etcetera, and you put it on Sphere, you get a you get a lot of coverage, really world worldwide. So the other thing that actually that I am really. I am kinda happy about is that our sponsors themselves have really embraced the medium. So if you take a look at their, you know, at their content, at what they are putting up on the sphere, it is interesting. it is exciting. And that is what we want for the exosphere. We want people to keep looking at the exosphere and see, well, what is on it now? And who did this? And what does it look like? And I--we are really seeing, you know, like I said, the sponsors embrace that. They are investing in the content and putting some pretty amazing stuff up on the Sphere. And great for the questions, Cam.

Operator, we have time for 1 last caller. 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 questions. So wondering, as you look ahead to calendar 2027 and, you know, as Wizard of Oz matures 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 residency, sponsorship, and new content to driving growth in 2027.

Well, we definitely expect growth, the monthly. But it. You know, where it comes from, it is--we are learning still about, you know, how to maximize revenue at Sphere, both from exosphere to what the content is inside from residencies, etcetera. The. so I expect most of the growth to come from that. The. You know, it is--you know, when we built this sphere, the model was for a venue that was busy 365 days a year. And we have achieved that. Sorry. The they are literally every day of the year is busy. So the capital you invested in the in the project right, there is a much quicker, better payoff to it. So. But we will continue to work on utilization. Because it is utilization and then, of course, how many tickets you sell per event, etcetera, that is going to drive the growth of Sphere. Thank you.

We have reached the end of the Q&A session. We 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.