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 Danes, 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. 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 of 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 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'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. 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.
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 adjusted 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 per-show 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 V-U2 immersive concert film in the prior year quarter. As a reminder, The Wizard of Oz launched on August 28, 2025, in the year-ago period. We also saw revenue growth in Exosphere 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 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, as compared to showings of The Wizard of Oz, Postcard from Earth, and V-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. 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 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, 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. With that, we will 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 one 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 are 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 Karnovsky with JPMorgan. 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 2026, then by Q1 of next year. Just wanted to check in on that and see if that timeline is how you are still thinking about new location announcements.
Yes. No, I think likely is still this quarter, rather than next quarter. We are still on track, so stay tuned.
Okay. Then, in the last few months, we have obviously seen a jump in 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 Digger is signaling me across the table that he really wants to answer it.
Sure. Yeah, David, so 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 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're working through a number of open items before we turn back to the financing, and we'll 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, WOZ 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? You said in the prepared you were having discussions. What are the puts and takes to getting those discussions finalized?
Well, first off, I mean, is WOZ maturing? I guess a little bit it's maturing. I expect that 10 years from now, we'll still be showing WOZ somewhere in one of our Spheres. So, there's still a great deal of value left in that content. 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 Warp. When we go to Rocky Horror, it doesn't mean that we're going to stop showing The 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 have showings of The Wizard of Oz the earlier part of the day for more family-oriented product.
As far as negotiating for the IP from studios for that kind of product, I mean, it's 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 a check or they want to participate. We generally don't do both. So if you want to take a risk with us, sure, right. But you take the risk with us. I mean, but if you want guaranteed sure money, then that's what you do. I think that you'll see the overall cost kind of stay where it is. It seems appropriate for what we're doing.
Great. 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?
Well, look, From the Edge, we went to the edge, and unfortunately, we went over the edge. We learned a lot from it. We got some great content over it. But overall, the concept wasn't strong enough and wasn't, honestly, executed well enough, right, to warrant it taking up the space in Sphere. 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. We already have content like The Wizard of Oz. We didn't actually think that what we were going to produce with From the Edge was going to outperform a The Wizard of Oz or a Rocky Horror, right, or a concert, et cetera.
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. 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. You already know some of them, right? We are still working on more content. Just to give you an update on that, what we are seeing, for instance, with Rocky Horror, is we are seeing that we are able to produce it a little less expensively, a little more efficiently. So, Rocky Horror will cost less money and will be faster to market from concept inception. I expect that that trajectory will continue for quite a while.
Great. That is helpful. 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? 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 will just talk about the Las Vegas market, which 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 continuing to learn more about the Las Vegas market, and 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. Did this convention hit? Did it not hit? Those kinds of things. We are continuing to build algorithms that tell us and predict what the market is 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 going to be a very strong fourth and first quarter.
We will continue to refine the model. The Wizard of Oz, as well as, I am sure, Rocky Horror, et cetera, will be market-sensitive. It is not like we have had 4 million people, I think it is, see The Wizard of Oz. There are over 40 million people that visit Vegas every year. So, we still got another 36 million to burn through. Then we have new content for them, et cetera. 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 licensed IP has been older library content like The 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 content that studios aren't actively monetizing elsewhere?
Yeah, it's a good question, right? 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. Of course, then there's the Sphere itself. The people just want to come. I think we could. 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 to experience it, et cetera. But the selection of IP, right, that's what we look for, is what we can create with an experience.
The older content is kind of interesting because it's the ability to take something like The Wizard of Oz from the '30s and turn it into something that's present day with all of 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's going to require something called up-resing, right? It's because of the nature of the screen. It's a four-acre screen, and even if you take 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.
The new product 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. If we can achieve that, then we'll 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'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. 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 market 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. As we look at each one of the marketplaces, we're assessing how much market there is. I mean, you 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?
Those all go into factoring whether we are going to go forward or not. I will say that we have the financing available, right? Financing really is not an issue. 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. I think you will see by our next announcement that we are doing pretty well with it, and I think we are only going to pick markets where we think we can be very successful.
Thank you.
Your next question comes from the line of Cameron Mansson-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 dayparting 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? How do you think about weighing the balance between The Wizard of Oz and moving Rocky into earlier dayparts?
Well, look, it is really all an algorithm, right? It is knowing who is in the market at that particular time, and which one will appeal to them more. The more data we can get on that will help us continue to schedule, right? With some products like Postcard from Earth, the mornings are not really possible. Sundays might be better because it is a more family-oriented product. Showing The Rocky Horror Picture Show at 11:00 A.M. on a Sunday morning, right, the people who we really want to have go to The Rocky Horror Picture Show, particularly in Vegas, they are not awake yet. You could not get them to do anything at 11:00 in the morning. I mean, we are just going to continue to work on the algorithm and attempt to maximize ticket sales.
Understood. That is helpful. 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 going to give that one to Jen Koester.
We continue to see great momentum in this area of our business. Significant growth in this category this quarter, and typically, this is probably our slowest quarter from a seasonal perspective. We watched major brands like Google bring 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 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.
We expect to share more in the coming months, but again, we see this area of our business with substantial growth opportunity for 2027 and beyond.
Just to add to that, there are two aspects of the Exosphere, right, that are continuing to show improvement. One of which is that we are seeing more and more companies, products, et cetera, want to debut their products and their announcements on the Sphere, because it is not just the Vegas market, it is a viral market. When you take your product, whether it is a new movie or a new hard product, et cetera, and you put it on Sphere, you get a lot of coverage, really worldwide. The other thing that actually that I am really kind of happy about is that our sponsors themselves have really embraced the medium. If you take a look at their content, at what they are putting up on the Sphere, it is interesting, it is exciting. That is what we want for the Exosphere.
We want people to keep looking at the Exosphere and saying, "Well, what is on it now? Who did this, and what does it look like?" We are really seeing, like I said, the sponsors embrace that. They are investing in the content and putting some pretty amazing stuff up on the Sphere.
Encouraging. Thanks.
Thanks for the questions, Cameron. Operator, we have time for one 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. Just wondering, as you look ahead to calendar 2027, and as The 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? Just how should we think about contributions from concert residencies, sponsorship, and new content to driving growth in 2027?
Well, we definitely expect growth. Where it comes from, we're learning still about how to maximize revenue at Sphere, both from Exosphere to what the content is inside from residencies, et cetera. 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, right? Literally every day of the year is busy. The capital you invested in the project, right, there's a much quicker, better payoff to it. 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 of 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.