Sphere Entertainment Co.

Good morning and thank you for standing by. Welcome to the Sphere Entertainment Co. first 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.

Thank you. Good morning and welcome to Sphere Entertainment's first 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 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 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 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'll now turn the call over to Jim.

Thank you, Ari, and good morning, everyone. Today's financial results demonstrate our continued success moving out spheres business model. We remain focused on maximizing the model's full potential in Las Vegas while executing on our long-term vision for a global network of sphere venues. In Abu Dhabi, the project has been minimally impacted to date by the conflict in the wider region. The Department of Culture and Tourism has selected the venue site, which will be announced at the appropriate time. In addition, Early stage procurement work with contractors and vendors is now taking place. We look forward to the groundbreaking in Abu Dhabi. In January, we announced that we will bring the second sphere in the U.S. to National Harbor. National Harbor welcomes over 15 million annual visitors and is just minutes from Washington, D.C. Financing discussions for this 6,000-seat sphere are progressing as planned. We are also finalizing the venue design which we coordinate with the Peterson Company on the site master plan and the pre-construction planning. In addition, we're working together with the state and the county on the various legislative approvals and incentives for the project. We continue to believe the venue could be open in four years or less. At the same time, we remain in discussion with a significant number of markets around the world regarding large and smaller scale spheres. and we're confident about the path towards global expansion. We continue to demonstrate PowerSphere's business model in Las Vegas to our potential expansion partners. Calendar 2026 marks our third full year of operation in the market with our business on track for substantial growth. This is led by the Wizard of Oz and Sphere, which continues to perform well. The production's results reinforce our confidence that the Wizard of Oz will remain a strong performer in 2026 and beyond. And at the same time, we are continuing to work on our next sphere experience from the edge, as well as developing other projects in our pipeline. That includes the progress we are making with IP holders for additional sphere experiences as we build out a diverse slate of content. We also continue to see increasing demand from artists and brands to utilize this new medium. This is evidenced by ongoing growth in the number of concerts and brand events, as well as an expanding roster of advertisers and sponsors. So in summary, we continue to successfully prove out the sphere business model in Las Vegas, which is now serving as a blueprint for our long term vision, a global network of sphere venues powered by our proprietary technology and immersive content. 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 March quarter, we generated total company revenues of $386.4 million and adjusted operating income of $110 million. Our Sphere segment generated revenues of $266 million, an increase of nearly 70% compared to the prior year period. This growth was mainly driven by the Sphere experience, primarily reflecting higher per-show revenues for the visitors of our Sphere. In addition to higher revenues from the Sphere experience, we also saw revenue growth in brand events, concert residencies, and sponsorship and suite license fees. First quarter adjusted operating income for our Sphere segment was $74.3 million as compared to $13.1 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 includes the impact of the visitor of Austin Sphere, as well as higher expenses from brand events and concerts, primarily due to more events held in the current year quarter. SG&A expenses for the March quarter were $106.6 million, an increase of $10.2 million or 11% year over year. The increase was primarily due to the impact of mark-to-market adjustments on certain share-based compensation awards, earned by the appreciation in the company's stock price during the quarter. Excluding these mark-to-market adjustments, SG&A expenses would essentially have been in line with prior year quarter. Turning to MSG networks, the segment generated $120.4 million in revenues and $35.7 million in AOI in the March quarter. This compares to $123 million in revenues and $22.8 million in AOI in the prior year period. These year-over-year results reflect a decrease in advertising revenues and an approximately 16% decrease in subscribers. This was partially offset by the impact of MSG Network's non-carriage period with Altice, which resulted in the absence of revenues for approximately seven weeks in the prior year quarter. These results also reflect the amendments to MSG Network's media rights agreements with MSG Sports and certain other professional teams. Turning to our balance sheet, as of March 31st, our Sphere business had approximately $596 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 March 31st, net debt was approximately $110 million. This included $143 million outstanding on the MSG Networks term loan, which, as a reminder, that is recourse only to MSG Networks. Following the end of the quarter, MSG Networks repaid an additional $17.8 million on the term loan using cash on hand at MSG Networks, bringing the current principal outstanding to approximately $126 million. And with that, we'll now open the call for questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to star your question, simply press star one again. We'll go to our first question from Brandon Ross at LightShed.

Thanks for taking the questions. Hi, Jim. You mentioned the significant discussions that you're having on future spheres. We're wondering if just Given how profitable Vegas has become, it makes sense to own or at least operate and consolidate some of those venues instead of doing a franchise model like you have with Abu Dhabi.

Hi, Brandon. You know, I wouldn't discount that. I think that, you know, you're right that the strength and the performance of Vegas of Vegas is important and it impacts the equation. For us, we'd like to move as quickly as we can to building multiple spheres. So the capital light tactic is one of the ways to help speed it up. But with the strength of the operating model in Vegas, it does give us more options So we can go probably either way.

Got it. And then as you think about expanding the footprint, can you just give us a little insight into how you think about choosing locations and ensuring there isn't cannibalization between the future spheres that get built?

Sure. A, we're not worrying about cannibalization so much because, I mean, Washington is a long way away from Davis. We'd like to be a global company. So we ultimately like to be on all five continents. I don't think that includes Antarctica, does it? Anyway... We don't want to be clear about this. We do not wish to build a sphere in Antarctica. But we do want to be global. We think we think, you know, it's not just the building itself. It's the medium we want. We are looking to proliferate the medium. And so so, you know, we're going to we're going to go wide. But it's not because we're worried about audiences. cannibalizing one place versus the other. It's a big world, and I think there's a lot of opportunity, and not many people have seen this fear. Only, I think, today, I'll bet it's well under 10 million people. And, you know, we need more of them.

Sounds good. Thanks.

We'll move next to David Karnofsky at JPMorgan.

Hey, thank you. Maybe just following up on the conversations on the large and small market spheres, Jim, just wanted to see if you could expand on the progress there and just whether there's been any impact generally from the macro volatility we've seen, you know, either to the pace or focus of those discussions.

The not seeing any impact from global, uh i guess the conflicts that are going on um and i think pretty much uh many people think this is not a long-term thing so the uh um in terms of uh you know we have a lot of markets that are reaching out to us we have uh and we're continuing to look at look ourselves there are quite a few um markets that we think that the sphere would do well either a full-size vegas one or the or the National Harbor-sized one, the 6,000-seater. And I really think it's just, you know, the process itself is a little involved, you know, involving, you know, use of land and governments, et cetera. So it takes longer than I'd like, but, you know, the prospects look good.

Okay, and then maybe just staying on the macro but shifting it to Vegas, curious what you're seeing there right now as it relates to visitor trends broadly and whether there's been any read-through to Wizard of Oz or residency demand at the Sears specifically. Thanks.

Okay. I think, Jen Koster, you're on this call, are you not?

I am, Jim. I can take this one. Take it. Sure. So while we're mindful of the macro environment, we're not overly concerned at this point. And as you may know, Vegas visitation was down last year. That continued into January, but we've seen a shift and return to growth in visitation in February and March. So despite some recent market softness, our product still remains resilient. And in fact, one of the phenomenons we're seeing is that fear is actually driving incremental visitation to the market. So we all know concerts are a big driver of that. But interesting, we're also seeing that Wizard of Oz playing a role in that. And I think that speaks to the quality of our content offerings. We're seeing solid demand for Wizard of Oz from all segments of the market, and that includes our cost-conscious consumers. Again, suggesting that that value proposition for Wizard of Oz really resonating with consumers. In terms of residencies, again, strong demand. Fish just completed nine sold-out shows. Backstreet Boys is returning this summer for another 21 nights. And Metallica sold out 24 nights after initially announcing only eight. And so that demand's also extending into our suite sales. We've got robust single-night sales for Fish and Metallica's residencies. So we're going to keep a close eye on tourism, but, you know, the demand for our experiences remains strong and resilient.

We'll go next to Peter Cepino at Wolf Research.

Good morning. A couple of questions on the experiences. Now that The Wizard has been out for over six months, what have your learnings been? And what do you hope from The Edge and content that comes after that will do for the business that maybe you didn't do with The Wizard of Oz? And then a second question on experiences, as you ramp your catalog beyond The Wizard of Oz, what do you think the main drivers of revenue growth will be? We're wondering if you envision running more shows than you're running today with just the wizard or whether revenue growth might come from better sellout or higher pricing. Let's know more about that business model.

Thanks. Okay. I love it when people ask multiple questions and then I have to remember your first question.

What you might do differently.

Well, the key, the biggest learning from Wizard of Oz is that there's no place like home. But, you know, I mean, when we started off with Wizard of Oz, you know, we were doing a show or two shows a day. We did, if we were lucky, one show in conjunction with concerts. So I think the biggest learning that we've come up with with the with a wizard experience is that you can do multiple, can you hear me? Yeah. Hello? I think the biggest learning is that we can do multiple shows, even different shows, a concert and features like Wizards of Oz all in the same day. That the building can handle it, that the market can handle it, and of course the, You know, having multiple shows of the day, it really is pretty good for the bottom line. As far as growth goes, I wouldn't mind if the Wizard of Oz faded the way it is for quite some time. It's a pretty fantastic product and quite resilient. But I think, you know, we're continuing to refine the model. I think when you take a look at these products out in the future, you know, we're going to explore it. But I also think that you're going to see things like, you know, at 11 o'clock, at 10 o'clock in the morning, the Wizard of Oz, at 2 o'clock, Front from the Edge, you know, at 4 o'clock, you know, a different, you can have multiple, you know, viewings of it because the building is built that way. I mean, there's literally very little changeover from one show to the other. The biggest changeover is when we do concerts. And even that, we're able to accomplish the changeover in under an hour. So we're going to keep pushing on that model. I think it's going to produce, you know, more revenue. We're going to get more efficient with how we operate. And so I think then really primarily it's more spheres. So that's going to be a big part of the books.

We'll take our next question from Steven Lasik at Goldman Sachs.

Hey, great. Thanks for taking the questions. Jim, just a follow up on Wizard of Oz. I'm curious if you could talk a little bit more about how attendance and sell through have trended coming out of the first quarter and what you think that momentum might mean for ticket sales as you look out into later parts in the spring and then the summer seasons in Vegas.

Okay. Well, the real expert on this is my chief operating officer, Jen Costa. So I'm throwing this one to her.

Thank you. So as we saw it in today's results, Wizard of Oz continues to perform well. Our March quarter reflects, you know, we've got robust per-show attendance, average ticket prices, and per-cap spending that's consistent with our December quarter results. As of today, we've sold nearly 3 million tickets with over $370 million in ticket revenue for Wizard of Oz. Like any other market, seasonality is going to be a factor, so we're going to have ebbs and flows of visitors in the market, but as I've said before, we continue to maintain a relatively consistent market share of visitors since the debut, and we remain confident that we're going to continue to have a high performer through 2026 and beyond, and we really believe that there's a long life for Wizard of Oz.

Great, thanks for that. And then, Jim, I'm just curious, just given this momentum and Wizard of Oz that you're seeing, what leverage do you feel like Sear has now to negotiate maybe more favorable royalty rates with potential new studio partners for new IP? How have those conversations been progressing?

Well, I think the leverage is that we're the only venue that does this. So it's not like somebody else can take their product and go, you know, put it into a, a big immersive environment like a sphere. So it's really up to us which ones we choose. And then we obviously try and make the best deal that we can. But there's a tremendous amount of IP product out there, none of which has obviously been seen in the sphere, and none of which has utilized this media. So, you know, I think we have a wide choice of products, and we're really mostly focused on what will, you know, what will convert well with the media, what really does well in an immersive environment. From the Edge is, you know, it's our own product, obviously. And, you know, the thing about From the Edge is that we're trying very hard to make that feature extremely experiential. And we're right in the middle of making it. But, you know, it's extreme sports. And so when we go down a big wave, a 60-foot wave, we're really trying to make you feel like you're going down a 60-foot wave without making you get sick. So, you know, we're not going to get that product for nothing. but it is up to us which ones we choose.

Great. Thank you very much.

We'll take our next question from Ryan Sigdahl at Craig Hallam Capital Group.

Hey, good morning, guys. It's nice to see the additional Exosphere advertising partners. You have Delta, you have Anheuser-Busch, Evian recently. Jim or maybe Jen, can you give an update on the Exosphere and really specifically curious if you can quantify what the net retention is and utilization, and then maybe how you think about that business going forward.

John? Sure. So, Momentus and this business is really continuing, and we're well positioned for growth in 26. So, in terms of utilization, which I think was the first part of your question, you know, we have a strategy where 50% of the extra sphere time is advertising and 50% is art and promotion. You know, this strategy is really a valuable differentiator for the Exosphere brand from more of the traditional out-of-home assets. It helps us drive social engagement when we put our Exosphere art up there. I mean, our artist program, we're averaging about 1 million social media impressions per artist launch. It's also an important lever for us when we promote sphere experience ticket sales. On the other 50%, which is the advertising side, Brands are also viewing the Exosphere as a leader in driving cultural moments. You mentioned Anheuser-Busch before. They use Sphere to highlight the USA Olympic hockey team winning the gold. Coinbase used Sphere to amplify their Super Bowl commercials. TikTok used it as a place to celebrate their creators during TikTok Global Live festivals. I mean, those are just a few examples in Q1 of the types of moments and brand advertisers that we're getting. And so when we think about the utilization question, We're consistently evaluating our inventory and we're utilizing premium pricing on the higher demand periods. We've also created diverse offerings so that we can have some solutions that help us capitalize more on the Vegas conferences. We're investing in technology on the studio capability side, and that allows us to have quicker production and turnaround times. And that gives us access to, you know, some of those dollars that are just shorter term brand campaigns. And going back to your question, repeat advertisers, we're continuing to see returning brands like Adobe, Google, Amazon, MGM, and others. And so right now we're currently on track to grow the number of repeat Exosphere advertisers by strong double-digit percentages in 2026. So overall, I think we're really pleased with the progress on our utilization of the Exosphere and some of the new strategies that are really helping us to continue to drive that repeat business.

helpful thanks jen maybe just a clarification you target 50 50 art versus advertising are you willing to to quantify if you're at that 50 today or where you're at thanks good luck guys yeah that's i mean that's how we operated today 50 time advertising 50 art and promotion i think he wants to know if you're sold out jen

During peak times right over the past year, we have experienced times of sellout. CES was a sellout period for us, and we anticipate, you know, that to be the phenomenon going through the rest of the year.

My answer would be you're not doing your job well if you're sold out.

Well, I did say we're using pricing tactics during times of demand.

We'll move to our next question from Peter Henderson at Bank of America.

Hey, good morning. Thank you for taking the question. Just wondering if you can provide maybe any insight on how we should think about SG&A for the remainder of the year, especially considering the impact of the stock's appreciation on share-based comp. Thank you.

Okay. Boy, I'm really tempted to crack a joke here. So, yes, I will. So, STNA is a great basketball player, and when we get to the finals, I'm sure we're going to beat them. But having said that, having said that, I think I'll turn the real question over to Robert.

Thank you, Tim. Thank you, Peter. Here, let me start by reiterating that we are extremely focused on managing our infrastructure and SG&A cost base as efficiently as possible. We identified a number of cost savings opportunities in 25 and brought SG&A costs meaningfully down versus the prior in that period. So our SG&A numbers in this quarter, as you alluded to, didn't include certain expenses which are related to share-based awards. These awards are marked to market on our stock price and will be cash settled once exercised. That's why they show up here. Adjusting for these items, though, our SG&A expenses in the quarter would essentially have been flat on a year-over-year basis. Looking out for the remainder of 2026, we will likely continue to see quarter-over-quarter fluctuations, which will include mark-to-market impacts of these awards in light of our stock price performance. But we will also look for further cost savings opportunities wherever it makes sense. But we will balance that with ensuring that we have an infrastructure in place that supports the global vision for spheres, which Jim has laid out in his prepared remarks.

Thank you. Thanks, Peter. Operator, we'll take one last caller.

And we'll take that question from Joseph at Susquehanna.

uh thanks good morning jim and jen i was just wondering if you could update us on your residency uh strategy um in the near term you know we could see that the friday saturday windows um are pretty much locked up through this end of september there's some availability in wednesday and thursday and just wondering jim you know with your comment that hey it only takes an hour to set it up if you think about you know, how you use residencies differently going forward and what the outlook may look like.

You know, look, I think you actually answered your question yourself. You know, we don't announce everything, you know, as soon as it gets agreed upon, et cetera, with our acts. So I would say that we're pretty much out of dates for this year. Um, the, we are seeing some expansion in some Wednesdays and Thursdays. Uh, no doubt is, uh, um, is actually playing tomorrow. There'll be a show, I believe. Um, so, uh, so that's, you know, um, that's good that the, I don't see us going through a concert model seven days a week, anything like, like that. Um, but, uh, uh, the demand is high. Um, and, uh, I don't see it abating at all. There's a demand from the action list.

And that concludes our Q&A session. I want to now turn the conference back over to Ari Baines for closing remarks.

Thank you all for joining us. We'll speak with you on our next earnings call. Have a good day.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.