Q1 2020 Earnings Call
Question answer session will follow the formal presentation, if anyone should require operator systems. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I was I turn the conference over to Lucy Rutishauser Executive Vice President and Chief Financial Officer.
Thank you you may begin.
Thank you operator participating on the call with me today, or Chris Ripley, President and CEO, Rob Weisbord President of our local news and marketing services Division and Jeff Crowell, Vice President of Fox Sports.
Before we begin build your mcentire will make our forward looking statement disclaimer.
Certain matters discussed on this call may include forward looking statements regarding among other things future operating results such statements are subject to a number of risks and uncertainties actual results in the future could differ from those described in the forward looking statements others. All the various important factor such factors set forth in the company's most recent reports.
As filed with the FCC and included in our first quarter earnings release.
The company undertakes no obligation to update these forward looking statement.
The company is a website as a key for a company information, which can be accessed www dot SBG <unk> dot net in accordance with regulation FD. This call is being made available to the public a webcast replay will be available on our website and will remain available until our next quarterly earnings release included on the call.
Well be a discussion of non-GAAP financial measures, specifically adjusted EBITDA adjusted free cash flow and leverage. These metrics are not meant to replace GAAP measurements, but are provided a supplemental detail to its just the public and their analysis and evaluation of our company a reconciliation of the Nongaap financial measures to the GAAP measures in our.
Financial statements is provided on our website <unk> under investors non-GAAP measures.
Chris roughly well not taking for operating highlights.
Either unprecedented times for the country in the world that we're going through as a result Kobe 19.
I'm sure everyone has a personal stories. How this is affected their lives and we had Sinclair no different I'm very proud of our employees, who have stepped up and positively impacted their communities in many different ways. These declared bureaus are making protective gear for those who are most vulnerable in their communities shopping for senior citizens.
You cannot leave their homes.
In creating online book clubs to help children learn and stay occupied during this difficult.
Our stations are actively involved in fundraising efforts for their local communities, having raised millions of dollars in a short period of time.
We had sinclair like all than there are strong and resilient, which will see us through this challenging environment.
The big question on everyone's mind at the moment, it's how Cobiz 19 is impacting our business and industry and how we're responding.
For the first quarter, the financial impact was relatively small impacting our media revenue guidance by 2%.
However, we were swift to react on the cost side and ended up growing EBITDA as compared to our guidance.
In our legacy businesses, we did see attrition from some advertisers very late in the quarter, which caused our core advertising to come in lower than expected.
However, political revenue held up in came in at the mid range sort of the midpoint of our range, reflecting the strength of the category.
In our sports segment, the M.B.A. NHL and I'll be postponed their seasons, beginning in March which had a relatively small impact on our EBITDA for the quarter.
Well the push phone and all the gains resulted in lost advertising dollars. The impact was mostly offset by the absence of direct cost for the games that were not play.
Perhaps the biggest effect of cobot 19 during the quarter, whereas the surge in viewership we experience across our local news and digital sites.
We are seeing first hand, the power of local news and the important step yours place on by the local content.
I can't stress enough no. Other media is critical to keeping the public aware and informed and local television broadcasting.
And the covert outbreak viewership of local news on our stations has risen significantly compared to the pre coping weeks. In addition, the views on our digital platforms were also up very significantly with Steris seemed like 50% increase and you need the worse from March to April attachment.
To our ability to reach inform engage people on all platforms.
And I think it's important to note that despite the uncertainties that Kobe has injected into nearly every part of our lives there will be an election in November and political advertising is still expected to reach record levels.
Well, we have experienced some advertisers canceling their buys a refraining from buying at this time, which is to be expected because of Kobe its impact on businesses.
We are working with those visits to help them maximize their ad dollars.
These efforts, including video conferencing to highlight marketing services, they can utilize and our artificial intelligence engine that can produce a commercial and 10 minutes.
We also had included them in our we are open campaigns and provided on incremental spots at no cost.
We've also been taking step son, Sinclair as it's been side to proactively counter reductions in advertising right.
Early on we went into cost management note, including freezing all travel and entertainment delaying non essential capex differing open position hires and reducing promotional spending.
For the sports segment second quarter advertising revenue is expected to be impacted by the continued postponement of gains during the quarter, but as I mentioned this will be offset impart by the absence of the costs associated with producing those games.
Lucy will get into that number shortly but first I want to take a minute to explain how sports rights and the distribution agreements work, which represent 75% of our sports media expenses and 90% of sports segments revenues.
The sports rights agreements entered into between ourselves and the professional sports teams typically include a minimum game delivery obligation.
Adjustment provisions in those agreements address shortfall by teams, including rebates tied to the number of gains actually deliver.
Conversely, certain of our affiliation agreements with distributors also include game delivery minimal.
We can if we cannot deliver the minimum number of games under these agreements there is a mechanism for distributors to recoup a portion of their carriage fees.
Each contract is unique and confidential and therefore, a different parameters and remedies for any potential shortfall games deliver.
Despite the postponement of gain of play we continue to make payments to the teams in our distributor distribution partners continue to pay offs.
The mechanism for Truing up for any content not received under our sports rights agreements or not the labored under affiliation agreements generally takes place at the end of the season or calendar year.
While we believe the sports will come back this year and be in high demand at this time a leagues.
I'm not indicated when gains will resume.
Therefore, we do not know where we will end up in relation to the game delivery minimums.
Keep in mind that the NHL and be a regular seasons, where almost complete when the seasons for suspended so shortfalls in those weeks if any should be minor.
Nonetheless, we have pulled our full year guidance until such time as we had a clear picture of the timing of revenue and expenses.
Despite Kobe 19, we are still hard at work on initiatives to ensure our success in the years at top of mind or the digital renewed and rebranding of our sense.
As part of these efforts, we're developing a more robust in dynamic gap that will enhance the user experience, allowing the viewers to interactive live sports in ways that have not been previously available.
This eventually is expected to include legalized sports betting capabilities.
We've been talks with numerous companies about how we can best partner to deliver consumers that compelling betting experience within the viewing out.
We expect to announce more on this front later in the year.
Another initiative that we've been advancing over the last several years synerons centers around making a next generation of TV a reality.
These efforts are taking a big step for this year with a dozen Sinclair markets currently planning to deploy HDFC 3.0.
At the same time, several consumer electronic manufacturers plan to produce approximately 20 Nexgen TV models this year.
The new platform allows for expanded usage of the broadcast frequency on which stations are transmitted enabling more targeted and content rich advertising and greater personalization for the consumer as well as new non television data services.
You will also be hearing more about these efforts to later in the year.
Sure the company's fast growing free Oki Tee up that launched in January 2019 finished the quarter with strong momentum setting all time highs across all key metrics, a total impressions, increasing 25% over Q4 last year.
And that strength is carried in April.
The platform has benefited greatly from its offering of life local news on the local Stirrer City challenge.
And 100 free additional linear channels and by its recent launch of the New 24 hour Kobe 19 News channel, which has quickly become a top five watch channel.
The lives in local aspect of star continues to be a draw with yours would close to 50% of users tuning in for local news consuming it live over 80% of the time.
I also want to mentioned a lot launched a tennis channel international and over the top platform dedicated to the best that tenants has to offer which premiered in Germany at the end of April.
A launch date was just in time for the restart of life Sen with a tennis point exhibition series, a four day kind of competition between men's tennis professionals that ran from Mainfirst through may 4th.
This was the first like major tenants in that played in over two months.
Tennis channel International we'll be expanding to other countries in the months ahead.
Finally, we continue our efforts as a strong corporate citizen in the communities in which we serve.
We are elevating the value of that well have local news that brings to our viewers in many ways.
For example, we are expanding the number and scope of our investigated pieces whichever she'd critical acclaim over the years targeting 23 markets in 2020.
Also more be or staying at home with their children during pandemic 19.
Oh, sorry, I think the Kobe 19 pandemic, we've started providing certain programming aiming at helping parents still the educational gap duties schools moving to remote education.
For example in West Palm Beach, Florida, we a partner with the local PBF station on educational shows and our markets are working with local high schools and colleges to stream virtual graduations.
In addition to our programming initiatives, we continue to promote fundraising efforts would be salvation army to assist though than need including those affected by the national Debbie tornadoes in March and those impacted by the cobot Nike endemic.
This year, our Sinclair cares campaign has raised over $850000. Since 2017, our fundraising efforts have raised or $3 million and donations for the salvation Army, helping our community communities recover from wildfires extreme weather events and now 10 dynamics.
For our employees, we have stake we have taken steps to help them through these difficult times.
We are allowing eligible employees to cash out paid vacation to assist with my family hardships. We have created a multimillion dollar fun to advance paid eligible our San freelancers.
We extended the use of sick leave and are allowing compensation drives to commission based marketing consultant.
I know our investors have been disheartened by recent performance of our equity and fixed income securities.
You want to assure everyone. That's declare is financially strong we have taken measures to increase our liquidity not out of necessity, but rather as it precautionary measure at this time of uncertainty caused by the disruption from Kobin 19.
Lucy will give you more details on those measures in a minute.
But I do want to emphasize that we believe our securities our grossly undervalued and we have purchased a significant amount of our common equity.
I want to emphasize that we have been pretty scenarios like this before and rest assured we're taking steps internally to reduce expenses and preserve working capital where appropriate.
Now I'll turn it over although it's easy to discuss our financial performance.
Thank you Chris.
We had Sinclair hope that everyone is safe and healthy and as Chris pointed out we'd like to give a shout out to our employees who have ensured we remain on the air and keep you are viewers informed in entertained we'd also like to thank her staff for a quick and smooth transition to work from home your positivity creative.
I'd and commitment had been inspiring.
Despite the impact Cobot 19 had on revenue towards she ended the quarter, we still exceeded our EBITDA and free cash flow guidance.
Keep in mind that the inclusion of the sports segment. This year, which was not in last year's first eight month numbers is responsible for many of the larger changes in our actual results versus the same period last year.
Therefore in many cases I will be speaking about results versus prior year pro forma which is a much more meaningful comparison and assumes we own drs and in those periods.
Our Q1 actuals and much of our guidance is in this morning's earnings release, so rather than spend time on the call repeating there's numbers I'll focus on key financial metrics I'll be consolidated company and each side.
For the consolidated company media revenues for the first quarter increased about 900 million due primarily to the inclusion of the sports segment.
On a pro forma basis total media revenues were down versus last year's first quarter media revenues of 1.618 billion as high your political and digital AD growth as well as higher distribution revenue at our legacy business Oh.
Only partially offset the absence of dish revenues in the sports segment and curve its impact on AD revenues in March across all segments.
As a reminder, our legacy business consist of our local news and marketing services, they segment as well as our corporate and other segments.
While January and February advertising gains were strong ending up mid single digits in mid March we began to see the effects of curve at 19, but the postponement of professional basketball hockey and baseball games and the cancellation of advertising commitment.
[laughter] subscriber churn in the quarter was mid single digits on a year over year basis.
The churn rate continues to be affected by one large N b P D and as we stated last quarter, excluding that distributor subscribers were flat.
It's still too early to tell due to the reporting lag to know with cobot has had any impact on subscribers either up or down.
Well, we noted that in 2000 in age doing a great recession subscription based businesses fared better than AD based businesses and went to stay in place rules in many states TV is one of the few entertainment options available to people.
Consolidated media expenses of 1.038 billion were better than our guidance and flat on a pro forma basis compared to last year and that's on lower sports expenses due to the postponed games as well as cost savings in the wake of code that which offset the higher network programming.
In cost Dinesh DNA.
Adjusted EBITDA on a consolidated basis increased 69% to 281 million.
With the inclusion of the sports segment contributing 58 million.
Pro forma adjusted EBITDA was down from Q1 last years 415 million with the largest driver being the absence addition, the sports segment and higher network cost.
However.
EBITDA exceeded our guidance as lower than forecasted expenses more than offset the lower revenues.
Consolidated adjusted free cash flow excuse excluding nonrecurring legal mitigation transaction in regulatory items of 20 million.
With 110 million, which was 37 million higher than the top end of our guidance.
Please keep in mind that there are timing events did occur in the first quarter, which historically have made it one of the lowest EBITDARM free cash flow quitters I'll be here.
Diluted earnings per share on 91 million weighted average common shares was $1.35 corridor, where $1.53 when adjusted for nonrecurring items.
As Chris mentioned earlier, we took steps during the quarter to enhance our liquidity out up an abundance of caution and not as a result, a pressing liquidity needs in the short term.
We borrowed 225 million of diamonds revolver, and 648 million S. T. G. However in April we repaid a portion of the S. T G revolver, bringing the current outstanding balance down to 225 million <unk>.
The revolver draws are sitting as cash on boats I lose balance sheets.
In March we also we elected to paying kind of diamonds first quarter preferred stock dividend, which were preserved 13 million of cash.
We also we eliminated on nonessential travel delayed open positions reduced media spending and deferred nonessential capex.
In total we have identified approximately 100 million up discretionary and feels based expenses for this year, including 14 million up savings realized in Q1.
There's also another 30 million of nonessential, Capex, which is expected to be saved this year.
I do want to emphasize that well we currently do not anticipate liquidity constraints should there be a for a long period of economic weakness. There are additional measures we could take defer their control cost slow our working capital needs and generate cash, but we do not believe we need to take these steps at this.
Time.
During the quarter, we took advantage of the steep drop in prices up our publicly traded securities we repurchased nearly 10 million shares of Sinclair stock at an average price of 17 65.
In the second quarter, we have repurchased another 3 million shares since the start of the or 14% of the total shares outstanding have been repurchased.
Our buyback create approximately $10 of share price accretion.
Our dividend now yields over 5% annualized which on an after tax cost bases is more expensive than S. T geez debt and represents the best choose the best G.'s free cash flow.
Turning to the segments for the legacy business media revenues increased 17% on strong advertising revenue growth in the first two and a half month for the quarter before cobot 19 slowed the economy and resulted in AD cancellations towards the end of March.
Early quarter strength was across the political and core advertising we ended the quarter with total advertising up 12% were down 1% ex political.
[noise] political advertising, a 40 million was eight first quarter record for Sinclair.
Distribution revenue increased 15% the legacy business also benefited from 23 million of management incentive fees paid by Diamond.
This revenue as a reminder is eliminated in consolidation.
Adjusted EBITDA for the legacy business increased 34% to 223 million. This was near the high end of our guidance due to the higher net distribution revenue and cost controls that offset the lower cobot advertising impact.
In the sports segment media revenues of 812 million decreased 14% versus pro forma results of 948 million in Q1 of last year.
The decline was expected was due primarily to the absence of dish as well as lower advertising revenues related to the postponement of professional league games.
Sports adjusted EBITDA of 58 million for the corridor.
I was above our guidance range of 30 to 33 million due to lower direct game called cost controls and timing of sports rights payments that more than offset the decline in advertising.
On a pro forma basis did decline from Q1 last years adjusted EBITDA of 231 million was due to the absence of dish as well as higher sports rights payments and the incentive fees paid to S. T G.
Sports rights payments of 612 million in the quarter were 221 million higher than the sports rights amortization for the quarter.
Which is a timing item within the year.
As a reminder, rights payments are typically highest in the first and fourth corridors.
Turning to the balance sheet consolidated cash at the ended the quarter was a billion 342 million, including 844 million. It S. T G and 483 million of cash at Diamond.
Again keep in mind that STG is cash balance included the 648 million of drawn revolver and Diamond included the 225 million a drawn revolver.
As TG I just wanted to remind you again, we had century paid a large portion of that such that there was there any to 25 million outstanding.
Total debt at the end of the first quarter was 13.302 billion and the net leverage ratio for consolidated Sinclair at quarter end was 5.7 times.
Sinclair television groups first lien indebtedness ratio on a trailing eight quarters was two and a half times on a covenant of four and a half.
And 4.3 times on a net leverage basis through the bonds.
Diamonds first lien indebtedness ratio on trailing four quarters was 5.4 times on a covenant of six and a corridor.
And I want to remind everybody that that maintenance carbyn only springs into effect, if the revolver is drawn at over 35%.
On a total net leverage basis, a diamond was seven times.
In terms of guidance for the second quarter and the rest of the year. Obviously the outlook right now is uncertain what did on knowing how long the economy will continue to be impacted by cobot and how long professional sports leagues will pose pairing their season.
Therefore, we are suspending our full year guidance until we have more visibility into the rate of improvement in the economy relaxation stay in place restrictions and resumption of lead play.
For the second quarter, we continue to see advertising declines as a result of the game suspensions and general weakness in the economy and our underlying advertiser businesses.
For the legacy business, our second quarter media revenue guidance is 656 million to 686 million down approximately 5% to 9% from last year.
This is driven by a projected 32% to 39% decline in core advertising.
EBITDA is expected to be 107 million into 133 million as compared to 193 last year.
On the flip side, we continue to expect strong political advertising, which is highly concentrated in the second half of the year and that will help offset some of the weakness in core advertising.
For the sports segment second quarter media revenue is expected to be 748 to 760 million.
Down 23% to 25% to pro forma last year's 992.
We have assumed none of the professional leagues resumed play in the second quarter and that the dish contract will not be executed.
In the second quarter.
Adjusted EBITDA is expected to be 190 to 202 million as compared to 440 pro forma last year with the declined primarily due to the reasons I just said.
I want to point out that the largest declined in the expenses is the result of minimal sports amortization.
Since we have assumed no games in the corridor there a will be no at a sports rights amortization and while this reduces expenses. It is a noncash items that does not impact EBITDA, which is based on sports rights payments not amortization and its Chris point.
It out we continue to pay the teams and the distributors continue to pay off for the contract.
And finally for the consolidated company media revenues are expected to be a billion 379 to a billion 421 million.
Adjusted EBITDA of 297 million to 335 million and adjusted free cash flow of 125 to 169 million on all and on 80 million shares. This equates to free cash flow per share of $1.56 to $2 any 11 cents in the second.
Corridor.
And with that would like to open it up two questions.
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Our first question is from Aaron Watts with Deutsche Bank. Please proceed.
Hi, everyone. Thanks for having me on.
I wanted to start with the question on the that's two GI side I'm curious what your Salesforce is seeing and hearing on the ground in your markets as it pertains the SMB.
They've been called out as being perhaps most impacted by what is going on now and.
I also curious how important those small and medium sized businesses already overall advertising mix and whether you see the pull back from.
In that category, it's temporary in nature has more of a pump permanent so that's time or perhaps somewhere in between.
Well I'll let.
Rob Weisbord comments on that as it relates to the local news Division Oh. My my take is that you know that the smbs are getting hit a pretty are probably a much harder than they.
Larger national advertisers.
And I do think it's a it's not permanent I'm you know they will bounce back when things return to normal, but well, let rob speak further to that.
Yeah, Aaron I agree with what Chris stated is we're doing a virtual lunches and learn.
Educating the SMB is on various marketing services that Oh, they might not have had time to learn and given the time to be able to demonstrate watch solutions coming out of covert 19 would be applicable for their business, we do see them right.
Turning a short term they'll have to Restaff Oh get open get their cash flows going but we do see a return to their business automotive.
At the midpoint of all this home sheltering today.
What's considered a central business.
We will need to move their 2040 autos off the wall. So we expect that to be ROE Boston the back half the year, Oh, and our marketing services has continued to keep us all strong as a focal point during the cold at night too.
Got it that's helpful context.
If I could ask one question on the sports side.
See I I think of if you were walking through all the numbers it seems like the one Q a distribution.
Revenues were a little lighter than your guide <unk>, Yeah, I apologize if I missed this but what was the main factor in that.
Yeah. So we all went when you think about you say the sports I was a little bit negative the news side local news I was a little bit positive and in aggregate. All we were pretty much right on the guidance and really it's just a matter of within those markets a the differ.
Once in the churn versus what we had estimated so again it those are not material changes and when you look at the total company together Yeah. We were we were pretty much all at what we guided to.
Okay, and if I could ask one last one and I. Appreciate the time just bigger picture does the current environment have any impact on your upcoming distribution renewal discussions I think particularly with Comcast coming up this summer.
So we don't think Ah that will have an impact on those negotiations or as you mentioned that will occur in a lot more news on that likely this summer.
We do expect sports or to resume a moral of more than likely sometime this summer.
And and so we also think.
From the data we've seen that there is a is going to be a very large pent up demand for sports. In fact, there was a survey we were just looking at.
That was done its is 23% of the population is looking to upgrade their TV service.
In order to watch last sports when it comes back. So we think there were turned a lot of sports is going to be.
Bigger bigger than than than normal and and really drive incremental activity. So in some sense I think this gives us a stronger huh.
Hi, great. Thank you for the time and everyone stay well.
Thank you.
Our next question it from Dan Kurnos.
Our company. Please proceed.
Great. Thanks, Good morning, Chris really helpful. Additional color on just sort of the economics on the D.S.G. side.
Just curious I know you made the sports comment and for what it's worth a Chris we just heard that the virtual Kentucky Derby got a four rating. So that's not pent up demand for sports I don't know what is but just you know for the full year I guess I'm just trying to understand you know we it's hard to handicap, one sports comes back maybe Q4, but.
Is there any color you can give us around you know its sport doesn't return or returns in Q4 kind of how that plays out how that nets out distribution together a sports rights fees that you would have to tell you how that would impact EBITDA.
Well I would refer back to my prepared comments in terms of Ah everything that we can say without violating our agreements in terms of confidentiality.
Yeah that gets into pretty good detail about how how the payment flows work in terms of what we're expecting look we don't know how many games will ultimately be played a but we do expect.
Less than the you know that normal amount of games to be played.
And that should resolve and in some sort of rebates situation where are the teams play they get paid less than the and the M.B. Pts get a rebate and so we essentially just you know those those that we do have a very.
Good model in terms of offsetting a revenue declines and and expenses. So we should be fine.
In any conceivable scenario.
Okay. That's that's helpful color and then just on the S. T G side to the TV side I think if you pull out other your core is kinda down you know little bit north of 39 ish at the midpoint I know you said 30 to 39, but that might be including other I'm just you know from.
Category perspective, I know you guys once called out education I know that's been maybe challenge with everybody you know going online now, but just curious if you could give us some more category color and even just you know what you're seeing or conversations with advertisers you're having in may terms of cancellations in sort of pace over.
The next.
Corridors and how that kind of evolved.
Right, we're going to have a rob a whiteboard answer that question.
Yeah, So oh actually in education, we've seen a water oh.
Hopefully lot of colleges universities trade schools going to advertise their online classes.
So where the traditional universities are now going virtual those that specialize in online have stepped up their marketing budgets and so are we on position as we focus on becoming specialists from Jana less than the same thing that we see.
In the attorney category, we expect the attorneys coming out of an unfortunate you know when you read the data.
There's predictions that divorce will be at a higher rate than the norm as well as bankruptcy. So we're seeing the service category a robust as it can be doing coven 19, and again as previously stated there will be a short term lag as.
Ladies and states starts to reopen but we see a recovery if all things go as planned we don't have a secondary wave, but towards the end the third quarter and a robust so fourth quarter.
Rob can I just just on the auto just because you mentioned it before I mean, historically when you've had a shutdown in production and its reopened I know we've talked about dealers, but usually you have kind of a big OEM AD campaign is that something you guys are anticipating hopeful of and maybe you know kind of June July timeframe.
Yeah, we are anticipating so part of our give back to the community and we've been very focused on a give back off from an on air standpoint is all campaigns that we have run that we are open and we have focused most of our market places on the automotive Ah groups the local auto groups.
The regionalized groups to promote that they've been opened their service departments that never shut down. So we believe that goodwill that we've extended will come back off and we remain in contact with all our auto dealers.
Great Super helpful color guys, thanks very much.
[noise]. Our next question is from John Janedis with Wolfe Research. Please proceed.
Thank you Chris long term does the current situation with lots of lot of sports impact away that's about distribution.
Its meaning is there a consideration to move more aggressive, but it was really distribution model and if so how could stir play into it and then I guess sticking with.
Distribution that sports any update on death.
Sure. So look I think it's inevitable that Oh, we have more streaming slashed direct to consumer offerings over time, we're already we've already been headed in that direction.
And so that's certainly going to be part of the model going forward, but we.
We don't do that at the expense of our existing distribution partnerships, we do that to be complementary to add additional value to their ecosystem and also add additional value to our yours and additional revenue stream. So it's it's a I find that a lot of analysts think it's an either or prop.
Position and we just don't see it that way we are we're approaching the market with complementary value enhancing offerings and a as it relates to dishes as as I think Lucy mentioned, a you know a in our guidance or there is no update.
On dish.
Thank you.
<unk>.
Our next question is from these days.
Please proceed.
Oh, Thank you for the questions.
A couple of your one it sportswear to be off a little bit longer or can you talk about.
The cost savings.
To achieve at the Diamond, so well above and beyond sports rights and then I've got a couple of more thank you.
Well the primary cost savings for Diamond beyond sports rights or is the production expenses.
And Endos those will fall away or beyond that we have tightened our bell and numerous areas like a travel entertainment.
Open positions.
Things like that.
Great and not the point that.
You will be fine and in any true up for minimum under deliveries.
How should we think about that and I know, it's early but would that you maybe a net outflow when all said and done between sports rights reduction this versus distributor get back.
And just want to confirm related to that that you feel very comfortable with your or if you feel comfortable to your liquidity it'd be about that happens and then I've got one more and thank you.
Sure I'm still on the I'll deal with liquidity question first that's a pretty simple answer we are fine from a liquidity perspective, we're not concerned there and in in terms of Ah rebates as I mentioned.
We think we're likely going to head into a situation where there is rebates. We won't we don't know the magnitude of those till a till we get more clarity on when when the games, we played and how many will play a so what we will do though is.
You know update our guidance you know once we have a clearer picture a my guess is that'll be the next quarter and from the area build to tell you know what the impact is.
Okay and I'll ended at this your cash balance of Diamond I think it's 483 million.
Oh, you talked about security prices that you have the silo, but diamonds in context that cash.
Couple of comments he just made in terms of potential cut backs.
How do you think about.
All of that in the context of your current bond trading levels and.
I'll leave it at that thank you all for the <unk>.
Sure I'll be Oh, so I'll take that one too. So when you look at the securities across all of our though tie loses as well as our equity they're all trading at discounts are we view that as a like a liability management opportunity or we did buy somebody diamond bonds.
The ended the quarter.
As a deep discount as well as the equity and as you can imagine in this environment, where everything's trading a we've had numerous proposals put in front of us all by the investment banking world.
And we are looking at the refinancing alternatives to figure out what is the the are the best way to optimize the capital structure be opportunistic and de lever. So all I will let you know there so more to come in that regard.
Thank you all stay healthy.
Thank you.
Our next question is from Davis Hebert with Wells Fargo. Please proceed.
Hi, Good morning, everyone. I Hope you guys are well and staying safe.
Just a.
Couple of questions about the Diamond side, Chris you suggested a on the true ups you.
Perhaps we'll see some.
The idea whether those would be in cash can you spread those out over time is it something that's purely negotiate negotiable, giving given the you know precarious situation we're in.
It is not negotiable in fact, our contracts on both sides equation are quite clear.
And the reason why it's a this you might be wondering level I would have anticipated such an event well. This has been anticipated mainly because of strikes that potential for for games NAXI play and so the contracts are not a day.
Our quite clear and as I mentioned generally things are trued up either at the end of the season or the end of calendar year.
Okay, and then I Wonder if you could touch on the you tube deal I'm, given I guess they didn't take all the our sounds didn't take yes, and just curious is.
Is this just a short term fix or is this a template for future deals kind of how you. How are you thinking about that deal, specifically and and more broadly for distribution.
[noise] Yeah, you to Oh, we'll have to see you know they were on their under a lot of cost pressure.
To make that offering a you know they breakeven and so so is really a cost exercise for them and somebody our sense, they ultimately didnt take where where the more expensive ones.
In a in a larger markets. So that's what really drove the outcome a there I think it's a unique situation in terms of.
Oh, what do they decided they wanted to do and I don't think it really has any broader implications.
Okay, Great and just last question how much how many bonds did you buyback it at the time in sports empathy and Lucy in terms of financing alternatives would that include perhaps exchanges to capture discount at the Diamond sports. Since then thank you for the time.
Sure. So today this week, we paid about two and a half million Dick for almost 5 million of face value Oh and that was on the all the unsecured notes of Diamond and they really you know as I said on the on the financing side. Your we have a lot of proposals in front of.
Oh that we're evaluating and a and again once we Oh you know once once we knew.
The path if we want to go down we'll let everybody know.
Great. Thank you.
Our next question is from Steven.
As far as though please proceed.
Thanks, and thanks for taking my question today, maybe just first a big picture question. You know the are a sense of gone through a lot of unexpected challenges between dish and krona viruses impact on sports and now it looks like cord cutting is accelerating and the cable ecosystem. So you know a lot has changed since you made the decision to have this asset it.
Certainly Ben I think a big kind of distraction for investors you know we see on the question, but the big focus of the call do you still think this is a business that you want to be in the long term are you considering any alternatives because it seems like the pure play broadcast business is a really strong business, it's getting kind of lost and all that so just how how do we kind of think about the way you're.
During your portfolio today.
Well, we've we've come a long way since since you bought a we've we've solidified approximately 70% of the subscriber base since weve.
We purchased a diamond or really the two outstandings are really just addition, Comcast at this point.
And and we think.
That these assets are incredibly strategic to the ecosystem.
And they're numbered implications for you know what we can do these hot you know any to enhance value through streaming and direct to consumer offerings as I mentioned earlier and so as we think ultimately these will return to growth.
In some of the a new opportunities come to bear like sports betting a indirect consumer so.
You know they are this is a business that is important at the end of the day and ultimately will will provide a return.
Thanks, and then yeah. Just just another went on a on the true ups I think I heard you say that maybe this is typically captured a calendar and is that based on a calendar year are there like quarterly requirements, but I'm kind of thinking is I would guess fit for the June quarter. If there are no.
Sports, which I don't think again on realistic assumption at this point you basically have no affiliate revenue and you'd have no sports rights payments. So the Rs and EBITDA is kind of zero for that quarter, but not gonna be like a retroactive recognition or does it not even work on a quarterly basis really depends on how the year comes out.
So we can't get into the specifics of the contrast beyond what I said in his prepared remarks, which which was that it's either a depending on the contract at season and or calendar and.
And it's not on a quarterly basis.
In general so you're not going to really see or the impact in Q2, assuming sports are off the air we really can't factor in the impact in a in our accounting until we know where at least have a better estimate of than the ultimately the number of games played.
Great then just the last one any update on what net retrans growth might look like for 2020. Thank you very much.
Hey, Steve you know as we said we have suspended our full year guidance at this point until we have more clarity among that includes the NDP diesel and whether or not a you see more economically driven cord cutting where whether or not you actually see a subscriber.
Fibers increased knowing that a again TV right now is one of the few entertainment options available to people a wilder under stay at home rules. So all again believed that next quarter, we'll be able to put that back out there.
I appreciate that thank you.
Ladies and gentlemen reach the end of our question and answer session I would like to turn the call back over to Chris Ripley, President and Chief Executive Officer for closing remarks.
Thank you operator I.
I would like to conclude our remarks by pointing out that we are far more solid and resilient company than we were entering the meaningful macro events of the past.
Our business and revenue streams are much more diversified and higher quality. Our operations are more sophisticated and our balance sheet is stronger we have the resources the people and experience to weather, the storm and come back stronger than ever.
With that.
Thank you.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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