Q2 2020 Sinclair Broadcast Group Inc Earnings Call
[music] greetings and welcome to the Sinclair broadcast.
Group's second quarter 2020 earnings conference call.
Hi, all participants are one in listen only mode.
Question answer session will follow the formal presentation.
If anyone should require operate assistance during the conference. Please press star zero on your telephone keypad.
A reminder, this conference is being recorded.
So my pleasure to introduce your host Ms., Lucy Rutishauser Executive Vice President and Chief Financial Officer thinking you may begin [noise].
Thank you operator participating on the call with me today of course directly president and CEO, Rob why sport precedent, a broadcast and cheap advertising revenue off the sharp and Billy Chamber COO and CFO of local sports before we begin build your American tower 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 as a result of various important factors such factors have been set forth in the company's most recent reports as filed with the FCC.
He and included in our second quarter pretty clearly the company undertakes no obligation to update these forward looking statements.
The company uses a website as a key source of company information, which can be accessed at www Dot SBG I thought Nash in accordance with regulation I think 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 will be a discussion of non-GAAP financial.
Measures, specifically adjusted EBITDA adjusted free cash flow and leverage the company considers adjusted EBITDA to be an indicator of the operating performance artist outside the company also believes that adjusted EBITDA is frequently used by industry analysts investors and wondering as a measure of valuation. These measures are not formulated in accordance with GAAP.
Not meant to replace GAAP measurements and may differ from other companies uses or formulations. The company does not provide reconciliations on a forward looking basis further discussions and reconciliations of the company's nongaap financial measures to comparable GAAP financial measures can be found on its website www dot SBG dry dock.
Restrepo, we will now take you through our operating highlights.
Thank you like many of you we eagerly await discussing the state of the company without the backdrop of Cobiz Nike.
Satisfied mines have certainly been challenging for the countries the economy, the industry and costs as we face appendix impact on businesses and consumers alike.
First I want to see how very proud I am up our employees, who have done a tremendous job of adapting quickly to a new way of doing business is there. It is through their hard work and perseverance that we've been able to operator business seamlessly without sacrificing the quality that defines our company. We're already identifying learnings that we can take away from this period of time that.
Can make us a stronger company going forward.
With regard to the second quarter trends as we moved through the quarter. We did begin to see signs of improvement in the advertising market.
Just as we anticipated and guided on our last call.
After a very challenging April in in which core advertising for our broadcast another segment declined 43% year over year June improved to a 26% decline, resulting in second quarter core advertising performance for those segments to be down 36% and in the middle of our guidance range artists actually our decision.
To give you second quarter guidance on the May call was driven by our commitment to be as transparent as possible. While also acknowledging the limitation that given that giving guidance for the entire year wasn't practical due to the wide range of various that could result from uncertainties and timing pace and magnitude of recovery.
Well, we are still face with many of those same challenges and changing dynamics around the effects of the pandemic, making forecasting more difficult than usual, we have decided to once again provide guidance for the up kind of course.
As a reminder, we're starting to enter the peak political season, which is still expected to be a record political year will help mitigate the weakness in core advertising space.
We're pleased with the professional sports leagues that have resumed their schedules. Although they are short it is very clear that yours are excited as well with ratings for the first day of the MLB season up 32% or arsonists compared to last year's opening day viewership.
Yeah.
He discussed previously our contracts with the sports teams already contemplate scenarios, where there may be shortfalls in a number of live games delivered to us and as such cases, we are entitled to renew migration from the teams for any gains falling short of the guarantees that are defined in the contract and Conversely, we have distributors to whom we guarantee.
The minimum games like games in contracts with us.
I leave it I will lead to lose you explain some of the ramifications on the timing impact the rebates deal to and from Sinclair as a result of the shorten 2020 to 2020 season I want to emphasize that contrary to reports out in the public at this time, we do not expect rebates from the teams to be greater than what we pay out to distributors.
Given differences in a way rebates are calculated in the team versus distributor contracts and other variances in the contracts.
Speaking of our sports business. They are a lot of exciting things going on behind the scenes that Sinclair.
As we announced several weeks ago, we hired Steve Rosenberg, a highly accomplished broadcast and programming executive as president of local sports, Steve along with Daily Chambers, who is the local sports COO and CFO will report in Iraq, Weisbord and helps fill the void left by the upcoming departure of Jeff Krulik, who is retiring is ahead of our arsone business at the end of this.
Mike.
I want to personally thank Jeff for all his assistance and hard work and helping integrate the are sent into Sinclair. He has been a valuable resource to me and the rest of the company and we all wish him well in future endeavors.
If you worried about Steve.
Over 25 years, Steve has been identified force in broadcasting excelling in a number of key sales marketing distribution executive naturals. During his career as Steve has been a true pioneer and innovative and creative sales marketing and programming efforts, Steve will pay play a key role in growing our sports business its ability to chat.
What's the status quo and bring about innovative ways to monetize opportunities will be fully utilized by Sinclair.
One of his first priorities for many years. This program the expertise to help elevate our non game programming on the ourselves and our stadium network.
The majority of programming hours on these networks does not involve like games. So there's a significant opportunity to improve our viewership and revenue generating capabilities in these time periods.
I also want to mentioned that's not Shapiro has taken an additional role of Chief strategy Officer of sports and we'll focus on some of our larger growth opportunities such as those associated with legalized sports that.
We have other exciting developments in our sports business coming out there as well with a number of significant growth opportunities on the horizon as consumer viewing habits continue to evolve we are committed to giving them an exceptional experience when and where they choose to watch us.
We're expecting to sports App that isn't development will give yours experienced unlike anything then encountered in the past women has graphics and sound as well as the ability to interact with the content numerous ways and putting with advertisers and free to play games.
Spend a lot of time meeting with many of the major players in sports betting and we expect more to be able to more fully detailed plans in this area later this year.
As I think exclusive provider of local sports content for more than half of the MLB M.D.A. in NHL teams. We believe we are a unique position to monetize and significant sports betting opportunity that exists.
Other highlights in the quarter include Nexgen TD launches in multiple markets, including Las Vegas, Nashville, Pittsburgh Salt Lake City in Portland, Oregon, with another 10, or so Sinclair markets targeted by the end of the year.
Starting to see this groundbreaking technology in action there has been a great deal of effort within Sinclair for many years to create and bring this technology the future up broadcast TV to the marketplace.
Its impact however will be fell far beyond traditional broadcasting application, yes, Nexgen TV will deliver significant enhancement to television broadcast quality.
But that just scratching the surface.
The new platform gives broadcasters significant flexibility and using their broadcast spectrum for starters, it dramatically increases spectrum capacity, allowing for more channels and targeted content to be sent over the existing spectrum band.
That was thing else will reach deep into buildings moving vehicles and eventually people's phones opening up a wealth of opportunities for applications diverse targeted advertising data delivery premium content or sending advanced emergency information all a mobile.
Portable manner.
The signals also have interoperability with the internet, including by GE, creating even more ways to satisfy consumer needs and to monetize new technology.
I applaud all of our employees, who is involved over the many years to make this game changing technology, a reality innovation at the lifeblood of this company and it never ceases to Amaze me to accomplishments of our talented employees. It's unclear are able to achieve.
In July we came to terms of Comcast to renew distribution rights for all of our businesses, including our broadcast stations tennis channel the our sense and yes, as well as a full line of marquee and time for the Cubs first came at a season.
The nature of that had been on the street regarding fears around completing the deal with Comcast or that terms would be unfavorable to sinclair or where that our broadcast stations will be dragged down by the arsons was just incorrect.
As we've said.
We are we were confident that we would reach an agreement with Comcast that was positive for us and we are happy with the outcome and all regard.
This agreement is another example of the benefits that come from negotiating for a large diverse set of very popular programming assets in this business and it isn't as an undeniable affirmation the importance of local news and sports, which consistently get high ratings at our highly valued by distributor subscribers.
It is also important to note that our deal not only included the launch of Marqibo expanded doing coverage of the new ourselves beyond where the Cubs, our San was previously carried.
This is something Comcast doesn't do for its own our sand in the Chicago area and Didnt, even in the past when they are sent included the Cubs.
This was accomplished without giving up carriage of other assets in our portfolio and while still achieving what we believe our favorable rates throughout our portfolio.
With the completion of the Comcast agreement, we have now locked up almost 85 somebody arsons total subscribers or at least two years and beyond.
Also during the quarter, we agreed to a multiyear renewal for H. stations with Viacom CBS and on the sports side, we have it and agreement in principle with one team that expired at the end of last season.
In June we announced we would be launching a new headline news service in early 2021 focused on breaking news stories as they develop and sourcing and sourcing them from our comprehensive local news resources think of it as.
Breaking meaningful local news stories on a national level and its initial phase the new service is expected to be launched on approximately 50 of our CW and my TV network affiliates.
Well the broadcast from six Damn Tonight, I am each week day as well as in our free AD supported aster.
On the committee front, we awarded our annual broadcast diversity scholarships 10 College students who are pursuing a career in broadcast industry and in July we launched a new campaign with the American Red Cross for urgently needed broad donations utilizing our news production resources to bring messaging in awareness of the urgent need into encouraged yours to donate.
But the campaigns they have to amendment was held on June Thirtyth with the campaign continuing through mid August.
Finally, I want to discuss I want to address the initiatives around our capital structure that we continue to evaluate an act. Upon we continue to believe our securities are significantly undervalued. This belief is reflected in our actions, including the continued repurchase of our equity during the during the quarter since February of this year and fruit today.
We have repurchased approximately 19 million shares representing 21% of the total shares outstanding as of the beginning of the year, while our proposed exchange of diamonds unsecured notes resulted in lower participation than we expected. We believe the lenders decision not to exchange indicates their belief no long term positive value of Diana.
As indicated previously we continue to engage with financial institutions on ways to optimize our capital structure de lever and lower our cost of capital.
Now I'll turn it over to lose either discussed our financial performance. Thank you, Chris first off I want to Echo Christmas appreciation of all our employees, who have done a terrific job of navigating the current environment and enabling us to perform at a high level as a company.
Keep in mind that the inclusion of the sports statement 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 first is the same period last year. Therefore, 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.
[noise] before getting into the results, let me walk you through the accounting for the distributor and team rebates and the sports rights amortization as a result of the fewer professional games played.
[noise] pursuant to gap, we are required to accrue the total estimated rebate amount owed to the distributors across Q2 through Q4 of this year, which will reduce distribution revenue in each quarter.
The cash outlay to the distributors. However is not expected to occur until after 2020.
On the team side, the rebate associate it would be over payment for the fewer games to be played in this season.
Is expected to be realized imports in the third quarter with the majority in the fourth quarter of this year as lower sports rights payments.
Therefore, adjusted EBITDA for the here is expected to reflect both the team rebates to us and our rebates 'cause it to the distributors and as Chris mentioned.
We do expect rebates from the teams to be greater than what we pay out to the distributors.
However, there will be a timing as it pertains to the cash flow with us realizing the benefit of the lower sports rights payments. This year in advance of the distributor rebates being.
Made and after 2020.
Sports rights amortization, which is included in the media and programming production expense line, and which is non cash and not factored into the calculation of adjusted EBITDA.
Gets recognized over the applicable sports season, so in the second quarter. There were no professional games played and therefore sports rights amortization was minimal.
We expect sports rights amortization for the third quarter to increase mirroring the high level a sports games currently scheduled in the period.
For fourth quarter, the sports rights amortization is expected to be much lower with baseball's regular season likely completed and with M.B.A. in NHL games for the 2021 season likely starting later in the quarter than normal.
All right to turning to the consolidated company results.
Consolidated media revenue for the second quarter increased 539 million due to the inclusion of the local sports segment, which was not in last year's second quarter results on a pro forma basis.
Total media revenues up a billion 260 million were down versus last year second quarter media revenues of the billion 710 due to a number of factors, which we have previously discussed most notably the weakness in the advertising market due to the pandemic.
The absence of live sports the associated a pool for the distributor rebate and the absence of dish carriage fees.
As compared to guidance media revenues came in below the rate range. We gave on her last earnings call by 119 million. However, this is important this is due to the hundred 24 million a bit distributor rebates stick, we accrued during the quarter, which was not included in our guidance last quarter because.
At that time, we Didnt know, how many games, where all the leaks, we're going to schedule. So if you exclude the approved rebate up we are revenue would have been within our guidance range.
Media revenues of 669 million for our broadcast in other segments, which excludes Drs ends were within our guidance range with both advertising and distribution revenues coming in as expected.
As Chris mentioned, the advertising market improved as we move through the quarter.
June end it with our broadcast in other segments declining 26% over the same period last year, which was a significant improvement over the 43% drop in April.
July has seen the improvement continuing finishing down 20% for the month and even as political ramps up in the third quarter and is expected displace other advertising categories.
We still expect to finished the third quarter down 15% to 22% in core advertising, which is an improvement over the second quarter performance.
Subscriber churn in the second quarter across all of our segments was 7% on a year over year basis, that's slightly higher than the trend over the past few quarters, but understandable given the impact of Cove. It on the economy and the number of people odd that are unemployed in the country.
Consolidated media operating expenses of 569 million were down 50% on a pro forma basis compared to last year's billion 139 million and that's due to the absence of the live games, the lower sports rights amortization and proactive cost controls.
Our focus on managing our expenses during the quarter drove the $11 million positive variance to guidance.
Adjusted EBITDA on a consolidated basis increased 31% to 254 million due to the inclusion at the local sports segment.
On a pro forma basis, adjusted EBITDA declined 391 million driven by a $330 million decline at the local sports segment and 61 million dollar decline at the broadcast another segment.
The sports segment adjusted EBITDA of 110 million was down from last year's pro forma 440 million.
And that's due to the distributor rebate accrual the absence of dish, which was in last years numbers and the impact of goes below code that on the number of games.
It is important to keep in mind that unlike gap.
Results for the sports segment.
Which include at minimal amortization due to no live sports being played local sports adjusted EBITDA of reflected the continuation of sports payments made during the quarter. So.
Just to put this simply the sports segment results during the quarter reflect the a pool for the rebates to the distributors, but no benefit from the expect it rebates from the teams which are expected in the second half of the here.
Again, excluding the accrued rebate, we beat total company adjusted EBITDA on additional cost controls add to broadcast in other segments.
Consolidated adjusted free cash flow, excluding the nonrecurring legal litigation Kirby transaction and regulatory items of 9 million.
46 million, that's 79 million below the lower end of our guidance, but.
Again, excluding the rebate accrual.
We have we exceeded our guidance slightly.
For the first six months a 2020 adjusted free cash flow was 156 million and using our estimated share count through yesterday of approximately 79 million shares outstanding.
That reflects additional shares the we bought back here in the third quarter that results in free cash flow per share up $2, an 11 cents into six month period.
Diluted earnings per share on 81 million weighted average common shares at June thirtyth with $3.12 into corridor, where $3.21 when adjusted for non recurring items.
Our liquidity position in both credit silos. This strong with neither silos revolver drawn and boats silos, having ample cash on hand during the quarter, we launched in exchange for all of the outstanding Diamond six in five 8% senior notes.
66 million.
The aggregate principal amount or approximately 4% of the outstanding issue was exchange for $31 million up new 12 in three quarter notes and cash payments of approximately 10 million in total the transaction reduced our debt by a $35 million now while we would've liked.
Two of exchange more of the bonds. The feedback we received was it. The note holders agreed with us that the bonds are undervalued and through chose to hold on for the future upside.
As Chris said that is a strong message for all holders of our cap structure.
We continued our stock buyback program during the quarter repurchasing over 5 million shares of our common stock at an average price of just over $16 per share.
So far for the third quarter to date, we have repurchased over 4 million additional shares.
Since the start of the year, 21% of the total shares outstanding and 29% of the floor had been bought back.
So in the corridor, we continue to exercise execute on our plan to reduce cost savings. So it's for the short term and the longer term, we continue to scrutinize, all spending delaying or eliminating nonessential expenses, including open positions medium promotional spend she any end cap.
Correct.
In addition to the variable expenses to come with fewer games and lower revenues.
And we continue to look for additional opportunities. We're confident we can handle pro long period of weakness by executing the opportunities identified as well as additional steps, we could shake if necessary.
Turning to segment details for the broadcast in other segments media revenues decreased 7% versus the same period a year ago is advertising revenue was significantly impacted by the pandemic.
A 36% decline in core advertising revenue was partially offset by higher political revenue and an increase in distribution revenue.
The broadcast segment revenue also benefited from 25 million a management incentive fees paid by the local sports segment. It was not in last year's Q1, Q2 results and gets eliminated in consolidation.
We came in at the middle of our revenue guidance range and 12 million over the high end of our adjusted EBITDA guidance for the sports segment media revenues of 616 million decreased 38% versus pro forma results of 992 million in the second quarter of last year.
Sure.
Much of the decline was expected and was due primarily to the absence of dish. The lack of advertising revenues related to the perspective, and I'll be games subscriber churn and the accrual distributor rebate.
Alluded in the accrued rebate, we were very close to guidance.
Media expenses in the second quarter were 106 million and 84% decline to last year's pro forma 659.
As explain this is primarily the result minimal sports rights amortization being booked in the quarter due to know professional games being played.
As compared to guidance, maybe expenses were slightly higher as a resort up a slightly higher than expected production programming expenses.
Local sports adjusted EBITDA of 110 million for the quarter was below pro forma results of 440 million last year and below our guidance range of 190 to 202 million again due to the distributor rebate accrual and if you exclude the rebate accrual we would a beat our loan.
Well sports adjusted EBITDA guidance, so hopefully you're seeing a trend here as it relates to be a distributor rebate accrual feedback that out a we were we either met or exceeded all of our guidance in the second quarter. So now turning to the consolidated balance sheet the consolidated cash at the.
Ended the quarter was 622 million.
That includes 171 million it S T G and 436 million at Diamond.
Total debt at the end of the second quarter was 12.399 billion and the net leverage ratio for consolidated Sinclair quarter Ram was 6.4 times.
Sinclair television groups first lien indebtedness ratio on a trailing eight quarters was 2.6 times.
On a covenant <unk> four and a half.
And four and a half times on a net leverage basis through the bonds.
Diamonds first lien indebtedness ratio on a trailing four quarters was six and a half times on a covenant of six and a corridor.
Which again only springs, if the revolver is drawn over 35%.
On a total net leverage basis through the bonds Diamond was levered eight and a half time.
In terms of guidance there were still much uncertainty around the resilience of the economy in kovats impact.
Our guidance will therefore be limited to the third quarter keep in mind that any change to the expected plants in the sports leagues could calls our reported local sports results to deviate meaningfully from our guidance.
For our broadcast in other segments, our third quarter media revenue guidance is 777 to 805 million.
That is up approximately 6% to 10% from last year's pro forma 733. This is driven by higher political and distribution revenue, which is partially offset by a projected 15% to 22% decline in core advertising.
Adjusted EBITDA for the broadcast and other segments is expected to be between 187 in 211 million.
Compared to 216 million pro forma last year.
For the sports segment third quarter media revenue is expected to be 718 to 727 million.
It's down 15% to 16% to last year's pro forma 858.
The projections include the impact from the distributor rebate accrual.
Adjusted EBITDA is expected to be 402 million to 410 million as compared to 425 pro forma last year, what did decline primarily due to the distributor rebate accrual the absence of dish carriage fees and subscriber churn offset by lower rights payments.
To the teams.
I do want to point out that there is a sizable increase in gap media expenses in Q3 that is as a result of MLB and be a in NHL sports rights amortization being expensed in the quarter.
Again, reflecting when the games will be played well this increases expenses on a GAAP basis. It is a noncash item that does not impact adjusted EBITDA, which is based on sports rights payments not the rights amortization.
I mentioned before the sports rights payments reflect the all setting benefit from the teams on the fewer games with some of that partially reflected in Q3 and the majority in Q4.
For the consolidated company third quarter media revenues are expected to be a billion for 60 to 1 billion for 97, adjusted EBITDA of 589 to 621.
An adjusted free cash flow 374 to 411 based on our current share count of approximately 74 million shares this equates to free cash flow per share.
Approximately $5.05 the $5.55 in the third quarter, so with that I would like to open it up for questions operator.
Thank you the floors to open for questions if you'd like to ask a question. Please press star one on your telephone keypad at this time a confirmation Tom would indicate your line is in the question Q you May press star to if he would like to remove your question from the Q for participants using speaker equipment. It may be necessary to pick up your handset before.
To start keys once again that a star one chip register questions at this time.
My first question is coming from Aaron Watts, which bank. Please go ahead.
Hi, everyone. Thanks for having me on a have a few questions wanted to run through quickly I guess first on the television station group.
Encouraged to see the improvement month to month in core advertising are you seeing any fits and starts on that in your markets that are seeing some ebbs and flows of koby cases, and also are the bookings coming in a lot later relative to where are you kind of trended historically or at least in the prior.
Sure.
Yeah I'll handle that this is Rob we're not seeing the fits and starts it's been pretty consistent you're correct. It's a bomb being booked a little bit layer. There are holding onto it to see Oh, how the cobot is affecting the different bought the amazed that were in however, we have been.
Encourage through our virtual training was virtual sales all presentation that we've been able to communicate and this new norm and being able to handle it and that's why you're seeing though the positivity in the pace moving forward.
Okay and in terms of bookings coming in later.
Oh, the book is a coming in later Oh.
Oh Im more month to month, Oh, then they are quarterly semi annually or annually.
Okay got it and then as best as you have clarity on today can you give us the latest on the stability of the underlying sub base for your station group and the are a sense and has your near term medium term outlook for cord cutting changed at all based on what you're seeing right now.
Yeah, So I'll take that one so there aren't as we all it as I mentioned, yeah. We saw across you know all the platform saw subscriber churn year over year down about 7% again, you know that's really coming from one primary all MPPD bye.
Yeah, we we have what you're gonna see in our guidance for Q3 is that we had a pretty much mirrored that oh that level of churn and that's that's really based on some of the public commentary from from the distributors themselves here recently as well is all you know just really not having.
Hey, a lot of visibility as to what's going to happen with the churn your knowledge, we talked about there's two schools of thought that are out there. One is that you know.
People currently may churn, just because of you know that the status of there they're all their oh employment and the economy.
But on the other hand right you do have government assistance for those people. You also have the fact that again there. The TV is really the only form of entertainment. It's out there right now and especially right now with the games all people not being able to go to the game.
In order to watch their you know there they're all.
Favorite team local team Oh, you know they would have to see those on the on the R.S.N. So Ah two divergent views here I really don't know where it ends up so to beacons conservative we have forecasted our Q3 to mirror the all the Q2 levels.
Okay. That's helpful. And then just a couple of questions for me on on the Daddy sports side with the Comcast renewal now he I I assume you have a pretty large percentage of your distribution locked up over the next few years is that a fair statement you have a percentage that you could give us of what kind of what is locked in now.
And for how longer so 85% of or the arsons subscribers are locked in for two years or more.
Perfect and we'll see I just want to make sure I was clear on your comments and I. Appreciate all the color around kind of the the rebates and ended refunds from the teams if I'm, just specifically thinking about cash and cash out HM.
To be clear when do you expect kind of cash in from the teams in terms of the rebates there and I think you said the cash out of the M. Tpds will happen next year am I hearing that right, we're thinking about that right.
Yeah, too so contractually with the distributors the about you know because of the measurement periods. The cash out would occur after 2020, a each contract. It is different so I'm not going to get into the wins, a after that but the but the rebate and the overpayments force.
To the teams.
Oh occurring this year some in Q3, but the majority really in Q4 once we get through all you know the pool full season.
And in the end those cash and cash out you know, obviously differences in timing, but you're saying that those should be relatively equal or even the paint the rebates from it seems to you should be greater than what you have to pay out to the NBP days.
Yes so.
What I'm, saying is the amount.
That we get in will be greater than the amount that we pay out and that's really because of the variability the differences in a how all the minimum games are all calculated.
From one contract to the next.
Okay. Perfect then last one for me are just Aaron just we are because again. They are there's lot of you know I'm mis information on the street as it relates to this with you know people modeling the diamond is going to pay more than what they get in and as Chris said. They are just not correct. We expect.
To get in more than what we will pay out because of the differences in the calculations.
Okay perfect time I'm glad you. Thank you for that clarity last one for me and again appreciate the time.
All right you repaid your revolver outstanding balance a it sounds like you're comfortable with liquidity. How do you think about that liquidity now going forward as you look at where your bonds are currently trading I don't think I heard anything about more bond buybacks. This quarter. I know you also still have preferred stock outstanding how do you kind of way the order of import.
It and sub attacking those different opportunities.
And that's it thank you.
Sure Aaron So you know look so so we we have you know our first and foremost right is the priority to continue to grow diamond right, whether it's through acquisitions investments for where for the growth opportunities but.
We are also committed to strengthening the capital table lowering our cost of capital and de leveraging right. So you always we previously previously who have discussed on on other calls and you know we will continue to look for ways right to deploy the cash and end to end to capital.
Optimized capital structure. So you don't look at everything is on the table right now we're evaluating a lot of things. So it could be anything you know from redeeming the preferred a you know a additional debt exchanges receivable financing you know designating subs is unrestricted as well.
Looking at a new acquisition opportunities and again investing for all the growth opportunities, which is the reason why we bought diamond. So all those things are being evaluated and on the table.
Alright, great. Thanks, so much stay while everyone.
Okay.
Thank you. Our next question is coming from Dan Kurnos, a benchmark company. Please go ahead.
<unk>.
Thanks, Good morning, and appreciate all the color everyone I'm just so we're I guess, maybe all clear in terms of some more granularity just around Comcast Denmark. He just you know Lucy thanks for the color around subs that helps all part of the equation just trying to understand sort of the timing of when.
You know you Mark he was it all just wanted to Comcast deal was done I'm, just trying to sort of understand the distribution delta from Twoq to threeq to err on the RF and site or if there's some other rebate increased rebate new watch that we might be missing and then.
On the core side, maybe just give us more color just some sort of category improvement is sort of where.
You're seeing the particular pockets.
I've strengthen what gives you the confidence that you know we kind of continue to sequentially improve throughout the year. Thanks.
Okay, Dan I'll I'll speak to Comcast and Rob will speak to the core question.
In in terms of changes you know not much changed.
With Comcast at all they continue to carry all the our sense. It briefly carried all antennas channel or broadcast stations. The only real change was a marquee.
And the they picked up marquee the moment they sign a the agreement and as I noted in the prepared remarks marquee ended up getting into new geographies or that the Cubs were not previously a distributed on so we're very happy with the but that okay.
Yeah, and Dan Let me Oh, It just answer your question on the on the dollars.
So with the you know two there we do have the distributor rebate accrued in Q3 as we said you know that'll hit Q2 to three in Q4. So you are seeing that delta as well as remember the R.S.N.
Contract doesn't actually come up until the end of the court that that's when it expires. So you would not see.
You know the Comcast impact all in the Q3 numbers and just decide down there. So you understand even though the arsone contract was renewed early and it doesn't actually expire until the end of September that's because we did this all is as one deal and everything will be coterminous.
On the other side.
<unk>, Rob before you answer just Chris just on that does that all the TV side, Dennis push back to the Arts and start date now because I think that's it did a nuance that might be missed there.
No I'm actually the t. sides going forward to the.
To the.
To the are set expiration.
Okay, and then Rob your your comments encore.
Sure Yeah I'm on the scrap we continue to.
See services performed well Oh, we have pharmaceutical that has joined the strength and we're seeing the education category pick up as well.
We expect in the back half towards the end of third quarter going into fourth quarter see auto getting healthier than what we've seen it they've had a supply chain issue, we expect that could be fix that the plans have been reopened and the 20 ones will be hitting the dealership. So again we've been.
Mhm less reliant on the auto business to drive to drive our revenue.
And as in the past I'll reiterate that we've gone from ourselves being generalists specialists and that continues to lead to better performances.
Got it that's helpful and Chris I apologize I missed this but did you give us an update on where you're at with the DTC.
No we haven't a that was not in my remarks, there's lot of work going on in DTC right now, it's definitely going to be an important part of the future or for the our sense for tennis and also for broadcast.
And its too early right now to give specific guidance, but we are a busy adding that feature to our new digital Reba, which will come out next year and it will be complementary to the anti PD.
Not that we have today.
Yeah.
Great. Thanks for all the color I appreciate it.
Thank you.
Thank you. Our next question is coming from Davis Herbert of Wells Fargo. Please go ahead.
Hi, everyone. Thanks for taking my questions and good morning asked on the the current accruals in the rebates understand I think the cash flow piece, how from ours is rebate levels I mean to the extent MLB stops and starts or maybe further under delivers on those live games.
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Yeah. So the the numbers could obviously change or the number of games change and and it's just it's really just a mathematical calculation and you know the the sort of hedged in nature of our contracts we continue to.
To apply as the games continue to shrink.
Okay, no, but would it be fair to say that if there are you know you delivered under delivered its not going to be material to what you've already accrued for.
So it shouldn't be material to our actual EBITDA at the end of the day.
But it could certainly increase the amount rebates from the teams in the amount of rebates to the and B piece.
Okay understood.
And then team payment side is all that getting taken care of this year or have you hadn't negotiation teams to perhaps smooth that out for a longer period of time are there other negotiations going on.
Yes, it should it all happen this year to the extent some teams.
I'll have issues from a cash flow perspective, we'll have to seen a would have no indication of that so far.
And what we've been doing this essentially withholding.
Current.
Payments are right now to chip away at the balance.
Okay and thank you and then lets you mentioned a lot of different liability management possibilities I wondered what a a tender offer perhaps be and the conversations and capture discounted diamond sports bonds.
Just thinking you'll be sitting on a decent amount of cash after political or maybe that's oh been when versus an exchange, but just curious your thoughts on something like that.
Well I should say the political revenues are really belong to S. T. G and again you know Weve you know we've said in the past it each each silo would be self funded so S.T. geez. A you know political is really go onto shareholder returns, whether its dividend or the share repurchases.
And diamonds cash flow is is there to to fund a dime and so so we would not look to pull STG is cashier for diamond off where that but you know again, you know Oh, you know when you're talking you know as much data is diamond has outstanding you know anything we do you like.
Thank you should expect would be a you know a big or type transaction.
Okay and then my last question is I believe you had a year to rebrand the ours I'm just curious the timing on that or if you do you if you've got a reprieve, but because like I said more than a year on that and the new name will be announcement released.
Early next year.
Great. Thank you.
Yeah. Thank you.
Okay.
Thank you once again that is star one if he'd like to register a question at this time.
Next question is coming from Steven Cahall with Wells Fargo. Please go ahead.
Yeah. Thanks, So maybe if we've learned one thing about the our son business. It's just that the earnings power, maybe a little lower and so the debt level that you originally decided was appropriate might be a little too high and you know Davis, asking we've talked a little bit about ways to renegotiate that debt level down it. It's just a really big overhead.
Hang on whats otherwise it really good TV broadcast business. So if you kind of step back how do you really think about just steps that you can take to remove that overhang from the data on they are a sound business. So that you can capture more the fair value in a in the TV business.
Well as as we mentioned, where we're busy looking at several alternatives for to de lever a diamond that we think there are many options there and as I've stated many times that Ah, we see these entities as independent and Uh Huh.
Self funding so we don't see.
Any reason for value or cash to be going from one silo to the other and I'm.
Really a when you're looking at our valuation it should be done on a some of the parts basis.
Yeah, and Steve look what I would I would add is a you know I think what people are missing is the investment thesis of why we bought the Rs ends in the first place right. It. So as we as we look ahead right you've got it is including all the growth opportunities in the synergies, which again is the reason we bought.
The Rs and we love the business.
It is a good business you know our we do you know is leverage out here in the in the near term a more elevated yes, I think that's pride, though a Mac you know for just about any company that's out there.
In the U.S. today as a result of Cove. It. So we have somewhat elevated leverage it'll take us a little bit longer to get down to our target leverage, but we are focused on getting down to the target leverage but part of how we're going to do that is to do all the growth opportunities then whether it's the production programs.
Synergies Cross promotion Cross programming, you know digital opportunities legalize sports betting you know rebranding and selling all bar our digital impression here. So much there a that we haven't even started to mine with the all with with Diamond.
[noise], Great and then maybe just a on the Retrans side, you know you've done some recent station renewals with Viacom CBS and with Comcast as you pointed out do you feel like you have the ability to maybe give us either a qualitative or quantitative outlook on net retrans growth for for 2020.
Thanks.
So as you know we do not have for your guidance on the table. So when you know at this point you know, we're not ready to put that out there as I said you know there there's a lot of variability and what's happening in the pay TV Universal you know, which is a factor that would go into that so.
You know at this point, a you know no no full year guidance.
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Thank you.
Thank you. Our next question is coming from John Janedis Wolfe Research. Please go ahead.
Hi Tech so first.
One is oh.
Got it.
During the ways of total but across the portfolio what impact are you seeing or do you expect to see on back to school spending and there's typically a swing.
Again about later today.
Separately given.
Flip side of it.
Recently, we end up seeing or do you see a democratic sweep of the fall how does that change the regulatory landscape.
And any part of your business just like you.
So oh.
Oh.
The back throttling back off can.
Got it Okay go ahead sorry.
No no I just can say hopefully you heard that John was a little muscle, but Rob once your hand on the back to school question I will handle the.
A regulatory.
Oh back to school typically is not a large revenue driver for the company bought with covert going on in the hybrid learning. So some markets going back some a hybrid some school from home when the minutes of launching several create a football non traditional.
Programs to generate revenue that we typically wouldn't be thinking, though so in that space. We expect the to be able to scale up several concepts across our platform. So we do think we'll be able to capture revenue that we probably haven't had in the past regardless about.
The school.
Okay. So in terms of your question around the election, and the regulatory environment I think its worthy to note a that broadcasting has significant support on both sides. The I'll you saw that.
With letters from both a very large amount of a both Democrats and Republicans supporting local.
Local media and a it and promoting its survival is vital to the communities we serve so.
We feel as an industry and in good shape.
ER with ER with bipartisan support so we're not concerned about you know a change in administration and you know the notion of re regulating.
Broadcasting you know what would be you know.
Akin to a picking on the little Guy I do think some of the bigger companies like Big Tech will.
Yeah, well have more regulations in the future, but or industry is so small and fragmented it just it wouldn't make sense.
Got it Chris.
One more just.
Oh on Comcast and maybe more broadly.
The markets and ended up four cents.
Can you give us an update.
How are you getting the landscape. Obviously, you talked me just sort of the stops being locked and but have distributors and those negotiations, but taking a harder look at business any change in cheering or anything else to highlight.
Sure. So we have seen ER and all of our negotiations essentially status quo environment.
In terms of the terms tiering pricing all the all the various elements that go into a distribution agreement so really it and we've now cycled through all the major.
And small and B piece.
And Ah you know safer one dish or we are we we found what we expected which is the this is very valuable content to the distributors drives it drives subscriptions.
And and we have achieved you know what we set out to achieve with them, which was I'm satisfied with hills.
Thanks, a lot.
Thank you at this time I'd like to turn the floor back over to Mr., Ripley, President and CEO for closing comments.
Thank you I'd like to conclude by thanking all of our employees customers and stakeholders for their patients. During this unprecedented times, we're comfortable that the actions. We are taking are not only helping us manage the challenges in the short term, but are also positioning the company for continued success in the future. Thank you for participating.
On earnings call. This morning, if anyone has any additional questions. Please feel free to contact.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time and have a wonderful day.
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