Q3 2020 Sinclair Broadcast Group Inc Earnings Call
[music].
Greetings and welcome to the Sinclair broadcast group third quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require an operator assistance during the conference. Please press star zero.
On your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host see we're just houser executive Vice President and Chief Financial Officer. Thank you may begin.
Thank you operator participating on the call with me today are Chris Ripley, President CEO, and Rob Weisbord President of broadcast and Chief advertising revenue officer before we begin Billy drew Mackintosh or will make our forward looking statement disclaimer.
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.
Okay and included in our third quarter earnings release, the company undertakes no obligation to update these forward looking statements. The company uses its website as a key source of company information, which can be accessed at www dot SBG I thought that in accordance with regulation FD. This call is being made available to the public a webcast replay will.
I'll be available on our website and will remain available until our next quarterly earnings release.
Put it 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 operating performance on this asset. The company also believes that adjusted EBITDA is frequently used by industry analysts investors and lenders as a measure of valuation.
Measures are not formulated in accordance with GAAP are not meant to replace GAAP measurements and may differ from other companies uses or formulation. The company does not provide reconciliations on a forward looking basis further discussions and reconciliations of the company's non-GAAP financial measures to comparable GAAP financial measures can be found on its website www dot SBG.
Hi Dot net.
Chris Ripley will now take you through our operating highlights.
Good morning, everyone.
These last eight months since the arrival of Covidien have tested tested all of us in numerous ways, requiring us to react quickly to changing and challenging environment and.
And it's all the upheaval that cobalt has caused I could not be more pleased with how our company has met these challenges head on ensuring our customers and consumers are receiving the quality content programming that have defined Sinclair over its history.
Our third quarter results were better than we expected with adjusted EBITDA of 736 million, which is almost double last years as reported third quarter level and 15% higher than pro forma third quarter, 2019, which assumes we own the our sense for the entire quarter.
As compared to our third quarter 2020 guidance adjusted EBITDA was 19% above the upper end of our range, while adjusted free cash flow was $551 million in the quarter.
Lucy will get into the finer details of the financials in a few minutes, but first I want to give you an update on each of our segments starting with broadcast.
The strong political AD environment was a standout in the third quarter outperforming our expectations and more than offsetting the decline in broadcast and other core average AD revenues, which was in the middle of our previously provided guidance.
The political strength continued right up until the election day with the total company recording approximately $363 million of political advertising. This year, a 35% increase over the previous record year of 2012, despite crowd out from political September core AD revenues in.
Proved over July and August for the segment.
The rate of subscriber churn in the third quarter third quarter improved slightly as compared to second quarter churn year over year subscription churn on a same station basis in the third quarter for the broadcast segment was in mid single digits.
During the quarter, we continued to see substantial progress in multiple FC 3.0 related activities next.
Next Gen TV has rolled out in eight of our markets and industry goal is to be in 25 of the top 40 markets in 45 total markets by the end of 2021.
We received the first nexgen mobile phone prototypes with full Threed auto functionality another important milestone in giving broadcasters access to mobile audiences for the first time also the groundwork has now been laid for national data casting, enabling the integration of broadcast and broadband delivery in the cloud.
It is exciting to see the industry continue to move next Gen forward and the FCC public you support the sufficient spectrum policy. In fact, the commission has touted the benefits of HCFC 3.0, as it is seeking to streamline how broadcasters can more easily provide broadcast internet services the FCC.
He has laid the groundwork for a new and competitive data casting pipe that merges broadcast and broadband services and will support broadcasters as they compete and provide complements to existing technologies, including Fiveg.
Preparation for the January launch of the National desk, our new headline news service continued during the quarter. The service will appear on approximately 50 of our mindset and CW stations across the country as well as our free AD supported apps stir.
The effort and bodies, what we do best and Sinclair provide viewers timely and meaningful content using our vast network of resources to produce unique and differentiated programming that can be utilized on multiple platforms.
The National Das will cover stories of local importance and national interests that are unfolding in real time, and we will be focused on the stories themselves and not on commentary.
We couldn't be more excited to begin our next chapter of news reporting at Sinclair.
In our local sports segment, the revenue for the quarter exceeded our guidance as advertisers embrace the return of live sports in late July.
Segment AD revenue exceeded our third quarter 2020 guidance and was up 27% for the quarter as compared to pro forma 2019 quarter, which assumes we owned VR sense for the entire quarter.
Political though small a small part of the AD base aided the increase as did the inclusion of marquee absent those two factors and despite less game inventory than third quarter last year core advertising increased mid single digits.
Subscriber churn in the third quarter for local sports segment was high single digits.
Unfortunately, the arsons word dropped recently by you tube and who live in the case of you tube. They had already dropped to the larger cities at the end of February.
Since they recently increased consumer pricing, we were surprised that they also dropped valuable content on the heels of that price increase.
Despite the fact that we are currently there are currently no live regular season games on the our ascend as Kobe has pushed back the start of the NVCA NHL seasons, we have received a fair amount of emails and calls regarding both platforms dropping the our sense.
There may be even more of a consumer backlash when the league season start back up together Youtube and Hulu made up approximately 10% of the gross our ascend distribution revenue for the month of September velocities of these two virtual distributors elevated subscriber churn and the impact of co bid in the economy have contributed to.
Just taking a noncash impairment charge this quarter in this segment Lucy will cover this in more detail in just a minute.
While it is true that churn has been higher than what we expected when we made the RCM purchase it is important to remember that the growth opportunities. We envision for the business did not revolve around expectations of growth in subscribers, although our our churn assumptions at the time, which certainly not have anticipated effects of cove, it or the challenges of.
Directv.
What excited US most was the opportunity to capitalize on initiatives to monetize future growth opportunities and legalized sports betting advertising digital programming and other distribution platforms, including direct to consumer.
We have already made good progress on several of these initiatives. For example, we are utilizing content from stadium and tennis channel to provide incremental live and recorded sports programming to the our sense.
Work continues on our new sports App that is intended to give viewers a more dynamic and personalized viewing experience.
The App is an important part of our growth strategy for the our sense as people are increasingly choose to access life gains via digital means.
The increased functionality of the App will allow for greater activity and superior viewing experience that we expect will eventually include the ability to participate in sports betting and other gamification activities, such as social games focused on fandom.
And our new platform will monetize the one hundreds of millions of impressions that are currently not being optimized on the existing digital platform. We plan to launch the new App at the beginning of baseball season in the spring.
I've talked previously about the gamification of sports view of the sports viewing experience, we have taken steps in this direction as well Jerry.
Jeremy Cave, just joined Sinclair as our Chief business officer of direct to consumer and gamification is hiring along with a minority investment. We recently made in place like sports are intended to help diversify our revenue streams.
Tapping into fast growing sports related sports related industries that complement our existing sports businesses play Fi recently combined three companies that excel in providing multi media rights solutions College High school and exports into one larger company. They are now a leading company managing exclusive college and high school.
With sports across the United States.
Our play Fi investment fits in well with our efforts around creating EPS interactivity and gamification elements to sports content enhancing viewership and engagement.
Now I will turn it over to Lucy to go through the financials in more detail. Thank you Chris first some housekeeping items to note as a reminder, the Rs ends were acquired in late August of last year, and say 2019 third quarter reported results do not reflect a full quarter comparison as.
As such in many cases I will speak to pro forma 2019 results, which is a more meaningful comparison and assumes we own drs and in those periods.
I will also be referencing certain pro forma numbers for our broadcast business, which reflects the sale to station Charlie Gen. In Lexington. This year of course, the as reported numbers can be found in our earnings release from this morning.
Also as we discussed on last quarter's earnings call distribution revenues in the local sports segment reflects an accrued deduction for the estimated rebates to be paid to the MVP. These based on the minimum games delivered.
The rebate amount in the third quarter was 128 million and for them and for the year. The accrued revenue deduction is estimated to be $371 million, which gets paid after 2020, offsetting this amount or over payments owed to us by the teams which reduce.
The sports rights cash payments, and which are expected to be realized in 2020.
As Chris mentioned number surgeons approve it the last couple of vaccine and the resulting economic impact makes visibility for the business extremely low and so we will not be providing guidance or commentary around financial expectations for 2021 at this time.
During the third quarter, we estimated impairment loss on the local sports segment of approximately 4.2 billion relating to goodwill and indefinite lived intangible assets of 2.6 billion and $1.6 billion respectively.
This was driven by a decline in distribution revenue brought on by a number of factors, including the recent loss of two virtual MPPD fees as well as albeit at levels of subscriber erosion influenced by numerous numerous factors, including fragmentation of content distribution platforms shifting consumer.
Or behaviors, the current economic environment, and the code that 19 pandemic.
In addition, the company estimated that deferred income tax benefit of approximately 1.1 billion for the quarter in connection with the impairment loss. The company is in the process of finalizing the impairment analysis and related tax impact, which will be completed in time for the filing of the third quarter.
10-Q.
The impairment loss and related tax impact do not affect the company's cash position cash flow from operating activities, whereas debt covenants.
Now turning to the third quarter consolidated company results and what a quarter. It was we beat our expectations for media revenues adjusted EBITDA and adjusted free cash flow concern.
Consolidated media revenue for the third quarter increased 42% were 449 million from the third quarter of 2019 due to the inclusion of a full quarter the local sports segment.
On a pro forma basis total company media revenues of 1.516 billion declined 53 million versus last years quarter third quarter media revenues of 1 billion 569.
But was up 5%, excluding the distributor rebate on incremental political ad revenue.
On a pro forma basis total advertising revenues increased 17%, while core advertising declined mid single digits, which was better than our third quarter guidance.
As compared to guidance media revenues were above the upper end of the range. We gave on our last earnings call by 23 million. We expect full year as reported at 2020 media revenues to be in the 5 billion 828 to $5.853 billion range with.
Fourth quarter revenues benefiting from the strong political ad environment.
Consolidated media operating expenses in the third quarter were 8.289 billion were 1.286 billion on a pro forma basis, which was an increase of 22% compared to last years pro forma $1.057 billion as sports right.
Amortization expense increased due to a shift in timing and mix for league play.
Versus our guidance media operating expenses were below our expectations, primarily due to cost control measures.
Third quarter, adjusted EBITDA, which excludes the impairment and non recurring legal litigation Kobe transaction and regulatory items of $13 million increase.
Increased 97% to 736 million due in large part to the inclusion of a full quarter of the local sports segment.
On a pro forma basis, adjusted EBITDA up 735 million increased 96 million from last years 639 million driven by low lower sports rights payments and higher advertising revenue.
Adjusted EBITDA for the quarter was at 115 million higher than the high end of guidance.
We expect full year 2020, adjusted EBITDA of 1 billion 857 to 1 billion eight $878 million.
Third quarter consolidated adjusted free cash flow, which excludes the impairment in the nonrecurring items was $551 million, which was a $140 million above the high end of our guidance pro.
Pro forma free cash flow of 550 was 199 million over third quarter 2019 pro forma free cash flow of 351.
We expect full year 2020, adjusted free cash flow 1 billion 113 to $1.139 billion.
Diluted loss per share on 75 million weighted average common shares was $42.66 for the quarter.
Reflecting the impairment taken in the quarter and when adjusting for the impairment and the other nonrecurring items diluted earnings per share was $2 and $32.13 for the quarter.
Neither credit Tyler's revolver, which drawn during the quarter in September we entered into a three year 250 million accounts receivables facility in the diamond silo, providing for incremental low cost funding for general corporate purposes and potential acquisitions.
As of the ended the quarter the balance borrowed under the facility was 74 million.
And was 196 million at the end of October.
We have not repurchased shares since our last earnings call, but as a reminder, for the nine months year to date, just over 19 million shares representing 21% of the total shares and almost 30% of the float as of year end 2019 had been repurchased.
Now for the segment details for the broadcast in other segments third quarter.
Political was more than 30% higher than our expectations and the primary driver for the 12% increase in media revenue versus the same period last year, while core advertising was within guidance political was $105 million as compared to our expectation of 75 to 80 million for the.
Quarter to.
Distribution revenues increased 9% reflecting guidance.
For the broadcast and other segment media revenues totaled 817 million, which exceeded the high end of our guidance range by $12 million.
Media expenses were 21 million higher in this year's third quarter versus last year, primarily on network programming fees, but were better than our guidance on cost control measures across most expense categories.
Adjusted EBITDA of 271 million was a $62 million increase over the prior year period, and again exceeded our expectations.
Turning to the local sports segment for the third quarter media revenues for the segment of 727 million were more than double the prior year period aided by a full quarter of RSM results versus partial period a year ago.
Compared to guidance media revenues came in at the top end of the range is.
Excluding the $128 million distributor rebate accrual media revenues were only 2 million below last years pro forma revenue.
Of 858 million, even though the prior year included one month of dish carriage fees.
Breaking this down further the decline in distribution revenue to $597 million was offset by the pro forma total advertising revenue increased 27% versus last year.
Which includes Marty higher political revenues and increased revenue per game.
Local sports media expenses of 801 million were $211 million or 36% higher than pro forma third quarter, a year ago with the vast majority of the increase due to the timing of the sports rights amortization expense with the MLB is regular season being played solely in the third quarter.
Order of 2020, and in addition to having an MBA in NHL games in the third quarter of this year.
Media expenses were about $10 million less than guidance due primarily to lower promotion and production expenses.
Diamond also paid less than management fees to STG due in the quarter, then guidance, which had assumed certain allocation of expenses that DSG ended up paying for directly.
Local sports adjusted EBITDA up 464 million for the quarter was higher than pro forma results of $425 million last year, and well above our guidance range of 400 in $2 million to $410 million and that's due primarily to the timing of the sports rights payments team rebate.
And higher advertising revenue.
Now turning to the consolidated company balance sheet.
Consolidated cash at the ended the quarter with $632 million, including $266 million at ESG and 346 million at Diamond.
Total debt at the end of the third quarter was $12.463 billion and the net leverage ratio for consolidated Sinclair at quarter end was six and a half times.
Sinclair television group's first lien indebtedness ratio on a trailing eight quarters was two and a half times on revenue of four and a half and 4.3 times on a net leverage basis through the bond.
Diamond's first lien indebtedness ratio on a trailing four quarters was 6.8 times on a covenant of six and a quarter times.
As a reminder, which only springs, if the revolver is drawn over 35%.
Diamond total net leverage was 8.8 times.
Okay, turning to fourth quarter and full year guidance for our broadcast and other segments, our fourth quarter media revenue guidance is $942 million to $961 million.
Up approximately 16% to 19% from last years pro forma 810.
The pro forma numbers exclude the results of our Lexington in Hartlage and stations, which were sold this year. The increase in media revenue is driven by higher political and distribution revenue, which is partially offset by a projected mid to high teens percent decline in pro forma core advertising.
And I I cannot stress enough just what a record historic year political revenues were for us, reflecting over 30% more than our pro forma previous record political year in 2012 and over 70% more than 2000 Sixteen's pro forma.
I will add revenues and we expect this should bode well for the 2022 midterm elections.
The full year pro forma media revenues are expected to be 3 billion, 199% to 3.218 billion fourth.
Fourth quarter adjusted EBITDA for the broadcast and other segment is expected to be between 351 and $367 million compared to pro forma $272 million.
With the full year 2020 pro forma adjusted EBITDA is expected to be 986 to 1.002 billion.
For the local sports segment fourth quarter media revenue is expected to be 550, 70 $563 million down 29% last year $788 million. The projections include 119 million for the distributor rebate accrual the absence of the two virtual mvps and the impact.
Act from a later start to the M.B.A. in NHL seasons, which we at the assumed.
I'll start in the early part of 2021.
For the full year media revenues are expected to be 2 billion 713 to 2.719 billion fourth quarter. Adjusted EBITDA is expected to be $235 million to $241 million.
And full year, adjusted EBITDA expected to be $867 million to $873 million, which reflects our estimates for both the total net reduction in sports rights payments to the teams and the total expected accrual for the rebates we are the distributors.
For the consolidated company fourth quarter media revenues are expected to be a billion for 75 to 1 billion for 99 million.
Fourth quarter, adjusted EBITDA is expected to be $586 million to $608 million and fourth quarter, adjusted free cash flow of $406 million to $432 million.
For the full year pro forma media revenues.
As expected at $5 billion 814 to 5.838 billion pro forma adjusted EBITDA at 1 billion 850, 853 to $1.875 billion.
And pro forma adjusted free cash flow expected at a billion 109 to a billion won $36 million and based on current share counts of approximately 74 million shares.
This equates to pro forma free cash flow per share of approximately $15 to $15.35 per share and so with that we would like to open it up to questions operator.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
One moment, please while we poll for questions.
Our first question is from John Janedis with Wolfe Research. Please proceed with your question.
Thank you good morning will.
I think last quarter, you talked about 85% of your subs being locked up.
And who Louis you to be I guess are now about 10%. So can you update us on how you see the market evolving.
The 95% of the subs are locked up and their reason why the virtual players would find less value with our sounds in the bundle.
Relative to the snow players and with the write down has your longer term distribution that would change dramatically.
Okay. So I'll take a couple of areas and Chris can talk to the all the outlook for the Oh for the Retrans, So yes to to Youtube and Hulu did represent approximately 10% of our while most recent month gross distribution revenues in the local sports.
Segment on the our Sn side, we really only have about 5% of the subscribers that come up next year and then pull on the broadcast side, we have about 25%. They come up next year and those are primarily in the back half of the year.
And then the underlying network subs have would be are about 50%, which occur in the first half of 21. So just to give you some more sense all of the cadence there and then it looked as a as Chris mentioned in his remarks.
The broadcast churned about all mid single digits, a year over year in third quarter or the arsons were high single digit year over year churn our fourth quarter estimates do do reflect.
Some slight improvement in sequential quarter churn on a same station basis.
And then just on the impairment question, we're not going to get into assumptions that went into a into our calculations.
No that Weve, followed the accounting guidance in how to how to calculate that.
Hi, Good morning, John so to the to the other part of your question look on the one hand, we are certainly disappointed that Hulu and you too.
I made the decision they did it.
It did seem contrary to their previous stance.
Hello, France has picked up Marquis at the beginning of this year and.
And then if you take a look at all of their advertising, it's very very focused on live sports.
But on the other hand due to co bid the timing of their renewals was such that you don't have any live sports right now and and probably will not have live sports until [laughter].
Excuse me the beginning of next year.
And that sort of a moving target right now based on what the and the NHL are trying to figure out for those seasons and then as I think you all know universe.
Virtual mvpds are still very much a proof of concept.
They are running at negative margins and and so cost control is a big focus for all of them.
And I think thats what drove their their current decision making.
Maybe just a quick follow up there on a go forward basis and specific Tim.
Who knew two of your reference to the increase in the price and that's been pushed through the base case now assumed going forward that those two don't renew and then separately on cost control and there were a bit better than we thought there would have broken down a bit more as you talk to the magnitude of urban versus February.
Can you repeat the last part on island, if I understood your answer yet on the cost side maybe.
Maybe just a bigger picture, but across the company, but the cost controls were a bit better than we thought they'd be.
There was a reference to so can you break them down a bit more and talk to the magnitude of a permanent versus temporary in terms of costs.
Yeah, So John I'll take that one so.
What I would say is the what we've done this year or so so we were one of the first ones to really take an active stance on cost control measures in you know in the early part of March and and the company has done a great jobs and without getting into how much is permanent and how much.
Is temporary because theres a lot that goes into this because some are variable direct expenses some are delayed or deferred some are actually a permanent but the way. We think about if I was to compare our internal budget for the full year pre coded I'll begin now.
Now what our guidance looks like across the entire company for both Opex and Capex ignoring the the rebates you know we've been able to reduce our opex and capex expenses by several hundred million this year.
And and so you know, but while we're not going to talk about 21 estimates you know it really depends on what happens here with the state of the economy and the October pandemic is far as what that cost structure looks like going forward.
Word.
Yeah, and just in terms of.
Of these virtual is coming back there definitely will be another conversation to be had with them.
When visibility on the EMEA and NHL return.
And of course, you know we've you can.
Predict what that outcome will be but we know that that will change that dynamic.
Thank you very much.
Our next question is from Dan Kurnos. The benchmark company. Please proceed with your question.
Hey, great. Thanks, Good morning, So Lucy maybe you can just give us a little bit more color you know you're not the only person get to say that was the only group to say this in terms of Q4 expectations on sub showing being a little bit it's actually Jason being a little bit better on the TV side.
Contrary to what I can go a lot of investor expectations are so if you can give us any thoughts on.
Why you have kind of confidence in making that statement embedded in your guidance and then.
Chris I know I'll be respectful I'd ask saving about 2021, but just overall, it's been a lot written.
So the cash flows of dine in and sort of working with the debt holders and I just love to hear any update you can are willing to provide in terms of what options are on the cable what's being discussed what you guys are thinking about in kind of a sense of urgency to get something done understanding that continue to we're probably a bit of a surprise but.
I assume you expect they'll come back when sports starts up again next year.
Im sorry say, Dan let me take the why we have in our estimates for fourth quarter, a little bit better subscriber churn and that's really following what we saw as third quarter progressed I'm for the reporting that we had but mainly.
If you look at the public disclosure of the traditional MVP days, which are most of the large ones have already read it now for their third quarter numbers and remember we're all in all a little bit of a lag to them all their sequential quarters Q2 versus Q3 showed improvement.
And by about <unk> of a full percentage point improvement.
Improvement so so again given what they are saying for their video subscribers. That's why we saw filter estimates to show a little bit of improvement as well.
Yeah in terms of your second question Dan.
Excuse me.
I can't get into specifics for obvious reasons, but our stance and positioning right now is very similar to what it was in the summer when we did the exchange offer.
When we look to be opportunistic.
We have plenty of liquidity and head room.
So there is no.
There is no need to do anything.
We are not you know.
We're not out there.
Soliciting.
Any sort of response from many of our various stakeholders, but.
Of course, if they have proposals too.
Before we listen to those.
Okay, and then I guess, maybe one more if I can just on the use of cash not buying back shares this quarter and I assume you believe the stock is still attractive value I don't know how much the.
The findings from court case factors engaged if you want to keep some capital dry in case, you get more in market relief you know I don't know if it will get the capital lease it maybe in market changes changes is that a fast growing and how do we think about on the TV on the broadcast side. The STG side, you know use of capital as it relates to either M&A or share buybacks.
Yeah look I would say on that topic that we we we've retired a tremendous amount of shares this year.
$350 million in total are at average prices in the 17, so it hit all our targets and then some in terms of.
What we were trying to do this year, we took a pause just to see how the business would what would react to everything going on in the macro environment cobot.
And and.
And we will continue to be opportunistic.
If you know.
Valuations worn it so.
I do think there there could be some other growth opportunities on the horizon like you.
Referenced.
M&A I think will start to pick up here shortly.
The Supreme Court a pickup.
Picking up the the the case from the search service from the third circuit is a big deal and and we need to as low as always we balance our use of free cash flow between what can be done outside the company and what can be done.
The returning.
Cash to shareholders.
Got it that's super helpful. And then just tongue in cheek, what we get outsized political in December at this point.
Who knows we'll see how long it takes into account all the votes [laughter] alright.
Alright, thanks, everyone for the color I appreciate it.
Thank you Dan.
Our next question is with Aaron Watts from Deutsche Bank. Please proceed with your question.
Good morning, everybody. Thanks for having me on just a few questions hope to run through quickly here.
On the station side, we see I want to make sure I heard what you said right on the core advertising environment I think it was down 36% second quarter, what was it down overall in the third quarter and can you give us a monthly cadence on the improvement you saw and maybe specifically touch on the auto category.
Yeah, so for the say that for the broadcast and other segments. They were down in the on the mid to high single digit percentage for core advertising.
In third quarter, and Rob can speak to the cadence yeah.
Every month is has picked up which is encouraging.
Especially with the political record political spending in the crowd out there. The core has been able to strengthen so too early to tell in fourth quarter as we.
Come down from this this record political spending and covert spike in November.
November appears to be the strongest months is.
Since pre covis.
We've gone into this pandemic.
Again with the Spike we want to own full golf and see.
Oh, the core advertisers returning oh from the crowd out.
We didnt expect as we expected to see this political but it came and big drops in the last few weeks, which caused this girl though.
And has the auto category continued to improve.
Yes continues to improve and we expect it to improve its kind of the halves in the house not those that have been selling during the pandemic are being allocated those cars and so we saw a strong tier two with the sports segment and tier three is come.
Going back as well.
Okay great.
Shifting over to the Diamond sports side. It was the I think I heard you say that the drawn the our facility. There grew from September to October what was that additional draw it used for.
Yeah. So right now that that is cash just sitting on the balance sheet. So it so really the incremental draws that did.
The better way to think about it Aaron is because we got that facility in place at the end of September.
That was basically a you know we had already collected most of the receivables in September and so then you get into October and we grow into the receivable balance so I should add hundred $96 million world the sort of the.
They are more reflective of the run rate of what you would expect and so that is sitting there as cash on the balance sheet and as we said you know the proceeds from the facility. We would look to users for just general corporate purposes, and all and potential acquisitions.
Okay, and you have that stub piece of preferred stock still outstanding is that in the mix in terms of priorities as well.
Yeah look we so we have 175 million its outstanding we just pay down in the third quarter 350 million of that so you know it look at as we think about a uses of free cash flow, which is really just where those are at any point in time figuring out what's in the mix of things to potentially.
Could come up and all the other I'm just other potential uses is how we think of it.
Okay and lastly from me just quickly we see you laid out kind of what the accrued rebates work for the distributors can you give us any color on what cash or rebates have been received from the teams or what do you expect to see receive in the near future.
Yeah. So HM.
So on and on a net basis right. So were call as we've said, we expect to get more in what we would pay out and really this is this is due to a couple of things one is variability in the contract between what the teams have done and the M.B.P.D., but also the fact remember the end the PDL.
Oh, all through even though you didnt have games. They continue to get 24, seven content and so so it'll probably be a be about 200 million on a net basis, but remember right DMD PTC continue to get content as but we.
Also because we had fewer games also had fewer advertising dollars because we didnt have those games. So that's the other part of this this whole equation.
Okay understood and last one for me I appreciate the time or maybe this is for Chris but your latest you tube TV agreement was for just one season, one that just expired in September is that an anomaly due to co bid or are these distribution deals for the RFM is going to be sure.
Order, a nature more broadly or for the OTI to distributors, specifically going forward.
No. It was not covidien related that was really an anomaly related to specifically you too.
And you know there there just incredibly focused on cost cutting and.
And so I don't I don't I wouldn't read into that in terms of what happens with the rest of the other distributors.
Okay, great. Thank you for the time.
Hi, Eric.
Our next question is what Stephen King Hall with Wells Fargo. Please proceed with your question.
Thanks for taking my question. So maybe first Chris I know you have continued investment plans for the are assigned to that you talked about I think the big issue for investors is still whether it makes sense to try to restructure the debt you know versus just outright walking away and until these have stabilized you're gonna get questions from Citi. It's like me every quarter about weather.
You are cannibalizing some of what are some of the the Retrans revenue that you could get that the station and coterminous deals. So you did a really good job of structuring Diamond do you have a lot of ability to walk away I'm. Just curious how you and the board think about the ability to create equity value at these assets first says that that option and where you go from here.
Yeah like this it's a great question, Steve [laughter] like taking a step back on.
Sports rights, a diamond and just sort of sports rights in general.
The reason we are one of the core reasons. We went forward with this transaction is still true today is that Ah, we fundamentally believe that sports rights will be worth more in the future than they are today.
That this is a growth industry it needs to change it needs to evolve.
There is.
Going to be like.
Cash flow valley that we will need to traverse here as we go through this evolution, but we're very excited about the growth opportunities, we have with the Rs and and.
We think we'll have something to talk more about on the sports betting front.
That that we think is going to be a game changer, and we intend on reinventing the ourselves around gamification around.
Community based fandom and around direct to consumer and you.
You know.
That's going to be we think incredibly exciting and rewarding for.
For Sinclair and that's what we're that's where we're focused.
[noise]. Thanks, and then you must be thinking about dish for next year at this point just based on the fact that they lost a lot of their subs that that werent value. They are a sense. How do you think about going into that renewal in terms of a coterminous steel for boats versus focusing more just on the TV stations and trying to.
To maximize value Andre traps.
Well, we have a we have been very successful in Nick.
Negotiating a package deals for all of our programming with all of the traditional and B piece and so I'd expect us to continue that strategy with dish.
Thanks, and then lastly, let's see I'm just wondering you know now that we have a really good idea of what gross Retrans is doing at 2020 I was wondering if you could give any color on how you think about that retrans or maybe an update on your reverse comp cycle. Thanks.
Sure. So is there just a to say our guidance for full year 2020 estimates the net retrans to grow mid single digit percentage for this year. So for 2021, what I would say is it's still too early to talk about.
Net retrans, just because of the uncertainties around cove, it and it's a effect on subscriber churn.
But I will say this that when when I think about the renewal cadence for next year and the fact that we only have 25% of the broadcast solved that we knew in the back half a 21.
And almost 50% of the underlying network subs that come up in the first half of 21, so given the different the mismatch in the number of subscribers as well as the mismatch in the renewal timing I think it mathematically will be a different.
Hard to to increase the net Retrans next year.
That's great color. Thank you.
Our next question is with Alexia Quadrani with JP Morgan. Please proceed with your question.
Hi, Thank you very much one of our peers on which we indicated they would be a price at which they would consider may be bringing their content direct to consumer I'm I'm. Sorry, you think if you think that make sense for you guys. If that's what the topic <unk> claims hi, Wayne and I think your question sort of.
MPD Putnam might react to something like that.
Yeah, It's a great question [laughter] and it's something we've been doing a lot of work around and it's not it's not an either or right. We will we are going to do direct consumer as I mentioned, we're going to reinvent the arsons around gamification community and direct to consumer.
And and that doesn't mean that were issuing our NBP business you know it will be at a premium price to what we sell the product to anti PD. So.
So there's sort of a wholesale and at retail a price dynamic there and we're as I mentioned.
On a previous question, we're really excited about the potential of unlocking the hidden value here and this sports rights that we have.
Okay, and just one follow up if I may I'm, there's a lot of pieces, obviously looking at the core underlying advertising environment your business.
And I'm curious I totally get that we can't really got 2021, because it was so much unknown, but I'm curious if you think that when we get to a more normalized environment whenever that may be when we sort of circle you know the kobin impact and everything else do you think that the core AD market kind of bounces back to kind of the peak.
Oh, good levels or do you think there's been some sort of you know reset in the market at lower level, just given everything that's going on.
Yeah look from our vantage point, a we we think things will return to normal encoded.
Goes away you know I think one of their work with a great data points that I mentioned earlier in my comments is that to on the sports side are we were up mid single digits on our advertising revenue.
And and you know there there has been a dislocation in the market because of Covance theres no doubt about that and but our inventories still is highly valuable in fact, it's only getting more valuable as advertising based content shrinks and amount.
Of avails, but you can get in front of people as people migrate to more AD free platforms.
Continues to get more scarce and so you know certainly when we do a big business in digital and digital you know we've been talking about this for years that digital is a key component to any campaign and we can go to the marketplace with a full suite of products, including a spot.
And digital.
But we don't think that Cove. It has caused any structural change in the market. If that's your fundamental ask.
Yes, that's it thank you so much.
Our next question is with David Hamburger with Morgan Stanley. Please proceed with your question.
Hi, good morning, Thanks for the question.
I'm curious I see that you seem you renewed your media rights agreement with the Kansas City Royals recently.
And I'm wondering.
Fox Sports, Kansas City, I guess as you look at no managing costs and you talk about your guidance for for the fourth quarter, but as you think more broadly about managing costs.
Can you talk a little bit about the renewal you know my understanding maybe you gave the team equity in the station.
That part of the Midwest stores than previously as our new Fox Sports, Kansas City.
The team also has an equity stake if that's the case can you talk a little bit about the rationale for that move.
Sure.
Look I think giving giving back we did give equity in that deal. We have many teams that do own significant portions of our our sense. We believe it aligns interests better it also variabilize as compensation for the rights.
Close to having it all on a fixed basis, which helps manage our cost bases as revenue has changed and going forward that is going to be a bigger part of the equation.
As we move to a more variabilized rights.
Compensation structure.
Can you can you help maybe kind of quantify how much kind of tenda weights were or helps that equation. I mean, obviously as your distribution revenue was become more variable given customer churn how close we might you be able to line renewal of media rights agreements on the cost side to correspond to boost.
The trends are.
So that you see the team's kind of participating in that.
But I don't have a specific number to give you, but what is kind of down data only true is that we bring a lot of value to the arsons and our teams on multiple facets.
And ER and so you know that is something that as a distributor a distributor needs that does its hyper.
You know work that we do and brings the value that we do.
You know deserves to make a margin on that and so.
You know that is that's that's sort of the way, we think about rights going forward yeah.
And you know stay tuned in terms of what that May mean financially.
That's just a quick follow up on that then kind of more technical question, but does that mean that now that subsidiary that station is no longer a guarantor or maybe even would be are you on.
You know a designated subsidiary or unrestricted subsidiary as part of the credit agreement as well as the does that also mean that the collateral.
That that station might have provided to the secured credit agreement.
Bonds is no longer.
That's been released.
Yeah, Hey, David the way. This works is you know we all are our ownership in that joint venture is pledged to the odd onto the lenders and from a an attributable EBITDA standpoint, what we count or the towards attributed.
<unk> EBITDA is the are the cash distributions to the JV pays back to diamond.
So Terry you had the pledge of the of our interest in the JV as well as beyond that the cash distributions back into Diamondx.
Okay, but no longer maybe you know collateral in the subsidy or in the assets themselves, but you pointed to the ownership.
The shares are collateral right.
Okay. Thank you very much thank you.
Our last question is with Zack silver from B. Riley. Please proceed with your question.
Okay, great. Thanks for taking the question.
Just on the 50% of those subscribers coming up on the reverse side first off 2021.
Just curious to your thoughts on are these renewals long enough and duration, where you think that your network partners are going to bake in your expectations for the step up in <unk>, that's all right into the negotiations or is that more.
If somebody that may be a bigger factor and the later.
Her cycles. Thanks.
Yeah, we're not seeing that as part of the discussion.
Oh, I think we all recognize that the the networks will have to pay up to keep NFL and that that appears to be expected outcome.
We already paid to the networks of substantial song and in terms of a reverse retrans.
And so I think it would be hard for them to justify given how much that has increased over the last few years are you know some sort of NFL specific increase.
Got it thanks, Chris.
Yeah.
We have reached the end of our question and answer session I would like to turn the floor back over to Chris recipe for concluding comments.
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