Q1 2021 Sinclair Broadcast Group Inc Earnings Call
Greetings and welcome to Sinclair broadcast group's first quarter 2021 of the earnings conference call. At this time, all participants are in a listen only mode.
A question and answer session will follow the form of presentation.
So I mean, what should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Lucy Lu the south of there.
The Chief Financial Officer.
Okay.
Thank you operator participating on the call with me today are Chris Ripley, President and CEO.
Rob Whiteboard, president of broadcast and chief advertising revenue.
Steve Zenker, Vice President Investor Relations and before we begin Billie Jo Mcintire 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 on the company's most recent reports as filed.
I have with the SEC and included in our first quarter earnings release. The company undertakes no obligation to update these forward looking statements. The company uses its website of the key source of company information, which can be accessed the www dot S. P. G. I thought not in accordance with regulation FD. This call is being made available to the public on web.
The 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 of its assets. The company also believes that adjusted.
EBITDA in the frequently used by industry analysts investors and lenders as a measure of evaluation of these measures are not formulated in accordance with GAAP and are not meant to replace GAAP measurements and may differ from other companies uses or formulations of the company does not provide revenue company does not provide reconciliations on a forward looking basis further discussions and reconciliations of.
Of the company's non-GAAP financial measures to comparable GAAP financial measures can be found on its website www Dot S. T G I.
Christopher I play will now take you through our operating highlights.
Good morning, everyone on our results for the first quarter were better than we guided as our media revenue and EBITDA for the combined company exceeded our expectations due in large part to the change in the amount and timing of distributor and team rebates and the local sports segment, but also reflecting the continued improvement in the core advertising market.
Which beat expectations, despite the ongoing pandemic environment.
Advertising trends continue to improve in our broadcast and other segments first quarter core AD revenue, finishing flattish to pro forma first quarter of 2020, and 2019, which exclude the sale of stations we made in the past 12 months.
As you'll recall April of last year was the first full month negatively impacted by COVID-19 broadcast and the other was down 43 per cent in that month alone and 36% for the second quarter of 2020 as.
As expected in April of this year, well exceeded 2020 up over 70% and was down low single digits from April 2019, when adjusting for station sales, which is the more representatives of comparison.
Why not items that we're keeping a close eye on is the component shipped in rubber supply constraints that are impacting the auto industry, which will likely be a factor on the categories AD spending in the upcoming quarters.
While the other auto category is comping against the COVID-19 weak quarters in 2020 for the industry the visibility and the category is low right now.
Overall, however, I would say that we continue to be very encouraged by the progress of the core AD market, which has seen particular strength in services and sports betting categories.
On the sports side, the NBA and NHL seasons proceeded according to their revised schedules for the first quarter of 2021 and MLB started their season on time and is expected to play of full regular season.
Core advertising for the sports segment for Q1 was slightly lower than our guidance range, mainly due to fewer MLB spring training games than we expected.
However, our revenue per game average in the first quarter was up over 2019 as a reminder, there were no professional games in the second quarter of 2020 due to COVID-19 and we are expecting to receive more NBA games in the second quarter than we anticipated when we guided last quarter comparing.
Two Q2 of 2019, we're off to a good start in the second quarter of this year aided by the additional NBA and NHL games in the quarter versus a normal season.
In April we launched our much anticipated valley sports App that gives authentic eight of yours of the Orissa and a more robust and interactive experience than was previously available on the Fox Sports go App.
Early feedback from users has been positive and initial usage stats show that users are taking advantage of the new functionality of the app.
We expect to introduce additional features including gamification elements later in the year.
We're working diligently diligently with valleys Corp to create a consumer experience that maximizes viewer of entertainment and engagement by being able to move seamlessly back and forth between the valley Sports App and valley, New sports betting App valley of that.
Additionally, we are exploring non game programming at Bally's would provide to the art stance with the goal of upgrading such day parts of content.
On the broadcast side of the National desk, which premiered on January and areas of cross 68 of our markets continues to perform better than we expected the national desk allows us to take the most timely and relevant content from our 2500 hours of local news produce each week, along with content created specifically for.
The program and share it with viewers across the country, creating a unique alternative the cable news.
The euro feedback has been positive with many commenting that it is different and better than the other morning National news programs on broadcast and cable.
We are encouraged by the reception of the program has gotten and have plans to expand the program into the evening hours later this year.
Part of the comprehensive news coverage that we pride ourselves on as an organization is our investigative journalism uncovering local issues corruption and other injustices.
For the third consecutive year, one of our stations received the prestigious IRI for investigative reporters and editors award.
This year WGNA, our CBS affiliate in Portland, Maine received the award for bringing to light a serious shortcoming in the that trend is crisis line of me through our investigative team's effort. We helped alleviate the issue and fought all year to get the problem fixed culminating in Congress passing legislation to help resolve.
The issue.
It is this type of a relentless and insightful news coverage that is a hallmark of Sinclair as efforts to better the communities in which we operate and to rectify issues or inefficiencies that are present in our institutions.
I am very proud of the impact our stations have in making our communities a better place for all residents through on covering and addressing issues that impact their lives as well as the support we bring from the four of them from fund rate as the public service announcements and other charitable activities for example in 2020.
As an organization, we helped raise over a $35 million for nonprofit organizations schools agencies and local disaster relief. While also collecting over 9 million pounds of food and 242000 toys. In addition to providing over 2 million meals and.
Distributing 52000, backpacks and school supplies and over 18000 coats.
I want to also mention that in April we announced we would be expanding our board of named a new director Lawrie buyer.
Laurie as our first female director and reflects our commitment as an organization to seek out of diversity of experience skills viewpoints and backgrounds. In addition to strengthening our governance.
Finally, I wanted to talk for a minute about the dynamics behind some of the efforts Sinclair is making to drive future growth and what we believe the impact could be on the organization in the years ahead.
One of the bigger opportunities for our sports business is going direct to consumer with our regional sports content.
It is no secret that consumer cord cutting and the dropped distributor carriage of the <unk> have left many people scrambling for a way to watch their favorite local team.
It is imperative that sinclair be able to fill that void and provide consumers the sports programming. They desire most in a way they choose to access it through mvpds or digital means.
At the end of 2020, we had 52 million of our ascend subscribers of which approximately 35 million households are unique the <unk>.
35 million households represents less than half of the total subscribers possible in the RSM teams geographic territories, meaning the total number of address those with the addressable subscribers under the D to C model is theoretically more than double.
As I mentioned previously we have we are currently developing a product to reach these consumers on a direct basis B N N app similar at two of the way consumers access over the top platforms because of the launches still many months away I do not have particulars to give out give to you at this time such as the content that will be part of.
Of the subscriptions the price of the subscriptions or other details that will be made available as we approach the launch of the product.
But what I can say is the intent is to complement the accessibility of the programming currently available through traditional ways through distributors carrying the programming.
As I said consumers make the choice on how they watch the games and we and the team's desire to make the programming as accessible as possible something that today. Unfortunately is not ideal.
We believe that ultimately the incremental revenues from direct to consumer will likely more than offset the loss of revenue from churn of subscribers of traditional distributor platforms and much like the authenticated viewers, who currently subscribe to the <unk> the direct to consumer of your will benefit from the upgrades that we're making to the ditch.
The viewing experience, including increased functionality of playback from recording capabilities enhanced news and statistics, new programming developed in conjunction with valleys and elements of gamification, including watching that the valley debt.
These activities are all part of making the viewing experience more personalized and engaging through the utilization of live interactive programming games contest polls socializing and sharing content with the other fans even interacting with advertisers.
These are all ways in which the viewer becomes more invested in the activity of watching sports fueling a virtuous cycle, where the more they participate the more they watch. This is the dynamic that simply does not exist today in light of sports viewing.
Once you have the attention of an engaged viewer incremental monetization opportunities to become significant.
This is another aspect of the business as potential revenue generation and so far it's totally untapped.
Another opportunity for future revenue growth as Ats, three point al or Nextgen TV, we've talked about this initiative for a number of years, but with 14 markets now having being launched Tvs being produced and sold that are able to receive the new signal a mobile phone prototyping tested and our cash study or a partner.
Chip with SK telecom completing testing.
It's five <unk> of on mobile platform technology monetization for <unk> three per now is approaching.
There are a number of ways. The Nextgen T V will enable us and the entire industry to generate incremental revenues, while also better serving the public.
With the new technologies Sinclair on other broadcasters will be able to unlock the inherent value of the broadcast spectrum.
An example would be the ability to transmit four to five times the volume of video content and data capable of.
Being transmitted as compared to the current broadcast transmission standard. Another example would be the ability to provide higher quality higher value ultra high definition content with immersive sound.
But the benefits extend far beyond the superior quality and immersive video and audio experience.
Sinclair and the entire industry will benefit in a number of ways, including potentially wholesaling excess spectrum data capacities to other firms inside and outside of the broadcast industry.
Establishing conditional access on enabled subscription based services for video audio and other products targeting of the device.
Household and geographies.
In addition, the increased spectrum efficiencies can be used to help communities by providing robust emergency alerting and to help support remote learning to underserved broadband areas.
<unk> is a mobile first standard it brings portability to the spectrum opportunities and does not have some of the inherent weaknesses and reliability issues, president and cellular or Wi Fi service on particular important interest to many sectors, including sports betting is the ability to reduce latency and.
Provide synchronicity when large when watching live broadcast on all classes of receiving devices, including mobile devices.
Our JV with SK telecom cash that era is making great progress on many fronts that will bring new network appliances and services to make beneficial use of our broadcast spectrum.
Enhanced EPS is about one of those opportunities.
We believe that force Sinclair there is approximately $1 7 billion of hidden spectrum asset value based on applying one dollar per megahertz pop valuation to our spectrum, which was the average price in the last major FCC spectrum auction.
So to sum it up while the monetization of the viewer is at one level today, we believe the monetization of that same viewer is a multiple of that level in the future as we execute on the initiatives I, just mentioned plus others, which are expected to drive revenue growth in the future.
With that I'll turn it over to Lucy to cover the financials of the quarter.
Chris first some housekeeping items to note.
As discussed on previous earnings calls distribution revenues and sports rights in the local sports segment can be impacted by minimum game guarantees, which can result in rebates to be paid the distributors were received from the teams.
After we reported our year end results in February the NBA finalized are scheduled for the second half of the 2000 22021 season, which resulted in more local broadcast games than we were anticipating from our guidance.
As a result, the prior estimate of $420 million of rebates to our distributors and which we fully accrued in 2020.
It is now expected to be approximately $19 million less with the credit booked in the first quarter of 2021.
From a cash payment standpoint of 133 million of the revised 400 million due was paid in Q1 of this year. Another 84 million expected to be paid in the remainder of 2021.
The 183 million is expected to be paid in the first half of 2022.
The lower rebate favorably impacted first quarter distribution revenues and adjusted EBITDA in the local sports segment.
The increase in the number of games also resulted in 46 in of $46 million decrease in the rebates, we anticipate from the teams this year.
If you recall from last quarter of the total amount of rebates from the teens as a result of the minimum game guarantees was estimated to be 697 million of which 542 million was received last year and the 155 million expected to be received this year.
Which after the $46 million of revision is now expected to be 100 of $9 million and of that 67 million was realized in the first quarter of this year and the remaining 42 million expected to be realized in the second quarter of 2021.
Lastly, in an effort to keep my prepared remarks higher level I will not be going through all of the detailed numbers as I have in the past.
Instead in addition to our earnings release. This morning, we are prepared of schedule, which you can access on our public website that provides the detailed numbers.
We believe this format will allow you to focus on the more important aspects and analysis of our results.
So now turning to the broadcast and other corporate and other segments.
Media revenues for the quarter decreased 4% versus the same period, a year ago due primarily to the absence of meaningful political revenue with the 2021 being a non political year as well as reflecting the sale of three stations in the last 12 months.
Media revenues exceeded our guidance range on better than expected core advertising and distribution revenue.
Our core advertising, excluding the three stations that we sold increased almost 1% year over year and was better than our expectations of down mid single digit percentage.
And if you adjust for the impact of the Super Bowl moving the CBS. This year from Fox last year, our core advertising results for the first quarter would have been up low single digits compared to a year ago.
It's worth came primarily from the service and entertainment categories, particularly of the sports betting content.
And if we compare first quarter 2021, the first quarter of 2019 same station core advertising revenues were up slightly which is of very good result, considering the economy has not fully recovered in the country is still working through the COVID-19 pandemic.
Distribution revenues for broadcast and other increased 2% versus last year and was above our guidance range, reflecting a slight improvement in subscriber churn than what we anticipated.
Media expenses were 3% higher in this year's first quarter versus last year, due primarily to higher network compensation costs, but were lower than our guidance range on better cost controls and lower digital expenses.
Adjusted EBITDA, excluding $13 million for nonrecurring items was the 173 million down 22% from first quarter of year ago, due primarily to the drop in political advertising, but once again exceeded guidance.
Now turning to the local sports segment.
Media revenues for the local sports segment declined 5% compared to the first quarter of year ago on lower distribution revenue from dropped carriage and higher subscriber churn harsher.
Partially offset by the distribution rebate credit and higher core advertising revenue, which benefited from more games in the quarter end of year ago.
Media revenue is also beat guidance with the distributor of rebate accounting for the majority of the outperformance.
Local sports media expenses.
For the first quarter were up 35% from a year ago due primarily to the greater number of games played during the quarter, which increased sports rights amortization as well as total game production cost.
Also impacting the quarter was approximately $19 million of transition services and one time cost primarily related to the move of our RSM production facilities, the new Bally sports App and the rebrand.
Excluding the impact of the higher sports rights amortization in the first quarter media expenses were favorable to guidance by $12 million due to fewer major League baseball spring training games played the unexpected as well as overall cost savings.
Our local sports adjusted EBITDA for the first quarter of 9 million was down from the prior year due primarily to the lower distribution revenue, but beat the high end of guidance by more than $60 million on the net rebates and lower production expenses.
For the consolidated company Sinclair is total company media revenues for the first quarter decreased 5% from the first quarter of 2020, adjusted EBITDA, which excludes 32 million of one time expenses declined to 182 million for the reasons just outlined but.
Impaired the guidance revenues and adjusted EBITDA of both exceeded the high end of our guidance range.
First quarter consolidated adjusted free cash flow, which excludes the adjustments was $9 million, which is approximately 117 million better than the low end of the guidance range, primarily on the adjusted EBITDA beat.
For the quarter, we had a 16 cents loss per share on 74 million weighted average common shares compared to a dollar of 35 of diluted income per share a year ago.
Adjusted for the nonrecurring items diluted earnings per share was <unk> 18 cents for the quarter versus the dollar 53, a year ago.
Now turning to the balance sheet.
Consolidated cash at the end of the quarter was $941 million, including 507 million at S. T G and 415 million of Diamond.
Neither of credit silos revolver was drawn during the quarter and as of the ended the quarter the balance board under our accounts receivable facility was 173 million.
Total debt at the end of the first quarter was 12.540 billion and net leverage for the consolidated company, Ecuador, and with six four times.
Claire television group's first lien indebtedness ratio on a trailing eight quarters was two seven times on the covenant of four and a half and three nine times on a net leverage basis through the bonds, which is now in our net leverage target range.
The Diamond's first lien indebtedness ratio on the trailing four quarters was seven two times on a covenant of six in the quarter, which Ernie Springs, if the revolver is drawn over 35 of their over 35 per cent.
Diamond's net leverage was nine three times during the quarter, we paid down 12 million of debt and paid $15 million in common stock dividends and while many companies have recently been buying their shares but only as the stock market recovered, we remind you of the 21% of our total equity.
We've repurchased last year and almost half our current trading levels.
Turning to the second quarter on full year of guidance.
For our broadcast and other segment, our second quarter media revenue guidance is up approximately 16% to 18% to 774% to 793 million the.
The increase is driven primarily by higher core advertising revenue off of pandemic depressed 2020 the.
The expected upside is partially offset by lower political revenue as 2021 is a non political year.
Second quarter adjusted EBITDA is expected to be between 157 in the 172 million compared to 145 million last year.
For the local sports segment second quarter media revenue is expected to be up 33% to 36% to $821 million to $836 million. As a reminder, there were no major live sports games played in the second quarter of last year, and there were accruals for distributor rebates, which.
Our distribution revenue.
For the full year media revenues are expected to be up 14% to 21% second quarter. Adjusted EBITDA is expected to be up 75% to 88% to $192 million to $206 million for.
Full year adjusted EBITDA is expected to be down 24% to 46% the $458 million to $637 million.
Of the consolidated company second quarter media revenue is expected to be up 24 to 27 per cent second quarter, adjusted EBITDA expected to be up 37% to 49% for an adjusted EBITDA of $349 million to $378 million and second quarter adjusted free cash flow.
343 to 405 per cent for free cash flow of 206 of $235 million.
And with that I would like to open it up to questions operator.
Thank you.
At this time of we'll be doing a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
The confirmation tone will indicate your line is in the question queue you.
You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question is from Dan hurdles of Debenture of company. Please proceed.
Great. Thanks, good morning.
Maybe Chris just on on the <unk>.
Couple of things just your commentary around DTC I think.
A little more prominent at this time I just wanted to get the sense from you you know maybe how much if at all there is the change in telling the originally we thought two.
2020 to more of a super fan experience, obviously, you've got the ongoing challenges.
Challenges with the distributors, but and clearly a big town. So just to the extent you can kind of give us some color around.
Understanding you have to navigate your existing relationships.
How do you think that that kind of the there might be a sea change there and then.
You also talked about kind of improving day part do you think the advertising guided Q2 was surprisingly strong here.
Historically I think it's been like 90 10 distribution advertising.
To the extent that you are in talks with salary and maybe even other approved day parts and kind of how you think the ideal can be improved and maybe kind of what the longer term longer term split between adding distribution could look like would be super helpful. Thanks.
Great. Thanks, Dan look I think if you're noticing a difference in tone on the direct to consumer for sports I think that is an accurate pickup as we dig into the details of our business plan and really really realize what what the other opportunities are.
When you get a fan it's coming in day in day out to watch your games on a digital interactive platform, we know who the viewer is and you can funnel of them into other opportunities, which are massive adjacencies growing really really fast like sports betting likes like merchandise like what's going on.
And in Ftes, and and that becomes a platform for for interaction and socialization for the fan.
We you know we're we're very excited about what that means because we have the largest collection of premium sports rights in the country and so we have this tremendous foundational piece.
And where we're filling out our plan and we've got our our TV everywhere App was launched.
Couple of weeks ago, It's it's it's gone well and we're going to continue to build on that and so I would say that you're you're accurate in picking up that increased bullishness on.
On where we're headed.
What drives the consumer and then as it relates to.
The other day parts, we did announce that Mou with the with valleys Theres a lot on the drawing board there to improve our non game programming, which if you followed US you. What you would know that that was there's really nothing of value outside of the pre post in the game on the <unk>.
And it's just the latent opportunity and and.
And then the arrangement with the Allegis is of great arrangement for them for us because.
The enhances the programming that we're gonna have in these areas, while taking little to no risk on the financial side too.
To get that programming. So it's really best of all worlds sort of situation, but what youre seeing on the numbers does not reflect the upgrades that are on the drawing board for the non game programming those actually haven't hit yet.
And so that's just the strength in sports advertising core advertising, that's really just blown us away here so far in the recovery that we've seen post COVID-19 and the and the strength of sports and advertising related to sports has never really wavered at all even through COVID-19 and cash.
<unk> continued to.
To increase on a per game basis, as we mentioned earlier in our comments so of when where and when that new programming starts to hit outside of the game the pre and post that is going to be on additional upside so dan as well as.
Will.
Total taxes with our yield management system into the AI machine learning system the.
A lot of of dedicated analysts to look at.
Extracting the higher yield per game as well as with the new App launch, we'll be able to geo target. So as you know the Rs and ru multiple the amaze will be able the targeted ads.
During the political season, we will be able to capture more of a political dollars.
But zeroing in on those Geos of the specific the amaze as well in the.
The through the gain on vacation.
In our interactive division, we will be launching on free to play.
Beginning this year and be able to kind of captured dollar sponsors from free to play.
So as well as branded content opportunities, so theres numerous opportunities to unlock.
With the our sends that are worthy of that stuff.
Yes.
Got it that's the sue.
Super helpful. Just housekeeping the let everyone out all of the core questions just loosely what was political in Q1.
Q1 of of this year, we had the top 4 million for the total company.
Got it perfect. Thanks, very much guys.
Thanks, Dan.
Okay.
Thank you for the next question is from John the Natus of.
Wolfe Research. Please proceed thanks.
Thanks, Good morning.
Maybe a quick follow up to Dan's question on just on direct to consumer Chris just wanted to clarify do you need to get consent from distributors.
Prior to doing it and can you talk about the process in terms of the leagues teams and I guess distributors are those on parallel paths and could any of those things impact timing and then maybe on a related topic with baseball season, starting in no new news on the carriage from related to Youtube Hulu can you talk about your confidence level about getting some.
<unk> done that as we get deeper into the season.
Sure. Thanks, Sean.
We have already cleared the path with the distributors to the launch direct to consumer so that's the answer on that question and.
And we have right stretched consumer rights really for the vast majority of our teams we are in discussions with the leagues and the teams on enhancing some of those rights to make the product even better. So that's what's going on right now I don't see that being a threat to timing. The the the plan is to launch in the first half of.
2022.
And then on your question around carriage.
Look we don't comment on the specific status of any one.
The distributor discussions.
So.
The only at one of the only thing I can say is the time of what time will tell if these distributors will return.
Alright, Thank you very much.
Thank you our net cash.
As from season to the Hall of Wells Fargo. Please proceed.
So Chris maybe just to dig a little more.
And the the RF and maybe you can just tell us a little bit of of what happens next I think that probably the dish discussion is ongoing so I'm. Just curious if you would accept an agreement with dish the that didn't include them.
And then if we kind of think about where you might be with the Rs and if you come on at the low end of your guidance. This year. It could mean, a renegotiation of death or more of liquidity coming in and I know these are what if scenarios, but I think we would just be helpful. You could maybe just talk about a little bit of of how youre thinking about those scenarios and then Lucy the buyback commentary was very <unk>.
Paul you certainly we're opportunistic last year to take advantage of the share price dislocation as you think about uses of broadcast cash flow going forward is the debt reduction is the being opportunistic on maybe potential end market station M&A participating in the Diamond recapitalization and maybe just help us think about uses of the broadcast cash. Thanks.
Wow, what do I do that question first and then.
Can talk to the other one so right uses of free cash flow really haven't changed from what we've been talking about per years and it doesn't really matter on your on the STG side. It stack of the Diamond side right. It's all it's all about how do we how do we delever how do we.
Increased values of long term value the companies, whether it's acquisitions investments I'm reinvesting in the companies.
On the on the STG side, which has been the company that has funded the equity returns right. It's also been about the equity return. So so all of those things are still on the table right equity returns delevering and strengthening the balance sheet and making sure that we're reinvesting in the company with the free.
Free cash flow to continue to grow for the long term.
Great and so on your question not related to dish up we really can't be negotiating in public with dish for I think obvious reasons.
But I will note that.
Excuse me.
We have had tremendous success with the traditional mvpds when we come with the entire suite of our programming.
On offer in fact, you know we have been successful with with all of them under that circumstance save for frontier who.
<unk> filed for bankruptcy, so it will be of pivotal time.
And.
Of course, we can't predict when all of a crystal ball, what will happen, but but.
But I will note that.
That has been a successful strategy for us with the other traditional mvpds and then as it relates to <unk>.
<unk> diamond and its capital structure.
We're being very proactive on that front, we are open to discussions with our stakeholders. Indeed, we are in active discussions with a large segment of our capital consistency with respect to structures that will help us achieve our goals, which Lucy mentioned, including strengthening our balance sheet optimizing or our cost of capital funding future growth opportunities.
Exercising shareholder returns and delivering the entity.
Thanks for the color.
Okay.
Okay.
Thank you Oh, that's the question is from David Hamburger of <unk>.
Morgan Stanley. Please proceed.
Hi, good morning, Thanks for if I could the two questions.
Can you talk a little bit about I know you've recently.
Renewed your programming contracts with a few teams and.
You talked about giving equity on the stations and how that helps to attenuate some of the escalating cash costs associated with those of those contracts can.
Can you help us dimension like what has been the cost savings and maybe can you give us the afford walk how many contracts you know what.
Would you be renegotiating here this year and your expectation for how those will be.
Negotiate it.
And then the second question outside of if I may.
Sure.
When when when we go into renewals and we.
We don't we don't specifically say, which which teams are up.
For confidentiality reasons, but every year, we have a few teams.
That has come up so last year.
Obviously at the Marlins on the Brewers those were successfully renewed in the coming months, we've got a handful of teams with 45 teams in the total portfolio there.
Over over a sort of a 15 year spread of of contract explorations <unk> got a handful of teams every year that you've got to deal with so it's it's really sort of normal course as you roll through the business.
And our our one of our explicit goals.
The exist in the portfolio. When we took it over is too variable is more of the cost structure. So when we go into of renewal.
Specifically with anchor teams on on the MLB side. We are we have we always are.
Try to negotiate in non.
Ownership stake and the <unk>.
Which then takes a portion of what they want in terms of total rights fees and makes it variable depending on the performance of the <unk> and there is no rule of thumb I can give you. Besides that most of the stakes are minority Stakes.
And just depending on how big the rights fee is.
And how large the income projected to out of the RSA will be for that minority stake there.
Then determines how much of the raw total rights fee will be variable versus fixed and so there really <unk>.
Without getting into specifics on a specific contract, which I can't for confidentiality reasons I can't really give you more.
The tail than that but to say that we really do like that strategy. It does variable I'm very realize more of the cost structure and it aligns interest with the teams and you can see just sort of in our overall on our overall numbers, what's what's happening in terms of what I think we're at mid single digits.
In terms of rights fees going up and we do expect that to to head downwards in terms of annual escalation on on overall perspective.
Okay. Thanks.
My second question is with regard to guidance ex of Diamond.
The better expected EBITDA in the was driven a little bit of bye bye rebates on the first quarter, but if I look at the midpoint of guidance for the year now.
It's come down relative to the guidance you provided.
For the fourth quarter earnings call did you talk about what's driving the.
We would anticipate if there was kind of better expected outcome and once you we wouldn't see the guide down for the year of so I'm wondering what's driving that guide down maybe you can also put in context. The loose you'd mentioned last quarter of 100 million of incremental expenses associated with growth initiatives and could you put this in the context of there was of 368 million dollar of.
<unk> and cash of Diamond in the first quarter I know the interest cost in the sports rights payments are higher on the quarter and you mentioned on the 100 plus million of rebates to distributors can you talk a little bit about liquidity and the the cabinet the cadence of cash flow as you look at diamond.
For the remainder of the year and you're going into 'twenty two.
Okay. So say three questions here, let me do the cash walk first share the the cash usage from the December balance to first quarter.
You've hit on all of the the main points right there with it.
The EBITDA we.
We had the semi annual bond interest they got paid in Q1 and the rebates distributor rebates that we that we paid and then the of the rest of that is going to be working capital changes from the most parts of you've hit all all of the key point.
On the change in cash.
Look based on our current assumptions and again acknowledging that there's still a lot of uncertainty right with the economy, and COVID-19 and churn rates et cetera, but.
Based on the assumptions when we look out 12 months, Yeah. We believe the diamond has sufficient cash and revolver availability to fund all of that surfaces. So so you should be fine there.
And then your question on the hundred million of the Inc. Mental expenses.
So that is made up of multiple things made up of.
The new initiatives, such as gamification and and.
The new App features right, which the old app didn't have and toward of all regular opex inflation.
And they're also all of the replacement services they were standing up such such as the going into the encompass facility to get out of Disney's facilities are the.
The development of the new App as well as all of the rebranding that we did around the the.
New name.
But at the same time, we're also continuing to pay Disney and Fox for transition services as we fill it up on news our own services. So there's the duplication of costs that are running through the model for the year. So.
That's primarily what's the $900 million and so when I think about it you know a good 60 to 65 million of that does not come back on.
Next year, because it was either the duplication of services for the rebrand where for the development of the <unk> of the App cost from nice.
Part of it.
And then your your first question on the mid point for the EBITDA So as.
As you know right now you know, we still don't have a dish hulu or Youtube of them running into that that will affect the top end of the range as we as we said last quarter. There were a range of outcomes that could happen during the year, whether it was on carriage when he was on churn.
Whether it was on advertising.
And so with those are those three still not all we've taken the top end of the range down, but I think the important part here is that the lower end of the range has increased for the year. So we went from the $4 $41 million to $458 million at the low end and so that's the more important.
Piece the debt I think everybody should take away from.
Okay. Thank you.
Mhm.
Okay.
Thank you the next.
Next question is from Aaron Watts of Deutsche Bank. Please proceed.
Hi, everyone. Thanks for having me on one.
One quick follow up on the core advertising of the stations encouraging to hear it seems like things are turning a corner.
We see I believe you said kind of flattish in the first quarter versus last year in April looking much better how is core trending for two Q overall.
We're looking at it.
The down against the.
2019, which is our benchmark.
Again, the business is the place month on month, and that's why it's encouraging to see April may.
They have started off strong and then we'll gauge of where we're going we're cautiously optimistic as we see travel of increasing our businesses opening up and.
So with the full benefit from a more robust economy.
Yeah, and I would just add to that like the.
And as I said, we've been very very happy with what we've seen on the core advertising front and the only thing that gives us a little bit of pause for Q2 is the chip shortage on auto, but all of the others all of the other categories of the had been very very strong.
Look very very strong in Q2 so.
We're just it's been of great bounce back on the economy overall.
We're in great shape too.
With our portfolio as the.
On the gaming industry starts to spend and on Lockwood.
You all have been asking for the last 18 months, it's now happening with our portfolio.
We're able to capture of those dollars of the significant one.
Okay, Great that's helpful.
Second question any.
Any material change in the underlying subscriber trends and churn for both of the stations and the RSA on here to start the year and Relatedly on the Cox renewal you mentioned in the release just wanted to confirm that the RSM had previously been carried across their platform and that the agreement for nearly extended to be coterminous with the new broadcast deal.
Sure. So we did see a slight improvement in subscriber trends in the last quarter.
Nothing all that material. So our outlook remains the same in terms of a mid single digit decline on broadcast in high single digits for our sand.
And then the Cox deal.
We're very pleased with the outcome on the Fox deal I mean did sync up.
And in the.
The AMOLED, we did think of all of our content under the same arrangement and exploration date.
Okay, Great and one last one from me and this is really.
I guess the whole my understanding on some of your comments around your rights on the sports side, Chris and.
Correct me, if I'm wrong on any of this but I believe the MLB turned streaming rights back to the teams, but the NBA and NHL still negotiate those rights of the league level.
If that's all right one of those streaming agreements up for renewal with the NBA and NHL and are there kind of any discussions with those lease on either of extending that deal or what the direct to consumer offering streaming offering could look like there I know you touched on that earlier, but just wanted to clarify those points.
Yeah, No you have it right Aaron in terms of what you remember so the.
The NHL and NBA.
Deals naturally expire at the end of the season. So it actually was very fortuitous, because we wanted to expand and enhance the rates we were getting to make the product even better as I mentioned in those renewal discussions are ongoing as we speak.
Okay. Thank you for the time.
Okay.
Thank you. Our next question is from Lance Vitanza of Cowen. Please proceed.
Hi, guys. Thanks for taking the questions and congrats on the quarter I have two questions.
If I could the first is Lucy I agree on the on the guidance for Diamond I mean, it seems pretty obvious given where the bonds are trading that the focus should be on the upside to the low end of the guidance I think objectively you'd have to look at this guidance is an improvement versus the prior guidance I know I did my question is you mentioned the range of part of potential outcomes.
To what extent does the low end of your new guidance contemplate or to what extent is the low end of your guidance contingent upon I should say the return of dish Hulu and Youtube.
Yeah. So.
So as we talked about this on our last call Lance as well so the low end the low end would incorporate.
No carriage returns.
As well as a range on subscriber churn in advertising ranges, which.
I'm not going to get into what those are but but that would be at the low end and the upside would also have the.
The.
On a range for subscriber churn advertising and some amount of carriage return.
Okay, but so so just so I'm clear, though you're what you're saying is that even without the return of dish Hulu and Youtube you're still covering your interest expense.
Correct.
My other question is with respect to the new App.
Launched last month I know, it's early but and I know that Chris you did get into this a little bit during the call, but could you could you give us a little bit more color on what the feedback has been like I haven't had a chance to play around with with the App, but to what extent is it branded Sinclair vs. Bally's sports could you remind us who run.
On the App I mean, its as of your App or is it bally's app and and how does the App helped Sinclair vs, helping drive revenue to bally's eventually.
Sure. So yes, the the App was launched literally I think it was just two weeks ago last month and.
It is branded valley sports and I'll, let Rob.
Who oversees our digital operations talk more about the feedback on what were seeing on the app, but it is a it.
It is a of Sinclair asset it's not of valleys assets you can think of.
Just to sort of clear up some potential confusion valley sports is the brand for our sins.
It is.
It is a brand that debt that we have rights to exploit on any platform to even to license out to other people.
And the rebrand is gone amazingly well I think we've just the the team really killed it on the rebrand the product looks that much better we've gotten compliments from all the stakeholders.
Of improvement and and at the end product that we put out and quite frankly, it's amazing to do that when youre dealing with the brand that's well known as Fox to switch it over and within a short period of time.
People, just think of our networks now as valley sports. They don't think they're not connecting that necessarily to the casino company and and that was the objective. So objective of achieved on the App as an extension of that so it's been launched it was a big technical feat to convert all of our from <unk>.
Fox Sports go it's a very complex under carriage to manage all of the Reits and we pulled that off successfully now it's about improving and enhancing the features.
In the App and so I'll turn it over to <unk> to Rob well and of you also asked about just economic opportunity it.
Represents a large economic opportunity for the <unk> as it relates to a bunch of impressions, which were way under monetized.
And the Fox Sports go out of data, but they werent even targeted so it really does build the business.
For Sinclair in it.
The way and then and then and it does what what valleys bargain for which is promote the brand valleys and connect over to their sports betting App, which will launch shortly so it really is a very.
The symbiotic.
Relationship there.
I'll turn it over to Rob type of some of the feedback plan. So.
Our product team did a great job.
It's been 15 months.
The building this out trying to focus on pull improvements.
Part of sports out of the feedback from warrant piece of the viewers was a little bit longer than the two so it's a modern day out the.
The the update and it was not the go find the value of sports as you already have Fox sports of the system of this that senior.
Seamlessly went from force force as all of the sports.
And we are truly excited in the just the short few days, we've had over $2 5 billion video views.
And I presume the.
Is that we're going to be able to unlock the true pressures from the video views in the past. It was sold more of a share of voice not geo targeted and through our Sinclair of sports group of dedicated digital team selling the every single of Russia. Once all of them lots of volume our interactive team, which is led by.
The Jr. Gabe will unlock the gamification so there's numerous ways that we'll be able to monetize.
Along with the solidified the brand of balance sports itself.
Yeah.
Thanks for taking the questions guys.
Thank you.
Thank you ladies.
Ladies and gentlemen.
A question and answer session and I would like to turn the call back to Chris swiftly for closing comments.
Thank you all for joining US today, if you should need more information or have additional questions. Please don't hesitate to give us a call.
Yeah.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.