Q4 2021 Sinclair Broadcast Group Inc Earnings Call
Yeah.
Good morning, ladies and gentlemen, and welcome to Sinclair broadcast group fourth quarter 2021 earnings Conference call.
At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
It's now my pleasure to turn the floor over to your host Lucy Rudi's Houser Executive Vice President and Chief Financial Officer of Sinclair broadcast group Ma'am the floor is yours.
Thank you operator participating on the call with me today are Chris Ripley, President and CEO .
Rob Whiteboard, President of broadcast and Chief operating Officer, and Steve Zenker, Vice President of Investor Relations.
Before we begin I wanted to congratulate Rob on his promotion very well deserved and the company is extremely happy for you Ralph Thank you.
I also want to point out that on our website SPG I dot net on the Investor information page and on the earnings webcast page you will find a link to access slides to go with today's call now 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 in the company's most recent reports.
Filed with the SEC and included in our fourth quarter earnings release. The company undertakes no obligation to update these forward looking statements. The company is as its website as a key source of company information, which can be accessed at www Dot SPG is dot net in accordance with regulation FD. This call is being made available to the pub.
A webcast replay will be available on our website and will remain available until our next quarterly earnings release included on the call will be a discussion of non-GAAP financial measures, specifically adjusted EBITDA adjusted free cash flow and leverage the company considers adjusted EBITDA to be an indicator of the operating performance of its assets. The company also believes that adjusted EBITDA.
<unk> is frequently used by industry analysts investors and lenders as a measure of evaluation. 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 formulation.
<unk> 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 SPG I thought Chris.
Chris Ripley will now take you through our operating highlights.
Good morning, everyone. As we enter 2022, we are encouraged by the multitude of opportunities that we have to drive growth in the years ahead.
We made great progress in 2021, a year, where we faced some formidable challenges yet emerged as resilient as ever encouraged by the rebound in the advertising environment. The expansion of our already enviable array of programming and content and the advancement of several key digital and other growth efforts more than ever we're connecting people.
With content everywhere.
Before I go further into some of our achievements we have we've made over the last year and where we're headed I want to congratulate Rob whiteboard on his new role of President of broadcast and Chief operating officer of our company Rob has been with Sinclair for almost 25 years and during that time has been an integral part of the company's growth into a diversified media.
Company into which Sinclair has evolved.
Rob and body ASEAN, the innovative and strategic mindset of this organization and I look forward to the accomplishment. She will help drive in the future as we take Sinclair to new Heights.
I'd like to give everyone an update on our cyber incident, we encountered in October as well as the status of diamonds, New money raised an exchange offer that is currently in the marketplace.
On our last earnings call after experiencing the cyber incident, we told you we experienced disruptions in parts of our business, including our local advertisements.
Since then we've resumed normal business operations and have implemented several enhancements to the cyber security measures. We had in place at the time of the incident.
Although we were able to restore our network from backups there were disruptions do part of our businesses following the incident, including certain aspects of providing local advertisements by our local broadcast stations on behalf of our customers.
As a result of the incident the impact on our advertising revenues for the broadcast segment were $63 million as compared to the low end of our guidance range announced in the third quarter earnings release on November 3rd.
We did not have any material financial impact to the local sports segment. In addition, we incurred approximately $6 million of cyber incident response costs during the fourth quarter of 2021 and $5 million to date in 2022.
Based on these known <unk> effects of the cyber incident after a potential insurance reimbursements, noting that there can be no assurance that the insurance policies will pay their full coverage or the timing of such reimbursements.
We estimate that the cyber incident will have resulted in approximately $24 million of Unrecoverable net loss. However that estimate may increase as details of the recovery are still fluid.
In response to the incident, our board of directors formed a cyber subcommittee to provide greater oversight of our cyber security measures and preparedness since the incident. The cyber security Subcommittee has received regular updates from management regarding the status of the response efforts and future cyber security plans such that it can provide oversight of those.
Issues.
We are continuing to execute on our plans to strengthen our existing cyber security defenses with budgetary expenses for cyber security enhancements in 2022 and 2023.
In regards to the status of Diamond $635 million, new money raise which is contingent on receiving requisite consents from diamond's existing lenders and noteholders through the exchange process. The exchange offer was launched on February 14th with an exploration of February or March 14th, Although we expect to see.
Settle up to early settle the exchange offer and the new money to be raised on March one.
Since the exchange period has not yet closed there is not much I can say other than at launch we had already received transactional support agreement signatures, representing more than the requisite majorities needed under each tranche of the affected loans and notes, indicating that the transaction has the necessary support from our creditors.
Now I'd like to reflect on the past quarter, and where we're headed for 2022 and beyond.
On a consolidated basis, we met guidance for adjusted EBITDA, when you, even when including the negative pre insurance impact from the cyber incident, excluding the cyber impact adjusted EBITDA surpassed our guidance.
<unk> range.
Aided by a lower than expected expenses, including $41 million and lower sports rights payments due.
Due to timing that were paid in January of this year.
The advertising market dynamics during the quarter were similar to the third quarter with the automotive category continued to be challenged and with other categories holding up well despite the impact of any crime.
We continue to believe.
2022 will be a solid year for advertising with strong political midterm election backdrop with many highly contested races, and a highly charged political environment.
Current industry expectations for political revenues are to be a record at record levels for then for a non presidential year and we saw the spending begin in the fourth quarter, where it was above our expectations.
With continued strength in the services and sports betting categories and a slowly recovering auto sector advertising rates should see a nice boost in 2022, Lucy will give you more details in our quarter and our guidance for 2000 to 2022 and later in the call.
Certainly one of our more important initiatives for 2022 is launching a direct to consumer or DTC products for all the teams in which we have local digital rights.
With our recent renewals of the NBA and NHL. We currently plan on launching the in 2022, a DTC product that includes at least 33 teams all of the NBA and NHL teams for which we have data rates and five MLB teams.
Our current expectations are for the launch of stream of streaming services with content currently available on our IR Sands for five Valley Sports are sands with MLB teams in the first half of 2022, we expect to launch our remaining Bally sports are sands in the second half of the year as well as the features only subscription.
As you can imagine this is a large project with many internal work streams occurring simultaneously to allow us to meet our launch targets the potential market for DTC product is significant as approximately 83 million households reside in the territories for which we currently have D to C rights.
The product is complementary to other ways in which viewers can access this content in January as part of the announcement of our new money deal and our disclosure of the TSA documents.
Published three cases, showing what we believe is achievable for our DTC business over the next six years under various assumptions.
You'll see in those cases, the number of DTC subscribers contemplated is just a fraction of the overall addressable market.
And all of these cases, the projected penetration rate is significantly lower than the results from a recent survey by morning, consult and analysis completed independent of our process, where 36% of U S. Adults said that they would be interested in subscribing to the regional sports network on a stand alone.
Streaming service irrespective of price.
The DTC product isn't just away for those without leaner subscriptions to access the game and content. It is a start of a new paradigm of how fans can watch and engage with their local teams.
It will be more personalized and interactive sports the sports watching experience offering virtual fandoms, and social communities, where viewers can interact with each other as well as an integrated integrating the world of Nf <unk> and E Commerce.
We launched an NFPA store last week, which will offer original artwork as well as third party collections gamification is another important element, allowing viewers the opportunity to participate and watch them play viewer experiences.
We're partnering with leading gaming and technology companies that engage fans and free to play daily fantasy and where legal real money games.
You can expect to see in 2022 game centers and appropriate sections of each of our platforms platforms featuring multiple game types rewards in prices. The gamification initiative is not just for DTC sports, we intend to integrate gamification elements across all of our platforms.
To give you a flavor of what's happening we have a robust slate of fun and entertaining games on the way, including Valley Boller and valley breakaway free to play games, which give basketball and hockey viewers, a chance to win up to $250000.
In addition, we're launching a new predictor game for tennis channel in March around the Indian Wells tournament after having much success with this game last fall.
For the NCAA basketball tournament, where preparing along with valleys a big bracket challenge that is expected to have one of the largest prize opportunities ever offered is such a contest $100 million if someone picks a perfect bracket.
Other pillar of our fan engagement strategy is that we are building a community in the e-commerce and ft space and that store is live now. So clearly 2022 is going to be an exciting year for our company as we begin to execute on all of these opportunities to engage viewers like never before.
The development and launch of our local sports DTC product will be funded in part by the 635 million new money raise which as described earlier, we expect to close on March one.
Lucy will provide more details on the capital raise and resulting structure as previously disclosed as part of the financial financing transactions Sinclair will also be adding liquidity to the diamond.
Through its agreement to defer approximately $400 million of management fees from Diamond over the next five years.
In addition, we are also exchanging diamond's existing revolver for a second priority lien revolver, reducing the commitments to $227 5 million, which is what is available to be drawn upon today, but importantly, extending the maturity by almost two years to may 2026.
These transactions will transactions will provide diamond with over $1 billion of incremental liquidity to support the DTC product fund general corporate purposes, and strengthened its balance sheet.
What really sets us apart from other media companies is our unique set of assets with a strong diversified portfolio of local sports and news content as well as national linear and digital programming, including new programming. We recently developed that we can leverage across multiple platforms.
In the last six months, we've rolled out three new programs with national reach.
Just last month, we elevated our sports programming, adding two new exciting shows.
The first is the rally a fast paced 90 minute program that airs weekdays at five P M Eastern on our Valley Sports <unk>.
The rally covers all sports topics and is infused with social influencers in our activity the voice of the fan while utilizing Sinclair sports talent from across the organization.
Another new show live on the line powered by bet MGM Erez for an hour at noon Eastern and also on our valley sports our sense, it's a fun fast paced sports betting show targeted at all sports fans, whether they bet or not live in a line combined resources across our entire sports portfolio to deliver up to date bedding information while offering fine.
<unk> unique content for the casual sports fans.
Both of those new shows are indicative of our of our efforts to engage the sports viewer like never before.
Combined with gamification elements, including contest promotions and e-commerce opportunities and an ability for viewers to interact with the programming in each other we're seeking to create lasting viewer behavior changes and increased viewer loyalty.
Our tennis channel and tennis channel plus have significantly expanded their programming now airing every televised ATP and wth Pro tour match in the world as well as renewing Wimbledon coverage for the next 15 years.
Tennis channel International named International platform of the year by Sports Pro OTT launched in several new countries in 2021 and in January of this year added live rights to the WTO, and Germany, Austria, Switzerland, and the Netherlands.
The platform is now in eight countries with more to come in 2022, given tenants is one of the most popular sports globally and the second most bet on sport in the World. We are very bullish on tennis channel's global expansion to become the home for all things tennis tennis lifestyle and interactive gaming.
We expect to debut our first U S market prototype for a one of a kind tennis for money watch in play in Q2 of this year.
We're also focused on elevating our news programming and.
Encouraged by the success of our early morning edition of the National Channel. We added an evening edition of the AV in the fall of 2021 and more recently a dedicated website the national desktop com the.
The National desk features breaking news and compelling stories from our 75 newsrooms across the country.
I've talked quite a bit in the past about <unk>, our nextgen broadcasting and how it can be a real game changer for the broadcast industry.
Besides the continued television station rollout of the technology, which can now be received in about half of the television viewing households in the U S. Our company and others in the industry made significant progress in testing and validation of numerous capabilities during the past year.
These areas include provisioning precision GPS capabilities of the technology, developing and deploying a broadcast app that enables seamless movement between over the air and OTT streaming and demonstrating advanced emergency alerting and distance learning capabilities.
One of the more compelling applications is the movement towards mobile phone deployment.
This use of the technology is a keen interest to us as we seek to expand our reach of our services to people who are on the go and others throughout the world. It represents a rather efficient way of enabling significant functionality to hundreds of millions of users, including those who do not have internet access.
Notably other countries are exploring adoption of the Ats the throughput on our technology trials in India utilizing the next Gen broadcast technology are already underway with a particular focus on mobile applications.
In Brazil, several ATSG throughput out technologies have been recommended to the Brazilian government for deployment.
And even in smaller countries. The new technology is taking hold Jamaica has just announced that it is embracing and deploying the AT&T throughput out of standard nationwide in 2023.
We also continue our leadership efforts at the international Telecommunications Union to update its recommendations approving all aspects of the technology for international standardization.
The data casting opportunity alone are compelling dropped but don't just take my word or even other broadcast is worried about the potential of this technology of third party.
Advisory services recently issued a report seeking to size the opportunity enabled by this technology.
Its conclusion was at <unk> could account for as much as 22% of broadcasters overall revenue by 2030 totaling an estimated $10 billion opportunity.
And with 75% of the country expected to be able to receive the signal by the end of the year and $4 5 million <unk> TV is expected to be sold in 2022 monetization opportunities should not be that should not be far behind.
The market value of our excess spectrum that can be utilized for a PSE. Three now we have valued at $1 7 billion using past spectrum auctions, which we view as a floor for potential value creation from the new technology.
Another area. We are very focused on is ESG and well every quarter. We give you updates on what we're doing to advance in these important areas I thought for this call. It would be noteworthy to highlight our full year 2021 achievements.
This past year, we really start to define measure and report what we're doing.
An organization.
While in the past we have been doing a fair amount in these areas. We are not adequately adequately communicating our progress. So we put forward a formal structure around our activities headed by an executive ESG Committee and supported by working groups for a number of initiatives.
In the environmental area, we are committed to lowering our energy usage through replacing our led lighting HVAC and transmitter equipment with more efficient solutions.
The savings are projected to be significant in the early and in the led lighting alone. We can we believe we can reduce energy consumption by 14 Gigawatts.
We go out hours per year or the equivalent of electricity used by 1300 homes a year also in the environmental area Office depot recognized us as their as they are for their award for leadership in Green purchasing one of only 17 companies who received the honor.
And we continue to seek to increase our recycling efforts starting a pilot for battery recycling at some of our stations.
On the social side, we partnered with over 360 organizations to raise over $38 million collected over 3 million pounds of food and over 400000 toys and backpacks and donated over 500 hours of airtime for public service announcements.
We also awarded seven broadcast diversity scholarship and produced over 160 town halls during the year in the governance area. We expanded our board size and added our first female Board Board Director Lawrie buyer. In addition, we hired our first Chief compliance Officer, and Chief Information Security Officer.
Now an area that we've been quite vocal on is our belief that the market is not that in our stock near the total value of the sum of the parts I've spent a fair amount of time on previous calls going through the value of the various pieces more specifically, we'd like to highlight the value of our investment portfolio, which we believe has it.
Current market value of around $1 4 billion or about $19 per share held at the holding company and available to support future distributions to shareholders.
Included in the $1 4 billion of our investments in real estate venture capital private equity as well as direct strategic investments in companies focused on technology content and advertising all with a total book value of over $365 million and an estimated value at year end 2021 of approximately $740 million or.
Track record with these types of investments has produced a 23% IRR since 2014 and.
In addition, the $1 4 billion also includes our strategic investment in valleys, which totals $12 8 million share equivalents or approximately $400 million in current value after factoring in cost to convert the options and warrants. The final piece of the investment portfolio is the diamond facility valued at approximately 215 million I should.
Also mentioned that we have other assets outside the $1 4 billion portfolio that are part of the broadcast and other business that we report included in these assets our tennis channel can pulse news on and other streaming properties, which together expect to grow meaningful meaningfully in the years ahead.
One can conclude that these assets are worth well beyond just a simple combined broadcast multiple on today's EBITDA for instance, in our compulsory business, we've rolled out our compulsory 60 platform and offering offering SaaS based solution that executes omnichannel campaigns for local agencies and media companies enabling.
Them to run local campaigns at scale, we have businesses that are growing but collectively are operating at a loss pulling the value pulling value from the overall market valuation of our company.
And in addition to our investment portfolio, we have a tax yield with an NPV of $1 1 billion from Arris and purchase.
And the $1 7 billion value I mentioned earlier for the <unk> spectrum opportunities.
Simply put we think our stock is grossly undervalued we've.
We've been repurchasing our stock under a <unk> one plan since November and over the last few months, we've repurchased two 4 million shares in the fourth quarter and another 2 million shares so far in 2022 at an average price of approximately $26. When you consider our buyback versus the sum of the parts analysis.
Which we calculate to add another $60 in share price. This has been a very accretive way to add shelf of shareholder value.
In 2020, we repurchased 21% of our shares and together in 2021 and year to date 2022, we purchased another 6% since the beginning of 2018, we have repurchased 35% of our outstanding shares. Furthermore, based on expected strong free cash flow generation and investment value growth.
The board approved a 25% increase in the dividend rate per share to 25 cents per quarter. This dividend rate is only 12% of <unk> 2021 free cash flow and only 5% of the value of our holding company investment portfolio, which has historically returned over 20% per year since 2014.
Finally, I do want to say that I'm proud of how our employees have been able to persevere through challenging times, helping us become a stronger company as a result, coupled.
Coupled with recent actions that we're taking to strengthen our companys financial our company financially Sinclair is well positioned for the next phase of our evolution into a diversified media company.
Now I'll turn it over to Lucy to go over the financials and our guidance for the year ahead Lucy.
Thank you Chris.
For the fourth quarter results for broadcast and corporate and other.
Adjusted EBITDA for the quarter, when excluding the $68 million of EBITDA loss related to the cyber incident that Chris covered earlier would have beat the high end of our guidance by $12 million.
Adjusted EBITDA in the fourth quarter versus 2000, Twenty's was down as expected due to the absence of political revenues in a non presidential election year and the effects of the cyber incident.
Media revenues for the fourth quarter versus guidance were down primarily due to the cyber incident and were down compared to fourth quarter of 2020, but also due to the cyber incident and the absence of political.
However, excluding those two factors media revenues increased 8% over Q4 of 'twenty on higher core advertising and distribution revenues.
Media expenses were higher in the fourth quarter versus the fourth quarter of 2020, primarily on higher network and other programming costs.
<unk> expenses were favorable helper to our guidance by over $20 million.
On lower than expected expenses across a number of areas, including sales cost open positions programming and timing of operational initiatives.
For the year broadcast and other media revenues were $3 billion $136 million and adjusted EBITDA was $753 million.
Okay.
Turning to the local sports statement as discussed on previous earnings calls distribution revenues and sports rights payments in the local sports segment can be impacted by the actual number of games delivered versus minimum minimum game to guarantees, which can result in rebates to be paid to distributors where we.
Received from the teams.
In the fourth quarter, we accrued $8 million of rebates to our distributors as a result of the NHL moving a number of gains from Q4 into the first quarter of 2022 due to COVID-19 .
The rebate resulted in a reduction of distribution revenues for the fourth quarter.
From a cash payment standpoint, $210 million of distribution rebates are expected to be paid in the first half of 2022.
Local sports adjusted EBITDA for the quarter exceeded our guidance range, primarily on timing of $41 million in sports rights payments that were paid in January rather than our expectation for payments to be paid in the fourth quarter.
Excluding the rights payment timing.
Adjusted EBITDA was within our guidance range and down from the prior year, which included a net net rebate benefit of $120 million.
Media revenues for the local sports statement increased over fourth quarter of 2020. The increase was primarily due to lower rebates to distributors accrued this year and higher AD revenues.
And also on more games than the fourth quarter of 2020, when the NBA and NHL and delayed the start so their seasons.
As compared to guidance media revenues were lower on the $8 million of distributor rebates and slightly higher churn.
AD revenues as compared to pro forma 2019 levels were up 7%.
Local sports media expenses for the fourth quarter were up from a year ago on higher sports rights amortization and production and sales expense due to almost 900 more games played in the fourth quarter as a result of NBA and NHL delaying the start to their seasons.
And fourth quarter of 'twenty.
Media expenses were favorable to our guidance, primarily on lower promotion expenses and timing of the NHL games that moved into 2022, which reduced production expenses.
For the year local sports media revenues were $3 billion and $56 million and adjusted EBITDA was $547 million.
For the consolidated company, adjusted EBITDA, which excludes $19 million of one time expenses decreased to $234 million in the fourth quarter when compared to the fourth quarter of 2020 and was within our guidance range when adjusting for the cyber incident.
Sinclair is total company media revenues for the fourth quarter decreased from the fourth quarter of 2020.
However, excluding the cyber incident, the media revenues would have been up 2% versus fourth quarter of 2020.
Fourth quarter consolidated adjusted free cash flow, which excludes the adjustment for the nonrecurring items was $77 million and exceeded the high end of our guidance revenue.
Yeah.
For the quarter, we had a $1 18 diluted loss per share.
On 75 million weighted average common shares compared to $6 27 up.
Diluted income per share a year ago.
Adjusting for the nonrecurring items the loss per share was <unk> 99 for the quarter versus income per share of $6 45, a year ago.
For the full year 2021 total company adjusted EBITDA was $1 300 million total company media revenues were $6 billion $83 million and consolidated adjusted free cash flow was 653 million were approximately $9 per share.
Now turning to the consolidated company balance sheet and cash flow during the fourth quarter, we paid down $201 million of debt, which includes Sinclair purchase of Diamond a facility from external lenders.
The Diamond facility is now reflected as intercompany debt within their financial statements, which eliminate in consolidation.
We also paid $14 million in common stock dividends.
And as Chris mentioned, we repurchased under the <unk> one plan. The two 4 million shares of common stock in the fourth quarter and another 2 million shares in 2022 through last Friday at an average price of approximately $26 per share.
$117 million now for there is keeping count over the past four years, we have repurchased approximately 35% of our total shares and as Chris pointed out.
Reflective of our free cash flow generation the value of our investments and entering what is expected to be another record political advertising year. The board increased the quarterly dividend by 25% to now $1 per share annualized.
Turning to our cash balances consolidated cash at the end of the quarter was $816 million, including $317 million and STG and $479 million of Diamond.
Neither credit salaries revolver was drawn during the quarter and as of the end of the quarter the balance borrowed under diamond as accounts receivables facility is $213 million.
Total debt at the end of the fourth quarter was $12 $340 million and the net leverage ratio for consolidated Sinclair at quarter end was eight four times.
Sinclair television group's first lien indebtedness ratio was three times on a covenant of four and a half and four three times on total net leverage.
Which is within our target range.
Diamond first lien indebtedness ratio as defined in its existing debt agreements with 12 five times on a covenant of six in a quarter, which only springs at the revolver as strong over 35%.
<unk> Diamond net leverage was 16 times.
As Chris mentioned as part of Diamond New money financing Diamond five and three 8% secured notes would be exchange with an early exchange date of February 28.
Assuming the required consents are received and all closing conditions are met we expect to close and fund the $635 million first lien term loans.
And complete the exchanges on March 1st.
The new loans are priced at L. Plus 800, with a 1% floor you so for term and credit spread adjustments in mature may 2026.
The reason for the upsizing from the 600 million, we announced in mid January is to fund the redemption and make whole premium of Diamond 12, and three quarter percent notes, which is expected to occur March 2nd.
As part of the recapitalization transaction diamond revolving commitments will be exchanged into a second priority lien revolver commitments reduced from 650 million to $227 5 million, which is D available amount to diamond today.
And the maturity of the revolver will be extended by almost two years to 2026 to be co terminus with the new first lien loans.
Now before turning to guidance once diamond new money deals consummated sink.
Sinclair has agreed to annual deferrals of portions of the management fee otherwise payable by Diamond and.
In connection there with the local sports segment will extend the full contractual amount, including the deferral, but we'll add back the deferred portion in diamond calculation of adjusted EBITDA.
The broadcast statement, we'll book revenue for the contractual amount of the management fee less the deferral.
And consolidation both the revenue and expenses related to the management fee will be eliminated.
So turning to guidance for broadcast and other first quarter media revenue is expected to be $803 to $819 million, reflecting mid single digit percent increases in distribution and core advertising revenue and mid double digit percent increase in total advertising.
Revenue as compared to first quarter of 2021, driven in part by political advertising.
As just explained the broadcast statement will recognize the full contractual amount of the management fee less fee agreed upon deferral amounts.
And our guidance assumes that the deferral amounts begin in March when the new loan closes.
First quarter adjusted EBITDA is expected to be 167 million to $181 million compared to $173 million last year aided by the revenue increases, but offset by higher operating expenses relating to network and other programming technology and compensation.
But the local sports segment.
First quarter media revenue is expected to be 732% to $737 million versus first quarter 2021 of 768.
Lower distribution revenue due to subscriber churn and rebate reversals last year is expected to be partially offset by a high single digit percent increase in advertising revenue.
For the full year media revenues are expected to be $3.092 billion to $3 billion $124 million up 1% to 2%.
First quarter adjusted EBITDA is expected to be a negative $1 65 to a negative $170 million, which reflects not only the seasonality of the sports rights payments, which are heaviest in the first quarter and the year, but also the timing of the $41 million.
<unk> from last year into this year.
Adjusted EBITDA is expected to be down from the first quarter a year ago in part due to last year's first quarter, including $86 million of net rebate benefit as well as to continued distributor churn the build out of D C and rights payments escalators.
Full year adjusted EBITDA for the local sports segment is expected to be $266 million to $297 million.
Now, let's compare it to the $336 million, reflecting in our January 13th 8-K filing. The difference is primarily the 41 million timing of rights payments that were paid in January rather than our expectation for them to be made in the fourth quarter and as included in our fourth quarter.
Their guidance.
And then the two months of full management fee expenses since the management fee deferral will not commence until the new financing closes again, which is expected to be March 1st.
Adjusting for those events to $336 million would be $279 million were at the midpoint of our current guidance. The low end of our guidance range, primarily reflects a slight increase in projected subscriber churn while the high end of our guidance.
Primarily reflects higher advertising revenues.
And for the consolidated company first quarter media revenues are expected to be up.
Four 1 billion $5 6 million to $1 $528 million.
First quarter adjusted EBITDA is expected to be a negative $3 million to a positive $16 million and first quarter adjusted free cash flow negative $1 69 to a negative $147 million again that is primarily due to the seasonality of the local sports rights payments as well as the 41 million.
Carryover from last year, and so with that I would like to open it up to questions.
Operator, certainly.
And gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
We do ask that while posing a question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Once again, if you have any questions or comments. Please press star one on your phone.
Your first question is coming from Dan <unk> from the benchmark Company. Your line is live.
Dan Your line is live.
Yeah.
Great. Thanks, good morning, sorry about that.
Just.
Quick housekeeping question, you guys mentioned, the $5 million impact from the <unk>.
Cyber attacks on Q1 was there any is there any revenue ongoing revenue impacts and subsequent to that.
Even ex that how are you guys seeing.
Q1 core pacing relative to 2019 levels.
Yes so.
Dan on the cyber.
Not expecting any further revenue impact that we saw as we mentioned isolated to the fourth quarter.
However, there could be some additional expenses.
We've given you what we know of as of this date, but again.
Everything is still fluid as we work as we work through it.
And then on your second question on the pace for Q1, we're seeing a strong.
<unk> for Q1, Rob can speak to that specifically, yes, we've come out of the box we're very quickly.
I think there is.
Our robust feeling with the pandemic with the downside of Omicron, we're seeing restaurants, we're seeing travel categories up significantly as well as we've gone away from the reliance over the last several years on the auto category and services continues to be our.
Our biggest category and sports betting is that fair.
This growing category.
Got it I'll Echo congratulations Rob on the promotion.
Chris.
Our or Lucy I guess Nexstar made some pretty strong comments yesterday, just around net retrans and given the fact that we've heard.
Third from Paramount now and others.
Theyre asking less on the network comp side and renewals, obviously, you guys skew more towards box. So I don't know if theres going to be a network differential here, but could you just give us your thoughts on sort of the net retrans landscape do you expect net retrans growth this year and kind of what is your long term view on net retrans.
Yes.
Right, we do expect net retrans to grow this year low single digits and.
It is accurate.
In terms of what Youre hearing from other players.
That reverse retrans has grown significantly.
From basically zero about six or seven years ago to quite a significant number.
And so our growth rates have come down.
Quite dramatically and.
That we think we're we're reaching sort of an equilibrium if you will in terms of.
What to expect in the marketplace. So that's a good thing and.
We think last year, we did have a small decline in net retrans was an aberration.
Got it.
Sneak one more in Chris.
I remember, having this conversation I don't know whatever it was a year ago just around the buyback.
After you guys had just bought in.
Felt like half the company at the time and it was less than that but certainly given the float.
A substantial portion.
Now you've kind of resumes that.
At a higher level than when you did previously exciting either.
Sort of the ongoing opportunity so I guess.
I don't know how to ask it other than sort of what's changed between sort of the pause and now with it just thoughts around how much you would have to spend around DTC and sort of just the cash flow balances at this point or are you just how do you just have more visibility that you have.
Incrementally more confidence that now is a good time to start resuming the buyback and should we expect it to remain ongoing as long as the stock remains at these levels.
Sure look we did buyback a lot of shares.
In 2020, and so we took a pause reevaluated.
It's very apparent that our stock is grossly undervalued. So we.
We're back in the market and then when we look forward.
The free cash flow profile.
Specifically out of coming out of the broadcast side is very strong.
Coming up and our investment portfolio, which we highlighted in the call has grown to $1 4 billion or about $19 a share and that portfolio historically since 2000.
2014 has returned over 20% per year. So when you think about.
That much capital, creating at 10%, 20% plus a year.
It more than easily pays for cigna.
Significant shareholder return policies.
Alright, great. Thanks, guys like 15, more but I'll step back into the queue. If everyone here. Thank you.
Thanks, Dan.
Thank you. Your next question is coming from Steven Cahall from Wells Fargo. Your line is live.
Thank you maybe first I just wanted to understand some of the new transactions between Sinclair and Diamond. So did I hear that you are putting cash into the accounts receivable facility.
And then Lucy thanks for running through that stuff on the revolver, but that was another one that I was just a little confused and how that's going to work between Sinclair and Diamond is that an inter company debt as well or is that still in the diamond silo.
And I guess with those in the management fee just wanted to make sure that we understand everything that might be changing in relation to the relationship between Sinclair and diamond.
Okay.
I'll take the <unk> question so.
That is at floating facility that depends on the amount of that is put into the facility as collateral and so you should expect that to sort of move around.
And we're happy to make those loans is it's a it's a nice <unk>.
<unk> credit profile and good return for Sinclair. So Tejas is expect that balance to move is the amount of <unk>.
That gets put into collateral changes and I'll, let lucie address the other questions yeah, So Steve on the revolver. So.
The.
S T G and DSG each have their own revolver with the banks and so nothing is in our company between the two of them for that all we did as part of the upcoming transaction is we've reduced the commitments, which timing couldnt borrow anyway, even with paying unused.
Commitment fees on.
And we extended the maturity there, but the amount that diamond can borrow under that which was the $227 5 million that does not change that is fully available to it.
And then your question on the on the management fee you had a question.
No that wasn't your question, just making sure I understood. All the parts that that was very helpful. Maybe also then just on the Bally shares.
Is the 400 million what is currently invested because they know there's performance warrants as well and given the pending transaction for valleys to get acquired I was just wondering how that changes your investment position do did everything strike when that happens or are you may hold or does it leave some potential performance warrants that you won't be.
<unk> to perform into given that transaction.
So.
It.
It's all of our position when we cite $400 million.
There is still some performance triggers which are fairly low so as I've stated in the past the time a period of time that we have to achieve those.
And given where they are we think there will be easily achieved.
That being said the change of control does make those performance triggers fall away.
If that changes we'll happens then we'll be essentially fully vested.
And we're excited by.
The the transaction that was announced.
For about for Bally to reduce its outstanding shares and that means our implied ownership would go up in a company that we love we think it's going to do great things in the future. So we're very bullish on that position.
And then just the last one for me on Diamond the guidance for 2022, it's below the three cases that were in the information provided with the January transactions. I was just wondering if you could help us bridge that a little bit is that higher DTC investments is that some of the expectations on linear or just outright conservatism just.
Thinking about those three cases and you came in below all three of them, So would love to understand that better.
So.
So without getting into the cases, which.
We can do.
<unk> two but those are all in the.
In the 8-K that we filed but.
So case, one which showed the $336 million or guidance. If you take that rights payments to $41 million of rights payments that we had we thought we were going to pay in Q4, but has now crossed years.
Take that plus.
The $3 36, and it assumed the deal was going to close earlier than March one so wanted to add.
It had two months more of deferral of management fee. So if you adjust for those two things that 236 would be $279 million and so that is at the midpoint of the guidance that we gave you.
And again, the low end of the guidance is.
Slightly higher subscriber churn and the high end of the guidance to that number is higher advertising revenue, but again it is.
It's really just.
Most part is just timing, which crossed years that's all.
That's helpful. Thank you.
Hmm.
Thank you. Your next question is coming from Lance Vitanza from Cowen Your line is live.
Thanks, guys. Thanks for taking the questions.
I wanted to ask you the the.
Recap transaction at Diamond do you think the additional liquidity will be adequate to.
Ways Mlps concerns about the financial viability of the artisans the narrative that's out there of course is that.
The reason that major league baseball has been dragging its feet in terms of.
Embracing diamond for a direct to consumer has to deal with Theyre just comfort around liquidity at diamond.
Have you had conversations with them, obviously I'm aware that MLB has bigger fish to Fry right now I'm wondering if you've had any feedback from them with respect to the balance sheet work you've done.
So look it's not appropriate to comment on active negotiations.
I do think generally this transaction and the amount of liquidity that's going in Diamond does answer a lot of questions for for people in the ecosystem. So it's a very very favorable.
Outcome and puts diamond in a very positive.
<unk> financial position for years to come.
I would also point out that we've been steadily and consistently adding teams on the MLB side with the most recent of which was this last January this January so.
The.
We have had success.
Over the last two years, continuing to gain more and more rights from MLB teams.
Great and then on the Bally sports App I'm wondering if there's anything in particular that youre learning from consumer usage of the app or is it possible to discuss any of the usage trends in terms of discrete kpis number of users time spent that type of thing.
Yes, I'll be able to give you some insights.
More on the activity is that what we're seeing is pretty level activity from the website mobile app and connected TV.
No surprise to anybody is that connected TV, we will have more time spent viewing.
Followed by the website and then obviously because of the mobile charges.
People come in and out of that but from a monthly average unique standpoint. They are all fairly even for usage, which goes with our 360 approach too intertwined.
Our viewers flash.
Potential consumers in and out of the App.
It's proven in our Petri dish with some of the predictive and fantasy games that we've launched that there is that leaning forward wanted to participate.
In those type of games and to only get better as we take our learnings I think what's also important to know it.
Is that the current App is just TV everywhere.
When you go direct to consumer is vastly changes the dynamic in terms of.
The amount of usage and.
And.
What what what people how they engage we think will be quite different.
Great and if I could just squeeze in one more question I think the charter deal that you have diamond is up for renewal later this year could you clarify the timing.
And whether that is just the <unk> or the <unk> plus Sinclair content that would renew and any thoughts on.
On what that renegotiation looks like.
Well again, we don't comment on active.
Negotiations as a matter of policy.
It is coming up soon and it is for.
All of our content.
Thank you very much.
Thank you.
Thank you. Your next question is coming from David Hamburger from Morgan Stanley . Your line is live.
Thank you very much good morning.
If I could two questions one I just like to piggyback on this last question that was asked.
Last spring I think Chris you had said about the dish negotiations last year.
You've had tremendous success with the traditional mvpds when you come with the entire suite of our programming on offer.
And I think even highlighted in fact, we have been successful with all of them under that circumstance, except for frontier that filed for bankruptcy. So it would be a very pivotal time I think as you said.
Around the time in November when you announced the renewal of our retransmission.
Revenue agreement with dish without resumption of carriage on the RSA.
Things that I guess that the staff.
But you took in those negotiations.
Quite bear fruit.
John Malone was actually on CNBC around that time.
I asked about direct to consumer sports rights.
Agreements and going direct to consumer with sports and I think you said quote unquote gone are the days when charter and Comcast and the cable companies are going to be extorted.
Hi programming fees and programming costs and.
Now you are sitting here in negotiations with charter I think as you mentioned the new paradigm with your subscriber base is to roll out direct to consumer offering I think two of those markets actually the five baseball markets our charter markets.
And I'm wondering if you can.
Within your guidance I'm sure you've made some assumptions with regard to what.
You're assuming around this charter renewal, we also noticed that the programming and incentives I'm sorry, the management and incentive fees in your DTC cases go up like $40 million plus this year when they have been fairly steady and then it looks to be fairly steady otherwise.
I'm wondering if you can kind of highlight for us and thats, including the deferral and the cash.
Was wondering if you could kind of characterize exactly how the relationship with traditional mvpds like share now with charter the new paradigm around direct to consumer how are we supposed to think about the trajectory for the linear business.
As you look to kind of maintain kind of that ecosystem and yet embraced this new direct to consumer paradigm and how are your partners like the distributors are going to be factored into that.
Great. Thanks, David look everything I said decided before as was true then and it's still true today.
We have renewed on a SaaS basis, all of our traditional and the PD.
Our relationships with when we bring all of our content. The table dish was an outlier and that they had dropped Dr. Sands before we owned them and they've been off for two years and so and they also don't have a bundled offering and so there's just a lot of differences and they're also very rural.
They are outside of the fan zones that.
Care the most about these teams.
So.
Yes, we continue to have confidence in as I said before as a matter of policy we can't.
No comment specifically about an active negotiation in terms of the rights fees I mean, the management fee question.
The way that works is.
As renewals kick in.
At that Sinclair had negotiated in some of those renewals were sort of forward renewals. If you will so.
When old contracts rolled off and rolled into.
New contracts that were forward renewed win when our broadcast stations came up.
On a commission on that work was due and Thats why youre seeing the increase in the fee.
That from 2021 to 2022.
Okay, and then I guess a separate question then around the sports streaming rights.
I noticed that you signed an agreement here in January with the MBA.
One year with three successive one year renewal offers subject to compliance with the agreement I'm wondering if you could elaborate a little bit about im sure youre not going to disclose exactly what compliance means but is it fair to say that if you are not in compliance with that agreement within one year and then the MBA can take those streaming rights distribution.
Keep them on their own.
Thank you.
Yes, the more accurate way to do that if there was noncompliance then there just wouldn't be this automatic offer of a renewal so that doesn't mean that there may not be some other form of renewal.
And is that compliance like number of subscribers from certain financial commitment that Sinclair diamond sports needs to make.
Liver that product into the market.
Because my understanding is it's one year from January you're still going to be kind of in the middle of the season.
The NBA season.
Again without getting into specifics on what the compliance is because thats confidential.
There, it's a fairly low.
Bar in terms of staying in compliance.
And just wonder if I can one last question.
The MLB, there's some press reports about additional MLB teams may be looking to do streaming.
Do you have any hopes or are you optimistic.
Mentioned five markets in the press release are you optimistic we're getting any other markets again, assuming we havent MLB season that starts on time.
Any comments there.
Yeah, No no we are optimistic and we over the last two years, we're batting 1000 in terms of renewals and and.
And we most we just recently added.
The digital rights the DTC rights for a team just this January so.
It's.
It takes some time, it's sort of a team by team.
Situation, but we have.
Our history would tell us that.
We will be successful there.
Okay. Thank you very much.
Thank you. Your next question is coming from David Karnofsky from J P. Morgan Your line is live.
Alright. Thank you, Chris just given the volume inside into the investment portfolio. How should we think about your plans to hold these assets long term or the strategic to you or could you potentially monetize some of these in the coming years and then maybe one for you just given some of the risk around the MLP suitable means to.
To meet me reminds us that diamond will be impacted if there was believed parts of the season or what we cancelled two of them.
Sure. So in terms of the investment portfolio. There are some strategic investments in areas like for instance, the bally stake.
Play fly is.
Another company in the sports Arena that has done exceptionally well for us.
We look to monetize those as they reach.
Optimal values and so.
We look at that portfolio for more of a pure investment perspective.
Though there is definitely strategic strategic tie ins to various parts of our business in the portfolio.
Yeah. So.
Regarding the lockout, so it really depends on how long that that last.
But it should follow the same path as it did.
Doing curve it when games professional games, where we.
Our cancelled so as you know we have minimum game guarantees from the teams and then we have some to the distributors. So again really just depends where it ends up in terms of there is getting triggered but.
As a reminder to incur that when there is did get triggered it was a net net benefit to diamond.
Okay.
Thank you. Your next question is coming from Aaron Watts from Deutsche Bank. Your line is live.
Thank you just a couple of questions for me first on the station side looking at core can.
Can you talk about with a little more granularity what the auto category was up or down in the fourth quarter, how it how it is trending in the first quarter and your current view on when or even ask.
To recover to pre pandemic levels of spend with the stations.
Yes, I can answer there.
It was pretty consistent.
With where it was trending down.
Expect.
The turnaround in auto to be sports.
Towards the return around third quarter of the chips.
Start to flow into the Oems.
Become less reliant on automotive.
Talked about.
As.
Our focus is.
Omnichannel solutions, and we've been able to offset some of the chip shortage through our automotive.
A segment that we have within the company that's run by folks from the auto industry.
So.
From a pure 30 seconds, we were trying to move away from just that reliance on the 32nd spot but.
On the broadcast side, we see the returns coming about starting beginning third quarter cautiously optimistic on the sports segment.
It's down.
The high single digits, because its rely more on tier two tier.
Tier three from the broadcast side.
Okay that makes sense. Thanks.
Shifting over to the Diamond side.
Curious if theres been any revival or potential for near term revival of discussions with the major OTT streaming distributors to come.
Back into the fold.
We saw NBC Universal recently renewed carriage with Youtube for both their stations in hours and so I didn't know if that that may be a new template for you to perhaps reengage with with diamond.
Sure and we do have active dialogues with all of those players and opportunities and discussions.
Do come up.
But.
Our guidance does not reflect any additional carriage from front of mind for many of those players.
Okay got it.
One last one for me.
Looking forward.
Recent.
Liquidity enhancing transaction did a drastic unsecured portion of the diamond capital structure.
Which continues to trade at a substantial discount to par value given some of the tighter restrictions in the new credit documents that are going to go into place what flexibility do you have going forward from a liability management perspective to capture discounted trading levels and reduce the quantum of debt outstanding and the interest burden.
On the company.
Yes, so what.
What I would say they are Aaron is look at.
It's our goal to Delever diamond overtime.
But.
First we need to get through this transaction get it closed.
Again get <unk> up and running which will our expectation and as you see through the various all three cases that we've released will be EBITDA and cash flow generating over time.
So that that I would tell you is the goal right now.
We have two two major things in front of us that we need to get launched here.
New money rates, and then launched the DTC.
Okay. Thanks, Lucy thanks, everyone.
And then one last thing is just to give you.
Our perspective of why we're bullish on where <unk> is growing.
On the core and are not reliance on auto is.
Our guidance is that we'll be plus two to plus six versus <unk> 19, which is the last normalized year. So we've made that pivot as a company.
I'm happy to say, where we'll have that guidance of plus two the pluses.
Okay great.
Thank you that concludes our Q&A session I will now hand, the conference back to Chris Ripley, President and Chief Executive Officer for closing remarks. Please go ahead.
Thank you.
In 2022, we have had a lot we have a lot to be excited about with with a growing investment portfolio, a projected record breaking midterm election year, and a higher and growing dividend. In addition, we have several major initiatives that we will be advancing in the year ahead, including continuing to build out HFC throughput now continuing to.
Expand our desirable content growing compulsory 60 in launching our new DTC offering.
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.
Okay.
Thank you ladies and gentlemen that concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.