Q1 2022 Sinclair Broadcast Group Inc Earnings Call
Ladies and gentlemen.
Welcome to the Sinclair broadcast group first quarter 2022 earnings call.
At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments. After the presentation. It is now my pleasure to turn the floor over to your house.
Lucy Lu just housing the floor is yours maam.
Thank you operator.
On the call with me today are Chris Ripley, President and CEO , Rob why sports President of broadcast and Chief operating Officer, and Steve Zenker, Vice President of Investor Relations.
Before we begin I want to remind everyone that slides and supplemental information for today's earnings call are available on our website S. P. G. I dot net on the Investor information page and on the earnings webcast page 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 the.
First.
The company undertakes no obligation to update these forward looking statements.
The company uses its website as a key source of company information, which can be accessed at www dot SPG I thought that in accordance with regulation FD. This call is being made available to the public a webcast replay will be available on our website and will remain available until the next quarterly earnings release included on the call will be a discussion of <unk>.
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 is frequently used by the 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 our formulations. The company does not provide reconciliations on a forward looking basis further discussion 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 don't know, Chris Ripley will now take you through our operating highlights.
Good morning, everyone and thank you for joining us today two weeks ago, we notified the investment community via an 8-K filing that we would be deconsolidation diamond from our financials. This is a consequence of diamonds, new financing, which dictated how diamond board of managers will be selected in certain significant operating decisions approved.
While on the surface. They may this may seem to add complexity. We believe it will result in a more simplified transparent and focus valuation credit story for our various stakeholders.
While diamond will no longer be included and Sinclair is financial results beginning on March one 2020 till you Sinclair continues to own nearly 100% of the equity of Diamond and the deconsolidation is not intended to indicate a change in our commitment to diamond success or a change in diamond future business plans.
I'll turn it over to Lucy to speak more about the mechanics and implications of a deconsolidation.
Thank you Chris.
The deconsolidation of Diamond is it required GAAP accounting treatment and all impacts from it are noncash in nature.
The data deconsolidation was March one 2022, which was the date the diamond first lien financing closed.
The deconsolidation of Diamond resulted in a noncash gain of approximately $3 4 billion, which was primarily driven by the fact that diamond was in a net liability position at the time of deconsolidation.
Post March 1st Diamond is accounted for under the equity method of accounting and as a reminder, DSG is a separate debt silo, which is nonrecourse to Sinclair.
In addition, marquee will be deconsolidation from diamond financials as of March 1st and will be accounted for under the equity method of accounting.
Later today, we will file a form 8-K, which will contain pro forma financial statements for the year ended December 31.
One, reflecting Sinclair as if deconsolidation of diamond occurred as of January one 2021.
On our website, we've included supplemental and historical pro forma numbers for Sinclair. So you can align your models.
If you have any questions. Please reach out to our Investor Relations Department.
Because of the deconsolidation our earnings releases will no longer include guidance for Diamond as you saw in this morning's release however.
However, our website will include some high level estimates as well as diamond quarterly and annual financials, which we will continue to post there each quarter.
Lastly, the format of our earnings calls will change today, we will bifurcate the call and do a Sinclair only portion addressing Sinclair is pro forma results.
I would buy a diamond portion of the call.
Next quarter, we will have two separate calls we remain committed to continuing to provide financial information and commentary regardless of the format.
I'll, let Rob and Lucy go over the first quarter of operating and financial results in just a moment, but first I would like to give some strategic comments or.
Over the last few quarters I have talked about the value of our investment portfolio, which we estimate is over $18 a share. The portfolio is made up of investments in real estate venture capital and private equity holdings and direct strategic investments in companies. One comment we've heard from investors is whether we can or are willing to monetize that.
The answer is of course, we are which is clearly evident from the monetization of our investments even in years in recent years.
For example in 2022 year to date alone, we've monetized approximately $40 million of investments generating an annualized return.
30% and a multiple on invested capital of one eight times all three of these investments were acquired within the last three years not only do we continue to be opportunistic in monetizing. These investments above just a simple return, but our initial thesis to enter into them as often steeped in how we can how they can strategically benefit us.
And the future direction of the organization.
Thank you. Your labs is one such example that I will talk about in a moment and keep in mind, our investment portfolio as a whole has generated an approximate 24% average rate of return since 2014.
One of the recent holdings to which we've agreed to monetize our investment what Sankey labs in March It was announced that St and entity for which we had held at 49% interest was being acquired by tightest networks.
An Indian based technology company, which produces optical and data networking products and majority owned by Tata Group.
You might recall, saying here is a valued partner of ours that is developing chips for mobile devices for use in receiving a T S. Each point out Broadcasting's Ted.
This will be the first will be will first be acquiring a large portion of <unk> followed by our merger with the rest of the <unk> in the future.
The result will be an initial cash payment to Sinclair of $22 million monetizing a portion of Sinclair ownership with Sinclair eventually expected to hold one 5 million shares a tightest networks. After the merger is completed.
So I just networks is publically traded on the National Indian Exchange and a $1 5 million shares would have a value of about of about $9 million at current price and exchange rate. This is an IRR of over 30% over the two and a half year your investment periods.
An additional value for the transaction is it saying he had gains a new parent company, Tata, which had significant redirect resources and is committed to driving continued progress and innovation, especially around nextgen has potential in the Indian market and globally.
We certainly look forward to continuing to work with thank you Ted and Tata in the future.
The hidden value in our company goes beyond our investment portfolio.
Other assets like tennis channel news on in compulsory 60 carry meaningful upside that should be valued above the standard broadcast multiple.
You can expect to hear more about these important assets going forward with increased transparency around both their operating results and our growth potential in the years ahead for.
For those of you not familiar with compulsory 60. It is our marketing technology business that offers a SaaS platform combining sales enablement order management fulfillment and analytics into one consolidated solution for local media companies agencies and small businesses.
Compulsory 60 has grown significantly over the last three years aided by acquisitions and organic client additions. It's revenue is expected to surpass $100 million. This year, driven by the rollout of incremental capabilities, including a new planning tool streaming integrations and location based advertising in a self serve OTT solution, which will in.
Kris its appeal and Brian its market potential.
The key takeaway is that we have significant value in our company beyond our broadcast business. We remain committed to monetizing our holdings through a number of different avenues with an eye towards adding value for our shareholders either directly or indirectly.
Okay.
I would now like to point out a couple of our ESG initiatives, we are working on around reducing our companies and our viewers impact on the planet, We launched our battery recycling pilot at a number of our locations in April and also ran a public service campaign with all of our TV stations and <unk> for Earth day in the month of April encouraging viewers to us.
Cycle their batteries by dropping them off at batteries, plus a partner of ours for the campaign or at other recycling locations.
He also switched to notice and access for our annual report this year, reducing our printed paper counts by approximately 90%, which reduced our annual report and proxy costs by almost 50%.
Also I want to say that we are honored.
That number now and Dr. Ben Carson and experienced board director and former U S. Presidential primary candidate and former Secretary of the U S Department of housing and urban development has agreed to stand for election to Sinclair as board of directors in June as we continue to seek out those with.
With diversity of thought experience and skills to strengthen our company.
On the Nextgen front, we had a very exciting Nab conference.
<unk>, our Nextgen was the main attraction and we had announcements and demonstrations around its many use cases, including precision GPS.
Just a couple of weeks ago, we announced an important partnership with U S. S. I global together, we are offering a pilot of the first commercial data casting use of Nextgen in the U S. U S. ESI global utilized nextgen technology to bring curated content and targeted advertising to its electric vehicle charging stations, while allowing for.
Or the collection of audience data and impression based analytics.
This is the first step in a new area of business for us data delivery as a service. We expect this will be an attractive source of revenue for generation for revenue generation in the years ahead. While this technology can be utilized in many ways across many different industries. The electric vehicle opportunity alone is significantly.
Again.
The U S Department of transportation has earmarked $5 billion towards the goal of 500000 EV charging stations nationwide by 2030 to meet the surge in the production and demand of electrical vehicles, which has already commenced.
On a higher level. This is a significant announcement that validates the digital promise that there are ancillary services that can generate incremental dollars for broadcasters. This is a first small step to opening that door to future possibilities in many different use cases.
Another aspect of Nextgen.
That will be critical to our success and its and the development of the tools to allow the emerging of broadcast and broadband services. Sinclair has contributed significantly to the creation of a solution that all broadcasters was able to utilize.
This technology will allow efficient use of channels to maximize data business opportunities.
And we have greatly invested we have invested a great deal of time and effort to develop the technological tools to enable consumers to access broadcast or internet content through both fixed and mobile devices and at the same time have space left to deliver other content or data.
We are committed to ensuring that this access is available to all parts of the ecosystem. This explains why we have decided to develop and deploy a broadcast app open to all via a free open source license a common approach utilized across the entire broadcast industry will be the most efficient and effective way to promote consumer adopt.
<unk> and help all parties monetize the significant opportunities Nextgen offers.
I'd now like to turn it over to Rob a wise Ford, our Chief operating officer, who along with Lucy will go over Sinclair as first quarter results.
Good morning, everyone. My commentary in this section will strictly be related to our broadcast and our other businesses.
The year started strong with first quarter pro forma media revenue up significantly over the prior year and at the top end of our guidance range political is tracking above our expectations and we look forward to 2022, having a record midterm elections Beth.
On the content front, we continue to build our viewership for the national deaths with its 36 hours of programming each week.
We recently launched an hour long weekend edition.
I'll be debuting a daily T&D, whether program, which will start on our digital and social platforms before expanding to linear later in the year.
And our award winning news programming continues to garner recognition, winning 60 awards so far this year.
Its fourth consecutive year of being honored with the prestigious <unk> Award for the outstanding investigating reporting this year. It was <unk> box, Baltimore, which one for its reporting on Baltimore's public school system.
<unk> has won three our IR He's awards since it created its investigative news team in 2017.
On a cumulative basis Sinclair has won over a thousand awards over the last three years, everyone. At Sinclair is proud of our news team and their dedication and results to serve in the Butler.
Our tenants business.
Download fast channel to launch the Samsung Tvs during the quarter, putting in new tennis channel product in front of a platform. That's been reported to reach 25 to 30 million viewers all Samsung Tvs made since 2017, Gary the channels to viewers.
During big events like the French open Miami opened.
T twos, given the prominent position at the front of Samsung.
<unk> channel lineup.
Two carriers unique live coverage year round that is not covered tennis channel and tennis channel plus <unk>.
China, plus streamed hours more than doubled and authenticated streaming of linear tennis channel was up 170%.
Hughes increasingly watch tenants on a cross platform experience in April we rolled out our second tenants predictor game, a free to play game in conjunction with the Indian Wells Tony.
And we will be adding new features for future tenants gamification efforts and fat.
We will continue our work on integrating teams centers in game zones across all our platforms, including our websites encouraging participation and creating incentives like earning points that can be used for prizes.
Exclusive content experience not available anywhere else.
I'll conclude my remarks by noting how pleased we are with the renewal of our multiyear distribution agreement with charter, which includes our local broadcast stations the tennis channel. The 19, Bally sports our sins marquee and the yes network I'll now turn it over to Lucy will delve deeper into Sinclair financials.
Thank you Rob.
Given the deconsolidation of Diamond on March one of this year and in order to have a meaningful discussion around comparative results and trends I'm going to speak to the Sinclair only pro forma numbers for all periods, which excludes dispositions made in 2021.
And does not include diamond and any intercompany transactions with them.
But for actual results, including the two months of this year. The Diamond was consolidated please refer to this morning's earnings release.
After the deconsolidation of the local sports segment Sinclair will now be synonymous with what we have called broadcast and corporate and other on recent earnings calls.
There are supplemental slides and pro forma is posted on our website to assist in your modeling and analysis and as mentioned earlier. This portion of the call is only for the broadcast segment and other incorporate the local sports where diamond resorts will be handled in the second portion of this.
Conference call.
Media revenues for the quarter were at the high end of our guidance range and up 9% versus the same period, a year ago on a pro forma basis, driven by higher distribution and political AD revenues disc.
Distribution revenues increased 7% versus last year and beat the high end of our guidance range, primarily due to more favorable revenue from the virtual distributors.
Core advertising increased 3% in the first quarter compared to the same period, a year ago and was in line with our expectations, while total advertising revenues increased 7% over last year.
Although media expenses were 7% higher in this year's first quarter versus last year. They were favorable to our guidance on both timing of expenses and lower news and G&A cost.
Adjusted EBITDA for the quarter grew 14% over the first quarter of last year and more than exceeded the high end of guidance.
Earnings per share for the quarter, excluding diamond for the two months to noncash deconsolidation gain and other adjustments was $1 23 per share.
Adjusted free cash flow of $176 million in the quarter.
Our $2 40 per share also came in stronger than our expectations and grew over last year by 48 million selling.
So in short this was a very strong first quarter for us.
As Chris pointed out with the Investor focus on Diamond for the past two years, it's easy to overlook that this is the 14th of the last 16 quarters, where S. T G met or exceeded media revenue and adjusted EBITDA guidance.
The two outlier periods were due to the cyber incident and the initial impact of Covid in Q1 of 2020, and I think you'll agree that meeting or exceeding expectations for all but two quarters out of the last four years has a strong track record of delivering on X.
Spectation.
Our liquidity and balance sheet remained strong with $521 million of cash at the end of the quarter.
And with an Undrawn revolver, our liquidity was almost $1 2 billion at quarter end.
Total debt at the end of the first quarter was $4 4 billion in Stg's first lien indebtedness ratio on a trailing eight quarter spaces was two nine times on a covenant of four and a half and four three times on a net leverage basis through the bonds.
Which continues to be in our target range and better than many in our peer group.
Of our $176 million of free cash flow generated during the quarter $7 million was allocated to debt repayments and $18 million to common stock dividends and if you recall on our last earnings call, we announced a 25% increase to the quarterly dividend rate per share.
We also resumed our <unk> one stock buyback program during the quarter repurchasing since our February earnings report, another almost one and a half million shares.
Year to date, we have repurchased a total of three and a half million shares at an average price of 26 60 were $94 million of buybacks.
Our repurchases were almost 5% of our 2021 shares outstanding.
So when you consider our first quarter free cash flow over 65% of it has gone towards debt repayment and shareholder returns.
Turning to our second quarter guidance, we expect a another strong quarter for political which is the main driver for media revenues, increasing approximately 4% to 7% versus pro forma second quarter last year.
Second quarter total advertising revenue is expected to be up high single digit to low teen percent versus Q2 of last year.
Second quarter, adjusted EBITDA is expected to be $153 million to $170 million compared to 193 million pro forma last year.
While total advertising and net Retrans are expected to grow in the quarter. The lower amount is primarily the result of technology and infrastructure upgrades management fee deferral and marketing content and Nextgen initiatives.
Free cash flow for the second quarter is expected to be $246 million to $266 million were $3 46 to $3 74 per share for the quarter and so with that I would like to open it up to questions related only to the broadcast and other.
Segments operator.
Ladies 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.
He asked that wall posing your question you. Please pick up your handset if listening on a speaker phone to provide optimum sound quality. Please hold while we poll for questions.
Thank you. Your first question is coming from Aaron Watts of Deutsche Bank Aaron Please pose your question.
Hi, everyone. Thank you for having me on I've got a couple of questions I wanted to start on the advertising side I apologize if I missed this but did you say what core was pacing in the second quarter and then beyond that are you seeing any signs that inflation or other concerns around an economic slowdown.
Recession looming.
<unk> are impacting advertisers spend or commitments or buying decisions from your partners.
Yeah, Aaron this is Rob I'll answer it.
Currently we are watching for the inflation what.
But we haven't seen the results of softening at this point, but.
Factoring in what we're looking at to ensure that we're covering our basis in case inflation sets in.
The core guidance.
We will be there.
We will.
While our revenues were in 2018 in 2019.
Okay got it and then <unk>.
Secondly, Chris on the last call you commented that net retransmission fees for the station group, we're expected to grow in the low single digit context for 2022 with the charter renewal now completed can you update us on that metric is that low single digit net retrans growth rate impacted for this.
Year end.
If you are comfortable maybe.
Maybe what youre expecting for net Retrans growth next year as well.
Sure.
So we did exceed our expectations on on the charter renewal.
That being said the overall net Retrans guide for this year will still be low single digits.
And Aaron if I can just stop it and if I can just come back to one thing that Rob talked about the.
The total revenue total AD revenues is too we're looking at that to exceed 2018 2019 Q2.
Which I think is particularly important area and as everyone can appreciate that.
Those are both unaffected pre pandemic quarters, and 2018 was a political year as well so.
Obviously political is coming in very strong like we mentioned and.
And we're setting up for a great year.
Then you should note that both issue and candidate money is very strong.
Since the beginning of the year, which will bode.
Obviously.
Some crowd out, but we will have.
Rates increases due to the demand for our inventory.
Okay, that's encouraging and Lucy.
Rob is the what you said about core is still true that it should still be up versus those prior periods.
Yeah.
Erinn on pricing a little bit down to those periods just for what Rob said, which is that we're seeing in.
Political in the second quarter is running a lot hotter than it had in 18 and so we are seeing in certain day parts. Some crowd out effect, but that's all good thing because at the end of the day. The total AD revenues are pacing up.
Got it okay, and less about the kind of AD environment more about the kind of political crowd out.
Yes.
Yeah.
If you look at house, the strength of our stations in Texas, Ohio, Pennsylvania, Youre seeing expense of spending.
So that crowd out will actually affect our core business.
Okay great.
Stop there and jump back in queue. Thank you.
Thank you.
Thank you for.
The next question is coming from Dan care enough of the benchmark company, Dan the floor is yours.
Thanks can we just dive a little bit deeper into the core commentary just around category strength.
What you guys are seeing.
It doesn't sound like any of the March.
National weakness is filtered over into local but and it sounds like given some of the strength in sports ratings. The sports betting is still pretty healthy. So maybe just some category color from what youre seeing in the backstop. Your commentary there would be a good start and I got a follow up thanks.
Yes.
As we've stated over the last several calls our reliance on auto.
Has been mitigated by.
Our focus is in the service retail.
Food categories and those remain strong.
And so that.
Bodes well for when auto does return and we expect it to return we've spoken to many large tier three auto groups and they are holding onto their co op money to spend when the chip shortage is solved.
The expectations are now towards the end of 2022 into 2023.
So.
The political crowd out it increases our liability to go into even 'twenty.
Got it and then just on the Retrans.
So maybe more academic given Chris that's around.
The charter renewal and low single digit net.
Help us understand so most of my commentary the virtual drove the upside and you guys are pretty substantial upside in Q1, I don't know if theres any other noise from you guys resetting some of your prior deals.
Our leaders on Jan one.
Or if there was something else junior I don't know if charter.
He is going to be if youre going to have a true up given that the deal was pushed out can you help us think why there would be a step down into Q.
Sort of the significant upside in Q1, I'm, just trying to understand the dynamics of what's going on.
Yeah. So.
So we did have.
Some estimates in for the charter renewal in our Q1.
So that was already taking into account we did see some some strength in some of the Virtualized as I mentioned in Q1.
However, we are seeing on some of the traditional mvpds a couple.
Couple that have reported recently.
A little bit of <unk>.
Softening in their churn so we've taken that into account in the in our estimates.
Then maybe just I guess loosely would help just in terms of the cadence of the year just remind us what else is up the rest of this year.
Yes, so nothing nothing major.
For the rest of this year and in fact, not the major really for the next call. It you know.
18 months.
Okay, I guess I'll ask get back in the queue and ask questions on the second half of the call. Thank you.
Okay. Thank you.
Okay. The next question is coming from Stephen Cole.
Steven the floor is yours.
Thank you.
So thanks for giving the free cash flow number for the quarter.
Just curious if that's something you might think about guiding to for the year along with the rest of your guidance all of your peers, usually give annual or two year free cash flow now that it's not commingled with Diamond was just wondering if that's something you might provide it is I'll probably help us value the standalone broadcast business and with that I was wondering if you.
Could comment on the state of your Nols now that your deconsolidation Diamond.
Yeah. So I'll do the last one first so no change on on the Nols.
The Diamond deconsolidation is an accounting treatment only.
No impact from a tax standpoint, and then on the free cash flow that is something Steven we're going to take a look at you know we used to provide that pre pandemic.
And so we'll take another look at.
About providing some kind of all of our <unk>.
Future range there.
Great and then maybe just also as it relates to the relationship between Diamond and Sinclair I imagine that diamond benefited a lot from doing affiliate renewals and add sales along with S. T G.
Now that you all don't have the same control of the board of Diamond like you used to does that change that strategy at all or does it push the television group to act a little bit more independently are at arm's length or do you still expect to.
Sure a lot of the strategy between the two thanks.
Yeah. Thanks, Steve.
This really doesn't change the operating relationship between.
Sinclair and Diamond there is of course, we we own nearly 100% of the equity and also there is the management agreement between the two which is really this.
The important relationship.
Important aspect of the relationship so we don't expect.
This accounting change will change.
Way, we operate at all.
Great. Thank you.
Thank you.
Okay. The next question is coming from David <unk> of J P. Morgan.
Please pose your question.
Chris just regarding the data casting opportunity that you were speaking about for your spectrum. We think the timeline is from here in terms of completing the tech rollout.
Signing up business partners to new models, and then ultimately having this be material amount of revenue for Sinclair stations or for the industry.
Yeah.
Yeah. So.
Some of the most promising.
Applications that we saw.
And at <unk>.
Probably came from mid path around precision GPS.
Demand response for utilities.
Which do you just to get a little deeper on that Thats one.
As utilities rely more on renewable energy balancing supply and demand is becoming increasingly hard task and.
The patents developed a way for them to essentially negotiate with all of their millions of end users simultaneously to balance supply and demand. So we think thats a really.
Great application enhanced GPS for any number of things from making sure E. Scooters are left on the sidewalk confined to autonomous vehicles, knowing exactly where they are is it turns out you know normal GPS can be.
Have an error rate of up to 10 meters, which we can significantly impact through through our HSE three final technology and correction data.
And those applications.
Along with our trial with <unk> global.
I think they will start to yield revenue.
For the industry.
Next year and.
And I expect that we'll start to ramp quickly as people realize how they use cases within nextgen I'm talking beyond broadcast year.
He brings significant advantages to the ecosystem and as that happens the developer ecosystem around Nextgen will proliferate and more use cases will be developed.
Thank you.
Thank you very much. Your next question is coming from Boston Crockett of Rosenblatt Securities Boston over to you.
Okay, great. Thanks for the question.
I was just one kind of smaller think of it because some of the bigger things that was interested in have been covered but.
Other revenue within the television group I think in 2021 that was a 176 million of which $111 million was services I think provided to diamond.
Were eliminated on consolidation. So I just wanted to be clear what the treatment is now with the deconsolidation is that no longer eliminated and.
You know how should we think about that.
And what that would mean also for the equity and JV part of Diamond going forward.
To the extent you could talk about that shortly.
No I I can take it so.
You are correct and demand management fees were eliminated between the two entities now that will not happen. So the Sinclair silo will.
Be recognizing the cash portion only of the management team.
And that that would run through the revenue.
And then diamond when we will be reflecting the.
The full contractual expense amount before its adjusted EBITDA will be adding back the deferred portion.
Okay.
Maybe to follow up on that was.
Where those $111 million of fees in 2021 does that now what's been deferred with the refinancing or is there still is that still kind of be coming out going forward.
Yeah, I mean look and we've given a range of this before but for the full year.
Total management fee.
Is I'm rounding these numbers about 140 million of that.
$60 million is paid in cash and $80 million is deferred.
Okay Alright.
And then.
To switch gears, a little bit with <unk>.
The deconsolidation.
How does that impact your <unk>.
Capacity and interest and share repurchase I mean.
All right.
You guys have been active in the past and I don't know if this.
Makes you more interested or just talk about what this does for your kind of appetite for your own shares at this point.
Sure. So it is really it's just an accounting change so it really changes nothing about the fundamentals of the company from an economic perspective, but I do think it actually makes the story simpler for everyone to understand for all our stakeholders to understand so were.
We're going to use this as an opportunity to retail our story make it simpler and.
In terms of buying back our stock.
We have tremendous appetite for that we think we're incredibly undervalued the sum of the parts story is still.
The same as it was last quarter, if not stronger and so.
Our appetite is there for us.
Most of the deconsolidation.
Okay. That's great. Thank you very much.
Okay.
Your next question is coming from Lance Vitanza of Cowen Lance. Please ask your question.
Hi, Thanks, guys. Most of my questions are on the diamond side, but as long as I have you I will ask are you getting any feedback from advertisers that would lend any credence to the.
To the recession fears that seem to be gripping.
So much of the markets over the past three four weeks.
Yes, we continue to monitor as we speak with our clients on a daily basis right.
Right now there is.
Still a talk with their advertising.
But like I said earlier, we will continue to monitor this and have ongoing conversations with these advertisers we're presenting plans for them.
In case their fears get magnified in a bigger way so.
We have all the data points to show that even during tough economic times those that advertise come out of the tough economic times in a stronger position in the marketplace. So we're having those conversations now.
The situation worsens.
Thank you.
Thank you.
Thank you very much. Your next question is coming from David Hamburger of Morgan Stanley David over to you.
Hi, Thank you and good morning.
Quick question with regard to your stated here now that Sinclair remains owner of nearly 100% of BSG I guess in the past I've noticed with disclosures you had said that you know more than 90%.
Can you remind us exactly what the ownership structure is how much do you own.
The minority shareholders' equity, maybe Byron Alan and others are as exco minority how much down.
Yes, that's correct David.
The one minority shareholder is.
Byron Allen and it's a very small amount and thats why we say nearly.
100%.
Okay.
Okay.
Notwithstanding the $3 4 billion noncash gain.
Your kind of your sum of the parts analysis for Sinclair in.
Terms of your asset portfolio, how are you evaluating.
DSG equity ownership stake.
So in sum of the parts that we we have talked about.
We have not included any credit for the equity of Diamond. However, I think that there certainly is value there and.
And.
Anyone looking at that should should attributed at least option value.
To the to that position.
Okay. Thank you very much.
Thank you very much therapy to be no more questions in the key.
Now handover to Chris Ripley, President and CEO , Sir the floor is yours.
Yeah.
Thank you.
I want to start the diamond portion of the call by thanking diamond stakeholders for their support around Diamond's recent capital structure activities. We are pleased to have closed at $635 million refinancing, which along with Sinclair is deferral of management fees meaningfully enhances liquidity by an approximate $1 billion. We believe these steps allow.
Diamond to be self funding for the next several years and enables the launch and ramp up of its local sports direct to consumer efforts, a significant initiative, which is important to diamond future.
As you May have seen this week, we announced the Diamond New board of managers, which was required in conjunction with the refinancing.
This is an impressive slate of seasoned executives from the world of sports media streaming and related industries.
<unk> member Board consists of myself and for independents, including Randy career, former CEO of Hulu and longtime president of Fox Sports Media, who will serve as chairman. The other more members of the board are Maryanne Turk, who was chief operating officer of the NFL, Bob What's at a 30 year senior executive previously with.
The NBA and NFL and David <unk>, who was president of the NBC you our sense.
The board's experience will be invaluable, especially around diamond direct to consumer efforts and building future partnerships.
In regard to Diamond DTC plans for Bally sports, we expect to do a soft launch later this quarter. The initial launch will enable the validation of the quality and reliability of the product prior to the full DTC rollout of the Bally sports are.
Planned for September the initial DTC product will offer an experience similar to what viewers now see on the TV everywhere platform and the price point is expected to be attractive as compared to other similar professional sports DTC offerings at $189 99 for an annual subscription and 1999 four a month to month.
<unk>, resulting in an expected <unk> of $18 50.
In the months after launch we expect to rollout an enhanced DTC product incorporating additional functionality content and features with incremental ways to monetize the viewer three of them are personalized and interactive experience now I'll turn it over to Rob.
From an operation standpoint, the MLB resolve their collective bargaining lockout and while the regular season was delayed the league is scheduled to play the full season of games.
In terms of our integration efforts for Diamond.
To move forward with our business plan to initially rollout brief predictive gains for all of the teams we represent in the first quarter, We debuted valley boller and valleys breakaway gains for our basketball and Hockey League.
And valleys Homeruns glass is expected to debut in June and will run throughout the remainder of the baseball season with chances to win monthly prizes, our partnership with valleys and other gaming companies will continue to help drive our <unk> game.
Integration efforts going forward.
So wanted to touch on the artisan viewership, which for the <unk> 'twenty 'twenty. One 2022 NBA season was up from both the radio and television household perspective.
MLB viewing trends.
Started favorably as well as remain above a year ago level.
We continue to be encouraged by the viewership trends and we have launched recently.
New programs to air on the arms and the rally and live on the line.
Later this year, we will be debuting a new show called the rivals and we're also working on short form and long form programming development.
For the launch of our D to C app and our TV.
As I mentioned on the Sinclair portion of the call we renewed our multi year distribution agreement with charter, which included our 19 Valley sports <unk> marquee and the networks I will now turn it over to Lucy to go over the quarterly financials in more detail.
Thank you Rob Okay. So just a reminder, as marquee also falls under deconsolidation in equity method accounting within diamond financials as of March 1st.
And we are in process of getting an appraisal in order to book the noncash accounting adjustment based on the asset disposition trigger for marquee and expect to have that valuation later this quarter, we will not be giving diamond pro form us due to the confidentiality around deconsolidation Mark.
Key from the Diamond resorts.
On our website, however, can find diamond's first quarter actuals and guidance for 2022.
Note that today's earnings press release for Sinclair Consolidated company reflects two months of Diamond in the local sports segment table due to the March 1st deconsolidation.
The Q1 results for Diamond that I will be discussing here and which are posted on our website. Our footwear. The full three month period for Diamond, which includes three months of the Bally sports <unk> and two months of Marquis results due to its deconsolidation.
Diamond media revenues were $709 million in the first quarter.
Distribution revenues of $630 million continue to be based on high single digit percent subscriber churn while advertising revenue on a per game basis is growing.
Diamond media expenses for the first quarter were $650 million.
Adjusted EBITDA for the first quarter, excluding $11 million for nonrecurring items in deferred management fees was a negative $155 million and as a reminder, the first quarter is typically the lowest EBITDA quarter for the year due to timing of the rights payments.
And we have done much to strengthen diamond future liquidity position and to enable it to build launch and grow its D to C offering.
On March 1st time, and closed on a new $635 million first lien loan, which matures may 2026.
Sinclair also agreed to defer a portion of its management fees over the next several years.
Together, the new money raised and the management fee deferral provide diamond with about 1 billion of liquidity enhancement over time.
Diamond cash at quarter end was $572 million and its $228 million revolver was undrawn for liquidity of $800 million as of March 31st.
Total debt at the end of the first quarter was $8 6 billion and the AUR facility was $163 million.
Looking ahead to the second quarter media revenues are expected to be 759% to $766 million and distribution revenues are expected to be $621 million to $623 million.
Included in the estimate is continued subscriber churn of high single digit percent.
Which is offset by $28 million of distribution revenue recognized from a one time audit.
Amount from a distributor.
Advertising revenues are expected to be $130 million to $135 million on almost 300 fewer games expected in this year's second quarter versus last year.
For the full year media revenues are expected to be two point.
Eight 8 billion to $2 9 billion.
Second quarter, adjusted EBITDA is expected to be $132 million to $138 million, which includes fewer games. The D to C cost and continued subscriber churn, which are offset in part by lower management fees and a onetime distributor audit settlement full.
Full year, adjusted EBITDA is expected to be $221 million to $239 million.
As compared to our February outlook for full year, adjusted EBITDA of between $2 66, and $297 million. Some of the changes are the result of the deconsolidation of marquee.
Timing of the D to C launch within the second quarter and slightly higher subscriber churn along with.
Still high single digit percent.
Offset by the audit settlement benefit and slightly better AD revenues and expenses.
So with that I would like to open it up to questions related solely to.
The sports business for Diamond operator.
<unk>.
Thank you ladies and gentlemen, the floor is now open once again for questions. If you have any questions or comments. Please press star one on your phone at this time, please wait while we poll for questions.
Thank you. Your first question is coming from Dan <unk> of benchmark company Don over to you.
Yes.
Dan you there.
Yeah, Hey, can you guys Jeremy.
Can you guys, sorry about that I don't know what happened.
Policies Lucy Thanks for all the color on all of that.
I assume that's also the reason why the monthly average for the two months is different than for the full quarter is because of marquee in there in Q1, I guess, Chris maybe high level.
Given all of the noise in the marketplace surrounds.
Yes.
And saturation, obviously, Netflix did a slightly different stage of their existence, then the RF products, but just how are you thinking about kind of marketing marketing expense going up.
All of the other things that go to play as you guys.
Buildup towards DTC launch and how the market will bear the products given everything that's out there.
Yes.
It's a great question actually the recent developments within the streaming landscape I view them as very favorable for what we're doing because the market is rationalizing.
And.
It was inevitable that a momentum story would eventually.
Cycle to them, they always do and in the market becomes more rational in our plan for Bally sports plus was never about subscriber growth for the sake of subscriber growth it was.
<unk> to produce incremental profitability.
For Diamond sports and so now we feel like the market is actually caught up to our thinking in terms of our plan and that that will have.
Many benefits for us in terms of relative pricing comparisons I expect that.
The entertainment value equation from the consumer perspective, when they compare pricing on what we're offering versus pricing of some of these other <unk> services, which are likely to go up in light of the current environment that relative equation will be better I also expect that the marketing.
<unk> two to gain subscribers will get easier as people get more rational around their own marketing.
And so we're really quite bullish on.
The change in the market environment as it relates to our strategy in terms of our specific.
Marketing strategy, we're not going to be.
Really that allowed for the soft launch coming.
Coming up here.
As we get as we approach the full launch we are going to be much more aggressive.
On the margin front.
Dan.
In addition to that.
The teams are fully embraced the launch of the BDC.
Coming up from the soft launch to the full launch.
You will see some joint.
Marketing efforts between valley sports and the teams as well.
Both teams and also significant E mail traffic when are we going to launch. So there is a pent up demand. So we look forward to joint marketing efforts with the <unk>, Yeah, and I think it's a great point that needs to be emphasized and that will really be the first mover with real premium sports and.
The direct consumer marketplace, so comparing it to an entertainment based as spot is.
Is too simplistic.
Our significant differences between sports and General Entertainment.
Not to mention it.
With that sports has generational appeal built in fan bases team partners that have massive incentives to get their fans on our service.
None of that exists in general entertainment so.
It's a really a different ballgame no pun intended.
Well played Chris.
Question I have to at least try just given the charter renewal.
Any commentary around how we should be thinking about the long tailed impacts there. The DTC there I assume that that was discussed and covered.
I was trying to up again to specifics, but just to the extent that you guys can talk about how those conversations went in your expectations for future conversations with dish.
Distributors around.
The DTC product and what it might mean for distribution revenues.
Well as you know we have confidentiality provisions in these agreements, which don't allow us to talk specific terms.
But I, but we're as as Rob stated, we're very pleased with the outcome with charter.
Relative to market expectations, which were fairly negative we massively exceeded those and I would say in terms of our internal expectations.
We met or exceeded our internal expectations and so that's about as much detail as I can give without breaking a contractual provision.
Alright fair enough I had to try anyway, thanks, Chris I appreciate it.
Thank you.
Thank you. Your next question is coming from Steven Cahall of Wells Fargo Stephen over tea.
Stephen I'll leave you there.
Sorry about that I'll figure out the mute button in another year or so.
Maybe first just a housekeeping one on the.
Bally performance shares and warrants can you talk about if there's any shift in the board's focus on those I think those are still held by STG. So just wondering if the new board would would change any of the way that those warrants or achievement of the might be looked at.
So those are how that SPG and.
No they won't there won't be any change there.
And then Chris.
I cover a lot of media companies that are going through these linear to direct to consumer pivot.
Pretty much Barnard theres like a period of peak EBITDA losses, some of its content, which I know you don't have incrementally on diamond, but a lot of it is technology cost subscriber acquisition costs marketing costs, just all the heavy lifting.
When do you all think that the kind of peak burn from the DTC initiative will happen and how do you think about kind of the shape of EBITDA from from there as there is some pressure on linear thank you.
Sure. So I think the best place to look for our view of that is the the claims that we did earlier in the year. It has detailed models for.
Five years of both the base business and the DTC business and so you can really just see for yourself, what our view is there it really hasnt changed.
On the margin some things have changed around timing.
And some of the specifics.
But.
Really there is a there is going to be a burn here in the beginning certainly.
Certainly we're seeing that in 2022.
Flowing through the numbers and it will persist into 2023, but as you noted and I think this is incredibly important the number one cost of any.
As slide service.
Is the content and we have a set we do have some incremental cost here for for content, but by and large the freight has been paid on that so so our model ends up looking a lot different thats why when you. When you look at those models. They are incredibly profitable relative to other asphalt services because there we do.
Don't have fully allocated in what the content costs are so of course, there are costs around subscriber.
Acquisition in marketing and technology costs, and that's what's really driving some of the losses here in the beginning.
Great. Thank you.
Thank you very much. Your next question is coming from Avi Steiner of Jpmorgan. Please ask your question.
Thank you I've got several here I appreciate the time, just very quickly on the full year outlook change you listed a bunch of factors.
Love to confirm if marquee was the biggest number one in.
Whether the charter renewal played a role at all in the guidance changed and then I've got a couple more thank you.
Sure.
So Avi certainly marquee is.
Is a factor there, but as I pointed out there are other factors.
As Chris talked about timing within the second quarter. The D to C launch we had the settlement.
This one time settlement on an audit it.
Coming in.
And as I mentioned on the Sinclair portion of the call. While we are still high single digits for churn.
It's just slightly higher right still within high single digit churn just based on some of the the recent reports by the distributors themselves as to what Theyre seeing as you as you know.
We wont see that for like another quarter come in.
And so.
But yes marquee is certainly.
An important piece of that that difference and Avi to your specific question related to charter it had no impact on the change in guidance.
Okay. My second one you have five MLB team signed up for DTC your.
Your capital base has been bolstered you have a great board of managers distributor renewal lease at the big ones behind us you're on the verge of a soft launch and I'm really trying to figure out.
What the gating issue is to find more MLB teams coming to terms with the teams how much.
I guess, a roadblock is the major league baseball if they arent all in maybe what do they want to see and then I've got one more thank you.
Sure. So look we have been successful in getting off renewal additions we had one in January .
Marquee is also.
<unk> secured its direct to consumer rights.
And.
The rest of the teams were having constructive dialogue on.
And there isn't necessarily a <unk>.
Given the status of where we are in our launch.
There isn't really a huge timing rush on that but we are having constructive discussions discussions on it.
We're also having constructive conversations at the.
The league level as well so both with our teams and with MLB itself.
Okay. Thank you and my very last one and I appreciate the time.
So now that Diamond has this new board of managers and it is the consolidated as required I'm curious if diamond now maybe has more flexibility.
To pursue either balance sheet remedies or strategic alternatives that perhaps they could not.
Prior.
Holidayed structure and again, thank you all for the time.
Thanks, Savi I mean, the I guess technically.
The answer to that would be no because.
It was really a self kantar.
Contain silo from day, one so it did have.
The flexibility needed to pursue.
Deleveraging exchanges.
Mergers what have you.
And.
And so philosophically.
The accounting change doesn't really change that and.
But I do want to stress that all of those options are something we are actively evaluating.
As.
Certainly this isn't the last.
Transaction or.
Recapitalization, that's going to happen at Diamond there is there will certainly at least in my estimation.
More of that to come.
I appreciate the time thank you.
Thank you. Your next question is coming from Lance Vitanza of Cowen.
The team.
Thanks, guys.
First I just wanted to follow up on a question that Avi asked.
The impact on the full year guidance the reduction that we saw.
The change in the launch timing I guess I would've thought that the launch was always supposed to take place in 2022.
Wondering.
Presumably any sort of expense that got pulled forward from 23% to 22 to put downward pressure on the EBITDA guidance would be would be pretty modest is that is that fair and then I have a couple of follow up questions. Thanks.
It's not so on that when we talk about the timing its really timing within the second quarter. So so before we were looking more towards the front end of the second quarter now.
The soft launch will be towards the back end of the second quarter. So it's really a.
Both of revenue and an expense.
And any shifts you are right in that it's a fairly modest impact there.
That is not the biggest impact of the impacts that changed the guidance.
Okay.
And then so with the balance sheet address and $1 billion of fresh liquidity. How comfortable are you that diamond has the resources to make it to the other side of the DTC launch I know you talked about this on the call, but how much cushion have you built into the model and specifically what would a recession in 2023 due to your confidence level.
We have a lot of confidence that we have set up diamond.
For the foreseeable future with ample liquidity.
Your question around a recession is interesting.
Yeah.
Diamond is is mainly contractual subscription base revenues.
Which tend to fare much better through recessions than than.
And the AD market just to give you a reminder, it's a.
80% to 85%.
On the subscription side in <unk>.
15% to 20% on the AD side so.
That should give you some comfort with the recession ahead as to how that impacts uptake on on DTC.
Hard to hard to say, but.
I do think in the beginning here, we're going to reap.
The benefit of the hardcore.
Disenfranchise fans outside of the bundle.
Coming on to something new and exciting that really hasn't existed before.
And.
Yes, I think that happens regardless of the economic backdrop, when you look at the value proposition.
Versus the cost of a ticket.
It's a huge value proposition for them for the fan.
We've been through a recession or in good times as well.
Okay, Great and then my last question is Chris you had mentioned those the cleansing materials and so we're still operating strictly speaking in a case one world I assume right, but when you think about the opportunity really do you I mean do you imagine that we wind up some.
We're between case two in case three in other words.
Is it likely we get all of your linear teams eventually on DTC and really the only question is how much benefit you'll get from higher take rates due to sports betting legalization I would say is that sort of a fair way to characterize it.
Yeah again.
<unk>.
We always hate to speculate.
But I do think.
What you said is right.
And we.
We are currently in a case one world today, but when I think about the future and it looks more like a case to case III.
Thanks, guys.
Thank you. Thank you. Your next question is coming from Boston Crockett of Rosenblatt Securities Boston. Please ask your question.
Okay, great. Thank you so I wanted to just.
Talk a little bit about the high single digit.
Sub churn and how to think about that trajectory over.
Coming quarters, because I know that.
That has been in the past been influenced by some drops with some major distributors that were probably lapping at some point.
So how do we think about that.
And then just kind of a related question, but I know conceptually.
Charter had been floating that sounds like I know you can't talk about charter, but I'm sure others are thinking it.
This notion that as you rollout DTC subscriptions that there should be some.
The ability or maybe lesser carriage on the traditional pay TV systems.
Just some thoughts about how that's playing out now that you've done the charter renewal.
So those two things would be great. Thank you.
Sure. So the high single digit churn guide does not is not impacted at all by any distribution drops so we've been in a fairly well.
Okay.
I would say.
Status quo mode for prolonged enough of that that comparison is is apples to apples.
The in terms of your question around.
Charter.
We obviously dealt with that head on in these negotiations and we're very pleased with the outcome. So.
Every distributor wants as much flexibility as possible, but at the same time they need the content. So it's always that push and pull in every negotiation.
Well, if I could follow up what would you say is the principal driver of the high single digit declines.
Do you think are bigger than what youre seeing on the STG side, which didn't put a number there, but I think it has historically been 5% down.
Sure.
The main reason there is a difference there is that the Rs and.
The only virtual mvpds carry the our sense is directing stream.
And so some of the growth in the pay TV <unk>.
The sector is coming out of some of the other virtual mvpds, which do not carry VR sense. So that's what creates the variation in churn between broadcast and.
And diamond.
Uh huh.
Alright, thank you.
Thank you. Thank you.
Your next question is coming from David Hamburger of Morgan Stanley David Please ask your question.
Hi, Thanks.
A couple of questions and maybe I can just ask this in a more direct fashion.
If you did not be consolidate marquee in this quarter would you have hit your range for guidance that you gave in the first fourth quarter earnings call of $266 million to $297 million of EBITDA This quarter.
So.
Again that one is look we.
Yes, I believe we would have again.
With the deconsolidation of marquee, it's a little bit more difficult to answer that off the comp.
But yeah for adjusted EBITDA, Yeah, I believe we would have.
Okay.
And then maybe you could just help me reconcile a couple of things here. So.
2021, and you had $479 million of cash I believe you just disclosed you have $572 million of cash you did a $635 million debt raise I guess about $35 million of which was used to take out the 12, 75% notes.
Mentioned, Chris I think before the cash burn for GPC has been maybe a little more front end loaded I assume.
Okay helps reconcile some of those numbers, but also I know we see in <unk>.
You've given the the cash rebates that have been paid to the cable companies I think you guided to $210 million for the first half of <unk>.
2022, and may be $127 million or so that would be in the first quarter. So you kind of give us a little more disclosure here on what the.
The liquidity position here reconcile some of these.
Cash in the quarter.
Sure. So a couple of things just to take note of for for your models. This year and you can pretty.
Pretty much mentioned all of them first one is the new money rate and the added interest expense as it relates to that and then of course any.
Any forward.
<unk> and <unk>.
So for a rate.
Rate increases that are at the market is expecting.
On the.
All of the debt.
That's now fixed the other piece of the rebates. So let me just kind of reset the rebates for you because that has changed and in particular with the audit settlement.
And so I'm just going to give you the the the new numbers here too.
2022, there's a total of $105 million.
And net rebate, the diamond would pay 2023 $62 million.
We would pay so.
And for Q1 of 'twenty two.
Diamond is already paid <unk>.
$4 million of that so that will also youll be able to spread that out across Cheryl your models, but really and then you have the deferral of the management fee is the other thing to make sure that you're capturing your and your models this year.
And how much.
Can you give us any sense of how much of $105 million will be paid out over the course over the year.
Of 22, yes.
We paid 24 of that already on that 105 will be roughly $49 million.
In Q2.
And then Q3 is it's about <unk>.
17 and $16 million.
Okay.
And any way that you can help us quantify I think.
Chris referred to the cash burn for the direct to consumer launch.
And how that's impacted the quarter and what your expectations are there.
Yeah, we're not I'm not going to break that out at this time, but it is a you know.
I think I'd refer back to the disclosure that we previously.
Put out there it hasnt really changed much.
Yes.
I would say is we've given you a full year adjusted EBITDA number right to you you have that and then two that is really just.
Adjusting for your interest.
And the.
The Capex is minimal it's about $30 million for the year, Okay, and Capex with sports.
Mhm.
And then just one follow up question if I can.
The charter renewal could you give us a sense I guess, the next kind of two big customers.
Upcoming renewals at some point would be Directv and Comcast could you give us any sense like how.
How to think about when those will happen.
Those are both in the back half of 2023.
Okay great.
Thank you very much.
Thank you.
Ladies and gentlemen, there appear to be no more questions in the queue I will now hand back over to Chris Ripley for closing remarks, Sir the floor is yours.
Thank you all for joining us today should you need it more information or have additional questions. Please don't hesitate to give us a call.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
Okay.