Q4 2022 Sinclair Broadcast Group Inc Earnings Call
[music].
Greetings and welcome to the Sinclair.
2022 earnings conference call at.
At this time all participants are in English and only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference and these press star zero on your telephone keypad. Please.
Please note this conference is being recorded.
Now I'll turn the conference over to your host Lucy Lu to tell her executive Vice President and Chief Financial Officer, Ma'am you may begin.
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 Senior 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 and so on the Investor information page and on the earnings webcast page 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 as 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 uses its website as a key source of company information, which can be accessed at www Dot S. P. G. I dot net in accordance with regulation FD. This call is being made available to the public a webcast.
You play it 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.
And 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 or formulations. The company does not provide reconciliations on a forward looking basis further discussions and reconciliations of the comes.
These non-GAAP financial measures to comparable GAAP financial measures can be found on its website www dot SPG I thought nuts. In addition, given the deconsolidation of Diamond on March one 2022 and in order to have a meaningful discussion around comparative results and trends all discussions of prior financial period results. During this.
Call reflect Sinclair only pro forma numbers and that's excluded diamond at any inter company transactions with them and its food business is sold in the prior 12 months actual results, including the periods of time. It was consolidated please refer to this mornings earnings release, Chris Ripley will now give an update on the strategic direction of the company.
Good morning, everyone.
Sinclair had a solid finish to 2022 capping a year, which set records for our broadcast and other total advertising revenues distribution revenues and media revenues.
Political AD sales for the year surpassed the previous midterm election year by over 30% demonstrating the strong value proposition that TD continues to offer political candidates and issue advocates.
The strength certainly bodes well for the 2020 for political season.
Quarter media revenues, adjusted EBITDA and adjusted free cash flow all fell within our guidance range Robin Lucy will cover the specifics on the quarter and just a bit.
We entered 2023 financially strong position to weather any economic headwinds that may be encountered with $1 5 billion of liquidity and no debt maturities until well into 2026 and with Diamond consolidated and operating independently of Sinclair, We can focus on our broadcast business tennis channel grew up networks.
Four growth pillars, and our investment portfolio.
2023 will be a year of investment on a number of fronts, including investments in technology.
Our seven major areas that we are prioritizing, including news nexgen related activities AD Tech content customer data management security and our ongoing move of our operations into the cloud.
These new initiatives, which total approximately $75 million of spend in 2023 will allow us to essentially manage our entire enterprise, enabling greater quality productivity and efficiency by sharing content workflows and manpower across our entire organization, helping drive future profitability.
We continue to make progress in moving forward. The next Gen broadcast technology in conjunction with our partners as of the end of 2020 to nearly two thirds of the hips.
Households, and Sinclair is footprint had nextgen broadcast available to them built.
Building on the testing and validation progress that was made in 2022, we are ramping up spending in 2023 on initiatives around the new technology.
Which we expect to begin to generate revenues in 2024.
These initiatives, including include continuing the progress on testing. The next Gen broadcast technology for automotive applications, which G&A Lewis as take Calif, SK telecom and cashed out era.
Late in 2022, we participated in a demonstration with these partners around in vehicle video, including advanced Geo targeting capabilities for advertising.
This collaboration was the first under an Mou, we have with G&A bogus and we continue our important work with thank you labs. We are currently collaborating with them on several projects, including chips for mobile devices direct to mobile services and centralized broadcast radio heads.
This year kind of shell celebrates the brand's 20th anniversary building on its 2022 successes for what we hope is an even bigger 2023.
After a breakthrough year launching its national fast channel exclusively on Samsung TV plus <unk> Sinclair second original 24, seven live Pro tennis network will now began rolling out on other free streaming platforms, expanding total homes reached by tens of millions and P. C.
International also worldwide regional platform expansion plans continue with France, Spain, Australia, and Latin America, all targeted new markets.
Pickle ball continues its phenomenal growth trajectory in tennis channel is now delivering this pro and participatory sports, including all the top professionals celebrity led teams and grassroots excitement to more viewers than ever in 2023.
As previously discussed we expect our net retrans to grow over the next three year period, but we'll do so at different rates with 50% of our big four subscribers renewing in the second half of 2023 and another 40% front end loaded in 2024, we expect net retrans to decline.
In 'twenty, three but grow in 'twenty, four and 'twenty five such that our three year CAGR growth low single digit percentage.
When considering the investments we are making in 2023, along with the timing of our Retrans renewal cycle and the absence of political revenues, we expect EBITDA in 'twenty three to be lower than 2002.
We also expect lower free cash flow as a result of these factors as well as the absence of a large tax refund received in Q4 of 2022 Lucy.
Lucy will go over the details of what we expect in 2023 in her section.
In terms of our investment portfolio during the fourth quarter, we received distributions of $23 million and made investments of $8 million for all of 2022, the portfolio generated $119 million in cash distributions to us consisting a return of capital of 38 million and $81 million of gains from sales and distribution.
<unk> of excess profits.
<unk> in $33 million of investments made during the year net cash generated from the investment portfolio for the year was $86 million.
We remain committed to monetizing our assets where appropriate to benefit all our shareholders.
As a reminder, the assets we acquired since 2014 in this portfolio have generated an IRR of approximately 19%. Despite the strong track record in what we estimate to be a fair market value of $1 2 billion.
We believe there is approximately $17 per share of value from these investments not reflected in the stock price.
Okay.
Before I turn it over to Rob I want to touch on a few other areas.
Regarding our ESG activities at the end of 2022, we have converted almost half of our lighting to led and are also transitioned over 70% of our transmitters and 38% of our HVAC units to higher efficiency solutions. These actions should significantly reduce our energy usage. This year, we plan to begin working with an outside firm.
For them to analyze our current and past energy usage and make recommendations to lower our electricity costs going forward.
This will allow us to formulate a baseline of energy consumption and report out energy usage targets in actual savings in the future.
In 2022, we helped to raise close to $12 million in funds for nonprofits schools local disaster relief and other charitable causes partnering with over 300 local organizations and conducting companywide campaigns with feeding America project, We love and global re class we also.
<unk> collected more than 330000 pounds of food, providing close to a $4 5 million meals and collected over 400000 toys diapers and hygiene products for those in need and donated over 5700 hours of airtime in public service messaging.
In 2023, we'll be launching a new charitable program, where Sinclair will match certain employee donations to register charities. In addition, Sinclair will be launching a company wide Sinclair day of service in April encouraging all of our employees to dedicate the date strengthening ties to their communities. These actions are just the latest chapter in Sinclair.
<unk> unwavering support of the people and communities that we serve.
As we enter 2023, the economic climate continues to be uncertain as to whether the economy would enter a recession and today, we still have a little clarity on the economy's direction. However, we have been taking steps to deal with whatever direction consumer demand and takes we are encouraging our expenses without impacting the growth initiatives.
I have mentioned earlier.
One final note regarding the loss of carriage on of our CBS stations onto Boe.
As you May recall, the network's control. These negotiations and affiliates are not currently permitted by the networks to negotiate the carriage of our stations with virtual distributors.
The networks negotiate these agreements and then give us an opt in to whatever terms they come up with if we don't opt in they provide a national team.
In this instance, the CBS affiliate board unanimously believed he offer CBS presented the broadcast stations meaningfully undervalued the important local content that our stations provide.
<unk> is also seemingly getting caught in the crossfire here so to speak.
It's our understanding that they were not given the opportunity to negotiate with us directly.
We welcome the opportunity to come up with a more accurate solution and continue to believe we should have the ability to negotiate with these agreements ourselves as we do the hundreds of legacy cable telco and satellite companies.
With no interference from the networks.
I'll now turn it over to Rob Thank you Chris.
They are trends we saw in the fourth quarter was not unexpected with political setting a mid term record and core advertising relatively even with a year ago or down mid single digits when adjusting for the cyber incident in 2021 fourth quarter.
Of course political crowd out was the primary reason for core being down while we don't have good comps on category color by month versus the prior year due to the cyber incident, we can look to four years ago to get an idea of how the quarter played out pre and post the elections post elections December was a weak month.
<unk> versus four years ago, and that weakness has extended into the first quarter of this year, albeit at a lower percentage decline.
For January and February is down low single digits versus last year aided by the Super Bowl running on Fox This year.
While March is pacing down.
Slightly higher but the month has not broken yet for.
For the first quarter of 2023, we are seeing growth in several categories, including auto legal and entertainment and sports betting is relatively flat an improvement from last year's trend as new gaming markets recently came online in Ohio and Maryland.
Services continues to be weaker on insurance ad declines.
I'm, a suitable pools in food or some of the other large categories exhibiting weaknesses we.
We saw good demand for the Super Bowl, which was on our 41 Fox affiliates earlier this month.
2023, we expect our newly implemented yield management tools to help us better understand our advertising revenue dynamics, allowing us to more effectively analyze our AD units and inventory sellout levels across all our platforms and to optimize our pricing also the first phase of our unified ad platform.
<unk> will be launching sometime in March we are also working with Anthony cycle. The creative visionary of numerous popular entertainment shows, including CSI on entertainment and original news programming episodes.
Finally, I would like to thank the field for the fund raising that Chris mentioned earlier and generating $12 million for our communities in charity donations.
Now I will turn it over to Lucy for the financials. Thank you Rob. So as a reminder, you can follow along with our slide deck and our financial supplement on our website.
Also as a reminder, in the fourth quarter of 2021, we experienced a cyber security ransomware incident, which negatively impacted media revenues by approximately $63 million in that period.
Turning to the fourth quarter of 2022 media revenues were up 19% versus the same period, a year ago, driven by higher political AD revenues and higher core advertising.
All set by lower distribution revenues and a lower management fee.
Adjusting for the cyber incident impact media revenues would have been up 10%.
For the year media revenues were also up 10% or almost 8% sorry for adjusted.
Total advertising for the quarter and year were record highs driven by strong political revenues as compared to the last midterm election year in 2018 total advertising was up 3% for both the quarter and the year.
Total advertising for the fourth quarter increased almost 60% over 2021 were up 31% when adjusting for the cyber incident.
[laughter].
Core advertising adjusted for the cyber incident declined high single digits on political crowd out which is expected given the record levels of political.
Okay.
The $952 million of media revenues was within our guidance range with political slightly under guidance and core advertising at the high end of guidance.
Distribution revenue decreased 2% versus last year slightly below our guidance range, primarily due to higher than expected subscriber churn, which continues to be in the mid single digit range year over year.
Media expenses were 7% higher in this year's fourth quarter versus last year on higher network programming fees higher sales expense on the favorable revenue and higher G&A expenses were favorable to guidance.
Adjusted EBITDA for the quarter grew over the fourth quarter of last year, mainly on the strength in political revenues, partially offset by the net diamond management fee deferral and the higher expenses discussed.
As compared to guidance, our $309 million of adjusted EBITDA came in at the high end of our guidance range for.
For the year pro forma adjusted EBITDA was $890 million.
Adjusted free cash flow in the quarter also was within our guidance range with adjusted free cash flow per share of approximately $5 75 for the quarter and diluted earnings per share of <unk> 79.
The quarter benefited from a 158 million of tax refunds related to prior year audits.
For the year pro forma adjusted free cash flow was 847 million, representing a 95% adjusted EBITDA conversion ratio and over $11.50 per share.
We increased our cash balance by $277 million during the quarter for an ending balance of $884 million and when combined with our undrawn revolver put our liquidity at more than $1 5 billion at quarter end.
Looking back over 2022, we took several actions to increase shareholder value, including raising our dividend by 25% to an annualized $1 per share buying back approximately 5 million shares or 7% of our shares outstanding and repurchases.
118 million of face value of our 2027 notes at a discount.
This month, we purchased the remaining outstanding Diamond preferred units, which had a coupon of over 12% and for which Sinclair had a guarantee of collection of units were purchased for $190 million, which was at a 5% discount to their accretive value.
Total debt at the end of the fourth quarter was $4.265 billion and S. T. Gs first lien indebtedness ratio on a trailing eight quarters was three one times, while total net leverage through the bond was 4.0 times.
Turning to our first quarter 'twenty three guidance as it relates to comparisons to Q1 of 'twenty. Two we will talk to pro form us, which exclude diamond which was D. Consolidated in March of 2022, and therefore was in two months of our actuals last.
Sure.
We expect media revenues to decrease approximately 6% to 9% versus first quarter 2020, twos pro forma media revenues of $818 million.
First quarter's core advertising is expected to be flat to down mid single digit percent versus first quarter of last year with the decline in core primarily driven by mild macroeconomic weakness.
Media expenses are expected to be 604 to 610 million for the quarter and $2 billion $392 million to $2.407 billion for the year, which includes roughly 75 million for you with investments in technology and our pillars of growth there.
Chris discussed.
First quarter adjusted EBITDA is expected to be between 99 and $113 million.
Compared to 200 million pro forma last year with the decline primarily the result of the absence of political lower net retrans as discussed and the management team change.
Adjusted free cash flow for the quarter is expected to be $43 million to $59 million and with that I would like to open it up to questions operator.
At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
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One moment, while we poll for questions.
Your first question for today is coming from Dan Kronos at benchmark.
Great. Thanks, Good morning, Chris Thanks for all the really helpful color, especially around.
Retrans net retrans.
The full boat deal I don't know if there was any additional color beyond what you've stated that you can give us.
Whether the network was trying to claw back incremental economics or if it really was.
Arguments around.
Your ability to negotiate with the virtual which I know has been.
Sort of a lobbying point for the broadcasters, who makes a ton of sense. So maybe thats first and then in addition on the outlook.
Helpful on the timing of subs.
Your guidance still low singles on net Retrans can you talk a little bit more about sort of the interplay as you see it between either mix or rates as well as how much of a versus coming down. Thank you for your confidence.
Sure so.
On your first question related to football.
It is financially not a very impactful.
Situations, given the size of food, though but.
As I mentioned in my remarks, you know the affiliate board concluded that they offer was.
Just meaningfully undervalues the local content that our stations provide and that was really the main driver of the decision.
That being said I will say that there's a growing consensus within.
The broadcast community and also.
Within D C that you know this.
This situation with the virtual <unk>.
It needs to change that it really is.
Not consistent with the way the industry is set up and in the way.
No.
Market power should be used so.
That's what I'll say on <unk>.
And then as it relates to your question on Retrans.
I'll restate, what we said which is that we are expecting.
They are down year on net retrans here in 'twenty, three but up in 'twenty four and 'twenty five.
Three year CAGR is.
Low single digits over that period.
I think important to understand in terms of the dynamics and you you you touched on this in your question.
Is that the growth of reverse retrans has significantly moderated over the last year or so so.
You're not seeing this dynamic where you know the.
The growth rates on both gross and reverse being all that different.
Got it and if I could ask one more just Chris on your expense guide how do we think about kind of the ROI how much of the $75 million, what we would consider sort of one time and then when will we really start to see the flow through either.
Revenue or EBITDA.
Cloud migration as you mentioned.
Right, So the 75 million.
That were sent in spending is largely on transformation.
Efforts.
A big part of that this year will be our move to the cloud.
Which does result in significant Opex and Capex savings.
In the four years, starting in 'twenty, four but really starting.
A big impact of 25 and beyond.
And so they do we wouldn't be spending needs if they didn't have.
You know either a commensurate cost savings in the future or a.
A capability that we needed to enhance our revenues.
Opportunities and this will be the heaviest year in terms of.
That transformation spend and it will start to.
On a net basis versus the benefits come down in 'twenty, four and start to really pay off thereafter.
Got it great. Thanks for all the color appreciate it.
Your next question for today is coming from Barton Crockett of Rosenblatt Securities.
Okay. Thanks for taking the question.
I appreciate it.
Now that you're guiding for some revenues to come from Nextgen HFC.
24, and I was wondering if you could give us.
So if this is kind of hopefully at the start of a new era, a little bit more color.
I'm going to start really small noticeable.
Where do you see the revenues kind of starting.
And how do you see the momentum playing out for that from the start of 2024 going forward.
I think it's fair to say that.
A lot has been accomplished so far in <unk>.
We have a number of different proof of cop proof of concepts that we are running through.
Last year and this year I do expect the revenue to be.
A modest at the beginning.
It's our view that the the consumer benefits and monetization for the U S market.
Really needs too.
<unk> got a good push here from the FCC, which is why we're asking for the task force and specifically, we believe the efficacy needs to set a sunset date for window and when that happens.
That's when you're going to really see.
Scaling of both consumer benefits and monetization within the U S market now.
Now other markets, which we're very focused on are moving much more quickly such as Korea or India.
And in India, where we're very focused on.
You think could be a very very.
A very quick track.
Transition into consumer benefits and monetization we've got.
Two trials going on with the direct to mobile services and Bangalore daily with our partners. Thank you Johan.
And they've got the local government broadcaster there in India.
And specifically.
Some of our projects that we're working for last several years on with <unk>. We will go to market at the end of the year. So the chip the 300, a ship that sank yet.
Prototypes into mobile phones.
We will be ready to go to market.
And our first targets being televisions.
And dongles, but ultimately it is the only shift that will be on the market, which suitable for mobile personal devices.
The broadcast radio head will also go to market at the end of this year, which will be needed for any.
Cellular is built out of the broadcast spectrum, which is how we expect India to rollout also Korea is looking at that specifically and to the extent that the single frequency networks get built here in the U S. This is the type of technology that will be needed for that.
And then and then the.
Third.
Significant project, we have going on with <unk>, which will also be ready for commercialization later on this year is the operating system required the software required to run.
The components of that network.
Sort of more telco basis, rather than a broadcast.
And so we're very very excited about what's going on in India, and how quickly that market is moving we are.
Cautiously optimistic about the.
Uh huh.
Concepts that we're working on here in the U S and the inability to to generate revenue from those next year.
But we do recognize that the FCC needs to do its part and in advancing <unk> and really giving the U S consumer.
The true benefits that this technology promises.
And if I could just follow up on the FCC commentary.
I thought the expectation was that this would be pretty fully deployed across.
Major U S markets by 2024.
So what is it that you gain with sunsetting.
I'll have that kind of broad reach what.
What would you gain one Jon Oh with Samsung in terms of the monetization ability there.
Right. So we are not taking anything away from the from the efforts of the industry, which should amount to over 75% of the markets covered to treat at all this year. So I think it's it's incredible.
Incredible effort from everyone in the industry to do that.
The reason why.
Things I don't believe will be.
Material and street at all until the FCC Sunsets Wonder, though is that when you take a look at just the availability of excess spectrum.
In those markets.
It's fairly small and so when you talk about.
Rolling out other services on the broadcast spectrum you need more.
More availability of spectrum and.
That sort of move.
I believe will only happen once people get line of sight on on Wanda dose sunsetting.
Okay, and then following up on that what's your sense of.
The <unk>.
Prospects for that in terms of do you think that there is a 5% or do you think theres kind of unanimity.
Is there any political kind of posturing that could.
Given the way of contracting.
There is broad industry consensus around this transition and moving ultimately it's not good for anyone not good for the consumer and not good for the industry to to have to support two different standards.
And so the industry is a 100% behind that.
The notion of of Sunsetting, one auto and <unk>.
And supporting just one standard and from a consumer perspective. It makes no sense to have two standards out there as well in terms of the promise of what <unk> can deliver to the consumer I wont be fully realized until we fully make that transition. So it's good for the consumer or the industry's onboard.
I don't believe there really is any reason the SEC.
Wouldn't want this because its very pro consumer.
And it's just a matter of you know.
Getting through the process.
Okay. That's very helpful. Thank you.
Your next question is coming from Steven Kull at Wells Fargo.
Thank you.
Maybe just to start off on on Retrans. So Chris you talked about it now being down for the year I think the prior guide was down low single digits I guess that churn is probably the delta in there, but I would just love your perspective on maybe what's changed since the last update on Retrans.
Kind of a bigger point here as I figure the only broadcaster that's actually seeing gross retrans revenue down on a year on year basis. I was wondering if you have any view as to why that might be do you think it's just the structure of how the pricing is done in your deals or is there anything else.
Different than your Retrans negotiations versus your peer group.
Yeah, So Steve I'll take the first part of that question. So.
So we previously pointed to 2023 net retrans to be down low single digit percent.
And that was really given that the distributor renewables don't happen until the back half of this year for us.
However, recent mvpds subscriber reports, which evil had seen reflect the churn is increasing so if that continues our 23 net retrans could be lower than our previously previous commentary, which was down low single digits.
What I'll say that right now is we're not ready to provide either a new outlook, where we confirm that prior guidance and the reason being is we're only 50 days into the year, we're seeing subscriber churn by the mvpds, increasing but industry reports are still showing.
Churn to moderate so so right now we're not good either reconfirming, our re guiding for that low single digits, but.
But I do want to point out as Chris mentioned, because we have so many.
Renewables are they come up at the back half of this year and into 'twenty. Four we are still calling for the three year take or to grow low single digits because.
We can we can control rates right, we negotiate there, but what we can't control is the churn and really what 'twenty. Three is all about is where the churn goes.
Yeah, and just to reinforce that and address your specific question around us versus what.
The broadcasters may be seeing is with this is.
The confluence of various timing events that.
Our driving the outcome in 'twenty, 350% of our subscribers come up for renewal in the back half of 'twenty, three and 40% are front end loaded to the beginning of 'twenty four so that's 90% of the subscribers coming up in a pretty short window.
And.
With increased churn.
That's hitting the front.
Part of this year without having the benefit of step ups on those renewals. So that's what's really happening here in terms of just timing of our contracts and Steve one other point.
You know net Retrans for 2022.
For the broadcast is is up low single digits.
Yes.
Got it and then on the <unk> issue. This seems like a rather deliberate approach by Paramount. So I'm just wondering how you see the situation getting resolved and I think that Paramount has Youtube TV coming up in the next few months.
And so do you have a view on whether or not you know something similar might happen and I can't help but think of how CBS . Prior to the merger was often speaking very aggressively about how they expected to reclaim more of net retrans and whether you think those two are related and I know this is a long question, but maybe just to put in there.
As a CBS affiliate renewal part of your cadence for this year.
We.
In terms of CBS .
The last question you have.
We do not have any renewals with CBS I think until the year until year end.
And.
I think this will eventually get resolved.
Here in terms of food, though.
Youtube will have to see.
But my my take on it is that and it will be resolved.
At some point between us and the networks in the next you know.
A couple of months.
But.
I think the bigger issue that we're highlighting is.
Is just one.
And equity in terms of how virtual as our Delaware versus traditional <unk> and <unk>.
That is a it's something that there's a growing consensus within the industry and within D. C.
At that age change.
And then maybe just lastly, so we will see the Q1 EBITDA guide does it look like it's a decent amount below the Q1 2021 EBITDA number excluding diamond impact at that point I was just wondering do you is there something.
On the timing of cost of tennis channel, that's hitting that or do you expect EBITDA to grow as you move through the year and the basis of the question is that.
On a trailing eight quarter basis. This year, you'll be swapping essentially 2021 quarters for 2023 quarters. So as we just think about the net leverage of the company.
Those 2023 quarters look a lot like the 21 quarters and it seems like your leverage could go up this year. So I just wanted to see if I'm missing any pieces there. Thank you.
Sure So what's really driving the EBITDA is.
Is in part the the advertising environment that Rob talked about where the guide is a wide range of guide.
On core advertising right, so flat to down mid single digits.
There's also political that we don't have in Q1 of this year versus Q1 of last year.
We do have step ups in all of our just sort of you know.
Normal compensation, that's in there where you know we fully load it for bonuses.
Assuming that everybody will hit their budgets.
We do have some of the initiatives that Chris talked about $75 million for the year. There is some amount in Q1 of this year again those are all well.
We'll generate returns.
As time goes on and we do have additional tennis channel right.
That are higher than than last year. So so I would say those are the big things that are driving driving the EBITDA quarter over quarter, but again some.
Some of those things are are good expenses to have like the rights or the initiatives because they are part of our long term growth story.
And then on your leverage question.
So what I would say is.
We ended 2022 at four times, a total net leverage.
Do expect for it to increase this year beyond our target range and just as a reminder, the target range is high threes low fours. So we do expect by the end of this year will be higher than <unk>.
<unk> done that low fours area and again, that's really primarily driven by the absence of political the macro climate the strategic investments higher interest rates last year, we had.
Benefit of the cash tax refunds that we won't have this year and then of course the decline in net Retrans now. The good thing is 24, which is a presidential year is right around the corner and we will start to see some benefit of that later in the year and more like fourth quarter, but we are.
<unk> right now another record breaking political year.
Next year and so that will then help to Delever the company.
Great. Thank you for all the color.
Okay.
Your next question for today is coming from Aaron Watts at Deutsche Bank.
Hi, everyone. Thanks for having me on you've covered a lot of it around I just had three quick follow ups really.
I don't know if you're able to share what percent of your retransmission revenues come from virtual mvpds versus the more traditional ones and then secondly, with the distribution renewals that you've highlighted coming up at the end of this year and beginning of next year will you be.
<unk> exclusively for your stations or will you be continuing to negotiate for the IRS and as well with those renewals and then lastly, Lucy just to follow up on your comments around leverage.
I know you've bought back some bonds.
The recent past curious if.
Continuing to take advantage of the discount those bonds trade at currently what would help the deleveraging process as well as you move forward and think about free cash flow priorities. Thanks.
Thanks, Erin so yeah, we don't disclose.
Finish between virtual versus traditional.
And then in terms of your question on Diamond as you know it is now an independent entity with a separate board and management team.
And so we don't control the decisions to happen, there and nor can we necessarily speculate as to.
What happens.
With the services that we provide so.
That's all I can say on that.
Yeah I'll go ahead jump in so on the buyback.
So as you know.
We're always opportunistic whether it's debt or equity and as you pointed out we bought back.
$118 million, which was about 25% of the 2027 notes last year at a discount. So we will continue to be opportunistic on all those fronts. This year.
We will balance that with the commentary around leverage around investments.
Around the macro.
The environment as well.
And then you know.
Just remember that the net leverage is net of cash so to the extent that you are using cash to.
To buy in any of the debt, it's really the deleveraging impact.
Impact will be based on the discount that you get otherwise you know the bulk of it would not be deleveraging I need to discount.
We'll continue to be opportunistic.
Are you.
Again, all of these fronts, while we balance some of the other priorities that we want to do.
Okay. Thank you for the time.
Your next question for today is coming from David Hamburger.
At Morgan Stanley .
Alright, Thank you and good morning.
On February 10th.
Issued an 8-K stated that you purchased.
The Diamond sports preferred.
That was issued to jpmorgan for $190 million too.
To extinguish that guarantee I was just wondering if you could talk a little bit about the timing of that and then importantly.
Diamond chose to.
Not pay its coupon last week I'm, just wondering are there any other.
Financial issues associated with Diamond that we should be considering with regard to Sinclair you did call out the management fee changes in this quarter for the <unk> Guide.
Curious if there's anything around say the previous tax consolidation of of diamond or any other financial issues, we should be aware of with regard to Sinclair specifically.
So with regard to the preferred it really it was a cost of capital issue.
As that has a floating dividend rate on it and as interest rates started to go up.
That dividend rate.
Starting to get quite high as Lucy mentioned it was over 12%.
When we retired it and so that really coupled with negotiating a small discount from J P. Morgan sort of played into.
The decision on the timing.
Sure.
As it relates to Diamond state.
Stated earlier, we don't control Diamond anymore, it is becoming increasingly.
Independent.
We expect that.
The tax benefits and.
The management fees that we get from Diamond will reduce over time as it becomes more and more independent.
And is there any way that we can think about that impact.
On Sinclair and how they're kind of any dimensions around that you can offer us I know historically, you haven't really broken that out.
Now that's not something we can.
Give any guidance on at this time.
Okay. Thank you very much.
Your next question for today.
And in soft at Deutsche Bank.
Yeah.
Hey, guys. Thanks for taking the question.
I just wanted to follow up on the comment that growth of reverse has significantly moderated over the last year.
If there are any factors that you could talk about that are causing that and whether we should expect that trend to continue over time.
We do expect that trend to continue and really what's driving that is.
The shift in focus.
The big media companies.
To their streaming platforms.
And and also just the magnitude of the reverse payments.
<unk>.
Reverse went from sort of zero to 100 and in a very short period of time.
And it is at significant levels at this point and so.
Coupled with the magnitude of support that we give the networks for their programming.
Couple that with.
Some of the.
Shifting focus on other.
Platforms is is.
What's playing into that negotiating dynamic and the ability for us to manage the cost of our network relationships.
Thanks.
Your next question for today is David Karnofsky at J P. Morgan.
Alright, Thanks, Lisa just going back to your commentary in the through your CAGR for net debt Retrans. I think you said you were continuing to expect a low single digit growth, but I thought the guide at your Investor Day was low to mid so can you just clarify if there was a change there and whether that's due to churn and then I think political in Q4 was just below the low end of your guidance. Despite the <unk>.
Georgia runoff can you say if there was a bump in political AD revenue for November and December .
Okay.
Yeah. So we are yes is the three year CAGR that we previously had out there which was growth of low to mid single digits right now, we're saying low.
Low single digits could still be mid single digits.
Mentioned.
We're still early into 'twenty three.
And we have conflicting.
Reports out there.
One, which the distributors are reporting where they continue to churn, but then industry reports that are looking for moderation. So.
So right now we're confident in saying.
The three year take or with very low single digits.
On the political.
On the previous election prior to this one that was the eight week cycle. This was brought down to a four week cycle and the dollars that were expected to go up to the run off did not materialize the way it did in the previous election.
That's why it's a little bit lower from the guidance.
Thank you.
Yes.
Once again, if there are any questions. Please press star one on your phone at this time.
You do have a follow up question coming from Dan Carnose at benchmark.
Yes. Thanks.
I don't want to ruin it but I guess, we'll go to a core question 53 minutes into the call here.
Rob.
Give us a little bit.
Yeah.
He was talking to me feel left out.
Yeah.
Yes go ahead, if you could talk a bit about the.
Doug if you can talk a little bit about maybe like local I know you don't break out local and national would be more but it would kind of imply given the national weakness at local and.
Somewhat off and I know you don't have great visibility, maybe a little bit of softening in March, but you've got some pretty easy auto comps.
And be helpful. If you could kind of give us sort of your view on sort of.
The broader landscape for advertising as you see it sort of playing out over the course of this year.
Yes, so oh.
<unk> was strong.
Jan in fab the weakness, we're seeing is really on the national side and we continue to think that we will see that we're not seeing any cancellations at all what we're seeing is close in and Thats. Why March is lagging right now we expect the orders to start to come in at the end of this week.
Beginning of next week.
With our large CBS will be able to take advantage of <unk>.
March Madness tournament, so automotive has rebounded.
Off of its lower basis point, but.
There is inventory on the local laws the tier three watts, even though interest rates are up people are still buying cars I've had several conversations with mega.
Mega dealers.
So the purchasing of cars.
During the Covid cycle is really use that was driving it because there was no new now.
Having shipments received the tier three level, so that bodes well for us the legal category people are traveling again, so the travel segment in the entertainment segment is up as well.
And so we're still confident in the way we built our systems, even if the economy downturns.
We have.
Various levels of packages and solutions for.
The advertisers, even if they cut back some budgets we have solutions.
Have them remain advertising and we have a lot of studies that those that remain advertise endured downturn come out stronger than those that don't advertise this downturn.
No.
I think with our mixture of solutions that help solidify where we are from a core basis.
Got it Thats helpful.
Chris.
Is there a way to.
Size, the incremental tenants opportunity as you see it this year or is it more of a 'twenty four and I'd love an update on where compulsory right now.
Mhm, yeah. So yeah, there's a lot going on at tennis.
International continues to expand as I as I mentioned.
We continue to enhance the programming.
Direct to consumer will be also.
A 2020.
Or then.
So.
You won't see a financial benefit in tennis in 2023.
A lot of those initiatives are.
<unk> are still in investment mode.
But.
We're very bullish about tennis and the future.
As it expands globally as it gets more rights and it goes up.
Builds out its direct consumer presence.
Sorry, what was your second question again.
Okay.
On Capella, if you had a deal that can pulse and pulse continues to grow nicely.
We continue to add to mature or the the offering.
And and enter into commercial relationships.
Which improved the business this year will be a there'll be a big focus on profitability.
We do expect it to turn profitable in the back half of this year.
While still maintaining high growth so.
We're very pleased with progress we made in composites.
And.
Getting it too.
Two a net contributor.
We think it's going to be a very positive event later this year. The one more thing on tenants as we continue to expand the spokes of the major wheel.
Tournaments, we.
Expect to be launching in partnership with a leading E tailor.
White table tennis drop.
The auction with tennis channel that will allow us to be in the merchandising business as well.
Got it awesome. Thanks for all the additional color really appreciate it.
Thank you we have reached the time allotted for the call and I will now turn the call over to Chris Ripley, President and Vice President for closing remarks.
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.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.