Q2 2023 Sinclair Broadcast Group Inc Earnings Call
Okay.
Greetings and welcome to the Sinclair second quarter 'twenty to 'twenty three earnings conference call.
At this time all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
I'll now turn the conference over to your host Kris King Vice President of Investor Relations. Thank you.
You may begin.
Yeah.
Good afternoon, everyone and thank you for joining Sinclair second quarter 2023 earnings Conference call. Joining me on the call today are Chris Ripley, Our President and Chief Executive Officer Sushi word 1000 are our executive Vice President and Chief Financial Officer, and Rob Why Ford, Our Chief operating officer, and President of local media.
Before we begin I want to remind everyone that slides and supplemental information for today's earnings call are available on our website at V. G. I got Matt on the Investor information page and on the earnings webcast page.
Following shareholder approval and closing of our holding company reorganization, we recast our financial results on a quarterly basis for 2022 in the first quarter of 2023 to conform with the new organization structure and reporting.
Those updates are available on our website for the revised segment reporting for questions about our recast financial statements. Please reach out to our Investor relations team sometime after this call.
Certain matters discussed on this call may include forward looking statements regarding among other things future operating results.
The 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 second quarter earnings release. The company undertakes no obligation to update these forward looking.
Statements that.
The company uses its website as a key source of company information, which can be accessed at www Dot SPG I got met and.
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 our next quarterly earnings release include.
Included on the call would be 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 company's operating performance and the ability to service its debt. The company also believes that adjusted EBITDA is frequently used by industry analysts investors and lenders is a measure of valuation and ability to service debt. The company also disclose the segment adjusted EBITA as an indicator of the operating performance of the segments and according.
With ASC 280 segment reporting the company consider suggested free cash flow to be an indicator of the company's operating performance. The company also believes the free cash flow is a commonly used measure evaluation for companies in the local media industry and.
In addition, this measure is frequently used by industry analysts investors and lenders as a measure of valuation for local media companies. These men.
<unk> are not formulated in accordance with GAAP are not meant to replace GAAP measurements and may differ from other companies uses or formulations. The company does not provide forward reconciliate does not provide reconciliations on a forward looking basis.
Further discussions and reconciliations of the company's non-GAAP financial measures to comparable GAAP financial measures can be found on our website www Dot S. P. G I dot net and.
Any discussion of pro forma numbers as compared to 2022 will exclude diamond which was de consolidated on March one 2022.
And any business sold since the beginning of 2022 for actual results, including the periods that Diamond was consolidated please refer to this morning's earnings release. In addition, due to the pending Diamond litigation, we are unable to comment on any specifics regarding the legal issues surrounding diamond's bankruptcy or any potential financial impact that may or may not occur as.
As a result of those matters other than to say that some quick Sinclair firmly believes that it has meritorious defenses to the allegations in the diamond lawsuit and we plan to vigorously defend against them. Let me now turn the call over to Chris Ripley.
Good morning, sorry, good afternoon, everyone and thank you for joining us I'll start on slide four as I would like to begin by discussing the holding company reorganization that was approved by our shareholders in late May and which closed on June 1st under the new structure Sinclair, Inc has become the publicly traded parent.
Sinclair broadcast group and Sinclair Ventures, SPG holds the pure play local media assets well, a newly formed subsidiary Sinclair ventures, all the company's non local media assets.
The intent is to provide the investment community with greater transparency of financial results and disclosures on the value drivers of the business, while increasing both operational and financial flexibility for creating value within the company.
In addition.
We are now disclosing more financial detail about the operating results of tennis channel, which is now a separate SEC reporting segment as well as more information regarding management's estimates of fair market value for our non media assets, including our investment portfolio.
The reorganization will allow more transactional flexibility and transparency around the sum of the parts valuation analysis, which I will discuss in more detail. Shortly Additionally, ventures will now have more flexibility to potentially access additional financing whether debt or equity to further grow or invest in these assets well.
Our pure play focus local media division will continue to transform and unlock overall value for the organization.
Turning to slide five we remain firmly committed to the local media industry, which is our legacy and core business. However increased competition from technology companies streaming content providers and the networks as well as continued regulatory constraints.
Means that we must transform to remain relevant and to grow impressions and revenue share.
They must also embraced technology, which is why we're earmarking $75 million. This year for our cloud technologies automation and AD sales platforms data distribution yield management and a customer data platform.
Due to a combination of timing and permanent cost savings, we now anticipate spending approximately $65 million on these efforts during 2023.
Over the next 12 months, we intend to allocate capital to marketing services multiplatform content comedian actor interactivity Nextgen broadcast and cloud technologies are.
Our next Gen broadcast plans remain a key focal point of this transformation.
The migration of ATF, Ctrip, I know and distributed data products will allow our industry to unlock the value of our significant spectrum holdings true new revenue and cash flow streams.
And despite net leverage increasing this year in part due to our investment in broadcast and net Retrans renewal timing, we believe the changes and investments we are making will drive through a broadcast future returns and free cash flow leading to reduce debt over the coming years.
We intend to remain keenly focused on strengthening the balance sheet as we continue to execute on our business strategies in the coming quarters.
Turning to slide six I wanted to provide a brief governmental update regarding several key items for Sinclair as well as the broadcast industry at large.
In mid June the Senate Judiciary Committee passed the journalism competition, and Preservation Act, which would allow broadcasters and other news of production organizations to negotiate directly with large big tech platforms for widespread content distribution.
Also in June Senator Cantwell Express public support calling on the FCC to initiate a process to update the definition of Mvpds to address the rise of live streaming video services and to allow a direct negotiation of carriage between virtual mvpds and broadcasters.
In addition at the annual <unk> show in May FCC, Chairwoman Rosen Worstell announced an NAV led leadership Ruth to grow to work through the issues related to the broadcasting industry's ongoing transition to a T. I C. Three personnel for next Gen broadcast services.
They should help facilitate the wind down of the older Acs He wonder out of standard, which will open up more spectrum capacity for future services. We are pleased with all three of these significant governmental developments and we look forward to working with legislators and regulators regarding these crucial issues for broadcasters.
Over the coming months.
On slide seven ventures strategic path is about amplifying its approximate 1.25 billion portfolio with a focus on shifting from mostly minority owned two majority owned and consolidated growth investments our diversified portfolio of investment assets has delivered strong results in the path.
Returning an IRR of 19% over the past 10 years and our target for future investments is to have an IRR thresholds goal of 15% to 20%.
We look forward to sharing further developments regarding this asset portfolio in the months ahead.
Turning to slide eight.
We are disclosing separate financials for tennis channel for the first time as part of our increased disclosure for Sinclair ventures.
During the second quarter tennis channel reported $60 million in total revenue and $8 million and adjusted EBITDA. We note that there are some seasonality associated with tennis channel's financials, particularly on the operating expense side largely due to production costs associated with the courage and Roland Garros, which occurs during the second quarter.
We expect full year revenues to be in the range of 223 to 226 million, while adjusted EBITDA is expected to be in the range of $53 million to $56 million.
This includes approximately 14 million in net operating expenses to fund our growth initiatives, including direct to consumer tennis channel International teach you and pickle ball.
As seen in slide nine we're also presenting greater disclosure around ventures investment portfolio, which includes non media assets and excludes tennis channel I can pass along with the current methodologies for calculating the fair market values of the various assets.
As you can see management's estimates of the value of these assets includes the current cash position, reflecting a total portfolio value of 1.25 billion. As a reminder, these assets have generated a 19% internal rate of return over the last nearly 10 years.
During the second quarter Sinclair made investments of approximately 6 million into the portfolio of investments and received distributions of approximately $5 million.
Going forward part of the strategy and Sinclair ventures will be reducing our minority stake investment stakes overtime and focusing more on majority of investments that we can operationally and financially control.
Turning to slide 10, I wanted to highlight the current valuation discrepancy between our estimation of the fair value of RF, our assets and our current enterprise valuation.
As seen in the table our current total enterprise value as of July 26 was 44 billion.
We assign an approximate 1.25 billion dollar valuation of the assets held in our investment familiar as seen on the previous slide.
We assign an approximate $1 billion valuation for tennis channel and can pulse based on tennis channel's EBITDA using a 12 times trailing 12 month multiple and a two times gross drilling multiple for pulse.
When combined this yields an estimated approximate $2 3 billion dollar fair market value for Sinclair ventures.
Assigning a seven times adjusted EBITDA multiple for our local media segment, which is in line with recent trading comps on an average eight quarter basis yields a local media group fair market valuation of $5 7 billion.
Taking into account.
Approximately $50 million of annualized unallocated corporate expenses. This yields an estimated total implied fair market value for the company of approximately $7 6 billion.
Suggesting a current equity discount of almost 80% with an implied share price of approximately $65.
While we realized an acknowledged a current discount on our capital structure due to several issues, including some uncertainty related to the diamond sports bankruptcy outcome. We believe the deep discount on the fair market values of our current asset remains on justified.
Management is keenly focused on closing this valuation gap as we continue to invest in both our local media adventure assets and businesses.
One of the ways, we expect to close this valuation gap is through the transformation of our traditional broadcast business.
Turning to slide 11.
<unk> continues on our next Gen broadcast core network and platform. We currently expect to go live in the first quarter of next year. This network will create an interconnected platform to provide commercial services and solutions for national data distribution and represents what we believe to be the next step in the evolution of the broadcasting industry.
Slide 12 highlights recent developments for next Gen broadcast to date, we are alive with next Gen broadcast in 41 markets, including recent launches in Southend, and Reno, which represent approximately 69% of the TV households in our licensed footprint.
By year end Sinclair will deploy nextgen and over half of our 86 markets covering 74% of our covered population.
The industry has also committed to launching an advanced emergency information pilot project to disseminate crucial information with enhanced broadcast features. We currently expect nexgen revenues to begin in 2024 as the technology grows towards V. I, a midpoint forecast of $10 billion in industry revenues by 2030.
I will now turn the call over to Rob for operational highlights Thanks, Chris and good afternoon, everyone. Our commitment to our local media platform remains strong Sinclair reaches one in three Americans on a daily basis more than 100 million people plus.
We're launching 25 local fast channels. In addition to expanding tennis channel into new international markets as well as expanding the network too fast.
We continue to invest in our social media and digital content.
Clothing hiring Nicholas James a veteran of HBO, Max Comdata Nast and he did hit our social and digital content initiatives that drive our growth and engagement strategy. This joins Richard Cook Vice President of audio programming.
He was brought in to create compelling local content delivered to audio listeners.
We are a premier cross platform producer and distributor of local media on every platform wherever whenever and however, our viewers listeners want to consume it.
Richard will create the digital bolt ons that links our 2500 hours plus of weekly local news and the national desk content for compelling at this stage the digital content before coming to Sinclair Richard oversaw the launch and growth of a dozen a podcast that cadence 13 and has worked is it.
Producer across ESPN radio television and digital assets.
Turning to slide 13, I wanted to take a minute to provide some color around our distribution revenues several weeks ago, We announced a distribution agreement with Hulu that carriage of tennis channel teeth to common in charge to Hulu plus live television.
Beginning in January of 2024.
During the second quarter, we began our new carriage agreement with Youtube TV, which now has access to tennis channel teeth to charge and TBD as of June <unk>. In addition, as a reminder, with respect to our upcoming Retrans renew cycles, we have material renewals coming up during the second half of this year.
And into 2024.
Mine represent approximately 90% of our big four subscribers. These renewals are expected to drive both top and bottom line growth to achieve our guide of a three year CAGR of net retrans growth of low single digits. In addition, we anticipate our reverse retransmission.
Agreements to have modestly improved terms as the industry's takes into account current subscriber churn levels as well as the loss of some additional exclusivity as networks with wholesome content for their own streaming products.
During the second quarter was slightly better than our internal expectations. However, we continue to anticipate linear subscriber churn to continue at elevated levels for the entire industry.
We still believe however that broadcasters are not at parity with respect to retransmission revenues and that the industry is not adequately compensated for the programming and content and audience share that we've consistently Brian .
Notably turning to slide 14, a study conducted by the TV viewer advertising earlier. This year found that local broadcast news has eight to 12 times the daily impressions with only a fraction of the total number of programs of major streaming platforms. The study reviewed.
One day of asphalt audiences versus the same one day at linear broadcast television audience for local broadcast news programming.
Local broadcast news remains a key pillar of the viewer engagement across the country and is a key factor in our belief that local broadcasters are not being adequately compensated for such programming to that.
We discuss our current core advertising trends for the local media segment on slide 15.
For advertising, excluding political fell by less than 1% in the quarter on a year over year basis auto continues to be a strong performer for us with that category up 6.5% year over year, We believe our drive all the platform allows us to clearly differentiate ourselves in the marketplace.
From a tier three dealer perspective.
Overall legal services continue to perform well during the quarter, but most other service categories led by insurance reported year over year declines as we begin to look at early third quarter trends for avatar advertising trends appear to be largely unchanged from second quarter trends with a notable exception of <unk>.
National advertising, which is improving over the past month on slide 16, I wanted to provide an early preview of what we believe it will be a strong 'twenty 'twenty four for political advertising as shown on the slide Sinclair stations in 23 of the 34 states with Senate races in 2024 definitely alert.
Plus the past quarter.
This includes twenty-three Ed Edward R. Murrow Award for Outstanding Journalism Ah Sports Emmy Award for writing Long-form and Portelli Awards for news and news feature reporting for full measure with Cheryl Atkinson.
In addition, our local Baltimore Fox affiliate W. Bff was on it with two prestigious awards in the quarter first by investigative reporters and editors fruits reporting on the Baltimore Public School system is.
Disposing how students with disabilities were denied a proper education.
The station also on our National Sigma Delta Chi Award for investigating.
Reporting for its ball project Baltimore reporting unit from the society of professional journalists.
Project Baltimore also won the prestigious investigative reporters and editors award for the year.
In addition for the Saint Clair podcasts will recognize the best in their respective regions and.
In total so far this year Sinclair is one.
180 Regional awards.
And 14 National Awards for news operations. These awards underscore our unwavering commitment to provide the best in local journalism and news gathering and we are extremely proud to be so on it I want to congratulate all our award winning journalist who have been disciplined diligent and unafraid.
About producing challenging stories.
Turning to slide 18, and as Chris touched on earlier tennis channel continues to perform well with audience says up in key Democrats graphics across the board coverage of Rolling garrison late May and early June with over 2000 hours of coverage drove record viewership.
For the linear channel as well as viewership for tea too.
Are alive, and Vod subscription service and it's channel plus despite one little thing shifting a week later this year second quarter twenty-three average audience increased by 20% year over year in total viewers outpacing all other English language sports networks live coverage of Rolling Gary.
So our total viewership increased by 13% of of last year's levels and that Djokovic Alcoa's semifinal match was the second most watched tennis channel match of all time, while tennis channel plus starts average number monthly subscribers increased by 17% year over year.
Tennis also launched its e-commerce store.
<unk> Dot com in early June during Roland Garros with racquet sports equipment E. Taylor Tennis point. In addition, tennis channel continues to invest in its growth initiatives, including tennis channel International teeth to the network direct to consumer product offering which is tentatively.
Scheduled the launch of March of 24, as well as Pickle ball, we believe tennis challenge well positioned to deliver continued strong growth metrics in the months and years to come.
Also of note are Salt Lake City affiliate K, J Z Z known as K Jazz announced last month that it will be carrying all non nationally televised games of the M. B A's, Utah jazz beginning in this upcoming season.
Already seen as high engagement from this content during the summer late I will now return call over to Lucy to share our financial results.
Thank you Robin good afternoon, everyone.
Hitting on slide 19 on a consolidated base.
Clifford media revenues during the second quarter at the high end of guidance X distribution revenue was not actually higher than expectations and core advertising revenue net our internal forecast.
As compared to last year consolidated media revenues decreased to $761 million during the quarter, primarily on the absence of political revenues and to a lesser extent the impact of year over year subscriber churn and softer national for advertising.
On a pro forma basis media revenue was $762 million in the quarter, which excludes the basket assets and is comparable to the $828 million in the second quarter of 2022 as seen on the right hand side of the slide.
On slide 20, consolidated adjusted EBITDA exceeded the high end of guidance for the pointer on revenue performance and lower than expected expected expenses driven by any focus on cost controls and timing.
As compared to last year on a pro forma basis consolidated adjusted EBITDA in the quarter decreased from the year ago period.
With media revenues contributing most of the decline as a result of the absence of political revenues, which is not an apples to apples comparison is this year, it's not a major election year.
Maybe expenses were up modestly in the quarter year every year due to annual compensation increases production expenses as well as our investments in technology and other purse initiatives.
Corporate overhead nine media EBITDA and other costs increased slightly year over year and were partially offset by lower filling payments.
Okay.
On slide 21.
Our consolidated adjusted free cash flow results, which also exceeded our guidance for the quarter due to the revenue and adjusted EBITDA favorable results as well as lower than expected capital expenditures with other cash items being in line with our forecasts.
It just it free cashflow declined year over year on a pro forma basis, primarily due to the decline and adjusted EBITDA as just discussed on the previous slide as changes in net interest cash taxes and capex netted against one another.
[laughter].
Slide 22 shows to consolidated results by statement with the local media save me contributing 111 million of adjusted EBITDA, Mcwhirter and tennis contributing 8 million.
Slide twenty-three walks through our balance sheet metrics.
Our next meaningful that maturity is to term loan be two in September of 2026.
Saint Clair television troops, firstly net leverage with 4.1 times at the end of Q2, while S. T. G. 's total net leverage was 5.1 times.
<unk> company net leverage three Sinclair, Inc.
Four seven times, including all debt and cash on consolidated Sinclair inks balance sheet and using the trailing a quarter consolidated average adjusted EBITDA.
Our consolidated cash position with $728 million pointer and with $368 million of cash at S. B G and $360 million cash it ventures.
During the quarter diamonds, repaid or 193 million outstanding balance of the accounts receivable facility and reduce the commitment to $50 million, which is currently undrawn.
There were 63 million total shares outstanding at quarter end.
And even though we believe our equity is significantly undervalued at current levels, we did not repurchased any additional share since our may earnings report and instead transition to open market repurchases.
Oh, no, we repurchased 32 million in principle amount of our outstanding debt in June and early July .
Across various that tranches for approximately $21 million in cash.
Misrepresented a weighted average discount of 35% to par and a weighted average yield to maturity of 13%.
We anticipate continuing to be opportunistic regarding future repurchases of S. T G as various that tranches. Despite a significant lack of active sellers at current levels.
Turning to slide 24, we present, our third quarter financial guidance by statement.
On a consolidated basis, we expect total revenues to be between 742 and 763 million Matilda.
With total media revenues of 733 to 752 million, which is down 10% to 12% from pro forma year ago levels.
The primary reason for the decline is due to the absence of political advertising revenues and a nonpolitical year.
During the third quarter of last year, we booked 89 million of political revenues versus seven to 9 million expected and this year's third quarter.
In addition, a year over year decline in distribution revenue, it's estimated to contribute roughly 15 million of the decline at the mid point of our guidance range, which is partially offset by a slight increase in core advertising revenues year every year.
While we are not providing full year revenue guidance, we are providing an early call on fourth quarter political advertising, which we expect to be approximately $25 million.
On a consolidated basis, we expect third quarter adjusted EBITDA to be 91 to 109 million down from a pro forma third quarter last year adjusted EBITDA level of 201 million again, primarily due to the absence of political revenue the impact of continued subscriber churn.
With no material distributed renewables until later this year.
Higher network programming fees as well as our investments in technology infrastructure and growth initiatives.
Adjusted free cash flow is expected to be in a range of negative 9 million deposits at $14 million during the third quarter versus 173 million in the year ago period with the primary drivers of the decline consisting of the lower adjusted EBITDA higher interest expense and.
Over 50 million in a primarily cash distributions from investments received during the third quarter of 2022.
Slide twenty-five represents our new four year expense and certain cashflow guidance, notably with media expenses in Capex come in and lowered them prior guidance.
And with that I'd like to turn the call back over to press for some closing remarks before we do Q&A.
Thank you Lucy.
Turning to our key takeaways on slide 26, Sinclair wrapped up a busy first half of 2023 with a <unk> on a solid note as we met and exceeded our guidance expectations for the second quarter.
While we continue to deal with increased linear subscriber churn levels Sinclair as well positioned for the future with continued progress being made on our next send broadcast network and business strategies, which we believe will begin to transforming industry in 2024 and beyond as well as our ongoing investments in technology cloud.
Transformation and our industry, leading sales platforms. In addition, we also completed the reorganization of our business units with the separation of S. B G and ventures, providing improved transparency for our investors, while providing us with much greater transactional and fresh financial flexibility going forward.
We believe the current enterprise value of the company falls well short of the true value of the assets that we possess an addition, I wanted to reiterate my earlier comments regarding our commitment to reduce debt levels over the coming quarters.
We are also looking ahead to significant retransmission agreements that are coming up for renewal over the next six to 12 months, while preparing for what we believe will be a record year for political advertising in 2024.
In the meantime, we continue to see increasing demand both domestically and internationally for our tennis channel related assets and programming and we are proud to be recognized as one of the news journalism leaders in the local media industry Sinclair as well positioned for the future and we remain excited about the opportunities that lie ahead of us is.
We enter into the second half of the year.
Lucy Robyn I will now open the call to questions. Thank you for joining us today.
Thank you.
This time, we will be conducting a question and answer session.
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Why would vote for questions.
The first question today is coming from San Carlos.
For our company.
On your line of five.
Great. Thanks have a good evening <unk>.
Really appreciate all the incremental disclosure guy Super helpful and kind of framing the argument.
Chris like I'll I'll give you the floor just to kind of go back on a question that I know you'll get a lot just in terms of the sum of the parts arguments.
Getting investors or people to recognize that value you've laid out kind of a comprehensive strategy now for how.
The company is going to evolve going forward, and obviously execution matters to some extent, but if the discount remains in knowing that you guys are addressing the debit side, which you've done pretty well so far here.
How do you think about your willingness to you know <unk>.
On block incremental value or do additional things to unlock value. The way that you think it should be perceived.
Yeah, that's a great question Dan. Thanks for asking you know, we I think what you.
Can take away from what just happened back in June that we're very focused.
On unlocking this hidden value within the company, we back that up in a with a significant share repurchases now with more debt purchases and.
We are very open to.
Any and all strategies to maximize value at the end of the day that is our number one goal here. So you know we think this new structure will help tremendously.
And but we're we're open to new suggestions and new ideas and always looking to to get better.
And in terms of patterns for the portfolio, obviously, there's a lot of rumors out there in terms of stuff that could you know what what types of <unk>. I know you guys have to take that into consideration, but you created a vehicle for incremental financial flexibility Thursday target leveraged your thoughts.
On you know size Oh, what could be added a majority stake components of what you talked about today.
Sure well as you can see any investment portfolio. It now has over 300 million of cash.
And so we we do recognize that in terms of getting value credit it would be much.
Easier and better from the Wall Street perspective, if we had consolidated financials on that on those investments. So <unk>. That's a big reason why we're gonna move away from minority investments, which has done incredibly well over the last 10 years and we're very happy we we did that yielding over and 19 cents.
IRR, but we also recognize that you know having underlying financial performance.
In in our disclosure of our various divisions would be better and and so we're looking at that 300 million of.
Of cash and I'm thinking about how we can deploy that into a new.
Investment or division, if you will because it would be consolidated some time in the back half of this year or early next year.
Got it.
That's helpful and just wanting to be one for Rob just in terms of your commentary you know we've heard switching upfront coming a little bit better than feared I guess I would say you know national obviously has some really any problems in the back half of the year. It sounds like insurance in particular is getting a little bit better, but you know is there anything that you can tell us in terms of conversations with.
Advertisers just given all of the noise out there between the stripes and everything else. So.
What the underlying U is and how fluid the environment is right now.
But it's still a month to month basis spot, where encourage will not see any significant cancellations then all those maybe it's full cycle. So now is turning their inventory on this here three losses.
C tier to monitor regional spending as well dollar submitted for the upcoming college in N. F. L football seasons are being committed to now so that leads us to believe that we're robot on the return of AD revenue and also encouraged by the amount of issue.
Q and political dollars being spent right now we have money is being spent in Ohio, Pennsylvania.
Rhode Island in Iowa markets, right now and we expect further markets but.
Where where pacing ahead of our second quarter performance right now for third order.
Which bodes well, where Lucy gave the guidance earlier of 25 million for fourth quarter, and we firmly believe going into 20 or so Sinclair, we'll have another record president neutral ear.
And so and with our expansion of.
45 fast channels that will be news focus local news focus.
As inventory gets tight those alternative source for the political dollars to be spent in the same genre of the day bye through the broadcast wires. So it's long winded, but the key categories that we measure services is getting strong or even notes bill basically negative there'll be with <unk>.
Glory, which drives local business and automotive has been positive for the last couple of quarters, So I see the strength coming back and.
Somebody ask you about the rise of strikes all networks have contingency plans.
Then solid had been shifted from prime over the last several years into sports. So we're fully loaded with sports a fourth quarter on all networks.
Got it was really comprehensive thanks I appreciate it.
<unk>.
Thank you. The next question is coming from Aaron what's from Deutsche Bank or in your line of life.
Alright, Thanks for having me on a couple of questions for me I'll I'll start with this one and I apologize if I missed it but could you comment on the pace of erosion in your underlying sub base for your station group and whether recent trends have caused you to reconsider your three year outlook for not Retrans, which I think Lucy was low single digit growth.
Right so.
The the trend by and large it's a little bit worse, but we're still in mid single digits in terms of chern and and we are not changing our guidance in terms of the three year K here at 22 to 25 in low single digits. So.
We still had we can absorb that.
Small degradation that we've been seen.
Okay, and Chris I've I've asked you this before and I figured I'd try again today any greater clarity on whether the upcoming distribution discussions you mentioned will be representing your station groups only or if the our essentials there'll be a part of that and if it is a return just at the stations do you see some potential upside from prior terms.
When the <unk> were in the mix.
Right well, we yes, we will be negotiating for or not we will not be negotiating for diamond and these upcoming renewal. So that's the answer to that question and I do think that we are very bullish on.
And what the outcomes will be for what is almost 90% of all of our subs coming up in the next 12 months.
Okay, great. Thank you very much.
Thank you. The next question is coming from Stephen Carl.
Wells Fargo, Steven your line of life.
Yeah first maybe to just pick up on the sub comment you just made Chris so it looks like that the Retrans guidance for Q3 is about two per cent sequential move quarter to quarter, which I guess, we would then annualized about an 8% rate of churn. So just first question is that kind of the right way to think about.
Churn at this point and I think also I heard in the prepared comments that you're seeing some improvement in reverse comp should we think that to mean that the the rate of increase in those prices are lower than what they used to be I think that's kind of what we've heard N and the last three transferring to sneak in here as we've heard the.
Three out of the four national networks are now doing reverse comp is just a programming fee not per sub so wondering if you could confirm that.
So I'll I'll handle the.
Questions about reverse comp it it's most of our deals are six programming fees, that's not new.
That is is that that's been that way for.
You know.
Well, we really has been that way almost from the start of reverse retrans.
And then in terms of increases we were definitely seen.
Reduction in the escalation of those fees as they've become quite significant in terms of aggregate size and as the attention and focus of the network with a big need it comes with <unk> turned towards more S spot <unk>.
And and another property. So we as we spoken about in the in the past we do think the the the.
The dynamic and negotiate damage peanuts to the networks has balanced out.
<unk> and enabled us to manage our programming toss in a much more reasonable way so that's what you're seeing.
There.
Yeah.
Steven <unk> on the.
The revenue side as Chris mentioned, we're seeing mid single digit churn on broadcast and and you know that's what we've modeled into the guidance from a revenue standpoint, you don't don't forget there there will be you two T V.
Which just launched tennis in June 1st so you'll have a full quarter of.
That in there for third quarter, adding to some of the increase as well as just some.
Escalators euro per year.
Great and then maybe just a couple on the adventures portfolio. So I was wondering how we think about what the balance sheet entry currently is for some of the assets that you reflect on that five nine you know the cash in the valley Stakes or easy, but just wondering.
You know how you currently carry those investments on on the balance sheet and you mentioned that you might want to deploy some of that cash and with that could we expect any major exits ahead and also related on this one whichever consider spinning out this business cause I wonder if some of the challenges just that his media investors were a little out of our Ellen.
<unk> trying to put all this together sometimes thanks.
Sure. So so what's reflected on page nine alright.
Or the the current conservative market values of the various assets so that that does not come through on the gap.
Balance sheet on on the GATT balance sheets, the lower of cost or market.
And so most of these are going to be listed.
It costs because their market value is well out of their.
Their cost and so.
In terms of so that's why we have to give this the disclosure you know the way. It is it does it does not really show up on our balance sheet.
And you know that reflects the true.
Value there and so.
In terms of spinning this off as I mentioned before I think that sort of goes in the bucket of <unk>, what would we do to to realise value. You know that is something that it's not currently contemplated but it's certainly something that we've discussed and and ultimately if if if we can.
Can fix this valuation discrepancy it may be something that we would do in the future.
I think there was one other question embedded there that I might have missed.
Alright, you're covered most of it but just turtle yeah, you've ever consider like a spin out, but I think he kind of covered that and and the last bit. Okay. Thank you okay.
Thanks.
Thank you. The next question is coming from Boston Crockett from broken glass.
Pardon your line of life.
Okay. Thank you.
I was interested in your thoughts about.
And in fact, that's been put out there.
Which is five out you're saying does you expect to at some point ESPN will go direct to consumer maybe some type of partnership.
I'm just wondering you know crushed for your thoughts about what that means for the pay T V's ecosystem.
You know do you think others would respond to fix this accelerates subscribed for erosion or.
<unk> and is there anything that Sinclair should do to prepare for that.
Well when you take a look at what's on E. S. P N plus right now I mean E. S. P N is pretty much already there.
Very little that is not an.
E S. P N plus that that is on E. S. P N and when you think about what's happened over the last five years and to me. This is just.
One of the last dominoes certainly not the first is.
Is essentially exclusivity has gone away you know when you are if you're a consumer.
And there may be some inconvenience to at all but you can access.
Any content on the P T a bundle in a myriad of ways.
And that's just really the outcropping of you know what's happened in the industry over the last five years with the advent of <unk> streaming.
Et cetera, and so what <unk>, what does that mean for the industry well.
It means that the pay T V bundle, which is discounted interstate's a large wholesale.
Content bundling when when you break down the cost to the consumer is less than a minute per program per channel basis than anywhere else and so what it's gonna come down to you at the end of the day since exclusivity.
Is really really does not exist in the industry anymore is what's the value proposition to the consumer.
And and T.
K T V is now competing on on a value proposition basis with all the other sources, mainly the S spots out there.
And it it it is I think significant that there's a shift a major shift going on in the industry away from subscriber growth in towards profitability for all the major escalade players I think pay T V got disproportionately hurt when there was a dive for subscribers and essentially these <unk>.
Other services, we're underpriced massively underprice and you're seeing now with the advent of advertising.
Not not having the ability to your password passwords price increases you name it via the relative pricing of B S fought alternatives is going up rapidly, which means that the value proposition of buying a large wholesale discounted bundle like pay T V is becoming a more.
<unk> attractive on a relative basis as the as the industry becomes more rational so that that's what I see you know from a bigger picture perspective, and and really you know.
One player within the market you know, taking some of the programming and making them more direct consumer is not all that impactful, but it really is what's happened over the last five years and what's more important to me is that the the marketplaces, turning rational and and focusing on profits not underpricing. It.
Product the other thing to look at it as.
The local sports teams you just recently started gray to deal with the pre like songs, we've done a deal with the Utah jazz.
And when you think about sports you should be thinking about how the local viewership typically dwarfs Nashville sporting events, except for the major events like the Super Bowl. So.
Will be carrying 70 games of the Utah jazz, there's kind of what what was old is new again, the return of local sports teams, the broadcasting which builds our value to the MVP. It is in a strong way so not only will we have the local news broadcast as well.
The returning with local sports teams as well.
Okay. That's great I appreciate the insight with <unk>.
One other thing I wanted to ask you about which is political so you know I think many of us I've been reading in the news.
Some of the fundraising total for you know, perhaps Trump and others are coming up a little shorter than it appeared earlier yeah. Your commentary about political still seems very kind of optimistic how did you kind of reconcile what we're reading about fundraising and Trump maybe running away with the Republican nomination and you're kind of constructive you a political at this early juncture.
It won't be just the individual seat races, and we are in <unk>. The majority of the contest is.
<unk> the word tight races in 2020, but you're seeing an abundance of issue advertising as well. So it's not just the candidate but issue as well that keeps us bullish on where the political outlook it will be in 2044.
Plus we also think there's a lot of money sitting on the sidelines you know as as the the currently the Republican primary looks sort of uncompetitive at this point.
Which could be affecting fund raising.
But as you know things change they always do is if you get down to the stress here and we think you'll see fund raising start to raise later in the season.
Okay, great. Thank you very much.
Thank you. The next question is coming from David Karnofsky from J P. Morgan David Your line of life.
Alright. Thank you just the one <unk>. He noted the lack of programming facility could cough in that work in terms of reverse retransmission you could argue however that same lack of <unk>, especially in the sports.
The impact stations with Viggo to negotiate it at the end of the T V. So I'm kind of wondering how you were thinking about that as you head into your subscribers local.
Yeah. So.
At the end of the day.
There really isn't a service offering from the Mvpds in terms of video if they don't have key components of the programming offering which includes Arkansas.
So while it's true what I said that you know there are other ways to get this content and it's been that way for several years now for many program types.
The M B P D that they want to have a video service.
Need to have our channels and then that's what really underlines our ability to continue to get a healthy share of what it's charged yeltsin consumer and.
The <unk> portion of the equation is really sort of left the building.
Over the last five years as I mentioned and.
But I still and we still see good pricing power with the M. B P. DS because it is a product they still one offer.
But then I would say.
<unk>, serving our communities and our.
A relative value to the communities when we're importing our content and that's why is this data.
And that's why I started at all my <unk> with the fact that we.
We're gonna be relevant on all platforms, but when you <unk> when you have relevance on the digital platforms. It drives eyeballs right back to our linear broadcast station and so when you look at the award winning journalism that we do and then the other broadcasters do it as well.
That's the reason why people really tune in and when I reference that one then studied my C. V V. It just shows you how much local broadcast dwarfs all the other types of channels that are out there in the universe.
And then Utah jazz deal I, just wanted to see if there's any incremental detail you can provide on that maybe how it's structured how your best call them to monetize I think Rob maybe mentioned it really really thought maybe that could be something that could you know.
Supporting you on the distribution side.
Certainly so yeah, we're not gonna get into too much detail cause it is a confidential arrangement, but it will be on K jazz, which is our independent <unk>.
Station, they're in Salt Lake, which just happened to be the home of the jazz before the jazz moved.
Their games onto then direct T V or send now.
Uhm describing Warner.
And it is.
A deal where where in true partnership.
With the.
The team that was important to us that you know.
As we do better as as as the game to better everyone does better and we're already seeing.
Nice impact on that station. So for instance, you know we haven't even seen M. B a T as in stark, but because of this partnership we.
We got the the the developmental league the G League games on that on Orange, K jazz and their ratings basically quadrupled.
What was what what what they were when they were on the.
Discovery Warner R. S N L.
And and was a big lift from what previous program. We had on that station. So you know where where we are very pleased with the way that deal ended up working out and we think that partnership explain to <unk>.
It's gonna deliver both for the team in terms of maximum reach in fan engagement and then deliver for us financially.
Mmm Okay.
Thank you and the next question is coming from Benjamin soft from Deutsche Bank.
Benjamin your line of life.
Hey, Thanks for the question I guess, just sort of following up on the sports topic like would you anticipate that the volume of these deals with teams moving from your savings to broadcast to pick up over time and it was kind of how you think about that and then.
I have a follow up after that.
Sure. So you look I don't know what will happen in the future we're certainly seeing.
Some of the teams that are without a home like the discovery Warner.
<unk> you know they are.
Sort of the the you know that jazz was one of them you know, they're looking for other options, there's a big push from owners.
To go for more reach <unk>.
And there's no better reach vehicle then free over the air broadcast and the N. F. L is a great example of.
A league that is massively benefited from being on free over the air broadcast.
And I think the rest of the league see that and realized that that's been a great outcome for the N F L and and looking forward I think the right answer is that you know.
Some portion of games.
For every major sports should have a home on a free over the air broadcast to keep exposure.
Ah maximized and keep fan interest.
Maximize that doesn't mean, you know it'll all move but it does mean that I think.
For any owners you know that want to insure a healthy future <unk> a free over their broadcast should be a major component of their strategy.
Okay makes sense and then just on the note of not.
Not negotiating with <unk>.
Diamond in the next round renewals does that mean that the management fee will go away kind of as you go through those deals. Thanks.
Yeah look I can't get into the details on something like that you know we we are still.
Getting paid on a different basis the for the services that we provide but.
I can't comment on that.
Okay. Thanks.
Okay.
Thank you and the next question is coming from Courtney Bowman.
Hi, Thanks for the question can you guys give a little bit of color on how we should think about the incremental economic benefit stemming from you know your continued deployment of a T. F. T. Three point now next Gen. T V. I know you guys have rolled it out to you know a meaningful part of your footprint and expect to make more progress, but how does that translate economically into results moving for.
<unk> and what how do we quantify that what what should we expect.
Sure. So I expect some of the first nine Sir non broadcast services to start rolling out in 2024.
Things related to like enhanced C. B S. I think are some of the first things that will fall will start to roll out next year and that should start to create a revenue stream.
<unk> and other broadcasters.
It's.
Too early for me to guess how quickly it ramps up I think you know the directionally the mid point forecast for B I, a 10 billion of of revenues for the industry. I think is directionally correct and depending on a bunch of different factors like <unk>.
<unk>.
Receiver penetration when when they deployment is tiny finished when when that I'll get sunset at those are all things that I don't have.
The answers on yet to really give you a more predictable ramp to that higher.
Revenue, but yeah things are gonna start moving next year in terms of.
Monetization opportunities beyond broadcast.
No. That's that's helpful. I appreciate the color just one more in terms of got repurchases I'm moving forward. How should we think about you know your preference torch tranche in in buying back that.
Is that going to be shifted towards the 27th or how are you guys thinking about that.
Yeah, we we don't want a debit cards too much in terms of you know where we might buy I mean, the reality is we have many opportunities in front of us.
Including debt equity and investments that we may make and will continue to be optimistic as we have in the past, but we can't comment on specific conscious that we made by.
Nope, that's understood how to ask thanks for the time.
Thank you.
Thank you do have no other questions at this time.
To have Nicole to Chris Ripley, President the Chief Executive Officer for closing remarks.
Alright, Thank you and thank you all for joining a call today, if you have any questions or comments. Please all our I R team.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.