Good day, ladies and gentlemen, and welcome to your Sinclair Broadcast Group First Quarter 2019 Earnings Conference Call. All lines have been placed on listen-only mode and the floor will be open for your questions and comments following the presentation. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Lucy Rutishauser, Senior Vice President and Chief Financial Officer. Ma'am, the floor is yours.

Thank you, Operator. Participating on the call with me today are Chris Ripley, President and CEO; Steve Marks, Executive Vice President and Chief Operating Officer of our Television Group; Rob Weisbord, Senior Vice President and Chief Revenue Officer and David Amy, Vice Chairman. Before we begin, Billie-Jo McIntire will make our forward-looking statement disclaimer.

Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors. Such factors have been set forth in the company's most recent reports filed with the SEC and included in our first quarter earnings release. The company undertakes no obligation to update these forward-looking statements. The company uses its Web site as a key source of company information which can be accessed at www.sbgi.net. In accordance with Regulation FD, this call is being made available to the public. A webcast replay will be available on our Web site and will remain available until our next quarterly earnings release. Included on the call will be a discussion of non-GAAP financial measures, specifically television broadcast cash flow, EBITDA, free cash flow and leverage. These metrics are not meant to replace GAAP measurements, but are provided as supplemental detail to assist the public in their analysis and valuation of our company. A reconciliation of the non-GAAP financial measures to the GAAP measure in our financial statements is provided on our Web site under investors non-GAAP measures. Chris Ripley will now take you through our operating highlights.

Thank you, Billy. Good morning everyone, and thank you for joining our first quarter earnings call. We have some great results to report on the heels of the even more exciting news we announced last Friday. Last week, we announced the largest transaction in our company's history. We entered into a definitive agreement to purchase 21 regional sports networks from Disney for $9.6 billion, which is an implied $10.6 billion enterprise value. We are acquiring these assets at a very attractive and accretive 6.5 times multiple or 5.5 times, including the net present value of the step-up in the tax basis. This is the largest collection of RSNs in the marketplace today, and it's highly complementary to our existing broadcast and sports [technical difficulty]. The RSNs significantly expand our focus in local sports and diversify our content sources and revenue mix. We see many growth opportunities through digital platforms, political advertising, cross-promotion collaboration, remote production, legalized sports betting, and programming enhancements to name a few. While the RSNs represent a significant expansion at local sports, Sinclair's existing sports focused businesses have also done very well. Our commitment to producing and providing local sports to our communities ranked our high school sports production alongside national and regional sports networks as a national finalist in a synopsis Sports Media Awards. We were the only locally produced program to have been nominated for this prestigious honor. On top of this, Tennis Channel and Ring of Honor each have had impressive first to report. Tennis Channel's first full length feature films Strokes of Genius has been nominated for two sports Emmy Awards with the winners to be announced later this month. And Ring of Honor, a Wrestling promotion just had a historic sellout at Madison Square Gardens on April 6. We are very pleased…

Thank you, Chris, and I'd also like to reiterate Chris's sentiment, Dave thank you for your leadership through the years you and I worked together for over 20 years and about 80 earnings calls. I appreciate the mentorship you've given me and would like to honor you by giving you the floor to introduce Sinclair's quarterly financial results one more time before your retirement.

Thank you, Lucy and thank you, Chris. For this my last earnings call with the company and the street, I am pleased to continue with the positive news and report that we exceeded our first quarter guidance in all key financial metrics.

Excellent, Dave. Media revenues for the first quarter were $673 million, an increase of 5% or $30 million higher than first quarter of 2018, and at the high end of our guidance. Included in our first quarter media revenues is $352 million of distribution revenue, a 12% increase over the prior year period. We are still on track for net re-trans to grow by low-teen percent this year. Political revenues in the first quarter were $2 million versus $7 million in the first quarter of last year, an election year and in line with our guidance. Media operating expenses in the first quarter defined as media production in media SG&A expenses were $479 million up from last -- from first quarter of last year primarily the result of higher reverse re-trans fees, and costs related to our growth initiatives. Our recording media expenses were $3 million favorable to our previous guidance. For the full year media expenses are expected to be approximately $1.987 billion to $1.990 billion. Now as compared to our prior guidance the 1% increase is primarily due to bringing forward expenses that were reflected in our 2020 forecast and to a lesser extent from IT system enhancements. Corporate overhead in the quarter was $28 million and includes $2 million in legal, regulatory and other non-recurring costs, and $8 million of stock-based compensation. Excluding various costs corporate overhead came in our guidance. For the year corporate overhead is expected to be $72 million, excluding $11 million in non-recurring costs and $17 million in stock-based compensation. Non-media EBITDA was approximately $10 million in the quarter which is $9 million better than our prior guidance on higher sales at our antenna company and lower ONE Media expenses. EBITDA in the first quarter adjusted for the $2 million of legal, regulatory…

Thank you, Lucy, and good morning everybody. We continue to see strengthening in our core advertising with first quarter down slightly as we guided in February. Second quarter expected to be flat to up and Q3 and Q4 expected to be positive as well. For the year, we expect core revenues to be up. I'll repeat that for the year we expect core revenues to be up. We are preparing for a strong start to the upcoming political cycle which will drive broadcast media spending as early as the end of this year. I've said it before 2020 is shaping up to be precedent year for political advertising. Our digital business continues to perform very well with revenues growing 10% in the first quarter as compared to the same period last year. Our Compulse OTT product that we launched last summer is one of our fastest growing digital offerings. Now turning to our outlook, for second quarter we are expecting media revenues to be approximately $716 million to $725 million, up 3% to 4% as compared to second quarter 2018. This assumes $4 million to $5 million of political revenues versus $28 million last year and includes between $365 million and $368 million and distribution fees versus $319 million last year. Core advertising revenues in the second quarter excluding political are expected to be flat to up low single-digit percents versus the same period last year. On the expense side, we are forecasting media expenses in the second quarter to be approximately $506 million to $508 million versus $452 million in the second quarter of 2018 with the majority of the increase coming from reverse retrains and growth initiatives. For the year, media expense guidance is estimated between $1.987 billion and $1.990 billion versus 2018 media expenses of $1.821 billion. The year-over-year increase is due primarily to a higher reverse retrains annual compensation increases and growth initiatives. Adjusted EBITDA adjusted for legal regulatory and other non-recurring costs in the second quarter is expected to be approximately $176 million to $182 million versus second quarter 2018 EBITDA of $203 million. The decrease is driven primarily by reduced political revenues, growth initiative investments, and tennis rights, partially offset by an increase in net re-trans and tennis expenses. With that, I would like to open it up to questions.

Thank you. The floor is now open for questions. [Operator Instructions] And we have our first question from Marci Ryvicker with Wolfe Research. Please go ahead.

Thanks. I have -- thank you, I have a couple. I'm going to start with distribution revenues, which seem like they're accelerating into Q2, can you, Lucy, talk about what's driving that, is that tennis, re-trans renewals or anything else?

Yes. So, we do have some renewals this year that are reflected in there, but the other thing I would say also, Marci, is part of it is timing as you recall as we came out of -- I think most broadcasters came out of last year with some of the declines on some of the traditional MVPDs [ph], you know, we had talked about give us a chance for the reporting of the payments to make its way through from the virtual side to us. And so, we are seeing this lag on what we lose with the traditional churn that's getting picked up by the virtual churn or the virtual ads.

Okay. So you're seeing sub -- are you seeing overall sub increases, flat…

Yes, I would say the subs are flattish on a consolidated traditional and virtual combined.

Okay. And then for 2019 expenses I know you have growth initiatives and reverse comp in there, but is there anything related to the RSNs in the 2019 expense guide right now?

Yes, there are some, some legal costs both to our EBITDA and free cash flow purposes we, we factors out, but otherwise we haven't built anything in for the RSNs, there is a little bit of -- as we've talked about historically a little bit of small CapEx and working capital related to the launch of Marquee.

Okay. And then, I would assume that share purchase activity would be suspended at this point in time just due to the RSN acquisition?

That's correct. Yes, we got big, big transaction coming up which we expect to close in the third quarter. So, our focus is going to be getting that funded and then, and then post that focused on the de-leveraging the company.

Okay. And last, just to comment Dave Amy, congrats on your retirement, it was great knowing you and talking to you over the years.

Thank you, Marci. Likewise, you've been terrific in terms of covering the industry, and much appreciate it.

Thank you.

Our next question comes from Alexia Quadrani with J.P Morgan. Please go ahead.

Hi, thank you so much. Just a couple of questions, the first one, just if you could elaborate a bit, give us a bit more color on your positive outlook on core some key categories, specifically the strengths you're seeing in the service sector, what's behind that, how sustainable it is? And then I just had a follow up question maybe on the recent DOJ forum on the local ad markets that came last week, I'm curious if you think the broadcasters made any headway in getting the DOJ just want to reconsider the definition in the market?

They're very excited about the core as we talked about in the opening comments. We do have quite a few more categories that are up in second quarter that were down in first. Retail in particular was down in first quarter and now is showing a nice pace for second quarter, we'll have a very good second quarter. Services continue to be just through the roof for us. That's our second biggest billing category next to automotive, and retail is the third. And we believe in second quarter our top three categories will fall into the plus column including automotive, which is straddling between flat and slightly up. Clearly going to be up in retail, clearly going to be up in services again and what's driving services is lawyer category, insurance category, banking category. They continue to be very strong through the first six months of this year, which gives us cause to think that and as I mentioned earlier we believe we're going to continue to roll with this right through the remainder of the year and we do believe our core will be up when you count it all up by the year-end then we're up to a really good start with it. So again we've got more categories in the plus column in second quarter than we did on the first. We expected that, but it is coming through and we are optimistic about the back-half of the year as well.

And on the DOJ forum, first off, just my hats off to DOJ for and specifically making Makan Delrahim for being forward-looking and organizing the forum to look at this issue. I thought they did an excellent job of getting the right industry participants to speak at the forum. And you know, I was there on a panel, I thought the second day in particular was exceptional Dave Lougee, did a panel with participants from Comcast and Facebook, and it was excellent. It was - he did an excellent job, all the panelist did an excellent job, at really hitting at the heart of the matter which is the market definition of treating TV broadcast separate from cable and separate from online video. And I -- it was just an excellent forum overall, and I think made a very, very strong case for unifying those video ad markets into one. And so again hats-off to the DoJ, and Makan Delrahim for doing that, and we'll just have to see what impact that may have.

All right. Thank you very much.

And with that we will move to Dan Kurnos with Benchmark Company. Please go ahead.

Hey. Thanks. Good morning. If I could just go back to the distribution upside, obviously there's been a lot of noise in the marketplace around subs, and I think Lucy you are one of the few that did call out kind of a linear decline. Could you just guys just give us an update if you think there is any change to kind of your net re-trans outlook? And could you just remind us how much you do have coming up for renewal in terms of sub-footprint in the back half of this year?

Okay. So, just a couple points, one is on a consolidated basis, we're seeing some flattish, that's point number one, it's important. Second point is we have reconfirmed our 2019 growth for net re-trans from low-teen percent, also reconfirming our 2020 growth of also low-teen percent for next year as well. So everything is looking very good and we have just a couple -- we're in the midst of charter, which is very productive -- close to been done there. And then we have AT&T this summer. And that's pretty much it for this year. We're done with all the networks. There's we're all done coming into January this year.

Perfect, super helpful. And then just kind of got lost in the wash as a smaller piece and obviously you guys have made a slightly larger transaction, but just on compose, I know you guys talked about it briefly in the prepared remarks. Certainly, there's been some noise from a competitor in the space. I don't know if there's opportunity for share gains kind of what kind of growth trajectory you're seeing or if there's incremental investment on that this year and kind of how you think that can expand over the balance of the year? How that's contributing to results?

So, what I would state is in first quarter, we were up against a major investment that was a one-time only investment due to a special circumstance, and we expect the earnings to return to normalized growth that we've had as a trajectory over the last several years, marking services is a major priority of the company and selling across all our screens the definition of television is anything that has audio and video and we're really encouraged by the OTT space.

Yes, specifically I don't know if you are referring to the other competitor being TEGNA, but we think they've got a very interesting product and Premion we have something that is fairly similar called CompulseOTT and it is the fastest growing new product launch in our history, very complementary to our core spot sales activities and we expect that to continue to the power of future growth into the future.

Chris, can I sneak one more in just on the Tennis DTC, if there's any expense built in and just kind of how you're thinking about timing of all that since you mentioned it on RSN call?

Sure. So, Tennis is scheduled to launch. It already has a significant direct-to-consumer and TV everywhere presence in the U.S. which we continue to build on. I think we are working to have a charter added on the TV or side later this year. And then next year we'll be launching internationally with the direct-to-consumer offering in international territories starting in Europe. And there are -- there is some expense this year for that initiative with no revenues, so it's not a huge amount, but it does impact 2019.

Perfect. Thanks for the color guys.

Our next question comes from Zack Silver with B. Riley FBR. Please go ahead.

Okay, great. Thanks for taking the question. I just wanted to first I guess ask what gives you confidence that you can grow core ad in the back half and then along with that maybe elaborate on how the specialists versus generalist initiatives are going and the categories that you've implemented them on and what categories you can potentially implement them on for the remainder of the year?

Yes, on the cost side, it's just a normal course of business of what we see. And on the first quarter call everything we've said came to fruition. What we're seeing in the second quarter we expected, and is coming through and it's just the way we do our business, so after the first four months and seeing where we're at after essentially six months down, and we have a lot of confidence in our ability to bring the core on the plus side just because of what we're seeing over the first six months. Everything I would suggest that has come to fruition and that's the way we read the market right now.

And then I just add to that that in the back-half of the year you do have the advantage of not having you know political proud out that you had last year and it tends to be a natural tailwind for core.

And obviously to the specialists versus the generalists, we're in our early stages, but it appears to be seating very well in the categories that we've focused on. We are seeing positive results year-over-year and we expect that to expand into other verticals and specialties by an iron core experts from those industries.

Got it, really helpful. And then just one on STIRR, I think that this is an all ad based product now, I'm wondering on how you're thinking about the subscription revenue opportunity and maybe if there's any way that this fits in either the brand or the technology with the RSN acquisition? Thanks.

Sure. STIRR is very much in startup mode right now, doing great in terms of awareness and downloads. We're very pleased with their progress so far, well ahead of expectations. So it's really trying to build a user base first and foremost right now, but we think free is the best way to do that. The technology does provide the ability to ad pay walls and premium content for up-selling to subscription base to programming and that's something that won't likely be turned on in the near term since we're trying to build a user base, but it's absolutely on the product plan. And in terms of how this fits within our broader sports footprint we see first specifically from the RSN programming non-game programming being used on STIRR since it is a multi-channel offering and also on an authenticated basis. We very well might populate games as well, but that's to be determined.

And one another thing is what I'd like to add is that when in a different trades STIRR has been mentioned as one of the top 10 AVOD OTT apps, the likes of Pluto and Zumo, so I just recently launched, chose the time, energy, and effort to put together by our products and programming team to come out of the gate with a strong asset.

Great. Thank you very much.

Thank you.

And our next question comes from Kyle Evans with Stephens. Please go ahead.

Hi. Thanks. Congratulations, David. Lucy, I wanted to start with maybe a question on your flattish sub-commentary. I just want to make certain that that's just for the core TV stations and it's not that you're not including new tenants houses or any of the smaller stations there?

That's correct.

Great. Steve, I'd like to ask you to dig down a little bit into auto. Is that the strength that you're seeing there in 2Q and for the balance of the years at the local dealership level, higher tiers, and maybe some comments on which makes our driving that.

Actually the three biggest categories of where we derive revenue from on auto or up to second quarter, domestic dealership is up. Domestic manufacturer is up, and the foreign dealer which is the largest of the two others that I just mentioned is just slightly down. Not even 1% down. It's less than 1%. So the three biggest categories we have are propelling our efforts right now and that gives us a reason to believe that we're turning the corner on this kind of delivering what we said we were going to deliver.

Anything specific that you're seeing at the local dealership level that you can comment on?

I think that we've had a large emphasis on dealing directly with the rooftops where many of are focused having local agencies, we are focused on dealing at the dealer level. So that's where we're seeing our success directly at solving the needs of the rooftops individually.

Great. Last one I know STIRR is in startup mode and it's still small. Could you talk a little bit about the content expansion strategy there? And then I know it's available on the web and across all the major streaming platforms. Are you seeing any particular one of those drive hours in these early days? Thank you.

Sure. So there is a plan to add well over 100 channels to STIRR, and we have a lot of those deals that are in the queue, making their way down the pipeline. One of the technological choke points is ingestion of content, which we're working hard to solve, so we can get more - more channels up and running. So right now, where we're focused on adding quality and also quantity and we're making progress there. I think we're already up to around 40 channels. And then in terms of usage, it is available on all of the streaming boxes. It is a TV product. You can get it on your mobile phone, but the vast majority of that usage is on televisions, mainly through streaming boxes, with Roku being the biggest contributor in terms of usage.

An interesting stat is that it's live television and television programming to-date, not VOD that's driving the viewership.

Yes, that's the other thing that we really like about the strategy is that it's not just a pure on demand service. It has streaming traditional lean back experience linear, as well as VOD, which a lot of platforms you know just have VOD and we think that's a shortcoming.

Thank you so much.

And our next question comes from Aaron Watts with Deutsche Bank. Please go ahead.

Hi, everyone. Thanks for having me on. Let me start by saying congratulations to Dave on your retirement. Now you've achieved that Sinclair on a personal level. I will say that I've enjoyed working with you over these many years. So congratulations.

Thanks, Aaron. I've always enjoyed the September Deutsche Bank Bond conference. So I miss that quite a bit.

Yes. We will miss you out there. One quick follow up question on auto embedded and your belief that core can growth for the full year. Do you see auto as a category for the full year being up?

Yes, low single-digits, we see it being up and we've spent the last couple of years really focusing in on the auto category, and again it's starting to see that we're seeing the fruits of our investments.

Okay, got it. I have -- secondly maybe for Lucy, you've been operating recently as what I - from what I can remember a low leverage levels in recent memory with the RSM transaction, we're going to see that leverage pop back up, any preliminary thoughts looking ahead on where de-leveraging falls as a priority for you? And kind of target - maybe to think about over the kind of 12 days and 18 month after the transaction closes?

Yes. So, we are -- in our Monday call we talked about the step up in the leverages. And the goal will absolutely be to de-leveraging all the credit stacks in the company. So over the 12 months to 18 months I would say that we were looking to get the FTG side back to the high threes, low fours, the RSN side into the, the mid four times but, but longer term as a diversified media company, our goal will be to ultimately get to an investment grade company through the parent's help.

Okay, great. Thank you very much.

And next we'll take a question from David Joyce with Evercore. Please go ahead.

Thank you, a couple of questions. First on the distribution side how should we think about step ups escalators retiring any other exchanges of value there? And then secondly on the ATSC 3.0 rollouts given that that's progressing well if we've to have any learnings or any thoughts about when, when revenue might start being generated there? Thank you.

So, on distribution our, our contracts generally have escalators every year of anywhere from 5% to 10%. And then and then when we renew we tend to have bigger, bigger step ups there upon renewal. And, and most of our reverse contracts are fixed fees that again also have escalators and one of the reasons we, we can't you know the specific terms of our contracts are subject to confidentiality agreements so we can exclude, disclose specifics. So that's why we like to focus the street on our net re-trans guidance which gives you the essentially what's left over for the bottom line which in 2019 is, you know in the double-digits as well as for 2020, as Lucy mentioned earlier. On ATSC 3.0, we are learning quite a bit. You know that the focus right now is on testing out the single frequency network in terms of the actual RF capabilities, the reception capabilities. In Dallas specifically, by adding these three Rs -- SFN sites, we dramatically enhanced the quality of reception through the entirety of the DMA to the level of quality that you'd expect from a wireless carrier, saturating the signal throughout the entire DMA, and so, most of the testing right now is on actually the physical characteristics of that RF signal and reception. And out of the work that we're just kicking off with SK Telecom with our joint venture is being finalized and launched as we speak. There'll be more coming out of that venture in terms of the product -- consumer facing iterations of 3.0, which all will undoubtedly be an app based experience that will include much more in the way of programming choice and VOD assets and targeted advertising, premium subscriber based content, synchronization, low latency for sporting events, integrated interactive features like stats and social media commentary. And so that is all being worked on you know by not just by us but others in the industry and one of our -- I think our dog, our horse in the race there is our joint venture with SK.

Great, thank you.

And our next question comes from Davis Hebert with Wells Fargo. Please go ahead.

Good morning everyone, and congratulations to Dave, I hope you enjoy retired life. Just one couple of quick questions for Lucy, the $700 million of new debt at Sinclair Television Group, do you anticipate that being secured or unsecured?

That would be incremental term loan B.

Incremental term loan B. Okay, thank you. And then in terms of your comment on the investment grade intention or aspiration is there any sort of leverage target you are trying to imply there for the parent level?

Not quite at this time just, you know, directionally we want you to know where it is, we're how we think about the company longer term and what we are focused on.

Okay, that's helpful. And then in the non-GAAP reconciliation for the RSN detail I think there was a $42 million adjustment to the Sinclair Television EBITDA, is that the management fee that is going to be paid from the RSN curve?

Yes, that's right.

Okay, thank you for that clarification. And then last one more of a big picture. I think you're about a year into the maybe a little bit more into your new Nielsen relationship. And I'm just curious how you think that's gone so far how you think if you think they're more effective in capturing viewership on local broadcast TV and then a follow on to that is how you think they're positioned for viewership measurement on the RSN side of things? Thank you.

So, look, Nielsen is still they widely used currency increasingly Comscore has become more and more accepted and as things move into the targeted world the need for a panel based currency is less and less. And we -- they are a service that for the right price we're happy to keep, but it is not something that is essential to our business. And that's probably the same answer for the RSN as well.

Okay. Thank you so much.

Thank you.

And that concludes our Q&A session for today. I'll turn the call back over to Lucy for any closing remarks.

Thank you, Operator. So this has been an exciting week for us with the announcement of the RSN, which is a transforming acquisition for us as well as a very good first quarter results and outlook for 2019. If you have any questions please feel to give us a call. Thank you.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.