Greetings and welcome to Sinclair Broadcast Group's First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Lucy Rutishauser, Executive VP and Chief Financial Officer.

Thank you, operator. Participating on the call with me today are Chris Ripley, President and CEO; Rob Weisbord, President of Broadcast and Chief Advertising Revenue; and Steve Zenker, Vice President, Investor Relations. And 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 as 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 website as the 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 website and will remain available until our next quarterly earnings release. Included on the call will be a discussion of non-GAAP financial measures, specifically adjusted EBITDA, adjusted free cash flow and leverage. The company considers adjusted EBITDA to be an indicator of the operating performance of its assets. The company also believes that adjusted EBITDA is frequently used by industry analysts, investors and lenders as a measure evaluation. These measures are not formulated in accordance with GAAP and are not meant to replace GAAP measurements and may differ from other company's uses or formulations. The company does not provide reconciliations on a forward-looking basis. Further discussions and reconciliations of the company's non-GAAP financial measures to comparable GAAP financial measures can be found on its website www.sbgi.net. Chris Ripley will now take you through our operating highlights.

Good morning, everyone. Our results for the first quarter were better than we guided as our media revenues and EBITDA for the combined company exceeded our expectations due in large part to the change in the amount and timing of distributor and team rebates in the local sports segment but also reflecting the continued improvement in the core advertising market, which beat expectations despite the ongoing pandemic environment. Advertising trends continue to improve in our broadcast and other segment's first quarter core ad revenues, finishing flattish to pro forma first quarter of 2020 and 2019, which exclude the sale of stations we made in the past 12 months. As you recall, April of last year was the first full month negatively impacted by COVID.

Thank you, Chris. First, some housekeeping items to note. As discussed on previous earnings calls, distribution revenues and sports rights in the local sports segment can be impacted by minimum game guarantees, which can result in rebates to be paid to distributors when received from the teams. After we reported our year-end results in February, the NBA finalized their scheduled for the second half of the 2020-2021 season, which resulted in more local broadcast games than we were anticipating in our guidance.

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question is from Dan Kurnos of Benchmark Company. Please proceed.

Great, thanks. Good morning. Maybe, Chris, just on the RS and a couple of things, your commentary around DTC, I think a little more prominent at this time. I just want to get a sense from you, how much if at all there is a change in tone there originally, we thought 2022 more of a super-fan experience? Obviously, you've got the ongoing challenges with the distributors and clearly a big TAM. Just to the extent you can kind of give us some color around understanding on you have to navigate your existing relationships? How do you think that there might be a sea change there? Then you also talked about improving day part. I think the advertising guide in Q2 was surprisingly strong. Historically, I think, it's been like 90/10 distribution advertising. To the extent that you are in talks with Bally's and maybe even others to approved dayparts and how you think the ad yield to be improved and maybe what the longer-term split between ad distribution could look like? It would be super helpful, thanks.

Great. Thanks, Dan. Look, I think if you're noticing a difference in tone on direct to consumer for sports, I think that is an accurate pick up as we dig into the details of our business plan and really, really realize what the other opportunities are when you get a fan that's coming in day in day out to watch your games on a digital interactive platform. When you know who the viewer is and you can funnel them into other opportunities, which are massive adjacencies growing really, really fast, like sports betting, like merchandise, like what's going on with NFTs and that becomes a platform for interaction and socialization for the fan. We were very excited about what that means, because we have the largest collection of premium sports rights in the country and so we have this tremendous foundational piece and we're filling out our plan and we've got our TV Everywhere App was launched a couple of weeks ago. It's gone well and we're going to continue to build on that. I would say that you're accurate in picking up that increased bullishness on where we're headed with direct to consumer. Then as it relates to other dayparts, we did announce that MOU with Bally's. There is a lot on the drawing board there to improve our non-game programing, which if you followed us, you would know that there is really nothing of value outside of the pre-post in the game on the RSNs and it's just a latent opportunity and the arrangement with Bally's is a great arrangement for us because it enhances the programing that we're going to have in these areas, while taking little to no risk on the financial side to get that programing. So, it's really best of all worlds sort of situation. But what you're seeing in the numbers, does not reflect the upgrades that are on the drawing board for the non-game programing. Those actually haven't hit yet. That's just a strength in sports advertising and core advertising. That's really just blown away here so far in the recovery that we've seen post COVID and the strength of sports and advertising related to sports has never really wavered at all even through COVID and has continued to increase on a per game basis as we mentioned earlier in our comments. When that new programing starts to hit outside of the game, the pre and the post, that's going to be an additional upside.

So, Dan, as well as will attack this with our yield management system. It's an AI machine learning system that will have a dedicated analyst to look at extracting higher yields per game as well as with that new app launch will be able to geo-target. So, as you know, the RSNs are in multiple DMAs, will be able to target ads and during the political season, we will be able to capture more political dollars by zeroing in on those geos of the specific DMAs as well and then through the gamification, our Interactive Division will be launching some free to play. Beginning this year, we will be able to capture dollar sponsoring in this free to play as well as branded content opportunities. So, there is numerous opportunities to unlock with the RSNs that were in that stuff.

Got it, that's super helpful. Just a housekeeping, I'll let everyone else follow the core questions. Lucy, what's political in Q1?

Q1 of this year, we had got $4 million for the total company.

Got it. Perfect. Thanks very much guys.

Our next question is from John Janedis of Wolfe Research. Please proceed.

Thanks, good morning. Maybe a quick follow-up to Dan's question, just on direct to consumer. Chris, I just wanted to clarify, do you need to get consent from distributors prior to doing it and can you talk about the process in terms of the leagues teams and I guess distributors, are those on parallel paths and could any of those things impact timing? And then, maybe on a related topic, with baseball season starting and no new news on the carriage front related to YouTube or Hulu, can you talk about your confidence level about getting something done as we get deeper into the season?

Sure. Thanks, John. We have already the past with the distributors to launch direct to consumer. So, that's the answer on that question. We have direct to consumer rights really for the vast majority of our teams. We are in discussions with the leagues and the teens on enhancing some of those rights to make the product even better. So that's what's going on right now. I don't see that mean a threat to timing. The plan is to launch in the first half of 2022. Then on your question around carriage, look, we don't comment on the specific status of any one distributor discussions. The only thing I can say is time will tell if these distributors will return.

All right. Thank you very much.

Thank you. Our next question is from Steven Cahall of Wells Fargo. Please proceed.

Thanks. So, Chris. Maybe just dig a little more into the RSN, maybe you could just tell us a little bit of what happens next? I think probably DISH discussion is ongoing. So, I'm just curious if you would accept an agreement with DISH that didn't include them? Then if we kind of think about where you might be with the RSN if you come in at the low end of your guidance this year, it could mean a renegotiation of debt or some more liquidity coming in? I know these are what-if scenarios, but I think it would just be helpful if you could maybe just talk about a little bit of how you're thinking about those scenarios. Then, Lucy, the buyback commentary is very helpful. You certainly were opportunistic last year to take advantage of the share price dislocation. As you think about uses of broadcast cash flow going forward, is a debt reduction, is it being opportunistic on maybe potential end market station M&A participating in a diamond recapitalization, maybe just help us think about use of the broadcast cash? Thanks.

Why don't I do that question first and then Chris can talk to the other one. So uses of free cash flow really haven't changed from what we've been talking about for years and it doesn't really matter if you're on the STG sided stack or the diamond side. It's all about how do we de-lever? How do we increase value -- long-term value within companies weather it's core positions, investments, reinvesting in the companies, particularly on the STG side, which has been the company that has funded the equity returns. It's also been about the equity return. So, all of those things are still on the table, equity returns, de-levering, strengthening the balance sheet, and making sure that we're reinvesting in the company with the free cash flow to continue to grow for the long term.

Great. On your question related to DISH, we really can't be renegotiating in public with DISH for I think obvious reasons, but I will note that we have had tremendous success with the traditional MVPDs when we come with the entire suite of our programing on offer. In fact, we have been successful with all of them under that circumstance, say for Frontier who filed for bankruptcy. It will be a pivotal time and of course, we can't predict. We don't have a crystal ball, what will happen, but I will note that that has been a successful strategy for us with the other traditional MVPDs. Then as it relates to Diamond and its capital structure, again we're being very proactive on that front. We're open to discussions with our stakeholders, indeed we are in active discussions with a large segment of our capital constituency with respect to structures that will help us achieve our goals, which Lucy mentioned, including strengthening our balance sheet, optimizing our cost of capital, funding future growth opportunities, maximizing shareholder returns, and de-levering the entity.

Thanks for the color.

Thank you. Our next question is from David Hamburger of Morgan Stanley. Please proceed.

Hi, good morning. Thanks. If I could, two questions. Can you talk a little bit about, I know you've recently renewed your programing contracts with a few teams and you talked about giving equity in the stations and how that helps to attenuate some of the escalating cash costs associated with those contracts, can you help us dimension like what has been the cost savings and maybe can you give us a forward look how many contracts will you be renegotiating here this year and your expectation for how those will be negotiated? Then the second question if I may.

Sure. When we go into renewals, we don't specifically say which teams are up, for confidentiality reasons, but every year, we have a few teams that have come up. Last year, we obviously had the Marlins and Brewers, those were successfully renewed and this coming months, we've got a handful of teams with 45 teams in the total portfolio there over a sort of a 15 year spread of contract expirations. You've got handful teams every year that you've got to deal with. So it's really sort of normal course as you roll through the business and one of our explicit goals and already exist in the portfolio when we took it over is to variabilize more of the cost structure. So when we go into a renewal specifically with anchor teams on the MLB side, we always try to negotiate and an ownership stake in the RSN which then it takes a portion of what they want in terms of total rights fees and makes it variable depending on the performance of the RSN. And there is no rule of thumb I can give you. Besides that, most of the stakes are minority stakes and just depending on how big the rights fee is and how large the income projected out of our assemble will be for that minority stake then determines how much of the total rights fee will be variable versus fixed. And so they're really without getting into specifics on a specific contract which I can't for confidentiality reasons, I can't really give you more detail than that, but to say that we really do like that strategy. It does vary relying more of the cost structure and it aligns interest with the teams. And you can see just sort of in our overall numbers what's happening in terms of, I think we're at mid-single digits in terms of rights fees going up and we do expect that to head downwards in terms of annual escalation on an overall perspective.

Okay, thanks. My second question is with regard to guidance at Diamond. The better expected EBITDA, I know was driven a little bit by rebates in the first quarter, but if I look at the midpoint of guidance for the year now. It's come down relative to the guidance you provided for the fourth quarter earnings call. Can you talk about what's driving that. I would anticipate, if there was kind of better expected outcome in 1Q, we wouldn't see guide down for the year. So I'm wondering what's driving that guide down, maybe could also in context, Lucy mentioned last quarter, $100 million of incremental expenses associated with growth initiatives. And can you put this in the context of, there was a $368 million reduction in cash at Diamond in the first quarter. I know interest cost and the sports rights payments are higher in the quarter and you mentioned the 100 and plus billion of rebates to distributors, but could you talk a little bit about liquidity and the cadence of cash flows, as you look at Diamond for the remainder of the year and you're going into '22?

Okay. So three questions here. Let me do the cash walk first, so the cash usage from the December balance to first quarter you've hit on all the main points right there is the EBITDA, we had the semi-annual bond interest, they got paid in Q1 and the rebates distributor rebates that we paid and the rest of that is going to be working capital changes. So you've for the most part. So you've hit all the key points on the change in cash. So based on our current assumptions and again acknowledging that there is still a lot of uncertainty right with the economy and COVID and churn rates et cetera but based on the assumptions when we look out 12 months, we believe the Diamond has sufficient cash and revolver availability to fund all its debt services. So you should be fine there and then your question on the $100 million of the incremental expenses so that is made up of multiple things. It's made up of new initiatives such as gamification and new app features, right, which is the old app didn't have and two it of our regular OpEx inflation in there also all the replacement services that were standing up such as the going into the Encompass facility to get out of this new facilities, the development of the new app. As well as all the rebranding that we did around the new name, but at the same time, we're also continuing to pay Disney and Fox for transition services as we build out our new store, our own services there is duplication of costs that are running through the model for the year. So that's primarily what's in that $100 million. And so, when I think about it, a good $60 million, $65 million of that does not come back next year because it was either the duplication of services for the rebrand were for the development of the app cost on to the next part. And then your first question on the midpoint for the EBITDA. So as you know, right now we still don't have Dish, Hulu or YouTube up and running into that, that will affect the top end of the range, as we said last quarter, there were a range of outcomes that could happen during the year, whether it was on carriage, whether it was on churn, whether it is on advertising. And so with those, there is three still not all, we've taken the top end of the range down, but I think the important part here is at the lower end of the range has increased for the year. So we went from the $441 to $458 million at the low end and so that's the more important piece that I think everybody should take away from.

Okay, thank you.

Thank you. Our next question is from Aaron Watts of Deutsche Bank. Please proceed.

Hi, everyone. Thanks for having me on. One quick follow-up on the core advertising at the station encouraging to hear it seems like things are turning a corner. Lucy, I believe you said, kind of flattish in the first quarter versus last year in April looking much better how is core trending for 2Q overall?

We're looking at slightly down against 2019, which is our benchmark. But again, the business is in place month-on-month and that's why it's encouraging to see April. May has started off strong and then will gauge where we're going and we're cautiously optimistic as you see traveling increasing businesses are being opening up and so we think will benefit from a more robust economy.

Here, and I would just add to that, as I said, we've been very, very happy with what we've seen on the core advertising front. And the only thing that gives us a little bit of pause for Q2 is chip shortage, but all the others categories have been very, very strong and look very, very strong in Q2. So we're just, it's been a great bounce back in the time overall.

And we're in great shape with our portfolio is, the gaming industry starts to spend and unlock what goal have been asking for the last 18 months. It's now happening with our portfolio, we're able to capture those dollars in a significant way.

Okay, great, that's helpful. Second question, any material change in the underlying subscriber trends in churn for both the stations in the RSNs here to start the year and relatedly on the Cox renewal. You mentioned in the release. Just wanted to confirm that the RSN had previously been carried across their platform, and that the agreements were merely extended to be coterminous with the new broadcast deal?

Sure. So we did see a slight improvement in subscriber trends in the last quarter. Nothing all that material. So our outlook remains the same. In terms of mid-single digits decline on broadcast and high-single digits for our sense. And then the Fox deal, we're very pleased with the outcome on the Fox deal, I mean did sync up and we did think of all of our content under the same arrangement and expiration date.

Okay, great. And one last one for me, and this is really just a home my understanding on some of your comments around your rates on the sports side, Chris, and correct me if I'm wrong on any of this but I believe the MLB turn streaming rights back to the teams but the NBA and NHL still negotiate those right at the league level if that's all right. When are those streaming agreements up for renewal with the NBA and NHL and their current discussions with those leaves on either extending that deal or what to direct to consumer offering streaming offering could look like there, and I know you touched on that earlier. I just wanted to clarify those points?

Yes. I know you have it, right Aaron, in terms of what you remember. So the NHL and NBA deals naturally expire at the end of this season. So it actually was very fortuitous because we wanted to expand and enhance the rates we were getting to make the product even better. As I mentioned and those renewal discussions are ongoing as we speak.

Okay, thank you for the time.

Our next question is from Lance Vitanza of Cowen. Please proceed.

Hi guys, thanks for taking the questions and congrats on the quarter. I have two questions if I could. The first is, Lucy. I agree on the guidance for Diamond. I mean it seems pretty obvious given where the bonds are trading that the focus should be on the upside to the low end of the guidance I think objectively, you'd have to look at this guidance as an improvement versus the prior guidance. I know I did. My question is you mentioned range of part of potential outcomes, to what extent does the low end of your new guidance contemplate or to what extent is the low end of your guidance contingent upon I should say the return of Dish, Hulu and YouTube.

Yes. So as we talked about this on our last call. Lance as well. So the low end, the low-end would incorporate no current returns as well as range on subscriber churn in advertising ranges which I'm not going to get into, but there is our, but that would be the low end and the upside would also have a range for subscriber churn advertising and some amount of carriage return.

Okay but so just so I'm clear though, what you're saying is that even without the return of Dish, Hulu and YouTube, you're still covering your interest expense?

Correct.

Okay. My other question is with respect to the new app launched last month. I know it's early but, and I know that Chris you did get into this a little bit during the call, but could you give us a little bit more color on what the feedback has been like I haven't had a chance to play around with the app, but to what extent is it branded Sinclair versus Valley sports, could you remind us who runs the app, I mean, is it your app or is it Bally's App and how does the app help Sinclair versus helping drive revenue to Bally's eventually?

Sure, so the app was launched literally. I think it was just two weeks ago, last month, and it is branded Valley sports and I'll let Rob, who oversees our digital operations, talk more about the feedback and what we're seeing on the app, but it is a Sinclair asset, it's not a Valley's asset. You can think of. Just to sort of clear up some potential confusion Valley sports is the brand for our sense and it is a brand that we have rights to exploit on any platform to even to license out to other people and every rebrand has gone amazingly well. I think we've just, the team really killed it on the rebrand. The product looks that much better. We've gotten compliments from all the stakeholders. That's been an improvement in and the main product that we put out. And quite frankly it's amazing to do that when you're dealing with a brand that's so well known as box to switch it over and within a short period of time people just think of our networks. Now as Valley sports, they don't, they're not connecting that necessarily to the casino company and that was the objective. So objective achieved and the app is an extension of that. So it's been launched. It was a big technical feed to convert over from Fox Sports GO. It's a very complex under carriage to manage all the rights and pull that of successfully now it's about improving and enhancing the features in the app. And so, I'll turn it over to Rob and you also asked about just economic opportunity, it represents a large economic opportunity for the RSNs as it relates to a bunch of impressions which we're way under monetized in the FOX Sports GO app they weren't even targeted. So it really does build that business for Sinclair in a big way. And then it does what Valley's bargain for which is promote the brand values and connect over to their sports betting app which will launch shortly. So it really is a very symbiotic relationship there and I'll turn it over to Rob for some of the feedback.

Yes. Lance. So our product team did a great job, we spent 15 months building this app, trying to focus on full improvements, Fox Sports app as a feedback for Marquees and the viewers was a little bit long in the two. So it's a modern app that only needed an update. It was not to go find Bally sports, you already have Fox Sports assistance update that app and it seamlessly went from Fox Sports to Bally Sports, and we are truly excited in just a short few days, we've had over 2.5 million video views and like Chris indicated is that we're going to be able to unlock each impression from those video views in the past it was sold more of a share of voice not geo targeted and through our Sinclair Sports Group, we have a dedicated digital team selling every single impression which will unlock that value. Our interactive team, which is led by JR will unlock the gamification. So there's numerous ways that we'll be able to monetize the app along with solidify the brand of Bally sports itself.

Thanks for taking the questions guys.

Thank you. Ladies and gentlemen this ends our question-and-answer session. And I would like to turn the call back to Chris Ripley for closing comments.

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.