Ladies and gentlemen welcome to the Sinclair Broadcast Group First Quarter 2022 Earnings Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host Lucy Rutishauser the floor is yours ma'am.

Thank you operator. Participating on the call with me today are Chris Ripley, President and CEO; Rob Weisbord, President of Broadcast and Chief Operating Officer; and Steve Zenker, Vice President of Investor Relations. Before we begin, I want to remind everyone that slides and supplemental information for today's earnings call are available on our website, sbgi.net on the Investor Information page and on the earnings webcast page. Now, Billie-Jo McIntire will make our forward-looking statement disclaimer.

Certain matters discussed on this call may include forward-looking statements regarding among other things future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors. Such as have been set forth in the company's most recent reports as filed with the SEC and included in the first -- the company undertakes no obligation to update these forward-looking statements. The company uses its website as a key source of company information which can be accessed at www.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 be available until the 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 of valuation. These measures are not formulated in accordance with GAAP and are not meant to replace GAAP measurements and may differ from other companies' uses or formulations. The company does not provide reconciliations on a forward-looking basis. Further discussions and reconciliations of the 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 and thank you for joining us today. Two weeks ago we notified the investment community via an 8-K filing that we would be deconsolidating Diamond from our financials. This is a consequence of Diamond's new financing which dictated how Diamond's Board of managers would be selected and certain significant operating decisions approved. While on the surface, this may seem to add complexity, we believe it will result in a more simplified, transparent, and focused valuation and credit story for our various stakeholders. While Diamond will no longer be included in Sinclair's financial results beginning on March 1st, 2022, Sinclair continues to own nearly 100% of the equity of Diamond and the deconsolidation is not intended to indicate a change in our commitment to Diamond's success or a change in Diamond's future business plans. I'll turn it over to Lucy to speak more about the mechanics and implications of the deconsolidation.

Thank you, Chris. The deconsolidation of Diamond is a required GAAP accounting treatment and all impacts from it are non-cash in nature. The date of deconsolidation was March 1st, 2022, which was to date the Diamond first lien financing closed. The deconsolidation of Diamond resulted in a non-cash gain of approximately $3.4 billion, which was primarily driven by the fact that Diamond was in a net liability position at the time of deconsolidation. Post March 1st, Diamond is accounted for under the equity method of accounting. And as a reminder, DSG is a separate debt silo, which is nonrecourse to Sinclair. In addition, Marquee will be deconsolidated from Diamond's financials as of March 1st and will be accounted for under the equity method of accounting. Later today, we will file a Form 8-K which will contain pro forma financial statements for the year ended December 31, 2021 and reflecting Sinclair as if deconsolidation of Diamond occurred as of January 1, 2021. On our website, we've included supplemental and historical pro forma numbers for Sinclair, so you can align your models. If you have any questions, please reach out to our Investor Relations department. Because of the deconsolidation, our earnings releases will no longer include guidance for Diamond as you saw in this morning's release. However, our website will include some high-level estimates as well as Diamond's quarterly and annual financials, which we will continue to post there each quarter. Lastly, the format of our earnings calls will change. Today, we will bifurcate the call and do a Sinclair-only portion addressing Sinclair's pro forma results followed by a Diamond portion of the call. Next quarter, we will have two separate calls. We remain committed to continuing to provide financial information and commentary regardless of the format.

I'll let Rob and Lucy go over the first quarter operating and financial results in just a moment. But first, I would like to give some strategic comments. Over the last few quarters, I have talked about the value of our investment portfolio, which we estimate is over $18 a share. The portfolio is made up of investments in real estate, venture capital and private equity holdings and direct strategic investments in companies. One comment we've heard from investors is, whether we can or are willing to monetize that value. The answer is, of course, we are which is clearly evidenced from the monetization of our investments even in recent years. For example, in 2022, year-to-date alone we've monetized approximately $40 million of investments generating an annualized return of 30% and a multiple on invested capital of 1.8 times. All three of these investments were acquired within the last three years. Not only do we continue to be opportunistic in monetizing these investments above just a simple return, but our initial thesis to enter into them is often steeped in how we can -- how they can strategically benefit us and the future direction of the organization. Saankhya Labs is one such example that I will talk about in a moment. And keep in mind our investment portfolio as a whole has generated an approximate 24% average rate of return since 2014. One of the recent holdings, to which we've agreed to monetize our investment was Saankhya Labs. In March, it was announced at Saankhya an entity for which we had held at 49% interest was being acquired by Tejas Networks, an Indian-based technology company which produces optical and data networking products and majority owned by Tata Group. You might recall Saankhya is a valued partner of ours that is…

Good morning, everyone. Our commentary in this section will strictly be related to our broadcast and other businesses only. The year started strong with first quarter pro forma Media revenue up significantly over the prior year and at the top end of our guidance range. Political is tracking above our expectations and we look forward to 2022 having a record mid-term election spend. On the content front, we continue to build our viewership for the National Desk with its 36 hours of programming each week. We recently launched an hour-long weekend addition and we will be debuting a daily T&D weather program, which will start on our digital and social platforms before expanding to linear later in the year. And our award-winning news programming continues to garner recognition, winning 60 awards so far this year including its fourth consecutive year of being honored with the prestigious IRE Award for Outstanding Investigating Reporting. This year it was WBFF/Fox45, which won for its reporting on Baltimore's Public School System. WBFF has won three IRE awards since it created its investigative news team in 2017. On a cumulative basis, Sinclair has won over 1,000 awards over the last three years. Everyone at Sinclair is proud of our news team and their dedication and results to serve in the problem. In our Tennis business, standalone fast channel T2 launched on Samsung TVs during the quarter, putting a new tennis channel product in front of a platform that's been reported to reach 25 million to 30 million viewers. All Samsung TVs made since 2017 carried the channel to viewers. And during big events like the French Open, Miami Open, T2 is given prominent position at the front of Samsung's Fast channel lineup. T2 carries unique live court coverage year-round that is not covered on the Tennis Channel and Tennis Channel Plus. Tennis Channel Plus streamed hours more than doubled and authenticated streaming of linear Tennis Channel was up 170%, as viewers increasingly watch tennis on a cross-platform experience. In April, we rolled out our second tennis predictor game a free-to-play game in conjunction with the Indian Wells tournament, and we will be adding new features for future tenant gamification efforts. In fact, we will continue our work on integrating game centers and game zones across all our platforms, including our websites, encouraging participation and creating incentives like earning points that can be used for prizes and exclusive content and experience not available anywhere else. I'll conclude my remarks by noting how pleased we are with the renewal of our multiyear distribution agreement with Charter, which includes our local broadcast stations, the Tennis Channel the 19 Valley Sports RSNs, Marquee and the Yes Network. I'll now turn it over to Lucy, who will delve deeper into the Sinclair financials.

Thank you, Rob. Given the deconsolidation of Diamond on March 1st, of this year, and in order to have a meaningful discussion around comparative results and trends, I'm going to speak to the Sinclair only pro forma numbers for all periods, which excludes disposition's made in 2021 and does not include Diamond and any intercompany transactions with them. For actual results, including the two months of this year that Diamond was consolidated, please refer to this morning's earnings release. After the deconsolidation of the Local Sports segment, Sinclair will now be synonymous with what we have called broadcasting corporate and other on recent earnings calls. There are supplemental slides and pro formas posted on our website to assist in your modeling and analysis. And as mentioned earlier, this portion of the call is only for the broadcast segment and other and corporate. The local sports or Diamond results will be handled in the second portion of this conference call. Media revenues for the quarter were at the high end of our guidance range, and up 9% versus the same period a year ago on a pro forma basis, driven by higher distribution and political ad revenues. Distribution revenues increased 7% versus last year and beat the high end of our guidance range, primarily due to more favorable revenue from the virtual distributors. Core advertising increased 3% in the first quarter compared to the same period a year ago, and was in line with our expectations, while total advertising revenues increased 7% over last year. Although, media expenses were 7% higher in this year's first quarter versus last year, they were favorable to our guidance on both timing of expenses and lower news and G&A cost. Adjusted EBITDA for the quarter grew 14% over the first quarter of last year and…

Ladies and gentlemen, the floor is now open for questions. Thank you. Your first question is coming from Aaron Watts of Deutsche Bank. Aaron, please post your question.

Hi, everyone. Thank you for having the call. I got a couple of questions. I wanted to start on the advertising side. I apologize if I missed this. But Lucy did you say what core was pacing in the second quarter? And then beyond that, are you seeing any signs that inflation or other concerns around an economic slowdown, a recession looming are impacting advertiser spend or commitments or buying decisions from your partners?

Yeah, Aaron this is Rob. I'll answer it. Currently we are watching for the inflation, but we haven't seen the results of softening at this point. But we are factoring in what we're looking at to ensure that we're covering our bases in case inflation sets in. And the core guidance will be that we will exceed what our revenues were in 2018 and 2019.

Okay, got it. And then secondly, Chris, on the last call you commented that net retransmission fees for the station group were expected to grow in the low single-digit context for 2022. With the Charter renewal now completed, can you update us on that metric? Is that low single-digit net retrans growth rate impacted for this year? And if you're comfortable maybe what you're expecting for net retrans growth next year as well?

Sure. So we did exceed our expectations on the Charter renewal. That being said the overall net retrans guide for this year will still be low single digits.

Yeah. And Aaron if I could just -- Aaron, if I can just come back to one thing that Rob talked about. The total revenue, total ad revenues is to -- we're looking at that to exceed 2018, 2019 Q2.

Which I think is particularly important Aaron as everyone can appreciate that those are both unaffected pre-pandemic quarters and 2018 was a political year as well. So, obviously, political is coming in very strong like we mentioned and setting up for a great year.

Darren you should note that both issue and candidate money is very strong since the beginning of the year, which will bode obviously some crowd out. But we will have rates increasing due to the demand for our inventory.

Okay. That's encouraging. And Lucy or Rob is the -- what you said about core still true that it should still be up versus those prior periods?

It's -- Aaron it probably will be a little bit down to those periods just for what Rob said, which is that we're seeing in political in the second quarter is running a lot hotter than it had in 2018. And so we are seeing in certain day parts some crowd-out effect. But that's all a good thing because at the end of the day the total ad revenues are pacing up.

Got it. Okay. Less about the ad environment, more about the kind of political crowd-out. Okay.

Yeah. Political crowd-out, if you look at how the strength of our stations in Texas, Ohio, Pennsylvania, you're seeing extensive, spending so that crowd-out will naturally affect our core business.

Okay, great. I'll stop there. And come in a queue. Thank you.

Thank you.

Thank you. The next question is coming from Dan Kurnos of The Benchmark Company. Dan, the floor is yours.

Thanks. Can we just dive a little bit deeper into the core commentary just around category strength and what you guys are seeing? It doesn't sound like, any of the March national weakness has filtered over into local. But -- and it sounds like, given some of the strength in sports ratings, sports betting is still pretty healthy. So maybe just some category color from what you're seeing to backstop your commentary would be a good start. And I have a follow-up. Thanks.

Yes. As we've stated over the last several calls, our reliance on auto has been mitigated by our focus is in the service retail food categories. And those remain strong. And so that bodes well for when auto does return. And we expect it to return. We've spoken to many large Tier 3 auto groups. And they're holding on to their co-op money, to spend when the chip shortage is solved. And the expectations are now towards the end of 2022 into 2023. So with the political crowd-out it increases our viability going to even 2023.

Got it. And then, just on the retrans, I mean, maybe more academic given Chris' comments around the Charter renewal and low single-digit net. But I -- just help us understand so Lucy made commentary that the virtuals drove the upside. I mean, it's a pretty substantial upside in Q1. I don't know if there's any other noise from you guys resetting some of your prior deals having escalators on Jan 1 or if there was something else in there. I don't know if Charter is going to be -- if you're going to have a true-up given that the deal was pushed out. But just can you help us think why there would be a step down in 2Q, after sort of the significant upside in Q1? I'm just trying to understand the dynamics of what's going on.

Yeah. So we did have some estimates in for the Charter renewal in our Q1. So that was already taken into account. We did see some strength in some of the virtuals, as I mentioned in Q1. However, we are seeing on some of the traditional MVPDs a couple that have reported recently a little bit of softening in their churn. So we've taken that into account in the -- in our estimates.

Then maybe just -- I guess, Lucy, it would help just in terms of the cadence of the year. Just remind us what else is up the rest of this year.

Yeah. So nothing major, for the rest of this year. And in fact nothing major, really for the next call it, 18 months.

Okay. I guess, I'll ask -- get back in the queue and ask questions on the second half of the call. Thank you.

Great. Thank you.

Okay. The next question is coming from Steven Cahall of . Steve, the floor is yours.

Thank you. So thanks for giving the free cash flow number for the quarter. Just curious if that's something you might think about guiding to for the year along with the rest of your guidance. All of your peers usually give annual or two-year free cash flow. Now that it's not co-mingled with Diamond, I was just wondering if that's something you might provide as it will probably help us value the standalone broadcast business. And with that, I was wondering if you could comment on the state of your NOLs now that you're deconsolidating Diamond.

Yes. So I'll do the last one first. So, no change on the NOLs. The diamond deconsolidation is an accounting treatment only. No impact from a tax standpoint. And then on the free cash flow that is something Steven we're going to take a look at. We used to provide that pre-pandemic. And so we'll take another look at about providing some kind of a future range there.

Great. And then maybe just also as it relates to the relationship between Diamond and Sinclair. I imagine that Diamond benefited a lot doing affiliate renewals and ad sales along with STG. Now that you all don't have the same control of the Board of Diamond like you used to, does that change that strategy at all? Does it push the TV group to act a little bit more independently or at arm's length, or do you still expect to share a lot of the strategy between the two? Thanks.

Yes, thanks, Steve. This really doesn't change the operating relationship between Sinclair and Diamond. There is, of course, we own nearly 100% of the equity. And also there is the management agreement between the two, which is really the important relationship, or important aspect of the relationship. So we don't expect that this accounting change will change the way we operate at all.

Great. Thank you.

Thank you.

Okay. The next question is coming from David Karnovsky of JPMorgan. David, please pose your question.

Hi, thank you. Chris, just regarding the data casting opportunity that you were speaking about for your spectrum. What do you think the time line is from here in terms of completing the tech rollout, signing up business partners to new models and then ultimately having us be a material amount of revenue for Sinclair stations or for the industry? Thanks.

Yes. So, some of the most promising applications that we saw at NAV probably came from fifth half around precision GPS and demand response for utilities, which just to get a little deeper on that. That's when -- as utilities rely more on renewable energy balancing supply and demand is becoming an increasingly hard task. And the patent has developed a way for them to essentially negotiate with all of their millions of end users simultaneously to balance supply and demand. So we think that's a really great application enhanced GPS for any number of things from making sure e-scooters aren't left on the sidewalk and fined to autonomous vehicles knowing exactly where they are. As it turns out normal GPS can be -- have an error rate of up to 10 meters, which we can significantly impact through our ATSC 3.0 technology and correction data. And those applications along with our trial with USSI Global, I think they will start to yield revenue for the industry next year. And I expect that will start to ramp quickly as people realize how the use cases within NextGen I'm talking beyond broadcast here brings significant advantages to the ecosystem. And as that happens, the developer ecosystem around NextGen will proliferate and more use cases will be developed.

Thank you.

Thank you very much. Your next question is coming from Barton Crockett of Rosenblatt Securities. Barton, over to you.

Okay, great. Thanks for the question. Just one kind of smaller thing because some of the bigger things I was interested in have been covered. But on other revenue within the television group I think in 2021 that was $176 million of which $111 million was services I think provided to Diamond that were eliminated on consolidation. So I just want to be clear what the treatment is now with the deconsolidation. Is that no longer eliminated? And how should we think about that? And what that would mean also for the equity and JV part of Diamond going forward to the extent you can talk about that here.

No, I can take it. So you're correct. The management fees were eliminated between the two entities, now that will not happen. So the Sinclair silo will be recognizing the cash portion only of the management fee and that will run through the revenue. And then Diamond, it will be reflecting the full contractual expense amount before its adjusted EBITDA will be adding back the deferred portion.

Okay. But maybe I can follow up on that was were those $111 million of fees in 2021, is that now what's been deferred with the refinancing, or is there still -- is that still going to be coming in going forward?

Yeah. I mean look we've given a range of this before. But for the full year, the total management fee is -- I'm rounding these numbers about $140 million. Of that $60 million is paid in cash and $80 million is deferred.

Okay. All right. And then to switch gears a little bit. With the deconsolidation, how does that impact your capacity and interest in share repurchase? I mean, you guys have been active in the past and I don't know if this makes you more interested. Or just talk about what this does for your kind of appetite for your own shares at this point?

Sure. So it is really it's just an accounting change. So it really changes nothing about the fundamentals of the company from an economic perspective. But I do think it actually makes the story simpler for everyone to understand, for all our stakeholders to understand. So we're going to use this as an opportunity to retell our story, make it simpler. And in terms of buying back our stock, we have tremendous appetite for that. We think we're incredibly undervalued. The sum of the parts story is still the same as it was last quarter if not stronger. And so our appetite is there regardless of the deconsolidation.

Okay. That's great. Thank you very much.

Thank you. Your next question is coming from Lance Vitanza of Cowen. Lance, please ask your question.

Hi, thanks guys. Most of my questions are on the Diamond side. But as long as I have you I will ask are you getting any feedback from advertisers that would lend any credence to the recession fears that seem to be gripping so much of the markets over the past three, four weeks?

Yes. We continue to monitor. We speak with our clients on a daily basis. And right now they're still hanging tough with their advertising. But like I said earlier we will continue to monitor this and have ongoing conversations with these advertisers. We're presenting plans to them in case their fears get magnified in a bigger way. So, we have all the data points to show that even during tough economic times, those that advertise come out of the tough economic times in a stronger position in the marketplace. So, we are having those conversations now in case the situation worsens.

Thank you.

Thank you very much. Your next question is coming from David Hamburger of Morgan Stanley. David over to you.

Hi thank you. Good morning. I have a quick question with regard to -- I mean you stated here now that Sinclair remains owner of nearly 100% of DSG. I guess in the past I've noticed with disclosures you've said that you own more than 90%. Can you remind us exactly what the ownership structure is? How much do you own? The minority shareholders I believe maybe Byron Allen and others are they still a minority? And how much they own.

Yes, that's correct David. The one minority shareholder is Byron Allen and it's a very small amount and that's why we say nearly 100%.

Okay. And notwithstanding the $3.4 billion non-cash gain in your -- kind of, your sum of the parts analysis for Sinclair in terms of your asset portfolio, how are you valuing the DSG equity ownership stake?

So, in the sum of the parts that we have talked about we have not included any credit for the equity of Diamond. However, I think that there certainly is value there and anyone looking at that should attribute at least option value to that position.

Okay. Thank you very much.

Thank you very much. There appear to be no more questions in the queue. I will now hand over to Chris Ripley, President and CEO. Sir, the floor is yours.

Thank you. I want to start the Diamond portion of the call by thanking Diamond stakeholders for their support around Diamond's recent capital structure activities. We are pleased to have closed the $635 million refinancing which along with Sinclair's deferral of management fees meaningfully enhances liquidity by an approximate $1 billion. We believe these steps allow Diamond to be self-funding for the next several years and enables the launch and ramp up of its local sports direct-to-consumer efforts a significant initiative which is important to Diamond's future. As you may have seen, this week, we announced the Diamond new Board of Managers, which was required in conjunction with the refinancing. This is an impressive slate of seasoned executives from the world of sports, media, streaming, and related industries. The five-member Board consists of myself and four independents, including Randy Freer, former CEO of Hulu and longtime President of Fox Sports Media who will serve as Chairman. The other members of the Board are Mary Anne Turcke, who was Chief Operating Officer of the NFL; Bob Whitsitt, a 30-year senior executive previously with the NBA and NFL; and David Preschlack, who was President of NBCU RSNs. The Board's experience will be invaluable especially around Diamond's direct-to-consumer efforts and building future partnerships. In regard to Diamond's D2C plans for Bally Sports, we expect to do a soft launch later this quarter. The initial launch will enable the validation of the quality and reliability of the product prior to the full D2C rollout of the Bally Sports RSNs planned for September. The initial D2C product will offer an experience similar to what viewers now see on the TV Everywhere platform and the price point is expected to be attractive as compared to other similar professional sports D2C offerings at $189.99 for an annual subscription and $19.99 for a month-to-month subscription, resulting in an expected ARPU of $18.50. In the months after launch, we expect to roll out an enhanced D2C product incorporating additional functionality, content and features with incremental ways to monetize the viewer through a more personalized and interactive experience. Now, I'll turn it over to Rob.

From an operations standpoint, the MOB resolved their collective bargaining lockout. And while the regular season was delayed, the league is scheduled to play the full season of games. In terms of our gamification efforts for Diamond, we continue to move forward with our business plan to initially roll out prepredictive games for all the teams we represent. In the first quarter, we debut Bally’s Baller and Bally Breakaway games for our basketball and hockey leagues. And Bally’s Home Run Blast is expected to debut in June and will run throughout the remainder of the baseball season, with chances to win monthly prices. Our partnership with Bally’s and other gaming companies will continue to help drive our RSN gamification efforts going forward. Also, I want to touch on the RSN viewership, which for the 2021-2022 NBA seasons was up from both a rating and TV household perspective. MLB viewing trends have started favorably, as well as remain above the year-ago level. We continue to be encouraged by the viewship trends and we have launched recently two new programs to air on the RSNs, The Rally and Live on the Line. Later this year, we will be debuting a new show called, The Rivals. And we are also working on short-form and long-form programming development for the launch of our D2C app and our TBD app. As I mentioned on the Sinclair portion of the call, we renewed our multiyear distribution agreement with Charter, which included our 19 Valley Sports RSNs, Marquee and the YES Network. I'll now turn it over to Lucy to go over the quarterly financials in more detail.

Thank you, Rob. Okay. So just a reminder, the Marquee also falls under deconsolidation equity method accounting within Diamond's Financials as of March 1. And we are in process of getting an appraisal in order to book the noncash accounting adjustment based on the asset disposition trigger for Marquee and expect to have that valuation later this quarter. We will not be giving Diamond pro formas due to the confidentiality around deconsolidating Marquee from the Diamond results. On our website however, you can find Diamond's first quarter actuals and guidance for 2022. Note, that today's earnings press release for Sinclair consolidated company reflects two months of Diamond in the local sports segment table due to the March 1 deconsolidation. The Q1 results for Diamond that I will be discussing here and which are posted on our website are for the full three-month period for Diamond, which includes three months of the Bally Sports RSNs and two months of Marquee's results due to its deconsolidation. Diamond Media revenues were $709 million in the first quarter. Distribution revenues of $630 million continue to be based on high single-digit percent subscriber churn while advertising revenue on a per-game basis is growing. Diamond's media expenses for the first quarter were $650 million. Adjusted EBITDA for the first quarter excluding $11 million for nonrecurring items and deferred management fees was a negative $155 million. And as a reminder, the first quarter is typically the lowest EBITDA quarter for the year due to timing of the rights payments. Now we have done much to strengthen Diamond's future liquidity position and to enable it to build, launch and grow its D2C offering. On March 1 Diamond closed on a new $635 million first lien loan which matures May 2026. Sinclair also agreed to defer a portion of…

Thank you. Ladies and gentlemen, the floor is now open once again for question. Thank you. Your first question is coming from Dan Kurnos of Benchmark Company. Dan, over to you.

Dan, are you there?

Can you guys hear me? Can you guys hear me? Sorry about that…

Yes.

I don't know what happened. Apologies. Lucy, thanks for the color on all of that. And I assume that's also the reason why the monthly average for the two months is different than for the full quarter is because of Marquee in there in Q1. I guess, Chris maybe high level given all of the noise in the marketplace around SVOD and saturation, obviously Netflix at a slightly different stage of their existence than the RSN products. But just how are you thinking about kind of marketing, marketing expense going and all of the other things that go to play as you guys build up towards this DTC launch and how the market will sort of bear the products given everything that's out there?

Yes. That's a great question. Actually the recent developments within the streaming landscape I view them as very favorable for what we're doing because the market is rationalizing. And you -- it was inevitable that a momentum story would eventually cycle. They always do and the market becomes more rational. And our plan for Valley Sports was never about subscriber growth for the sake of subscriber growth. It was a plan to produce incremental profitability for Diamond Sports. And so now we feel like the market has actually caught up to our thinking in terms of our plan. And that will have many benefits for us. In terms of relative pricing comparisons, I expect that the entertainment value equation of -- from a consumer perspective when they compare pricing of what we're offering versus pricing of some of these other SVOD services which are likely to go up in light of the current environment that relative equation will be better. I also expect that the marketing environment to gain subscribers will get easier as people get more rational around their own marketing. And so we're really quite bullish on a change in the market environment as it relates to our strategy. In terms of our specific marketing strategy, we're not going to be really that loud for the soft launch coming up here. But as we get -- as we approach the full launch we are going to be much more aggressive on the marketing front.

And Dan in addition to that the teams have fully embraced the launch of the D2C coming up from the soft launch to the full launch. And we'll see some joint marketing efforts between Valley Sports and the teams as well. Both the teams and also had significant e-mail traffic. When are we going to launch? So there is that pent-up demand. So we look forward to joint marketing efforts with the teams.

Yes. And I think, it's a great point that needs to be emphasized in that. We'll really be the first mover with real premium sports in the direct-to-consumer marketplace. So comparing it to an entertainment-based SVOD is too simplistic. There are significant differences between sports and general entertainment, not to mention that sports has generational appeal, built-in fan bases, team partners that have massive incentives to get their fans on the service. None of that exists in general entertainment. So it's a really a different ball game, no pun intended.

Well played, Chris. The second question I have to at least try, just given the Charter renewal. Any commentary around how we should be thinking about the long-tail impacts there, the DTC, I assume that that was discussed and covered. I'll try not to get into specifics, but just to the extent that you guys can talk about how those conversations went and your expectations for future conversations with distributors around the DTC product and what it might mean for distribution revenues.

Well, as you know, we have confidentiality provisions in these agreements which don't allow us to talk specific terms. But we're -- as Rob stated, we're very pleased with the outcome with Charter. I think relative to market expectations, which were fairly negative, we massively exceeded those. And I would say, in terms of our internal expectations, we met or exceeded our internal expectations. And so, that's about as much detail as I can give without breaking a contractual provision.

All right. Fair enough. Had to try, anyway. Thanks, Chris. Appreciate it.

Thank you.

Thank you. Your next question is coming from Steven Cahall of Wells Fargo. Steven, over to you. Steven, are you there?

Steve, are you there?

Sorry about that. I'll figure out this mute button in another year or so. Maybe, first, just a housekeeping one on the Valley performance shares and warrants. Can you talk about, if there's any shift in the Board's focus on those? I think, those are still held by STG. So just wondering, if the new board would change any of the way that those warrants -- or achievement of them might be looked at.

So those are held at SBG. And no, there won't be any change there.

And then, Chris, I cover a lot of media companies that are going through these linear to direct-to-consumer pivots. Pretty much bar none, there's like a period of peak EBITDA losses. Some of it's content, which I know you don't have incrementally on Diamond. But a lot of it is technology costs, subscriber acquisition costs, marketing costs, just all the heavy lifting. When do you all think that the kind of peak burn from the DTC initiative will happen? And how do you think about kind of the shape of EBITDA from there as there's some pressure on linear? Thank you.

Sure. So I think the best place to look for our view of that is the cleanse that we did earlier in the year. It has detailed models for five years of both the base business and the DTC business. And so, you can really just see for yourself what our view is there. It really hasn't changed on the margins. Some things have changed around timing and some of the specifics. But really there is going to be a burn here in the beginning. Certainly, we're seeing that in 2022, flowing through the numbers. And it will persist into 2023. But as you noted, and I think this is incredibly important the number one cost of any SVOD service is the content. And we do have some incremental cost here for content, but by and large the freight has been paid on that. So our model ends up looking a lot different. That's why we -- when you look at those models they are incredibly profitable relative to other SVOD services, because there we don't have fully allocated in what the content costs are. And of course, there are costs around subscriber acquisition and marketing and technology costs. And that's what's really been some of the losses here in the beginning.

Great. Thank you.

Thank you very much. Your next question is coming from Avi Steiner of JPMorgan. Avi, please ask your question.

Thank you. I've got several here. I appreciate the time. Just very quickly on the full year outlook change, you listed a bunch of factors. I'd love to confirm if Marquis was the biggest number one, and whether the charter renewal played a role at all in the guidance change. And then I've got a couple more. Thank you.

Sure. So Avi, certainly Marquis is a factor there. But as I pointed out there are other factors, as Chris talked about. Timing within the second quarter the D2C launch, we had the settlement this onetime settlement on an audit that's coming in. And as I mentioned on the Sinclair portion of the call, while we're still high single digits for churn it's just slightly higher, right? Still within high single-digit churn just based on some of the recent reports by the distributors themselves as to what they're seeing. As you know we won't see that for like another quarter come in. And so -- but yes, Marquis is certainly an important piece of that difference.

And Avi to your specific question related to Charter. It had no impact on the change in guidance.

Appreciate that. Okay. My second one you have five MLB teams signed up for DTC. Your capital base has been bolstered. You have a great Board of Managers, distributor renewal at least the big ones behind us. You're on the verge of a soft launch. And I'm really trying to figure out what's the gating issue is to sign more MLB teams? Is it coming to terms with the teams? How much of I guess a roadblock is Major League Baseball if they are at all? And maybe what do they want to see? And then, I've got one more. Thank you.

Sure. So, look, we have been successful in getting off-renewal additions. We had one in January Marquee has also secured its direct-to-consumer rights. And the rest of the teams we're having constructive dialogue on. And there isn't necessarily -- given the status of where we are in our launch there isn't really a huge timing rush on that. But we are having constructive discussions on it.

And we're also having constructive conversations at the league level as well, so both with our teams and with MLB itself.

Okay. Thank you. My very last one and I appreciate the time. So now that Diamond has this new Board of Managers and it is deconsolidated as required. I'm curious, if Diamond now maybe has more flexibility to pursue either balance sheet remedies or strategic alternatives that perhaps they could not have pursued under the prior consolidated structure? Again, thank you all for the time.

Thanks, Avi. I mean, the – I guess, technically the answer to that would be no, because it was really a self-contained silo from day one. So it did have, all the flexibility needed to pursue, deleveraging exchanges mergers what have you. And so philosophically, the accounting change doesn't really change that. And – but I do want to stress that, all of those options are something we are actively evaluating, as you're certainly – this isn't the last transaction, or recapitalization that's going to happen at Diamond. There will certainly at least in my estimation be more of that to come.

Appreciate the time. Thank you.

Thank you. Your next question is coming from Lance Vitanza of Cowen. Lance, over to you.

Thanks, guys. First, I just wanted to follow-up on a question that Avi asked. The impact on the full year guidance the reduction that we saw the change in the launch timing, I guess, I would have thought that the launch was always supposed to take place in 2022. So I'm wondering, presumably any sort of expense that got pulled forward from 2023 to 2022 to put downward pressure on the EBITDA guidance would be pretty modest. Is that fair? And then I have a couple of follow-up questions. Thanks.

It's – so on that, when we talk about the timing, it's really timing within the second quarter. So before we were looking more towards the front end of the second quarter now, the soft launch will be towards the back end of the second quarter. So it's really the – both the revenue and an expense.

And, yes, you're right in that, it's a fairly modest impact. That is not the biggest impact of the impacts that changed the guidance.

Okay. And then so with the balance sheet addressed and $1 billion of fresh liquidity, how comfortable are you that Diamond has the resources to make it to the other side of the DTC launch? I know, you talked about this on the call. But how much cushion have you built into the model? And specifically, what would a recession in 2023 do to your confidence level?

We have a lot of confidence that, we have set up Diamond for the foreseeable future with ample liquidity. Your question around the recession is interesting. Diamond is mainly contractual subscription-based revenues, which tend to fare much better through recessions than the ad market. Just to give you a reminder, it's 80%, 85% on the subscription side, and 15%, 20% on the ad side. So that should give you some comfort with the recession ahead. As to how that impacts uptake on D2C hard to say. But I do think in the beginning here, we're going to reap the benefit of the hardcore disenfranchised fans outside of the bundle coming on to something new and exciting that really hasn't existed before. And I think that happens regardless of the economic backdrop.

When you look at the value proposition versus the cost of a ticket, it's a huge value proposition for the fan. And the fans are in recession or in good times as well.

Okay, great. And then my last question is Chris you had mentioned those -- the cleansing materials. And I just -- so we're still operating strictly speaking in a case one world I assume, right? But when you think about the opportunity really, do you -- I mean, do you imagine that we wind up somewhere between case two and case three? In other words it's in that likely we get all of your linear teams eventually on DTC. And really the only question is how much benefit you'll get from higher take rates due to sports betting and legalization I would think. Is that a fair way to characterize it?

Yeah. Again, I -- we always hate to speculate. But I do think what you said is right. And we are currently in a case one world today. But when I think about the future, it looks more like a case two or case three.

Thanks guys.

Thank you.

Thank you. Your next question is coming from Barton Crockett of Rosenblatt Securities. Barton, please ask your question.

Okay, great. Thank you. So I wanted to just talk a little bit about the high single-digit sub-churn and how to think about that trajectory over coming quarters. Because I know that, that has in the past been influenced by some drops in some major distributors that we're probably lapping at some point. So how do we think about that? And then just kind of a related question, but I know conceptually Charter have been floating this although I know you can't talk about Charter, but I'm sure others are thinking it. This notion that as you roll out DTC subscriptions that there should be some flexibility, or maybe lesser carriage on the traditional pay TV systems. Just some thoughts about how that's playing out now that you've done the Charter renewal? So those two things would be great. Thank you.

Sure. So the high single-digit churn guide does not -- is not impacted at all by any distribution drops. So we've been in a fairly, I would say status quo mode for long enough that that comparison is apples-to-apples. The -- in terms of your question around Charter. The -- we, obviously, dealt with that head on in these negotiations and we're very pleased with the outcome. So every distributor wants as much flexibility as possible, but at the same time they need the content. So it's always that push and pull in every negotiation.

Well, if I could follow-up. What would you say is the principal driver of the high single-digit declines, which I think are bigger than what you're seeing on the SBG side, which you didn't put a number there, but I think it has historically been 5% down. And…

The main reason there the difference there is that the RSNs, the only virtual MVP that carries RSNs is direct TV stream. And so some of the growth in the PayTV sector is coming out of some of the other virtual MVPDs, which do not carry the RSN. So that's what creates the variation in churn between broadcast and Diamond.

Thank you.

Thank you.

Your next question is coming from David Hamburger of Morgan Stanley. David, please ask your question.

Hi, thanks. If I can a couple of questions. And maybe I can just ask this in a more direct fashion. If you did not deconsolidate Marquee in this quarter would you have hit your range for guidance that you gave in the first -- the fourth quarter earnings call of $266 million to $297 million of EBITDA this quarter?

So again, that one is look we – yes, I believe we would have. Again, with the deconsolidation of Marquee it's a little bit more difficult to answer that off the cuff. But yes, we -- for adjusted EBITDA, yes, I believe we would have.

Okay. Thanks. And then maybe you could just help me reconcile a couple of things here. So, at the end of 2021 you had $479 million of cash. I believe you just disclosed you had $572 million of cash. You did a $635 million debt raise, I guess about $35 million of which was used to take out the 12.75% notes. You mentioned Chris I think before the cash burn for D2C has been maybe a little more front-end loaded. I assume that helps reconcile some of those numbers. But also I know, Lucy previously you've given the cash rebates that have been paid to the cable companies. I think you guided to $210 million for the first half of 2022 and maybe $127 million or so of that would be in the first quarter. So, can you kind of give us a little more disclosure here on what kind of the liquidity position here? And reconcile some of these -- the cash in the quarter?

Sure. So, a couple of things just to take note of, for your models this year and you pretty much mentioned all of them. First one is, the new money raise and the added interest expense as it relates to that. And then of course any forward LIBOR and so for rate increases that are -- the market is expecting on the -- on all the debt that's not fixed. The other piece are the rebates, let me just kind of reset the rebates for you because that has changed and in particular with the audit settlement. And so, I'm just going to give you the new numbers here. 2022, there's a total of $105 million, in net rebates that Diamond would pay. 2023, $62 million that we would pay. So -- and for Q1 of 2022, Diamond has already paid $24 million of that. So that will also -- you'll be able to also spread that across your models. But really -- and then you have the deferral of the management fee is the other thing to make sure that you capture in your models this year.

And how much -- can you give us any sense of, how much of the $105 million will be paid out over the course of over the year of 2022?

Yes. Well we paid $24 million of that already of that $105 million. It will be roughly $49 million in Q2. And then Q3, is about call it $17 million and $16 million.

Okay. And any way that you can help us quantify, I think as Chris referred to the cash burn for the direct-to-consumer launch? And how that's impacted the quarter and what your expectations are there?

Yes. We're not going to break that out at this time. But it is -- I think, I'd refer back to the disclosure that we previously put out there. It hasn't really changed much.

Yes. So David, what I would say is we've given you a full year adjusted EBITDA number, right? So you have that. And then to that is really just adjusting for your interest. And the CapEx is minimal, it's about $30 million for the year in CapEx

And then just one follow-up question, if I can. You had the Charter renewal. Can you give us a sense, I guess the next kind of two big customers with upcoming renewals at some point would be DIRECTV and Comcast. Can you give us any sense like, how to think about when those will happen?

Those are both in the back half of 2023.

Okay. Great. Thank you very much.

Thank you.

Ladies and gentlemen there appear to be no more questions in the queue. I will now hand back over to Chris Ripley, for closing remarks. Sir, the floor is yours. End of Q&A:

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Thank you. Ladies and gentlemen this does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.