Good day, everyone, and welcome to Sinclair Third Quarter 2023 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Chris King, Vice President of Investor Relations. Sir, the floor is yours.

Thank you. Good afternoon, everyone, and thank you for joining Sinclair's Third Quarter 2023 Earnings Conference Call. Joining me on the call today are Chris Ripley, our President and Chief Executive Officer; Lucy Rutishauser, our Executive Vice President and Chief Financial Officer; and Rob Weisbord, our Chief Operating Officer and President of Local Media. Before we begin, I want to remind everyone that slides and supplemental information for today's earnings call are available on our website, sbgi.net, on the Investor Information page and on the earnings webcast page. 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 third quarter earnings release. The company undertakes no obligation to update these forward-looking statements. The company uses its website as a key source of company information, which can be accessed at www.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 company's operating performance and the ability to service its debt. The company also believes that adjusted EBITDA is frequently used by industry analysts, investors and lenders as a measure of valuation and ability to service debt. The company also discloses segment adjusted EBITDA as an…

Good afternoon, and thank you for joining us. I'll start on Slide 4 by introducing an overview of our third quarter financial results. As you can see, Sinclair delivered strong third quarter results that met or exceeded our guidance expectations across the board on both advertising and distribution revenues as well as media expenses in both our Local Media and Tennis Channel segments. As a result, we exceeded the midpoint of our adjusted EBITDA guidance for the quarter by 40%, and we also exceeded adjusted free cash flow guidance. Turning to Slide 5. We have repurchased over $64 million in face value of our debt since the beginning of June. On average, the repurchases were made at a 24% discount to par for a total cash outlay of just over $49 million, representing a yield to maturity of 13%. These open market debt repurchases, which took place across all 3 tranches of our notes as well as our nearest dated maturity our 2026 term loan represents our priority to strengthen our balance sheet while acting opportunistically when market conditions permit. Turning to Slide 6. As we've stated in the past, we are committed to our traditional local media business with the realization that the industry needs to transform in the coming years due to subscriber churn and regulatory constraints. With that being said, we believe Sinclair as well as the broader industry has multiple growth drivers in the coming quarters. First, we expect to see record-breaking political advertising revenue in 2024. We are seeing current political revenues trend above both 2021 and 2019 levels so far this year, and we expect the strong growth of issue-oriented political advertising and what appears to be several close Senate and core in-house races in our footprint will accelerate this growth significantly as we…

Thanks, Chris. Turning to Slide 8. I wanted to touch on our four strategic pillars of local media and the transformation that we are on our way to execute it. First is multi-platform content. To generate revenues, we need impressions. And to increase impressions, we need to be a multi-platform media content provider. The days of reaching eyeballs only through linear TV transmission are gone. Our stations have active presence on every platform, including linear and various social media applications, YouTube, station websites, podcast everywhere our viewers and listeners are and every platform that can carry our content is where we need to be. We are constantly working on maximizing impressions and the best way to do that is to be on multiple platforms. This leads to our second pillar, community and interactive engagement. We not only capture impressions, but we monetize that. We accomplished this by keeping our viewers on our platform for longer periods of time through various methods of engagement. We are developing opportunities for the viewers to further engage with us and for us to develop more unique viewers and consumers of our content as well as more revenue opportunities per user. These methods may include unique content, a game center or running various contests just to name a few, which brings us to the third pillar of marketing services. We continue to refine our services, including introducing a unified ad sales platform in recent months, which ties together our ad proposals for linear, digital, as well as billing, traffic for digital and order entry systems, which provide massive efficiency improvements for our sales teams. It makes the digital multiplatform sale dramatically easier to execute upon. We are also using AI to increase our sales prospecting and presentation velocity to drive our client sales growth, leveraging…

Thanks, Rob. On Slide 12, I wanted to provide a quick couple of updates regarding NextGen broadcast technology, which has now been deployed in half of our 86 markets covering 74% of our covered population. In addition, nationwide coverage is now above 70% as the industry continues to improve NextGen reach. While a recent patent dispute has caused LG to suspend the inclusion of 3.0 chips in its 2024 U.S. television lineup, Samsung and Sony continue to produce and sell ATSC 3.0 ready TVs, and the industry expects 10 million 3.0 receivers to be available in the U.S. by year-end. We expect the patent verdict to have very little impact long term and is being appealed by LG. In addition, last week, we announced an agreement to expand development of and promote ATSC 3.0 NextGen services in South Korea with the Korea Radio Promotion Association. We continue to play a leading role in accelerating the adoption of the DDaaS business model and the continued transformation of local broadcast capabilities not only in the U.S. but globally. As seen on Slide 13, Tennis Channel recorded another strong quarter with $59 million in total revenue and $18 million in adjusted EBITDA, both well in excess of our quarterly guidance. Our full year guidance for Tennis Channel is increasing as a result. We are now expecting full year revenues in the range of $226 million to $227 million, with full year adjusted EBITDA in the range of $61 million to $62 million. Turning to Tennis Channel's operational highlights on Slide 14. The average audience in the third quarter grew by 31% year-over-year, while social media impressions grew by 187% year-over-year. The TC+ streaming platform increased monthly subscribers by 11% year-over-year, while authenticating -- authenticated viewing for MVPD customers grew by 52%. The T2…

Thank you, Chris, and good afternoon, everyone. Beginning on Slide 16, on a consolidated basis, we delivered media revenues during the third quarter that exceeded the high end of guidance as distribution and political advertising revenue was modestly higher than expectations and core advertising revenue met our internal forecast. As compared to last year, which was a midterm election year, consolidated media revenues decreased to $758 million during the quarter, primarily on the lower political revenues and to a lesser extent, the impact of year-over-year subscriber churn. On Slide 17, consolidated adjusted EBITDA exceeded the high end of guidance for the quarter on the media revenue overachievement and on lower-than-expected expenses driven by lower programming and production costs as well as lower sales, digital and G&A costs. As compared to last year on a pro forma basis, consolidated adjusted EBITDA in the quarter decreased from the 2022 period with media revenues contributing primarily all of the decline as a result of the lower political revenues in an off-cycle political year. Slightly lower media expenses, film payments and corporate overhead, excluding onetime costs, partially offset the revenue decline. Slide 18 shows our consolidated adjusted free cash flow results which also exceeded the high end of our guidance for the quarter due to the favorable adjusted EBITDA results. Adjusted free cash flow declined year-over-year on a pro forma basis due to the decline in the adjusted EBITDA, as just discussed as well as higher interest expense and fewer cash distributions from our minority investment portfolio as last year, we exited several investments. Slide 19 walks through our balance sheet metrics with the next meaningful maturity almost 3 years away. STG, Sinclair Television Group's first lien net leverage was 4.3x, while Sinclair Television Group's total net leverage was 5.3x at the end of…

Thank you, Lucy. Turning to our key takeaways on Slide 22. Sinclair delivered strong third quarter results as we met or exceeded our guidance expectations in the third quarter. In addition, our commitment to reducing debt has been on full display as we have repurchased more than $64 million in face value of debt at an average 24% discount to par through open market repurchases since the beginning of June. And while we continue to deal with increased linear subscriber churn levels, Sinclair is well positioned for the near and long term as we have focused on transitioning -- sorry, transforming the broadcast industry through our 4 strategic pillars. In addition, the much-watched Charter-Disney carriage dispute was resolved in a manner that we believe highlights the importance and relative value of the pay-TV bundle which is a significant positive for the industry as we anticipate improved long-term trends for linear subscriber churn as a result. Advertising trends remained solid with record political revenues during the third quarter for a nonpolitical year. We expect record political revenues in both the fourth quarter and in 2024, which will drive strong adjusted EBITDA and free cash flow growth for us in 2024. In the meantime, core advertising trends continued to improve as we saw significant year-over-year growth from several categories during the quarter. We are also looking ahead to significant retransmission agreements that are coming up for renewal over the next 12 months. In the meantime, we continue to see increased demand, both domestically and internationally for our Tennis Channel related assets and programming. Sinclair is well positioned for the future, and we remain excited about the opportunities that lie ahead of us. Lucy, Rob and I will now open the call to questions. Thank you for joining us today.

[Operator Instructions] Your first question is coming from Dan Kurnos from the Benchmark Company.

Great. It's nice quarter. Maybe, Chris, there's a lot to unpack here. But on the distribution, your commentary around Charter-Disney, just it seems like rate has been pretty strong from what we've seen in your results kind of also appear to start reflecting that. I guess the flip side of your commentary or the other aspect of your commentary is the reduction of carriage of some of these low-value cable nets and more dollars accruing to broadcast. And I'm just curious, as you have these conversations on the retrans side, how much you're factoring that into your net guide or on the rate side, just how much you think you can kind of continue to pick up here?

Well, it's a great observation. I think there's a few key takeaways from the Charter-Disney deal and one of which is that premium content got paid and non-premium content, like the dozen or so channels at Disney and is getting dropped from Charter, where don't get -- it does not get paid. And so we think that's significant. Our programming is pound per pound, the most premium programming available to a pay-TV distributor. So we definitely see that being a validation of our pricing power. And everything we've seen so far from recent negotiations have reinforces that fact. And I think the other thing that I would point out about the Disney-Charter arrangement that I think is just a really solid plus is the inclusion of these ala carte DTC offerings like Disney+ and ESPN+ into the Charter base packages is a real significant value proposition for the consumer. And we think to the extent that spreads to other distributors and other media companies, we view that as a real positive and it will give the relative value proposition for the consumer of leading to essentially -- the main alternative to leading right now is to cobble together these ala carte DTC offerings. And by the way, the way those go up in price month by month, day by day and they get ads added and they cracked down on passwords. So the relative cost of ala carte DTC is skyrocketing up and the relative value of pay TV is actually increasing because more and more is getting added to the offering. And so we think that's a very positive trend that wasn't the case a few years ago, but we're seeing over the last couple of years, we're seeing a rightsizing of the 2 base alternatives that people choose for their video entertainment.

That's super helpful. And just housekeeping, after the deals or renewals you announced in the release today, what do you have left over the next 12 months?

We still have the vast -- almost all of our traditional pay-TV subscribers coming up in the next -- between now and the end of 2024. So we feel really good about that dynamic heading into what should be significant step-ups.

And then just on the political front, obviously, there's been a lot of talk about fundraising and then obviously, the whole Tim Scott stuff, and I know people have been afraid to sort of go out there and talk about record for next year given the uncertainties on the presidential side, but -- or maybe the guaranteed outcome on presidential side. So just any incremental color on sort of your confidence in calling for record '24 with that backdrop?

Yes, I'll answer that. It's Rob. We have significant Senate house races and seeing a lot of money spent on issue-based advertising. So we're still bullish on calling it for a record year for us. The presidential election, we're seeing spending in Iowa, some money just came down a couple of hours ago. So the money will be spent, whether it's the presidential election for the local races and the issues that are out there that are significant.

And the external research on the topic is still pointing towards record fundraising, and that's really the key money raised is money spent.

That has been historically true. Just Chris, if I can just ask one last one just on allocation or capital allocation. You guys obviously deserve credit for buying back your debt in the open market at a discount since it accrues to the equity. I think that's been smart. We're at the point here, given that everyone thinks the sky is falling, where -- and I know you guys care about the value of your equity. So you had a big buyback at these levels. I just don't know how you think about balancing the two and knowing that most of the free cash is going to come in next year, but just kind of your thoughts on balancing the two from this point on?

Sure. And we never like to be too forward looking when it comes to these types of things. But we -- as you noted, we did buy back a significant amount of stock this year. We have been very active on the debt side. We've heard from investors that the equity would benefit from lower amounts of debt. And so we have shifted our focus and that is our current focus today, but you are right in pointing out that the equity is really, really low from a fundamentals perspective, and it's hard to ignore that.

Your next question is coming from Steven Cahall from Wells Fargo.

So Chris, there's just so much noise in retrans these days between sub declines and pricing, and virtuals. And you all have, as you said, virtually every sub renewing, I think, between now and the middle of next year. So if we just step back from it all, I think your retrans revenue was down around 4% this quarter. It's clearly going to start accelerating here very, very soon. Can you help us with where you think it might get to when that revenue peaks after all these renewals? Because I think that's the really hard thing in kind of understanding the expectation for retrans and net retrans related to your guidance. And then, Lucy, so you outperformed a lot on EBITDA in Q3 versus the guidance. Slide 4 is really helpful to see where that came from. Some good revenue performance in there. A lot of it is on the cost side as well. Can you just help us unpack what in cost came out significantly better than what you had expected? Are you seeing lower programming expenses? Is this cost cutting that you've been doing? It doesn't look like it's timing, but I just want to -- just based on the Q4 guide, but I want to make sure that I understand that.

All right. So as it relates to net retrans, I would point you back to the guidance we gave over a year ago on our 2022 to 2024, so a 3-year CAGR, which we're over a year into now. And we are standing by that guidance of low single digits growth. And so if you want to see not necessarily where it peaks, but where it's headed to in 2025 from here, just do the math based on where we were in 2022. So that -- you're right, basically, you should see a meaningful acceleration starting in the fourth quarter and then making its way up to a much higher number from where it is run rating today to that growth number in 2025.

Yes. And so Steven, on the expense question, so this is something we have been as a company focused on all year is -- and it's a company-wide focus to look at really questioning some of our expenses. And so where you're seeing it is really coming across all of our large spending categories and departments. So you can't really point to just one area. Again, this has been a company-wide focus and not just here in the third quarter, but for the full year. And as you kind of move from Q3 forward, right, into Q4, there will be some seasonality that will just be from quarter-to-quarter, just Q4 is usually a bigger quarter for us and sales expense commissions will be up on the higher revenue. But we have really focused on this and taken a lot of cost out of the business this year.

I think what I'd add to that is that we expect that these changes will be -- are permanent, right? These are not just onetime cost saves. This is us getting more efficient, us getting rid of things that we didn't need, things of that nature. So we will continue. In fact, we think we will continue to improve all the investments that we're making this year, which is quite significant and sound transformation, be it cloud, be it the unified ad platform, be it DDaaS, there's a number of other smaller initiatives. They're all geared around being more efficient with what we have, selling more with what we have, so either making more revenue or running the business on less expense. And so that drives greater efficiency will continue we won't just stop after this year.

[Operator Instructions] Your next question is coming from Aaron Watts from Deutsche Bank.

Just a few questions for me. I guess, Chris, One more follow-up on the distribution side. You've highlighted that you have a majority of your sub base up for renewal over the next 12 months. We've seen a couple of notable blackouts between station owners and distributors and a couple of elongated ones even with the NFL ongoing. With that backdrop in post Charter-Disney, are you bracing for more abrasive negotiations as you go into these discussions at least compared to the past, are you approaching them any differently. And given that we all are on the outside looking in, is the base case that we should work with, is that these negotiations can get done without any prolonged blackouts?

So I would actually, Aaron, challenge the notion that blackouts have increased. I just think people are paying more attention to them. Periodic blackouts have been a common occurrence for years. And I can remember plenty of times where we had much longer blackouts in the industry. But I'll tell you, from a Sinclair perspective, we haven't had a single blackout on the broadcast side for multiple years. And so I don't think it would be accurate though I haven't actually looked at the numbers myself to say that blackouts have increased. It's all from the very start of retrans. It's always been a battle and it continues to be one, one that's fought in a friendly fashion. And with the -- we both need each other. And so I expect that to continue. I don't see a meaningful change in how we interact with the for all the reasons I cited when I talked about the Disney-Charter deal that in terms of what's available for distributors to secure and content, ours is the most desirable full stop. So if they're -- they want to be in the video business, which they all still want to be in the video business, I assure you that, they need our content. And so I don't think the marketplace has really changed that much.

Okay. That's helpful context. And then just secondly, around the core advertising picture based on your third quarter results and 4Q guide, it seems like heading in the right direction. Is it too early to say you may be turning a corner towards more sustainable positive ad trends going forward and rolling into 2024? Or is it a little too early to make that call? And I guess, can these early positive signs like national moving towards positive traction? Can they be sustainable?

Yes, Aaron, it's Rob. I would say that we're cautiously optimistic. Auto has returned. Services is getting stronger. The legal category is strong. Retail and travel are strong. So I wish I had a crystal ball, but we are optimistic that we have seen this turnaround. We've gone through the pandemic recession, thought process. And now we've come full turn. I think that the election year makes it robust. And we're excited because everything we've been building for the last few years, including our AI/ML pricing dynamic, pricing system will kick in to allow us to maximize our value of our assets.

I also think this is a reflection of a continued shift, multi-platform strategy and digital is becoming a bigger and bigger portion of our total advertising pie, really has put a lot of work and Rob's team has put a lot of work into transforming our sellers into marketing consultants. That's starting to pay dividends.

Yes, we live in the cross-platform solution world, and we stated earlier that we're building our assets on every single platform and we monetize every single platform. So going we are really happy to be expanding upon our podcasting network as well as our presence on the various social media networks with the hiring of a gentleman that came from Condé Nast and HBO Max to give a little bit different look to how we impact the social media space. So as we do the content, we also have a monetization plan to go along with it.

That concludes our Q&A session. I will now hand the conference back to Chris Ripley, President and CEO, for closing remarks. Please go ahead.

Thank you all for joining us today. And to the extent you have any questions or comments, feel free to reach out.

Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.