Greetings, and welcome to the Sinclair, Inc. Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode and a question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Chris King, Vice President of Investor Relations. Chris, you may begin.

Thank you. Good afternoon, everyone, and thank you for joining Sinclair's third quarter 2024 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 for today's earnings call are available on our website, sbgi.net, on the Events & Presentation page of the Investor Relations portion of the site. A webcast replay will remain available on our website until our next quarterly earnings release. 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. Included on the call will be a discussion of non-GAAP financial measures, specifically adjusted EBITDA. This measure is not formulated in accordance with GAAP, and it's not meant to replace GAAP measurements, and may differ from other companies' uses or formulations. Further discussions and reconciliations of the Company's non-GAAP financial measures to comparable GAAP financial measures can be found on our website. Let me now turn the call over to Chris Ripley.

Good afternoon, everyone, and thank you for joining us. I'll start on Slide 3 by highlighting our third quarter financial results on a consolidated basis. We delivered solid third quarter results that we are well above our guidance given in August, but came in modestly below the increased guidance that we provided in mid-September. We were impacted by some late political ad cancellations from Nevada, which occurred in the last week of the third quarter as campaigns move monies to states and cities outside of our footprint where races grew tighter. Total distribution revenue was in line with our guidance range, thanks to solid outcomes on all distribution renewals. Core advertising revenues grew 1% in the third quarter, which is the first for Sinclair to have grown core at a time when political advertising was at an all-time high. Our sales teams delivered strong growth in both core and political advertising, which followed through to our adjusted EBITDA, which came in near the high end of our guidance range for the quarter. Lucy will go into more details in a moment. On Slide 4, our Ventures portfolio received $5 million in total distributions during the quarter and made approximately $7 million in contributions. At quarter end, Ventures held $334 million in cash, up $8 million from cash levels at the end of the second quarter. Turning to Slide 5. I wanted to take a minute to provide an update to the great rebundling thesis regarding the future of broadcast TV, which may better be – may better termed as the great revaluing as the value proposition of Pay TV has significantly improved for the consumer. In recent quarters, we've seen Charter reach deals with Disney, Comcast, Paramount, Warner Bros. Discovery to include streaming services and in their cable TV packages.…

Thanks, Chris. On Slide 8, I want to provide an update on a very busy third and fourth quarter to date for our distribution team. During the third quarter, we reached multi-year carriage agreements with Altice and DirecTV. We have now come to terms with MVPDs covering more than 78% of our Big 4 cable, telco and satellite subscribers so far this year without a blackout. As a reminder, we have one network affiliation agreement, NBC, which expires at year-end with the remaining network agreements locked in until at least 2026. As a result of the strong progress we have made throughout the year, we are reiterating our guidance of a mid-single-digit CAGR for net retransmission revenues from 2023 through 2025. Turning to Slide 9. The 2024 political season has only reconfirmed the value of local broadcast and local news. For 2024, political revenues grew 16% as compared to our pre-runoff political total in 2020 of $350 million. During the third quarter, we reported $138 million in political advertising revenue, an all-time high third quarter watermark for us, which was $5 million lower due to late cancellations during the last week of the quarter, most of which occurred in Nevada. Cancellations continued in the fourth quarter as well with another 21 million of cancellations due to late geographic shifts of existing and also new commitments to non-Sinclair markets. While political came in wider than our increased guidance anticipated, we'd have only been $10 million short hitting our $442 million estimate for the full-year, if not for the 26 million of cancellations. Of note, we experienced over 11 million of cancellations from Nevada and even though we are in several markets in Pennsylvania, those markets saw 6 million cancellations as some monies within the state shifted to Philadelphia where we do…

Thanks, Rob. Turning to Slide 11. As Chris touched on earlier, we had solid third quarter results. Our $138 million in political ad revenues broke third quarter records for us and we would have met our revised political guidance, if not for the $5 million in late September cancellations. Moreover, despite the record political third quarter, we grew core advertising revenues by 1% year-over-year and almost unheard of accomplishment and reconfirming our sales strategies around pricing, specialized sales categories and multi-platform offerings that consumers and advertisers care about. Meanwhile, distribution revenues were up 5% year-over-year driven by renewal rate step-ups and new carriage agreements on Tennis Channel over the past year, partially offset by distributor subscriber churn. Adjusted EBITDA came in within our guidance range as media expenses were modestly lower than our forecast. Additionally, CapEx was favorable to guidance, primarily on timing of payments now expected to occur in the fourth quarter. Turning to Slide 12. Consolidated media revenues of $908 million were up 20% in the quarter versus last year on the higher political revenue as well as distribution revenues on the recent renewals and added carriage, which exceeded subscriber churn impact. As compared to guidance, distribution revenues were in line with our expectations. Approximately $5 million of political advertising cancellations late in September resulted in us coming in $2 million under our revised increased political guidance, while core revenues increased 1% year-over-year, modestly shy of our 2% to 4% revised guidance provided in mid-September. But as we've pointed out now, growth in core advertising in the third quarter when we also have a record political quarter is a first for us. On Slide 13, consolidated adjusted EBITDA for third quarter was $249 million which was within our guidance range. Consolidated media revenues were just shy of our…

Thank you, Lucy. Turning to our key takeaways on Slide 18. Sinclair delivered solid third quarter results as core advertising revenues grew year-over-year during a quarter with record political revenues, a first for Sinclair in a political year. Political advertising revenues set records for the company during the third quarter, fourth quarter as of election day and full-year. Distribution revenues were up 5% year-over-year during the quarter as over 78% of our Big 4 network MVPD linear subscriber base are now on new retransmission consent agreements since the beginning of the year, helping us reaffirm our guidance of estimated net retrans growth of mid-single digits for the 2023 to 2025 two-year CAGR. Full-year EBITDA guidance reflects a growth rate of 53% to 55% year-over-year. In summary, we are pleased to deliver both core revenue growth in the third quarter and record political revenue growth this year. We believe our results demonstrate the continued strength of both Sinclair's operations as well as the broader broadcast industry. And following last night's election results, we are optimistic for a more constructive regulatory environment for the industry. We have positioned the company well to take advantage of these opportunities and could not be more excited about its future. Lucy, Rob and I will now open the call to questions. Thank you for joining us today.

Thank you. At this time, we'll be conducting our question-and-answer session. [Operator Instructions] Our first question is coming from Steven Cahall with Wells Fargo. Your line is live.

Maybe just first, Chris, can you talk a little bit about the decision to preannounce on political? I think back in 2022, there was some late-breaking timing shifts on the political front. And so you decided to give the pre-announced outlook for the year and then things kind of shifted again. So I would just love to understand how things broke so much different than you expected? And if this was different from 2022? And then second, there were some prior reports that your stations could be for sale, and you talked a bit on the call about some of the positive regulatory changes that could happen, especially as the new FCC comes into effect. Should we think about Sinclair as more likely a buyer or a seller or a little bit of both, if we do get into a point in time when the cap is higher? And then just finally, on distribution revenue, up 5% in Q3. I think it's implied up 3% in Q4. So is Q3 the high point after all these successful renewals? Or is there still some room for it to grow? Thank you.

Okay. Thanks, Steve. So look, on the first question, when we took a look at what was happening in Q3 and we compared that to historical trends, be it in 2022 or even further back, it was pointing to a significantly higher number for Q4, which unfortunately didn't materialize because of the shift from some big cities or out of smaller cities into big cities and from some states to other states where we weren't located. So it was that sort of shift of that size, it's not something that we had previously experienced. And we had some cushion even with the implied guidance that we gave. So that's why we – that's how we changed the guidance when we did. In terms of your M&A question, look, we're very excited about the upcoming regulatory environment. It does feel like a cloud over the industry is lifting here. And we do think some much needed modernization of the regulations will be forthcoming. And we intend to – as we've always said consistently over the last few years, we intend to participate in that – in the M&A in the industry, be it as a buyer, as a seller or a merger partner. So whatever we can do to unlock are some of the parts valuation is really what we're focused on. And this new regulatory environment that we're about to come upon, we think we will greatly facilitate that. And then on your last question, as it relates to topline growth on retrans. Yes, I don't have those numbers right in front of you – right in front of me, and we wouldn't necessarily give that level of detail for upcoming quarters. But we still have 28% of our subscribers to go on renewal. And so we're expecting strong growth well into 2025.

Thank you.

Thank you. Our next question is coming from Dan Kurnos with The Benchmark Company. Your line is live.

Great. Thanks. Can I just – Chris, just quickly follow up on Steve's last question, just on distribution and just maybe ask it a different way and say, we know that some of your peers maybe have some timing elements in some of these just to make sure that there were no blackouts. So I'm not asking for like specifics, but just wanted to understand if you're getting sort of full renewal in the current and out quarter on distribution. And then for Rob, maybe you can just kind of talk about underlying core trends post election. I mean, obviously, there's a World Series in there. And I'm curious how much, if at all, you think Trump Presidency given your Fox exposure would help or not from a core perspective? Thanks.

So pardon, can you say your first question again? I'm not sure I quite really understand what you mean?

Yes. Hey, Chris, Dan anyway. Just – I'm just asking, so like for example, if you have – so you did direct in Altice in the quarter, and I was just curious if terms around your some of the renewals done in Q3. If you get the immediate step-up, if there might be some timing elements like incremental step-ups next year, just trying to make sure that we understand how much of the renewals are hitting in this quarter and how much we should be expecting sort of next year once you bake in the next 28% of it?

All right. Okay. Yes, I think I understand your question now, Dan. So again, I can't get into the specific terms of any one agreement. But generally speaking, we do have step-ups that kick in as soon as we renew. And we also have significant annual renewal step-ups that happen as well. Annual [indiscernible]. So I'll hand it over to Rob.

And Rob the core question?

So I'll hand it over to Rob.

Yes, Dan, a couple of things. As Lucy pointed out, we're currently trending at two-thirds of being down versus traditional through the crowd out, and that goes to what I've been talking about for the past year of our pricing system using algorithms and the efficiencies of running our spots as they're booked. Obviously, in the fourth quarter, we had the World Series where largest group is Fox. But College football across our networks are doing well. You're seeing Marquee matchups every single week. And so we're able to capitalize on these. Some of these could have been championship games that we've witnessed early in the season. And so – and going into next year, with our Fox stations having the Super Bowl, we think will carry over our successes in the first quarter of next year. And even with the record political, normally everybody asks about automotive, and we've been able to keep our pace without having to lose much of our automotive business, which was relatively flat to down 1%, even with all the crowd out. So we are cautiously optimistic that we're seeing the return of eyeballs pointed out by traditionally you hear the words on the street that the younger people don't watch broadcast. But in the World Series, the 18 to 34 demo was up 100% in this year's World Series. So as Chris was iterating on where we're bullish that sports is bringing eyeballs back to broadcast.

Got it. Super helpful. Thanks guys.

Thank you. And next question is coming from Barton Crockett with Rosenblatt. Your line is live.

Hi. Thanks for taking the question. I was interested in the commentary around the regulatory environment. And because as I recall, you guys had some issues with the FCC under the former Trump administration with your Tribune deal. And so I'm just wondering if there's been anything specific that's been said or that you've seen that gives you the confidence that you get some hope for kind of loosening of the regulatory situation there? Is there anything you can point to other than just your hopes?

Sure. Actually, there's something, I think, very salient point out there, so I'm glad you asked this question. If you remember, Chairman Pai enacted new rules did a certain measure of deregulation when he was in power and that included getting rid of cross-ownership. It included allowing two of the Big 4, subject to a waiver. It reinstated JSAs and SSAs. And it's – that way it was then challenged, and it went all the way to the Supreme Court and the FCC1 and those rules were then the rules of the day. Now all that time until that was all sorted out, largely aid up most of that FCC's term. And so shortly thereafter, we had a changeover in government in the White House and the changeover in the FCC. So we – from our perspective, we really haven't lived in a world where even the current rules have been in effect or at least followed by the FCC. So just that alone, adjudicating the rules as they currently stand is a huge benefit for the industry. And we're hopeful that there'll be further relief as it just isn't consistent with a level playing field versus big tech or big media. And I think the Republican Party understands that.

Okay. Yes, I mean it's clearly not the same. But I was also wondering, switching gears a little bit. Fox was reporting some deceleration in the pace of subscriber decline. Can you guys update us on what you're seeing anything like that? Or just give us what the numbers are?

So we're still around mid-single digits for our overall churn. That hasn't changed in a while. We do see results in arrears in terms of the submissions that come to us because most MVPDs pay us and remit in 60 to 90 days after. But I will note that both Charter and Comcast exceeded expectations on video sub churn in this most recent quarter that they announced. So they – that tends to lead the information that we receive. And so we were very heartened to see the trends of the two largest MVPDs in Peru there. And then as we pointed out in the presentation, the Charter streaming bundling strategy is really just getting going. They're going to start a big marketing push next year. And when you take a look at the net effective price of Pay TV being less than $40 a month, it's a massive change in the value proposition. And as they implement that in terms of a user experience and they promote it to their customers, we think the dynamic of a subscriber and their choice set of whether they would cut their subscription to Charter or not is significantly different. So we're anticipating that to have a very dramatic effect.

Okay. That's great. And then just one final question. In your guide, can you give us any sense for this quarter and maybe even beyond your guide of the impact of this DTC launch with Tennis? Is there anything material in the guide? And how should we think about that impacting the financials?

Well, it's going to launch this month, as we said. It will have some measure of expense that's built into the guide that we gave you for fourth quarter. And 2025 for the DTC product will be an investment/build year, not significant in the grander scope of Sinclair. But we do think, given that we are already paying for the rights – for the DTC rights, so there's no incremental content costs here, and we're opening up a significantly improved streaming product to consumers. We think that this will be an incremental contributor in a very short period of time to the results of Tennis Channel.

Yes, I think you'll see an enhanced viewership. We'll be able to go to a multiview. So when there's multiple tournaments that are running at the same time, you could have the best the whole world is viewing of the multiple tournaments and not being stuck just to what's showing up on the linear feed on the channel. So those tennis enthusiasts and even the recreational, there'll be something for everyone inside the app.

Okay. That sounds cool. Thank you guys very much.

Thank you. Our next question is coming from David Hamburger with Morgan Stanley. Your line is live.

Hi. Thank you very much. Maybe you could talk a little bit about capital allocation. So $536 million of consolidated cash, you have nearly $1.2 billion of debt maturity in 2026. You have talked in the past about keeping SBG cash and Ventures cash separate as you think about funding for the different parts of the capital structure. So I'm wondering if you talk about how you approach 2026 debt maturity. And maybe you could do that as well in the context of your M&A comments or about consolidation. Because in the past, you've also been willing to avail yourself of financial flexibility in your credit docs to move assets around as you did with the Ventures transaction previously and have said you might find it useful to use that in the future as well. So could you kind of talk about not just capital allocation, but asset allocation, how you approach the balance sheet, you approach leverage, you approach the potential consolidation and how from a debt perspective, you're looking at the 2026 and even 2027 maturities? Thanks.

Sure. So we think we have several options to address those upcoming maturities. And we're looking for – that will deliver both the lowest cost of capital and the most flexibility from an M&A perspective. And that's not to move assets around necessarily as you implied that is to be a participant in whatever transaction may come here in the future. I do expect that the industry will look at consolidation opportunities. And if that means that we're a buyer or a seller or a merger partner, we would want a capital structure that contemplates doing that in an efficient manner.

Okay. I mean you can't elaborate further on what sort of capital structure. I mean you've talked about leverage, which is now at 5.3x being, I guess, you had a leverage target that was a little bit lower than that. Given that next year is not a political year and then 2026, you'll be facing some of the debt maturities as they are stacked. Can you provide us any kind of guardrails or a sense as to how you look to manage the balance sheet, maybe overall leverage, maybe from that perspective?

No. We're definitely focused on moving overall leverage down back to our target. So that’s a focus. We think we will have no issue dealing with the maturities that we have upcoming. And to the extent that there are transactions – strategic transactions that come about into next year, those will likely be significant synergy generators. And just depending on the formulation of the transaction, that should also help drive further deleveraging on top of the myriad of growth initiatives that we have running through the system like cloud or cloud transformation, like our podcasting division and our social division. So there's a lot that will help leverage move down naturally over time. And then M&A, I think we'll just accelerate that.

Is capturing discounts and debt securities part of the deleveraging that you expect?

Yes. We've been opportunistic in our buybacks. We've bought $74 million of debt that had a $91 million par value since the beginning of 2023. We do think a more comprehensive solution for the 2026 to 2027 financing is something we're focused on right now. But I think that – to the extent that discounts continue to be in the capital structure, we will definitely look to take advantage of that.

Okay. Thank you very much. Appreciate it.

Thank you. Our next question is coming from Aaron Watts with Deutsche Bank. Your line is live.

Hi. Thanks for having me on. Two questions. First, I felt the recent NBA TV rights deal and NBC's inclusion there was a positive for the broadcast TV space, including Sinclair. My question is whether Comcast looked to its affiliate partners to help put the bill for those rights at a time when I know you and your peers are looking to moderate network compensation growth. What are your latest thoughts on that? And especially as you head towards the renewal of NBC at the end of this year. And then secondly, DIRECTV and DISH recently announced an agreement to come together. Will that deal yet to get done and may not get done, curious if you view this as a positive or a negative for Sinclair and the local TV broadcasters more broadly? And as part of that, can you comment on whether after acquired clauses would have an impact on your distribution fees if and when that deal was to be able to close?

Sure. Thanks, Aaron. So look, I think the most recent example you can point to for your NBA question would be the last round of NFL contracts that went up. That did not create an appreciable change in trend, even though the prices paid were quite significantly higher. That did not create a significant bump for the affiliates and we don't expect that to be the case for the NBC, NBA deal either that we're certainly supportive of them pursuing a more broadcast-centric distribution model. We think it's beneficial for the league. It's beneficial for NBCU, and we're happy to facilitate that as good partners. So our expectation is that, that won't materially change the trend, which has been declining increases over time for reverse retrans. And then as it relates to DIRECTV DISH, to the extent that the combined company is healthier, we think that's probably a positive for the industry. Anytime you've got a major player that is distressed as DISH has been for a while, it just creates. We think weird incentives. So we're – to the extent that they create synergies, rationalize the capital structure, we think that will create a better functioning industry. Now certainly, there are some competition issues, which will have to be looked at as it relates to some rural markets where choice is limited for consumers to only those two and that will have to be looked at from a regulatory perspective. But we also – to your last question, as it relates to this, we don't anticipate any impact to our retransmission fees post closing.

Appreciate the thoughts, Chris. Thanks.

Thanks, Aaron.

Thank you. As we have no further questions in queue at this time, I would like to hand it back to Mr. Ripley for any closing remarks.

Thank you. And thank you all for joining us today. To the extent you have any questions or comments, please feel free to reach out to us and the IR team. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference, and you may disconnect your lines at this time, and we thank you for your participation.