Sinclair, Inc.

Good morning, ladies and gentlemen, and welcome to Sinclair Broadcast Group Fourth Quarter 2021 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Lucy Rudishauser, Executive Vice President and Chief Financial Officer of Sinclair Broadcast Group. Ma'am, the floor is yours.

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 wanted to congratulate Rob on his promotion. It's very well deserved, and the company is extremely happy for you, Rob.

Thank you.

I also want to point out that on our website, sbgi.net, On the investor information page and on the earnings webcast page, you'll find a link to access slides that go with today's call. Now, Billie Jo McIntyre will make our forward-looking statement disclaimer.

Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors. Such factors have been set forth in the company's most recent reports as filed with the SEC and included in our fourth 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 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.fbgi.net. Chris Ripley will now take you through our operating highlights.

Good morning, everyone. As we enter 2022, we are encouraged by the multitude of opportunities that we have to drive growth in the years ahead. We made great progress in 2021, a year where we faced some formidable challenges, yet emerged as resilient as ever, encouraged by the rebound in the advertising environment, the expansion of our already enviable array of programming and content, and the advancement of several key digital and other growth efforts. More than ever, we're connecting people with content everywhere. Before I go further into some of our achievements we've made over the last year and where we're headed, I want to congratulate Rob Weisbord on his new role of President of Broadcast and Chief Operating Officer of our company. Rob has been with Sinclair for almost 25 years, and during that time has been an integral part of the company's growth into a diversified media company into which Sinclair has evolved. Rob embodies the... the innovative and strategic mindset of this organization, and I look forward to the accomplishments he will help drive in the future as we take Sinclair to new heights. I'd like to give everyone an update on a cyber incident we encountered in October, as well as the status of Diamond's new money raise and exchange offer that is currently in the marketplace. On our last earnings call after experiencing the cyber incident, we told we experienced disruptions in parts of our business, including our local advertisements. Since then, we resumed normal business operations and have implemented several enhancements to the cybersecurity measures we had in place at the time of the incident. Although we were able to restore our network from backups, there were disruptions to part of our businesses following the incident, including certain aspects of providing local advertisements by our local broadcast stations on behalf of our customers. As a result of the incident, the impact on our advertising revenues for the broadcast segment was $63 million as compared to the low end of our guidance range announced in the third quarter earnings release on November 3rd. We did not have any material financial impact to the local sports segment. In addition, we incurred approximately $6 million of cyber incident response costs during the fourth quarter of 2021 and $5 million to date in 2022. Based on these known effects of the cyber incident, after potential insurance reimbursements, noting that there can be no assurance that the insurance policies will pay their full coverage or the timing of such reimbursements, we estimate that the cyber incident will have resulted in approximately 24 million of unrecoverable net loss. However, that estimate may increase as details of the recovery are still fluid. In response to the incident, our board of directors formed a cyber subcommittee to provide greater oversight of our cybersecurity measures and preparedness. Since the incident, the cybersecurity subcommittee has received regular updates from management regarding the status of the response efforts and future cybersecurity plans such that it can provide oversight of those issues. We are continuing to execute on our plans to strengthen our existing cybersecurity defenses with budgetary expenses for cybersecurity enhancements in 2022 and 2023. In regards to the status of Diamond's $635 million new money raise, which is contingent on receiving requisite consents from Diamond's existing lenders and note holders through the exchange process, the exchange offer was launched on February 14th with an expiration of March 14th, although we expect to early settle the exchange offer and the new money to be raised on March 1st. Since the exchange period has not yet closed, there is not much I can say other than at launch we had already received transactional support agreement signatures representing more than the requisite majorities needed under each tranche of the affected loans and notes, indicating that the transaction has the necessary support from our creditors. Now I'd like to reflect on the past quarter and where we're headed for 2022 and beyond. On a consolidated basis, we met guidance for adjusted EBITDA even when including the negative pre-insurance impact from the cyber incident. Excluding the cyber impact, adjusted EBITDA surpassed our guidance range aided by lower than expected expenses, including $41 million in lower sports rights payments due to timing that were paid in January of this year. The advertising market dynamics during the quarter were similar to the third quarter with the automotive category continuing to be challenged and with other categories holding up well despite the impact of Omicron. We continue to believe 2022 will be a solid year for advertising with strong political midterm election backdrop with many highly contested races and a highly charged political environment. Current industry expectations for political revenues are to be at record levels for a non-presidential year, and we saw the spending begin in the fourth quarter where it was above our expectations. With continued strength in the services and sports spending categories and a slowly recovering auto sector, advertising rates should see a nice boost in 2022. Lucy will give you more details in the quarter and our guidance for 2022 later in the call. Certainly one of our more important initiatives for 2022 is launching a direct-to-consumer or D2C product for all the teams in which we have local digital rights. With our recent renewals of the NBA and NHL, we currently plan on launching in 2022 a D2C product that includes at least 33 teams, all of the NBA and NHL teams for which we have digital rights and five MLB teams. Our current expectations are for the launch of streaming services with content currently available on our RSNs for five Valley Sports RSNs with MLB teams in the first half of 2022. We expect to launch our remaining Valley Sports RSNs in the second half of the year, as well as a features-only subscription. As you can imagine, this is a large project with many internal work streams occurring simultaneously to allow us to meet our launch targets. The potential market for D2C product is significant, as approximately 83 million households reside in the territories for which we currently have D2C rights. The product is complementary to other ways in which viewers can access this content. In January, as part of the announcement of our new money deal and our disclosure of the TSA documents, we published three cases showing what we believe is achievable for our D2C business over the next six years under various assumptions. You will see in those cases the number of D2C subscribers contemplated is just a fraction of the overall addressable market. In all these cases, the projected penetration rate is significantly lower than the results from a recent survey by Morning Consult, an analysis completed independent of our process, where 36% of U.S. adults said that they would be interested in subscribing to the Regional Sports Network on a standalone streaming service, irrespective of price. The DVC product isn't just a way for those without linear subscriptions to access the game and content. It is the start of a new paradigm of how fans can watch and engage with their local teams. It will be more personalized and interactive sports watching experience, offering virtual fandoms and social communities where viewers can interact with each other, as well as integrating the world of NFTs and e-commerce. We launched an NFT store last week, which will offer original artwork as well as third-party collections. Gamification is another important element, allowing viewers the opportunity to participate in watch-and-play viewer experiences. We're partnering with leading gaming and technology companies that engage fans in free-to-play daily fantasy and word-legal real-money games. You can expect to see in 2022 game centers in appropriate sections of each of our platforms featuring multiple game types, rewards, and prices. The gamification initiative is not just for D2C sports. We intend to integrate gamification elements across all of our platforms. To give you a flavor of what's happening, we have a robust slate of fun and entertaining games on the way, including Valley Baller and Valley Breakaway, free-to-play games which give basketball and hockey viewers a chance to win up to $250,000. In addition, we're launching a new predictor game for Tennis Channel in March around the the Indian Wells tournament after having much success with this game last fall. For the NCAA basketball tournament, we're preparing, along with Bally's, a big bracket challenge that is expected to have one of the largest prize opportunities ever offered in such a contest. $100 million if someone picks the perfect bracket. Another pillar of our fan engagement strategy is that we're building a community in the e-commerce and NFT space, and that store is live now. So clearly, 2022 is going to be an exciting year for our company as we begin to execute on all these opportunities to engage viewers like never before. The development and launch of the local sports D2C product will be funded in part by the $635 million new money raised, which, as described earlier, we expect to close on March 1. Lucy will provide more details on the capital raise and resulting structure. As previously disclosed as part of the financial Financing transactions, Sinclair will also be adding liquidity to the Diamond through its agreement to defer approximately $400 million of management fees from Diamond over the next five years. In addition, we are also exchanging Diamond's existing revolver for a second priority lean revolver, reducing the commitments to $227.5 million, which is what is available to be drawn upon today, but importantly, extending the maturity by almost two years to May 2026. These transactions will provide Diamond with over $1 billion of incremental liquidity to support the DTC product, fund general corporate purposes, and strengthen its balance sheet. What really sets us apart from other media companies is our unique set of assets. With a strong, diversified portfolio of local sports and news content, as well as national, linear, and digital programming, including new programming we recently developed that we can leverage across multiple platforms. In the last six months, we rolled out three new programs with national reach. Just last month, we elevated our sports programming, adding two new exciting shows. The first is The Rally, a fast-paced 90-minute program that airs weekdays at 5 p.m. Eastern on our Valley Sports RSNs. The Rally covers all sports topics and is infused with social influencers, interactivity, the voice of the fan, while utilizing Sinclair's sports talent from across the organization. Another new show, Live on the Line, powered by BetMGM, airs for an hour at noon Eastern, also on our Valley Sports RSNs. It's a fun, fast-paced sports betting show targeted at all sports fans, whether they bet or not. Live on the Line combines resources across our entire sports portfolio to deliver up-to-date betting information while offering fun and unique content for the casual sports fans. Both of those new shows are indicative of our efforts to engage the sports viewer like never before. Combined with gamification elements, including contests, promotions, and e-commerce opportunities, and an ability for viewers to interact with the programming and each other, we're seeking to create lasting viewer behavior changes and increase viewer loyalty. Our Tennis Channel and Tennis Channel Plus have significantly expanded their programming, now airing every televised ATP and WTA pro tour match in the world, as well as renewing Wimbledon coverage for the next 15 years. Tennis Channel International, named International Platform of the Year by SportsPro OTT, launched in several new countries in 2021 and in January of this year added live rights to the WTA in Germany, Austria, Switzerland, and the Netherlands. The platform is now in eight countries with more to come in 2022. Given tennis is one of the most popular sports globally and the second most bet on sport in the world, we are very bullish on Tennis Channel's global expansion to become the home for all things tennis, tennis lifestyle, and interactive gaming. We expect to debut our first US market prototype for a one-of-a-kind tennis for-money watch and play in Q2 of this year. We're also focused on elevating our news programming. Encouraged by the success of our early morning edition of the National Channel, we added an evening edition in the fall of 2021, and more recently, a dedicated website, thenationaldesk.com. The National Desk features breaking news and compelling stories from our 75 newsrooms across the country. I've talked quite a bit in the past about ATSC 3.0 or next-gen broadcasting and how it can be a real game changer for the broadcast industry. Besides the continued TV station rollout of the technology, which can now be received in about half of the TV viewing households in the US, our company and others in the industry made significant progress in testing and validation of numerous capabilities during the past year. These areas include provisioning precision GPS capabilities of the technology, developing and deploying a broadcast app that enables seamless movement between over-the-air and OTT streaming, and demonstrating advanced emergency learning and distance e-learning capabilities. One of the more compelling applications is the movement towards mobile phone deployment. This use of the technology is of a keen interest to us as we seek to expand our reach of our services to people who are on the go and others throughout the world. It represents a rather efficient way of enabling significant functionality to hundreds of millions of users, including those who do not have Internet access. Notably, other countries are exploring adoption of the ATSC 3.0 technology. Trials in India utilizing the next-gen broadcast technology are already underway with a particular focus on mobile applications. In Brazil, several ATSC 3.0 technologies have been recommended to the Brazilian government for deployment. And even in smaller countries, the new technology is taking hold. Jamaica has just announced that it's embracing and deploying the ATSC 3.0 standard nationwide in 2023. We also continue our leadership efforts at the International Telecommunications Union to update its recommendations approving all aspects of the technology for international standardization. The data casting opportunity alone are compelling drop, but don't just take my word or even other broadcasters word about the potential of this technology. A third party, BIA Advisory Services, recently issued a report seeking to size the opportunity enabled by this technology. Its conclusion was that ATSC 3.0 could account for as much as 22% of broadcasters' overall revenue by 2030, totaling an estimated $10 billion opportunity. And with 75% of the country expected to be able to receive this signal by the end of the year, and 4.5 million 3.0 televisions expected to be sold in 2022, Monetization opportunities should not be far behind. The market value of our excess spectrum that can be utilized for ATSC 3.0, we have valued at 1.7 billion using past spectrum options, which we view as a floor for potential value creation from the new technology. Another area we are very focused on is ESG. And while every quarter we give you updates on what we are doing to advance in these important areas, I thought for this call it would be noteworthy to highlight our full year 2021 achievements. This past year we really sought to define, measure, and report what we're doing as an organization. While in the past we have been doing a fair amount in these areas, we were not adequately communicating our progress. So we put forward a formal structure around our activities headed by an executive ESG committee and supported by working groups for a number of initiatives. In the environmental area, we are committed to lowering our energy usage through replacing our LED lighting, HVAC, and transmitter equipment with more efficient solutions. The savings are projected to be significant. In the LED lighting alone, we believe we can reduce energy consumption by 14 gigawatt hours per year, or the equivalent of electricity used by 1,300 homes a year. Also in the environmental area, Office Depot recognized us for their award for leadership in green purchasing, one of only 17 companies who received the honor. And we continue to seek to increase our recycling efforts, starting a pilot for battery recycling at some of our stations. On the social side, we partnered with over 360 organizations to raise over $38 million, collected over 3 million pounds of food, and over 400,000 toys and backpacks and donated over 1,500 hours of airtime for public service announcements. We also awarded seven broadcast diversity scholarships and produced over 160 town halls during the year. In the governance area, we expanded our board size and added our first female board director, Lori Beyer. In addition, we hired our first chief compliance officer and chief information security officer. Now, an area that we've been quite vocal on is our belief that the market is not valuing our stock near the total value of the sum of the parts. I've spent a fair amount of time on previous calls going through the value of the various pieces. More specifically, we'd like to highlight the value of our investment portfolio, which we believe has a current market value of around $1.4 billion, or about $19 per share, held at the Holden Company and available to support future distributions to shareholders. Included in the $1.4 billion are investments in real estate, venture capital, private equity, as well as direct strategic investments in companies focused on technology, content, and advertising, all with a total book value of over $365 million and an estimated value at year end 2021 of approximately $740 million. Our track record with these types of investments has produced a 23% IRR since 2014. In addition, The $1.4 billion also includes our strategic investment in Valleys, which totals $12.8 million share equivalents, or approximately $400 million in current value after factoring in costs to convert the options and warrants. The final piece of the investment portfolio is the Diamond AR facility, valued at approximately $215 million. I should also mention that we have other assets outside the $1.4 billion portfolio that are part of the broadcast and other business that we report. Included in these assets are Tennis Channel, Compulse, Nuzon, and other streaming properties, which together expect to grow meaningfully in the years ahead. One can conclude that these assets are worth well beyond just a simple combined broadcast multiple on today's EBITDA. For instance, in our Compulse business, we rolled out our Compulse 360 platform, offering a SaaS-based solution that executes omnichannel campaigns for local agencies and media companies, enabling them to run local campaigns at scale. We have businesses that are growing but collectively are operating at a loss, pulling value from the overall market valuation of our company. And in addition to our investment portfolio, we have a tax yield with an MPV of $1.1 billion from our RSM purchase and the $1.7 billion value I mentioned earlier for the ATFC 3.0 spectrum opportunities. Simply put, we think our stock is grossly undervalued. We've been repurchasing our stock under a 10B51 plan since November, and over the last few months, we've repurchased 2.4 million shares in the fourth quarter and another 2 million shares so far in 2022 at an average price of approximately $26. When you consider our buyback versus the sum of the parts analysis, which we calculate to add another $60 in share price, This has been a very accretive way to add shareholder value. In 2020, we repurchased 21% of our shares, and together in 2021 and year-to-date 2022, we purchased another 6%. Since the beginning of 2018, we've repurchased 35% of our outstanding shares. Furthermore, based on expected strong free cash flow generation and investment value growth, the board approved a 25% increase in the dividend rate per share to $0.25 per quarter. This dividend rate is only 12% of STG's 2021 free cash flow and only 5% of the value of a holding company investment portfolio, which has historically returned over 20% per year since 2014. Finally, I do want to say that I'm proud of how our employees have been able to persevere through challenging times, helping us become a stronger company as a result. Coupled with recent actions that we're taking to strengthen our company financially, Sinclair is well positioned for the next phase of our evolution into a diversified media company. Now I'll turn it over to Lucy to go over the financials and our guidance for the year ahead. Lucy?

Thank you, Chris. For the fourth quarter results for broadcast and corporate and other. Adjusted EBITDA for the quarter, when excluding the $68 million of EBITDA loss related to the cyber incident that Chris covered earlier, would have beat the high end of our guidance by $12 million. Adjusted EBITDA in the fourth quarter versus 2020s was down, as expected, due to the absence of political revenues in a non-presidential election year and the effects of the cyber incident. Media revenues for the fourth quarter versus guidance were down primarily due to the cyber incident and were down compared to fourth quarter of 2020, but also due to the cyber incident and the absence of political. However, excluding those two factors, media revenues increased 8% over Q4 of 20 on higher core advertising and distribution revenues. Media expenses, were higher in the fourth quarter versus the fourth quarter of 2020, primarily on higher network and other programming costs. Media expenses were favorable, however, to our guidance by over 20 million on lower than expected expenses across a number of areas, including sales costs, open positions, programming, and timing of operational initiatives. For the year, broadcast and other media revenues were $3,136,000,000 and adjusted EBITDA was $753,000,000. Turning to the local sports segment, as discussed on previous earnings calls, distribution revenues and sports rights payments in the local sports segment can be impacted by the actual number of games delivered versus minimum game guarantees which can result in rebates to be paid to distributors who are received from the teams. In the fourth quarter, we accrued $8 million of rebates to our distributors as a result of the NHL moving a number of games from Q4 into the first quarter of 2022 due to COVID. The rebate resulted in a reduction of distribution revenues for the fourth quarter. From a cash payment standpoint, 210 million of distribution rebates are expected to be paid in the first half of 2022. Local sports adjusted EBITDA for the quarter exceeded our guidance range primarily on timing of 41 million in sports rights payments that were paid in January rather than our expectation for payments to be paid in the fourth quarter. Excluding the rights payment timing, adjusted EBITDA was within our guidance range and down from the prior year, which included a net rebate benefit of $120 million. Media revenues for the local sports segment increased over fourth quarter of 2020. The increase was primarily due to lower rebates to distributors accrued this year and higher ad revenues. and also on more games than the fourth quarter of 2020 when the NBA and NHL delayed the starts of their seasons. As compared to guidance, media revenues were lower on the $8 million of distributor rebates and slightly higher churn. Ad revenues as compared to pro forma 2019 levels were up 7%. Local sports media expenses for the fourth quarter were up from a year ago on higher sports rights amortization and production and sales expense due to almost 900 more games played in the fourth quarter as a result of NBA and NHL delaying the starts of their seasons in fourth quarter of 20. Media expenses were favorable to our guidance, primarily on lower promotion expenses and timing of the NHL games that moved into 2022, which reduced production expenses. For the year, local sports media revenues were $3.56 billion, and adjusted EBITDA was $547 million. For the consolidated company adjusted EBITDA, which excludes $19 million of one-time expenses, decreased to $234 million in the fourth quarter when compared to the fourth quarter of 2020 and was within our guidance range when adjusting for the cyber incident. Sinclair's total company media revenues for the fourth quarter decreased from the fourth quarter of 2020. However, excluding the cyber incident, the media revenues would have been up 2% versus fourth quarter of 2020. Fourth quarter consolidated adjusted free cash flow, which excludes the adjustment for the non-recurring items with $77 million and exceeded the high end of our guidance revenue. For the quarter, we had $1.18 diluted loss per share on 75 million weighted average common shares compared to $6.27 of diluted income per share a year ago. Adjusting for the non-recurring items, the loss per share was $0.99 for the quarter versus income per share of $6.45 a year ago. For the full year 2021, total company adjusted EBITDA was $1.3 billion, total company media revenues were $6.83 billion, and consolidated adjusted free cash flow was $653 million, or approximately $9 per share. Now turning to the consolidated company balance sheet and cash flow. During the fourth quarter, we paid down $201 million of debt, which includes Sinclair's purchase of Diamond's AR facility from external lenders. The Diamond AR facility is now reflected as intercompany debt within their financial statements, which eliminates in consolidation. We also paid $14 million in common stock dividends. And as Chris mentioned, we repurchased under the 10b-5-1 plan the 2.4 million shares of common stock in the fourth quarter and another 2 million shares in 2022 through last Friday at an average price of approximately $26 per share or $117 million. Now, for those keeping count, over the past four years, we have repurchased approximately 35% of our total shares And as Chris pointed out, reflective of our free cash flow generation, the value of our investments, and entering what is expected to be another record political advertising year, the board increased the quarterly dividend by 25% to now $1 per share annualized. Turning to our cash balances, consolidated cash at the end of the quarter was $816 million, including $317 million in STG, and $479 million at Diamond. Neither credit silo's revolver was drawn during the quarter, and as of the end of the quarter, the balance borrowed under Diamond's accounts receivables facility is $213 million. Total debt at the end of the fourth quarter was $12,340,000,000, and the net leverage ratio for consolidated Sinclair at quarter end was 8.4 times, Sinclair Television Group's first lien indebtedness ratio was three times on a covenant of 4.5 and 4.3 times on total net leverage, which is within our target range. Diamond's first lien indebtedness ratio, as defined in its existing debt agreements, was 12.5 times on a covenant of 6.25, which only springs if the revolver is drawn over 35%. and Diamond's net leverage was 16 times. As Chris mentioned, as part of Diamond's new money financing, Diamond's 5.38% secured notes would be exchanged with an early exchange date of February 28. Assuming the required consents are received and all closing conditions are met, we expect to close and fund the $635 million first lien term loans and complete the exchanges on March 1st. The new loans are priced at L plus 800 with a 1% floor, use SOFR term and credit spread adjustments, and mature May 2026. The reason for the upsizing from the $600 million we announced in mid-January is to fund the redemption and make-hold premium of Diamond's 12.75% notes, which is expected to occur on March 2nd. As part of the recapitalization transaction, Diamond's revolving commitments will be exchanged into a second priority lien revolver. The commitments reduce from $650 million to $227.5 million, which is the available amount to Diamond today. And the maturity of the revolver will be extended by almost two years to 2026 to be coterminous with the new first lien loans. Now, before turning to guidance, Once Diamond's new money deal is consummated, Sinclair has agreed to annual deferrals of portions of the management fee otherwise payable by Diamond. In connection therewith, the local sports segment will expense the full contractual amount, including the deferral, but will add back the deferred portion in Diamond's calculation of adjusted EBITDA. The broadcast segment will book revenue for the contractual amount of the management fee less the deferral. In consolidation, both the revenue and expenses related to the management fee will be eliminated. So turning to guidance for broadcast and other. First quarter media revenue is expected to be $803 to $819 million. reflecting mid-single-digit percent increases in distribution and core advertising revenue, and mid-double-digit percent increase in total advertising revenue as compared to first quarter of 2021, driven in part by political advertising. As just explained, the broadcast segment will recognize the full contractual amount of the management fee, less the agreed-upon deferral amounts. and our guidance assumes that the deferral amounts begin in March when the new loan closes. First quarter adjusted EBITDA is expected to be $167 million to $181 million compared to $173 million last year, aided by the revenue increases but offset by higher operating expenses relating to network and other programming, technology, and compensation costs. For the local sports segment, first quarter media revenue is expected to be 732 to 737 million versus first quarter 2021 of 768. Lower distribution revenue due to subscriber churn and rebate reversals last year is expected to be partially offset by a high single digit percent increase in advertising revenue. For the full year, media revenues are expected to be $3.92 billion to $3.124 billion, up 1% to 2%. First quarter adjusted EBITDA is expected to be a negative $165 to a negative $170 million, which reflects not only the seasonality of the sports rights payments, which are heaviest in the first quarter of the year, but also the timing of the $41 million that rolled from last year into this year. Adjusted EBITDA is expected to be down from the first quarter a year ago, in part due to last year's first quarter including 86 million of net rebate benefits, as well as the continued distributor churn, the build out of D2C, and rights payments escalators. Full year adjusted EBITDA for the local sports segment is expected to be $266 to $297 million. Now as compared to the $336 million reflected in our January 13th 8K filing, the difference is primarily the $41 million timing of rights payments that were paid in January rather than our expectation for them to be made in the fourth quarter and as included in our fourth quarter guidance. and then the two months of full management fee expenses since the management fee deferral will not commence until the new financing closes, again, which is expected to be March 1st. Adjusting for those events, the $336 million would be $279 million. We're at the midpoint of our current guidance. The low end of our guidance range primarily reflects a slight increase in projected subscriber churn, while the high end of our guidance, primarily reflects higher advertising revenues. And for the consolidated company, first quarter media revenues are expected to be up for $1,506,000,000 to $1,528,000,000. The first quarter adjusted EBITDA is expected to be a negative $3,000,000 to a positive $16,000,000. And first quarter adjusted free cash flow, negative $169,000 to a negative $147,000,000. That is primarily due to the seasonality of the local sports rights payments as well as the $41 million carryover from last year. And so with that, I would like to open it up to questions. Operator?

Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Dan Kernos from The Benchmark Company. Your line is live. Dan, your line is live. Great. Thanks. Good morning. Sorry about that.

Just a quick housekeeping question. You guys mentioned the $5 million impact from the cyber attacks on Q1. Was there any, is there any revenue, ongoing revenue impact? And subsequent to that, just even X that, how are you guys seeing Q1 core pacing relative to 2019 levels?

Yeah, so Dan, on the cyber, we are not expecting any further revenue impact. That was all, as we mentioned, isolated to the fourth quarter. However, there could be some additional expenses. We've given you what we know of as of this date, but again, you know, everything is still fluid as we work through it.

And then on your second question on the pace for Q1, we're seeing a strong pays for Q1. Rob can speak to that specifically.

Yeah, we've come out of the box very quickly. I think there is a robust feeling with the pandemic, with the downside of Omicron. We're seeing restaurants, we're seeing travel categories up significantly, as well as we've gone away from the reliance over the last several years on the auto category. and services continues to be our biggest category, and sports betting is the fastest-growing category.

Got it. And I'll echo congratulations, Rob, on the promotion. Chris, or Lucy, I guess, NetStar made some pretty strong comments yesterday just around NetRetrans, and given the fact that, you know, we've heard from Paramount now and others that They're asking less on the network comp side in renewals. Obviously, you guys ski more towards Fox, so I don't know if there's going to be a network differential here, but could you just give us your thoughts on sort of the net retrans landscape? Do you expect net retrans growth this year, and kind of what is your long-tail view on net retrans?

Right. We do expect net retrans to grow this year, low single digits, and... It is accurate in terms of what you're hearing from other players. Reverse retrans has grown significantly from basically zero about six or seven years ago to quite a significant number. And so growth rates have come down quite dramatically. And we think we're reaching sort of an equilibrium, if you will, in terms of... what to expect in the marketplace. So that's a good thing. And we think last year where we did have a small decline in net retrans was an aberration.

Got it. And if I could just sneak one more in, Chris. I remember having this conversation, I don't know, whatever it was a year ago, just around the buyback. After you guys had just bought in You know, I felt like half the company at the time, and it was less than that. But certainly given the float, it was a substantial portion. And now, you know, you've kind of resumed that path at a higher level than when you did it previously, citing kind of, you know, sort of the ongoing opportunity. So I guess, you know, I don't know how to ask it other than sort of what's changed between sort of the pause and now. Was it just thoughts around how much you would have to spend around DTC? and sort of just the cash flow balances at this point, or do you just have more visibility that you feel incrementally more confident that now is a good time to start resuming the buyback, and should we expect it to remain sort of ongoing as long as the stock remains at these levels?

Sure. Look, we did buy back a lot of shares in 2020, and so we took a pause, re-evaluated its very apparent that our stock is grossly undervalued. So we're back in the market. And then, you know, when we look forward, the free cash flow profile, you know, specifically coming out of the broadcast side is very strong coming up. And our investment portfolio, which we highlighted in the call, has grown to $1.4 billion or about $19 a share. And that portfolio historically since 2014 has returned over 20% per year. So when you think about that much capital creating a 20% plus a year, it more than easily pays for significant shareholder return policies.

All right, great. Thanks. I have like 15 more, but I'll step back into the queue for the sake of everyone here. Thank you. Thanks, Dan.

Thank you. Your next question is coming from Steven Cahill from Wells Fargo. Your line is live.

Thank you. Maybe first I just wanted to understand some of the new transactions between Sinclair and Diamond. So did I hear that you're putting cash into the accounts receivable facility? And then, Lucy, thanks for running through that stuff on the revolver. But that was another one that I was just a little confused and how that's going to work between Sinclair and Diamond. Is that an intercompany debt as well? Or is that still in the Diamond silo? And I guess with those in the management fee, just wanted to make sure that we understand everything that might be changing in relation to the relationship between Sinclair and Diamond.

I'll take the AR question. So that is a floating facility that depends on the amount of AR that is put into the facility as collateral. And so you should expect that to sort of move around. And we're happy to make those loans. It's a nice credit profile and a good return for Sinclair. So you just expect that balance to move as the amount of AR that gets put into collateral changes. And I'll let Lucy address the other questions.

Yeah, so Steve, on the revolver, so the STG and DSG each have their own revolver with the banks. And so nothing is intercompany between the two of them for that. All we did as part of the upcoming transaction is we reduced the commitments, which Diamond couldn't borrow anyway and was paying unused commitment fees on, and we extended the maturity there. But the amount that Diamond can borrow under that, which was the $227.5 million, that does not change. That is fully available to it. And then your question on the management fee, you had a question?

No, that wasn't a question. Just making sure I understood all the parts. That was very helpful. Maybe also then just on the Bally shares, is the $400 million what is currently vested? Because I know there's performance warrants as well. And given the pending transaction for Bally's to get acquired, I was just wondering how that changes your investment position. Does everything strike when that happens? Or are you made whole? Or does it leave some potential performance warrants that you won't be able to perform into given that transaction?

So it's all of our position when we cite $400 million. There is still some performance triggers which are fairly low. So as we've stated in the past, the period of time that we have to achieve those, and given where they are, we think they'll be easily achieved. That being said, a change of control does make those performance triggers fall away. So if that change of control happens, then we'll be essentially fully vested. And we're excited by the transaction that was announced for Bally's to reduce its it's outstanding shares. And that means our implied ownership would go up in a company that we love. We think it's going to do great things in the future. So we're very bullish on that position.

And then just the last one for me on Diamond, the guidance for 2022, it's below the three cases that were in the information provided with the January transactions. I was just wondering if you could help us bridge that a little bit. Is that higher DTC investments, is that some of the expectations on linear, or just outright conservatism? Just thinking about those three cases, and you came in below all three of them, so would love to understand that better.

Thanks. So without getting into the cases, which we can do if you need to, but those are all in the 8K that we followed. So case one, which showed the $336 million, Our guidance, you know, if you take that rights payments to 41 million of rights payments that we had, we thought we were going to pay in Q4, but it's now crossed years. If you take that plus the 336, it assumed, you know, the deal was going to close earlier than March 1st. So it had two months more of deferral of management fee. So if you adjust for those two things, that 336 would be $279 million. And so that is at the midpoint of the guidance that we gave you. And again, the low end of the guidance is just slightly higher subscriber churn. And the high end of the guidance to that number is higher advertising revenue. But again, it's really just, most part is just timing which crossed years. That's all.

That's helpful. Thank you.

Mm-hmm.

Thank you. Your next question is coming from Lance Vitanza from Cowan. Your line is live.

Oh, thanks, guys. Thanks for taking the questions. I guess I wanted to ask you the recap transaction at Diamond. Do you think the additional liquidity will be adequate to assuage MLB's concerns about the financial viability of the RSNs? The narrative that's out there, of course, is that the reason that Major League Baseball has been dragging its feet in terms of embracing diamond for direct consumer has to do with their discomfort around liquidity at diamond so have you had conversations with them obviously i'm aware that that mlb has you know bigger fish to fry right now i'm wondering if you've had any feedback from them though with respect to the balance sheet work you've done so uh look i it's not appropriate to comment on active negotiations uh but i do think generally this transaction and the amount of liquidity that's going in diamond

does answer a lot of questions for people in the ecosystem. So it's a very, very favorable outcome and puts Diamond in a very positive financial position for years to come. And I would also point out that we've been steadily and consistently adding teams on the MLB side, with the most recent of which was this last January, or this January. You know, we have had success over the last two years continuing to gain more and more rights from MLB teams.

Great. And then on the Bally Sports app, I'm wondering if there's anything in particular that you're learning from consumer usage of the app. Is it possible to discuss any of the usage trends in terms of discrete KPIs, number of users, time spent, that type of thing?

Yeah, I'll be able to give you some insights. More on the activity is that what we're seeing is pretty level activity from the website, mobile app, and connected TV. No surprise to anybody is the connected TV will have more time spent viewing, followed by the website, and then obviously because of the mobile charges. people come in and out of that. But from a monthly average unique standpoint, they're all fairly even for usage, which goes with our 360 approach to intertwine our viewers slash potential consumers in and out of the app. And it's proven in our Petri dish with some of the predictive and fantasy games that we've launched that There is that lean forward wanting to participate in those type of games, and they'll only get better as we take our learnings.

I think what's also important to know is that the current app is just TV Everywhere, and when you go direct-to-consumer, it vastly changes the dynamic in terms of the amount of usage and what... what people, how they engage, we think will be quite different.

Great. And if I could just squeeze in one more question. I think the charter deal that you have, Diamond, is up for renewal later this year. Could you clarify the timing and whether that is just the RSNs or the RSNs plus Sinclair content that would renew and any thoughts on what that renegotiation looks like?

Well, again, we don't comment on active negotiations as a matter of policy. It is coming up soon and it is for all of our content.

Thank you very much.

Thank you.

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

Thank you very much. Good morning. If I could, two questions. One, I'd just like to piggyback on this last question that was asked. Last spring, I think, Chris, you had said about the dish negotiations last year that you've had tremendous success with the traditional MBPDs when you come with the entire suite of our programming on offer. And I think you even highlighted, in fact, we have been successful with all of them under that circumstance, except for Frontier that filed for bankruptcy. So it would be a very pivotal time, I think, as you said. Around the time in November when you announced the renewal of the retransmission revenue agreement with DISH without resumption of carriage of the RSNs, seeing that, I guess, the stance that you took in those negotiations didn't quite bear fruit. John Malone was actually on CNBC around that time and was asked about direct-to-consumer sports rights agreements and going direct-to-consumer with sports agreements. And I think you said, quote, unquote, gone are the days when Charter and Comcast and the cable companies are going to be extorted by high programming fees and programming costs. And now you are sitting here in negotiations with Charter. I think, as you mentioned, the new paradigm with your subscriber base is to roll out direct-to-consumer offering. I think two of those markets, actually, the five baseball markets are Charter markets. And I'm wondering if you can kind of, you know, within your guidance, I'm sure you've made some assumptions with regard to what you're assuming around this charter renewal. We also noticed that the programming and incentives, I'm sorry, the management and incentives fees in your DTC cases go up like 40 million plus this year when they've been fairly steady and they look to be fairly steady otherwise. So I'm wondering if you can kind of highlight for us, and that's including the deferral and the cash. So I was wondering if you could kind of characterize exactly how the relationship with traditional MVPDs, like with DISH, here now with Charter, the new paradigm around direct-to-consumer, how are we supposed to think about, you know, the trajectory for the linear business as you look to kind of maintain kind of that ecosystem and yet embrace this new direct-to-consumer paradigm, and how are your partners, like the distributors, going to be factored into that?

Great. Thanks, David. Look, everything I said that you cited before was true then and still true today. We've renewed on a status quo basis all of our traditional MVPD relationships with when we bring all of our content to the table. DISH was an outlier in that they had dropped the RSNs before we owned them. And they've been off for two years. And so they also don't have a bundle offering. And so there's just a lot of differences. And they're also very rural. So they're outside of the fan zones that care the most about these teams. So yeah, we continue to have confidence. And as I said before, as a matter of policy, we can't comment specifically about an active negotiation. In terms of the rights fees, I mean the management fee question, the way that works is as renewals kick in that Sinclair had negotiated, and some of those renewals were sort of forward renewals, if you will. So when old contracts rolled off and rolled into new contracts that were forward renewed when our broadcast stations came up, then a commission on that work was due. And that's why you're seeing the increase in the fee from 2021 to 2022.

That's new rules. Okay. And then I guess a separate question then around the sports streaming rights. I noticed that you mentioned signed an agreement here, say, in January with the NBA. It has a term of one year with three successive one-year renewal offers subject to compliance with the agreement. I was wondering if you could elaborate a little bit about, and I'm sure you're not going to disclose exactly what compliance means, but is it fair to say that if you're not in compliance with that agreement within one year, then the NBA can take those streaming rights and distribute them on their own?

I think it's the more accurate way to do that. If there was non-compliance, then there just wouldn't be this automatic offer of a renewal. So that doesn't mean that there may not be some other form of renewal.

And is that compliance like number of subscribers, some certain financial commitment that Sinclair or Diamond Sport needs to make to deliver that product into the market? And, you know, any... Because my understanding is if it's one year from January, you're still going to be kind of in the middle of the season, the NBA season.

Again, without getting into specifics on what the compliance is, because that's confidential, it's a fairly low bar in terms of staying in compliance.

Okay, and just one last question around MLB. There are some press reports about additional MLB teams maybe looking to do streaming. Do you have any hopes or are you optimistic? You mentioned five markets in the press release. Are you optimistic for getting any other markets? Again, assuming we have an MLB season that starts on time, but any comments there?

Yeah, no, no, we are optimistic and we've, we, over the last two years, you know, we are, we're batting 1000 in terms of renewals and, and, um, and we've most, we just recently added, uh, the digital rights, uh, the DTC rights for a team just this January. So, um, um, you know, it's, it's, uh, it takes some time. It's a sort of a team by team, uh, situation, but, uh, we have, uh, our history would tell us that we will be successful there.

Okay. Thank you very much.

Thank you. Your next question is coming from David Karnofsky from J.P. Morgan. Your line is live.

Hi. Thank you. Chris, just given the value you cited for the investment portfolio, how should we think about your plans to hold these assets long term? Are they strategic to you or Could you potentially monetize some of these in the coming years? And then maybe one from Lucy, just given some of the risk around the MLB season that we've seen in the news, can you maybe remind us how Diamond would be impacted if there was a delayed start to the season or even a fully canceled season? Thanks.

Sure. So in terms of the investment portfolio, there are some strategic investments in there, like, for instance, the Valley Stakes. PlayFly is another company in the sports arena that's done exceptionally well for us. We look to monetize those as they reach optimal values. We look at that portfolio from more of a pure investment perspective, though there is definitely strategic tie-ins to various parts of our business in the portfolio.

Yeah, so regarding the lockout, so it really depends on how long that lasts, but it should follow the same path as it did during COVID when professional games were canceled. So as you know, we have minimum game guarantees from the teams, and then we have some to the distributors. So, again, really just depends where it ends up in terms of those getting triggered. But, you know, as a reminder, during COVID, when those did get triggered, it was a net benefit to Diamond.

Thank you.

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

Thank you. Just a couple questions for me. First, on the station side, Looking at core, can you talk about, with a little more granularity, what the auto category was up or down in the fourth quarter, how it is trending in the first quarter, and your current view on when or even if auto recovers to pre-pandemic levels of spend with the stations?

Yeah, I can answer that, Aaron. It's... It was pretty consistent with where it was trending down. We expect the turnaround in auto to start to return around third quarter if the chips start to flow into the OEMs. We've become less reliant on automotive as we've talked about. Our focus is on omnichannel solutions, and we've been able to offset some of the chip shortage through our automotive segment that we have within the company that's run by folks from the auto industry. So from a pure 30-second, we're trying to move away from just that reliance on the 30-second spot, but Uh, on the broadcast side, we, we see the return coming about starting beginning third quarter, cautiously optimistic. And on the sports segment, uh, it's down, uh, high single digits, uh, because it's reliant more in tier two than tier three from the broadcast side.

Okay. That makes sense. Thanks. Um, shifting over to the diamond side, uh, I'm curious if there's been any revival or potential for near-term revival of discussions with the major OTT streaming distributors to come back into the fold. I think we saw NBCUniversal recently renew Carriage with YouTube for both their stations and RSN. So I didn't know if that may be a new template for YouTube to perhaps re-engage with Diamonds.

sure and you know we do have active dialogues with with all those players and opportunities and discussions uh do come up and uh but uh our guidance does not reflect any additional carriage from from any of those players okay got it and one last one for me uh looking forward the recent

liquidity enhancing transaction didn't address the unsecured portion of the diamond capital structure, which continues to trade at a substantial discount to par value. Given some of the tighter restrictions and the new credit documents that are going to go into place, what flexibility do you have going forward from a liability management perspective to capture discounted trading levels and reduce the quantum of debt outstanding and the interest burden on the company?

Yeah, so what I would say there, Aaron, is, look, it's a goal to deliver diamond over time. But first, we need to get through this transaction, get it closed, again, get D2C up and running, which will, our expectation, as you see through the various three cases that we've released, will be EBITDA and cash flow generating over time. That, I would say, is the goal. Right now, we have two major things in front of us that we need to get launched here, the new money raise and the launch of the D2C. Okay.

Thanks, Lucy. Thanks, everyone.

Aaron, one last thing is just to give you a perspective of why we're bullish on where 22 is going. On the core and our not reliance on auto is our guidance is that will be plus two to plus six versus 19, which is the last normalized year. So we've made that pivot as a company, and I'm happy to say we'll have that guidance of plus two to plus six.

Okay, great. Thank you. That concludes our Q&A session. I will now hand the conference back to Chris Ripley, President and Chief Executive Officer, for closing remarks. Please go ahead.

Thank you. In 2022, we have a lot to be excited about with a growing investment portfolio, a projected record-breaking midterm election year, and a higher and growing dividend. In addition, we have several major initiatives that we'll be advancing in the year ahead, including continuing to build out ATSC 3.0, continuing to expand our desirable content, growing Compulse 360, and launching our new D2C offering. Thank you all for joining us today. If you should need more information or have additional questions, please don't hesitate to give us a call.

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