Sinclair, Inc.

Good day, everyone, and welcome to Sinclair's third quarter 2023 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, 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 Rudishauser, 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 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 indicator of the operating performance of its segments in accordance with ASC 280 segment reporting. The company considers adjusted free cash flow to be an indicator of the company's operating performance. The company also believes the pre-cash flow is a commonly used measure of valuation for companies in the local media industry. In addition, this measure is frequently used by industry analysts, investors, and lenders as a measure of valuation for local media companies. These measures are not formulated in accordance with GAAP, 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 Two comparable gap financial measures can be found on our website, www.sbgi.net. Any discussion of pro forma numbers as compared to 2022 will exclude Diamond, which was deconsolidated March 1, 2022, and any business sold since the beginning of 2022. For actual results, including the periods that Diamond was consolidated, please refer to this afternoon's earnings report. In addition, due to the pending Diamond litigation, we are unable to comment on any specifics regarding the legal issues surrounding Diamond's bankruptcy or any potential financial impact that may or may not occur as a result of those matters, other than to say that Sinclair firmly believes it has meritorious defenses to the allegations in the Diamond lawsuit, and we plan to vigorously defend against them. Let me now turn the call over to Chris Ripley.

Good afternoon. And thank you for joining us. I'll start on slide four 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 five, 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 three tranches of our notes, as well as our nearest dated maturity, our 2026 term loan, represent our priority to strengthen our balance sheet while acting opportunistically when market conditions permit. Turning to slide six. 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 House races in our footprint will accelerate this growth significantly as we get closer to next year's election. Second, our focus on high demand and differentiated local news and sports content as well as syndicated programming continues to drive strong and loyal viewership with 43% of viewer impressions across our station portfolio driven by non-network content. In addition, With nearly all of our big four traditional subscribers renewing by the end of next year, we continue to expect a three-year positive low single-digit CAGR of net retrans revenues through our negotiation cycle from 2022 through 2025. And while the regulatory environment is far from positive overall for broadcasters, particularly from a relative perspective to our big tech and big media competitors, we are cautiously optimistic regarding long-term changes for a couple of industry items. Turning to slide seven, all of these developments, in addition to significant changes within the past several weeks in the pay TV distribution model, we believe could begin to launch what I like to refer to as the great rebundling. We believe the recent charter Disney carriage agreement has the potential to materially strengthen the pay TV bundle in the future. While we don't know all the details regarding the new agreement, what we do know is it appears to significantly increase the consumer value proposition of pay TV relative to a la carte D2C offerings. It will incorporate certain Disney D2C platforms including Disney Plus and ESPN Plus into Charter's current pay TV packages. In addition, the agreement allows Charter to drop some of Disney's lower rated undifferentiated cable channels from its bundles. We believe these developments reduce consumer reasons to leave traditional pay TV bundles and increase consumers overall value received, which should leave lead to meaningful churn reduction of pay TV subscribers over time. In addition, the pay TV bundle is crucially important to our television network partners as well. Each network receives approximately 1 billion annually in reverse compensation from station groups. as well as significant advertising and reach benefits. The bottom line being that it is doubtful that networks are financially viable today without those revenue streams and other benefits. And not only is the bundle important to the networks, but it's also important to the various sports leagues that want to maximize both revenue and distribution of their content. The NFL is the most obvious example of this decision-making, and they, as a league, have benefited tremendously from the nationwide distribution on over-the-air channels. Add all these points up, and it's our view that the relative value of the pay TV bundle, as compared to a la carte DDC offerings, remains strong and is, in fact, improving as the environment continues to shift in favor of the pay TV bundle. We look forward to continuing having discussions with our network and distribution partners as to how we can add content and other value to consumers to attract more subscribers back to the value of the bundle. Now let me turn over to Rob to discuss our local media strategy.