Sinclair, Inc.

Q1 2024 Earnings Conference Call

5/8/2024

spk05: Good afternoon everyone and welcome to Sinclair's first quarter 2024 earnings conference call. At this time all participants have been placed on a listen-only mode and the floor will be open for questions after the presentation. If anyone should require operator assistance during this conference please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host Chris King, VP of Investor Relations Chris, you may begin.
spk03: Thank you. Good afternoon, everyone, and thank you for joining Sinclair's first quarter 2024 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 Weisborn, 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 first 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.sbti.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 today will be a discussion of non-GAAP financial measures, specifically adjusted EBITDA. This measure is not formulated in accordance with GAAP and is 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. Finally, we note that the presentation of certain information in our first quarter investor presentation may have changed from prior quarterly investor presentations. We also expect that the presentation of certain information in our second quarter earnings release, conference call, and investor presentation will differ from our first quarter presentation due to an ongoing routine comment process with the Securities and Exchange Commission that we believe other publicly traded broadcasters are currently engaged in as well. Let me now turn the call over to Chris Ridley.
spk00: Good afternoon, everyone, and thank you for joining us. I'll start on slide four by introducing an overview of our first quarter financial results. As you can see, Sinclair delivered strong, solid first quarter results that met our guidance expectations in our local media segment, while Tennis Channel exceeded expectations for adjusted EBITDA. Within local media, our distribution revenue came in slightly above the top end of our guidance range, while advertising revenue was slightly below the low end of our range. As a result, we were comfortably within the consolidated guidance ranges for total revenues and adjusted EBITDA. Turning to slide five, I wanted to highlight our strong commitment to our stakeholders through our return of cash. Since the beginning of 2024, we have paid approximately $16 million to shareholders through our regular quarterly dividend, which has a dividend yield of 7% as of March 31st, while also purchasing $27 million of debt in January for approximately $25 million in cash. Since the beginning of 2023, we bought back approximately $91 million in face value of our debt and retired another $35 million through amortization-related payments. In early 2023, we also repurchased nearly 9 million shares of our Class A common stock in addition to the $81 million in dividend payments to our shareholders since the beginning of 2023. Our commitment to maximizing value for all of our stakeholders remains a top priority for the company. Turning to slide six, we remain committed to the transformation of our traditional local media business. We believe Sinclair, as well as the broader industry, has multiple growth drivers. First, excluding the impact of the 2020 Georgia runoff, we expect to see record-breaking political advertising revenues in 2024, which equate to more than $350 million. We continue to see strong political advertising demand 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 to accelerate this growth significantly as we get closer to this year's general election. Given the lack of hyper-competitive primaries, we do expect political advertising spend to be more heavily weighted to the third and fourth quarters as we anticipate most of the spend at the presidential level will be focused on general election. Rob will cover this in more detail shortly. Second, our focus on high demand and differentiated local news and sports content continues to drive strong and loyal viewership, with over 44% of viewer impressions across our station portfolio driven by non-network content. In addition, with nearly all of our Big Four traditional subscribers renewing throughout 2024, We expect a mid single digit net retrans two year CAGR from 2023 to 2025. We have already renewed 42% of our big four traditional network subscribers as of the beginning of May with the remaining renewals coming up throughout the remainder of the year. Next gen broadcasting is becoming a reality as well. We now have 3.0 coverage in over half of our 86 markets and over 75% of the US. In addition, at the NAB conference last month in Las Vegas, we launched BroadSpan Wireless, our next-gen data casting platform with our first go-to-market data casting market partner, Egeo. Turning to slide seven, for years, the broadcast industry, often led by Sinclair, has spoken about next-gen broadcast opportunities that will represent a sea change for the traditional broadcast industry. I'm very pleased to announce that the time for next-gen data distribution opportunity is now. Broadcast data distribution has many benefits, such as a more efficient distribution of mass consumption data, improved customer experience with lower latency and higher quality, and lower cost for data delivery. BroadSpan will use the industry's 3.0 spectrum for data distribution to deliver a suite of data solutions to the market. The platform centralizes data distribution management across multiple stations and markets, allocates spectrum assets without disruption to the existing broadcast services, and collects insights on executed data deliveries. Another business use case focuses on automotive connectivity services, which would allow the distribution of data to vehicles to include over-the-air software updates, live broadcasts and alerts, high fidelity audio, and other features. In addition, Working in partnership with Egeo, we have launched a new content distribution service using streaming video offload, allowing a customer to seamlessly switch between over the air and over the top sources to offload bandwidth intensive traffic from traditional broadband networks. BroadSpan will also be able to deliver precise navigation which is able to achieve up to three centimeters GPS accuracy by augmenting GPS data with real-time kinematic positioning error correction feeds. In addition, the broadcast positioning system, or BPS, is not satellite-based, which can offer crucial redundancies should anything happen to the existing GPS infrastructure that almost every industry relies on heavily today. We could not be more excited regarding the near-term and long-term business opportunities for next-gen broadcast and broadband, and we're focused on remaining an industry leader in this exciting new technology. Turning to slide eight, last week we paid the remaining $445 million to Diamond Sports Group per the settlement with Diamond that we previously announced in January. STD contributed $347 million to the gross settlement figure while Ventures contributed an additional $98 million in addition to the $50 million Ventures paid in March. These allocations were made following discussions between the two independent board of directors of STG and Ventures after considering several different financial metrics, including revenue, assets, income, EBITDA, and free cash flow for the two units, among other considerations. Notably, our net settlement cost estimate remains $250 to $325 million, which reflects income tax benefits, the increase in the MSA fees, and other considerations. Of the net cost estimate, we expect SBG's portion of the total to be approximately 55% to 60%. Now, let me turn it over to Rob to discuss our local media strategy.
spk09: Thanks, Chris. Turning to slide nine, I wanted to begin by touching on the broad advertising environment, which came in slightly below our expectations for core advertising in the first quarter. Performer of core advertising was down 2.1% on a reported consolidated basis. However, the quarter was impacted by less premium sports exposure compared to the year-ago period due to the Super Bowl being broadcast on CBS this year versus Fox last year. as well as the final four being based on cable this year, in addition to a $6 million decline in the sports betting category. Absent those revenue streams in both years, core revenue would have been up low single digits year-over-year. We do expect core advertising revenue growth to increase year-over-year in the second quarter, with growth expected in the 2% to 6% range over last year's second quarter. Now on to categories. Services continue to be a top performer up year over year in the quarter, driven by home repair and home building categories. Legal and pharmaceutical categories also showed nice growth year over year. However, as noted earlier, sports betting fell materially year over year. Automotive and medical were the largest drivers of our slight miss versus our guidance for core advertising revenues. Auto continues to see modest pressure as manufacturers and dealers see fewer sales primarily by the higher interest rates. As we begin the second quarter, retail, services, and entertainment basings are strong, while medical and pharmaceutical basings are slightly softer than April of last year. Also of note, sports betting, which was down almost 60% year-over-year in the first quarter, is pacing up almost 30% in the second quarter. On slide 10, I wanted to provide a quick update on political ad spending as the political season is well underway and expected to be a record year. We booked 24 million in political advertising in the first quarter of 2024 within our guidance range. With strong fundraising trends, we continue to anticipate political revenues to be back and loaded this year based on both independent third party research and our internal data. Notably, as of May 1st, we have pre-booked over $77 million in political advertising for the second half of the year through Election Day. This compares to $21 million as of the same date in 2020 and $28 million in 2022. Our proprietary pricing tool will help us to price properly versus demand throughout the political season to maximize revenue. Looking at the individual races, 23 of the 34 U.S. Senate races this fall will be in Sinclair markets. We forecast 10 of those states will have competitive races, as opposed to eight in 2020. We have seven states in our footprint with the governor races, and we believe we have 24 competitive House races in our footprint this fall, as opposed to 18 in 2020. This is in addition to 10 battleground states for the presidency within our footprint. We continue to see strong activity from PAC and Super PAC fundraising, and heavy spending is forecasted to continue for issue-based advertising. These developments lead us to continue to expect political advertising revenues above $350 million in 2024. Now turning to slide 11, we have reached retransit agreements with 42 percent of our traditional Big Four subscribers for new multi-year distribution agreements so far this year. Nearly all of the remaining traditional Big Four network subscribers are in agreements that expire between now and the end of 2024. We also have only one Big Four network affiliation that expires before the back half of 2026, providing us with high visibility on our network compensation expenses over the 2024 through 2026 timeframe. With these negotiation schedules in mind, We continue to expect a mid-single-digit two-year CAGR for net retrans from 2023 to 2025. Another positive data point during the quarter comes from our over-the-air broadcast networks, Charge, Common, and TBD, which we refer to as the STAC. The STAC set a new high in the quarter with primetime viewing up 38% year-over-year, reaching 73,000 viewers in the coveted 25 to 54 age group. In fact, the three networks combined set 62 all-time high ratings records during the first quarter. Turning to slide 12, our news gathering operation continues to excel while highlighting the importance of broadcast news to local communities, as demonstrated by our coverage of the March 26th collapse of the Franciscan Key Bridge here in Baltimore. Our Baltimore, Washington, D.C. station dominated the coverage locally with our Baltimore station, WBFF, providing live coverage of the collapse a full 30 minutes before any other station in the market was live. Within 48 hours of the tragedy, our two stations combined for 1.6 million page views on their websites, over 2 million YouTube views, more than 9 million social impressions, and 300,000 engagements, illustrating our focus on connecting with our viewers wherever they may be and however they want to view our content. As seen on slide 13, we are also continuing to build and develop our audio and social division and involve the art of reporting and storytelling to engage with fans of sports, entertainment, news, and true crime. We have recently signed three-time national champion college football coach Urban Meyer and commentator Rock Stone to host a new sports podcast focused on college football on and off season, which will launch this fall. Our team is also in active negotiations with multiple top-tier athletes and entertainers as we continue to build out our roster of podcast and audio talent. Look for an announcement in the coming weeks which will detail all we have planned to roll out later this year. Now let me turn the call back over to Chris to provide an update on Penn's channel as well as our broader Ventures segment.
spk00: Thanks, Rob. As seen on slide 14, Tennis Channel recorded another strong quarter with $63 million in total revenue, which was at the high end of our guidance, and $26 million in adjusted EBITDA after excluding $1 million in growth initiative net costs, which was comfortably above our guidance. We expect continued strong growth metrics from Tennis Channel as we look forward to our live coverage of Roland Garros later this month. Moving to slide 15, The average number of households watching Tennis Channel in the first quarter grew by 35% year-over-year, while total viewers grew by 27% and social media impressions grew by 141% year-over-year. Once again, Tennis Channel ratings growth outpaced all other English language sports networks in the world. The TC Plus streaming platform increased monthly subscribers by 7% year-over-year, ending the quarter with its highest monthly subscriber total ever. The T2 Fast Channel grew by 273% year-over-year, thanks in large part to expanded distribution, and as its exclusive tennis content continues to drive strong growth across multiple delivery platforms. In addition, Tennis Channel will launch a direct consumer offering later this year, which will provide a significant new leg of growth. We also believe pickleball coverage and PBTV will drive even stronger growth metrics for Tennis Channel in the coming quarters. Also of note, for the first time, Sinclair is participating in the Sports Up Front next week in New York. In addition, we will be offering opportunities for advertisers to be aggregated in stadium as well as through sponsorships for all U.S.-based tennis tournaments through Tennis Channel. We remain excited about the many growth opportunities ahead for Tennis Channel. I wanted to provide a brief update on our Ventures portfolio on slide 16. As of March 31st, Ventures held a cash position of $318 million. Of note during the quarter, the company received $49 million in exit distributions and $3 million in capital distributions while making an additional $2 million of capital contributions into the portfolio. As illustrated this quarter, our goal over time is to translate a significant amount of these minority investments into other majority-owned investments that we expect to have long-term growth potential and consolidation opportunities, as well as provide greater visibility into the performance of Ventures assets. We will continue to update our investors on a regular basis as we transform this investment portfolio. Before I turn the call over to Lucy to discuss the financial results, I wanted to highlight our awards and charitable endeavors on slide 17. Sinclair won 28 different broadcast awards during the quarter, including three national awards and two regional nominee awards. On Earth Day, we released our second annual corporate social responsibility report, which highlights our environmental and social efforts throughout the company. On the charitable front, we held our second company-wide day of service in April, which saw over 1,300 employees volunteering their time to provide over 3,700 hours of service during that single day. We collected over 1,100 pounds of trash, paired and served over 3,800 meals, and packed more than 14,000 baby products and more than 8,500 boxes of food. I want to take this opportunity to thank our employees for another successful day of service. In addition, I'm proud to announce that Sinclair donated $50,000 to the Maryland Tough Baltimore Strong Key Bridge Fund, which will go towards helping our fellow Marylanders that have experienced an economic hardship following the collapse of the Key Bridge here in Baltimore. Our Sinclair Cares also completed a partnership with Reading is Fundamental, which was a month-long campaign during National Reading Month in March. Now let me turn the call over to Lucy to provide additional details on our financial results in the quarter.
spk01: Thank you, Chris, and good afternoon, everyone. Beginning on slide 18, on a consolidated basis, we delivered media revenues during the first quarter that met our guidance range. As distribution revenues exceeded our guidance, political revenues came in near the upper end of our guidance range. and core advertising was slightly below guidance due to the reasons Rob mentioned earlier. As compared to last year, consolidated media revenues increased to $792 million during the quarter, primarily on the higher political revenues and an increase in distribution revenue. On slide 19, consolidated adjusted EBITDA was also within our guidance range with media expenses favorable to guidance as a result of sales, promotion, and G&A expenses coming in better than anticipated, and corporate overhead higher due to primarily stock-based compensation and group insurance. As compared to last year, on a pro forma basis, Consolidated adjusted EBITDA on the quarter increased by 10%, driven by the increase in higher media revenues and lower corporate overhead. Media expenses were up year over year, largely driven by annual compensation increases and network program and fees. Slide 20 walks through our balance sheet metrics with the next meaningful maturity more than two years away. Sinclair Television Group's first lien net leverage was 4.3 times and total net leverage 5.3 times at the end of the quarter on a trailing eight-quarter basis. Interest coverage was 2.9 times as of March 31st. As previously announced, we repurchased $27 million in face value of debt for approximately $25 million in cash in January. Our consolidated cash position was $655 million at quarter end with $337 million at SBG and $318 million at Ventures. Including our undrawn revolving commitments, total liquidity was more than $1.3 billion. There were 66 million total shares outstanding at quarter end. Slide 21 introduces our second quarter guidance, which calls for total media revenues in the $813 to $832 million range, up 7% to 9% year-over-year in the quarter. The growth is driven primarily by political, which we expect to be in the $29 to $35 million range, as well as 4% increase in distribution revenues. Core advertising, as Rob mentioned, is expected to grow 2% to 6% given continued strength in the services, retail, and entertainment categories. We expect adjusted EBITDA on the quarter to be in the range of $132 to $155 million up from the pro-formal $110 million of adjusted EBITDA on the year-ago period. That's due to higher media revenues being modestly offset by higher production costs, network programming fees, sales cost on the higher revenue, and tennis channel growth initiatives. Turning to slide 22, we include our 2024 four-year guidance for certain expenses. The notable changes are an increase to interest expense on fewer Fed rate cuts expected this year, an acceleration of Q2 25 cash taxes into Q4 of 24, lower capex, lower media expenses, and an additional $10 million in ventures distributions received in the first quarter. With that, I'd like to turn the call back over to Chris for some closing comments.
spk00: Thank you, Lucy. Turning to our key takeaways on slide 23, Sinclair delivered solid first quarter results, meeting guidance expectations in our local media segment, and exceeding adjusted EBITDA expectations at Tennis Channel. Core advertising trends remain solid in most categories with our effective yield management and sales training processes driving industry-leading core growth over the past several quarters. We anticipate second quarter year-over-year growth of between 2% and 6% in core advertising. We have significant retransmission agreements renewing this year, of which we've already renewed 42% of the traditional Big Four subscribers. With only one network affiliation agreement remaining to be renewed, we have good rate visibility into the next couple of years, leading us to forecast a mid-single-digit two-year CAGR and net retransmission from 2023 to 2025. We announced the launch of BroadSpend, our next-gen data solutions brand that will deliver a unified suite of products to the marketplace and also announced our first next-gen corporate partner, Egeo. In summary, Sinclair is in a strong position for both the short and long term. Our strategic focus aligns with the anticipation of record-breaking political election year, contributing to robust growth in adjusted EBITDA throughout 2024. We could not be more excited about the future in front of Sinclair. Lucy, Rob, and I will now open the call to questions. Thank you for joining us today.
spk05: Thank you very much. We will now be conducting our question and answer session. If you would like to ask a question, please press star 1 on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For anyone using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please hold a moment whilst we poll for questions. Thank you. Your first question is coming from Dan Kernos of the Benchmark Group. Dan, your line is live.
spk12: Great. Thanks. Good afternoon. Can you guys just dig a little bit deeper into the core guide for Q2? It's really healthy. You guys gave a little bit of color on it. It sounds like there's a little bit of uniqueness there, like sports betting that Rob called out. But Beyond that, it sounds like things are getting slightly better, so maybe you could talk through kind of what you're seeing on the core environment in Q2, especially as we head into the back half this year.
spk09: Sure, Dan. This is Rob. Even though auto is trending, negative is a very small, low single digit, so it's starting to return us some help. They're going to have to get rid of the 24s coming up. We expect some rebates. There's been some softness in the first part of the year due to interest rates, but with our automotive specialists, we've been able to offset some of that weakness in that category. Our services remain strong. We have a big home purchase predictor out in the marketplace that has delivered key results for us to help drive our service category. And we believe that with our proprietary pricing system, we're able to maximize the demand that is in the market with rates.
spk00: Also, I just add to that, Dan, I think for reasons that Rob pointed out in his prepared remarks, Q1 had some negative impacts from the lack of certain sports and sports betting coming off some high comps from the prior year. But that what we see in q2 is really uh pretty consistent with what we have been performing at in terms of core growth in 2023 quarter after quarter so we've we've been consistently posting uh numbers that uh are industry leading so uh uh obviously q1 a little bit different for reasons we described but uh we're we're back on trend uh for q2 do you have a view
spk12: on how the year kind of plays out, not necessarily specific number, but given some crowd out potential and the fact that you guys are already calling for record political. And I don't know if you're factoring in the Maryland's craziness that's already going on that's not considered a competitive race.
spk09: Yeah, we factored that in. That's why we've gone to the algorithmic approach to pricing our inventory. In those markets where we've seen significant pre-books of those dollars, we've adjusted the rates based on that demand. So In prior years, without having a detailed pricing system, it was kind of like a whack-a-mole. But now there's weekly meetings. We have a yield and pricing and planning team that goes through what's happening with the system on a weekly basis. So we think we're better prepared now than ever to be able to handle that demand.
spk00: Yeah, and certainly... Sorry, Dan, I was just a second everything Rob said in terms of the record political advertising we're expecting for this year. You would expect that to amount to some amount of crowd out in the third and fourth quarter, but we're optimistic that the trends we've been putting up and our new systems for managing pricing that will hopefully stay positive through that political deluge.
spk09: And I don't want to understate the signing of Urban Meyer as our first top sports podcast personality. It'll be in-season and out-of-season, and Urban already has a series of top-notch people lined up to come on to the podcast. So that is definitely a growth area for us as well.
spk12: Let me speak one more in, Chris, just on... NextGen, I mean, you know, you're saying it's here. We've heard it for a while. Obviously, you guys have been out front on this one. Is there any way to quantify the impact to the P&L from this? Are we talking like handfuls of millions next year? You know, how should we start to think about the actual benefit from the initiatives that you guys are launching? And you have a very unique opportunity set both here and abroad. So love some color.
spk00: Sure. Sure. Um, you know, as I said that the time to actually, uh, make this opportunity real is now. And, uh, we're in one of the first products sets is going to be a CDN offload with our partner at geo. I'm sure other CDN operators will be interested in that too. Automotive, uh, hot on its heels, uh, enhanced GPS. And, uh, you know, some of those things are going to be coming live, uh, at the end of this year. And I think dollars will start to come in when those offerings become live. I think this is going to be a situation where it's sort of an exponential growth curve, if you will. If you think about an S-shaped adoption curve in typical new technologies, I'd expect it to start off somewhat slow, but then pick up significant pace as we get more adoption. So 2025, what you're asking about, yes, it's probably not a very material amount of revenue, but as we get more penetration into these end markets, we'd expect that to pick up pace significantly.
spk12: Got it. Super helpful. Thank you.
spk05: Apologies there. Your next question is now coming from Aaron Watts of Deutsche Bank. Aaron, your line is live.
spk11: Hi. Thanks for having me on. I had two questions. The first one, another one around core advertising. We've heard from several ad-driven media companies that while local has been fairly steady and healthy, it seems as though that a sustained national ad recovery is proving elusive and Curious if that's the same experience you're having, but also how you think about the drivers of that continued national softness. Does it go beyond simply macro, rate concerns, et cetera, causing large brands to hold back spending? Or is this maybe some early signs of all the ad inventory coming online from recently introduced streaming advertising tiers, perhaps siphoning off share that used to flow into the traditional TV marketplace? And if that's not happening yet, is that an impact you're expecting to see?
spk09: So I'll take that. So we started off the year nationally slow, but it has rebounded. It is facing positive for us in the second quarter. And in addition, we struck a very unique deal to be able to be the exclusive seller of Netflix in our local markets as well. So in any impact where streaming might take place of taking some of the ad dollars, we position ourselves to have premium streaming inventory to sell with our local sellers. So I think it fortifies us both locally and nationally.
spk11: Okay. Thank you. That's helpful. And then secondly, around capital allocation, does the focus continue to land on debt reduction going forward? And relatedly, have you bought back any debt since the end of the first quarter or And as we think about you moving towards your leverage target of high three times, low four times area, there'll be clearly healthy cash inflows this year from political. But as you move into next year, that obviously cycles off. Are there ways you can help us think about perhaps inorganic ways to help accelerate your journey towards your target?
spk10: Yeah. So look, the, we,
spk00: We're still focused on a few different priorities within broadcast. There's a decent amount of transformation spending going on around cloud and unified ad sales. And there'll be significant savings coming out of those transformation efforts, which should come to fruition over the next year or so. And on ventures, as I've stated before, they're there. We're looking for new opportunities. But in terms of the capital structure, we will continue to be opportunistic depending on where debt and equity markets trade. Our emphasis right now is for SBG on the due leveraging side. And, you know, certainly debt buybacks are important. are something that are going to be high on our list for that excess cash flow that is being produced. And as we've always stated, we have no sacred cows. We want to unlock the sum of the parts valuation that we think we're grossly undervalued for. And to the extent that asset sales make sense, in order to unlock that value and help us deliver, then that's something that we'd be open to as well. Okay.
spk11: Thanks, Chris. Thanks, everyone.
spk05: Thank you very much. Your next question is coming from Stephen Carhull of Wells Fargo. Stephen, your line is live.
spk02: Thank you. First, Chris and Lucy, just on the Q2 retrans guide, it's about $384 million. I think that's flat with what you had in Q1. So you've done a lot of renewals here to date. Was wondering if you could just update us on what you're seeing in those renewals. Is pricing coming in the way you would expect? I think we thought that you might see a little bit of acceleration quarter to quarter in retrans. So we'd love it if you could unpack those trends a bit. And then on Tennis Channel, really strong EBITDA in Q1. The guide is much lower in Q2. Just trying to understand, is that timing of programming? Is that investments in DTC? Anything else? And then just lastly, kind of following up on Aaron's question, as you think about refinancing that you've got ahead, you've got a lot of assets at Ventures. You've always been very, I think, particular in how you've structured the company in terms of what's at STG and what's at Ventures. So as kind of creditors move into the refinancing and see the leverage at STG, you know, do you see those assets as fungible or do you really think that the silos are going to be kind of going their separate ways increasingly as you get into the refinancing? Thank you.
spk00: Great. Thanks, Steve. So first on RETRANS, all of the deals that we've done so far have met or exceeded our expectations. I think what you're seeing in terms of your expectation of acceleration just might be a timing issue in terms of when the MVPDs were coming up, because we will see that acceleration this year. And as we indicated, that dovetails with our guidance of mid-single-digit growth in 24 and 25. So I think what you're seeing there is just a timing issue in terms of when those deals, when the bulk of the deals come up. And then your second question, sorry, Steve, what was your second question again?
spk02: Just on Tennis Channel, it's kind of lumpy quarter to quarter. Yeah, I was trying to understand kind of the...
spk00: I'll let Lucy chime in on this, but Tennis Channel is his seasonally lowest in Q2, mainly because of Roland Garros. So that's the French Open. It's our biggest event. It's one of the majors. There's a lot of production spend in that quarter. And I don't know if Lucy, you want to add anything to that?
spk01: Yeah, I would just add, Steve, that there's also timing of rights payments around tennis, as well as they have upcoming, their direct-to-consumer launch later this year. So there is some initiative spending around that that happens in Q2 as well.
spk00: Right. And then in terms of your last question, Look, our expectation now is that both of, you know, Ventures and SBG are self-funded, and we don't see a need for assets to be moved from one or the other. And, you know, obviously to the extent that, you know, circumstances were to change, then that's something we could do, but we don't foresee that being needed.
spk02: Great. Thank you for that.
spk05: Thank you very much. Your next question is coming from Barton Crockett of Rosenblatt. Barton, your line is live.
spk07: Okay, great. Thank you. I wanted to just drill down on a couple of the key numbers that you guys talk about. So in terms of subscriber churn in the industry, could you give us a sense of what you're seeing now? I know Fox, I think, spoke earlier about minus 8%, but different people have different takes. So I'm just wondering what you're seeing to get updated on that. And then, um, in terms of the, the ad market, you touched on this a little bit, but, um, I'm just curious, just in broad kind of feeling that we're in an environment where we have interest rates that are kind of higher for longer than I think people were hoping even a couple of months ago. And it sounds like that might've impacted your advertising a bit, but maybe that impact is fading now. Just what are you feeling from that kind of macro backdrop, if anything, uh, in your ad business?
spk01: So Bart, and I'll take the first one. So we are continuing to see mid-single digit percent churn across our subscriber base. That's, you know, so the traditionals are down, the virtuals have been growing. Average is mid-single digit churn.
spk09: From the advertising, from the advertising, we continue to watch the interest rates, how it's impacting the economy. You know, Through second quarter, we're halfway through it. We kind of see how it's playing out. The business has become a month-to-month business, but we have the Olympics coming up in third quarter that will stimulate our NBC stations. Political will be hitting about that time as well, and then we get into NFL and college football. we're robust on the fact that the prime college football coming up this season to go along with prime NFL. So starting Friday nights through all the way through Sunday night and, uh, ABC hasn't announced, but the indications are that 10 Monday night, uh, football games will air on ABC as well as a simulcast. Uh, it carries us through the year and through political, uh, is, is how I look at it.
spk00: And, and just to, uh, You know, add on to that, Rob had mentioned that, you know, persistence auto, which is particularly interest rate sensitive, it was down a little bit, or is down a little bit. But what we've been able to do is fill in with other categories in other areas and continue to have that overall core growth that we've been reporting on, even if there is some weakness showing up because of interest rates.
spk09: And I'll remind everybody, several years ago, we brought in specialists from key categories. that had a background in those categories to train the rest of our sales group to make them knowledgeable to not have that reliance on automotive. So we've been well prepared throughout the marketplace as full consultants versus just selling spots and dots.
spk07: Okay. That's great. And then just one other kind of check the box question. Is there any exposure that you guys would have now or none If the Bally's kind of bankruptcy emergence doesn't develop as everyone hopes, given the Comcast outage there, I think there's more questions about that than there might have been. But you guys are not exposed to that, correct? It doesn't matter for your settlement or anything at this point?
spk00: No, Barton. Now that we've paid the settlement, there should be no impact to whatever happens to Diamond in the future.
spk07: Okay, great. Thank you.
spk05: Thank you very much. Your next question is coming from David Hamburger of Morgan Stanley. David, your line is live.
spk08: Thanks for taking the question. Could you help us with the timing of the income tax benefit, the MSA fee increase, and various other considerations with regard to the Diamond Sport settlement?
spk00: So on the tax side, It should be, it depends on when Diamond actually exits, but that will either have an impact at the end of 24 or into 25. And the next biggest category is MSA fees, and those we're already collecting at the higher rate. And we're guaranteed to have at least six months of those post-payment. could go longer. But, and again, you know, that's where the previous question about, you know, whether Diamond, you know, emerges or not could have some impact on whether they, how long they want to be on our management services, I guess, is in fairness to that prior question. But at least they're committed to at least six months and maybe longer after that. And that all happens, you know, that's obviously time dependent, but it's in 2024.
spk08: Okay, that's helpful. So post-settlement, it looks like there's, you exhausted most of the cash at the television group. I mean, obviously they'll generate more free cash flow this quarter. And there's about 220 million of residual cash at Ventures. Can you help us think about, like, what's a minimum cash balance you'd like to maintain? What would be the uses of cash, the $200 million-plus cash sitting at Ventures, if you were to use any cash? Or how you think about allocating, as you spoke about, assets between the two different silos? How do you envision managing cash between them? Mm-hmm.
spk00: Well, there's a lot of liquidity at SBG, STG. It does have positive cash on the balance sheet. That cash will build significantly through the rest of this year. It has a fully undrawn over $600 million revolver. So minimum cash for this business is not very high. I'll let Lucy chime in on that if she wants to give a specific number there. But there is You know, whatever is coming in the door from here on out, what's on the balance sheet is excess cash. It could be used for shareholder return. It could be used for debt buybacks, as I mentioned before, which is the likely priority going forward. And, of course, we are, as I mentioned, at least as it relates to SVG, very focused on transformation and investing in certain areas that will pay off in the years to come. On the Ventures side, we have been equitizing or monetizing our minority investments. We monetized approximately $50 million in Q1, and we'll continue to do so. So we'd expect cash to continue to build at Ventures. We're in no rush to redeploy it. We're looking for new majority-controlled investments that are in fragmented industries with good secular growth trends. But again, no rush to deploy that. We're going to be very disciplined in our approach to the marketplace there.
spk08: Okay, if I could just one housekeeping question. It sounded like Lucy had said that you were, for your interest expense guidance previously, you were factoring in more Fed cuts than anticipated now. What are you estimating now for that? It's a higher number.
spk01: So, David, we always model based on the forward curve. When we reported back in February, the forward curve had estimated, I want to say it was probably like the Fed was probably indicating like six Fed cuts for the year. Now I think they're down to about two. So whatever the forward curve is, is what we use in our model.
spk08: Okay. Thank you so much.
spk05: Thank you very much. And your next question is coming from Benjamin Soff of Deutsche Bank. Benjamin, your line is live.
spk06: Hey, guys. Thanks for taking the question. Just a follow-up on the minority investments. Appreciate the commentary that you guys are looking to switch from the minority investments to the majority investments. When I look at your guidance, it implies that there's not much distributions left for the rest of the year. And I'm just kind of wondering why that would be. And then a housekeeping question. Could you remind us what the value is of the Valley stake and then the other pieces of the investment portfolio? I think there was some real estate and some private equity in there. Uh, thank you.
spk00: Sure. So we don't forecast, um, any, uh, monetizations or distributions explicitly. So that's why you're not seeing that, uh, in, uh, any of our projections. So that's not to say that we don't think there will be. In fact, there most certainly will be. But since it's not something that comes out of a regular operating business, it's harder to project. Naturally, it's sort of lumpy, so we do not project that explicitly. But we do expect there to be further monetizations as the year continues. And sorry, what was your next question?
spk06: Just if you could share the value of the different items in the portfolio.
spk00: So the Valley stake is currently at 155, about. And then when you sum up the rest of the minority assets, they're sitting at around $600 million of NAV. Okay, thank you.
spk06: And then just...
spk01: Okay, Ben, let me just also clarify, because I know historically we've given that number including cash. So the number that Chris is quoting is excluding the cash that's sitting at Ventures.
spk00: Yeah, that's excluding cash. So you've got the value stake, you've got their investments, and then you've got cash. All that tallies up to around $1.1 billion.
spk06: Okay, got it. And then I guess just as a quick follow-up, like, would you expect the amount of distributions you get going forward to accelerate as you guys kind of more actively look at undergoing this transition?
spk00: Yeah, I mean, look, it's lumpy, as I said. That's one of the reasons we don't put it in our models and project it, but we're actively working on several opportunities to monetize though that group of assets, that $600 million or so that I mentioned, is in the target list to be monetized. And I would expect that we do have some level of monetization continuing through this year.
spk06: Okay.
spk00: Thanks, guys.
spk06: Thank you.
spk05: Thank you very much. That appears to be the end of our question and answer session. I will now hand back over to Chris for any closing comments.
spk00: Thank you, Operator, and thank you all for joining us today. To the extent you have any further questions or comments, please do not hesitate to reach out to us.
spk05: Thank you very much. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your
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