Good day ladies and gentlemen and welcome to the Sinclair Broadcast Group's Fourth Quarter 2018 Earnings Conference Call. All lines have been placed on listen-only mode, and the floor will be open for your questions and comments following the presentation. [Operator Instructions]. At this time it is my pleasure to turn the floor over to your host, Lucy Rutishauser, Senior Vice President and Chief Financial Officer. Ma'am the floor is yours.

Thank you operator. Participating on the call with me today are David Smith, Executive Chairman; Chris Ripley, President and CEO; Steve Marks, Executive Vice President and Chief Operating Officer of our Television Group; and Rob Weisbord, Senior Vice President and Chief Revenue Officer. Before we begin, Billie-Jo McIntire 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 television broadcast cash flow, EBITDA, free cash flow and leverage. These metrics are not meant to replace GAAP measurements, but are provided as supplemental detail to assist the public in their analysis and valuation of our company. A reconciliation of the non-GAAP financial measures to the GAAP measures in our financial statements is provided on our website under investors/non-GAAP measures. Chris Ripley will now take you through our operating highlights.

Good morning everyone and thank you for joining our fourth quarter earnings call. We have some great results to report and some equally exciting updates on our business strategies. Since our board approved a $1 billion share repurchase authorization last August, the largest in our company's history, we've used approximately $320 million to buy back 11 million shares or 11% of the total shares outstanding, generating $0.63 of annualized free cash flow per share. At a 5x average free cash flow multiple, that represents approximately $300 million of equity value created. As you know, local news is one of our most valuable assets and an area that we have made significant investments in over the years, including additional news hours, 24/7 content centers, townhalls and deeper investigative reporting. We continue to be an industry leader with our cutting edge drone journalism, and are proud to announce that our drone program just flew it's 10,000th flight. Through our drone journalism across the country, we've been able to provide our viewers with a unique visual perspective on significant local stories. The return on our news investments is evident in the almost 350 awards received this past year and in our 2018 political revenue results. Not only did we generate a company record $255 million of political revenues, but we grew our share of the total ad dollar spent. As we think about the strength of 2018's mid-term elections and a number of candidates already announcing their candidacy for President, we believe the 2020 presidential cycle will result in yet another record breaking political year for us. While we continue to strengthen our local news offerings, we also have been focused on local sports, entering into a joint venture with the Chicago Cubs and bringing together one of America's most iconic sports franchises…

Thank you, Chris. Continuing with the positive news, I'm pleased to report that we exceeded our fourth quarter media revenue, EBITDA and free cash flow guidance. Media revenues for the fourth quarter were $849 million, an increase of 22.5% or $156 million higher than fourth quarter 2017 and exceeding our guidance. For the year, we achieved record-setting media revenues of $2,919 million. Included in our fourth quarter media revenues was $334 million of distribution revenue, an 11% increase over the prior year period. For the year, distribution revenues were $1,299 million, and as guided, we achieved pro forma net retrans growth of low-single-digit percent for the year. Political revenues in the fourth quarter were a record-setting $150 million versus $16 million in the fourth quarter of last year, a non-election year, and higher than the top-end of our guidance range. Media operating expenses in the fourth quarter, defined as media production and media SG&A expenses, were $475 million, up from the fourth quarter last year on higher reverse retrans fees, the growth initiatives, and compensation and sales commissions on a higher revenue. Our reported media expenses were $11 million unfavorable to our previous guidance, but that was primarily due to exceeding our revenue projections. Corporate overhead in the quarter was $22 million. Non-media EBITDA was approximately $7 million in the quarter, $13 million better than our prior guidance on higher sales at our antenna company, Dielectric, and timing of ONE Media and R&D expenses that will roll into 2019. EBITDA in the fourth quarter adjusted for $3 million of legal, regulatory and other nonrecurring costs, was $340 million, up $108 million and exceeding guidance. Net interest expense for the quarter was $49 million and our weighted average cost of debt is approximately 5.5%. Equity method and other investments for the…

Thank you, Lucy and good morning everybody. We ended 2018 on a very positive note with the strongest midterm political year in the company's history. We beat both our political and core advertising guidance in the quarter. In fact, despite the political crowd-out effect, the back half of 2018 outperformed better than the first half and the fourth quarter was the strongest of all quarters, with the core advertising down just over 3%. Political ad revenue in the fourth quarter was $150 million versus $16 million in the fourth quarter of 2017 and $2 million better than our guidance. For the year, we did over $0.25 billion in midterm political advertising. To put this in perspective, 2018's $255 million just missed beating 2012's $266 million of pro forma Presidential Year dollars and crushed both 2016's $206 million and 2014's $155 million pro forma results. With more than a dozen candidates already campaigning for 2020, we believe there are strong indications that the coming presidential year will be extremely robust and our biggest year ever. Our digital business continues to perform very well with revenues growing 22% in the fourth quarter as compared to the same period last year. Our Compulse OTT product has been a hit, and one of our fastest-growing digital verticals. Turning to our outlook for first quarter, we are expecting media revenues to be approximately $667 million to $673 million, up 4% to 5% as compared to first quarter 2018. This assumes $2 million of political revenues versus $7 million last year, and includes $344 million to $347 million in distribution fees versus $314 million last year. Core advertising revenues in the first quarter, excluding political, are expected to be flattish versus the same period last year. On the expense side, we are forecasting media expenses in…

[Operator Instructions]. We'll go first to Aaron Watts with Deutsche Bank.

Hey everyone. Thanks for all the details. I am going to start with a question on core. It sounds like you're seeing kind of a flattish environment in the first quarter. Can you talk about a little bit what you're seeing on the local side versus national? Maybe touch on the auto category as well? And then what gives you confidence you see an improving trajectory, as you move through the year?

I want to take you through fourth quarter beginning in November, because it tells a great story ending the year. We were just a pinch shy off flat in November and remember there is -- first week of November, there is political advertising. In December, we were up in core and we were up impressively in December. And when you take a look at the automotive category in 2018, which was clearly down, and fourth quarter, hard to pinpoint because of the crowd-out figure, we did huge money in political in fourth quarter. We're also very encouraged right now in the first quarter with that flattish figure, as automotive continues to be slightly down for us, and I don't think you're going to hear that from most of the calls that you'd be doing after us. We're doing actually quite well in auto and we believe auto, for 2019, will be in the plus category for us, as will core. So when you take a look at the last two months of 2018, and you take a look at the momentum that we have going into 2019, we're really encouraged with this report. We believe core will be up in 2019. We believe oil will be up in 2019. So again, not sure how much you're going to hear that from others, but that's how we feel right now about our business.

And as Chris mentioned going from generalist to specialist, we've made a concerted effort to hire folks that are selling to the auto groups to come from the auto industry, especially for tier-3 in our local markets, and that's part of our transformation again, trailing down from generalist to specialist.

I also want to mention one thing, in addition to the automotive category, we should take a look at the services category, and how it has been really robust. For us it’s the second biggest billing category we have, and there was a ton of money. And it was up in the fourth quarter and it is up really big in first quarter and driving our numbers. So the goods and services category for us is on a low and a very impressive low.

Okay. That's really helpful. Are you seeing any kind of bifurcation between local and national? Or are both trending relatively -- kind of evenly within the context of the guidance you gave?

They are both trending relatively evenly. Chrysler, Jeep, Dodge, Fiat, has moved to a new agency along with Chevy, and we expect to see quality results from the moves to these new agencies.

All right great. And maybe one more if I can. For Chris, bigger picture; as you look at the M&A pipeline and opportunities that may be ahead of you for this year, maybe you can just talk about what's in focus for Sinclair on both the station side? I don't know if you can comment on the latest on the regional sports networks or other opportunities you see maybe being out there for the company? Obviously you're sitting on a large cash balance and your leverage is -- as Lucy pointed out, historically low.

Sure thing Aaron. So we have participated in the last couple of processes around the TV broadcast side and they both -- net of going for multiples that were well above our price thresholds to other buyers. And so it's certainly nice to see a very robust M&A market for TV broadcast. I think that's going to have a knock-on effect here for the public players, since the private market is very robust, very high multiples being traded out. And we'll continue to be active looking at future opportunities as they come up. We're just very disciplined right now on our multiples and what we're willing to play, and it just appears that others are willing to stretch more than us on the TV broadcast side. On the RSN side we are ecstatic about our announcement with the Cubs. We obviously have -- well not obviously, but there has been reports about us having other opportunities in this space. I can't comment specifically on those reports, due to non-disclosure agreements we've signed. But there is a very unique moment in time here in the RSN space that we really like our positioning on. At the end of the day, these RSNs represent the most watched programs on TV, and they're really super premium content with true scarcity value. You can't create more sports. You can create almost anything more of any other genre, including entertainment programming, as we've seen with the explosion of peak TV on the entertainment side and you can certainly create more news, though it has held up better in terms of scarcity value than entertainment. But the real -- most scarcest content at the end of the day is sports, and it's showing in the ratings. Sports overall has grown in ratings over the last eight years in linear television, and really the only thing that's even close to that is news, in terms of the strength. Everything else has suffered under fragmentation and increased supply. So we think RSNs are highly complementary. They fit well with what we do on the broadcast side. They play on our strengths on distribution, production and ad sales, and as I said, we're ecstatic with what we've done with the Cubs and that's going to be a great addition for us, and we'll of course be very disciplined on value and look forward to seeing what opportunities may come our way.

We'll go next to Steven Cahall of Royal Bank of Canada.

Yeah, thank you. Maybe first if we could just drill down a little bit on your commentary around auto. So I think it's really interesting that you think it'll be up in 2019. I think a lot of forecasters are expecting deliveries to be down. So maybe if you could give us just a little bit more color on what's driving your commentary there? And then I have got a follow up on your share count outlook.

I think we got a secret sauce on the automotive category. We've been out hiring people from the space. As our business changes, we have to change with the business. And we are essentially a technology company. We're out there tackling the technology and tackling the technology as it pertains to this category, and we're out hiring people that know the category, and we're hiring them and we're having these people call on the automotive business, and we're seeing the results of it. So it's a different strategy. Instead of hiring people that sell spots, we're hiring people that sell cars, and we're speaking the language better today than we've ever spoken the language, and we're bearing the results.

So to put it a little succinctly is, we're dealing directly at the tier-3 level, as well as the advertising agency. So we're saturating this category horizontally and vertically.

Great. Thanks for that. On the buyback just taking the guidance that you gave for 2019-2020 share count and doing some back of the envelope math, I'm getting to maybe 9%, 10% reduction in the share count. You did a big buyback in Q4. It seems like you have the capacity to go a lot higher than that. I know it's kind of dependent on what comes out on the M&A market. But until we hear something on M&A, how should we think about just really framing what you're going to look to do in the share repurchase market in the near-term? Thank you.

So we have -- since we announced the $1 billion buyback, we've almost done one-third of that in terms of total dollars and we've done so at an average price of around $29. So we're very happy with the results so far. We really took advantage of the weakness in Q1 to buy a lot of shares at a very attractive price. And so going forward, we're going to run it pretty similarly, in terms of looking to have an algorithm or the lower the share price goes the more gets bought. And we of course balance that as we always do with what's in the M&A pipeline. But as Lucy said, we have an incredibly strong balance sheet right now, so we have great flexibility.

We will move next Dan Kurnos of Benchmark Company.

Great, thanks. Maybe a little surprised you guys got FOX done so quickly. There was a lot of noise in the market. I don't know if you guys can share how that went, but it sounds like it was maybe smoother than it's been in the past. I don't know if they were asking for day parts or anything else since you guys already reaffirmed your net retrans trends. So any color there would be helpful. And then Chris, just kind of high level, obviously we talked about yesterday to a degree you guys had a lot of big announcements early this year on 3.0. You talked about getting 20 to 30 markets, but how much incremental beyond that are you investing towards monetization? How should we think about timing and timing -- potential timing around monetization, understanding that there's still a long way to go there?

So on FOX, I think maybe there was some noise, but the reality is, we had -- the stations that were renewed, we had effectively negotiated a market rate for only a year prior, or actually even less than a year prior. So they just came up again by virtue of Tribune not closing. So it was a relatively easy renewal, because we were already essentially at market via the previous agreement. So I think it's just sort of people speculating. And as we've always said, we go through this all the time with the networks, and the you are then the harder the discussions. So that's why it got done relatively easily. And I'm not sure what your comment is on day parts as it relates to the FOX but nothing changed in terms of standard deal that we have with them in terms of what they supply. On 3.0 we hander big CES this year. Saankhya Labs debuted the first mobile chip which as I mentioned in my comments is a global SKU. We had great meetings with potential OEMs to integrate that shift into a plethora of different products so that was very well received. We signed our joint venture with SK Telecom which will start in earnest of this year and start taking technology out of the Korean marketplace and commercializing it here in the U.S. market which will create the network intelligence which is needed for this industry to operate as one network as a wireless telecom company would operate. And SK is best-in-class in the world so we're just ecstatic to be officially partnered with them. And then we also did an MOU with SK and Harman. And if you know anything about Harman if you drive a car you're probably are a Harman customer. You have their speakers and infotainment system in that car. That's just an MOU at this point. We'll turn that we'll do some work and get that into a joint venture so we can actually get going on an advanced automotive platform with those partners. So the investment side of all this is not that significant. Of course it does show up in some of our spending this year but overall it's not huge mover at this point.

Well next is Alexia Quadrani from JPMorgan.

Hi, this is David Karnovsky on for Alexia. Just on the Marquee Sports Center, I know, tennis doesn't start till 2020, but can you talk at a high level your financial expectations for the JV and how this will get accounted for at Sinclair? And then, what's sort of the potential to create more partnerships like this with other sports teams?

So it will start in 2020 and on an annualized basis, we expect it to contribute about $40 million to $50 million of free cash flow, and it is a model for other partnerships going forward. That's definitely high on our mind, in terms of how we can create additional value. We love partnering directly with the teams and getting alignment of interest there, and in many regards, we're just -- we are a perfect match for any team who wants to do this, and so we'll certainly be looking for other opportunities and there will be some coming up in the years to come. They tend to come up as the contracts expire with the existing distributors. So it's something we're definitely keeping track of and looking forward to.

Okay. And then just at a larger and potentially earlier Democratic primary, how are you thinking about what the political contribution in 2019 might be, relative to past odd years? And then for 2020, please walk us through the various deals, President, Senate, etcetera, that gives you confidence this could be your big year for political? Thanks.

I'll take the first one. Let me just give you the 2015 and 2017 -- 2015-2017 pro forma numbers. We did about-- a range of about $26 million to $32 million in both of those years, so we would expect that we should at least hit those numbers this year. Now just remember, because the Primaries don't start until the first quarter of 2020, any of that money is really going to be backloaded primarily into the fourth quarter.

I will tell you, we like our chances on the political dollars. All you got to do is take a look at what goes on every day, and to become -- the best TV show on the planet is watching politics. Every other day there's somebody joining the race. It really bodes well for local broadcasters. It's going to be quite a robust, I believe, fourth quarter in spending. And I think 2020, we're not going to be able to get out of the way of the money. It's going to be literally hand over fist. But hard to put a dollar figure on it, but it's going to be enormous.

Yes. So let me frame 2020 for you. If you compare our biggest presidential year, which was 2012 pro forma, we did $266 million that year. So we do expect to beat our biggest presidential year. And remember, there's a lot of big national issues that are out there. We've got a lot of people running already for the Democratic side a year in advance of the first Primary. And then remember, we are in all the key swing states in a big way, as well as we're in a lot of the state capitals.

It also speaks to our investment in our niche products and the 350 awards that Chris mentioned in the beginning of the call. So we're able to capitalize on those investments into our news hours.

We'll go next to David Joyce at Evercore.

If you could just provide some more color on the advanced advertising initiatives. Where are you in the industry on the tip initiative at this point? Are you going to continue working with the other station partners in the 3.0 rollout in these 20 to 30 markets? Is that part of the agreement in the consortium you're with? And are you using partners for advertising and for testing as well?

On the tip initiative we found that that along with Next Star and Tribune it's really going great. We've picked up a lot of momentum. Other broadcasters have joined most recently from NBC VIU and Telemundo joined. And also we launched the first APIs between broadcasters and vendors for long times and several key vendors implemented those APIs. So the real promise here is to be able to take the friction out of the system. We've been suffering under a structural problem in this industry where it just labor cost to buy our stations is way too high and TIP is aimed squarely at that. And it has that objective and also has the objective of making sure this is an open system and we don't have to create a gatekeeper that essentially could charge outsized rents on the industry because that could also be an issue. So we're very pleased with TIP. We're pleased with how it's grown from the start from three broadcasters to most of the industry at this point to the vendor participation and the progress we're making in terms of getting the APIs implemented. On 3.0 we are we have an initial number of markets as we mentioned 20 to 30 which have we have reached out to other broadcasters or rather spectrum codes on that to include as many as possible in those markets to transition because the more the merrier in terms of during a transition. Those are from cooperation standpoint are pretty much ready to go. There is some delay coming out of the FCC around just getting the documents if you can believe that to be able to file properly and move this forward. The FCC I think will have those ready in Q2 which hopefully that will happen and then can actually hit our target of rolling those markets out in 2019.

We move next to Zach Silver of B. Riley FBR.

First on the Cub side JV what's different about Marquee versus something like Charter Sports net L.A. which had I think similar publicized trouble getting distribution deals done out of the gate? And then related to that did you say that you guys are going to consolidate the JV?

Yes. I think it is going to end up being consolidated. The number I gave you before the $40 million $50 million really is sort of a net benefit to us but it will end up being consolidated which will make the financials a little bit more complicated but I just wanted to give you folks the net benefit to us. And then in terms of comparing and contrasting to Sportsnet L.A there's really I think three main points that I would highlight there. One is that there was a very very high sub-fee ask associated with Sportsnet L.A. that was essentially needed to make the financing work for the purchase of the Dodgers so it's sort of a leveraged play. We don't have that situation here. We're not buying a team. We are not we don't have a huge ask on the table. And then also the Cubs fan base is incredibly strong. Chicago is a Cubs down. If you take a look at where they live right now which is on a multisport RSN they comprise well over half of the total ratings on that RSN even though that RSN has 14 in total so it just gives an idea of the strength of the Cubs. And then furthermore the fan base is not as diffused as it is in L. A. for the Dodgers. L.A. is a little bit more of a transient city. And then last but not least there was no partner involved in L. A. Sportsnet with the distribution relationships so that those are the three things I would highlight as to why this would be different.

Got it that's really helpful. Just one follow-up if I could. Sports related I guess. The sports betting category. I think some of your stations are in states where that is now legal. Do you guys have that baked into your guidance for core being up this year? And might we see that becoming a more meaningful part of core advertising?

So it's not baked into our guidance at all. We haven't seen significant we already do get dollars from casinos and the like, and it's not a huge category for us, but we do expect that category to start to grow meaningfully. It just it hasn't really lined up on our portfolio yet. The estimates for the industry is if this is going to be an additional $1.5 billion to $2 billion category, which is a huge category for us in addition to what we already get from casinos. It is going to be a cave-by-cave or state-by-state, and the industry is not backing up the truck right now in advertising and sort of slowly waiting their way in, but we do expect it to be a significant category as this industry develops.

We'll go next to Marci Ryvicker from Wolfe Research.

So I just want to confirm the FOX deal. That includes the incremental NFL Thursday night, right? You're not paying a separate fee to them for that?

Yes, that's all included.

Okay. It sounds like embedded in your full year free cash flow guide. I know there's a lot of missing pieces that we sort of still need to go up to the revenue line. But from what Steve remarked, it sounds like you expect the core to be up and that's embedded in your guide. Or is the range assuming that it may be down slightly to up slightly?

So in the free cash flow guide for the full year that assumes that in that range that the core is up for the year.

Okay okay. And then 4Q for distribution revenue it came in I think a little bit lower than your guide. Was that a true-up? Or is there something going on with the subs? Could you give a little bit of color?

Yes. Marci there's a few things going on in that number none of which by themselves are significant in any way. But we had there was one MVPD that had promotional discounts roll-off and that caused their subs to decline which then in turn causes everybody subs to decline. There was another MVPD of that had multiple blackouts with other companies and again as they lost subs everybody uses some. Then what happens is because there is a lag on the reporting of all the sub numbers from these MVPDs we haven't quite seen where there is sub losses where they've migrated to and landed. We expect we'll have more intel as the fourth quarter reports start coming in.

And then can you remind us what percent of revenue and EBITDA may be attributed to your SLAs?

So we have that information in the 10-K with the various financial points of the income statement. We'll have the 10-K out March 1.

We'll go next to Kyle Evans with Stephens.

A little follow-up on the distribution from 4Q. Could you give sub count for the quarter 2018 and kind of what's built into your assumption for the guide?

So the sub count I'll give you off-line. I don't have it in front of me. But I think what you're trying to get here is really what did we see in sub count change. So for the year we saw sub counts decline low-single-digit and a lot of that was due to the first quarter for the reasons that I just talked about with the couple of the MVPDs with the blackouts that they had with others and promotional discounts roll-offs.

Okay. Will do it back offline. On the 2012 2016 numbers you were talking about for political how much presidential ad spend account for as a percent of total in '12 and 2016?

That one we're going to probably have to take off-line. I don't have it here with me but we do have it though.

Okay. And then lastly and you probably won't answer this one but I was wondering if you guys would care to put some size brackets or growth brackets around the Compulse product.

We're not going to disclose specifics around products but it has been our fastest-growing digital vertical. The targeted advertising space that will be a core part of ATSC 3.0 and STIRR and a number of our other digital initiatives is proving to be quite robust market at very high CPM so I think it's the punch line for us. But we're not for competitive reasons not going to disclose the specific number.

We'll go next to Clay Griffin of Deutsche Bank.

Just a quick one. I noticed the $140 million of repack CapEx for the year. I'm Just curious of your total CapEx guide what is is there an amount above and beyond the $140 million that's embedded in your full year that's related to ATSC 3. 0? And I guess the question being as you look out after this transition what does the outlook look like in terms of capital intensity for the core broadcast business?

Yes. So embedded in the nonrepack CapEx for 2019 there's about $10 million to $15 million related to the deployment of 3. 0 in the 20 to 30 markets that we spoke about. And as I think about 2020 CapEx guide for the full year non-repack I think if you're in that sort of $100 million to $110 million range for nonrepack CapEx that should capture all the various items that we're doing.

Okay great. In terms of the $115 million in expenses related to revenue-generating initiatives do you have a comparable number for full year 2018? Or is that all incremental?

Can you repeat that one again?

Right. The $115 million of full year media expenses related to revenue-generating initiatives do you have a comparable figure for full year 2018 just so we can see the growth and kind of those initiatives?

Yes. The just give me a minute. I don't know if you have another question that you want to move on to.

[Operator Instructions] We'll move next to David Hebert of Wells Fargo Securities.

On the RSNs I'm not sure what you can say on this. But I know you've talked about potentially using a partner a financial partner and bidding for those channels. What would you say the probability of that today versus using your own balance sheet?

I think for lots of different reasons I'm not going to handicap that for you but it is certainly a possibility and part of active discussions.

And secondly I apologize if I missed it. But Lucy do you have any sort of guidelines of year end net leverage knowing that M&A could obviously impact that but just curious if you had any number there?

So net leverage we would expect to be a little bit lower than where we ended 2018. So it's still with good handle on it but a little bit lower.

And that's net leverage correct?

That's on a quarter basis. Okay. Let me just back up for the question had. So the initiatives expenses in 2018 before ONE Media and R&D so not including that would've been about $70 million to $75 million.

And we have no other questions at this time.

Okay. Thank you, operator. And we appreciate everyone joining our call this morning. If you have any questions please feel free to give us a call. Thank you.

Thank you. This does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time and have a great day.