Good morning, ladies and gentlemen, and welcome to the Sinclair Broadcast Group Fourth Quarter 2021 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and we’ll 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 Rutishauser, 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 a 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 find the link to access slides to go with today’s call. Now, 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 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 company’s uses our 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.sbgi.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 face 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 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 raised and exchange offer that is currently in the marketplace. On our last earnings call after experiencing the cyber incident, we told you 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 network from backups, there were disruptions to part of our businesses following the incident, including certain aspects of providing local advertisements by…

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 on 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 we're 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 cost, open positions, programming and timing of operational initiatives. For the year, broadcast and other media revenues were 3.136 billion and adjusted EBITDA was 753 million. 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 games guarantees, which can result in rebates to be paid to distributors were 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…

Certainly. Ladies and gentlemen, the floor is now open for questions. Your first question is coming from Dan Kurnos 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. Is there any revenue or ongoing revenue impact? And subsequent to that just even x that are you guys seeing Q1 core pacing relative to 2019 levels?

Yes. 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 as of this date, but again, 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 pace for Q1. Rob can speak to that specifically.

Yes. 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. I'll echo congratulations, Rob, on the promotion. Chris, or Lucy, I guess made some pretty strong comments yesterday, just around net retrans. And given the fact that, we've heard from Paramount now and others that they're asking less on the network comp side in renewals, obviously, you guys skew 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 retransfer this year? And kind of what is your long tail view on net retrans?

Right. We do expect net returns to grow this year, low single digits, and it is accurate. In terms of what you're hearing from other players, that reached 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 that 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, we did have a small decline in that retrans was an aberration.

Got it. And I will just sneak one more in Chris. I remember having the conversation. I don't know, was a year ago, just around the buyback, after you guys had just bought in, felt like half the company at the time and it was less than that. But certainly given the flow, it was a substantial portion. And now, you kind of resumes that path at a higher level than what you did previously, exciting kind of sort of the ongoing opportunity. So I guess, I don't know how to ask it other than sort of what's changed between sort of the pause and now with it, just thoughts around how much you would have to spend around D2C, and sort of just the cash flow balances at this point or 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 meet at these levels.

Sure. Look, we did buy back a lot of shares in 2020. And so we took a pause reevaluated it's very apparent that our stock is grossly undervalued. So we're back in the market. And then, when we look forward, the free cash flow profile, 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 accreting at one 20% plus a year, it's more than easily pays for significant shareholder return policies.

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

Thank you. Your next question is coming from Steven Cahall 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 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 good return for Sinclair, so that 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.

Yes. 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 is part of the upcoming transaction as we've reduced the commitments which diamond couldn't borrow any way and was paying unused commitment fees on and we extended the maturity there. But the amount that Diamond can borrow under that, which was to 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.

Now 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, did everything strike when that happens? Or are you may hole 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 site 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 that will be easily achieved. That being said a change control does make those performance triggers fall away. So if that change 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 outstanding shares and that means our implied ownership would go up in a company that we love. 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 8-K that we filed. But so, case one, which showed the 336 million, our guidance, 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. Take that plus the 336 and it assumed, the deal was going to close earlier than March 1. So it had two months more of deferral of management, fee. So if you adjust for those two things, that 336 million 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, it's just timing which crossed years. That's all.

That's helpful. Thank you.

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

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 MLBs concerns about the financial viability of the RSN? 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-to-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 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, look, it's not appropriate to comment on active negotiations. 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 ships a very, very favorable outcome. And it 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? So 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? Or is it possible to discuss any of the usage trends in terms of discrete KPIs, number of users time spent that type of thing?

Yes. 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, we'll 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/potential consumers in and out of the app. And it's proven in our dish with some of the predictive and fantasy games that we've launched that there is that lean forward wanted to participate in those type of games. And don't 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 people, how they engage, we think will be quite different.

Great. 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. 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 just like to piggyback on the 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 a traditional MVPDs 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 and the RSNs things that I guess that the stance that you took in those negotiations, didn't quite bear fruit. John Malone was actually on CNBC, around that time, was asked about direct-to-consumer sports rights, agreements and going direct-to-consumer with sports. I think he said, “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 are the five baseball markets are Charter markets. And I'm wondering if you can kind of -- 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 incentive 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'm wondering if you could kind of characterize exactly how the relationship with traditional MVPDs like with DISH, you're now with Charter, the new paradigm around direct-to-consumer? How are we supposed to think about 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 your partner's like the distributor is going to be factored into that.

Great, thanks, David. Look, everything I said before is, was true then and still true today. We've renewed on the status quo basis, all of our traditional MVPD relationships. And when we bring all of our content to the table. DISH was an outlier and 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 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 yes, 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 that from 2021 to 2022.

renewals. Okay. And then, I got a separate question, then around the sports streaming rights. Notice that you find an agreement here in January with the NBA has 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, I'm darn 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 not with Sinclair?

The more accurate way to do that if there was a non-compliance then there just wouldn't be this automatic offer of renewal. So that doesn't mean that there may not be some other form of renewal.

And as that compliance like number of subscribers, some certain financial commitment at Sinclair, Diamond Sport needs to make to deliver that product into the market. And 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 one last question, around MLB, there are some press reports about additional MLB teams may be looking to do streaming. Do you have any hopes? Or are you optimistic? You mentioned five markets in the press release? Are you optimistic beginning any other markets? Again, assuming we have an MLB season that starts on time, but any comments there?

Yes. I know we are optimistic and we over the last two years, we're batting 1000 in terms of renewals. And we've most -- we just recently added the digital rights, the DTC rights for our team just this January. So it takes some time, it's sort of a team-by-team situation, but we have, our history would tell us that we will be successful there.

Thank you. Your next question is coming from David Karnovsky from JPMorgan. Your line is live.

All right, thank you. Chris, just given the value you cited to 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 for Lucy, just given some of the risk around the MLB season that we've seen in the news, can you please remind us how Diamond would be impacted if there was a delayed start to the season canceled season. Thanks.

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

Yes. So, regarding the lockout, so, it really depends on how long that last. But it should follow the same path as it did during COVID when games -- 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 though it is getting triggered. But as a reminder, during COVID, when they did get triggered, it was a net benefit to Diamond.

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

Thank you. Just a couple of 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?

Yes. I could answer that Aaron. It was pretty consistent, with where it was trending down, we expect the turnaround in auto to be or to return around third quarter if the chips started flow into the OEMs. We'd become less reliant on automotive as we've talked about. Our focus is on omni-channel 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 were trying to move away from just that reliance on that 30-second spot but on the broadcast side, we see the return coming about -- starting to get into the third quarter, cautiously optimistic. And on the sports segment, it's down high single digits, because it's reliant more in Tier-2, then Tier-3 from the broadcast side.

Okay. That makes sense. Thanks. Shifting over to the Diamond side. Curious if there's been any revival or potential for -term revival of discussions with the major OTT streaming distributors to come back into the fold. I think we saw NBC Universal recently renewed carriage with YouTube for both their stations and RSM. So I didn't know if that may be a new template for you to perhaps reengage with Diamond.

Sure. And we do have active dialogues with all those players and opportunities and discussions do come up. And but our guidance does not reflect any additional carriage for many of those players.

Okay, got it. And one last one for me. 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 onto 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?

Yes. So what I would say there, Aaron, is, look, it's a goal to delever 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 released will be EBITDA on cash flow generating over time. So that I would say is to go like right now, we have two major things in front of us that we need to get launched here. The new money raised and the launch of the D2C.

And Aaron, one last thing is just to give you a perspective of where ’22 is going on the core and are 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.

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 Compulse360 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.