Good morning, ladies and gentlemen, and welcome to the Sinclair Third Quarter 2022 Earnings Conference Call. At this times, all participants have been placed on a listen-only mode. And the floor will be open for 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 CFO. 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 want to remind everyone that slides and supplemental information for today's earnings call are available on our website, sbgi.net, on the Information page and on the earnings webcast page. I also want to remind you that today's call is a Sinclair-only call. A separate public call for Diamond Sports Group will be hosted in a couple of weeks. 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 third quarter earnings release. The company undertakes no obligation to update these forward-looking statements. The company uses its website as a key source of company information, which can be accessed at www.sbgi.net. In accordance with Regulation FD, this call is being made available to the public. A webcast replay will be available on our website and will remain available until the next quarterly earnings release. Included on the call will be a discussion of non-GAAP financial measures, specifically adjusted EBITDA, adjusted free cash flow and leverage. The company considers adjusted EBITDA to be an indicator of the operating performance of its assets. The company also believes that adjusted EBITDA is frequently used by industry analysts, investors and lenders as a measure of valuation. These measures are not formulated in accordance with GAAP and are not meant to replace GAAP measurements and may differ from other companies' uses or formulations. The company does not provide reconciliations on a forward-looking basis. Further discussions and reconciliations of the company's non-GAAP financial measures to comparable GAAP financial measures can be found on the company's website, www.sbgi.net. In addition, given the deconsolidation of Diamond on March 1 of this year and in order to have a meaningful discussion around comparative results and trends, all discussions of prior financial reporting periods during this call reflect Sinclair-only pro forma numbers and thus exclude Diamond and any intercompany transactions with them and exclude businesses sold in the prior 12 months. For actual results, including the periods that Diamond was consolidated, please refer to this morning's earnings release. Chris Ripley will now give you an update on the strategic direction of the company.

Good morning, everyone. I'm going to keep my comments relatively brief as we covered a lot of ground at our Investor Day just weeks ago on October 3. Our results for the quarter were in line with our revised expectations provided during our recent Investor Day. Political revenues remain robust, and as mentioned on Investor Day, we're still expecting a record midterm political year. With a week remaining until election day, our full year political estimate is $335 million to $340 million, which is in the $325 million to $350 million range we gave on our Investor Day. Rob will give you more color on the advertising environment in just a minute. Our total adjusted EBITDA of $198 million was within our guidance range, aided by lower-than-expected expenses. During our Investor Day, we spent a fair amount of time on our growth initiatives. When you look at the future of Sinclair, it will be driven by our current television station assets as well as our growth initiatives. These initiatives fall into 4 categories: multi-platform content, marketing services, data distribution and community interactivity. A key aspect of our growth strategies is creating additional revenue streams to both incrementally monetize our linear audience and our 80-plus million unique digital viewers as well as drive new uses for our broadcast spectrum. Today, Sinclair achieves the vast majority of its revenues from linear advertising sales and distribution. We believe these growth initiatives will unlock significant revenues rivaling today's 2 revenue sources. And we also have our investment portfolio, which we currently estimate is worth approximately $1.2 billion or close to $17 per share. It has generated an IRR of approximately 20% since 2014. I'd like to take the time to give you more insight into this portfolio. It currently consists of real estate, private…

Thanks, Chris. Total media revenue for the quarter increased 5% over last year. Political ad revenues were strong during the quarter, outpacing 2018 pro forma results by 28%. Year-to-date political ads revenues through the third quarter are up more than 50% over 2018 pro forma and only down 2% over 2020 pro forma, which was a presidential election. October continues to see strong political spending, leading us to project the full year to range from $335 million to $340 million. As Chris mentioned, this would be a record midterm election year for us and would represent an over 30% increase above 2018. The strength in political is the primary reason for core advertising declining versus a year ago as well as the absence of Olympics and the weakness in insurance and sports betting category, which are really not macro but industry causes. We are keeping an eye on how the macro economy might affect us, and we will have a better grasp on demand once the elections are over. We have built into our Q4 guidance some impact from macro environment and the impact of higher interest rates on consumers. I do want to point out, a couple of weeks ago, we announced a multi-platform creative partnership with Anthony Zuiker. Anthony has created the CSI franchise, and he will help develop content for Sinclair in a number of different areas. The partnership with Anthony underscores our commitment to creating an original program that can be not only utilized on Sinclair platforms but sold to third parties as well. More importantly, Anthony intends to use our deep news content library to bring these stories to life. During the quarter, we launched an enhanced CRM and more in-depth artificial intelligence and machine learning pricing model to be utilized on a forward basis in 2023 and beyond. The revenue model that utilizes algorithms similar to what is used for hotel and airline pricing, facing pricing and supply and demand dynamics. I'll now turn it over to Lucy to go more in depth on the financials.

Thank you, Rob, and good morning, everyone, again. As I mentioned, you can follow along with our slide deck and our financial supplement on our website. Media revenues for the quarter were up 5% versus the same period a year ago driven by higher political ad revenues and higher distribution revenues, offset in part by the lower management fee and lower core advertising due to political crowd-out and the other factors Rob discussed. The $836 million in media revenues, while below our guidance range was primarily due to timing of political, which we expect to capture in Q4; softness in a couple of ad categories; and higher core advertising crowd-out in certain markets where political is running very strong; themes, all of which I mentioned at our Investor Day. Distribution revenue increased 1% versus last year, but fell short of our guidance range due to higher-than-expected subscriber churn, which was still in the mid-single-digit range versus last year. Looking at total advertising. It was very robust when including political revenues increasing 15% over last year. Core advertising decreased high single digits in the third quarter compared to the same period a year ago as a result of the absence of Olympics and political crowd-out. The shortfall of the guidance was primarily the result of certain categories that came in lower than expected and increased crowd-out in markets with hotly contested races where political is running stronger than anticipated. Media expenses were 5% higher in this year's third quarter versus last year on higher network programming fees and higher sales and G&A expenses but were favorable to guidance. Adjusted EBITDA for the quarter grew 5% over the third quarter of last year mainly on the strength in political revenues, partially offset by the Diamond management fee deferral and the higher expenses…

[Operator Instructions] Our first question is coming from Dan Kurnos with Benchmark Company. Please go ahead.

Maybe, Rob, I guess, just on the Q4 -- or Chris, on the outlook of the macro impact, it's actually your guide not different from what we had in our core assumptions. So maybe just tell us a little bit what you're seeing, whether it's category -- specific category weaknesses was put in the release or if there are any incremental cancellations. Just outside of sort of the unevenness we're hearing from across the industry, sort of what is influencing your guide beyond the crowd-out and knowing that we don't really upgrade visibility past the election would be a helpful start.

Yes, Dan. I'll take it. It's Rob. As I indicated, from the sports betting, they crossed the 50% mark in the country for legalization. So where we saw that short-term increase of spending in that category, they've now gone the network as well as the -- all the sports networks such as Diamond. And with insurance, because of losses they took from weather as well as COVID-related illnesses, we've seen a pullback in that. And that's more of the industry segment than the macro. And we'll get a better sense how the core is feeling about the macro company and the political because there are a lot of core advertisers sitting on the sideline based on the heavy political spending and the pricing that's taking place. So -- but we have not seen any key categories come in with any types of cancellations today.

Our next question is coming from Barton Crockett with Rosenblatt Securities. Please go ahead.

I guess a couple of questions. One is following up on the ad categories. I'm just curious about auto, what you're seeing there, if you're starting to comp some of the headwinds. I'm wondering if what the trend is there, if there's also incremental kind of macro worries. So a little bit of color there would be helpful. And then second question is getting back to your comment about the 50% free cash flow yield, which is incredible. The question is this, like companies that are -- have that kind of situation, you wonder why would you do a see change in the level of share repurchase. I mean you've reduced share count 7%. Let's try to see how you can come up with a better investment than a 50% kind of free cash flow return. And I think the result of that is maybe a little bit of distrust of the 50% figure because where you're putting your capital. So I'm just wondering what would it take or why wouldn't you do like a big tender or a see change in terms of share repurchase.

All right. Rob?

I'll take the auto first. From the auto position, we're now comped against the chip shortage, COVID. And we did actually see year-over-year increase in auto spending. With that said, a couple of things that keep me awake at night and keep us looking at that sector is -- on top of the chip shortage, which I think they're starting to solve, they now have a sheet metal shortage. Toyota announced that minivans won't go into production for at least 18 months. And obviously, interest rates on car loans have increased. So that could be good or bad. We believe inventories will start to stockpile based on the interest rates going up and the Tier 3 dealerships will need to start to advertise to move those vehicles versus the shortage that they've had on their lives.

Yes. In terms of your second question, we are, I think, approaching about 40% reduction in our shares outstanding from share repurchases over the last 3 years. And this year, we're approaching 7% reduction. So the activity has been quite significant. And we put our money where our mouth is in terms of being grossly undervalued. And I'd expect us to continue to be aggressive there. And also, we're looking at ways in which we can -- we talk about our investment portfolio so much because when you think about that in terms of the sum of the parts, it just makes our valuation really look wacky. So we're thinking about ways that we can highlight that value and recognize that value even more.

Our next question is coming from Aaron Watts with Deutsche Bank. Please go ahead.

I've got two questions. I guess, first, Lucy, can you remind me how much of your debt stack is floating rate? And can you also remind us if you have any of that floating rate exposure hedged and how rising rates, combined with the macro headwinds you cited, may or may not impact how much liquidity you keep on hand and capital allocation near term?

Sure. So we have about 60%, which is floating. So every 100 basis points in rates is going to translate to about $27 million of higher interest. And I know the Fed is meeting today, and we're expecting an increase in rates. We've built that into our forward guidance. So that's on the interest rate side. We have looked to hedges in the past. But again, we found them to be expensive to lock in for several years as you would have to with the hedge. And then really just as far as preparing for any downturn and -- so we've gone through this multiple times, whether it was for many of us who were here during the Great Recession, during COVID in 2020. So we pretty much have a playbook of what we can do. We started -- as I mentioned, I think last quarter on the call, we've already notified throughout our management teams to curb expenses. We started that several months ago for this year. You've seen that in the results of our expenses, which have been favorable to our guidance levels. And then we also refinanced all of our current debt maturities. So we don't have any refinancing risk for the next 4 years. So we've done that. But look, there are other things that we could pull if need be if we get to that point. But the important thing here is that we'd be smart about what we're spending the money on. So whether it's deep discounts in our securities -- and as you know, we bought stock back this year. We bought debt back at deep discounts. We've continued to make investments in the things that are growing for the company, whether it's our outside investments, whether it's our 4 pillars of long-term growth. So we just have to be smart about it. And the last thing I would say, Aaron, is we go -- if there is a recession, we would go into that period with substantial liquidity, currently at over $1.2 billion today.

One other question I had for you is just following the recent Disney ABC renewal. Any changes to your net retransmission fee outlook for the next 3 years? I believe you were speaking to a low to mid-single-digit growth rate. And maybe any general learnings or takeaways you can share from those recent ABC -- from that recent ABC renewal with Disney, anything around rate increases or commitments to keep content on broadcast versus streaming platforms, et cetera?

Well, so Aaron, I'd say we had -- when we gave our last guidance, the 3-year CAGR of low to mid-single digits, that we, by and large, already knew what the economic outcome was going to be for ABC. So that was baked in there. And what we've learned from that interaction and the ones leading up to it is that there has been a shift in terms of negotiating position vis-à-vis the networks as they focused elsewhere on streaming, and they have moved some of their content around and changed the exclusivity provisions and also just given the magnitude of dollars that we already pay in terms of reverse retrans. So we saw a significant reduction in the growth rates for reverse retrans to be more reflective of the value we bring, the value they bring and what the current subscriber environment is. So we were very pleased with the outcome at ABC. And we actually think their commitment to the network has actually been growing recently. They put more NFL product on ABC after the last NFL deal. And they have secured their other major sports properties. As far as we know, there are no plans to reduce any sort of prime time programming that's been rumored on other networks. And so we think they're great partners for us. And they were -- we thought the negotiation reflected the synergistic relationship we have with them, but also reflected the market dynamics and the gives and takes between the two parties.

Our next question is coming from Edward Reily with EF Hutton. Please go ahead.

Just to echo Barton's comment, on the investment portfolio, I'm wondering if there are any scheduled monetization events for the next year that you might be able to recycle back into share repurchases.

So there isn't necessarily scheduled monetization events. There are several investments that yield income on a regular basis. That's not huge dollars. We're talking sort of tens of millions in terms of that flow. As I mentioned in my remarks, this year, we had, I think it was -- let me see here. We have $137 million coming in, in 2022 in terms of distributions exit payments versus investments of $68 million. So you can see that there was sort of a net positive to a tune of about $60 million, $70 million this year. And I'd expect next year, there will be some further distribution and exit opportunities that tends to happen in this portfolio. If economic situations are not as robust, then I'd expect that to be maybe a little bit slower than historically has happened. But beyond that, it's not something -- beyond saying that these things generally happen, and they do every year, we don't have great visibility to tell you what will happen next year.

Yes. So if I can just add to that. So in the -- while Chris mentioned that we don't have the exit scheduled, there is one that's included in the free cash flow guidance, just over $20 million of exit distributions. So we do have that one of them in the guidance for Q4.

And I was wondering if you could maybe provide some color on just growth in digital. I might have missed that if you guys spoke to that earlier.

Yes. We continue to see growth in digital, so mid-single digits growth. Some of the growth was curtailed by the auto category. But we're seeing continued growth in the fourth quarter as well. Our assets that we've built, not only from our O&O but our marketing services, continue to be strong in the marketplace.

What's interesting, and we tried to highlight this at our Investor Day, is that when you take a look at our overall ad business, you've got the twin pillars of growth are political and digital. And they've compounded over the years, become quite significant in terms of size and are fueling overall growth in our ad business overall. So as they've gotten bigger, they've overwhelmed some of the other weaknesses in the core ad business. So we've been very pleased with that tailwind that we've had overall.

Our national -- yes, just one last comment. Our national team as well as our local sellers go through continuous education and training by the senior digital leadership. So we're prepared to capture the digital dollars in the local marketplace as well as those that are flowing through programmatic.

Our next question is coming from Steven Cahall with Wells Fargo. Please go ahead.

Apologies as I joined a little late. So hopefully, what I'm going to ask hasn't already been covered. Just the first kind of big one on gross and net retrans. When we look at it on like a 4- or 5-year stack, it looks like that net retrans is below where it was in 2018, and gross retrans has definitely been slower than the peer group. So I'm just wondering how you all think about that, if you've done any of that comparative analysis. Have you been less aggressive on retrans rates because you've expected higher cord cutting? Is any of it have to do with RSN carriage? So would just love to get your perspective on why maybe the retrans growth levels have been a little bit below the peer group. And then I have a quick follow-up for Lucy.

So look, I think the -- certainly, some of our deals were done in a different era of cutting expectations. One of the deals that we had highlighted previously was our ABC affiliation deal that we just actually renewed. That was -- that sort of hampered us through a couple of years. In terms of how that performed, we're much happier with the new deal we just renewed. And then going forward, that's one of the big reasons why we put out the 3-year CAGR expectation at Investor Day because we do have -- we're not -- net retrans will not grow in 2023, but we have between the end -- at the end of '23 and the beginning of 24, there's 70% of our subscribers up on the distributor side. And we see that as a huge opportunity to reset the table. And we think we'll do very well there through that period, which will power the 3-year CAGR.

And then, Lucy, just on cash interest, we've done some modeling and looks like cash interest could be up a lot next year based on the debt. It could be up even close to $100 million. So just wondering if you could comment on, based on where rates are today, how to think about cash interest in 2023. And just as it relates to cash, I know that what happens to Diamond is a bit of a what-if, but investors certainly care about what happens to the NOLs. The bond market is kind of implying that a Diamond filing isn't such a low-probability what-if anymore. So can you give us a sense of what happens to your NOLs if things do change for Diamond?

Yes. So on the -- and Steven, we can certainly go offline with you and give you the component pieces of our debt. 60% of that is floating. So if you look at where the forward curve is, and I don't have that here, but you can run it and apply it to the variable rate debt. But for every 100 basis points, the interest expense would go up by about $27 million annual. So the $100 million, you would have to have like a really steep increase in the curve, which we're not seeing, okay? But again, we can go off-line and we can give you the component pieces because remember, we have all the notes that are fixed rate.

And then on the -- on your question around NOLs, look, if we -- the impact of those Diamond NOLs is not as big as you may think because there is a significant amount of disallowed interest at Diamond under the current tax rules, and that continues to increase year-over-year. I mean it is true that if we no longer own 80% or more of the equity that we would no longer get the benefits of those NOLs, but they're naturally decreasing anyway because of the disallowed interest.

Steve, if I could go back to one other piece, too, is don't read that right now, we're sitting with $600 million of cash balance, and that cash is also earning interest. So as the curve increases, the -- depending what your model is showing for your cash balance, we'll also generate more interest income. So make sure you're also looking at it on the basis.

Our next question is coming from Dan Kurnos with Benchmark Company. Please go ahead.

You dropped earlier on the follow-up. But just, Chris, maybe I wanted to actually ask this back at the Analyst Day. Can you just talk about the profitability of tenants right now? And subsequently, given all of this and takes, and Lucy commented on this a little bit, as we go into next year, knowing that there's macro uncertainty, just how are you thinking about sort of the levers around investments next year around these growth initiatives? And obviously, pushing towards DTC, for example, antennas, how much of that's already been encapsulated versus considering pulling back just as -- to optimize cash flow has been getting messy in the short term?

Yes. Look, it's a fair comment. We do -- we probably have at least $50 million or more of losses in the portfolio that our "investments" that we made in Tennis alone. That probably amounts to around $10 million a year. And certainly, in a downturn, we would modulate some of that spending. And -- but at the same time, something like Tennis that has such robust growth opportunities in international; in FAST channels like T2; in direct-to-consumer, which should come in 2024, we wouldn't want to hold back on that too much because we think Tennis has such a bright future in front of it in terms of being the global brand for Tennis and that sort of central point. So -- but certainly, there will be a prioritization within our investment spending if the downturn hits in 2023.

As there are no more questions in the queue, I will hand it back to Chris Ripley, President and Chief Executive Officer, for any closing comments.

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, and this does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day, and thank you for your participation.