Sinclair Broadcast Group(SBGI) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q3 2020 was $736 million, nearly double last year's figure and 15% higher than pro forma Q3 2019, exceeding guidance by 19% [10][35] - Consolidated media revenue increased by 42% or $449 million from Q3 2019, with pro forma media revenues declining by $53 million year-over-year but up 5% excluding distributor rebates [31][32] - Adjusted free cash flow for Q3 was $551 million, $140 million above the high end of guidance, and pro forma free cash flow was $550 million, up $199 million from Q3 2019 [36][37] Business Segment Data and Key Metrics Changes - Broadcast segment media revenues totaled $817 million, exceeding guidance by $12 million, with adjusted EBITDA of $271 million, a $62 million increase year-over-year [40] - Local sports segment media revenues were $727 million, more than double the prior year, with adjusted EBITDA of $464 million, exceeding guidance [41][43] - Political advertising revenue reached approximately $363 million, a 35% increase over the previous record year of 2012, significantly contributing to overall revenue growth [11][39] Market Data and Key Metrics Changes - Subscriber churn improved slightly in Q3 compared to Q2, with broadcast segment churn in mid-single digits and local sports segment churn in high single digits [12][16] - The loss of YouTube and Hulu as distributors impacted subscriber churn and revenue, contributing to a non-cash impairment charge of approximately $4.2 billion in the local sports segment [17][28] Company Strategy and Development Direction - The company is focusing on initiatives to monetize future growth opportunities in legalized sports betting, advertising, and direct-to-consumer distribution [19][22] - Plans to launch a new sports app aimed at enhancing viewer experience and integrating gamification elements are underway, expected to launch in spring [21] - The company is optimistic about the future of sports rights and intends to reinvent RSNs around community engagement and direct-to-consumer models [83] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of core advertising revenues post-COVID, citing improvements in traditional MVPDs' subscriber numbers [62] - The company will not provide guidance for 2021 due to uncertainties surrounding COVID and its economic impact [27] - Management remains focused on cost control measures, having reduced OpEx and CapEx expenses significantly during the year [57] Other Important Information - The company estimated a deferred income tax benefit of approximately $1.1 billion related to the impairment loss, which does not affect cash position or cash flow [30] - Consolidated cash at the end of Q3 was $632 million, with total debt at $12.463 billion and a net leverage ratio of 6.5 times [44] Q&A Session Summary Question: Update on subscriber locks and market evolution - Management indicated that YouTube and Hulu represented about 10% of gross distribution revenues, with only 5% of RSN subscribers up for renewal next year [51][52] Question: Insights on Q4 subscriber churn expectations - Management noted that Q4 estimates reflect slight improvement in subscriber churn based on Q3 progress and traditional MVPD disclosures [62] Question: Update on cash flow and debt restructuring options - Management stated they are in a strong liquidity position and are not actively soliciting responses from stakeholders regarding debt restructuring [64] Question: Core advertising environment and auto category performance - Core advertising in Q3 was down mid to high single digits, but there was improvement in the auto category [71][74] Question: Future of distribution deals and RSN strategy - Management clarified that the recent YouTube TV agreement was an anomaly and not indicative of a broader trend in distribution deals [78] Question: Managing costs and media rights agreements - Management emphasized the importance of aligning media rights agreements with variable compensation structures to manage costs effectively [97]