Good day everyone, and welcome to the Sinclair First Quarter 2023 Earnings Conference Call. It is now my pleasure to turn the floor over to your host, Lucy Rutishauser, Executive Vice President and Chief Financial Officer of Sinclair. Ma'am, the floor is yours.

Thank you, operator. Participating on the call with me today are Chris Ripley, President and CEO; and Rob Weisbord, President of Broadcast and Chief Operating Officer. I would also like to introduce our new Vice President of Investor Relations, Chris King, who we're excited is joining us. Chris comes to us from Windstream Communications, where he was Vice President of Investor Relations. Before that, he served as Vice President of Investor Relations and Financial Planning and Analysis at Curo Health Services. Prior to transitioning to the corporate side, Chris was a senior equity research analyst at Stifel Nicolaus, where he won numerous awards for his stock picking and earnings analysis in the TMT space. Welcome, Chris. 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. I also want to remind you that today's call is a Sinclair earnings call. We are currently soliciting proxies from our stockholders in connection with the previously announced holding company reorganization, so our statements regarding the reorganization will be limited. Our stockholders are urged to read the documents filed with the SEC as they contain important information regarding the reorganization. Now Billie-Jo McIntire will make our forward-looking statement disclaimer.

Certain matters discussed on this call may include forward-looking statements regarding 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 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. These measures are not formulated in accordance with GAAP and may differ from other companies' uses or formulations. Further discussions and reconciliations of the company's non-GAAP financial measures can be found on its website. Given the deconsolidation of Diamond on March 1, 2022, all discussions of prior financial reporting periods during this call reflect Sinclair only pro forma numbers, excluding Diamond and any intercompany transactions with them.

Thank you, Billie-Jo. I want to begin with our announcement to reorganize under a holding company. Under the new structure, which we expect to close in June, Sinclair Inc. will become the publicly traded parent of Sinclair Broadcast and its subsidiaries, which will hold the pure-play broadcasting assets and a new subsidiary, Sinclair Ventures that will hold the company's non-broadcasting assets. We believe this will provide greater flexibility for creating value within the company. This simplifies the corporate structure and improves the transparency of financial results and disclosures on the value drivers of the business. Our broadcast assets will remain in Sinclair Broadcast Group, while our non-broadcasting assets, including Tennis Channel, Compulse, and our non-media assets like real estate and private equity will be in ventures. While we're optimistic about the future prospects of our core broadcasting business, continued regulatory uncertainty is causing us to think differently about the allocation of capital. This reorganization will allow more flexibility for transactions and transparency around the sum of the parts, ultimately creating a non-broadcast division free to raise debt or equity financing to grow its assets. Speaking of value creation, in recent weeks and in advance of NAB, we made announcements around the advancement of NextGen Broadcast technology. In particular, we announced that Sinclair, along with our partners, CAST.ERA, SK Telecom, and Saankhya Labs, will build and operate a NextGen Broadcast data distribution core network. This platform will manage data casting across the U.S. and will help stations capitalize on NextGen opportunities, which independent studies estimate at a $10 billion revenue opportunity for the industry by 2030. We believe data distribution is the next step in the evolution of broadcasting, allowing us to continue to provide exceptional video programming with interactive services. These business use cases provide a data-agnostic IP pipeline to serve communities better on market-disrupting terms. We expect our data distribution core network to go live in Q1 of 2024. We're also continuing to deploy NextGen Broadcast technology in additional markets. In April, Des Moines and Rochester were the latest to roll out the service with Sinclair serving as a NextGen host in both markets. NextGen Broadcast was also deployed in San Francisco. These deployments bring NextGen technology to nearly 70 markets covering over 60% of the country, with an industry goal of 75% U.S. coverage by year-end. One of NextGen Broadcast's key features is Advanced Emergency Information, and we will be launching the nation's first pilot project to use that capability to disseminate critical services. Through a partnership with the Metropolitan Washington Council of Governments, we will provide free over-the-air redundancy and enhancements to emergency messaging currently sent by local governments via text, email, and social media. Initially, the pilot will focus on Arlington and Fairfax counties and the District of Columbia but will expand to other jurisdictions in the coming months. We also announced an agreement for watermarking technology that will allow owners of NextGen capable TVs to access the Broadcast App experience no matter how they get their programming. This increases the addressable market for TV homes that can access the Broadcast App for fold. As part of Sinclair's continued evolution, we are also reimagining much of our operational workflow and adding enhanced capabilities to our technology. We have entered into partnerships with several providers that align with our vision for transformation. We have begun migrating our existing media and playout operations to the cloud, which will help create compelling multi-platform local news and sports content distributed across devices as well as interactive experiences for communities and fans. To that end, we will launch the first over-the-air local broadcast station affiliate playout origination in the cloud, which is set to go live in Raleigh, North Carolina, in June 2023. Sinclair will also adopt a cloud-based workflow for news gathering and integrated news production to increase the speed of content delivery and enhance news metadata flow. During Q1, we announced several partnerships agreements, most recently with YouTube TV to add carriage of Tennis Channel and T2 to its lineup beginning June 1, coinciding with the French Open. This agreement also adds CHARGE! and TBD to YouTube TV, renewing carriage of Comet, bringing all three of Sinclair's national multi-cast networks to their lineup. Additionally, we reached an agreement with Hulu for the return of our ABC stations to Hulu + Live TV, and our CBS affiliated stations have returned to fubo after an agreement reached last month. We recently released our first annual ESG report, highlighting upgrades we are making to energy-efficient equipment and our commitment to lowering overall energy usage. We also expanded employee programs to strengthen diversity and equal employment opportunities. Throughout our history, Sinclair has prioritized giving back to the communities we serve. Through our latest Sinclair Cares initiative, we partnered with the National Alliance on Mental Illness to launch a campaign to encourage mental health awareness, particularly for young adults. We also entered into a multi-year agreement with USC Shoah Foundation to assist with the recording of interviews with genocide survivors as part of their Last Chance Testimony Collection Initiative. On April 12, we launched our first Sinclair Day of Service, encouraging employees to dedicate a day to giving back to local communities. Thousands of employees volunteered their time and skills to various nonprofit organizations. This Day of Service will return each spring. By prioritizing sustainability, diversity, and good governance and emphasizing community service, we are creating long-term value. Speaking of long-term, I want to congratulate Tennis Channel, which celebrates its 20th Anniversary this year. In two decades, Tennis Channel has built an enduring business with exciting growth opportunities based on their many successes.

Thanks, Chris. Coming off a record midterm election year in 2022, political spending has started off strong with over $3 million booked in Q1, double the spending of Q1 2019. We are excited to see the early strength in political candidates and issue spending. We expect political spending to continue as we approach the highly contested presidential race in 2024. Our success in selling high-profile time periods, such as the Super Bowl and March Madness, resulted in advertising in the first quarter achieving the high end of our guidance. Core advertising decreased slightly compared to the same period a year ago. The automotive category has been rebounding, showing low single-digit percentage increases in Q2, along with strength in legal and retail. However, these positives are offset by softness in the insurance category. The second quarter is expected to decline low single digits, but in line with Q1 core, when excluding major events like the Super Bowl and March Madness. This quarter, we began rolling out our Unified Ad platform, which consolidates all Sinclair’s advertising assets and allows sellers to increase cross-platform ad campaigns. The technology makes us the first local broadcast to consolidate all sellable inventory into a single system. Additionally, we completed the national rollout of our yield management platform with dynamic pricing that applies artificial intelligence and machine learning to better align pricing with supply and demand, which will help maximize revenue yield. Tennis Channel is off to a stellar start in Q1. We've seen increases in viewer audiences—adults 25 to 54 were up 15%; adults 18 to 49 were up 8%; total views were up 8%; and households were up 7%. March had the highest average audience in key demos since 2019, marking the second-best March ever for both households and total views. Our second channel, T2, set records as well in 2023, with Indian Wells and Miami making March the top month in its history in users and hours watched. Our LIVE and VOD subscription service, Tennis Channel Plus, recorded over 3.5 million hours streamed in the quarter, with total subscribers up 33%. Internationally, Tennis Channel International grew 73% in sessions year-over-year, additionally reaching agreements to expand our presence in Germany, Austria, and Switzerland. Our broadcast stations are recognized for their commitment to community advocacy journalism. As of March, our stations won numerous local awards for their reports. In Baltimore, the WBFF Investigative Unit's Project Baltimore won a national IRE award for investigating the Baltimore public school system, which was found to be violating students' federal education rights. Our Cincinnati station, WKRC, was named a finalist for reporting on radioactive contamination in Ohio. Sinclair Cares community outreach received recognition, winning two Anthem Awards for our Summer Hunger Relief campaign. We expanded our partnership with the National Alliance on mental illness, launching a Town Hall Special to encourage Mental Health Awareness. We will also tackle opioid addiction in an upcoming discussion in response to viewer requests for information.

Thank you, Rob. As a reminder, our slide deck and financial supplements are on our website for your reference. The $766 million of media revenues came in at the high end of our guidance range, with core advertising meeting expectations, and political and distribution revenues exceeding guidance. The increase in distribution revenue was due to slightly better subscriber churn than expected. Compared to the first quarter of 2022, media revenues were down 6%, driven by reduced political ad revenues, subscriber churn, and core advertising. Adjusted EBITDA of $120 million for the quarter exceeded expectations due to media revenues reaching the high end of guidance and media expenses being better than expected, primarily on timing and cost controls. For the quarter, adjusted EBITDA decreased 40% compared to the first quarter of last year. This was the result of lower media revenues and higher corporate and media expenses. The driver of corporate overhead includes increased insurance costs, annual compensation, and one-time professional fees. Media expenses were impacted by higher programming fees to networks. Regarding net retrans, we previously reported that we don't have material distributor contracts renewing until later this year, and with continued mid-single digit subscriber churn expected, our net retrans in 2023 is expected to be lower than 2022, with growth expected in 2024 and 2025 as contracts renew. Our adjusted free cash flow of $71 million in the quarter exceeded our guidance range, with free cash flow per share of $1 and diluted earnings per share of $2.64. We ended the quarter with a cash balance of $623 million, making our liquidity almost $1.3 billion at quarter end. Total debt at the end of the first quarter was $4.3 billion. During the quarter, we repurchased approximately 3.6 million common shares under a stock buyback program, and an additional 5.2 million shares since March 31, representing around 13% of total shares outstanding at the beginning of the year. Our total share count at the end of the quarter was 68 million. Looking ahead to the second quarter, we expect media revenues to decline due to the absence of political spending and continued mid-single-digit subscriber churn. Second quarter core advertising is expected to be down low single-digit percent against the same quarter last year, primarily affected by macroeconomic weakness. Our adjusted EBITDA is expected to be between $84 million and $104 million, down from $184 million pro forma last year, mainly due to lower revenue and higher network programming fees, as well as investments in technology that were discussed. Adjusted free cash flow for the quarter is expected to be negative $6 million to positive $16 million. Despite the unique challenges this year, free cash flow is expected to be positive as we head into another expected record-breaking political year in 2024. And with that, operator, I'd like to open it up to questions.

Your first question is coming from Steven Cahall from Wells Fargo.

There we go. So I've got a few. Maybe just to start off on the leverage going to the mid-5s. You bought back a lot of stock in the quarter. So as we think about the components of the change to leverage from 4.4 this quarter to the mid-5s?

Yes. The stock repurchases, among other factors, contribute to that. Additionally, the direction of adjusted EBITDA this year, which is a non-political year, net retrans being down, and the investments in infrastructure are critical considerations.

Got it. That's very helpful. And then, Chris, you've talked a lot about the value of the investments in ventures and the marketing you're doing with that $1.3 billion. Can we expect any incremental financial disclosure to understand the components of that? And how do we view the accounts receivable facility given Diamond's current financial condition?

We have to be careful about additional information around the holding company because we do have an outstanding share exchange offering. We will provide more details once that closes, which is expected to be voted on May 24 and then to close by June 1. A new vision around ventures and enhanced disclosure is part of the plan.

And just lastly, can you frame any material risk related to the Diamond bankruptcy?

We really can’t speculate at this point regarding Diamond. It would be pure speculation, and we will update once we know more about Diamond’s future.

Could you help us quantify the impact of expenses shifting from Q1 to Q2? And I noticed that the value of the investment portfolio went up; which assets saw their value increase?

Sequentially on the expenses—there's about $10 million of favorable variance from Q1 to Q2. And Tennis Channel has a different seasonality profile than the broadcast assets, with their biggest expense quarter being Q2 due to the Roland Garros tournament.

Several assets went up in value during Q1 due to improved performance, combined with realizations of $36 million from the sale of some apartment buildings that exited at higher values.

Thinking about future capital allocation, how important is it for investments to be in core competencies or can they also be in new opportunities?

When evaluating future investments, we’re not limiting ourselves to adjacencies within our core business. There are better returns for our capital in various areas including private equity and real estate.

Regarding Tennis Channel distribution opportunities—can you provide an update on contractual negotiations?

It's significant that YouTube TV will carry Tennis Channel and all our multi-cast networks. We will update on the agreement with Hulu once it's finalized but I expect incremental opportunities for Tennis.

We're not concerned about the writers' strike. We have a lot of library content available and can produce reality shows, which trend well with higher ratings.

Can you discuss upcoming negotiations with MVPDs and how they are structured?

In the latter half of this year, we have about 50% of our major MVPD contracts coming up for renewal, which are structured on a per-subscriber basis.

How much of the $75 million in technology spending has been outlaid in Q1, and is that reflected in corporate G&A?

We've spent about $10 million of it in Q1, and you'll see that in media expenses.

Can you talk about how the ad environment is trending in Q2?

Local advertising is outperforming national during times of macroeconomic headwinds. Overall, we are seeing strength in local categories, particularly in auto and legal.

We have significant resources on both sides, meaning the broadcasting and the ventures will operate independently in terms of funding.

Are you able to negotiate directly with vMVPDs yet, or is that still not an option?

As of now, we are not able to negotiate directly with the virtual MVPDs. However, we believe this issue needs to change in light of the size and maturity of that sector.

Any updates on the push to have the FCC drop the current requirement to broadcast ATSC versus NextGen?

At NAB, the FCC announced a task force to accelerate the deployment of 3.0 in the marketplace. The sunsetting of 1.0 signals will be crucial for opening up significant capacity for revenue and value opportunities.

Independent studies have valued this as a potential $10 billion revenue opportunity for broadcasters.

Does the other media revenue line include a management fee from Diamond? What are the risks around that given Diamond's Chapter 11 process?

Yes, there is a management fee in that based on the restructuring agreed upon in March 2022, which is deferred until a new agreement is reached.

Going forward, will Sinclair Ventures be self-funding via cash flows or distributions, or will we see cash from the stations support it?

The $75 million investment relates to broadcast operations and not Sinclair Ventures. The ventures will have its own financial picture once the reorganization is complete.

Has your mindset on leverage changed with current economic conditions?

Our leverage targets remain high 3s to low 4s. However, we expect to be above that this year and to come down next year with political opportunities.

That concludes our Q&A session. I will now hand the conference back to Chris Ripley, President and CEO, for closing remarks.

Thank you all for joining us today. If you should need more information or have additional questions, please don’t hesitate to reach out.

Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day.