Earnings Call Transcript - SBGI Q1 2020

Operator, Operator

Greetings, welcome to the Sinclair Broadcast Group First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I'd like to turn the conference over to Lucy Rutishauser, Executive Vice President and Chief Financial Officer. Thank you, you may begin.

Lucy Rutishauser, CFO

Thank you, operator. Participating on the call with me today are Chris Ripley, President and CEO; Rob Weisbord, President of our Local News and Marketing Services Division; and Jeff Krolik, President of FOX Sports Network. Before we begin, Billie Jo McIntire will make our forward-looking statement disclaimer.

Billie Jo McIntire, 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 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 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. 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 walk you through our operating highlights.

Chris Ripley, CEO

These are unprecedented times for the country and the world that we are going through as a result of COVID-19. I'm sure everyone has personal stories about how this has affected their lives, and we at Sinclair are no different. I'm very proud of our employees who have stepped up and positively impacted their communities in many different ways. These Sinclair heroes are making protective gear for those who are most vulnerable in their communities, shopping for senior citizens who cannot leave their homes, and creating online book clubs to help children learn and stay occupied during this difficult time. Our stations are actively involved in fundraising efforts for their local communities, having raised millions of dollars in a short period of time. We at Sinclair, like all of America, are strong and resilient, which will see us through this challenging environment. The big question on everyone's mind at the moment is how COVID-19 is impacting our business and industry and how we're responding. For the first quarter, the financial impact is relatively small, impacting our media revenue guidance by 2%. However, we were switched to react on the cost side and ended up growing EBITDA as compared to our guidance. In our legacy businesses, we did see attrition from some advertisers very late in the quarter, which caused our core advertising to come in lower than expected. However, political revenue held up and came in at the mid-range, sort of the midpoint of our range, reflecting the strength of the category. In our Sports segments, the NBA, NHL, and MLB postponed their seasons beginning in March, which had a relatively small impact on our EBITDA for the quarter. While the postponement of the games resulted in lost advertising dollars, the impact was mostly offset by the absence of direct costs for the games that were not playing. Perhaps the biggest effect of COVID-19 during the quarter was the surge in viewership we experienced across our local news and digital sites. We are seeing firsthand the power of local news and the importance that viewers place on live local content. I can't stress this enough. No other media is as critical to keeping the public aware and informed as local television broadcasting. Since the COVID outbreak, viewership of local news on our stations has risen significantly compared to the pre-COVID weeks. In addition, views on our digital platforms are also up very significantly, with STIRR seeing a 50% increase in unique viewers from March to April, a testament to our ability to reach, inform, and engage people on all platforms. And I think it's important to note that despite the uncertainties that COVID has injected into nearly every part of our lives, there will be an election this November, and political advertising is still expected to reach record levels. Well, we've experienced some advertisers canceling their buys or refraining from buying at this time, which is to be expected because of COVID's impact on businesses. We are working with those businesses to help them maximize their ad dollars. These efforts include video conferencing to highlight marketing services they could utilize and our artificial intelligence engine that can produce a commercial in 10 minutes. We also have included them in our, We're Open campaigns and provided them incremental spots at no cost. We've also been taking steps on Sinclair's expense side to proactively counter reductions in advertising revenue. Early on, we went into cost management mode, including freezing all travel and entertainment, delaying non-essential CapEx, deferring open position hires, and reducing promotional spending. For the Sports segment, second quarter advertising revenue is expected to be impacted by the continued postponement of games during the quarter. But as I mentioned, this will be offset in part by the absence of the costs associated with producing those games. Lucy, we'll get into the numbers shortly, but first I want to take a minute to explain how sports rights and the distribution agreements work, which represents 75% of our sports media expenses and 90% of the Sports segment's revenues. The sports rights agreements entered into between our RSNs and the professional sports teams typically include a minimum game delivery obligation. Adjustment provisions in those agreements address shortfalls by teams, including rebates tied to the number of games actually delivered. Commercially, certain of our affiliation agreements with distributors also include game delivery minimums. If we cannot deliver the minimum number of games under the agreements, there is a mechanism for distributors to recoup a portion of their carrier fees. Each contract is unique and confidential and therefore has different parameters and remedies for any potential shortfall of games delivered. Despite the postponement of games being played, we continue to make payments to the teams, and our distribution partners continue to pay us. The mechanism for truing up for any content not received under our sports rights agreements or not delivered under our affiliation agreements generally takes place at the end of the season or calendar year. While we believe that sports will come back this year and be in high demand at this time, the leagues have not indicated when games will resume. Therefore, we do not know where we will end up in relation to the game delivery minimums. Keep in mind that the NHL and NBA regular seasons were almost complete when the seasons were suspended, so shortfalls in those weeks, if any, should be minor. Nonetheless, we have our full-year guidance until such time as we have a clear picture of the timing of revenue and expenses. Despite COVID-19, we are still hard at work on initiatives to ensure our success in the years ahead. Top of mind are the digital reboot and rebranding of our RSN. As part of these efforts, we are developing a more robust and dynamic app that will enhance the user experience, allowing viewers to interact with live sports in ways that have not been previously available. This eventually is expected to include legalized sports betting capabilities. We've been in talks with numerous companies about how we can best partner to deliver consumers that compelling betting experience within the viewing app. We expect to announce more on this front later in the year. Another initiative that we've been advancing over the last several years centers around making the next generation of TV a reality. These efforts are taking a big step forward this year with a dozen Sinclair markets currently planning to deploy ATSC 3.0. At the same time, several consumer electronics manufacturers plan to produce approximately 20 NextGen TV models this year. The new platform allows for expanded usage of the broadcast frequency on which stations are transmitted, enabling more targeted and content-rich advertising and greater personalization for the consumer, as well as new non-television data services. You will also be hearing more about these efforts later in the year. STIRR, the Company's fast-growing free OTT app that launched in January 2019 finished the quarter with strong momentum, setting all-time highs across all key metrics with total impressions increasing 25% over Q4 last year, and that strength has carried in April. The platform has benefited greatly from its offering of live local news on the local STIRR city channel and 103 additional linear channels, and by its recent launch of the new 24-hour COVID-19 News channel, which has quickly become a top five watch channel. The live and local aspect of STIRR continues to be a draw with viewers, with close to 50% of users tuning in for local news, consuming it live over 80% of the time. I also want to mention the launch of Tennis Channel International and an over-the-top platform dedicated to the best that tennis has to offer, which premiered in Germany at the end of April. The launch date was just in time for the restart of live tennis with a tennis point exhibition series, a four-day tennis competition between men's tennis professionals that ran from May 1st through May 4th. This was the first live major tennis event played in over two months. Tennis Channel International will be expanding to other countries in the months ahead. Finally, we continue our efforts as a strong corporate citizen in the communities in which we serve. We are elevating the value of local news that brings to our viewers in many ways. For example, we are expanding the number of the scope of our investigative pieces, which have received critical acclaim over the years, targeting 23 markets in 2020. Also, with more viewers staying at home with their children during the COVID-19 pandemic, we have started providing certain programming aimed at helping parents fill the educational gap due to schools moving to remote education. For example, in West Palm Beach, Florida, we have partnered with a local PBS station on educational shows, and our markets are working with local high schools and colleges to stream virtual graduations. In addition to our programming initiatives, we continue to promote fundraising efforts with the Salvation Army to assist those in need, including those affected by the Nashville deadly tornadoes in March and those impacted by the COVID-19 pandemic. This year, our Sinclair Cares campaign has raised over $850,000. Since 2017, our fundraising efforts have raised over $3 million in donations for the Salvation Army, helping our communities recover from wildfires, extreme weather events, and now pandemics. For our employees, we have taken steps to help them through these difficult times. We are allowing eligible employees to cash out paid vacation to assist with family hardships. We have created a multi-million dollar fund to advance paid eligible RSN freelancers. We extended the use of sick leave and are allowing compensation drives for commission-based marketing consultants. I know our investors have been disheartened by the recent performance of our equity and fixed-income securities. I do want to assure everyone that Sinclair is financially strong. We have taken measures to increase our liquidity, not out of necessity, but rather as a precautionary measure at this time of uncertainty caused by the disruption from COVID-19. Lucy will give you more details on those measures in a minute, but I want to emphasize that we believe our securities are grossly undervalued, and we have purchased a significant amount of our common equity. I want to emphasize that we have been through scenarios like this before, and rest assured we are taking steps internally to reduce expenses and preserve working capital where appropriate. Now, I'll turn it over to Lucy to discuss our financial performance.

Lucy Rutishauser, CFO

Thank you, Chris. We at Sinclair hope that everyone is safe and healthy. And as Chris pointed out, we'd like to give a shout-out to our employees who have ensured we remain on the air and keep you, our viewers informed and entertained. We'd also like to thank our staff for a quick and smooth transition to work from home. Your positivity, creativity, and commitment have been inspiring. Despite the impact COVID-19 had on revenue towards the end of the quarter, we still exceeded our EBITDA and free cash flow guidance. Keep in mind that the inclusion of this fourth segment this year, which was in last year's first eight months numbers is responsible for many of the larger changes in our actual results versus the same period last year. Therefore, in many cases, I will be speaking about results versus prior year pro forma, which is a much more meaningful comparison and assumes we own the RSNs in those periods. Our Q1 actuals and much of our guidance is in this morning's earnings release, so rather than spend time on the call repeating those numbers, our focus is on key financial metrics of the consolidated company and each silo. For the consolidated company, media revenues for the first quarter increased by about $900 million, due primarily to the inclusion of the Sports segment. On a pro forma basis, total media revenues were down versus last year's first quarter media revenues of $1.618 billion. Higher political and digital ad growth, as well as higher distribution revenue at our legacy business, only partially offset the absence of DISH revenues in this Sports segment and COVID impacts on ad revenues in March across all segments. As a reminder, our legacy business consists of our local news and marketing services segment, as well as our corporate and other segments. While January and February advertising gains were strong, ending out mid-single digits, in mid-March, we began to see the effects of COVID-19, with the postponement of professional basketball, hockey, and baseball games and the cancellation of advertising commitments. Subscriber churn in the quarter was mid-single digits on a year-over-year basis. The churn rate continues to be affected by one large MVPD, and as we stated last quarter, excluding that distributor, subscribers were flat. It's still too early to tell due to the reporting lags to know what COVID has had any impact on subscribers, whether up or down, but we know that in 2008 during the Great Recession, subscription-based businesses fared better than ad-based businesses. And with the stay-at-home rules in many States, TV is one of the few entertainment options available to people. The consolidated media expenses of 1.38 million were better than our guidance and flat on a pro forma basis compared to last year, and that's on lower sports expenses due to the postponed games, as well as cost savings in the wake of COVID, which offset the higher network programming cost and SG&A. Adjusted EBITDA on a consolidated basis increased 69% to 281 million with the inclusion of the Sports segment contributing 58 million. Pro forma adjusted EBITDA was down from Q1 last year, 415 million with the largest driver being the absence of DISH in the Sports segments and higher network cost. However, EBITDA exceeded our guidance as lower than forecasted expenses more than offset the lower revenues. Consolidated adjusted free cash flow excluding non-recurring legal mitigation transactions and regulatory items of 20 million was 110 million, which was 37 million higher than the top end of our guidance. Please keep in mind that there are timing events that occur in the first quarter, which historically have made it one of the lowest EBITDA and free cash flow quarters of the year. Diluted earnings per share on 91 million weighted average common shares was $1.35 in the quarter, or $1.53 when adjusted for non-recurring items. As Chris mentioned earlier, we took steps this quarter to enhance our liquidity out of an abundance of caution, and not as a result of pressing liquidity needs in the short term. We borrowed 225 million from Diamond's revolver and 648 million from STG. However, in April, we repaid a portion of the STG revolver, bringing the current outstanding balance down to 225 million. The revolver draws are sitting as cash on both silos' balance sheets. In March, we also elected to pay in kind Diamond's first quarter preferred stock dividends, which preserved 13 million of cash. We also eliminated our non-essential travel, delayed open positions, reduced media spending, and deferred non-essential CapEx. In total, we have identified approximately 100 million of discretionary and sales-based expenses for this year, including 14 million of savings realized in Q1. There's also another 30 million of non-essential CapEx, which is expected to be saved this year. I do want to emphasize that while we currently do not anticipate liquidity constraints, should there be a prolonged period of economic weakness, there are additional measures we could take to further control costs, slow our working capital needs, and generate cash. But we do not believe we need to take these steps at this time. So in the quarter, we took advantage of a steep drop in the prices of our publicly traded securities. We repurchased nearly 10 million shares of Sinclair stock at an average price of $17.65. In the second quarter, we have repurchased another 3 million shares. Since the start of the year, 14% of the total shares outstanding have been repurchased. Our buyback creates approximately $10 of share price accretion. Our dividend now yields over 5% annualized, which on an after-tax cost basis is more expensive than STG's debt and represents the best use of STG's free cash flow. Turning to the statements for the legacy business, media revenues increased 17% on strong advertising revenue growth in the first two and a half months for the quarter before COVID-19 slowed the economy and resulted in ad cancellations towards the end of March. The early quarter strength was across both political and core advertising. We ended the quarter with total advertising up 12% or down 1% ex political. Political advertising of 40 million was a first-quarter record for Sinclair. Distribution revenue increased 15%, and the legacy business also benefited from 23 million of management incentive fees paid by Diamond. This revenue, as a reminder, is eliminated in consolidation. Adjusted EBITDA for the legacy business increased 34% to 223 million. This was near the high end of our guidance due to the higher net distribution revenue and cost controls that offset the lower COVID advertising impact. In the Sports segment, media revenues of 812 million decreased 14% versus pro forma results of 948 million in Q1 of last year. The decline was expected, due primarily to the absence of DISH, as well as lower advertising revenues related to the postponement of professional league games. Sports adjusted EBITDA of 58 million for the quarter was above our guidance range of 30 million to 33 million due to lower direct game costs, cost controls, and the timing of sports rights payments that more than offset the decline in advertising. On a pro forma basis, the decline from Q1 last year's adjusted EBITDA of 231 million was due to the absence of DISH, as well as higher sports rights payments and the incentive fee paid to STG. Sports rights payments of 612 million in the quarter were 221 million higher than the sports rights amortization for the quarter, which is a timing item within the year. As a reminder, rights payments are typically highest in the first and fourth quarters. Turning to the balance sheet, consolidated cash at the end of the quarter was 1,342 million, including 844 million at STG and 483 million of cash at Diamond. Again, keep in mind that STG's cash balance included the 648 million of drawn revolver, and Diamond included the 225 million on drawn revolver. STG, I just want to remind you again, we have since repaid a large portion of that such that there's only 225 million outstanding. Total debt at the end of the first quarter was 13,302 million, and the net leverage ratio for consolidated Sinclair at quarter end was 5.7 times. Sinclair Television Group's first lien indebtedness ratio on a trailing eight quarters was 2.5 times on a covenant of 4.3 and 4.3 times on a net leverage basis through the bonds. Diamond's first lien indebtedness ratio on trailing four quarters was 5.4 times on a covenant of 6.25. And I want to remind everybody that maintenance covenant only springs into effect if the revolver is drawn over 35%. On a total net leverage basis, Diamond was seven times. In terms of guidance for the second quarter and the rest of the year, obviously, the outlook right now is uncertain with it unknown how long the economy will continue to be impacted by COVID and how long professional sports leagues will postpone their seasons. Therefore, we are suspending our full-year guidance until we have more visibility into the rate of improvement in the economy, the relaxation of stay-at-home restrictions, and the resumption of league play. For the second quarter, we continue to see advertising declines as a result of the game suspensions and general weakness in the economy and our underlying advertiser businesses. For the legacy business, our second quarter media revenue guidance is 656 million to 686 million, down approximately 5% to 9% from last year. This is driven by a projected 32% to 39% decline in core advertising. EBITDA is expected to be 107 million to 133 million as compared to 193 last year. On the flip side, we continue to expect strong political advertising, which is highly concentrated in the second half of the year, and that will help offset some of the weakness in core advertising. For the Sports segment, second quarter media revenue is expected to be 748 million to 760 million, down 23% to 25% from last year's pro forma 992. We have assumed none of the professional leagues resume playing in the second quarter and that the DISH contract will not be executed in the second quarter. Adjusted EBITDA is expected to be 190 million to 202 million as compared to 440 pro forma last year, with the decline primarily due to the reasons I just mentioned. I want to point out that the largest decline in expenses is the result of minimal fourth amortization. Since we have assumed no games in the quarter, there will be no sports rights amortization, and while this reduces expenses, it is a non-cash item that does not impact EBITDA, which is based on sports rights payments, not amortization. And as Chris pointed out, we continue to pay the teams, and the distributors continue to pay us per the contract. And finally, for the consolidated company, media revenues are expected to be $1.379 billion to $1.421 billion, adjusted EBITDA of $297 million to $335 million, and adjusted free cash flow of $125 million to $169 million. And on 80 million shares, this equates to free cash flow per share of $1.56 to $2.11 in the second quarter. And with that, we'd like to open it up to questions.

Operator, Operator

Our first question is from Aaron Watts with Deutsche Bank. Please proceed.

Aaron Watts, Analyst

I wanted to start with a question on the STG side. I'm curious what your sales force is seeing and hearing on the ground in your markets as it pertains to SMBs. They've been called out as being perhaps most impacted by what is going on now. And it also cares how important those small and medium-sized businesses are to your overall advertising mix. And whether you see the pullback from that category as temporary in nature, has more of a permanent tilt this time, or perhaps somewhere in between?

Chris Ripley, CEO

Well, I'll let Rob Weisbord comment on that, as it relates to the local news division. My take is that the SMBs are getting hit pretty hard, probably much harder than the larger national advertisers. When I do think it's not permanent. They will bounce back when things return to normal. But I'm going to let Rob speak further to that.

Rob Weisbord, President of Local News and Marketing Services Division

Yes. And I agree with what Chris stated. We're doing virtual lunches and learns. We're educating the SMBs on various marketing services that they might not have had time to learn, giving us the time to be able to demonstrate what solutions coming out of COVID-19 would be applicable for their business. We do see them returning, short term. They'll have to re-staff, get open, and their cash flow is going, but we've seen a return to their business. Automotive, at the midpoint of this home-sheltering to date, was considered essential business. And they will need to move their 2020 autos off the lot, so we expect that to be robust in the back half of the year. Our marketing service has continued to keep us strong as a focal point during COVID-19.

Aaron Watts, Analyst

Okay. Got it. That's helpful context. If I could ask one question on the Sports side, Lucy, I think of as you were walking through all the numbers, it seems like the 1Q distribution revenues were a little lighter than your guide. And I apologize if I missed this, but what was the main factor in that?

Lucy Rutishauser, CFO

So when you think about the sports side, it was a little bit negative. The news side, local news side was a little bit positive, and in aggregate, we were pretty much right on the guidance. It really, it's just a matter of within those markets, the difference in the churn versus what we had estimated. So again, these are not material changes. And when you look at the total company together, we were pretty much at what we guided to.

Aaron Watts, Analyst

And if I could ask one last one and I appreciate the time, just bigger picture. Does the current environment have any impact on your upcoming distribution renewal discussions, I think particularly with Comcast coming up this summer?

Chris Ripley, CEO

So, we don't think that will have an impact on those negotiations. As we mentioned, that will occur a lot more news on that likely in the summer. We do expect sports to resume, more than likely sometime this summer. And we also think from the data we've seen that there is going to be a very large pent-up demand for sports. In fact, there was a survey we were just looking at that indicated that 23% of the population is looking to upgrade their TV service in order to watch live sports when it comes back. So, we think that return to live sports is going to be bigger than normal and really drive incremental activity. So in some sense, I think this gives us a stronger hand.

Operator, Operator

Our next question is from Dan Kurnos with The Benchmark Company. Please proceed.

Dan Kurnos, Analyst

Thanks. Good morning. Chris, really helpful additional color on just sort of the economics on the DSG side. Just curious, I know you made the sports comment and for what it's worth, we just heard that the virtual Kentucky Derby got a four rating. So if that's not pent-up demand for sports, I don't know what is. But just for the full year, I guess I'm just trying to understand, you know, it's hard to handicap when sports may come back, but is there any color you can give us around if sports don't return in Q4, kind of how that plays out, how that nets out distributions against sports rights fees that you'd have to pay, and how that would impact EBITDA?

Chris Ripley, CEO

I would refer back to my prepared comments regarding what we can disclose without breaching our confidentiality agreements. That provides considerable detail about how the payment flows function. As for our expectations, we are uncertain about the number of games that will ultimately be played. However, we do anticipate fewer games than usual, which may lead to a rebate situation where teams earn less than what MVPDs receive as a rebate. We have a solid model in place to address revenue declines and manage expenses, so we are confident in handling any potential scenario.

Dan Kurnos, Analyst

That's helpful information. Regarding the STG and TV segments, if you exclude other categories, the core seems to be slightly above the midpoint of 39. I understand you mentioned a range of 32 to 39, but that could include other factors. From a category standpoint, I know education has faced challenges with the shift to online. I'm interested in hearing more about the categories and what discussions you're having with advertisers in May regarding cancellations and the anticipated pace over the next few quarters and how that might change.

Chris Ripley, CEO

Great. We're going to have Rob Weisbord to answer that question.

Rob Weisbord, President of Local News and Marketing Services Division

So, actually in education, we've seen a lot of companies, a lot of colleges, universities, trade schools, going to advertise their online classes. So, where traditionally universities are now going virtual, those that are specialized in online have stepped up their marketing budgets. And so, we are in position as we focused on becoming specialists from generalists. The same thing that we see in the attorney category. We expect the attorneys, coming out of it, unfortunately, when you read the data, there's predictions that divorce will be at a higher rate than the norm, as well as bankruptcies. So, we're seeing the service category robust as it can be through COVID-19. And again, as previously stated, there will be a short-term lag as cities and states start to reopen. But we see recovery, if all things go as planned, and we don't have a secondary wave, by towards the end of the third quarter and a robust fourth quarter.

Dan Kurnos, Analyst

Rob, regarding the auto situation since you mentioned it earlier, historically, when there has been a production shutdown and subsequent reopening, you usually launch a significant OEM advertising campaign. Is that something you are anticipating perhaps around the June or July timeframe?

Rob Weisbord, President of Local News and Marketing Services Division

Yes, we are anticipating. So part of our give back to the community, we've been very focused on the give back from an on-air standpoint is campaigns that we have run that we are open, and we have focused in most of our marketplaces on the automotive groups, the local auto groups, and the regionalized groups to promote that they've been open. Their service departments have never shut down. So, we believe that goodwill that we've extended will come back to us, and we remain in contact with all our auto dealers.

Operator, Operator

Our next question is from John Janedis with Wolfe Research. Please proceed.

John Janedis, Analyst

Chris, long term does the current situation with the lack of live sport impact the way you think about distribution? I guess, meaning, is there a consideration to move more aggressively to a streaming distribution model? And so, how could STIRR play into it? And then I guess sticking with distribution and sports, any update on DISH?

Chris Ripley, CEO

Sure. I believe it's inevitable that we will have more streaming and direct consumer offerings over time. We are already moving in that direction. This will definitely be a part of our model in the future, but it will not come at the expense of our existing distribution partnerships. Instead, it is designed to complement those partnerships by adding value to their ecosystem, as well as providing additional value to our viewers and creating new revenue streams. Many analysts seem to think it's a choice between one or the other, but that's not how we view it. We are entering the market with offerings that enhance value in a complementary way. Regarding DISH, as Lucy mentioned, there are no updates in our guidance.

Operator, Operator

Our next question is from Avi Steiner with JP Morgan. Please proceed.

Avi Steiner, Analyst

Thank you for the question. A couple here: one, if the sports were to be off a little longer, can you talk about the cost savings you may be able to achieve at the Diamond, above and beyond sports rights? And then I've got a couple more. Thank you.

Chris Ripley, CEO

Well, the primary cost savings for Diamonds beyond sports rights are the production expenses, and those will fall away. Beyond that, we have tightened our belt in numerous areas like travel, entertainment, open positions, and things like that.

Avi Steiner, Analyst

Great. And on the point that you'll be fine and any true-up for minimum under deliveries. How should we think about that then? I know it's early, but would assume maybe a net outflow when all is said and done between sports rights reduction versus distributor give back? And just want to confirm related to that, that you feel very comfortable with your liquidity in the event that happens? And then I've got one more, and thank you.

Chris Ripley, CEO

Sure. I'll deal with the liquidity question first. That's a pretty simple answer: we are fine from those liquidity perspectives; we're not concerned there. And then, in terms of rebates, as I mentioned, we think we're likely going to be headed into a situation where there are rebates. We don't know the magnitude of those until we get more clarity on when the games will be played and how many will play. So, what we will do, though, is update our guidance. Once we have a clear picture, my guess is that will be the next quarter. From there, you'll be able to tell what the impact is.

Avi Steiner, Analyst

Okay. And I'll end it at this. Your cash balance at Diamond, I think, is $486 million. You talked about securities prices at the other silos, but at Diamond you contacted that cash and some of the comments you just made in terms of potential give back. How do you think about all of that in the context of your current bond trading levels? And I'll leave it at that. Thank you all for the time.

Lucy Rutishauser, CFO

So, I'll take that one too. So when you look at the securities across all of our both silos as well as our equity, they're all trading at discounts and we view that as a liability management opportunity. We did buy some of the Diamond bonds at the end of the quarter at a deep discount, as well as the equity. And as you can imagine, in this environment where everything's trading, we've had numerous proposals put in front of us by the investment banking world, and we are looking at various financing alternatives to figure out what is the best way to optimize the capital structure, be opportunistic and deliver. So, we'll let you know if there's more to come in that regard.

Operator, Operator

Our next question is from Davis Hebert with Wells Fargo. Please proceed.

Davis Hebert, Analyst

Hi, good morning everyone. I hope you guys are well and staying safe. Just I had a couple of questions about the Diamond side. Chris, you suggested on the true-ups, you perhaps will seek them. Any idea whether those would be in cash? Can you spread those out over time? Is it something that's purely negotiable given the precarious situation we're in?

Chris Ripley, CEO

It is not negotiable. In fact, the contracts on both sides of the equation are quite clear. And you might be wondering who would have anticipated such an event? Well, this has been anticipated mainly because of strikes and the potential for games not to be played. The contracts are quite clear. As I mentioned, generally, things are trued up either at the end of the season or the end of the calendar year.

Davis Hebert, Analyst

Okay. And then I wonder if you could touch on the YouTube deal given, I guess they didn't take all the RSNs, didn't take YES. And just curious, is this just a short-term fix? Or is this a template for future deals? Kind of how were you thinking about that deal specifically and more broadly for distribution?

Chris Ripley, CEO

Yes, YouTube, we'll have to see; they're under a lot of cost pressure to make that offering breakeven. It was really a cost exercise for them. Some of the RSNs they ultimately didn't take were the more expensive ones in the larger markets. So, that's what really drove the outcome there. I think it's a unique situation in terms of what they decided they wanted to do, and I don't think it really has any broader implications.

Davis Hebert, Analyst

Okay, great. And just the last question, how many bonds did you buy back at the Diamond sports entity? And Lucy, in terms of financing alternatives, would that include perhaps exchanges to capture discounts at the Diamond sports entity? And thank you for the time.

Lucy Rutishauser, CFO

So, Davis, we paid about 2.5 million for almost 5 million of face value, and that was on the unsecured notes of Diamond. And then really, as I said on the financing side, we have a lot of proposals in front of us that we're evaluating. Again, once we know the path that we want to go down, we'll let everybody know.

Operator, Operator

Our next question is from Steven Cahall with Wells Fargo. Please proceed.

Steven Cahall, Analyst

Thanks for taking my question today. Maybe just first a big picture question. You know, the RSNs have gone through a lot of unexpected challenges between DISH and coronavirus' impact on sports. Now, it looks like cord cutting is accelerating and the cable ecosystem. So a lot has changed since you made the decision to have this asset. It's certainly been, I think, a big kind of distraction for investors. We see in the questions that a big focus of the call. Do you still think this is a business that you want to be in long-term? Are you considering any alternatives? Because it seems like the pure-play broadcast business is a really strong business that's getting lost in all this. So just how do we kind of think about the way you're viewing your portfolio today?

Chris Ripley, CEO

Well, we've come a long way since we bought it. We've solidified approximately 70% of the subscriber base since we've purchased Diamond. The two outstanding are really just DISH and Comcast at this point. We think that these assets are incredibly strategic to the ecosystem. There are a number of implications for what we can do with these to enhance value through streaming and direct consumer offerings, as I mentioned earlier. Ultimately, we think these will return to growth when some of the new opportunities come to bear, like sports betting and direct to consumer. This is a business that is important at the end of the day and ultimately will provide returns.

Steven Cahall, Analyst

Thanks, and then just another one on the true-ups. I think I heard you say that maybe this is typically captured at calendar end. Is it based on a calendar year? Are there like quarterly requirements? So I'm kind of thinking, if I would just fit for the June quarter. If there are no sports, which I don't think is an unrealistic assumption at this point, you basically have no affiliate revenue and you'd have no sports rights payments. So the RSN EBITDA is kind of zero for that quarter. But is that going to be like retroactive recognition? Or does it not even work on a quarterly basis? Is it going to really depend on how the year comes out?

Chris Ripley, CEO

So, we can get into the specifics of the contracts beyond what I said in the prepared remarks, which was that it's either depending on the contract at season end or calendar end. It's not done on a quarterly basis in general, so you're not going to really see the impact in Q2 assuming sports are off the air. We really can't factor in the impact in our accounting until we know or at least have a better estimate of the ultimately the number of games that will be played.

Steven Cahall, Analyst

Great, then just the last one, any update on what net retrans growth might look like for 2020? Thank you very much.

Lucy Rutishauser, CFO

Steve, as we said, we have suspended our full-year guidance at this point until we have more clarity; that includes the MVPDs and whether or not you see more economically driven cord cutting, or whether or not you actually see subscribers increase. Knowing that, again, TV right now is one of the few entertainment options available to people while they're under stay-at-home orders. So again, we believe that next quarter, we'll be able to put that back out there.

Operator, Operator

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to Chris Ripley, President and Chief Executive Officer for closing remarks.

Chris Ripley, CEO

Thank you, operator. I would like to conclude our remarks by pointing out that we are a much more solid and resilient company than we were during the meaningful macro events of the past. Our business and revenue streams are much more diversified and higher quality. Our operations are more sophisticated, and our balance sheet is stronger. We have the resources, the people, and the experience to weather this storm and come back stronger than ever. With that, thank you.

Lucy Rutishauser, CFO

Thank you.

Operator, Operator

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.