Sinclair, Inc. (SBGI) Earnings Call Transcript & Summary

Good afternoon, everyone. My name is Avi Steiner, and I am the media analyst here at JPMorgan. It's our pleasure to have with us back at the conference once again Sinclair Broadcast Group. And with us from Sinclair today is the Chief Financial Officer, Narinder Sahai. Narinder, thank you for joining us at the conference this year.

Avi, it's great to be here.

Okay. We're going to start, as we always do with these fireside chats, with questions from my end. And then towards the very end, we will open it up to the audience. There's a lot to cover here. So let's start if we can, Narinder, maybe with the company's outlook for core advertising spend in 2026. Remind us what you said on the recent call, but really would love to know what's behind the outlook.

Yes, sure. So on core advertising for total company, we are guiding at the midpoint plus 1% versus the prior year. There are several puts and takes here, if you will. I think obviously, we feel confident with the sports-heavy broadcast calendar. Just concluded the Olympics, the Super Bowl, and then you're going to have the World Cup on FOX later on this year. What also gives us confidence is our digital footprint, that is a bright spot for us. And in addition to that, our audio podcast work is starting to show traction. So that's part of the guide as well. We are factoring in a normal crowd out, Avi, for political. It can feel we're guiding up in a political year, but all of these things kind of give us confidence. And then I want to give a shout-out to the team listening. They have executed really well and I have full confidence that they will continue to execute.

Okay. Great. You touched on crowd out, and I think it's a nice natural segue to political. I don't think I need to tell anyone in this room that our electorate and politics seem as fractured as ever, but that seems like a good setup for political this year. I believe your guidance was at least as much as 2022, you'll correct me if I'm wrong. So just want to get a refresh on that, and maybe discuss the competition for political ad dialers that the company and the industry might be seeing, whether that's from digital channels, like cell phones, or whether that's CTV platforms, what have you. Would love to hear your outlook.

Yes, sure. So let me take it in the order. So first, refresh the guide. We provided preliminary guidance of at least $333 million back in November, which is the number comparable to the last midterm cycle in 2022. We reiterated that position just when we announced our full year results last week. I think it's too early in the year for us to move off of that, although if you look at some of the reputable trackers, the political ad spend is expected to be up 20% versus the prior midterms cycle. And if you look at the share of broadcast in that, it's expected to be roughly half of that spend. I also want to point out that while CTV is growing, we do play in that space, so through our Digital Remedy business, which is a marketing ad-tech platform, we do have assets to address the CTV side of the equation as well. So I don't want folks to think some of those, due to mix shifts, some of those political ad dollars are lost. It actually represents incremental opportunity for us. So if you look at overall 2026, we expect it to be a record political year. Obviously, we are present where some of the key races are, starting with Michigan, Maine, Ohio, Nevada, Texas. And if you look at the projections in these states, roughly $3.1 billion of the $10.8 billion or $10.9 billion of spend is going to be in these states. So we feel really confident. We feel good about where we are and how we are guiding. And as we kind of progress through the year and see how some of these races are shaping up, we'll come back with an update. But feel good about where we are today.

Excellent. I definitely was not fishing for new guidance, but I appreciate it, Narinder. Beyond political, I want to go back to something you touched on in the earlier question, and that's just the number of marquee sports events that we have this year. The Olympics just completed, as you said, we have the World Cup coming in a number of U.S. locations, which I think is probably more important than ever. How additive, can you maybe frame it for us, to revenue that those events might be for the company this year?

Yes. So like I mentioned at the start of our conversation, is sports-heavy broadcast calendar kind of gives us confidence in the plus 1% guide in core advertising. Obviously, the Olympics just concluded and we have the World Cup coming up, so those are key. I think the key point here to understand is when you have live marquee sports event, the reach of the broadcast is just unparalleled in terms of delivery, in terms of audience and fans and how far and wide it reaches. So I think that continues to be a key proposition. And then if you look at how we are continuing to engage the audiences through our cross-platform initiatives, whether these are podcasts or activations leading up to the events, such as Super Bowl that we did in San Francisco this year, all of that gives us confidence that the core guide can be up this year.

Terrific. And I'm going to shift to another part of the income statement and then maybe go to the expense side. But can you remind us what percentage of the company's subscribers are up for renewal this year? And what are your net retrans expectations for '26?

Yes. So let me address the subscriber side first. So we don't have very meaningful subscriber base renewing this year. We have some virtuals renewing later on this year. But we do have meaningful subscriber renewals coming up next year. I think it's roughly 60% to 65% of our subscriber base is renewing next year. What's meaningful this year that we're keeping an eye on is our network affiliate renewals. We have some coming up in August, some in November and some later part of this year, in December. I think those obviously will affect the reverse side of the equation, and therefore, the net retrans economics. We are not factoring in a significant move one way or another in our guide that we have provided, which we don't talk about the net retrans, but we talk about gross retrans. And we have assumed stable subscriber churn consistent with what we have seen in that guide, Avi.

Terrific. And then if I can stick on the reverse piece of it for a minute, I'm curious if you can maybe delve into a little more of what you're seeing. And I ask because sports rights are continuing to rise. And I'm curious if the affiliates at some point might be expected to shoulder some of that increased cost.

Yes, it's a good question. So as far as the value of some of the sports rights continues to go up, because there are audiences for those events, right? So it's just the economics. When we think about some of these sports rights, specifically the NFL, we do think that affiliates have a very key part to play; broadcast has a very key part to play in that distribution. And I think some of that factors into our conversations with the networks as well. If you think about it from a commercial standpoint, I think you have to look at where and how the value is delivered. Affiliates bring broad distribution to the networks. Networks obviously have their costs for content and sports programming. And you have to kind of see where some of those intersect and how you think about the economics there. And I think that factors into those conversations. The second part of this is also the exclusivity of the content. Content, if you go back several years, maybe decades, the content used to be very exclusive. With the advent of the streaming platforms that these networks have, that content is not exclusive anymore. That commercial aspect is a part of this. And then I think there's overall, I think, regulatory support in making sure that the affiliates are healthy, they can compete effectively and fulfill their public interest mandate, as well as deliver their local news, local engagement, local journalism that only broadcasters can do. So all of that, Avi, kind of factors into those conversations.

Okay. And maybe this dovetails into our first sort of big question here, tying the sports front, tying into costs and everything else. But the NFL is about to reopen its rights agreement with its existing broadcast partners 3 years early. I'm curious how you think those negotiations play out. And is there a risk that one of the broadcast networks potentially loses their NFL package?

Yes. So this is how I would think about it. So I think from an NFL standpoint, they absolutely want to make sure that they have engaged and a broad fan base. I think that's number one. I think that's really where the value of these franchises come from, is because of the very passionate fan base. So I think absolutely need to protect that. I think number two is broadening the reach of the game, perhaps internationally. I think that's kind of number two. And I think number three would be to make sure that the value of those rights are monetized at market values. So if you keep some of these things in mind, I think NFL has been really good about introducing different partners and different packages to do so. So I think I would see this conversation around reopening or opening the negotiations kind of part of that strategy to continue to make sure that the value of the rights is maximized. I think it remains to be seen how that progresses. I think if you look at some of the broadcasters in the Sunday afternoon space, perhaps those conversations are had with that group first. And if there are more rights to be paid, I think the support for all of that is going to be the continuing increase in the audience levels, right? That has to be supportive here. And that increases the value of the ad inventory, et cetera. So when you put all of that together, then you get into the conversations around how some of these perhaps increased fees, rights fees, are divided up across the entire ecosystem. So I think you think about the fees from the MVPDs to the affiliates and then the reverse fees to the networks as a part of that equation. And then I started with the fans. So if you keep the fans at the center of this, the FCC's Media Bureau recently opened a docket inquiry into the sports rights marketplace. I think the FCC is asking the right questions. Given the fragmentation here, I think their estimates are it takes about more than $1,500 for an NFL fan to actually get all the games. And then they're also looking at how some of these increased rights fees that affiliates and the local broadcasters may need to shoulder, how does that impact the economics and their ability to fulfill their public interest mandate? So I think you have that on the other end. So I think all of these things kind of have to come together in these conversations and see to find the best solution for the fans, for the networks, for the affiliates as well as the right owners.

That was super comprehensive. You touched on the FCC, which is where I'm going next. And I'd love to get your thoughts on how they might proceed with deregulation. Do you expect the commission to remove the national ownership cap entirely by issuing a new rule? Do you think they do it via the Media Bureau and take action on a deal-by-deal basis, which may or may not be ideal, depending on your perspective, or will the FCC look to approve consolidation by waiver without a vote at all and perhaps mudding the waters a little bit more? Would love your thoughts.

Yes. It's very hard for me to kind of handicap which way the FCC is going to go. But I think we should look at the facts. I think the facts here are that FCC is supportive of revisiting some of these rules, whether it's a national ownership cap, whether it's local ownership rules. And I would even expand to say how some of the new next-gen broadcast standards, like ATSC 3.0, gets commercialized on a larger scale. And whether it's network affiliate relationships. I think the FCC overall is asking the right questions, they're probing on the right things here. And look, they have all of these levers at their disposal to facilitate consolidation in the broadcast sector, whether it's waivers or lifting or eliminating the caps or any other tools at their disposal. I would say that the FCC is very supportive. I think the window of opportunity is now for local broadcasters to capitalize on that opportunity and look at consolidation in a very serious manner. And we've been vocal advocates of that.

We definitely want to come back to those words, window of opportunity. But before we go there, you touched on the FCC -- I'm basically asking you to be a lawyer, so I recognize it's unfair of me. But most of the press has been focused on the FCC, but I'm curious what the company might be hearing from the DOJ, the Department of Justice. Any thoughts on how they might view end market concentration on the one hand? And does Gail Slater's departure even matter?

Yes. From a DOJ standpoint, I think they obviously will look at the end markets, the market power and competition and pricing. I think those are the questions, obviously, they need to answer. And in all of those, I think the market definition becomes important. I think we have said long ago, and we've reiterated it recently and we continue to be of the belief, and I think other local broadcasters are in the same bucket, that we are not competing with the other local broadcasters alone. The field has shifted. You've got big media players, you've got big tech players here. And those all have to be taken into consideration when looking at these transactions. So we feel that falls in DOJ's buckets, and I think they will -- they have their work cut out for themselves. And I think we'll see with the -- how they proceed with the large transactions that's out there that the President has publicly supported.

Okay. I'm going to go back to your words, window of opportunity, and maybe ask a couple of questions around that. And I'm sure you can't speak for Scripps, let's start off by saying that. But it seemed to us that Sinclair had enough in the offer to at least create a basis of conversation to get to a deal. What can you share about what happened with the transaction discussions? And is it possible that, at some point in the future, this all gets revisited?

Yes. I would answer that a little bit more broadly. I think I mentioned to you that the window of opportunity is now. Looking at that window of opportunity, we're looking at all options for large-scale M&A with all -- any and all potential partners, as well as things which we can better control, for example, the JSAs and the LMA transactions we have done recently. Specifically on Scripps, I think we feel the industrial logic, the financial logic of a deal is very, very compelling. We've put our best foot forward. The offer is public. Obviously, I would say it's for Scripps and the management team and the Board there to decide how they want to proceed. Nothing incremental to add there, Avi, from -- other than what's already out in the public.

Okay. Fair enough. And since you just touched on it, I'd love to get a quick refresher. You had some of your buy-ins on the JSA and LMAs approved, I believe. If you can just remind us, if you have it handy, how many have been approved, how much are left to approve and what the expected EBITDA contribution from those stations to be?

Yes. Good question. So on the JSAs and LMAs, we started with various different categories where we fit these JSAs and LMAs into what is actually required. And I would say roughly 30, 30-plus transactions. And I would say we are 70% of the way working through those. And some of these, obviously, are as simple as getting it approved, and we assume, at day 1. Others, we have transferred the affiliation to our station and there's a step 2 in terms of closing on the licensed assets. So I would say we are 70% of the way there. We have estimated $30 million of EBITDA lift or contribution on a run rate basis from completing all of the scoped JSA/LMA transactions. I would say in 2026, we expect to complete the remainder of our work, by the second quarter of this year. And so we would expect that when we exit 2026, that you will be at the $30 million exit run rate. So $30 million will not be fully in the numbers for 2026 just because of the timing of these transactions, working through the year and what it takes for us to realize the benefits that I just talked about. So I would say that's how you should think about it.

Terrific. And we are at a leveraged finance conference, so I'm going to throw a couple of debt, balance sheet questions your way. And I'd like to start, if we can, Narinder, on refreshing us -- refreshing the audience on the company's leverage target. How does it get -- how does the company get there? And M&A of structured with equity is certainly going to be helpful, but is M&A needed to achieve your leverage goal?

Great question. So I'm going to start at the end of your question. I would say that our plan to delever, strengthen our balance sheet and do what we need to do is not dependent on just M&A alone. We are very, very heavily focused on things we can do, things we control, controlling the controllables. I've said that from day 1. We have a very, very strong core business. We have very stable distribution trends. We are very, very focused on making sure we're effective and efficient on our cost structure and we continue to generate cash, especially in the political cycles like 2026, and use that cash to delever. And continue that work through '27, continue that work in another marquee political year in 2028, which is expected to be even bigger than 2026. So I think there are things which are in our control, Avi, things we can do, things we're executing on. And you saw us do that with the Q4 print. You saw us set a very robust, I would say, guide for this year. And we are fully aligned in using all of the incremental cash flow we generate to continue to strengthen the balance sheet and delever. That's what we are focused on. I am not evading your question when I say I have not set a definite leverage target yet, so more to come on that. But this is how I would the pieces.

Okay. I will take the stay tuned for a leverage target. That's perfect. You touched on something else that I'm interested in, which is obviously the healthy free cash flow. We're in an even year, as you mentioned, so you're going to have a lot of cash coming in, primarily in the second half, and that's going to be very helpful to the company. And you've talked about deleveraging. But at the same time, from where I sit, I see no near-term maturities. I see bonds and bank loans trading at a discount, but I see no near-term maturities. So how should investors think about where you might apply that free cash flow going forward? Or is it just a build? I don't want to give you too much credit. Go ahead.

Yes. Cash, obviously, can build. But I think I've said this before, that we got to deploy that cash to actually look at gross debt reduction. And we have several levers available to us to do that, and we are continuing to think through all of those options there, Avi, from open market purchases to other interesting options, for example, a Dutch auction or maybe a negotiated purchases of debt from our nearest maturity holders. So all of those things are on the table. But rest assured, we want to make sure we are getting good return on the investment, we are building our credibility with our debt investors. I think the deal in February went a long way in doing that. And I fully intend to continue on that path and continue to show free cash generation ability of the business and continue to delever as we go. So all those options are on the table. More to come, like I said, on the leverage target and how we intend to execute on those. But rest assured, it's a top priority for me, it's a top priority for the management team and the Board.

I think the audience, but I'll speak for myself, I think hearing it is top priority is good news, frankly. Sinclair Ventures, and I told the audience I would open it up for Q&A in a few, but if I can touch on a couple more questions. Can you update us on Sinclair Ventures? When the company announced the strategic review, I think the plan included evaluating a possible spin or split or other transaction for Ventures. Where does that stand? And is it possible, I think you got this question on your most recent conference call, but is it possible that cash from Ventures, which is healthy, could play a role in any future broadcast M&A?

Yes. So let me first maybe recap what Sinclair Ventures is, for the benefit of those listening. Sinclair Ventures includes a variety of investments, from minority investments to direct investments, private equity, real estate, as well as consolidated investments like the Tennis Channel, the ad-tech platform, Digital Remedy, antenna business, Dielectric, our stake in Bally's. And there is -- if I leave the consolidated investments on the side for a minute, there's $880 million of net book value, not even market value, net book value of these assets in Ventures. So when I look at Ventures and I look at broadcast and I look at where we trade, clearly, the Ventures assets, or you can say the total company, is not being fully valued, right? So part of the strategic review is how do we monetize and how do we land clarity, bring clarity to the Ventures asset? And that's where we started on this journey to separate Ventures. That work has already started, and work actually started late last year. And that's preparation of carve-out financials, getting them audited, getting any advanced opinions from the IRS, running it through the SEC process. That takes a good 9 months or so. So we are firmly down that path. Having said that, I would also say that the ideal sequence of events here for us, Avi, is going to be a spin merge, right? So we have a broadcast transaction on the tape and we do a separation of the Ventures concurrently with that. But I think it remains to be seen. Some things here clearly not in our control, although we are working very hard on the broadcast M&A side. And then just to answer your question around availability of the Ventures cash, we have said that it's $465 million of cash as of the end of the year in Ventures and we have the optionality or the flexibility to deploy that cash to facilitate a transformative broadcast transaction. So that thought process is still there.

Terrific. I'm going to ask one more before opening it up to the audience. You had touched on ATSC 3.0. It's been a little bit quiet. Perhaps I've sat in on so many different presentations over my career, and it seems like we're getting closer. But with that, can you update us on the latest? And my question, which I've asked before, is how far are we from seeing meaningful revenue from ATSC 3.0?

We are definitely closer.

Okay.

Is what I would say. Look, I think there is very -- a renewed focus there with our broadcast partners. We hired a world-class CEO in Conrad Clemson to run EdgeBeam for us. EdgeBeam is the joint venture between us, Scripps, Gray and Nexstar to monetize ATSC 3.0. Conrad is busy working putting a plan together, building his team and how do we move that forward. I would say that there is revenue currently being recorded in ATSC 3.0 in EdgeBeam, although it's not very meaningful at the moment. And I expect as Conrad kind of builds that team and as we see more movement on the ATSC 3.0 front, on the FCC, they have obviously -- are proceeding here, looking at that very closely, I expect all of that to accelerate and generate some meaningful revenue and cash flow for not too distant future, I would say, a few years. Not sure I can say what those few years are. I would say, if Conrad was sitting next to me, I would tell him less than 3. But we'll see how all that goes.

I'm going to hold you to that. Audience, if anyone has a question, now is your time. All I ask is that you speak into the mic. And if not, I've got 2 more ending questions for Narinder. Any questions from the audience? There's one right there. One second. Thank you.

Can you speak about the AI initiatives? Are you guys thinking about that, how you're applying? Are you playing in the front side of the business or more in the back office kind of things?

Yes. Thank you for the question. On AI, I think there's lots made of AI and there's I think a lot more noise there than facts. I would say, from a Sinclair perspective, we are taking a very measured approach on AI. I would say that I think the benefits of AI are visible when you look at it purely as an efficiency tool, a productivity tool in our day-to-day work. I think we are definitely seeing that. But I think beyond that, where we think AI can be really beneficial is in some of our news gathering operations and how we format some of that content for availability, what's resonating with the audiences, some of the recommendation engine that AI might have. We've started on that journey. I wouldn't say we are leading in that front or towards the end on that, but that's a very, very key part of the AI conversation within Sinclair. And also, one of the other areas where we are looking at AI very closely is in all of our sales and go-to-market motion. Significant benefits there in terms of better understanding our audiences, better understanding what's working, what's not working, what's the value of a salesperson, and so on and so forth. And I think those would be some of the things I would point to. And you will see some of those initiatives start to accelerate over the coming few years. So nothing I would say to you is baked into our guide or something that is going to meaningfully change things in 2026. We are experimenting with it. We are making sure we are generating return on those investments, and we are being very considerate and thoughtful around it.

Excellent. Okay, I said I have 2 more questions and I'm going to squeeze them in here. And I'm going to ask you, I've asked you to put on your regulatory hat and your CFO hat, and now we're going to ask you to take out your crystal ball. What do you think the local broadcast sector looks like 3 years from now? Are we looking at 2 to 4 super groups? Or will the wheels of consolidation perhaps turn more slowly, particularly if we get an, I don't want to say adverse, but a different outcome in the midterms than perhaps from the party in power today?

Yes. I was -- I wish Chris was here to answer this question. I've never heard anyone answer that question better than Chris. And I would just say that we are looking at an end state in the sector where you have maybe 2 large super groups. Are there maybe 2 large super groups and maybe a few smaller players perhaps? But I would say that's kind of the end state we are driving towards. I think that's needed for us to compete effectively with big tech and big media. And I have referenced the window of opportunity that's available now and I'm thinking about that window of opportunity day in and day out. And I'm hoping that some of that urgency is shared elsewhere in the sector. But that's -- I'm still going to hold to that.

Excellent. It sounds like you're definitely going to be a part of it. My very last question as we end here, and it's a bonus looking-into-the-future question, do you think the big 4 networks will own their local TV stations 3 years from now?

Very, very hard for me to say. I think the networks would definitely look at it from an economic standpoint. What does it take to -- what are the economics of owning a station or a market or not owning it? There's obviously the retrans and the distribution economics tied to it, but then also the economics tied to running and operating these stations. So I think that's the hat they would put on. I think there's probably some headroom for the networks to own stations within the current caps. Hard for me to specifically say. And I think it's going to vary from network to network as well. Some networks might be in the camp and the others may not be.

Excellent. Narinder, thank you for the time. Thank you, Sinclair.

Thank you, Avi.