Sinclair, Inc. ($SBGI)

Good afternoon, everyone. My name is Benjamin Soff. I'm the equity analyst at Deutsche Bank, covering TV broadcasters. I'm very pleased to be joined today by Narinder Sahai, Sinclair's CFO. Welcome. Thanks for being here.

Thanks, Ben. It's great to be here.

You reported 4Q earnings a couple of weeks ago. Looking back to 2025, what were some of the highlights for Sinclair? And what are your key priorities for 2026?

Sure. So in 2025, we delivered at or above the guidance ranges we provided for our business. We saw strong momentum in core advertising translating into Q1 as we look back. Distribution stabilized. Some of the traditional MVPD churn moderated. So that was essentially flat year-over-year. We started executing on our JSA/LMA buy-ins. We are about 70% of the way through there. We expect to finish that in the second quarter of this year with the full run rate synergy benefit realized in the back half of this year, which we have said is about $30 million annualized. And looking at the balance sheet, we ended the year with $866 million of cash, $1.5 billion of liquidity. And our nearest material maturity is not until the end of 2029. So we feel really good about where we entered the year in 2025. And we're looking at 2026 as a catalyst year with a broadcast, sports as well as political heavy calendar, we want to use the incremental cash generation to delever. So talking about 2026 priorities. The fundamentals of the business are strong. We want to continue to execute on the fundamentals of the business, which means continuing the momentum on core advertising, obviously expect, again, stable distribution trends, complete the JSA/LMA buy-ins, continue to advance the strategic review of the broadcast business as well as planning for the ventures separation. And then finally, as I mentioned, use the cash generation to delever the balance sheet. So very focused on execution this year. The team has done a great job, a shout out to the team, and I have no doubt we'll continue to execute in '26.

That's a great summary. I wanted to start with the deregulation that could be happening in broadcast. We've had a number of developments recently. There was just a congressional hearing last month where that was discussed. The President voiced his support for a merger between 2 of your peers. And it sounds like regulators remain supportive. Can you provide for us an update on where we are in the process? And do you have a view on when we might see a potential rule change?

Yes. We are already seeing a meaningful improvement or support on the deregulation front. As you know, the Eighth Circuit vacated the top 4 rule prohibition around owning more than 1 station in the top 4 -- in the Big 4. I think there are several matters pending in front of the FCC. One is obviously around the national ownership cap. That is progressing. There's obviously proceeding on ATSC 3.0, which is also progressing. There are -- there's a quadrennial review around local ownership. FCC is looking into network affiliate relationships. There are a whole bunch of issues kind of making their way through the FCC. We remain optimistic that things are progressing in the right direction. Specifically for us, I think it's important to recognize that the environment, both administration-wise versus regulation-wise has been very, very supportive. And the window of opportunity is now for the local broadcasters to work on consolidation and see if we can move needle there. That's how we're looking at it but we are not underwriting our operational plan on one outcome or the other. We are actively engaged in the process but we obviously plan to execute under a variety of different scenarios, and that's what we are focused on.

Speaking of potential consolidation, you've been vocal about the opportunity for the broadcast industry, and you seem pretty interested in pursuing that opportunity. Can you share your vision for the future of the broadcast industry? And how do you think Sinclair fits into that vision?

Yes. So we do think with the current backdrop on deregulation we just discussed and the overall broad support and where we are with respect to an evolving media environment in the industry. I think overall, the industry structure in local broadcasting will evolve over a period of time. I think we have said before, I think we do envision in an end state where you have 2 large super groups in the local broadcast sectors. I think that logically would make sense to effectively compete with the big tech and big media. And I think like I've said before, now is as supportive an environment as any to continue to make material progress on that front. On the consolidation side, like I said, we are doing everything in our power to continue to be part of conversations, right? Engage with all of the industry participants. A lot of questions get asked on, is there a certain structure we would like to see from a governance standpoint, from an economic standpoint. And I think I've answered it very simply that the transaction has to make sense on the economic side. It has to be financeable, and it has to clear the regulatory bar. I think beyond that, we don't have any specific asks around governance or economics or any structure. And I think you saw that when we submitted an offer to acquire Tegna or combined with Tegna, I should say, excuse me, and then the offer we made for Scripps. So we remain very open-minded. We think that's the direction it needs to go. And while we are working on large-scale M&A and see how we can participate in that. We continue to stay focused on things we can control, essentially improving our portfolio. And you saw that us with working on the JSA/LMA transactions. We're obviously looking at end market and station swap transactions and continue to work to optimize our portfolio while large-scale M&A kind of remains to be seen.

Speaking of the JSAs, so as you mentioned before, U.S. Circuit Court last summer struck down the prohibition against forming in-market duopolies. And you have a number of transactions that you've executed and announced. Can you talk a bit more about the strategic rationale for these deals and the financial benefits you're expecting?

Yes. With that rule, as you mentioned, that got vacated, these JSA/LMAs are very practical, I would say, low-risk steps we can take to optimize our portfolio, create local scale and deliver on significant synergies. So I think it was a fairly straightforward from that standpoint. It allows us to move from a complex relationship with a partner into more of a control structure. I think we've highlighted a synergy benefit of about $30 million annualized, which are achieved in a very short order. And I think that was really the driving factor there for us. And I think those synergies come from obviously becoming more efficient on how we go about the programming side of things, the cost structures that you have in those markets as well as some benefit on the retrans side.

And I know you have 30 of those deals. When you look out across the landscape, could there be more? Or is this pretty much the opportunity set that you've already captured?

Yes. This is the opportunity set as we are going after it right now. I do want to be clear that it does not mean that all of our JSAs and LMAs are concluded at the end of it. We will still have some outstanding. But if you look at the option price or exercise and the benefit you will see out of it, we don't think the return is quite there for us to go after them at this point in time.

Okay. Makes sense. Switching to the core business. We've seen the pace of pay TV subscriber declines moderate over the past year or 2, and it seems like that's beginning to have a positive impact on the business. What do you think is driving this improvement in sub trends? And what are the implications for Sinclair?

Yes, good question. We are seeing subscriber churn moderate at some of our traditional MVPDs, as I referenced earlier. And I think part of that is just putting customers at the center of it and understanding the friction they have in today's environment. We think it has to do with how some of the streaming services are bundled into the pay TV packages. And I think customers are finding a lot of value in that. Also creating better customer segmentation around what they actually want to watch, whether it's sports or news or entertainment programming. So I think the MVPD is kind of looking at that, trying to remove the friction in the customer experience. And I think it's starting to show. And if you are a customer today and you want to consume certain content, you almost need a cheat sheet to go figure out where that content is and how you go get it. So I think the MVPDs are working on addressing that, and I think that's starting to show.

You have a big round of distributor renewals that I believe is starting later this year but then really picks up in 2027. How are you thinking about the backdrop for renewal pricing? And in particular, what are the factors that allow you to capture price increases to offset subscriber churn?

Yes. From a distributor standpoint, we do have some renewals coming on later this year. Those are primarily on the virtual side. But our -- majority of our distributor renewals are actually next year, where I think about 65% of the subscriber base is going to renew. I think the conversation with the distributors is the same thing, right? So where is the value getting created? What content is made available through the affiliations that we have and what value it carries for the customers. We do think, I think, at some point, continuing to push the price on the MVPDs, I think it's going to have certain limits. So I think from our standpoint, when we look at distribution, we look at both sides of the equation. We look at the gross distribution, which is obviously the dollars we receive. And then we look at the reverse side of it is all the fees we pay the networks. So for us, what it comes down to is can we get to a stable and more sustainable net number, whichever way the economics are from a gross or a net or a reverse standpoint. We want to get to a very sustainable net number. And therefore, you have to take both of those into account.

Sure. And speaking of affiliate agreements, you have 3 major networks coming up for renewal later this year. You've said you're optimistic about being able to improve the economics of those agreements. So what are the key drivers that could lead to better outcomes? And what would that mean for net retrans over time?

Yes. So on the reverse side, I would say we have renewals coming up later on this year. We have one at the end of August, another in October and another at the end of December. So you'll see the full effect of that show up in our 2027 numbers. So as we think about negotiations with the networks, I think clearly, again, you look at where the value is being created, right? There's content that needs to be distributed and affiliates are a key part of distribution of that content. How that content is getting made and delivered has also evolved over a period of time, right? Content is no longer exclusive. It is now available on the streaming platforms. So that's part of the conversation. And obviously, affiliations -- affiliates have a role in local promotion and advertising as well, right? So that's a key part of the equation as well. So you look at the overall picture and you look at the content, whether it's premium sports or entertainment content, you look at the advertising side of it, you look at the audience and reach side of it and then you look at where the value is getting created in terms of content exclusivity. You factor all of that in, we think we have a very strong case to make with the networks when we are talking to them about the renewals. And like I said, for us, it's looking at both sides of the equation and making sure that we maintain the line there, so to speak, on a more sustainable net retrans number.

We seem to be in a pretty uncertain macro environment. On the other hand, your advertising business has some tailwinds this year from live sports and your digital assets. Can you talk about the trends you're seeing in core advertising and how those moving pieces could shake out for 2026?

Yes. On the core advertising front, look, in Q4, we saw a bounce back from Q2 and Q3. And part of that was helped by obviously your NFL and college football. But we are seeing that momentum kind of continue through into Q1 with Super Bowl and Winter Olympics. So very NBC kind of heavy. I would note that our affiliate network is -- NBC is the smallest of that, our affiliations. But we are obviously watching for the World Cup, the FIFA Soccer World Cup later on this year in June and July, which is on FOX. I think 70 or so games are on linear TV. It's a more expanded tournament. So that provides a nice offset. I think, look, when we look at the core advertising categories, we saw a broad-based trend in those categories. And I think those categories always helped by marquee sports programming. So if there is good content, good audience, good reach, you see those categories come back. And so I think that's what we are seeing, and that's what we expect to continue to see at least in Q1, and we remain very optimistic on what we are going to see later part of Q2 and into Q3.

We have an election later this year, and you've said you expect record results for a midterm. Why is broadcast such a powerful platform for political advertising? And can you share what you're seeing that gives you confidence in this upcoming cycle?

Yes. Political advertising is interesting. I think for political advertising, you want to reach voters that actually do vote. They are engaged in their communities. They are potentially undecided on key issues. So there, I think local news, local community engagement matters a lot. And I believe broadcasters through that broad reach and local news and community engagement delivers unlike any other platform. So I think that works really well. And if you look at Sinclair's overall portfolio, I would tell you, roughly speaking, you've got 1/3 Republicans, 1/3 Democrats and I would say 1/3 Independents, and there are undecided voters across. So if there is a party, a candidate who wants to reach these voters in a very balanced manner, I think there is -- broadcast has just an unbelievable advantage there. Now we are seeing connected TV and digital platforms picking up. So if you look at ad impact for 2026, they are forecasting $10.9 billion of spend in political advertising and roughly 49% of that is going to be on broadcast, which is a fairly significant number. But I do want to point out that for digital and connected TV, those are not lost dollars. We do have a solution in connected TV through our digital remedy business as well as through our O&O sites and audios and podcast. We do address the digital side of the advertising as well. So for us, it's a net positive. And if you look at overall where some of these competitive races are, where a lot of political ad dollars are, I think our footprint overlays nicely with that. So we expect a record 2026 political year. Our guide for 2026 is to be at least comparable to 2022, which is about $333 million. It's too early in the year for us to come off of that or give you a different number. So we are watching it closely, and then we'll continue to refine that as we go forward.

Makes sense. I wanted to ask about the balance sheet. You've taken a number of steps recently to strengthen your balance sheet. Can you reflect on the progress you've made to date and discuss how you're thinking about managing it in 2026?

Yes. So I think if I take myself back to the start of 2025 with the comprehensive refinancing and then beyond that, so that was a very significant event to create the runway for the company. And then we have taken care of the near-term maturities. So we repurchased our 2027 notes. We have executed on a $375 million 3-year AR facility, which provides us additional liquidity. And our nearest maturity is not until the end of December -- until the end of 2029 and December 2029, as I mentioned earlier. So that gives us a fairly significant runway to execute on our operational plan. It goes back to the priorities I outlined for you is to continue to focus on the fundamentals of the business, continue to execute on core advertising, monetize on a sports and political heavy broadcast calendar and then utilize the incremental cash generation to strengthen our balance sheet to delever. And that's our #1 capital allocation priority.

You launched a strategic review last year, as you mentioned, to take a new look at some of the assets in your portfolio. Can you provide an update on that process and discuss how these initiatives are creating value for shareholders?

Yes. I would say the strategic review is ongoing and progressing well. I think on the broadcast side, that clearly means a large-scale M&A transaction for the broadcast business, which we are very, very heavily focused on. On the broadcast side, that also means we continue to do the station portfolio optimization. We have taken very concrete steps to move the ball forward there. As a part of this strategic review, we announced our intent to separate our Ventures business. We've kicked off the planning process on that. So that's progressing well. As you know, all of that takes time in preparation of the carve-out financials, getting them audited, perhaps getting an advanced opinion from the IRS and so on and so forth. That's easily a 9-month process. So we are firmly down that track. So everything is kind of moving as planned. Obviously, on the broadcast side, you need a willing party to announce a broadcast transaction, and we are diligently kind of working towards that and looking at all of our options there. So I would say, overall, happy with where we are. Obviously, the large-scale M&A and a deal there is something that we have not announced that, and we're working towards that.

During the fourth quarter call, Ventures initiated a process to monetize some additional noncore holdings. Can you give us some more detail on what that is?

Sure. So if you look at the Ventures portfolio today, it's made up of a significant amount of minority investments, which are investments in private equity funds in real estate, indirect venture funds, and we have some other minority investments. So overall, as of the end of the year, the book value of those investments, including our stake in Bally's is about close to $900 million. So fairly significant. So our thought process there is that we want to monetize in a very thoughtful manner those minority investments, generate cash from those monetizations and then deploy that cash towards more controlled majority-owned investments, where we have control, where we have visibility into future earnings and cash flows, where we have recurring revenue streams. And we have hired a team there. We hired a principal on Sinclair Ventures to start to execute that. We're building that team, and we are firmly down that track to invest in more majority investments and liquidate our minority investments portfolio. Now thing to keep in mind is all of this kind of takes time. You are sort of dependent upon the market when you can monetize. So this isn't monetized at all cost. We are going to be very thoughtful about it but we are going to grab those opportunities with both hands where they present themselves.

It sounds like the NFL negotiating window could be opening up later this year. And given how important this programming is to the broadcast ecosystem, I wanted to ask if you had any thoughts or predictions on how that might shake out?

No predictions. I can tell you how I think about it. And then obviously, different folks have a different way of thinking about it. So whenever I think about NFL, I'm thinking about a very passionate and engaged fan base, right? That forms the basis for the value of these franchises and all of the rights that the NFL wants to show these games. The second part of this is when I think about NFL, I think about the international games and expanding NFL beyond the United States or the continental United States. I would say international is a big, big part of that equation. So I think about that. And I think about am I monetizing all of that? And am I getting fair market value for the rights. And then the flip side of this equation is, I would also say that NFL is also very good at thinking about the different partners, whether they are streaming partners or whether they are broadcast partners and creating different packages and showing the games in such a way that meets those objectives that I mentioned. So opening up of those negotiations, I think, can provide a lot of certainty to the networks as they get concluded successfully. I think given the broad reach and the audiences, I think networks are going to be -- continue to be a big part of that. Given the growth in streaming, I think streamers are going to be a key part of that. So what that means for local broadcasters like Sinclair is looking at how some of those things, some of the economics kind of flow through the network affiliate equation, right? How does that kind of flow through there? And I've mentioned this multiple times before. For us, I think it's going to boil down to make sure we have a sustainable model there. And the other side, when you look at it is also the -- I recently saw that FCC opened an inquiry, a media bureau inquiry into sports right marketplace. How is that affecting consumers and fragmentation. Their estimates show that if someone wanted to watch all NFL games, they have to spend $1,500 doing it. That was quite interesting to know. And look, I did not grow up watching NFL, to be honest with you. But when I think about watching a game, I almost need a cheat sheet, like where is this game what time is it? And do I have it? How do I go watch it? And that is real friction. And if I'm a consumer, I'm thinking about that friction and how do we get rid of that friction. And I think that's important. So I think all of those are a key part of this equation. But I think in the end, if you go -- take it back to the basics, I think you have to take care of the fans and fans need less friction, not more.

Makes sense. ATSC 3.0 represents one of the more exciting levers for longer-term growth for your business. Can you talk about the progress you've made there to date and how you think about the path towards commercializing that opportunity?

Yes. So ATSC 3.0 is, I think, a significant element for broadcast television. It's a more efficient standard to transmit. It allows for better use of the asset, which is the spectrum through the compression technologies, the IP-based protocol. And so if you think about that, think about that limited asset, the best thing we can do to increase the value of that asset is to find a way to do more with that asset. And the way to do more with that asset is to go to a standard like ATSC 3.0 that allows us to do so. And I think with that thought process, I think Sinclair and 3 other broadcasters came together to form EdgeBeam Wireless. We hired a world-class CEO in Conrad Clemson to help us kind of think through all of that and help us monetize it. Conrad is building a world-class team. Sinclair has done tremendous, tremendous amount of work on the technology side. I can tell you from my personal experience as I was thinking about taking this job about 8 months ago, I actually visited our ATSC 3.0 operations and lab in Hunt Valley. And a lot of the things that folks talk about how broadcast and broadband work together, how data is delivered, how it's measured, how the audience view is measured, I've seen that firsthand. It is not a pie in the sky. It is something that works. Now you have to scale it. And when you scale it, you're going to run into some of the things to technical challenges to solve there. And I think at the same time, I think FCC has been fairly supportive. I know the industry is pushing towards a date certain to sunset 1.0 and go to 3.0. That obviously, FCC did not put that in their latest proceeding, but that's what -- where we are pushing. And I think the overall ecosystem from device manufacturers to others, it all has to come together for it to become a reality. And I would tell you, there is real, real benefit win-win here for everybody kind of working towards that. There are some customers in ATSC 3.0. I think we got our first paying customer, I think, in late 2025, very small numbers, nothing substantial to talk about. But I would say things are moving in the right direction. And I would -- I'm watching it, cheering for it, helping support in any way I can because I think it is a significant opportunity here.

I wanted to follow up on the sunsetting process. How important is it for the industry to sunset the older standards before you switch to ATSC 3.0? And where are we in that process today?

Yes. I think sunsetting is just going to accelerate the adoption. I think what FCC has said today is broadcasters can voluntarily transmit in 3.0, but then you have to also simulcast in 1.0. In the current proceeding that FCC has, they are looking at whether they should take away the simulcasting requirement. do you stick with the 95% coverage requirement? And so all of those are steps in the right direction. But if you look at the consumer electronics manufacturers, the TV sets, we don't want to burden the end consumer with now having to go out there and purchase a new TV set because there's a new standard. So I think that's very, very important that we want the entire industry and the ecosystem to come together. And I think the way that happens is through providing some certainty on the sunset. So I think sunset is very, very important. Now can the broadcasters do things on their own to accelerate the adoption, providing the tuners, I think we are looking at all of those options.

And maybe to wrap up, AI is obviously a big topic these days across the entire market. It's still relatively early but do you have any thoughts on how you might implement AI across your business?

What is AI?

That's a good question.

Just kidding -- just kidding. No, AI is a technology that can significantly transform how we do things. We obviously are utilizing AI today in our workflows in gaining more efficiency in how we do things. But I think deploying AI at scale requires some additional work. And we are working on those things, specifically as they relate to our news gathering operations, preparation of that content and for that content to be available in various different platforms. I think AI can have some pretty interesting things there for us that we are experimenting with. I think it's fairly obvious that AI can be used to better price your ad inventory, look at your traffic systems, all of those things we are working on. But I would tell you this, whenever -- and this was early part of the conversation when I had just joined the company, I was very clear, and I think Chris was very clear, the leadership team was very clear that we are not doing AI for the sake of checking the box and doing AI for the sake of doing AI. It has to bring some real tangible benefits to the business. So we are focused -- very, very focused on high ROI cases and how we can harness the power of this technology for the betterment of the business, for our customers as well as the viewers.

That seems like a pretty good place to wrap it up. Thanks, Narinder.

Thank you, Ben. I enjoyed it.