Sinclair Reports Fourth Quarter 2021 Financial Results and Increases Quarterly Dividend 25%
BALTIMORE–(BUSINESS WIRE)–Sinclair Broadcast Group, Inc. (Nasdaq: SBGI), the “Company” or “Sinclair,” today reported financial results for the three and twelve months ended December 31, 2021.
Recent Highlights:
- Raised quarterly dividend 25%
- Renewed key network and league deals
- Investment portfolio value reached an estimated $1.4 billion at year-end
- Launched recapitalization transaction to increase Diamond liquidity by approximately $1 billion over 5 years
- Exceeded certain key financial metrics, excluding the cyber incident impact
- Named Rob Weisbord Chief Operating Officer and President of Broadcast
CEO Comment:
“We exceeded our adjusted free cash flow and adjusted EBITDA expectations for the quarter, after adjusting for the impact of the cyber incident we experienced in October,” said Chris Ripley, Sinclair’s President & Chief Executive Officer. “We continue to be encouraged by the rebound in the advertising market in 2021 and expect a robust advertising market in 2022, driven by significant political ad placements, continued strong demand from the service and sports betting categories, and a slow recovery in the auto and other supply-constrained sectors.”
Ripley continued, “The year ahead is an important one for our Company from a content and programming perspective. Already in 2022, we renewed our local digital rights with the NBA & NHL, paving the way for our new “Direct to Consumer” product, debuted two new original programs on our regional sports networks, and secured live tennis rights for the Women’s Tennis Association tour in Germany, Austria, Switzerland, and the Netherlands. Coupled with the continued roll-out of NextGen broadcasting and the emergence of gamification elements across our platforms, we remain steadfast in our mission of connecting people with content everywhere.”
Ripley concluded, “Our stock continues to trade at levels below what we believe the Company is worth on a sum-of-the-parts valuation. Together, we believe our investment portfolio, our investment in Bally’s Corp, our tax shield from the purchase of our RSNs, and our excess spectrum, that can be utilized more fully in the future with the NextGen technology, is valued at approximately $4.2 billion or close to $60 per share. Adding in our core business assets, and accounting for our debt, gives us a sum-of-the-parts value almost triple where our stock currently trades. Supporting our conviction of our stock’s value, we have repurchased over four million shares over the past four months and will continue to be opportunistic in the future on such purchases. In addition, and recognizing our cash flow generation, our Board increased our cash dividend by 25% as another means to enhance shareholder returns.”
Recent Company Developments:
Cyber Event:
- The Company experienced a ransomware cyber incident in October 2021 and has since resumed normal business operations and implemented several enhancements to the cybersecurity measures it had in place at the time of the incident. The Company paid no ransom, and was able to restore its network from backups, but there was some disruption which impacted revenues and expenses. The incident resulted in a $63 million loss of advertising revenues for the broadcast segment in the fourth quarter and incurred costs of $11 million to date. After potential insurance reimbursements, noting that there can be no assurance that the insurance policies will pay their full coverage or the timing of such reimbursements, the Company estimates that the cyber incident will have resulted in approximately $24 million of unrecoverable net loss; however, that estimate may increase as details of the recovery are still fluid.
Transactions:
- In November, the Company purchased and assumed the lenders’ and the administrative agent’s rights and obligations under the existing accounts receivable securitization facility (the “A/R Facility”) of its and Diamond Sports Group, LLC’s (“DSG”) indirect subsidiary, Diamond Sports Finance SPV, LLC. The Company purchased the lenders’ outstanding loans and commitments under the A/R Facility by making a payment to the lenders as consideration for the purchase of the lenders’ respective rights and obligations under the A/R Facility equal to approximately $184.4 million, representing 101% of the aggregate outstanding principal amount of the loans under the A/R Facility, plus any accrued interest and outstanding fees and expenses, amended certain terms of the facility, and extended the maturity to September 2024.
- In January, Sinclair and DSG entered into a Transaction Support Agreement with various lenders holding term loans under DSG’s existing credit facilities and various holders of DSG’s outstanding 5.375% Senior Secured Notes due 2026 and the Company’s 12.75% Senior Secured Notes due 2026, on the principal terms of a new first lien money financing and recapitalization, whereby DSG intends to raise $635 million in new capital pursuant to a first-priority lien term loan and to defer the cash payment of a portion of its management fee to Sinclair Television Group, Inc. (STG) over the next five years, which together are expected to provide approximately $1.0 billion of liquidity enhancement over the next five years to DSG and enable DSG to strengthen its balance sheet, fund the launch of its Direct to Consumer (DTC) product, and provide for future liquidity.
- In February, pursuant to the Transaction Support Agreement, DSG commenced a private exchange offer of new second-priority lien 5.375% Senior Secured Notes due 2026 to eligible holders of its outstanding first-priority lien 5.375% Senior Secured Notes due 2026. At the same time, DSG commenced a private exchange offer of new second-priority lien term loans to its lenders holding existing first-priority lien term loans. The note exchange expires on March 10, 2022, with an early tender deadline of February 28, 2022, while the loan exchange expires on February 28, 2022. The exchanges are conditioned on receiving requisite consent of the noteholders and lenders. The closing of the new $635 million first-priority lien term loan is conditioned on the successful completion of the exchanges and other customary closing conditions.
- In February, pursuant to the Transaction Support Agreement, DSG announced a contingent redemption of its 12.75% notes due 2026, which is contingent on the successful completion of the exchanges and the closing of the new $635 million first-priority lien term loan.
- As a condition to the new $635 million first-priority lien term loan, DSG will defer a portion of its management fee payable to Sinclair Television Group, estimated at between $342 million to $477 million over the next five years.
Content and Distribution:
- In November, the Company reached a new, multi-year carriage agreement with DISH Network Corporation, ensuring Sinclair’s local stations will remain on DISH TV, and the Tennis Channel will remain available on DISH TV and SLING TV.
- In December, DSG entered into a multi-year renewal of its digital and outer market distribution rights agreement with the National Hockey League (NHL). Under the agreement, DSG’s Bally Sports RSNs are permitted to offer streaming content, including live games, on an authenticated and DTC basis, to the local territories of 12 NHL teams. The agreement was expanded to allow post-game highlights on Sinclair’s digital news platforms, alternative feeds, and use of the NHL’s proprietary Puck and Player Tracking data in the broadcasts of the games.
- In December, the Company launched TheNationalDesk.com, featuring round-the-clock breaking news, with content from The National Desk’s dedicated team of journalists as well as Sinclair’s newsrooms around the U.S. The site is available to all viewers, free of charge with no subscription, log in or authentication required.
- In January, DSG renewed its extended market and digital distribution rights agreement with the National Basketball Association (NBA). Under the agreement, DSG’s Bally Sports Regional Networks are permitted to offer streaming content, including live games, on an authenticated and DTC basis, to the local territories of 16 NBA teams. The agreement has a term of one year with three successive one-year renewal offers, subject to compliance with the agreement.
- In January, the Company entered into multi-year renewals of the NBC affiliations and Fox affiliations in 20 Sinclair markets. Sinclair partners to which Sinclair provides sales and other services to under joint sales agreements or master service agreements also renewed NBC affiliations in four markets and Fox affiliations in seven markets.
- In January, two new programs produced in coordination with Stadium, Sinclair’s 24/7 multi-platform sports network, premiered on Bally Sports’ 19 regional sports network brands and the Bally Sports app. “The Rally” is a discussion-based show presenting a young and diverse talent lineup, authentically debating and analyzing the trending sports topics of the day while harnessing the social media conversation and viewer commentary. The Bally Sports RSN brands’ first sports betting program “Live on the Line, Powered by BetMGM” is a partnership with BetMGM, a leading sports betting and iGaming operator. The program highlights national sports betting storylines with a regional appeal, by providing expert picks while looking ahead to the day’s matchups.
- In January, Tennis Channel reached a multiyear agreement with the Women’s Tennis Association (WTA) to telecast year-round WTA matches in Germany, Austria, Switzerland, and the Netherlands through Tennis Channel’s subscription service and digital free ad-supported streaming TV (FAST) channels.
Community:
- In December, the Company partnered with the American Red Cross for the “Sinclair Cares: Tornado Relief” campaign, raising $175,000 in total from viewers and Sinclair corporate donations to assist those affected by the devastating tornadoes in the South and Midwest.
- In December, the Company’s television stations and RSNs collected 140,000 toys, tens of thousands of pounds of food and several truckloads of clothing, sleeping bags, blankets and monetary donations for local charities through regional holiday drives. Regional recipients across the country included local community food banks, Toys for Tots, The Salvation Army, Bikes for Kids, The Forgotten Child Fund, Neediest Kids, Habitat for Humanity, The United Way and Central Arizona Shelter Services, among others.
- In January 2022, the Company began taking applications for its 2022 Diversity Scholarship, which has awarded more than $100,000 in scholarship funds over the last six years.
NEXTGEN Broadcasting (ATSC 3.0):
- In January, the NextGen Video Information Systems Alliance (NVISA) published new consumer-facing research, sponsored by Sinclair Broadcast Group’s subsidiary, ONE Media 3.0, that offered the first insight into which features American consumers want most in a NextGen Broadcast-enabled emergency information service. These include a desire for geo-targeted alerts, the ability to screen for only selected alerts, options for updated alerts, and importantly, a robust/dependable system that does not crash when the Internet or cell system goes down. All of these features are embedded in the NextGen Broadcast service.
- In January, MPEG LA, a pioneer in the formation and management of patent pools, completed the formation of the ATSC 3.0 Patent Pool, dramatically simplifying the efficient licensing of the new ATSC 3.0 broadcast technology in multiple-receive devices, easing the distribution and deployment process. Included in the ATSC 3.0 Patent Pool are various patents owned by Sinclair’s subsidiary ONE Media.
- The Company has launched NEXTGEN TV in 23 cities, including recent launches in Charleston, WV, Greensboro, NC, Washington DC and Green Bay, WI.
Three Months Ended December 31, 2021 Consolidated Financial Results:
- Total revenues decreased 2% to $1,476 million versus $1,512 million in the prior year period. Media revenues decreased 2% to $1,460 million versus $1,490 million in the prior year period. Revenues for the quarter were negatively impacted by lost revenues due to the cyber incident and the absence of political revenues in a non-political year, offset in part by an increase in professional games played and fewer distributor rebates. Excluding the cyber incident, revenues would have increased for the period.
- Total advertising revenues of $383 million decreased 31% versus $554 million in the prior year period, in large part due to the absence of political revenues, as 2021 was a non-political year. Core advertising revenues, which excludes political revenues, in the fourth quarter of $364 million were up 4% versus $349 million in the prior year period, due to a recovery from depressed levels in the same period a year ago caused by the pandemic and a greater number of professional sports games versus the prior year period, offset by the negative impact of the cyber incident.
- Distribution revenues of $1,048 million increased versus $917 million in the same period a year ago, due primarily to a significant decrease in the amount of distributor rebates tied to minimum game guarantees that were accrued in the prior period’s results. The increase was partially offset by subscriber churn and dropped carriage last year.
- Operating income of $165 million, including Adjustments of $19 million, declined versus operating income of $625 million in the prior year period, which included Adjustments of $16 million. Operating income when excluding the Adjustments, decreased 71% to $184 million from operating income of $641 million for the same prior-year period.
- Net loss attributable to the Company was $89 million versus net income of $467 million in the prior year period. Excluding the Adjustments, the Company had net loss of $74 million. Adjusted EBITDA, which excludes Adjustments, decreased 62% to $234 million from $617 million in the prior year period.
- Diluted loss per common share was $1.18 as compared to diluted earnings per common share of $6.27 in the prior year period. On a diluted share basis, the impact of Adjustments in three months ended December 31, 2021 was ($0.19) and the impact of Adjustments in three months ended December 31, 2020 was ($0.18).
Twelve Months Ended December 31, 2021 Consolidated Financial Results:
- Total revenues increased 3% to $6,134 million versus $5,943 million in the prior year period. Media revenues increased 4% to $6,083 million versus $5,843 million in the prior year period.
- Total advertising revenues of $1,691 million increased 0.1% versus $1,689 million in the prior year period, due to the general recovery of local advertising and more professional sports games in 2021, offset by the absence of political revenue in a non-political year, and the impact of the cyber incident. Core advertising revenues, which excludes political revenues, of $1,651 million, were up 26% versus $1,315 million in the same period a year ago, benefiting from the general economic recovery and more local sports games taking place in the period compared to the same period a year ago, offset by the cyber incident.
- Distribution revenues were $4,288 million versus $4,085 million in the same period a year ago, with the increase resulting from a significant decrease in distributor rebates in the prior year period.
- Operating income was $95 million, including Adjustments of $113 million, versus operating loss of $2,772 million in the prior year period, which included $58 million of Adjustments and an impairment of $4,264 million. Operating income when excluding the Adjustments and impairment decreased 87% to $208 million from $1,550 million for the same period a year ago.
- Net loss attributable to the Company was $414 million versus net loss of $2,414 million in the prior year period. Excluding Adjustments, the Company had a net loss of $327 million. Adjusted EBITDA, which excludes Adjustments, decreased 31% to $1,300 million from $1,888 million in the prior year period
- Diluted loss per common share was $5.51 as compared to diluted loss per common share of $30.20 in the prior year period. On a diluted share basis, the impact of Adjustments in the twelve months ended December 31, 2021 was ($1.16) and the impact of Adjustments and impairment in twelve months ended December 31, 2020 was ($38.04).
Consolidated and Segment Highlights
The highlights below include the launch of Marquee Sports Network (February 22, 2020), the divestiture of the non-license assets in Harlingen, TX (January 27, 2020), the divestiture of WDKY in Lexington, KY (September 17, 2020), the divestiture of WDKA and KBSI in the Cape Girardeau MO/Paducah KY market (February 1, 2021), the acquisition of ZypMedia (February 5, 2021), the divestiture of the license assets in Harlingen, TX (May 24, 2021), the divestiture of Triangle Sign and Service (June 2, 2021), and the divestiture of Sinclair’s radio stations in the Seattle WA market (September 27, 2021).
Segment financial information is included in the following tables for the periods presented. The Broadcast segment consists primarily of broadcast television stations, which the Company owns, operates or to which the Company provides services. The Local Sports segment consists primarily of the RSNs. Other includes corporate, original networks and content, including Tennis Channel, non-broadcast digital and internet solutions, technical services, and other non-media investments.
| For the three months ended December 31, 2021 | Broadcast |
| Local Sports |
| Corporate and |
| Consolidated | |||||||
| Revenue Highlights: |
|
|
|
|
|
|
| |||||||
| Distribution revenue | $ | 379 |
| $ | 623 |
| $ | 46 |
|
| $ | 1,048 | ||
| Advertising revenue |
| 276 |
|
| 64 |
|
| 43 |
|
|
| 383 | ||
| Other media revenue |
| 49 | (a) |
| 4 |
|
| (24 | ) | (a) |
| 29 | ||
| Media revenues | $ | 704 |
| $ | 691 |
| $ | 65 |
|
| $ | 1,460 | ||
| Non-media revenue |
| — |
|
| — |
|
| 16 |
|
|
| 16 | ||
| Total revenues | $ | 704 |
| $ | 691 |
| $ | 81 |
|
| $ | 1,476 | ||
|
|
|
|
|
|
|
|
| |||||||
| Expense Highlights: |
|
|
|
|
|
|
| |||||||
| Media programming & production expenses and |
| 512 |
|
| 606 | (a) |
| 16 |
| (a) |
| 1,134 | ||
| Sports rights amortization included in media |
| — |
|
| 438 |
|
| — |
|
|
| 438 | ||
| Non-media expenses |
| — |
|
| — |
|
| 15 |
|
|
| 15 | ||
| Corporate general and administrative expenses |
| 33 |
|
| 2 |
|
| 3 |
|
|
| 38 | ||
|
|
|
|
|
|
|
|
| |||||||
| Other Highlights: |
|
|
|
|
|
|
| |||||||
| Sports rights payments |
| — |
|
| 496 |
|
| — |
|
|
| 496 | ||
| Program contract payments |
| 20 |
|
| — |
|
| 5 |
|
|
| 25 | ||
| Capital expenditures(b) |
| 11 |
|
| 2 |
|
| 3 |
|
|
| 16 | ||
| Interest expense (net) (c) |
| 1 |
|
| 102 |
|
| 40 |
|
|
| 143 | ||
| Adjusted EBITDA (d) |
|
|
|
|
|
|
| 234 | ||||||
| (a)
| Broadcast includes $29 million of revenue for services provided by the Broadcast segment to the Local Sports segment and Other and the Local Sports segment includes $29 million of selling, general, and administrative expenses for services provided by the Broadcast segment to the Local Sports segment and Other includes less than $1 million of selling, general, and administrative expenses for services provided by the Broadcast segment to Other. Such amounts are eliminated in consolidation. | |
| (b) | Capital expenditures exclude $2 million of repack capital expenditures expected to be reimbursed in the future from the TV Broadcaster Relocation Fund administered by the FCC. | |
| (c) | Interest expense (net) excludes deferred financing costs, original issue discount amortization, and other non-cash interest expense, and is net of interest income. | |
| (d)
| Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortization, and non-recurring transaction, COVID, legal, litigation and regulatory costs, as well as certain non-cash items such as stock-based compensation expense and sports rights amortization; less sports rights payments and programming payments. Refer to the reconciliation on the last page of this press release and the Company’s website. |
| For the three months ended December 31, 2020 ($ in millions) | Broadcast |
| Local Sports |
| Corporate and |
| Consolidated | |||||||
| Revenue Highlights: |
|
|
|
|
|
|
| |||||||
| Distribution revenue | $ | 355 |
| $ | 513 |
| $ | 49 |
|
| $ | 917 | ||
| Advertising revenue |
| 503 |
|
| 14 |
|
| 37 |
|
|
| 554 | ||
| Other media revenue |
| 38 | (a) |
| 4 |
|
| (23 | ) | (a) |
| 19 | ||
| Media revenues | $ | 896 |
| $ | 531 |
| $ | 63 |
|
| $ | 1,490 | ||
| Non-media revenue |
| — |
|
| — |
|
| 22 |
|
|
| 22 | ||
| Total revenues | $ | 896 |
| $ | 531 |
| $ | 85 |
|
| $ | 1,512 | ||
|
|
|
|
|
|
|
|
| |||||||
| Expense Highlights: |
|
|
|
|
|
|
| |||||||
| Media programming & production expenses and |
| 474 |
|
| 163 | (a) |
| 34 |
| (a) |
| 671 | ||
| Sports rights amortization included in media |
| — |
|
| 50 |
|
| — |
|
|
| 50 | ||
| Non-media expenses |
| — |
|
| — |
|
| 22 |
|
|
| 22 | ||
| Corporate general and administrative expenses |
| 24 |
|
| 3 |
|
| 10 |
|
|
| 37 | ||
|
|
|
|
|
|
|
|
| |||||||
| Other Highlights: |
|
|
|
|
|
|
| |||||||
| Sports rights payments |
| — |
|
| 221 |
|
| — |
|
|
| 221 | ||
| Program contract payments |
| 21 |
|
| — |
|
| 5 |
|
|
| 26 | ||
| Capital expenditures(b) |
| 8 |
|
| 7 |
|
| 5 |
|
|
| 20 | ||
| Interest expense (net) (c) |
| 1 |
|
| 102 |
|
| 42 |
|
|
| 145 | ||
| Adjusted EBITDA (d) |
|
|
|
|
|
|
| 617 | ||||||
| (a) | Broadcast includes $25 million of revenue for services provided by the Broadcast segment to the Local Sports segment and Other; Local Sports includes $25 million of selling, general, and administrative expenses for services provided by the Broadcast segment to the Local Sports segment and Other includes less than $1 million of selling, general, and administrative expenses for services provided by the Broadcast segment to Other. Such amounts are eliminated in consolidation. | |
| (b) | Capital expenditures exclude $7 million of repack capital expenditures expected to be reimbursed in the future from the TV Broadcaster Relocation Fund administered by the FCC. | |
| (c) | Interest expense (net) excludes deferred financing costs, original issue discount amortization, and other non-cash interest expense, and is net of interest income. | |
| (d)
| Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortization, and non-recurring transaction, COVID, legal, litigation, and regulatory costs, as well as certain non-cash items such as stock-based compensation expense and sports rights amortization; less sports rights payments and programming payments. Refer to the reconciliation on the last page of this press release and the Company’s website. |
Consolidated Balance Sheet and Cash Flow Highlights:
- Total Company debt as of December 31, 2021 was $12,340 million, which includes DSG debt of $8,151 million.
- Cash and cash equivalents for the Company as of December 31, 2021 was $816 million, which includes $479 million held at DSG.
- As of December 31, 2021, 49.3 million Class A common shares and 23.8 million Class B common shares were outstanding, for a total of 73.1 million common shares. During the fourth quarter 2021, the Company repurchased approximately 2.4 million common shares under a 10b5-1 plan.
- In December 2021, the Company paid a $0.20 per share quarterly cash dividend to its shareholders.
- In February 2022, the Company’s board of directors approved increasing the quarterly cash dividend to its shareholders by 25% to $0.25 per share, beginning with the quarterly dividend payable to holders of record as of March 7, 2022.
- Routine capital expenditures in the fourth quarter of 2021 were $16 million, excluding $2 million related to the spectrum repack.
- The Local Sports segment’s fourth quarter media production expense included $438 million of sports rights amortization, while sports rights payments in the quarter were $496 million. $41 million of sports rights payments that were estimated to be paid in the fourth quarter 2021 were paid in January 2022.
Notes:
Certain reclassifications have been made to prior years’ financial information to conform to the presentation in the current year.
Outlook:
The Company currently expects to achieve the following selected results for the three months ending March 31, 2022 and twelve months ending December 31, 2022.
Contacts
Investors:
Steve Zenker, VP, Investor Relations
Billie-Jo McIntire, Director, Investor Relations
(410) 568-1500
Media:
Michael Padovano, 5W, [email protected]
