Sinclair Broadcast Group released its first quarter 2023 earnings results prior to Wednesday’s Opening Bell on Wall Street, and as President/CEO Chris Ripley sees it, “Sinclair is seeing a solid start to 2023, meeting or beating guidance on all key financial metrics.”
Nonetheless, he said in prepared comments that Sinclair remains “cautious for the full year on expectations for a weaker economy.”
That said, the first 10 minutes of the company’s Q1 2023 earnings call were focused on ways to grow revenue that go beyond advertising, and broadcasting, as “Sinclair Inc.” is taking shape.
Ripley began the call by reiterating how a reorganization of Sinclair, first announced April 3, will see the shift of Sinclair’s marketing technology and managed services Compulse business and The Tennis Channel — celebrating its 20th anniversary — from Sinclair Television Group to Sinclair Ventures, putting the two assets in the same corporate arena as private equity and real estate assets.
The new Sinclair Broadcast Group would be comprised of Sinclair Television Group and Diamond Sports.
The reorganization requires shareholder approval scheduled for May 24.
Ripley then took an indirect swipe at the FCC, which under the leadership of Ajit Pai prevented Sinclair from growing by effectively killing its proposed merger with Tribune Broadcasting. At the time, questions regarding shared service agreements with broadcast companies the Commission viewed as too closely tied to Sinclair sent the proposed deal to the FCC’s Administrative Law Judge. Not too dissimilarly, Standard General’s proposed acquisition of TEGNA was sent to the ALJ to help answer unresolved questions the FCC’s Media Bureau has over the transaction; that deal is all but dead.
Given the climate for such deals, Ripley took aim at the “continued regulatory uncertainty” and “restrictions” being placed on broadcasters. This likely includes the continued desire among broadcasters to loosen local ownership rules, which has been advocated by the NAB but is largely unlikely under a Democratic administration; Chairwoman Jessica Rosenworcel challenged the “modernization” of FCC rules under the Pai Commission, unsuccessfully.
With growth, in Sinclair’s view, limited by the FCC’s unwillingness to allow further industry consolidation, Sinclair Inc. marks a fundamental move away from “Broadcast” for the company. As Ripley said, Sinclair will allocate more dollars to non-broadcast holdings, including India-based investments. Among the U.S. non-broadcast holdings controlled by Sinclair is Dielectric, the broadcast tower company. These investments are integral to “unlocking overall value” for the organization, Ripley said.
Then, there is Sinclair’s heavy investment and lead evangelist on NEXTGEN TV and the ATSC 3.0 digital broadcast standard’s further rollout across the U.S. Data distribution means money for broadcast TV, Sinclair believes, as does Nexstar founder and head Perry Sook. For Sinclair, a Q1 2024 platform debut for data distribution is on track.
EARLY POLITICAL ACTIVITY
With Chief Revenue Officer and President of Broadcast Rob Weisbord detailing Sinclair’s Q1 2023 financial statement, he noted that $3 million in political spend was seen in the first three months of the year.
That’s double of what was seen in Q1 2019, the best comparable quarter, as Weisbord believes political has “set us up nicely” for a big 2024.
Meanwhile, Automotive is up by the low-single-digits, yet was offset by lower insurance company activity; GEICO in February selected IPG Mediabrands as its agency of record after placing its accounts in review in October 2022. As such, it has held back on the level of activity at spot television compared to Progressive and Liberty Mutual Insurance, Media Monitors data show.
LEVERAGE CONCERNS
During the Q&A session on the Sinclair call, the first query came from noted Wells Fargo analyst Steven Cahall, who infamously put a $0.00 price target on radio broadcasting company Audacy Corp.
Cahall wondered why Sinclair’s leverage grew from 4.4x to the mid-5x range. EVP/Chief Financial Officer Lucy Rutishauser explained that second quarter stock repurchases by Sinclair and the “direction of adjusted EBITDA” this year, with net retrans being down in a non-political year, were key factors.
A DIVIDEND DECLARATION FOR SBGI
Sinclair Broadcast Group’s Board of Directors declared a quarterly cash dividend of $0.25 per share on the company’s Class A and Class B common stock. The dividend is payable on June 15 to the holders of record at the close of business on May 30.
Other analysts on the call include Ben Soff, VP of Equity Research at Deutsche Bank; and Dan Kurnos, of Benchmark.
