Sinclair Third Quarter 2026 Earnings Conference Call - SINCLAIR INC

Financial Performance:

• Total revenue for Q3 2026 reached $893 million, a 16% year-over-year increase driven by political advertising and distribution growth.
• Adjusted EBITDA surged to $213 million, an 113% increase year-over-year, doubling the prior year's amount.
• Political advertising revenue was the primary growth driver at $136 million, up 55% from Q3 2022.
• Core advertising revenue declined 4% due to political crowd-out and cautious spending in inflation-pressured categories like medical, legal, and food.
• Distribution revenue grew 1% supported by reduced subscriber churn and partner station buy-ins.
• Sinclair Television Group (STG) revenue rose 18% to $789 million, with adjusted EBITDA jumping 123% to $205 million.
• Tennis Channel core revenue grew 21%, while adjusted EBITDA dipped slightly by $1 million due to higher production costs and digital platform investments.
• Total company debt stood at approximately $4 billion at quarter-end, with net leverage of 5.1x, down from 5.2x the prior quarter.
• Consolidated cash and equivalents were $659 million, with total liquidity (including undrawn facilities) of approximately $1.4 billion.
• Year-to-date debt repayments totaled $355 million, including the retirement of the remaining B-3 term loan balance.

Guidance and Future Outlook:

• Full-year 2026 political revenue guidance raised to approximately $455 million, exceeding the prior upper bound of $375 million and setting a record for a midterm cycle.
• Full-year total revenue guidance revised to $3.53–$3.60 billion (midpoint up $95 million); adjusted EBITDA guidance raised to $825–$835 million (midpoint up $85 million).
• Core advertising guidance narrowed to $1.22–$1.25 billion to reflect increased certainty.
• 2027 outlook expects no benefit from the Olympics or World Cup, with potential MLB labor uncertainty affecting core advertising.
• Political revenue in 2027 will be off-cycle, but inventory freed from 2026 elections is expected to support core ad rebound.
• Distribution outlook remains positive with moderated churn and upcoming renewals for major MVPDs and network affiliations in 2027.
• Capital expenditures for 2027 are expected to remain broadly in line with 2026 levels; cost discipline will continue.
• Full-year 2027 guidance will be provided in the Q4 earnings release in late February.

Business Segments and Product Lines:

• Local Media: Delivered strong growth driven by political ad demand and market optimization acquisitions (three in-market station groups acquired in 12 months).
• Tennis Channel: Showed strong performance with a 21% increase in core advertising and 2% growth in distribution; launching new in-house apps in December to control digital destiny.
• Digital & Social: Amp Media and social products saw strong growth; podcast partnerships and digital platforms are expanding.
• Sports Viewership: NFL viewership up 4% YoY (18.4M avg) and college football up 2% to record highs, reinforcing local broadcast dominance for live sports.
• Strategic Review: Determined not to spin off the Ventures portfolio as a standalone entity, though a "spin-merge" or larger broadcast combination remains an option.
• Affiliation Agreements: Renewed agreements in place for ABC and CBS; Fox renewal negotiations ongoing; significant MVPD renewal wave expected in 2027.

Market and Competitive Landscape:

• Local broadcast television continues to dominate political advertising delivery, with Sinclair maintaining or growing market share.
• Political spending in the 2028 election cycle is anticipated to be aggressive due to dual open primaries in both parties, benefiting early spenders.
• M&A activity remains constructive at the market optimization level, with the FCC regulatory environment viewed as favorable.
• The broader industry is expected to see a resurgence in larger-scale M&A discussions following a resolution to the Nexstar/Tegna situation.
• Spectrum monetization is viewed as a three-pronged opportunity: ATSC 3.0 transition, data casting (via EdgeBeam), and leasing to wireless/satellite providers.

Risks and Challenges:

• Macroeconomic Pressure: Inflation and fuel volatility are squeezing advertiser budgets in price-sensitive verticals (medical, legal, food).
• Competition: Streaming services have emerged as major competitors for distribution rights, necessitating rebalancing of retransmission fees.
• Labor Uncertainty: Ongoing MLB labor negotiations could delay the 2027 season, negatively impacting core advertising revenue.
• Political Volatility: The 2027 revenue baseline will be challenged by the absence of major sporting events (Olympics/World Cup) and the lack of a presidential election cycle.
• LUR Rulings: While not currently impacting results, legal challenges regarding Lowest Unit Rate rules remain a monitoring point, though offset by high demand.

Management Commentary and Tone:

• Management expressed high confidence in the strength of the political cycle, noting demand exceeded expectations in almost every contested state.
• Tone was optimistic regarding long-term broadcast value, emphasizing the platform's ability to deliver undecided voters and its resilience against digital competition.
• Emphasis was placed on disciplined capital allocation, with broadcast free cash flow dedicated to debt reduction while Ventures focuses on return-seeking investments.
• Leadership highlighted the strategic decision to retain the Ventures portfolio to preserve flexibility for future large-scale transactions rather than forcing a standalone separation.

Analyst Questions and Answers:

• Capital Allocation: Management confirmed broadcast cash will continue to pay down debt, while Ventures cash will fund strategic growth or potential large broadcast transactions; a standalone spin is off the table.
• Subscription Churn: Churn is improving (mid-single digits) due to MVPD packaging strategies (e.g., Charter) that bundle streaming with linear content; no major blackouts have occurred in recent years.
• M&A & Spectrum: Management sees a "vibrant" market for market optimization deals and views the ATSC 3.0 transition as a key catalyst for future spectrum monetization.
• Tennis Channel Strategy: Focus is shifting to direct-to-consumer streaming via new apps to accelerate subscriber growth, supported by double-digit engagement on social platforms.
• Ad Trends: Auto ad spend remained stable in Q3 but faces headwinds in Q4 due to pricing; core advertisers are expected to return as political inventory frees up.
• Sports Broadcasting Act: Lawmakers reinforced the importance of broadcast collective bargaining rights for major leagues, supporting the current retransmission model.

Other Key Points:

• The 2026 election cycle saw 62% of political spend come from issue PACs and 38% from party/candidate spend.
• Sinclair successfully managed high political volume using an algorithm-based pricing system.
• The company completed a cloud transition and other infrastructure projects, resulting in reduced operating expenses.
• Tennis Channel 2 (FAST channel) is growing audiences in the double digits and expanding distribution to platforms like YouTube TV.
• Management reiterated that they are not expecting the FCC to sunset ATSC 1.0 immediately but is supportive of the ongoing NPRM process to finalize the 3.0 transition.