Q3 2022 Results Conference Call
November 02, 2022 9:00 AM ET
Lucy Rutishauser - Executive VP and CFO
Billie Jo McIntire - Director of IR
Chris Ripley - President and CEO
Rob Weisbord - COO and President of Broadcast
Conference Call Participants
Dan Kurnos - Benchmark Company
Barton Crockett - Rosenblatt Securities
Aaron Watts - Deutsche Bank
Edward Reily - EF Hutton
Steven Cahall - Wells Fargo
Good morning, ladies and gentlemen, and welcome to the Sinclair Third Quarter 2022 Earnings Conference Call. At this times, all participants have been placed on a listen-only mode. And the floor will be open for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host, Lucy Rutishauser, Executive Vice President and CFO.
Ma'am, the floor is yours.
Thank you, operator. Participating on the call with me today are Chris Ripley, President and CEO; Rob Weisbord, President of Broadcast and Chief Operating Officer; and Steve Zenker, Vice President of Investor Relations.
Before we begin, I want to remind everyone that slides and supplemental information for today's earnings call are available on our website, sbgi.net, on the Information page and on the earnings webcast page. I also want to remind you that today's call is a Sinclair-only call. A separate public call for Diamond Sports Group will be hosted in a couple of weeks.
Now Billie Jo McIntire will make our forward-looking statement disclaimer.
Billie Jo McIntire
Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors. Such factors have been set forth in the company's most recent reports as filed with the SEC and included in our third quarter earnings release. The company undertakes no obligation to update these forward-looking statements.
The company uses its website as a key source of company information, which can be accessed at www.sbgi.net. In accordance with Regulation FD, this call is being made available to the public. A webcast replay will be available on our website and will remain available until the next quarterly earnings release.
Included on the call will be a discussion of non-GAAP financial measures, specifically adjusted EBITDA, adjusted free cash flow and leverage. The company considers adjusted EBITDA to be an indicator of the operating performance of its assets. The company also believes that adjusted EBITDA is frequently used by industry analysts, investors and lenders as a measure of valuation. These measures are not formulated in accordance with GAAP and are not meant to replace GAAP measurements and may differ from other companies' uses or formulations. The company does not provide reconciliations on a forward-looking basis.
Further discussions and reconciliations of the company's non-GAAP financial measures to comparable GAAP financial measures can be found on the company's website, www.sbgi.net. In addition, given the deconsolidation of Diamond on March 1 of this year and in order to have a meaningful discussion around comparative results and trends, all discussions of prior financial reporting periods during this call reflect Sinclair-only pro forma numbers and thus exclude Diamond and any intercompany transactions with them and exclude businesses sold in the prior 12 months. For actual results, including the periods that Diamond was consolidated, please refer to this morning's earnings release.
Chris Ripley will now give you an update on the strategic direction of the company.
Good morning, everyone. I'm going to keep my comments relatively brief as we covered a lot of ground at our Investor Day just weeks ago on October 3. Our results for the quarter were in line with our revised expectations provided during our recent Investor Day. Political revenues remain robust, and as mentioned on Investor Day, we're still expecting a record midterm political year.
With a week remaining until election day, our full year political estimate is $335 million to $340 million, which is in the $325 million to $350 million range we gave on our Investor Day. Rob will give you more color on the advertising environment in just a minute.
Our total adjusted EBITDA of $198 million was within our guidance range, aided by lower-than-expected expenses. During our Investor Day, we spent a fair amount of time on our growth initiatives. When you look at the future of Sinclair, it will be driven by our current television station assets as well as our growth initiatives. These initiatives fall into 4 categories: multi-platform content, marketing services, data distribution and community interactivity.
A key aspect of our growth strategies is creating additional revenue streams to both incrementally monetize our linear audience and our 80-plus million unique digital viewers as well as drive new uses for our broadcast spectrum. Today, Sinclair achieves the vast majority of its revenues from linear advertising sales and distribution. We believe these growth initiatives will unlock significant revenues rivaling today's 2 revenue sources.
And we also have our investment portfolio, which we currently estimate is worth approximately $1.2 billion or close to $17 per share. It has generated an IRR of approximately 20% since 2014. I'd like to take the time to give you more insight into this portfolio. It currently consists of real estate, private equity, venture capital investments and direct investments in companies.
The real estate investments are in a number of different properties that are almost all-in producing, and Sinclair has a majority ownership in most of them. Many are apartment buildings with occupancies over 90%. The earliest real estate investments were entered into as far back as 2007. There are also commercial projects in which the company has an ownership interest.
The private equity and venture capital investments are generally minority investments and funds that invest in many different areas, including middle-market companies in the U.S. and India; as well as specific industries, including technology, manufacturing and environmentally focused services. Sinclair also has minority direct investments in 14 companies, including Bally's and Playfly Holdings, which is a full-service sports marketing company operating at the intersection of sports, media and technology. Other investments include companies in advertising security software, wireless communication and semiconductors and broadcast cloud production.
The final piece of the investment portfolio is the Diamond accounts receivable facility loan, which advances funds to Diamond for a portion of its accounts receivable balance. The counterparty risk is with Diamond's customers, such as the big distributors with which we have a relationship in our broadcast business. So these are customers we know well and with which we are comfortable. The rate we have earned on this investment this quarter averaged 6% to 8%.
During the quarter, we made additional investments of $6 million in our portfolio and received distributions including exit payments of $52 million. For the full year 2022, we projected investments of approximately $68 million and distributions including exit payments of $137 million. When you look at the adjusted free cash flow we generate, excluding Diamond's consolidated results for the first 2 months of the year, Sinclair currently trades at a free cash flow yield of approximately 50%, which is more than double the broadcast industry average and an even greater disparity to major market indices. Simply put, we believe we're grossly undervalued and have continued buying back our shares as one way to enhance returns.
Before I turn it over to Rob, I wanted to mention the series of automotive seminars that began last week and which highlight the benefits of over-the-air data distribution for the auto industry. I think you'll find the very enlightening on the significant potential of ATSC 3.0 for data transmission, which offers wide coverage and high reliability at attractive costs.
Now I'll turn it over to Rob, who will give you some greater color on the advertising market and our third quarter results.
Thanks, Chris. Total media revenue for the quarter increased 5% over last year. Political ad revenues were strong during the quarter, outpacing 2018 pro forma results by 28%. Year-to-date political ads revenues through the third quarter are up more than 50% over 2018 pro forma and only down 2% over 2020 pro forma, which was a presidential election....