Sinclair Broadcast Group Inc (SBGI) Q1 2020 earnings call dated May. 06, 2020

Corporate Participants:

Lucy A. Rutishauser — Executive Vice President & Chief Financial Officer

Billie Jo McIntire — Manager, Investor Relations

Christopher S. Ripley — President & Chief Executive Officer

Robert D. Weisbord — President, Local News & Marketing Services

Analysts:

Aaron Watts — Deutsche Bank — Analyst

Dan Kurnos — The Benchmark Company — Analyst

John Janedis — Wolfe Research — Analyst

Avi Steiner — JP Morgan — Analyst

Davis Hebert — Wells Fargo — Analyst

Steven Cahall — Wells Fargo — Analyst

Presentation:

Operator

Greetings, welcome to the Sinclair Broadcast Group First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.

I’d like to turn the conference over to Lucy Rutishauser, Executive Vice President and Chief Financial Officer. Thank you, you may begin.

Lucy A. Rutishauser — Executive Vice President & Chief Financial Officer

Thank you, operator. Participating on the call with me today are Chris Ripley, President and CEO; Rob Weisbord, President of our Local News and Marketing Services division; and Jeff Krolik, President of FOX Sports Net. Before we begin, Billie Jo McIntire will make our forward-looking statement disclaimer.

Billie Jo McIntire — Manager, Investor Relations

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 first 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 our 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. These metrics are not meant to replace GAAP measurements, but are provided as supplemental detail to assist the public in their analysis and valuation of our Company. A reconciliation of the non-GAAP financial measures to the GAAP measures in our financial statements is provided on our website under Investors, Non-GAAP Measures.

Chris Ripley will now take you through our operating highlights.

Christopher S. Ripley — President & Chief Executive Officer

These are unprecedented times for the country and the world that we are going through as a result of COVID-19. I’m sure everyone has personal stories that how this is affected their lives and we at Sinclair are no different. I’m very proud of our employees who have stepped up and positively impacted their communities in many different ways. These Sinclair heroes are making protective gear for those who are most vulnerable in their communities, shopping for senior citizens who cannot leave their homes, and creating online book clubs to help children learn and stay occupied during this difficult time. Our stations are actively involved in fundraising efforts for their local communities, having raised millions of dollars in a short period of time. We at Sinclair, like all of America, are strong and resilient, which will see us through this challenging environment.

The big question on everyone’s mind at the moment is how COVID-19 is impacting our business and industry and how we’re responding. For the first quarter, the financial impact is relatively small, impacting our media revenue guidance by 2%. However, we were swift to react on the cost side and ended up growing EBITDA as compared to our guidance. In our legacy businesses, we did see attrition from some advertisers very late in the quarter, which caused our core advertising to come in lower than expected. However, political revenue held up and came in at the mid-range — sorry, the midpoint of our range, reflecting the strength of the category. In our Sports segment, the NBA, NHL, and MLB postponed their seasons beginning in March, which had a relatively small impact on our EBITDA for the quarter. While the postponement of the games resulted in lost advertising dollars, the impact was mostly offset by the absence of direct costs for the games that were not playing.

Perhaps the biggest effect of COVID-19 during the quarter was the surge in viewership we experienced across our local news and digital sites. We are seeing firsthand the power of local news and the importance that viewers place on live local content. I can’t stress this enough. No other media is as critical to keeping the public aware and informed than local television broadcasting. Since the COVID outbreak, viewership of local news on our stations has risen significantly compared to the pre-COVID weeks. In addition, views on our digital platforms are also up very significantly with STIRR seeing a 50% increase in unique viewers from March to April, a testament to our ability to reach, inform, and engage people on all platforms. And I think it’s important to note that despite the uncertainties that COVID has injected into nearly every part of our lives, there will be an election this November and political advertising is still expected to reach record levels.

While we’ve experienced some advertisers canceling their buys or refraining from buying at this time, which is to be expected because of COVID’s impact on businesses, we are working with those businesses to help them maximize their ad dollars. These efforts, including video conferencing to highlight marketing services they could utilize and our artificial intelligence engine that can produce a commercial in 10 minutes. We also have included them in our We Are Open campaigns and provided them incremental spots at no costs. We’ve also been taking steps on Sinclair’s expense side to proactively counter reductions in advertising revenue. Early on, we went into cost management mode, including freezing all travel and entertainment, delaying non-essential capex, deferring open position hires, and reducing promotional spending.

For the Sports segment, second quarter advertising revenue is expected to be impacted by the continued postponement of games during the quarter. But as I mentioned, this will be offset in part by the absence of the costs associated with producing those games. Lucy will get into the numbers shortly, but first I want to take a minute to explain how sports rights and the distribution agreements work, which represents 75% of our sports media expenses and 90% of the Sports segment’s revenues. The sports rights agreements entered into between our RSNs and the professional sports teams typically include a minimum game delivery obligation. Adjustment provisions in those agreements address shortfalls by teams, including rebates tied to the number of games actually delivered. Commercially, certain of our affiliation agreements with distributors also include game delivery minimums. We can — if we cannot deliver the minimum number of games under the agreements, there is a mechanism for distributors to recoup a portion of their carriage fees. Each contract is unique and confidential and therefore has different parameters and remedies for any potential shortfall of games delivered.

Despite the postponement of games of play, we continue to make payments to the teams and our distribution partners continue to pay us. The mechanism for truing up for any content not received under our sports rights agreements or not delivered under our affiliation agreements generally takes place at the end of the season or calendar year. While we believe that sports will come back this year and be in high demand, at this time the leagues have not indicated when games will resume. Therefore, we do not know where we will end up in relation to the game delivery minimums. Keep in mind that the NHL and NBA regular seasons were almost complete when the seasons were suspended, so shortfalls in those weeks, if any, should be minor. Nonetheless, we have pulled our full year guidance until such time as we have a clear picture of the timing of revenue and expenses.

Despite COVID-19, we are still hard at work on initiatives to ensure our success in the years ahead. Top of mind are the digital reboot and rebranding of our RSNs. As part of these efforts, we are developing a more robust and dynamic app that will enhance the user experience, allowing the viewers to interact with live sports in ways that have not been previously available. This eventually is expected to include legalized sports betting capabilities. We’ve been talks with numerous companies about how we can best partner to deliver consumers a compelling betting experience within the viewing app. We expect to announce more on this front later in the year.

Another initiative that we’ve been advancing over the last several years centers around making the next generation of TV a reality. These efforts are taking a big step forward this year with a dozen Sinclair markets currently planning to deploy ATSC 3.0. At the same time, several consumer electronics manufacturers plan to produce approximately 20 NEXTGEN TV models this year. The new platform allows for expanded usage of the broadcast frequency on which stations are transmitted, enabling more targeted and content-rich advertising and greater personalization for the consumer as well as new non-television data services. You will also be hearing more about these efforts later in the year.

STIRR, the company’s fast-growing free OTT app that launched in January 2018, finished the quarter with strong momentum, setting all-time highs across all key metrics of total impressions increasing 25% over Q4 last year and that strength is carried into April The platform has benefited greatly from its offering of live local news on the local STIRR city channel. And 100 free additional linear channels and by its recent launch of the new 24-hour COVID-19 News Channel, which has quickly become a top-5 watched channel. The live and local aspect of STIRR continues to be a draw with viewers, with close to 50% of users tuning in for local news, consuming it live over 80% of the time.

I also want to mention the launch of Tennis Channel International and over-the-top platform dedicated to the best that tennis has to offer, which premiered in Germany at the end of April. The launch date was just-in-time for the restart of live tennis with the Tennis Point Exhibition Series, a four-day tennis competition between men’s tennis professionals that ran from May 1 through May 4. This was the first live major tennis event played in over two months. Tennis Channel International will be expanding to other countries in the months ahead.

Finally, we continue our efforts as a strong corporate citizen in the communities in which we serve. We are elevating the value of local news that brings to our viewers in many ways. For example, we are expanding the number and scope of our investigative pieces, which have received critical acclaim over the years, targeting 23 markets in 2020. Also, more viewers staying at home with their children during the COVID-19 pandemic, we have started providing certain programming aiming at helping parents fill the educational gap due to schools moving to remote education. For example, in West Palm Beach, Florida, we have partnered with a local PBS station on educational shows, and our markets are working with local high schools and colleges to stream virtual graduations.

In addition to our programming initiatives, we continue to promote fundraising efforts with the Salvation Army to assist those in need, including those affected by the Nashville deadly tornadoes in March and those impacted by the COVID-19 pandemic.

This year, our Sinclair Cares campaign has raised over $850,000. Since 2017, our fundraising efforts have raised over $3 million in donations for the Salvation Army, helping our communities recover from wildfires, extreme weather events and now pandemics.

For our employees, we have taken steps to help them through these difficult times. We are allowing eligible employees to cash out paid vacation to assist with family hardships. We have created a multimillion-dollar fund to advance paid eligible RSN freelancers. We extended the use of sick leave and are allowing compensation draws to commission-based marketing consultants.

I know our investors have been disheartened by recent performance of our equity and fixed income securities. I do want to assure everyone that Sinclair is financially strong. We have taken measures to increase our liquidity, not out of necessity, but rather as a precautionary measure at this time of uncertainty caused by the disruption from COVID-19.

Lucy will give you more details on those measures in a minute, but I do want to emphasize that we believe our securities are grossly undervalued, and we have purchased a significant amount of our common equity.

I want to emphasize that we have been through these scenarios like this before, and rest assured, we are taking steps internally to reduce expenses and preserve working capital where appropriate.

Now, I’ll turn it over to Lucy to discuss our financial performance.

Lucy A. Rutishauser — Executive Vice President & Chief Financial Officer

Thank you, Chris. We at Sinclair hope that everyone is safe and healthy. And as Chris pointed out, we’d like to give a shout out to our employees who have ensured we remain on the air and keep you, our viewers, informed and entertained. We’d also like to thank our staff for a quick and smooth transition to work from home. Your positivity, creativity and commitment have been inspiring.

Despite the impact COVID-19 had on revenue towards the end of the quarter, we still exceeded our EBITDA and free cash flow guidance. Keep in mind that the inclusion of the sports segment this year, which was not in last year’s first eight month numbers, is responsible for many of the larger changes in our actual results versus the same period last year. Therefore, in many cases, I will be speaking about results versus prior year pro forma, which is a much more meaningful comparison and assumes we own the RSNs in those periods.

Our Q1 actuals and much of our guidance is in this morning’s earnings release. So rather than spend time on the call repeating those numbers, I’ll focus on key financial metrics of the consolidated company and each silo.

For the consolidated company, media revenues for the first quarter increased about $900 million, due primarily to the inclusion of the Sports segment. On a pro forma basis, total media revenues were down versus last year’s first quarter media revenues of $1.618 billion. As higher political and digital ad growth as well as higher distribution revenue at our legacy business, only partially offset the absence of DISH revenues in the Sports segment and COVID’s impact on ad revenues in March across all segments.

As a reminder, our legacy business consists of our Local News and Marketing Services segment as well as our Corporate and other segments. While January and February, advertising gains were strong, ending up mid-single digits, in mid-March, we began to see the effects of COVID-19 with the postponement of professional basketball, hockey and baseball games and the cancellation of advertising commitments.

Subscriber churn in the quarter was mid-single digits on a year-over-year basis. The churn rate continues to be affected by one large MVPD. And as we stated last quarter, excluding that distributor, subscribers were flat. It’s still too early to tell due to the reporting lags to know if COVID has had any impact on subscribers, either up or down. But we know that in 2008, during a great recession, subscription-based businesses fared better than ad-based businesses. And with the stay-in-place rules in many states, TV is one of the few entertainment options available to people.

Consolidated media expenses of $1.38 billion were better than our guidance. And flat on a pro forma basis compared to last year, and that’s on lower sports expenses due to the postponed games as well as cost savings in the wake of COVID which offset the higher network programming cost and SG&A.

Adjusted EBITDA on a consolidated basis increased 69% to $281 million. With the inclusion of the Sports segment contributing $58 million. Pro forma adjusted EBITDA was down from Q1 last year’s $415 million, with the largest driver being the absence of DISH in the Sports segment and higher network costs. However, EBITDA exceeded our guidance as lower-than-forecasted expenses more than offset the lower revenues.

Consolidated adjusted free cash flow, excluding nonrecurring legal litigation transaction and regulatory items of $20 million, was $110 million, which was $37 million higher than the top end of our guidance.

Please keep in mind that there are timing events that occurred in the first quarter, which historically have made it one of the lowest EBITDA and free cash flow quarters of the year.

Diluted earnings per share on 91 million weighted average common shares was $1.35 in the quarter or $1.53 when adjusted for nonrecurring items.

As Chris mentioned earlier, we took steps during the quarter to enhance our liquidity out of an abundance of caution and not as a result of pressing liquidity needs in the short term. We borrowed $225 million of Diamond’s revolver and $648 million of STGs. However, in April, we repaid a portion of the STG revolver bringing the current outstanding balance down to $225 million. The revolver draws are sitting as cash on both silo’s balance sheets.

In March, we also elected to pay in kind, Diamond’s first quarter preferred stock dividend, which preserved $13 million of cash. We also eliminated our nonessential travel, delayed open positions, reduced media spending and deferred nonessential capex. In total, we have identified approximately $100 million of discretionary and sales-based expenses for this year, including $14 million of savings realized in Q1. There’s also another $30 million of nonessential capex, which is expected to be saved this year.

I do want to emphasize that while we currently do not anticipate liquidity constraints, should there be a prolonged period of economic weakness, there are additional measures we could take to further control cost, slow our working capital needs and generate cash. But we do not believe we need to take these steps at this time.

During the quarter, we took advantage of the steep drop in the prices of our publicly traded securities. We’ve repurchased nearly 10 million shares of Sinclair stock at an average price of $17.65. In the second quarter, we have repurchased another 3 million shares. Since the start of the year, 14% of the total shares outstanding have been repurchased. Our buyback creates approximately $10 of share price accretion. Our dividend now yields over 5% annualized, which on an after-tax cost basis is more expensive than STG’s debt and represents the best use of STG’s free cash flow.

Turning to the segments. For the legacy business, media revenues increased 17% on strong advertising revenue growth in the first 2.5 months of the quarter before COVID-19 slowed the economy and resulted in ad cancellations towards the end of March. The early quarter strength was across both political and core advertising.

We ended the quarter with total advertising up 12% or down 1% ex political. Political advertising of $40 million was a first quarter record for Sinclair. Distribution revenue increased 15%. The legacy business also benefited from $23 million of management and incentive fees paid by Diamond. This revenue, as a reminder, is eliminated in consolidation.

Adjusted EBITDA for the legacy business increased 34% to $223 million. This was near the high end of our guidance due to the higher net distribution revenue and cost controls that offset the lower COVID advertising impact.

In the Sports segment, media revenues of $812 million decreased 14% versus pro forma results of $948 million in Q1 of last year. The decline was expected and was due primarily to the absence of DISH, as well as lower advertising revenues related to the postponement of professional league games.

Sports adjusted EBITDA of $58 million for the quarter was above our guidance range of $30 million to $33 million due to lower direct game costs, cost controls and timing of sports rights payments that more than offset the decline in advertising. On a pro forma basis, the decline from Q1 last year’s adjusted EBITDA of $231 million was due to the absence of DISH as well as higher sports rights payments and the incentive fee paid to STG.

Sports rights payments of $612 million in the quarter were $221 million higher than the sports rights amortization for the quarter, which is a timing item within the year.

As a reminder, rights payments are typically highest in the first and fourth quarters.

Turning to the balance sheet. Consolidated cash at the end of the quarter was $1.342 billion, including $844 million at STG and $483 million of cash at Diamond. Again, keep in mind that STG’s cash balance included the $648 million of drawn revolver, and Diamond included the $225 million a drawn revolver.

STG, I just want to remind you again, we had since repaid a large portion of that, such that there’s only $225 million outstanding.

Total debt at the end of the first quarter was $13.302 billion, and the net leverage ratio for consolidated Sinclair at quarter end was 5.7 times. Sinclair Television Group’s first lien indebtedness ratio on a trailing eight quarters was 2.5 times on a covenant of 4.5 times and 4.3 times on a net leverage basis through the bonds. Diamond’s first lien indebtedness ratio on trailing 4 quarters was 5.4 times on a covenant of 6.25 times. And I want to remind everybody that, that maintenance covenant only springs into effect if the revolver is drawn over 35%. On a total net leverage basis, Diamond was 7 times.

In terms of guidance for the second quarter and the rest of the year, obviously, the outlook right now is uncertain with it unknown how long the economy will continue to be impacted by COVID and how long professional sports leagues will post paring their seasons. Therefore, we are suspending our full year guidance until we have more visibility into the rate of improvement in the economy, relaxation of-stay-in-place restrictions and resumption of league play.

For the second quarter, we continue to see advertising declines as a result of the game suspensions and general weakness in the economy and our underlying advertiser businesses.

For the legacy business, our second quarter media revenue guidance is $656 million to $686 million, down approximately 5% to 9% from last year. This is driven by a projected 32% to 39% decline in core advertising.

EBITDA is expected to be $107 million to $133 million as compared to $193 million last year. On the flip side, we continue to expect strong political advertising, which is highly concentrated in the second half of the year, and that will help offset some of the weakness in core advertising.

For the Sports segment, second quarter media revenue is expected to be $748 million to $760 million, down 23% to 25% to pro forma last year’s $992 million. We have assumed none of the professional leagues resume play in the second quarter and that the DISH contract will not be executed in the second quarter.

Adjusted EBITDA is expected to be $190 million to $202 million as compared to $440 million pro forma last year with the decline primarily due to the reasons I just said.

I want to point out that the largest decline in the expenses is the result of minimal sports amortization. Since we have assumed no games in the quarter, there will be no sports rights amortization. And while this reduces expenses, it is a noncash item that does not impact EBITDA, which is based on sports rights payments, not amortization. And as Chris pointed out, we continue to pay the teams and the distributors continue to pay us per the contracts.

And finally, for the consolidated company, media revenues are expected to be $1.379 billion to $1.421 billion, adjusted EBITDA of $297 million to $335 million and adjusted free cash flow of $125 million to $169 million. And on 80 million shares, this equates to free cash flow per share of $1.56 to $2.11 in the second quarter.

And with that, we’d like to open it up to questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is from Aaron Watts with Deutsche Bank. Please proceed.

Aaron Watts — Deutsche Bank — Analyst

Hi, everyone. Thanks for having me on. I wanted to start with a question on the STG side. I’m curious what your sales force is seeing and hearing on the ground in your markets as it pertains to SMBs. They’ve been called out as being perhaps most impacted by what is going on now. And also, curious how important those small and medium-sized businesses already overall advertising mix and whether you see the pullback from that category is temporary in nature, has more of a permanent tilt this time or perhaps somewhere in between?

Christopher S. Ripley — President & Chief Executive Officer

Well, I’ll let Rob Weisbord comment on that Comment on that, as it relates to the Local News division. My take is that the SMBs are getting hit pretty hard, probably, much harder than the larger national advertisers. And I do think it’s not permanent. They will bounce back when things return to normal. But so, I’m going to let Rob speak further to that.

Robert D. Weisbord — President, Local News & Marketing Services

Yeah, Aaron, I agree with what Chris stated is we’re doing virtual lunches and learns. We’re educating the SMBs on various marketing services that they might not have had time to learn are giving us the time to be able to demonstrate what solutions coming out of COVID-19 would be applicable for their business. We do see them returning short term. They’ll have to re-staff, get open, get their cash flows going, but we do see a return to their business. Automotive, at the midpoint of this home-sheltering to-date, was considered essential business. And they will need to move their 2020 autos off the lot. So we expect that to be robust in the back half of the year. And our marketing service has continued to keep us strong as a focal point during COVID-19.

Aaron Watts — Deutsche Bank — Analyst

Okay. Got it. That’s helpful context. If I could ask one question on the Sports side, Lucy, I think as you were walking through all the numbers, it seems like the 1Q distribution revenues were a little lighter than your guide. I apologize if I missed this, but what was the main factor in that?

Lucy A. Rutishauser — Executive Vice President & Chief Financial Officer

Yeah. So we — when you think about, say, the Sports side was a little bit negative, the news side, Local News side was a little bit positive, and in aggregate, we were pretty much right on the guidance. It really it’s just a matter of within those markets the difference in the churn versus what we had estimated. So again, those were not material changes, and when you look at the total Company together, we were pretty much at what we guided to.

Aaron Watts — Deutsche Bank — Analyst

Okay. And if I could ask one last one and I appreciate the time. Just bigger picture, does the current environment have any impact on your upcoming distribution renewal discussions, I think, particularly with Comcast coming up this summer?

Christopher S. Ripley — President & Chief Executive Officer

So, we don’t think that will have an impact on those negotiations. As we mentioned, that will occur, and we’ll have more news on that likely this summer. We do expect sports to resume, more than likely sometime this summer. And so, we also think from the data we’ve seen that there is going to be a very large pent-up demand for sports. In fact, there was a survey, we were just looking at, that was done that says 23% of the population is looking to upgrade their TV service in order to watch live sports when it comes back. So, we think the return of live sports is going to be bigger, bigger than normal, and really drive incremental activity. So in some sense, I think this gives us a stronger hand.

Aaron Watts — Deutsche Bank — Analyst

All right. Great. Thank you for the time and everyone stay well.

Lucy A. Rutishauser — Executive Vice President & Chief Financial Officer

Thank you.

Operator

Our next question is from Dan Kurnos with The Benchmark Company. Please proceed.

Dan Kurnos — The Benchmark Company — Analyst

Great. Thanks. Good morning. Chris, really helpful additional color on just sort of the economics on the DSG side. Just curious, I know you made the Sports comment and for what it’s worth, Chris, we just heard that the Virtual Kentucky Derby got a four rating. So, if that’s not pent-up demand for sports, I don’t know what is. But just, for the full year, I guess I’m just trying to understand, it’s hard to handicap when sports comes back, maybe it’s Q4, but is there any color you can give us around, if sports doesn’t returns in Q4, kind of how that plays out, how that nets out distribution against sports rights fees that you would have to pay, how that would impact EBITDA?

Christopher S. Ripley — President & Chief Executive Officer

Well, I would refer back to my prepared comments in terms of everything that we can say without violating our agreements in terms of confidentiality. That gets into pretty good detail about how the payment flows work. And in terms of what we’re expecting, look, we don’t know how many games will ultimately be played, but we do expect less than the normal amount of games to be played and that should result in some sort of rebate situation, where the teams play — get paid less and the MVPDs get a rebate. And so, we essentially just — those — we do have a very good model in terms of offsetting revenue declines and expenses. So, we should be fine in any conceivable scenario.

Dan Kurnos — The Benchmark Company — Analyst

Okay. That’s helpful color. And then just on the STG side, the TV side, I think if you pull out other, your core is kind of down a little bit north of 39%-ish at the midpoint. I know you said 32% to 39%, but that might be including other. I’m just — from category perspective, I know you guys once called out education, I know that’s been maybe challenged with everybody going online now. But just curious, if you could give us some more category color and even just what you’re seeing or conversations with advertisers you’re having in May in terms of cancellations and sort of pace over the next few quarters and how that kind of evolves.

Christopher S. Ripley — President & Chief Executive Officer

Great. We’re going to have Rob Weisbord to answer that question.

Robert D. Weisbord — President, Local News & Marketing Services

Yeah. So, actually in education, we’ve seen a lot of companies, lot of colleges, universities, trade schools, going to advertise their online classes. So where the traditional universities are now going virtual, those that have specialized in online have stepped up their marketing budgets. And so, we are in position as we focused on becoming specialists from generalists and the same thing that we see in the attorney category. We expect the attorneys coming out of it, unfortunate, when you read the data, there’s predictions that divorce will be at a higher rate than the norm as well as bankruptcies. So, we’re seeing the service category robust as it can be during COVID-19. And again, as previously stated, there will be a short-term lag as cities and states start to reopen. But we see recovery, if all things go as planned, and we don’t have a secondary wave towards the end the third quarter and a robust fourth quarter.

Dan Kurnos — The Benchmark Company — Analyst

Rob, can I just — just on the auto, just because you mentioned it before, I mean, historically, when you’ve had to shut down in production and its reopen, I know we’ve talked about dealers, but usually you have kind of a big OEM ad campaign, is that something you guys are anticipating, hopeful of, in maybe kind of June July time frame?

Robert D. Weisbord — President, Local News & Marketing Services

Yeah, we are anticipating. So part of our give back to the community, we’ve been very focused on the give back from an on-air standpoint is campaigns that we have run that We Are Open and we have focused in most of our marketplaces on the automotive groups, the local auto groups, the regionalized groups to promote that they’ve been open. Their service departments have never shut down. So, we believe that goodwill that we’ve extended will come back to us and we remain in contact with all our auto dealers.

Dan Kurnos — The Benchmark Company — Analyst

Great. Super helpful color guys. Thanks very much.

Operator

Our next question is from John Janedis with Wolfe Research. Please proceed.

John Janedis — Wolfe Research — Analyst

Thank you. Chris, long term does the current situation with lack of live sports impact the way you think about distribution? I guess, meaning, is there a consideration to move more aggressively to a streaming distribution model? And if so, how could STIRR play into it? And then, I guess, sticking with distribution and sports, any update on Dish?

Christopher S. Ripley — President & Chief Executive Officer

Sure. So look, I think it’s inevitable that we have more streaming/direct-to-consumer offerings over time. We’re already — we’ve already been headed in that direction. And so, that’s certainly going to be part of the model going forward, but we don’t do that at the expense of our existing distribution partnerships, we do that to be complementary to add additional value to their ecosystem and also add additional value to our viewers and additional revenue streams.

So, it’s — I find that a lot of analysts think it’s an either/or proposition and we just don’t see it that way. We are approaching the market with complementary value-enhancing offerings. And as it relates to Dish, as I think Lucy mentioned, in our guidance, there is no update on Dish.

John Janedis — Wolfe Research — Analyst

Thank you.

Operator

Our next question is from Avi Steiner with JP Morgan. Please proceed.

Avi Steiner — JP Morgan — Analyst

Thank you for the questions. A couple here. One, if the sports were to be off a little bit longer, can you talk about the cost savings you may be able to achieve at the Diamond at low — above and beyond sports rights? And then I’ve got a couple more. Thank you.

Christopher S. Ripley — President & Chief Executive Officer

Well, the primary cost savings for Diamond beyond sports rights is the production expenses and those will fall away. Beyond that, we have tightened our belt in numerous areas like travel and entertainment, open positions, things like that.

Avi Steiner — JP Morgan — Analyst

Great. And on the point that you’ll be fine in any true-up for minimum under deliveries, how should we think about that? And I know it’s early, but would assume maybe a net outflow when all is said and done between sports rights reductions versus distributor giveback? And just want to confirm related to that, that you feel very comfortable with your — if you feel comfortable with your liquidity in the event that happens? And then I’ve got one more and thank you.

Christopher S. Ripley — President & Chief Executive Officer

Sure. So I’ll deal with the liquidity question first. That’s a pretty simple answer. We are fine from a liquidity perspective. We’re not concerned there. And then in terms of rebates, as I mentioned, we think we’re likely going to be head into a situation where there is rebates. We don’t know the magnitude of those till we get more clarity on when the games will be played and how many will play. So, what we will do though is, update our guidance once we have a clear picture. My guess is that will be the next quarter. And from there, we’ll be able to tell what the impact is.

Avi Steiner — JP Morgan — Analyst

Okay. And I’ll end it at this. Your cash balance at Diamond, I think, is $483 million. You talked about securities prices at the other silo, but at Diamond, in context of that cash and some of the comments you just made in terms of potential givebacks, how do you think about all of that in the context of your current bond trading levels? And I’ll leave it at that. Thank you all for the time.

Lucy A. Rutishauser — Executive Vice President & Chief Financial Officer

Sure, Avi. So, I’ll take that one. So when you look at the securities across all of our — both silos as well as our equity, they’re all trading at discounts and we view that as a liability management opportunity. We did buy some of the Diamond bonds at the end of the quarter at a deep discount as well as the equity. And as you can imagine in this environment where everything’s trading, we’ve had numerous proposals put in front of us by the investment banking world and we are looking at various financing alternatives to figure out what is the best way to optimize the capital structure, be opportunistic and delever. So, we’ll let you know if there’s more to come in that regard.

Avi Steiner — JP Morgan — Analyst

Thank you all. Stay healthy.

Lucy A. Rutishauser — Executive Vice President & Chief Financial Officer

Thank you, Avi.

Operator

Our next question is from Davis Hebert with Wells Fargo. Please proceed.

Davis Hebert — Wells Fargo — Analyst

Hi, good morning everyone. I hope you guys are well and staying safe. Just I had a couple of questions about the Diamond side. Chris, you suggested that on the true-ups, you perhaps will see some. Any idea whether those would be in cash? Can you spread those out over time? Is it something that’s purely negotiable given the precarious situation we’re in?

Christopher S. Ripley — President & Chief Executive Officer

It is not negotiable. In fact, there are contracts on both sides of the equation are quite clear. And the reason why it’s — this — you might be wondering, who would have anticipated such an event? Well, this has been anticipated mainly because of strikes and the potential for games not to be played. And so, the contracts are not vague, they are quite clear. And as I mentioned, generally, things are trued-up either at the end of the season or the end of calendar year.

Davis Hebert — Wells Fargo — Analyst

Okay. And then I wonder if you could touch on the YouTube deal, given — I guess, they didn’t take all the RSNs, didn’t take YES. And just curious is this just a short-term fix? Or is this a template for future deals? Kind of how are you thinking about that deal specifically and more broadly for distribution?

Christopher S. Ripley — President & Chief Executive Officer

Yeah, YouTube, we’ll have to see. They were — they’re under a lot of cost pressure to make that offering breakeven. And so, it was really a cost exercise for them. And some of the RSNs, they ultimately didn’t take were the more expensive ones in the larger markets. So, that’s what really drove the outcome there. I think it’s a unique situation in terms of what they decided they wanted to do and I don’t think it really has any broader implications.

Davis Hebert — Wells Fargo — Analyst

Okay, great. And just last question. How many bonds did you buyback at the Diamond Sports entity? And Lucy, in terms of financing alternatives, would that include perhaps exchanges to capture discount at the Diamond Sports entity? And thank you for the time.

Lucy A. Rutishauser — Executive Vice President & Chief Financial Officer

Sure. So, Davis, we paid about $2.5 million for almost $5 million of face value and that was on the unsecured notes of Diamond. And then really, as I said on the financing side, we have a lot of proposals in front of us that we’re evaluating. And again, once we know the path that we want to go down, we’ll let everybody know.

Davis Hebert — Wells Fargo — Analyst

Great. Thank you.

Operator

Our next question is from Steven Cahall with Wells Fargo. Please proceed.

Steven Cahall — Wells Fargo — Analyst

Thanks for taking my question today. Maybe just first a big picture question. The RSNs have gone through a lot of unexpected challenges between Dish and coronavirus’ impact on sports and now it looks like cord cutting is accelerating in the cable ecosystem. So a lot has changed since you made the decision to have this asset. It’s certainly been I think a big kind of distraction for investors. We see on the questions, that’s a big focus of the call. Do you still think this is a business that you want to be in the long term? Are you considering any alternatives? Because it seems like the pure play broadcast business is a really strong business that’s getting kind of lost in all this. So just how do we kind of think about the way you’re viewing your portfolio today?

Christopher S. Ripley — President & Chief Executive Officer

Well, we’ve come a long way since we bought it. We’ve solidified approximately 70% of the subscriber base since we’ve purchased Diamond. The really — the two outstandings are really just Dish and Comcast at this point. And we think that these assets are incredibly strategic to the ecosystem. And then there’s a number of implications for what we can do with these on a — to enhance value through streaming and direct-to-consumer offerings as I mentioned earlier. And so, we think ultimately these will return to growth when some of the new opportunities come to bear, like sports betting and direct-to-consumer. So, this is a business that is important at the end of the day and ultimately will provide returns.

Steven Cahall — Wells Fargo — Analyst

Thanks. And then just another one on the true-ups. I think I heard you say that maybe this is typically captured at calendar-end. Is it based on a calendar year? Are there like quarterly requirements? What I’m kind of thinking is, I would guess that for the June quarter. If there are no sports, which I don’t think it’s an unrealistic assumption at this point, you basically have no affiliate revenue and you’d have no sports rights payments. So, the RSN EBITDA is kind of zero for that quarter. But is that going to be like a retroactive recognition? Or does it not even work on a quarterly basis? Is it going to really depend on how the year comes out?

Christopher S. Ripley — President & Chief Executive Officer

So, we can’t get into the specifics of the contracts beyond what I said in the prepared remarks, which was that it’s either depending on the contract at season end and/or calendar end. And it’s not done on a quarterly basis, in general.

So, you’re not going to really see the impact in Q2, assuming sports are off the air. We really can’t factor in the impact in our accounting until we know or at least have a better estimate of the — ultimately, the number of games that will be played.

Steven Cahall — Wells Fargo — Analyst

Great. And then just the last one. Any update on what net retrans growth might look like for 2020? Thank you very much.

Lucy A. Rutishauser — Executive Vice President & Chief Financial Officer

So, Steve, as we said, we have suspended our full year guidance at this point until we have more clarity. Among that includes the MVPDs and whether or not you see more economically driven cord cutting, where whether or not you actually see subscribers increase knowing that, again, TV right now is one of the few entertainment options available to people while they’re under stay-at-home rules. So again, we believe that next quarter, we’ll be able to put that back out there.

Steven Cahall — Wells Fargo — Analyst

Appreciate that. Thank you.

Operator

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to Chris Ripley, President and Chief Executive Officer, for closing remarks.

Christopher S. Ripley — President & Chief Executive Officer

Thank you, operator. I would like to conclude our remarks by pointing out that we are far more solid and resilient company than we were during the meaningful macro events of the past.

Our business and revenue streams are much more diversified and higher quality. Our operations are more sophisticated and our balance sheet is stronger. We have the resources, the people and the experience to weather this storm and come back stronger than ever. With that, I would — thank you.

Operator

[Operator Closing Remarks]