UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
Commission file number
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class |
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Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No
The total number of shares of the registrant’s Common Stock, $1 par value, outstanding as of April 30, 2024 was
INDEX TO TEGNA INC.
March 31,2024 FORM 10-Q
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TEGNA Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands of dollars (Unaudited)
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Mar. 31, 2024 |
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Dec. 31, 2023 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable, net of allowances of $ |
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Other receivables |
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Syndicated programming rights |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment |
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Cost |
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Less accumulated depreciation |
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Net property and equipment |
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Intangible and other assets |
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Goodwill |
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Indefinite-lived and amortizable intangible assets, less accumulated amortization of $ |
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Right-of-use assets for operating leases |
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Investments and other assets |
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Total intangible and other assets |
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Total assets |
$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
TEGNA Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands of dollars, except par value and share amounts (Unaudited)
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Mar. 31, 2024 |
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Dec. 31, 2023 |
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LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY |
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Current liabilities |
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Accounts payable |
$ |
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$ |
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Accrued liabilities |
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Compensation |
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Interest |
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Contracts payable for programming rights |
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Other |
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Income taxes payable |
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Total current liabilities |
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Noncurrent liabilities |
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Deferred income tax liability |
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Long-term debt |
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Pension liabilities |
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Operating lease liabilities |
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Other noncurrent liabilities |
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Total noncurrent liabilities |
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Total liabilities |
$ |
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$ |
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Redeemable noncontrolling interest (see Note 1) |
$ |
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$ |
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Shareholders' equity |
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Common stock of $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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) |
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( |
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Less treasury stock at cost, |
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Total equity |
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Total liabilities, redeemable noncontrolling interest and equity |
$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
TEGNA Inc.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited, in thousands of dollars, except per share amounts
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Quarter ended Mar. 31, |
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2024 |
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2023 |
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Revenues |
$ |
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$ |
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Operating expenses: |
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Cost of revenues1 |
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Business units - Selling, general and administrative expenses |
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Corporate - General and administrative expenses |
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Depreciation |
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Amortization of intangible assets |
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Asset impairment and other |
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— |
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Total |
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Operating income |
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Non-operating (expense) income: |
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Interest expense |
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( |
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Interest income |
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Other non-operating items, net |
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( |
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Total |
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( |
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Income before income taxes |
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Provision for income taxes |
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Net income |
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Net loss attributable to redeemable noncontrolling interest |
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Net income attributable to TEGNA Inc. |
$ |
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$ |
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Earnings per share: |
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Basic |
$ |
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$ |
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Diluted |
$ |
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$ |
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Weighted average number of common shares outstanding: |
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Basic shares |
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Diluted shares |
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1
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
TEGNA Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited, in thousands of dollars
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Quarter ended Mar. 31, |
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2024 |
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2023 |
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Net Income |
$ |
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$ |
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Recognition of previously deferred post-retirement benefit plan costs |
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Income tax effect related to components of other comprehensive income |
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( |
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( |
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Other comprehensive income, net of tax |
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Comprehensive income |
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Comprehensive loss attributable to redeemable noncontrolling interest |
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Comprehensive income attributable to TEGNA Inc. |
$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
TEGNA Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, in thousands of dollars
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Three months ended Mar. 31, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net income |
$ |
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$ |
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Adjustments to reconcile net income to net cash flow from operating activities: |
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Depreciation and amortization |
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Employee stock-based compensation awards |
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Company stock 401(k) match contributions |
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Gain on investment sale |
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Equity loss in unconsolidated investments, net |
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Pension expense, net of employer contributions |
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Change in operating assets and liabilities, net of acquisitions: |
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Decrease in trade receivables |
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(Decrease) increase in accounts payable |
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( |
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Increase (decrease) in interest and taxes payable |
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( |
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(Decrease) increase in deferred revenue |
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( |
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Changes in other assets and liabilities, net |
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( |
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Net cash flow from operating activities |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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( |
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( |
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Payments for acquisitions of businesses and assets, net of cash acquired |
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( |
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( |
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Payments for investments |
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( |
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( |
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Proceeds from investments |
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Proceeds from sale of assets |
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Net cash flow provided by (used for) investing activities |
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( |
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Cash flows from financing activities: |
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Repurchase of common stock |
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( |
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Dividends paid |
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( |
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( |
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Payments for debt issuance costs |
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( |
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Other, net |
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( |
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( |
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Net cash flow used for financing activities |
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( |
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( |
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Increase in cash and cash equivalents |
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Balance of cash and cash equivalents at beginning of period |
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Balance of cash and cash equivalents at end of period |
$ |
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$ |
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Supplemental cash flow information: |
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Cash paid for income taxes, net of refunds |
$ |
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$ |
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Cash paid for interest |
$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
TEGNA Inc.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTEREST
Unaudited, in thousands of dollars, except per share data
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Quarters ended: |
Redeemable noncontrolling interest |
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Common stock |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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Treasury stock |
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Total Equity |
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Balance as of Dec. 31, 2023 |
$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
) |
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$ |
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Net (loss) income |
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( |
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— |
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— |
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— |
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— |
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Other comprehensive income, net of tax |
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— |
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— |
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— |
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— |
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— |
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Total comprehensive income |
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Dividends declared: $ |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Company stock 401(k) match contributions |
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— |
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— |
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( |
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( |
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— |
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Stock-based awards activity |
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— |
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— |
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( |
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( |
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— |
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( |
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Employee stock-based compensation awards |
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— |
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— |
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— |
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— |
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— |
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Repurchase of common stock |
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— |
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— |
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— |
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— |
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( |
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( |
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Adjustment of redeemable noncontrolling interest to redemption value |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Other activity |
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— |
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— |
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— |
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— |
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— |
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Balance as of Mar. 31, 2024 |
$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Redeemable noncontrolling interest |
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Common stock |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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Treasury stock |
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Total Equity |
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Balance as of Dec. 31, 2022 |
$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Net (loss) income |
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( |
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— |
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— |
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— |
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— |
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Other comprehensive income, net of tax |
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— |
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— |
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— |
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— |
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— |
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Total comprehensive income |
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Dividends declared: $ |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Company stock 401(k) match contributions |
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— |
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— |
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( |
) |
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( |
) |
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— |
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Stock-based awards activity |
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— |
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— |
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( |
) |
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( |
) |
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— |
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( |
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Employee stock-based compensation awards |
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— |
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— |
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— |
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— |
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— |
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Repurchase of common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Adjustment of redeemable noncontrolling interest to redemption value |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Other activity |
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— |
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— |
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— |
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— |
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— |
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Balance as of Mar. 31, 2023 |
$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
8
TEGNA Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – Basis of presentation and accounting policies
Basis of presentation: Our (or TEGNA’s) accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting, the instructions for Form 10-Q and Article 10 of the U.S. Securities and Exchange Commission (SEC) Regulation S-X. Accordingly, they do not include all information and footnotes which are normally included in the Form 10-K and annual report to shareholders. In our opinion, the condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.
We operate
Accounting guidance adopted in 2024: We did not adopt any new accounting guidance in 2024 that had a material impact on our condensed consolidated financial statements or disclosures.
New accounting guidance not yet adopted: In November 2023, the Financial Accounting Standards Board (FASB) issued new guidance that changes required disclosures related to segment reporting. The guidance will require entities to disclose on a quarterly and annual basis the significant segment expense items that are regularly provided to the entity’s chief operating decision maker (CODM). Entities will also be required to disclose the title and position of their CODM. The new guidance is effective for us beginning in 2024 on an annual basis and the first quarter of 2025 on a quarterly basis, and is to be applied on a retrospective basis. Early adoption of the guidance is permitted. We are currently evaluating the effect this new guidance will have on our disclosures.
In December 2023, the FASB issued new guidance that changes certain disclosures related to income taxes. The guidance requires entities to disclose additional quantitative and qualitative information about the reconciliation between their statutory and effective tax rates. Specifically, the guidance requires disaggregation of the reconciling items using standardized categories. This guidance also requires additional disclosure of income taxes paid to now include disaggregation on a federal, state and foreign basis and to specifically include the amount of income taxes paid to individual jurisdictions when they represent five percent or more of total income tax payments. The new guidance is effective for us beginning in 2025 and may be applied on either a prospective or retrospective basis. Early adoption of the guidance is permitted. We are currently evaluating the effect this new guidance will have on our disclosures.
In March 2024, the U.S. Securities and Exchange Commission (“SEC”) adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. This rule will require companies to make disclosures about climate-related matters, specifically, it will require the disclosure of:
9
On April 4, 2024, the SEC stayed these rules due to pending legal challenges.
We are currently evaluating the final rule to determine its impact on our future disclosures.
Redeemable Noncontrolling interest: Our Premion business operates an advertising network for over-the-top (OTT) streaming and connected television platforms. In March 2020, we sold a minority interest in Premion to an affiliate of Gray Television (Gray) and entered into a commercial reselling agreement with the affiliate. During the first quarter of 2023, we entered into a multi-year extension of the reselling agreement with Gray. Gray’s investment allows it to sell its interest to Premion if there is a change in control of TEGNA or if the commercial agreement terminates. Since redemption of the minority ownership interest is outside our control, Gray’s equity interest is presented outside of the Equity section on the Condensed Consolidated Balance Sheets in the caption “Redeemable noncontrolling interest.” When the redemption or carrying value (the acquisition date fair value adjusted for the noncontrolling interest’s share of net income (loss) and dividends) is less than the recorded redemption value, we adjust the redeemable noncontrolling interest to equal the redemption value with changes recognized as an adjustment to retained earnings. Any such adjustment, when necessary, will be performed as of the applicable balance sheet date.
Treasury Stock: We account for treasury stock under the cost method. When treasury stock is re-issued at a price higher than its cost, the difference is recorded as a component of additional paid-in-capital (APIC) in our Condensed Consolidated Balance Sheets. When treasury stock is re-issued at a price lower than its cost, the difference is recorded as a component of APIC to the extent that there are previously recorded gains to offset the losses. If there are no accumulated gains in APIC, the losses upon re-issuance of treasury stock are recorded as a reduction of retained earnings in our Condensed Consolidated Balance Sheets.
Revenue recognition: Revenue is recognized upon the transfer of control of promised services to our customers in an amount that reflects the consideration we expect to receive in exchange for those services. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Amounts received from customers in advance of providing services to our customers are recorded as deferred revenue.
The primary sources of our revenues are: 1) subscription revenues, reflecting fees paid by satellite, cable, OTT (companies that deliver video content to consumers over the Internet) and telecommunications providers to carry our television signals on their systems; 2) advertising & marketing services revenues, which include local and national non-political television advertising, digital marketing services (including Premion), advertising on the stations’ websites, tablet and mobile products, and OTT apps; 3) political advertising revenues, which are driven by even-year election cycles at the local and national level (e.g. 2022, 2024, etc.) and particularly in the second half of those years; and 4) other services, such as production of programming, tower rentals and distribution of our local news content.
Revenue earned by these sources in the first quarter of 2024 and 2023 are shown below (amounts in thousands):
|
Quarter ended Mar. 31, |
|
|||||
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
||
Subscription |
$ |
|
|
$ |
|
||
Advertising & Marketing Services |
|
|
|
|
|
||
Political |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Total revenues |
$ |
|
|
$ |
|
||
10
NOTE 2 – Goodwill and other intangible assets
The following table displays goodwill, indefinite-lived intangible assets, and amortizable intangible assets as of March 31, 2024 and December 31, 2023 (in thousands):
|
Mar. 31, 2024 |
|
|
Dec. 31, 2023 |
|
||||||||||
|
Gross |
|
|
Accumulated Amortization |
|
|
Gross |
|
|
Accumulated Amortization |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Goodwill |
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Indefinite-lived intangibles: |
|
|
|
|
|
|
|
|
|
|
|
||||
Television and radio station FCC broadcast licenses |
|
|
|
|
|
|
|
|
|
|
|
||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Retransmission agreements |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Network affiliation agreements |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Other |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Total indefinite-lived and amortizable intangible assets |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Our retransmission agreements and network affiliation agreements are amortized on a straight-line basis over their estimated useful lives. Other intangibles primarily include distribution agreements from our multicast networks acquisition, which are also amortized on a straight-line basis over their useful lives. In the first quarter of 2024, gross intangible assets and associated accumulated amortization decreased by $
On January 31, 2024, Premion, LLC acquired substantially all the assets of Octillion Media, a next-generation demand-side platform focused on Local Connected TV(CTV)/Over-the-Top (OTT) advertising. The acquisition will expand Premion’s capabilities in the growing CTV marketplace by combining Octillion’s technology with Premion’s local CTV/OTT advertising solution.
The base purchase price of the acquisition was $
The acquisition was funded with available cash on hand.
We are accounting for the acquisition as a business combination, which required us to record the assets acquired and liabilities assumed at fair value. The amount by which the purchase price exceeds the fair value of the net assets acquired was recorded as goodwill. We have commenced the appraisals necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed and the amount of goodwill to be recognized. Based on preliminary valuations we have recorded $
The amounts recorded for acquired assets and liabilities are preliminary in nature and are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of the acquisition date.
NOTE 3 – Investments and other assets
Our investments and other assets consisted of the following as of March 31, 2024 and December 31, 2023 (in thousands):
|
Mar. 31, 2024 |
|
|
Dec. 31, 2023 |
|
||
|
|
|
|
|
|
||
Cash value life insurance |
$ |
|
|
$ |
|
||
Equity method investments |
|
|
|
|
|
||
Other equity investments |
|
|
|
|
|
||
Deferred debt issuance costs |
|
|
|
|
|
||
Prepaid assets |
|
|
|
|
|
||
Other long-term assets |
|
|
|
|
|
||
Total |
$ |
|
|
$ |
|
||
11
Cash value life insurance: We are the beneficiary of life insurance policies on the lives of certain employees/retirees, which are recorded at their cash surrender value as determined by the insurance carrier. These policies are utilized as a partial funding source for deferred compensation and other non-qualified employee retirement plans. Gains and losses on these investments are included in “Other non-operating items, net” within our Consolidated Statements of Income and were not material for all periods presented.
Equity method investments: These are investments in entities in which we have significant influence, but do not have a controlling financial interest. Our share of net earnings and losses from these ventures is included in “Other non-operating items, net” in the Consolidated Statements of Income.
Other equity investments: Represents investments in non-public businesses that do not have readily determinable pricing, and for which we do not have control and do not exert significant influence. These investments are recorded at cost less impairments, if any, plus or minus changes in observable prices for those investments.
In the first quarter of 2024 we received $
Deferred debt issuance costs: These costs consist of amounts paid to lenders related to our revolving credit facility. On January 25, 2024, we entered into an amendment of our credit facility which resulted in the capitalization of $
Prepaid assets: These amounts primarily consist of an asset related to a long-term services agreement for IT security.
NOTE 4 – Long-term debt
Our long-term debt is summarized below (in thousands):
|
Mar. 31, 2024 |
|
|
Dec. 31, 2023 |
|
||
|
|
|
|
|
|
||
Unsecured notes bearing fixed rate interest at |
$ |
|
|
$ |
|
||
Unsecured notes bearing fixed rate interest at |
|
|
|
|
|
||
Unsecured notes bearing fixed rate interest at |
|
|
|
|
|
||
Unsecured notes bearing fixed rate interest at |
|
|
|
|
|
||
Unsecured notes bearing fixed rate interest at |
|
|
|
|
|
||
Total principal long-term debt |
|
|
|
|
|
||
Debt issuance costs |
|
( |
) |
|
|
( |
) |
Unamortized premiums and discounts, net |
|
|
|
|
|
||
Total long-term debt |
$ |
|
|
$ |
|
||
On January 25, 2024, we entered into an amendment to our revolving credit facility (the Credit Agreement). Among other things, the amendment amends the revolving credit facility to:
Under the amended Credit Agreement, the Company’s maximum Total Leverage Ratio (as defined in the Credit Agreement) will remain unchanged at
As of March 31, 2024, cash and cash equivalents totaled $
12
NOTE 5 – Retirement plans
We have various defined benefit retirement plans. Our principal defined benefit pension plan is the TEGNA Retirement Plan (TRP). The total net pension obligations, including both current and non-current liabilities, as of March 31, 2024, were $
Pension costs (income), which primarily include costs for the qualified TRP and the non-qualified TEGNA Supplemental Retirement Plan (SERP), are presented in the following table (in thousands):
|
Quarter ended Mar. 31, |
|
|||||
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
||
Interest cost on benefit obligation |
$ |
|
|
$ |
|
||
Expected return on plan assets |
|
( |
) |
|
|
( |
) |
Amortization of prior service cost (credit) |
|
|
|
|
( |
) |
|
Amortization of actuarial loss |
|
|
|
|
|
||
Expense for company-sponsored retirement plans |
$ |
|
|
$ |
|
||
Benefits no longer accrue for TRP and SERP participants as a result of amendments to the plans in past years, and as such we no longer incur a service cost component of pension expense. All other components of our pension expense presented above are included within the “Other non-operating items, net” line item of the Consolidated Statements of Income.
During the three months ended March 31, 2024 and 2023, we did
NOTE 6 – Accumulated other comprehensive loss
The following table summarizes the components of, and the changes in, Accumulated Other Comprehensive Loss (AOCL), net of tax (in thousands):
|
Retirement |
|
|
Foreign |
|
|
Total |
|
|||
Quarters ended: |
|
|
|
|
|
|
|
|
|||
Balance as of Dec. 31, 2023 |
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Amounts reclassified from AOCL |
|
|
|
|
|
|
|
|
|||
Total other comprehensive income |
|
|
|
|
|
|
|
|
|||
Balance as of Mar. 31, 2024 |
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Balance as of Dec. 31, 2022 |
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Amounts reclassified from AOCL |
|
|
|
|
|
|
|
|
|||
Total other comprehensive income |
|
|
|
|
|
|
|
|
|||
Balance as of Mar. 31, 2023 |
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Reclassifications from AOCL to the Consolidated Statements of Income are comprised of pension and other post-retirement components. Pension and other post-retirement reclassifications are related to the amortizations of prior service costs and actuarial losses.
|
Quarter ended Mar. 31, |
|
|||||
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
||
Amortization of prior service cost (credit), net |
$ |
|
|
$ |
( |
) |
|
Amortization of actuarial loss |
|
|
|
|
|
||
Total reclassifications, before tax |
|
|
|
|
|
||
Income tax effect |
|
( |
) |
|
|
( |
) |
Total reclassifications, net of tax |
$ |
|
|
$ |
|
||
13
NOTE 7 – Earnings per share
Our earnings per share (basic and diluted) are presented below (in thousands, except per share amounts):
|
Quarter ended Mar. 31, |
|
|||||
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
||
Net income |
$ |
|
|
$ |
|
||
Net loss attributable to the noncontrolling interest |
|
|
|
|
|
||
Adjustment of redeemable noncontrolling interest to redemption value |
|
( |
) |
|
|
( |
) |
Earnings available to common shareholders |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Weighted average number of common shares outstanding - basic |
|
|
|
|
|
||
Effect of dilutive securities: |
|
|
|
|
|
||
Restricted stock units |
|
|
|
|
|
||
Performance share awards |
|
|
|
|
|
||
Weighted average number of common shares outstanding - diluted |
|
|
|
|
|
||
|
|
|
|
|
|
||
Net income per share - basic |
$ |
|
|
$ |
|
||
Net income per share - diluted |
$ |
|
|
$ |
|
||
Our calculation of diluted earnings per share includes the dilutive effects for the assumed vesting of outstanding restricted stock units and performance share awards. The diluted earnings per share amounts exclude the effects of approximately
NOTE 8 – Fair value measurement
We measure and record certain assets and liabilities at fair value in the accompanying condensed consolidated financial statements. U.S. GAAP establishes a hierarchy for those instruments measured at fair value that distinguishes between market data (observable inputs) and our own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 – Quoted market prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3 – Unobservable inputs developed using our own estimates and assumptions, which reflect those that a market participant would use.
We also hold other financial instruments including cash and cash equivalents, receivables, accounts payable, contingent consideration and debt. The carrying amounts for cash and cash equivalents, receivables and accounts payable approximated their fair values. The fair value of our total debt, based on the bid and ask quotes for the related debt (Level 2), totaled $
As described in Note 2, in connection with the Octillion acquisition, the sellers may be entitled to earn additional consideration in the form of earnouts depending on the achievement of certain technological and financial milestones. The maximum value of these earnouts is $
NOTE 9 – Share repurchase program
On June 2, 2023, we entered into our first accelerated share repurchase program (the first ASR) with JPMorgan Chase Bank, National Association (JPMorgan). Under the terms of the first ASR, we repurchased $
On November 9, 2023, we entered into a second accelerated share repurchase (the second ASR) program with JPMorgan. Under the terms of the second ASR, we repurchased $
14
In December 2023, our Board of Directors authorized a new share repurchase program for up to $
During the first quarter of 2024, we returned $
Our capital allocation plan is subject to a variety of factors, including our strategic plans, market and economic conditions and the discretion of our Board of Directors.
NOTE 10 – Other matters
Litigation
Antitrust matters
In the third quarter of 2018, certain national media outlets reported the existence of a confidential investigation by the United States Department of Justice Antitrust Division (DOJ) into the local television advertising sales practices of station owners. We received a Civil Investigative Demand (CID) in connection with the DOJ’s investigation. On November 13 and December 13, 2018, the DOJ and
Since the national media reports, numerous putative class action lawsuits were filed against owners of television stations (the Advertising Cases) in different jurisdictions. Plaintiffs are a class consisting of all persons and entities in the United States who paid for all or a portion of advertisement time on local television provided by the defendants. The Advertising Cases assert antitrust and other claims and seek monetary damages, attorneys’ fees, costs and interest, as well as injunctions against the allegedly wrongful conduct.
These cases were consolidated into a single proceeding in the United States District Court for the Northern District of Illinois, captioned In re: Local TV Advertising Antitrust Litigation on October 3, 2018. At the court’s direction, plaintiffs filed an amended complaint on April 3, 2019, that superseded the original complaints. Although we were named as a defendant in
On May 26, 2023, plaintiffs moved for preliminary approval of settlements with
Discovery in the Advertising Cases is ongoing. We believe that the claims asserted in the Advertising Cases are without merit and intend to defend vigorously against them.
15
Other litigation matters
We, along with a number of our subsidiaries, also are defendants in other judicial and administrative proceedings involving matters incidental to our business. We do not believe that any material liability will be imposed as a result of any of the foregoing matters.
Related Party Transactions
We have an equity investment in MadHive, Inc. (MadHive) which is a related party of TEGNA. We also have commercial agreements with MadHive, under which MadHive supports our Premion business in acquiring over-the-top advertising inventory and delivering corresponding advertising impressions. In the first quarter 2024 and 2023, we incurred expenses of $
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Company Overview
We are an innovative media company serving the greater good of our communities. Across platforms, we tell empowering stories, conduct impactful investigations and deliver innovative marketing services. With 64 television stations and two radio stations in 51 U.S. markets, we are the largest owner of top four network affiliates in the top 25 markets among independent station groups, reaching approximately 39% of all U.S. television households. We also own leading multicast networks True Crime Network and Quest. Each television station also has a robust digital presence across online, mobile, connected television and social platforms, reaching consumers on all devices and platforms they use to consume news content. We have been consistently honored with the industry’s top awards, including Edward R. Murrow, George Polk, Alfred I. DuPont and Emmy Awards. Through TEGNA Marketing Solutions (TMS), our integrated sales and back-end fulfillment operations, we deliver results for advertisers across television, digital and over-the-top (OTT) platforms, including Premion, our OTT advertising network.
We have one operating and reportable segment. The primary sources of our revenues are: 1) subscription revenues, reflecting fees paid by satellite, cable, OTT (companies that deliver video content to consumers over the Internet) and telecommunications providers to carry our television signals on their systems; 2) advertising & marketing services (AMS) revenues, which include local and national non-political television advertising, digital marketing services (including Premion), and advertising on the stations’ websites, tablet and mobile products and OTT apps; 3) political advertising revenues, which are driven by even year election cycles at the local and national level (e.g. 2022, 2024, etc.) and particularly in the second half of those years; and 4) other services, such as production of programming, tower rentals, and distribution of our local news content.
Consolidated Results from Operations
The following discussion is a comparison of our consolidated results on a GAAP basis. The year-to-year comparison of financial results is not necessarily indicative of future results. In addition, see the section titled “Results from Operations - Non-GAAP Information” for additional tables presenting information that supplements our financial information provided on a GAAP basis.
Our consolidated results of operations on a GAAP basis were as follows (in thousands, except per share amounts):
|
Quarter ended Mar. 31, |
||||||||
|
2024 |
|
|
2023 |
|
|
Change |
||
|
|
|
|
|
|
|
|
||
Revenues |
$ |
714,252 |
|
|
$ |
740,327 |
|
|
(4%) |
|
|
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
|
|
||
Cost of revenues |
|
430,567 |
|
|
|
426,932 |
|
|
1% |
Business units - Selling, general and administrative expenses |
|
102,260 |
|
|
|
99,109 |
|
|
3% |
Corporate - General and administrative expenses |
|
14,798 |
|
|
|
12,100 |
|
|
22% |
Depreciation |
|
14,310 |
|
|
|
15,049 |
|
|
(5%) |
Amortization of intangible assets |
|
13,660 |
|
|
|
13,582 |
|
|
1% |
Asset impairment and other |
|
1,097 |
|
|
|
— |
|
|
*** |
Total |
$ |
576,692 |
|
|
$ |
566,772 |
|
|
2% |
|
|
|
|
|
|
|
|
||
Operating income |
$ |
137,560 |
|
|
$ |
173,555 |
|
|
(21%) |
|
|
|
|
|
|
|
|
||
Non-operating income (expense) |
|
112,963 |
|
|
|
(37,732 |
) |
|
*** |
Provision for income taxes |
|
61,261 |
|
|
|
31,819 |
|
|
93% |
Net income |
|
189,262 |
|
|
|
104,004 |
|
|
82% |
Net loss attributable to redeemable noncontrolling interest |
|
298 |
|
|
|
299 |
|
|
(0%) |
Net income attributable to TEGNA Inc. |
$ |
189,560 |
|
|
$ |
104,303 |
|
|
82% |
|
|
|
|
|
|
|
|
||
Net Income per share - basic |
$ |
1.06 |
|
|
$ |
0.46 |
|
|
*** |
Net Income per share - diluted |
$ |
1.06 |
|
|
$ |
0.46 |
|
|
*** |
*** Not meaningful
Revenues
Our Subscription revenue category includes revenue earned from cable, satellite and telecommunication providers for the right to carry our signals and the distribution of TEGNA stations on OTT streaming services. Our AMS category includes all sources of our traditional television advertising and digital revenues, including Premion and other digital advertising and marketing revenues across our platforms.
17
Our revenues and operating results are subject to seasonal fluctuations. Generally, our second and fourth quarter revenues and operating results are stronger than those we report for the first and third quarters. This is driven by the second quarter reflecting increased spring seasonal advertising, while the fourth quarter typically includes increased advertising related to the holiday season. In addition, our revenue and operating results are subject to significant fluctuations across yearly periods resulting from political advertising. In even numbered years, political spending is usually significantly higher than in odd numbered years due to advertising for the local, state and national elections. Additionally, every four years, we typically experience even greater increases in political advertising in connection with the presidential election. The strong demand for advertising from political advertisers in these even years can result in the significant use of our available inventory (leading to a “crowd out” effect), which can diminish our AMS revenue in the even year of a two-year election cycle, particularly in the fourth quarter of those years.
In recent years, our business has evolved toward generating more recurring and highly profitable revenue streams, driven by the increased contribution of political and subscription revenue streams as a percentage of our total revenue. Such revenues have been a majority of our overall revenue in the past few years and we expect this to continue.
The following table summarizes the year-over-year changes in our revenue categories (in thousands):
|
Quarter ended Mar. 31, |
||||||||
|
2024 |
|
|
2023 |
|
|
Change |
||
|
|
|
|
|
|
|
|
||
Subscription |
$ |
375,324 |
|
|
$ |
414,280 |
|
|
(9%) |
Advertising & Marketing Services |
|
298,692 |
|
|
|
307,845 |
|
|
(3%) |
Political |
|
27,828 |
|
|
|
5,291 |
|
|
*** |
Other |
|
12,408 |
|
|
|
12,911 |
|
|
(4%) |
Total revenues |
$ |
714,252 |
|
|
$ |
740,327 |
|
|
(4%) |
*** Not meaningful
Total revenues decreased $26.1 million in the first quarter of 2024 compared to the same period in 2023. The net decrease was primarily driven by a $39.0 million decline in subscription revenue primarily due to declines in subscribers and a temporary disruption of service with a distribution partner which was successfully resolved on January 13, 2024. These declines were partially offset by annual rate increases under our retransmission agreements. Also contributing to the decline was a reduction of $9.2 million in AMS revenue due to continued softness in the advertising market. Partially offsetting these decreases was a $22.5 million increase in political revenue.
Cost of revenues
Cost of revenues increased $3.6 million in the first quarter of 2024 compared to the same period in 2023. The increase was primarily due to a $2.3 million increase in payroll costs and $1.3 million of employee retention costs.
Business units - Selling, general and administrative expenses
Business unit selling, general and administrative expenses increased $3.2 million in the first quarter of 2024 compared to the same period in 2023. The increase was primarily due to a $1.5 million increase in workforce restructuring expense and $1.2 million of employee retention costs incurred in 2024.
Corporate - General and administrative expenses
Our corporate costs are separated from our direct business expenses and are recorded as general and administrative expenses in our Consolidated Statements of Income. This category primarily consists of corporate management and support functions including Legal, Human Resources, and Finance.
Corporate general and administrative expenses increased $2.7 million in the first quarter of 2024 compared to the same period in 2023. The increase was primarily due to increases in employee stock-based compensation, employee retention and workforce restructuring costs.
Depreciation
Depreciation expense decreased by $0.7 million in the first quarter of 2024 compared to the same period in 2023. The decrease was primarily due to the impact of certain assets reaching the end of their assumed useful lives during 2023.
Amortization of intangible assets
Intangible asset amortization expense increased $0.1 million in the first quarter of 2024 compared to the same period in 2023. The increase was primarily due to the amortization of intangible assets acquired in the Octillion Media acquisition, partially offset by a decrease in amortization due to certain intangible assets reaching the end of their assumed useful lives and therefore becoming fully amortized.
18
Asset impairment and other
Asset impairment and other expenses were $1.1 million in 2024 compared to no expense in 2023. The 2024 activity was due to a contract termination fee.
Operating income
Operating income decreased $36.0 million in the first quarter of 2024 compared to the same period in 2023. This decrease was primarily driven by the decline in subscription and AMS revenues described above.
Non-operating income (expense)
Non-operating income (expense) increased $150.7 million in the first quarter of 2024 compared to the same period in 2023. The increase was primarily due to a $152.9 million gain recognized on the sale of our investment in Broadcast Music, Inc. in the first quarter of 2024.
Provision for income taxes
Income tax expense increased $29.4 million in the first quarter of 2024 compared to the same period in 2023. The increase was primarily due to increases in net income before tax. Our effective income tax rate was 24.5% for the first quarter of 2024, compared to 23.4% for the first quarter of 2023. The tax rate for the first quarter of 2024 is higher than the comparable amount in 2023 primarily due to net excess tax expense recognized with respect to stock-based compensation. The effective income tax rate for 2023 was also favorably impacted by net deferred tax benefits as a result of state tax planning strategies.
Net income
Net income was $189.3 million, or $1.06 per diluted share, in the first quarter of 2024 compared to $104.0 million, or $0.46 per diluted share, during the same period in 2023. Both income and earnings per share were affected by the factors discussed above.
The weighted average number of diluted common shares outstanding as of the first quarter of 2024 and 2023 were 178.4 million and 224.8 million, respectively. The decline in the number of diluted common shares outstanding was primarily due to share repurchases of 39.5 million under our ASR programs which began in the second quarter of 2023, the receipt of 8.6 million shares to satisfy the Merger termination fee which occurred in the second quarter of 2023 and share repurchases of 7.6 million starting in the third quarter of 2023 through the first quarter of 2024 under our authorized repurchase program.
19
Results from Operations - Non-GAAP Information
Presentation of Non-GAAP information
We use non-GAAP financial performance measures to supplement the financial information presented on a GAAP basis. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, the related GAAP measures, nor should they be considered superior to the related GAAP measures and should be read together with financial information presented on a GAAP basis. Also, our non-GAAP measures may not be comparable to similarly titled measures of other companies.
Management and our Board of Directors regularly use Corporate – General and administrative expenses, Operating expenses, Operating income and Income before income taxes, Provision for income taxes, Net income attributable to TEGNA Inc., and Diluted earnings per share, each presented on a non-GAAP basis, for purposes of evaluating company performance. Management and our Board of Directors also use Adjusted EBITDA and Adjusted free cash flow to evaluate performance. Furthermore, the Leadership Development and Compensation Committee of our Board of Directors uses non-GAAP measures such as Adjusted EBITDA, non-GAAP net income, non-GAAP EPS, and Adjusted free cash flow to evaluate management’s performance. Therefore, we believe that each of the non-GAAP measures presented provides useful information to investors and other stakeholders by allowing them to view our business through the eyes of management and our Board of Directors, facilitating comparisons of results across historical periods and focus on the underlying ongoing operating performance of our business. We also believe these non-GAAP measures are frequently used by investors, securities analysts and other interested parties in their evaluation of our business and other companies in the broadcast industry.
We discuss in this Form 10-Q non-GAAP financial performance measures that exclude from our reported GAAP results the impact of “special items” which are described in detail below in the section titled “Discussion of Special Charges and Credits Affecting Reported Results.” We believe that such expenses and gains are not indicative of normal, ongoing operations. While these items should not be disregarded in evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends compared to other periods as these items can vary significantly from period to period depending on specific underlying transactions or events that may occur. Therefore, while we may incur or recognize these types of expenses, charges and gains in the future, we believe that removing these items for purposes of calculating the non-GAAP financial measures provides investors with a more focused presentation of our ongoing operating performance.
We discuss Adjusted EBITDA (with and without stock-based compensation expense), a non-GAAP financial performance measure that we believe offers a useful view of the overall operation of our businesses. We define Adjusted EBITDA as net income attributable to TEGNA before (1) net (loss) attributable to redeemable noncontrolling interest, (2) income taxes, (3) interest expense, (4) interest income, (5) other non-operating items, net, (6) M&A-related costs, (7) asset impairment and other, (8) workforce restructuring, (9) employee retention costs, (10) depreciation and (11) amortization of intangible assets. We believe these adjustments facilitate company-to-company operating performance comparisons by removing potential differences caused by variations unrelated to operating performance, such as capital structures (interest expense), income taxes, and the age and book appreciation of property and equipment (and related depreciation expense). The most directly comparable GAAP financial measure to Adjusted EBITDA is Net income attributable to TEGNA. Users should consider the limitations of using Adjusted EBITDA, including the fact that this measure does not provide a complete measure of our operating performance. Adjusted EBITDA is not intended to purport to be an alternate to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. In particular, Adjusted EBITDA is not intended to be a measure of cash flow available for management’s discretionary expenditures, as this measure does not consider certain cash requirements, such as working capital needs, capital expenditures, contractual commitments, interest payments, tax payments and other debt service requirements.
We also discuss Adjusted free cash flow and Adjusted free cash flow as a percentage of revenues, non-GAAP performance measures that the Board of Directors uses to review the performance of the business and compensate senior management. Adjusted free cash flow is reviewed by the Board of Directors as a percentage of revenue over a trailing two-year period (reflecting both an even and odd year reporting period given the political cyclicality of our business). The most directly comparable GAAP financial measure to Adjusted free cash flow is Net income attributable to TEGNA. Adjusted free cash flow is calculated as Adjusted EBITDA (as defined above), further adjusted by adding back (1) employee stock-based compensation awards, (2) Company stock 401(k) match contributions, (3) syndicated programming amortization, (4) dividends received from equity method investments, (5) reimbursements from spectrum repacking, (6) proceeds from company-owned life insurance policies and (7) interest income. This is further adjusted by deducting payments made for (1) syndicated programming, (2) pension, (3) interest, (4) taxes (net of refunds) and (5) purchases of property and equipment. Adjusted free cash flow is not intended to be a measure of residual cash available for management’s discretionary use since it omits significant sources and uses of cash flow including mandatory debt repayments and changes in working capital.
20
Discussion of Special Charges and Credits Affecting Reported Results
Our results included the following items we consider “special items” that, while at times recurring, are not normal and can vary significantly from period to period:
Quarter ended March 31, 2024:
Quarter ended March 31, 2023:
Reconciliations of certain line items impacted by special items to the most directly comparable financial measure calculated and presented in accordance with GAAP on our Consolidated Statements of Income follow (in thousands, except per share amounts):
|
|
|
|
|
Special Items |
|
|
|
|
|||||||||||||||||||||||
Quarter ended Mar. 31, 2024 |
|
GAAP |
|
|
Retention costs - SBC |
|
|
Retention costs - Cash |
|
|
M&A-related costs |
|
|
Workforce restructuring |
|
|
Asset impairment and other |
|
|
Other non-operating item |
|
|
Non-GAAP |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Corporate - General and administrative expenses |
|
$ |
14,798 |
|
|
$ |
(752 |
) |
|
$ |
(221 |
) |
|
$ |
(2,290 |
) |
|
$ |
(111 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,424 |
|
Operating expenses |
|
|
576,692 |
|
|
|
(2,893 |
) |
|
|
(570 |
) |
|
|
(2,290 |
) |
|
|
(1,807 |
) |
|
|
(1,097 |
) |
|
|
— |
|
|
|
568,035 |
|
Operating income |
|
|
137,560 |
|
|
|
2,893 |
|
|
|
570 |
|
|
|
2,290 |
|
|
|
1,807 |
|
|
|
1,097 |
|
|
|
— |
|
|
|
146,217 |
|
Income before income taxes |
|
|
250,523 |
|
|
|
2,893 |
|
|
|
570 |
|
|
|
2,290 |
|
|
|
1,807 |
|
|
|
1,097 |
|
|
|
(152,867 |
) |
|
|
106,313 |
|
Provision for income taxes |
|
|
61,261 |
|
|
|
431 |
|
|
|
77 |
|
|
|
593 |
|
|
|
445 |
|
|
|
284 |
|
|
|
(36,621 |
) |
|
|
26,470 |
|
Net income attributable to TEGNA Inc. |
|
|
189,560 |
|
|
|
2,462 |
|
|
|
493 |
|
|
|
1,697 |
|
|
|
1,362 |
|
|
|
813 |
|
|
|
(116,246 |
) |
|
|
80,141 |
|
Earnings per share - diluted (a) |
|
$ |
1.06 |
|
|
$ |
0.01 |
|
|
$ |
— |
|
|
$ |
0.01 |
|
|
$ |
0.01 |
|
|
$ |
— |
|
|
$ |
(0.65 |
) |
|
$ |
0.45 |
|
(a) Per share amounts do not sum due to rounding.
|
|
|
|
|
Special Items |
|
|
|
|
|||
Quarter ended Mar. 31, 2023 |
|
GAAP |
|
|
M&A-related costs |
|
|
Non-GAAP |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Corporate - General and administrative expenses |
|
$ |
12,100 |
|
|
$ |
(2,766 |
) |
|
$ |
9,334 |
|
Operating expenses |
|
|
566,772 |
|
|
|
(2,766 |
) |
|
|
564,006 |
|
Operating income |
|
|
173,555 |
|
|
|
2,766 |
|
|
|
176,321 |
|
Income before income taxes |
|
|
135,823 |
|
|
|
2,766 |
|
|
|
138,589 |
|
Provision for income taxes |
|
|
31,819 |
|
|
|
181 |
|
|
|
32,000 |
|
Net income attributable to TEGNA Inc. |
|
|
104,303 |
|
|
|
2,585 |
|
|
|
106,888 |
|
Earnings per share - diluted |
|
$ |
0.46 |
|
|
$ |
0.01 |
|
|
$ |
0.47 |
|
21
Adjusted EBITDA - Non-GAAP
Reconciliations of Adjusted EBITDA to net income presented in accordance with GAAP on our Consolidated Statements of Income are presented below (in thousands):
|
Quarter ended Mar. 31, |
|
|||||||||
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
|
|
|
|
|
|
|
|
|
|||
Net income attributable to TEGNA Inc. (GAAP basis) |
$ |
189,560 |
|
|
$ |
104,303 |
|
|
|
82 |
% |
Less: Net loss attributable to redeemable noncontrolling interest |
|
(298 |
) |
|
|
(299 |
) |
|
|
(0 |
%) |
Plus: Provision for income taxes |
|
61,261 |
|
|
|
31,819 |
|
|
|
93 |
% |
Plus: Interest expense |
|
42,368 |
|
|
|
42,906 |
|
|
|
(1 |
%) |
Less: Interest income |
|
(5,573 |
) |
|
|
(7,573 |
) |
|
|
(26 |
%) |
(Less) Plus: Other non-operating items, net |
|
(149,758 |
) |
|
|
2,399 |
|
|
*** |
|
|
Operating income (GAAP basis) |
|
137,560 |
|
|
|
173,555 |
|
|
|
(21 |
%) |
Plus: M&A-related costs |
|
2,290 |
|
|
|
2,766 |
|
|
|
(17 |
%) |
Plus: Asset impairment and other |
|
1,097 |
|
|
|
— |
|
|
*** |
|
|
Plus: Workforce restructuring |
|
1,807 |
|
|
|
— |
|
|
*** |
|
|
Plus: Retention costs - Employee stock-based compensation awards |
|
2,893 |
|
|
|
— |
|
|
*** |
|
|
Plus: Retention costs - Cash |
|
570 |
|
|
|
— |
|
|
*** |
|
|
Adjusted operating income (non-GAAP basis) |
|
146,217 |
|
|
|
176,321 |
|
|
|
(17 |
%) |
Plus: Depreciation |
|
14,310 |
|
|
|
15,049 |
|
|
|
(5 |
%) |
Plus: Amortization of intangible assets |
|
13,660 |
|
|
|
13,582 |
|
|
|
1 |
% |
Adjusted EBITDA |
$ |
174,187 |
|
|
$ |
204,952 |
|
|
|
(15 |
%) |
Stock-based compensation: |
|
|
|
|
|
|
|
|
|||
Employee awards |
|
8,240 |
|
|
|
3,688 |
|
|
*** |
|
|
Company stock 401(k) match contributions |
|
5,429 |
|
|
|
5,564 |
|
|
|
(2 |
%) |
Adjusted EBITDA before stock-based compensation costs |
$ |
187,856 |
|
|
$ |
214,204 |
|
|
|
(12 |
%) |
*** Not meaningful
In the first quarter of 2024 Adjusted EBITDA margin was 24% with stock-based compensation expense or 26% without those expenses. Our total Adjusted EBITDA decreased $30.8 million, or 15%, in 2024 compared to 2023. This decrease was primarily driven by the operational factors discussed above within the revenue and operating expense fluctuation explanation sections, most notably, the decrease in subscription and AMS revenues offset by an increase in political revenue.
22
Adjusted Free Cash Flow Reconciliation
Adjusted free cash flow as a percentage of revenue is computed over a trailing two-year period (reflecting both an even and odd year reporting period given the political cyclicality of our business).
Reconciliation from “Net income” to “Adjusted free cash flow” follow (in thousands):
|
Two-year period ended Mar. 31, |
|
|||||
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
||
Net income attributable to TEGNA Inc. (GAAP basis) |
$ |
1,162,519 |
|
|
$ |
1,099,110 |
|
Plus: Provision for income taxes |
|
349,092 |
|
|
|
334,056 |
|
Plus: Interest expense |
|
345,674 |
|
|
|
356,093 |
|
Plus: M&A-related costs |
|
32,421 |
|
|
|
27,021 |
|
Plus: Depreciation |
|
119,969 |
|
|
|
125,189 |
|
Plus: Amortization of intangible assets |
|
112,009 |
|
|
|
120,715 |
|
Plus: Employee stock-based compensation awards |
|
55,615 |
|
|
|
56,923 |
|
Plus: Company stock 401(k) match contribution |
|
37,381 |
|
|
|
36,063 |
|
Plus: Syndicated programming amortization |
|
114,427 |
|
|
|
136,964 |
|
Plus: Workforce restructuring expense |
|
1,807 |
|
|
|
— |
|
Plus: Advisory fees related to activism defense |
|
— |
|
|
|
12,012 |
|
Plus: Cash dividend from equity investments for return on capital |
|
500 |
|
|
|
4,276 |
|
Plus: Cash reimbursements from spectrum repacking |
|
265 |
|
|
|
3,842 |
|
Plus: Net income attributable to redeemable noncontrolling interest |
|
1 |
|
|
|
1,457 |
|
Plus: Reimbursement from Company-owned life insurance policies |
|
1,879 |
|
|
|
1,929 |
|
Plus: Retention costs, cash portion |
|
5,018 |
|
|
— |
|
|
Plus (Less): Asset impairment and other |
|
4,191 |
|
|
|
(1,207 |
) |
Less: Other non-operating items, net |
|
(162,922 |
) |
|
|
(5,746 |
) |
Less: Merger termination fee |
|
(136,000 |
) |
|
|
— |
|
Less: Syndicated programming payments |
|
(110,970 |
) |
|
|
(140,650 |
) |
Less: Income tax payments, net of refunds |
|
(298,525 |
) |
|
|
(351,206 |
) |
Less: Pension contributions |
|
(9,613 |
) |
|
|
(12,149 |
) |
Less: Interest payments |
|
(332,842 |
) |
|
|
(345,153 |
) |
Less: Purchases of property and equipment |
|
(105,400 |
) |
|
|
(104,069 |
) |
Adjusted free cash flow (non-GAAP basis) |
$ |
1,186,496 |
|
|
$ |
1,355,470 |
|
|
|
|
|
|
|
||
Revenue |
$ |
6,130,304 |
|
|
$ |
6,286,614 |
|
Adjusted free cash flow as a % of Revenue |
|
19.4 |
% |
|
|
21.6 |
% |
Our Adjusted free cash flow was $1.19 billion and $1.36 billion for the two-year periods ended March 31, 2024 and 2023, respectively.
Our share of net earnings and losses from investments that we have significant influence over, but do not have control, were previously included in “Equity loss in unconsolidated investments, net” in the Consolidated Statements of Income. However, beginning in the first quarter of 2024 such amounts are now included in “Other non-operating items, net”. Prior year amounts have been reclassified to conform to the new presentation.
Starting in the fourth quarter of 2023, TEGNA began presenting interest income as a separate line item on its Statements of Income as a result of its increasing size. Prior to this, interest income was included in Other non-operating items, net. Prior year amounts have been reclassified to conform to the new presentation. Interest income is included in Adjusted free cash flow while Other non-operating items, net is not, consistent with past presentations.
Liquidity, Capital Resources and Cash Flows
Our operations have historically generated positive cash flow that, along with availability under our existing revolving credit facility and cash and cash equivalents on hand, has been sufficient to fund our capital expenditures, interest payments, dividends, share repurchases, investments in strategic initiatives and other operating requirements.
We paid dividends totaling $19.9 million and $21.4 million in the three months ended March 31, 2024 and 2023, respectively. On May 8, 2024 we announced that our Board of Directors further increased the dividend by 10%, from 11.375 to 12.5 cents per share. This increase builds on a 20 percent increase to TEGNA’s dividend in 2023. The increased dividend will be in effect for quarterly dividend payments, beginning with the July 1, 2024 payment, to stockholders of record as of the close of business on June 7, 2024.
23
On June 2, 2023, we entered into our first accelerated share repurchase program (the first ASR) with JPMorgan Chase Bank, National Association (JPMorgan). Under the terms of the first ASR, we repurchased $300 million in TEGNA common stock from JPMorgan, with an initial delivery of approximately 15.2 million shares received on June 6, 2023, representing 80% ($240 million) of the value of the first ASR contract. The first ASR program was completed during the third quarter of 2023 at which time JPMorgan delivered an additional 3.1 million shares to us. The final share settlement was based on the average daily volume-weighted average price of TEGNA shares during the term of the first ASR program, less a discount, less the previously delivered 15.2 million shares.
On November 9, 2023, we entered into a second accelerated share repurchase (the second ASR) program with JPMorgan. Under the terms of the second ASR, we repurchased $325 million in TEGNA common stock from JPMorgan, with an initial delivery of approximately 17.3 million shares received on November 13, 2023, representing 80% ($260 million) of the value of the second ASR contract. The second ASR program was completed on February 22, 2024, shortly after which JPMorgan delivered an additional 4.0 million shares to us. The final share settlement was based on the average daily volume-weighted average price of TEGNA shares during the term of the second ASR program, less a discount, less the previously delivered 17.3 million shares.
In December 2023, our Board of Directors authorized a new share repurchase program for up to $650.0 million of our common stock, which was in addition to the second ASR program. This new share repurchase program expires on December 31, 2025. In the first quarter of 2024, 5.8 million shares were repurchased under this program at an average share price of $14.50 for an aggregate cost of $84.5 million, of which $2.1 million had not yet been paid as of the end of the first quarter.
Our comprehensive capital allocation framework supports shareholder value creation through a predictable and sustained distribution of free cash flow to shareholders. We are on track and reaffirm our expectation to return 40-60 percent of Adjusted free cash flow generated in 2024-2025 to shareholders through share repurchases and dividends, with the remaining Adjusted free cash flow expected to be used for organic investments and/or bolt-on acquisitions and to prepare for future debt retirement. We will continue to analyze all uses of capital, including regular evaluation of the dividend, with a goal of maximizing long-term shareholder value creation.
Consistent with this framework, we are on track to return approximately $350 million of capital to shareholders in 2024 through dividends and opportunistic share repurchases from time to time on the open market at prevailing prices or in negotiated transactions.
Our Adjusted free cash flow guidance free cash flow guidance includes the impact of transformation initiatives to streamline operations, pursue innovation-driven opportunities, and achieve cost reductions. We expect to complete these transformation initiatives by the end of 2025, with initial benefits expected to occur in the second half of 2024. We expect to realize annualized cost savings of $90-$100 million exiting 2025.
During the first quarter of 2024, we returned $102.3 million of capital to shareholders with $82.4 million of share repurchases, representing 5.7 million shares, and paid $19.9 million in dividends. Excluded from this commitment are share repurchases under our previously announced accelerated share repurchase program, which were completed during the quarter on February 27, 2024, including final settlement of approximately 4.0 million shares.
Our capital allocation plan is subject to a variety of factors, including our strategic plans, market and economic conditions and the discretion of our Board of Directors.
In addition to the above share repurchase initiatives, during 2024 we deployed surplus cash in time deposit and money market investments with several financial institutions.
On January 25, 2024, we entered into an amendment to our revolving credit facility. Among other things, the amendment amends the revolving credit facility to:
Under the amended Credit Agreement, the Company’s maximum Total Leverage Ratio (as defined in the Credit Agreement) will remain unchanged at 4.50x. None of the available capacity on the revolving credit facility was drawn on the amendment date.
24
As of March 31, 2024, we were in compliance with all covenants contained in our debt agreements and credit facility. Our leverage ratio, calculated in accordance with our revolving Credit Agreement, was 2.79x, below the maximum permitted leverage ratio of 4.50x. The leverage ratio is calculated using annualized adjusted EBITDA (as defined in the Credit Agreement) for the trailing eight quarters. We expect to remain compliant with all covenants for the foreseeable future.
As of March 31, 2024, our total debt was $3.07 billion, cash and cash equivalents totaled $430.8 million, and we had unused borrowing capacity of $737.3 million under our revolving credit facility. Our debt consists of unsecured notes which have fixed interest rates.
Our financial and operating performance, as well as our ability to generate sufficient cash flow to maintain compliance with credit facility covenants, are subject to certain risk factors. See Item 1A. “Risk Factors,” in our 2023 Annual Report on Form 10-K for further discussion. We expect our existing cash and cash equivalents, expected future cash flow from our operations, and borrowing capacity under the revolving credit facility will be more than sufficient to satisfy our recurring contractual commitments, debt service obligations, capital expenditure requirements, and other working capital needs for the next twelve months and beyond.
Cash Flows
The following table provides a summary of our cash flow information followed by a discussion of the key elements of our cash flow (in thousands):
|
Three months ended Mar. 31, |
|
|||||
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
||
Cash and cash equivalents at beginning of the period |
$ |
361,036 |
|
|
$ |
551,681 |
|
|
|
|
|
|
|
||
Operating activities: |
|
|
|
|
|
||
Net income |
|
189,262 |
|
|
|
104,004 |
|
Gain on investment sale |
|
(152,867 |
) |
|
|
— |
|
Depreciation, amortization and other non-cash adjustments |
|
44,765 |
|
|
|
38,120 |
|
Pension expense, net of contributions |
|
742 |
|
|
|
1,416 |
|
Decrease in trade receivables |
|
22,153 |
|
|
|
20,615 |
|
(Decrease) increase in accounts payable |
|
(34,950 |
) |
|
|
12,100 |
|
Increase (decrease) in interest and taxes payable |
|
26,958 |
|
|
|
(1,627 |
) |
All other operating activities |
|
4,317 |
|
|
|
(4,241 |
) |
Net cash flow from operating activities |
|
100,380 |
|
|
|
170,387 |
|
|
|
|
|
|
|
||
Investing activities: |
|
|
|
|
|
||
Purchase of property and equipment |
|
(4,911 |
) |
|
|
(2,845 |
) |
Payments for acquisitions of businesses and assets, net of cash acquired |
|
(52,799 |
) |
|
|
(1,150 |
) |
Proceeds from investments |
|
152,867 |
|
|
|
23 |
|
All other investing activities |
|
(8,933 |
) |
|
|
(150 |
) |
Net cash flow provided by (used for) investing activities |
|
86,224 |
|
|
|
(4,122 |
) |
|
|
|
|
|
|
||
Financing activities: |
|
|
|
|
|
||
Repurchase of common stock |
|
(82,394 |
) |
|
|
— |
|
Dividends paid |
|
(19,898 |
) |
|
|
(21,360 |
) |
Payment of debt issuance costs |
|
(6,448 |
) |
|
|
— |
|
All other financing activities |
|
(8,136 |
) |
|
|
(13,407 |
) |
Net cash flow used for financing activities |
|
(116,876 |
) |
|
|
(34,767 |
) |
Net change in cash and cash equivalents |
|
69,728 |
|
|
|
131,498 |
|
Cash and cash equivalents at end of the period |
$ |
430,764 |
|
|
$ |
683,179 |
|
Operating activities - Cash flow from operating activities was $100.4 million for the three months ended March 31, 2024, compared to $170.4 million for the same period in 2023. The decrease of $70.0 million was primarily driven by changes in working capital, primarily accounts payable, due to the timing of payments. Also contributing to the decrease was the impact of the December 2023 temporary service disruption with one of our distribution partners which negatively impacted collections in the first quarter of 2024. These declines were partially offset by the timing of payments to one of our network affiliation partners.
Investing activities - Cash flow from investing activities was a net cash inflow of $86.2 million for the three months ended March 31, 2024, compared to a net cash outflow of $4.1 million for the same period in 2023. The increase in net cash flows of $90.3 million from investing activities was primarily driven by proceeds of $152.9 million from the sale of our investment in BMI in the first quarter of 2024. This was partially offset by cash outflows of $52.8 million for the acquisition of Octillion Media.
25
Financing activities - Cash flow used for financing activities was $116.9 million for the three months ended March 31, 2024, compared to $34.8 million for the same period in 2023. The increase was primarily due to our repurchase of common stock. In the first quarter of 2024 we repurchased approximately $82.4 million of shares under our authorized share repurchase program. Additionally, we paid $6.4 million in fees in conjunction with the amendment of our credit revolver in the first quarter of 2024.
Certain Factors Affecting Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q that do not describe historical facts may constitute forward-looking statements within the meaning of the “safe harbor” provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in the communication, the words “believes,” “estimates,” “plans,” “expects,” “should,” “could,” “outlook,” and “anticipates” and similar expressions as they relate to the Company, or its financial results are intended to identify forward-looking statements. Forward-looking statements in this communication may include, without limitation, statements regarding anticipated growth rates, the Company’s capital allocation framework, the Company’s business transformation initiatives, and the Company’s other plans, objectives and expectations. Forward-looking statements are based on a number of assumptions about future events and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from the views, beliefs, projections and estimates expressed in such statements, many of which are outside the Company’s control. These risks, uncertainties and other factors include, but are not limited to, risks and uncertainties related to: changes in the market price of the Company’s shares, general market conditions; constraints, volatility, or disruptions in the capital markets; the possibility that Company’s share repurchases, including through ASR programs, and the execution of the capital allocation framework may not enhance long-term stockholder value; the Company’s ability to realize cost savings and execute its business transformation initiatives; the possibility that share repurchases could increase the volatility of the price of the Company’s common stock; legal proceedings, judgments or settlements; the Company’s ability to re-price or renew subscribers; potential regulatory actions; changes in consumer behaviors and impacts on and modifications to the Company’s operations and business relating thereto; and economic, competitive, governmental, technological and other factors and risks that may affect the Company’s operations or financial results, which are discussed in our Annual Report on Form 10-K.
Readers are cautioned not to place undue reliance on forward-looking statements made by or on behalf of the Company. Each such statement speaks only as of the day it was made. We undertake no obligation to update or to revise any forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, refer to the following section of our 2023 Annual Report on Form 10-K: “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.” Our exposures to market risk have not changed materially since December 31, 2023.
As of March 31, 2024, we did not have any floating interest obligations outstanding under our $750 million revolving credit facility, which expires in January 2029. Any amounts borrowed under the revolving credit facility in the future are subject to a variable rate. Refer to Note 8 to the condensed consolidated financial statements for information regarding the fair value of our long-term debt.
Item 4. Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2024. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective, as of March 31, 2024, to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There have been no material changes in our internal controls or in other factors during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 10 to the condensed consolidated financial statements for information regarding our legal proceedings.
26
Item 1A. Risk Factors
While we attempt to identify, manage and mitigate risks and uncertainties associated with our business, some level of risk and uncertainty will always be present. “Item 1A. Risk Factors” of our 2023 Annual Report on Form 10-K describes the risks and uncertainties that we believe may have the potential to materially affect our business, results of operations, financial condition, cash flows, projected results and future prospects. We do not believe that there have been any material changes from the risk factors previously disclosed in our 2023 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table presents stock repurchases by the Company during the three months ended March 31, 2024 (in thousands, except per share amounts):
Period Ended |
|
Total |
|
|
Average |
|
|
Total Number |
|
|
Approximate |
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
January 1, 2024 - January 31, 2024 |
|
— |
|
|
$ |
— |
|
|
— |
|
|
|
715,000 |
|
(1) |
||
February 1, 2024 - February 29, 2024 |
|
|
3,999 |
|
|
|
14.51 |
|
|
|
3,999 |
|
|
|
650,000 |
|
(2) |
March 1, 2024 - March 31, 2024 |
|
|
5,828 |
|
|
$ |
14.50 |
|
|
|
5,828 |
|
|
|
565,505 |
|
(3) |
Total First Quarter 2024 |
|
|
9,827 |
|
|
|
|
|
|
9,827 |
|
|
|
|
|
||
(1) Represents as of the beginning of the first quarter of 2024 (i) the remaining value of the $650 million share repurchase program authorized by our Board of Directors in December 2023 and (ii) the remaining $65 million (20% of the total value) under the second ASR program described in footnote 2 below.
(2) In the fourth quarter of 2023, we entered into a second ASR agreement with JPMorgan to repurchase TEGNA common stock with an aggregate value of $325 million. Under the terms of the ASR, we paid JPMorgan $325 million and received an initial delivery of approximately 17.3 million shares in November of 2023, representing approximately 80% ($260 million) of the value of the second ASR. The second ASR program was completed on February 22, 2024, shortly after which date JPMorgan delivered an additional 4.0 million shares to us. The second ASR program was separately authorized by our Board of Directors and therefore did not impact the $650 million share repurchase program authorized by our Board of Directors in December 2023 described in Note 3 below.
(3) In December 2023, our Board of Directors authorized the renewal of our share repurchase program for up to $650 million of our common stock over two years. The shares may be repurchased at management’s discretion, either on the open market or in privately negotiated block transactions. Management’s decision to repurchase shares will depend on price, blackout periods and other corporate developments. Purchases may occur from time to time and no maximum purchase price has been set. In March of 2024, we repurchased 5.8 million shares under this program at an aggregate cost of $84.5 million, of which $2.1 million had not yet been paid as of the end of the first quarter.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
On March 7, 2024,
27
The adoption of this trading plan occurred during an open insider trading window and is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended.
Item 6. Exhibits
Exhibit Number |
|
Description |
|
|
|
|
|
|
3-1 |
|
|
|
|
|
3-2 |
|
|
|
|
|
10-1 |
|
Form of Executive Officer Restricted Stock Unit Award Agreement. * |
|
|
|
10-2 |
|
|
|
|
|
10-3 |
|
Form of Executive Officer Performance Share Award Agreement. * |
|
|
|
10-4 |
|
|
|
|
|
10-5 |
|
|
|
|
|
10-6 |
|
|
|
|
|
10-7 |
|
|
|
|
|
31-1 |
|
|
|
|
|
31-2 |
|
|
|
|
|
32-1 |
|
|
|
|
|
32-2 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
|
|
|
* Asterisks identify management contracts and compensatory plans and arrangements.
28
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 8, 2024 |
TEGNA INC. |
|
|
|
/s/ Clifton A. McClelland III |
|
Clifton A. McClelland III |
|
Senior Vice President and Controller |
|
(on behalf of Registrant and as Principal Accounting Officer) |
29