TEGNA(TGNA) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The Q1 2020 financial statements show a 32% revenue increase, driven by acquisitions and subscription fees, with net income at $86.3 million and total assets at $6.9 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Mar. 31, 2020 ($) | Dec. 31, 2019 ($) | | :--- | :--- | :--- | | Total current assets | $646,883 | $707,324 | | Total assets | $6,894,105 | $6,953,976 | | Total current liabilities | $323,510 | $361,158 | | Long-term debt | $4,071,897 | $4,179,245 | | Total liabilities | $5,221,756 | $5,363,599 | | Total equity | $1,658,256 | $1,590,377 | Consolidated Statement of Income Highlights (in thousands) | Account | Q1 2020 ($) | Q1 2019 ($) | | :--- | :--- | :--- | | Revenues | $684,189 | $516,753 | | Operating income | $174,538 | $132,649 | | Net income attributable to TEGNA Inc. | $86,308 | $73,979 | | Diluted EPS | $0.39 | $0.34 | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Account | Q1 2020 ($) | Q1 2019 ($) | | :--- | :--- | :--- | | Net cash flow from operating activities | $177,364 | $48,409 | | Net cash flow used for investing activities | ($15,563) | ($110,037) | | Net cash flow used for financing activities | ($156,146) | ($70,416) | | Increase (decrease) in cash | $5,655 | ($132,044) | Notes to Condensed Consolidated Financial Statements Notes detail the impact of COVID-19 on advertising, the influence of 2019 acquisitions, impairment assessments, debt refinancing, and the Premion business sale - The COVID-19 pandemic began negatively impacting advertising and marketing services revenue in mid-March 2020, prompting cost-saving measures, with the full effect not yet estimable[17][18] - Four major acquisitions totaling $1.5 billion in 2019, including 15 television stations, significantly impact year-over-year financial comparisons[31][78] - An interim impairment assessment found no impairment of FCC licenses as of March 31, 2020, despite COVID-19 impacts, though future risk remains with sustained economic decline[42][44] - The company issued $1.0 billion in senior unsecured notes at 4.625% in January 2020, using proceeds to repay $960.0 million of existing debt and incurring a $13.8 million early redemption fee[54][55] - A minority stake in Premion, LLC was sold to Gray Television for $14.0 million in March 2020, with Gray reselling Premion services in 93 markets[73] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a strategic shift to subscription and political revenues, Q1 2020 revenue growth of 32% despite COVID-19 impacts, and strengthened liquidity, while suspending 2020 guidance Q1 2020 vs Q1 2019 Revenue Breakdown (in thousands) | Revenue Category | Q1 2020 ($) | Q1 2019 ($) | Change | | :--- | :--- | :--- | :--- | | Advertising & Marketing Services | $295,153 | $264,402 | 12% | | Subscription | $332,802 | $241,575 | 38% | | Political | $47,387 | $2,704 | *** | | Other | $8,847 | $8,072 | 10% | | Total revenues | $684,189 | $516,753 | 32% | - The 2019 acquisitions contributed $107.4 million to Q1 2020 revenues, with an additional $60.0 million increase from subscription and political revenue growth[91] - Due to COVID-19's impact on advertising, the company implemented cost-saving measures including temporary furloughs and compensation reductions[83] - As of March 31, 2020, the company's leverage ratio was 4.59x, well below the 5.5x covenant, with $720.8 million in unused revolving credit facility capacity[123][127] - Full-year 2020 guidance and 2021 preliminary outlook were suspended on April 20, 2020, due to COVID-19 pandemic uncertainty[133] Item 3. Quantitative and Qualitative Disclosures about Market Risk Market risk exposure remains stable, with 78% of debt at fixed rates, while floating-rate debt exposes the company to interest rate fluctuations impacting annual expense by $4.4 million per 50 basis points - As of March 31, 2020, approximately 78% ($3.22 billion) of the company's total principal debt has a fixed interest rate[137] - A 50 basis point change in interest rates on $885 million of floating-rate debt would alter annual interest expense by approximately $4.4 million[137] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes in internal controls during the quarter - Disclosure controls and procedures were concluded to be effective as of March 31, 2020, by principal executive and financial officers[138] - No material changes in internal controls over financial reporting occurred during Q1 2020[139] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in legal proceedings, including a DOJ settlement and a pending class action related to local TV ad sales, which it intends to vigorously defend - Information on legal proceedings is detailed in Note 11 of the condensed consolidated financial statements[141] - Note 11 outlines a DOJ settlement and an ongoing class action lawsuit concerning local TV ad sales practices, which the company is defending[64][66] Item 1A. Risk Factors A new risk factor addresses the significant uncertainties and potential adverse effects of the COVID-19 pandemic on financial condition, operations, and cash flows, particularly advertising revenues - A new risk factor highlights the potential material adverse effects of the COVID-19 pandemic on the company's financial condition, operations, and cash flows[142][143] - The pandemic began negatively impacting Advertising & Marketing Services (AMS) revenue in mid-March due to softened non-political advertising demand[143] - Sustained pandemic impact could jeopardize debt covenant compliance and increase cybersecurity risks due to remote work[145] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased in Q1 2020 under the $300 million program, which remains suspended due to 2019 acquisition activities, with $279.1 million still available - No shares were repurchased during Q1 2020[146] - The share repurchase program remains suspended due to the 2019 acquisitions[146] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including debt indentures, executive compensation agreements, and CEO/CFO certifications - Key exhibits include the Fourteenth Supplemental Indenture for the January 2020 debt offering, executive compensation agreements, and CEO/CFO certifications[150]