TEGNA(TGNA) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section details TEGNA Inc.'s unaudited condensed consolidated financial statements and management's analysis for H1 2020 Item 1. Financial Statements This section presents TEGNA Inc.'s unaudited condensed consolidated financial statements and notes for H1 2020 Condensed Consolidated Balance Sheets This section presents TEGNA Inc.'s financial position as of June 30, 2020, and December 31, 2019 Condensed Consolidated Balance Sheets (in thousands of dollars) | Metric | June 30, 2020 | Dec. 31, 2019 | | :------------------------------------------------- | :------------ | :------------ | | Cash and cash equivalents | $173,070 | $29,404 | | Accounts receivable, net | $485,211 | $581,765 | | Total current assets | $711,057 | $707,324 | | Net property and equipment | $480,961 | $485,721 | | Goodwill | $2,968,655 | $2,950,587 | | Total assets | $6,928,418 | $6,953,976 | | Total current liabilities | $316,538 | $361,158 | | Long-term debt | $4,098,076 | $4,179,245 | | Total liabilities | $5,238,738 | $5,363,599 | | Redeemable noncontrolling interest | $14,373 | — | | Total equity | $1,675,307 | $1,590,377 | Consolidated Statements of Income This section details TEGNA Inc.'s revenues, expenses, and net income for Q2 and H1 2020 and 2019 Consolidated Statements of Income (in thousands of dollars, except per share amounts) | Metric | Q2 2020 | Q2 2019 | Change (%) | 6M 2020 | 6M 2019 | Change (%) | | :--------------------------------- | :------ | :------ | :--------- | :-------- | :-------- | :--------- | | Revenues | $577,627 | $536,932 | 8% | $1,261,816 | $1,053,685 | 20% | | Operating income | $75,097 | $142,812 | (47%) | $249,635 | $275,461 | (9%) | | Net Income | $19,573 | $79,955 | (76%) | $105,771 | $153,934 | (31%) | | Net income attributable to TEGNA Inc. | $19,947 | $79,955 | (75%) | $106,255 | $153,934 | (31%) | | Diluted EPS | $0.09 | $0.37 | (76%) | $0.48 | $0.71 | (32%) | Consolidated Statements of Comprehensive Income This section presents TEGNA Inc.'s comprehensive income, including net income and other comprehensive income components Consolidated Statements of Comprehensive Income (in thousands of dollars) | Metric | Q2 2020 | Q2 2019 | 6M 2020 | 6M 2019 | | :------------------------------------------ | :------ | :------ | :-------- | :-------- | | Net income | $19,573 | $79,955 | $105,771 | $153,934 | | Other comprehensive income, net of tax | $996 | $1,238 | $2,418 | $2,317 | | Comprehensive income attributable to TEGNA Inc. | $20,943 | $81,193 | $108,673 | $156,251 | Condensed Consolidated Statements of Cash Flows This section outlines TEGNA Inc.'s cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands of dollars) | Metric | 6M 2020 | 6M 2019 | | :------------------------------------------ | :-------- | :-------- | | Net cash flow from operating activities | $313,542 | $116,851 | | Net cash flow used for investing activities | $(21,057) | $(197,705) | | Net cash flow used for financing activities | $(148,819) | $(25,740) | | Increase (decrease) in cash | $143,666 | $(106,594) | | Balance of cash, end of period | $173,070 | $29,268 | Consolidated Statements of Equity and Redeemable Noncontrolling Interests This section details changes in TEGNA Inc.'s equity and noncontrolling interests for H1 2020 and FY 2019 Consolidated Statements of Equity and Redeemable Noncontrolling Interests (in thousands of dollars) | Metric | June 30, 2020 | Dec. 31, 2019 | | :------------------------------------------ | :------------ | :------------ | | Common stock | $324,419 | $324,419 | | Additional paid-in capital | $140,255 | $247,497 | | Retained earnings | $6,729,896 | $6,655,088 | | Accumulated other comprehensive loss | $(140,179) | $(142,597) | | Treasury stock | $(5,379,084) | $(5,494,030) | | Total equity | $1,675,307 | $1,590,377 | | Redeemable noncontrolling interest | $14,373 | — | - Sale of minority ownership interest in Premion for $14.0 million in March 2020 resulted in the recognition of a redeemable noncontrolling interest[16][75][76] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting TEGNA Inc.'s condensed consolidated financial statements NOTE 1 – Accounting policies This note outlines TEGNA Inc.'s significant accounting policies and the impact of the COVID-19 pandemic on its operations - The COVID-19 pandemic negatively impacted advertising and marketing services (AMS) revenue starting mid-March 2020, leading to cost-saving measures and an expected material adverse effect on near-term results[19][20] - TEGNA operates one operating and reportable segment, primarily consisting of 63 television stations and two radio stations in 51 markets[22] Allowance for Doubtful Accounts (in thousands of dollars) | Date | Amount | | :--- | :----- | | June 30, 2020 | $8,808 | | December 31, 2019 | $3,723 | - Primary revenue sources include Advertising & Marketing Services (AMS), Subscription, Political advertising, and Other services[32] Revenue Breakdown (in thousands of dollars) | Revenue Category | Q2 2020 | Q2 2019 | Change (%) | 6M 2020 | 6M 2019 | Change (%) | | :----------------------- | :------ | :------ | :--------- | :-------- | :-------- | :--------- | | Advertising & Marketing Services | $229,083 | $289,569 | (21%) | $524,236 | $553,971 | (5%) | | Subscription | $323,475 | $236,162 | 37% | $656,277 | $477,737 | 37% | | Political | $17,544 | $3,229 | *** | $64,931 | $5,933 | *** | | Other | $7,525 | $7,972 | (6%) | $16,372 | $16,044 | 2% | | Total revenues | $577,627 | $536,932 | 8% | $1,261,816 | $1,053,685 | 20% | NOTE 2 – Acquisitions This note details TEGNA Inc.'s strategic acquisitions completed in 2019 and their impact on intangible assets and goodwill - In 2019, TEGNA completed several strategic acquisitions, including 11 Nexstar stations ($769.9 million), Dispatch Broadcast Group's stations ($560.5 million), the remaining 85% interest in Justice Network and Quest ($77.1 million), and two Gray Television stations ($109.9 million)[35][36][37][38] Summary of Assets Acquired and Liabilities Assumed in 2019 Acquisitions (in thousands of dollars) | Category | Total | | :-------------------------------- | :------------ | | Total assets acquired | $1,677,876 | | Total liabilities assumed | $147,494 | | Net assets acquired | $1,530,382 | | Cash paid for acquisitions | $1,515,024 | - During 2020, retransmission agreement intangible assets were reduced by $21.3 million, and goodwill increased by $18.1 million due to ongoing fair value analysis of 2019 acquisitions[40] - Expected amortization expense related to intangible assets for fiscal year 2020 is approximately $68.0 million[40] NOTE 3 – Goodwill and other intangible assets This note provides details on TEGNA Inc.'s goodwill and other intangible assets, including impairment assessments Goodwill and Intangible Assets (in thousands of dollars) | Asset Category | June 30, 2020 (Gross) | Dec. 31, 2019 (Gross) | | :------------------------------------ | :-------------------- | :-------------------- | | Goodwill | $2,968,655 | $2,950,587 | | FCC broadcast licenses | $2,104,167 | $2,090,732 | | Retransmission agreements (net) | $113,671 | $151,321 | | Network affiliation agreements (net) | $249,059 | $261,322 | | Other (net) | $51,243 | $58,239 | - A $2.1 million impairment charge was recognized in Q2 2020 due to eliminating the Justice Network brand name and re-establishing the business under a new brand[43] - An interim impairment assessment for FCC licenses was performed due to expected negative effects of COVID-19 on AMS revenue, concluding no impairment as of June 30, 2020, but noting a sustained economic decline could lead to future charges[44][45] NOTE 4 – Investments and other assets This note details TEGNA Inc.'s investments and other long-term assets, including equity method investments Investments and Other Assets (in thousands of dollars) | Asset Category | June 30, 2020 | Dec. 31, 2019 | | :-------------------------- | :------------ | :------------ | | Cash value life insurance | $51,797 | $52,462 | | Equity method investments | $35,084 | $27,650 | | Other equity investments | $28,124 | $32,383 | | Deferred debt issuance costs | $11,180 | $10,921 | | Other long-term assets | $21,846 | $21,853 | | Total | $148,031 | $145,269 | - TEGNA's largest equity method investment is in CareerBuilder (approximately 17% ownership), which contributed an $18.6 million pre-tax gain in Q1 2020 from the sale of its employment screening business[48] NOTE 5 - Income taxes This note discusses the impact of the CARES Act on TEGNA Inc.'s income tax payments and deferrals - The CARES Act is expected to reduce 2020 tax payments by approximately $7 million due to immediate deductions for qualified improvement property and temporary relaxation of net interest deduction limitations[52] - Federal income tax payments due before July 15, 2020, were deferred to July 15, 2020, with an estimated $33 million to be paid in Q3[53] NOTE 6 – Long-term debt This note details TEGNA Inc.'s long-term debt, including new issuances, repayments, and credit facility amendments Long-term Debt (in thousands of dollars) | Debt Type | June 30, 2020 | Dec. 31, 2019 | | :------------------------------------------------- | :------------ | :------------ | | Total principal long-term debt | $4,125,000 | $4,203,000 | | Debt issuance costs | $(33,253) | $(26,873) | | Unamortized premiums and discounts, net | $6,329 | $3,118 | | Total long-term debt | $4,098,076 | $4,179,245 | - On January 9, 2020, TEGNA completed a private placement offering of $1.0 billion senior unsecured notes (4.625% interest, due March 2028)[55] - Proceeds from the new notes were used to repay $310.0 million of 2020 notes and $650.0 million of 2023 notes, incurring $13.8 million in early redemption fees[56] - The revolving credit facility was amended on June 11, 2020, to extend the initial step-down of the maximum permitted total leverage ratio until March 31, 2022[57] - As of June 30, 2020, TEGNA had $173.1 million in cash and cash equivalents and $653.8 million in unused borrowing capacity under its $1.51 billion revolving credit facility[57] NOTE 7 – Retirement plans This note outlines TEGNA Inc.'s net pension obligations and pension costs for the reported periods - Total net pension obligations were $124.9 million as of June 30, 2020[58] Pension Costs (in thousands of dollars) | Metric | Q2 2020 | Q2 2019 | 6M 2020 | 6M 2019 | | :------------------------------------------ | :------ | :------ | :-------- | :-------- | | (Gains from) expense for company-sponsored retirement plans | $(1,330) | $1,435 | $(2,662) | $2,135 | - No cash contributions were made to the TEGNA Retirement Plan (TRP) during the first six months of 2020[60] NOTE 8 – Accumulated other comprehensive loss This note details TEGNA Inc.'s accumulated other comprehensive loss and reclassifications to the income statement Accumulated Other Comprehensive Loss (AOCL) (in thousands of dollars) | Metric | June 30, 2020 | Dec. 31, 2019 | | :------------------------------------------ | :------------ | :------------ | | Balance of AOCL | $(140,179) | $(142,597) | | Total other comprehensive income (6M) | $2,418 | $2,317 | - Reclassifications from AOCL to the Consolidated Statements of Income primarily relate to amortization of prior service costs and actuarial losses from pension and other post-retirement components[62] NOTE 9 – Earnings per share This note presents TEGNA Inc.'s basic and diluted earnings per share for the reported periods Earnings Per Share | Metric | Q2 2020 | Q2 2019 | 6M 2020 | 6M 2019 | | :------------------------------------------ | :------ | :------ | :-------- | :-------- | | Net income per share - basic | $0.09 | $0.37 | $0.48 | $0.71 | | Net income per share - diluted | $0.09 | $0.37 | $0.48 | $0.71 | NOTE 10 – Fair value measurement This note provides the fair value of TEGNA Inc.'s total debt as of June 30, 2020, and December 31, 2019 Fair Value of Total Debt (in billions of dollars) | Date | Fair Value | | :--- | :--------- | | June 30, 2020 | $4.02 | | December 31, 2019 | $4.32 | NOTE 11 – Other matters This note covers legal proceedings, FCC spectrum repacking, and related party transactions - TEGNA settled a DOJ antitrust investigation in June 2019 without a finding of wrongdoing or liability, agreeing to prohibit sharing of certain confidential business information[67] - The company is a defendant in consolidated class action lawsuits (Advertising Cases) alleging antitrust and other claims related to local television advertising sales, which it denies and intends to vigorously defend[68][69] - All 18 of TEGNA's repacked stations in the FCC Broadcast Spectrum Program have moved to their new channels; approximately $40.6 million in capital expenditures incurred and $34.1 million in FCC reimbursements received through June 30, 2020[71][73] - Expenses incurred from a commercial agreement with MadHive, Inc. (a related party) were $13.7 million for Q2 2020[74] - In March 2020, TEGNA sold a minority ownership interest in Premion, LLC for $14.0 million to an affiliate of Gray Television, resulting in a redeemable noncontrolling interest[75][76] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of TEGNA Inc.'s financial condition, operating results, and 2020 outlook Company Overview This section provides an overview of TEGNA Inc.'s business, operations, and strategic transformation - TEGNA operates 63 television stations and two radio stations in 51 U.S. markets, reaching approximately 39% of U.S. television households[77] - Primary revenue sources are advertising & marketing services (AMS), subscription, political advertising, and other services[78] Revenue Mix (Two Years Ending June 30) | Revenue Category | 2020 | 2019 | | :----------------------- | :--- | :--- | | Advertising & Marketing Services | 48% | 53% | | Subscription | 44% | 40% | | Political | 7% | 6% | | Other | 1% | 1% | | Total revenues | 100% | 100% | - Subscription and political revenues are expected to account for more than 50% of total revenues in 2020[80] - TEGNA has transformed into a pure-play broadcasting company, adding approximately 40 stations and divesting non-core assets, with $1.5 billion in strategic acquisitions in 2019[81] Recent Developments from COVID-19 This section discusses COVID-19's impact on TEGNA Inc.'s revenue, operations, and cost-saving measures - The COVID-19 pandemic negatively impacted Advertising & Marketing Services (AMS) revenue starting mid-March 2020, with a 21% year-over-year decline in Q2 2020[82][83] - Advertising demand steadily improved over Q2 2020, with June AMS revenue decline 20 percentage points better than April[83] - Cost-saving measures implemented include temporary one-week furloughs for most personnel, reduced executive and board compensation, and reduced non-critical discretionary spending[86][87] - Broadcast business designated essential; 90-95% of station employees are working remotely with new safety measures[85] - TEGNA experienced a significant increase in ratings and audiences across all platforms, ascending into the top 50 digital properties in the U.S. by total audience (Comscore, June 2020)[88] Consolidated Results from Operations This section analyzes TEGNA Inc.'s consolidated operating results, highlighting revenue, expenses, and acquisition impacts - The 2019 acquisitions significantly impact the year-over-year comparability of consolidated operating results[90] Consolidated Results of Operations (in thousands of dollars, except per share amounts) | Metric | Q2 2020 | Q2 2019 | Change (%) | 6M 2020 | 6M 2019 | Change (%) | | :--------------------------------- | :------ | :------ | :--------- | :-------- | :-------- | :--------- | | Revenues | $577,627 | $536,932 | 8% | $1,261,816 | $1,053,685 | 20% | | Total operating expenses | $502,530 | $394,120 | 28% | $1,012,181 | $778,224 | 30% | | Operating income | $75,097 | $142,812 | (47%) | $249,635 | $275,461 | (9%) | | Net income attributable to TEGNA Inc. | $19,947 | $79,955 | (75%) | $106,255 | $153,934 | (31%) | | Diluted EPS | $0.09 | $0.37 | (76%) | $0.48 | $0.71 | (32%) | - Total revenues increased by $40.7 million (8%) in Q2 2020 and $208.1 million (20%) in 6M 2020, primarily due to 2019 acquisitions and growth in subscription and political revenues[95][96] - AMS revenue decreased by $99.0 million in Q2 2020 and $119.7 million in 6M 2020, primarily due to reduced advertising demand caused by COVID-19[95][96] - Cost of revenues increased by $70.1 million (25%) in Q2 2020 and $158.1 million (28%) in 6M 2020, mainly due to 2019 acquisitions and increased programming costs linked to subscription revenue growth[97][98] - Corporate general and administrative expenses increased by $12.5 million (79%) in Q2 2020 and $19.5 million (64%) in 6M 2020, driven by final payments for activism defense and M&A due diligence costs[102][103] - Non-operating expenses increased by $10.9 million (29%) in Q2 2020 and $42.3 million (57%) in 6M 2020, primarily due to higher interest expense from increased debt, early debt extinguishment costs, and the absence of prior year gains[112][113] - Income tax expense decreased by $18.3 million (73%) in Q2 2020 and $19.9 million (42%) in 6M 2020, mainly due to lower net income before tax[114] Results from Operations - Non-GAAP Information This section reconciles TEGNA Inc.'s non-GAAP financial measures like Adjusted EBITDA and Free Cash Flow to GAAP results - TEGNA uses non-GAAP measures (Adjusted EBITDA, non-GAAP net income, non-GAAP EPS, free cash flow) to supplement GAAP results, excluding 'special items' for a clearer view of ongoing operating performance[118][120] - Special items for 2020 include spectrum repacking reimbursements (offset by brand impairment), advisory fees for activism defense, M&A due diligence costs, a gain on CareerBuilder investment, and early debt extinguishment costs[125] Adjusted EBITDA (Non-GAAP, in thousands of dollars) | Metric | Q2 2020 | Q2 2019 | Change (%) | 6M 2020 | 6M 2019 | Change (%) | | :------------------------------------------ | :------ | :------ | :--------- | :-------- | :-------- | :--------- | | Adjusted EBITDA | $124,388 | $168,522 | (26%) | $336,754 | $321,675 | 5% | | Adjusted EBITDA, excluding Corporate | $137,252 | $178,949 | (23%) | $359,105 | $342,926 | 5% | - Adjusted EBITDA margins decreased in Q2 and 6M 2020, primarily driven by declines in AMS revenue due to COVID-19[130] - Excluding 2019 acquisitions, Adjusted EBITDA was lower by $67.7 million in Q2 2020 and $46.1 million in 6M 2020[131][132] Free Cash Flow (Non-GAAP, in thousands of dollars) | Metric | 6M 2020 | 6M 2019 | Change (%) | | :------------------------------------------ | :-------- | :-------- | :--------- | | Free cash flow | $238,265 | $160,695 | 48% | - Free cash flow increased significantly in 6M 2020 due to higher political revenue, deferred tax payments, and lower cash used for acquisitions[133][144][145] Liquidity, Capital Resources and Cash Flows This section discusses TEGNA Inc.'s liquidity, capital resources, and cash flow management, including COVID-19 responses - In response to COVID-19, TEGNA halted discretionary repayment of short-term borrowings, amended its revolving credit facility to extend leverage ratio step-downs, implemented temporary furloughs, and reduced capital expenditures[135][143] - The CARES Act is expected to provide approximately $7 million in lower 2020 tax payments and a $20 million deferral of employer social security payroll tax[136] - As of June 30, 2020, TEGNA's leverage ratio was 4.7x (covenant calculation), well below the permitted 5.5x, and the company was in compliance with all debt covenants[137] - Total debt was $4.1 billion, with $173.1 million in cash and cash equivalents and $653.8 million in unused borrowing capacity under the revolving credit facility as of June 30, 2020[141] - Approximately 78% ($3.22 billion) of total principal debt has a fixed interest rate[141] - Operating cash flow for 6M 2020 was $313.5 million, driven by a $59.0 million increase in political revenue and $55.3 million in deferred tax payments[144] - Investing cash flow used for 6M 2020 was $(21.1) million, significantly lower than 2019 due to fewer acquisitions ($15.8 million spent in 2020 vs. $185.9 million in 2019)[145] - Financing cash flow used for 6M 2020 was $(148.8) million, primarily due to issuing $1.0 billion in unsecured notes and early redemption of $960.0 million in debt[146] Fiscal Year 2020 Outlook This section provides TEGNA Inc.'s updated financial outlook for fiscal year 2020 - TEGNA suspended its full-year 2020 guidance in April due to COVID-19 uncertainty but provided an updated outlook on August 10, 2020[147][148] Fiscal Year 2020 Outlook | Metric | Outlook | | :------------------------------------------ | :-------------------------------- | | Political advertising revenue | At least $370 million | | Subscription revenue growth | Mid-twenties percentage-wise | | Capital expenditures | $45 - $50 million (including $20 - $24 million non-recurring) | | Interest expense | $210 - $215 million | | Net leverage ratio | 4.5x or less by year end | | Effective tax rate | 23.5% to 24.5% | Certain Factors Affecting Forward-Looking Statements This section highlights risks and uncertainties affecting TEGNA Inc.'s forward-looking statements, especially COVID-19 impacts - Forward-looking statements are subject to risks and uncertainties, particularly the adverse impacts of the COVID-19 pandemic on revenues and operations[148] - Investors should not solely rely on forward-looking statements for investment decisions, and the company disclaims any duty to update them unless required by law[149] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details TEGNA Inc.'s market risk exposures, primarily focusing on interest rate risk for its debt portfolio - Market risk exposures have not materially changed since December 31, 2019[150] - Approximately $3.22 billion (78%) of total principal debt has a fixed interest rate, while $910 million has floating interest rates[151] - A 50 basis points increase or decrease in the average interest rate for floating obligations would result in a change in annual interest expense of approximately $4.5 million[151] Item 4. Controls and Procedures This section confirms the effectiveness of TEGNA Inc.'s disclosure controls and procedures as of June 30, 2020 - Disclosure controls and procedures were evaluated and concluded to be effective as of June 30, 2020[152] - No material changes in internal controls over financial reporting occurred during the fiscal quarter[153] PART II. OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, and other disclosures Item 1. Legal Proceedings This section refers to Note 11 for details on TEGNA Inc.'s legal proceedings, including antitrust matters - Information regarding legal proceedings is provided in Note 11 to the condensed consolidated financial statements[155] Item 1A. Risk Factors This section identifies the COVID-19 pandemic as a new primary risk factor for TEGNA Inc.'s financial condition and operations - The COVID-19 pandemic is a new risk factor that could materially adversely affect TEGNA's financial condition, results of operations, and cash flows[157] - The impact of COVID-19 depends on the pandemic's duration, its effect on advertising demand, the pace of governmental reopening, and the success of economic stimulus measures[158] - A sustained adverse impact from COVID-19 could affect compliance with credit facility covenants and increase the risk of undetected cybersecurity attacks due to remote work[159] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details TEGNA Inc.'s suspended share repurchase program and remaining authorization as of June 30, 2020 - A $300.0 million share repurchase program was authorized in September 2017, with approximately $279.1 million remaining as of June 30, 2020[160] - No shares were repurchased during the second quarter of 2020[160] - The share repurchase program has been suspended as a result of the 2019 acquisitions[160] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported for the period - No defaults upon senior securities were reported[161] Item 4. Mine Safety Disclosures No mine safety disclosures were reported for the period - No mine safety disclosures were reported[161] Item 5. Other Information No other information was reported for the period - No other information was reported[162] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including organizational documents and certifications - Exhibits include the Third Restated Certificate of Incorporation, By-laws, Thirteenth Amendment to the Amended and Restated Competitive Advance and Revolving Credit Agreement, various Executive Officer and Director Award Agreements, and Rule 13a-14(a) and Section 1350 Certifications of the CEO and CFO[163] SIGNATURE The report was signed on August 10, 2020, by Clifton A. McClelland III, TEGNA Inc.'s Principal Accounting Officer - The report was signed on August 10, 2020, by Clifton A. McClelland III, Senior Vice President and Controller, as Principal Accounting Officer[167][168]