TEGNA(TGNA) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents TEGNA's unaudited condensed consolidated financial statements and detailed notes for the period ended September 30, 2023 Condensed Consolidated Balance Sheets TEGNA's total assets slightly decreased to $7.195 billion as of September 30, 2023, with stable long-term debt Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sept. 30, 2023 (in thousands) | Dec. 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $7,195,049 | $7,328,896 | | Cash and cash equivalents | $553,030 | $551,681 | | Goodwill | $2,981,587 | $2,981,587 | | Total Liabilities | $4,216,050 | $4,239,756 | | Long-term debt | $3,071,899 | $3,069,316 | | Total Equity | $2,960,540 | $3,071,722 | Consolidated Statements of Income Q3 2023 revenues decreased to $713.2 million and net income to $96.2 million, primarily due to lower political advertising revenue Consolidated Income Statement Highlights (in thousands, except EPS) | Metric | Q3 2023 (in thousands) | Q3 2022 (in thousands) | 9 Months 2023 (in thousands) | 9 Months 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $713,243 | $803,111 | $2,185,076 | $2,362,115 | | Operating Income | $134,657 | $232,258 | $589,811 | $662,416 | | Merger Termination Fee | - | - | ($136,000) | - | | Net Income Attributable to TEGNA | $96,183 | $146,065 | $400,591 | $411,868 | | Diluted EPS | $0.48 | $0.65 | $1.86 | $1.83 | Condensed Consolidated Statements of Cash Flows Net cash flow from operating activities decreased to $408.8 million for the nine months ended September 30, 2023, driven by lower revenue Consolidated Cash Flow Highlights (Nine Months Ended Sept. 30, in thousands) | Cash Flow Category | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net cash flow from operating activities | $408,839 | $600,705 | | Net cash flow used for investing activities | ($3,095) | ($36,062) | | Net cash flow used for financing activities | ($404,395) | ($244,991) | | Increase in cash and cash equivalents | $1,349 | $319,652 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, the terminated merger, revenue sources, debt, share repurchases, and ongoing litigation - On May 22, 2023, TEGNA terminated its merger agreement with Teton Parent Corp. (an affiliate of Standard General). As a result, TEGNA received a $136.0 million termination fee, which was paid via 8.6 million shares of the company's common stock and recorded as an operating item[21][22] Revenue by Source (in thousands) | Revenue Source | Q3 2023 (in thousands) | Q3 2022 (in thousands) | 9 Months 2023 (in thousands) | 9 Months 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Subscription | $377,891 | $377,368 | $1,188,297 | $1,158,101 | | Advertising & Marketing | $312,413 | $320,764 | $937,984 | $1,010,490 | | Political | $11,643 | $92,904 | $22,925 | $161,727 | | Other | $11,296 | $12,075 | $35,870 | $31,797 | - In Q3 2023, the company sold a portion of its investment in MadHive, Inc. for $26.4 million, resulting in a gain of $25.8 million[35] - The company repurchased $300 million in shares through an Accelerated Share Repurchase (ASR) program completed in Q3 2023, receiving a total of 18.3 million shares. An additional 1.7 million shares were repurchased for $27.9 million under a separate program[49][50] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting Q3 2023 revenue decrease due to lower political advertising and stable liquidity Consolidated Results from Operations Q3 2023 total revenues decreased by 11% to $713.2 million, primarily due to an 87% drop in political advertising revenue Revenue Comparison (Q3 2023 vs. Q3 2022, in thousands) | Revenue Category | 2023 (in thousands) | 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Subscription | $377,891 | $377,368 | 0% | | Advertising & Marketing Services | $312,413 | $320,764 | (3)% | | Political | $11,643 | $92,904 | (87)% | | Total revenues | $713,243 | $803,111 | (11)% | - The decrease in total revenues for Q3 and the first nine months of 2023 was primarily due to the absence of the 2022 mid-term election cycle, which significantly reduced political revenue[76] - Cost of revenues increased in Q3 and the first nine months of 2023 compared to 2022, driven by rate increases under existing and newly renegotiated network affiliation agreements[78] - Non-operating income increased by $31.7 million in Q3 2023, primarily due to a $25.8 million gain on the sale of a portion of the MadHive investment[94] Results from Operations - Non-GAAP Information Q3 2023 Adjusted EBITDA decreased 38% to $165.9 million, reflecting lower revenues and higher programming costs Adjusted EBITDA Reconciliation (in thousands) | Metric | Q3 2023 (in thousands) | Q3 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net income attributable to TEGNA Inc. | $96,183 | $146,065 | (34%) | | Operating income | $134,657 | $232,258 | (42%) | | Adjusted EBITDA (non-GAAP) | $165,921 | $265,972 | (38%) | - Special items excluded from non-GAAP results in Q3 2023 include retention costs related to the terminated merger and a gain on the sale of an equity investment. In Q3 2022, special items included M&A-related costs[106] - Free cash flow for the two-year period ending September 30, 2023 was $1.28 billion, or 20.6% of revenue, compared to $1.42 billion, or 22.6% of revenue, for the period ending September 30, 2022[111] Liquidity, Capital Resources and Cash Flows TEGNA maintains strong liquidity with $553.0 million cash and $1.49 billion credit facility, increasing dividends and share repurchases - The company increased its quarterly dividend by 20% from 9.5 cents to 11.375 cents per share in Q2 2023[113] - A $300 million Accelerated Share Repurchase (ASR) program was completed in Q3 2023, and an additional $325 million ASR is planned for Q4 2023[114][115] - As of September 30, 2023, total debt was $3.07 billion, and the company was in compliance with all debt covenants, with a leverage ratio of 2.58x[119][120] Goodwill Goodwill headroom narrowed due to stock price decline, increasing future impairment risk despite current fair value exceeding carrying value - Despite the reporting unit's fair value exceeding its carrying value by over 20% as of September 30, 2023, the decline in the company's stock price has narrowed the headroom, creating a risk of future goodwill impairment[125] Quantitative and Qualitative Disclosures about Market Risk Market risk exposure remains largely unchanged, with future credit facility borrowings subject to variable SOFR rates - The company has no outstanding floating interest rate debt, but future borrowings under its $1.49 billion available credit facility are subject to variable rates based on SOFR[129] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures are effective as of September 30, 2023[130] PART II. OTHER INFORMATION Legal Proceedings The company faces ongoing antitrust litigation but expects no material liability, with all merger-related lawsuits dismissed - TEGNA is a defendant in ongoing putative class action lawsuits alleging antitrust violations in local television advertising sales, which the company believes are without merit and intends to defend vigorously[52][53][55] - All seven lawsuits filed by purported stockholders related to the terminated merger have been voluntarily dismissed as of November 7, 2023[56] Risk Factors No material changes to risk factors, except for a new risk concerning share repurchase programs and potential stock price volatility - A new risk factor was added concerning the company's share repurchase programs, stating there is no assurance they will enhance long-term stockholder value and could increase stock price volatility[134][136] Unregistered Sales of Equity Securities and Use of Proceeds TEGNA repurchased 4.84 million shares in Q3 2023, including final settlement of a $300 million ASR program Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Shares Purchased (thousands) | Average Price Paid per Share ($) | | :--- | :--- | :--- | | August 2023 | 3,091 | $16.42 | | September 2023 | 1,749 | $15.96 | | Total Q3 2023 | 4,840 | N/A | - As of September 30, 2023, approximately $272.1 million remained available for repurchases under the share repurchase program authorized in December 2020[138][141] Other Information CEO David T. Lougee established a Rule 10b5-1 trading plan to sell up to 425,000 shares for estate planning - CEO David T. Lougee established a Rule 10b5-1 trading plan to sell up to 425,000 shares for estate planning, representing his first potential sales since becoming CEO in 2017[144]