TEGNA(TGNA) - 2023 Q4 - Annual Report

Part I Business TEGNA Inc. is a media company operating 64 television stations across 51 U.S. markets, generating revenue primarily from subscription fees, advertising, and political advertising Business Overview TEGNA operates 64 television stations and two radio stations in 51 U.S. markets, reaching 39% of U.S. TV households and operating digital advertising services - Operates 64 television stations and two radio stations in 51 U.S. markets, reaching approximately 39% of U.S. television households[9] - TEGNA is the largest owner of top four network affiliates in the top 25 U.S. markets among independent station groups[9] Terminated Merger Agreement TEGNA terminated its merger agreement with Teton Parent Corp. due to regulatory review, receiving a $136.0 million termination fee - The Merger Agreement with Teton Parent Corp., initiated on February 22, 2022, was terminated on May 22, 2023[10][11] - TEGNA received a termination fee of $136.0 million, satisfied by the transfer of 8.6 million shares of its own common stock from the acquirer[11] Operating Structure and Revenue Sources TEGNA operates as a single segment, generating $2.9 billion in 2023, with revenue from subscription fees, advertising, and political advertising Primary Revenue Sources | Revenue Source | Description | | :--- | :--- | | Subscription | Fees from satellite, cable, and OTT providers for carrying TV signals | | Advertising & Marketing Services (AMS) | Local/national non-political TV ads, digital marketing (including Premion), and website/app advertising | | Political Advertising | Driven by even-year election cycles | | Other Services | Program production, tower rentals, and content distribution | Our Strategy TEGNA's five-pillar strategy focuses on operational excellence, M&A, organic growth, a strong balance sheet, and robust free cash flow for shareholder returns - The company's strategy is built on five pillars: being a best-in-class operator, pursuing accretive M&A, driving organic growth through innovation, maintaining a strong balance sheet, and optimizing capital allocation[22] - Successfully renewed multi-year distribution agreements with major networks: ABC (through late 2026), NBC (through early 2027), CBS (through late 2028), and Fox (through mid 2025)[19] - Premion, its OTT advertising service launched in 2016, operates in all 210 Designated Market Areas (DMAs) in the U.S. and acquired Octillion Media in early 2024[31][30] - As of December 31, 2023, the company maintained a net leverage ratio below 3.0x and had liquidity of $1.11 billion, with no near-term debt maturities until 2026[36] - A new capital allocation framework aims to return 40-60% of free cash flow from 2024-2025 to shareholders via dividends and share repurchases[43] Our Competition TEGNA faces intense competition for advertising revenue from traditional and digital platforms, and for subscription revenue from other broadcasters and streaming services - Competes for advertising revenue with other TV platforms (broadcast, cable) and digital giants like Google, Facebook, and YouTube[49] - Competes for subscription revenue against other broadcast stations, cable networks, and internet-based video content providers such as Amazon Prime, Disney+, Max, Hulu, and Netflix[50] Our Regulatory Environment TEGNA's operations are governed by FCC regulations, including broadcast license terms, ownership restrictions, and retransmission consent rules - Broadcast licenses are granted for eight-year periods and are renewable upon application to the FCC[53] - The national ownership cap prohibits any single entity from reaching more than 39% of U.S. television households; TEGNA's reach is approximately 39.3% without the UHF discount and 30.0% with it[58] - The company is voluntarily transitioning to the NextGen TV (ATSC 3.0) standard and, as of year-end 2023, was broadcasting in both ATSC 1.0 and 3.0 formats in 21 markets[60] Our Human Capital TEGNA employed approximately 6,200 people as of December 31, 2023, with DE&I goals for 2025 and 9% of its workforce unionized - Employed approximately 6,200 full-time and part-time people as of December 31, 2023[65] 2025 Diversity & Inclusion Goals and 2023 Progress | Category | 2025 Goal | 2023 Progress (BIPOC %) | | :--- | :--- | :--- | | Content Teams | Reflect markets (~36%) | 33% | | Content Leadership | Increase by 50% | 24% (from 17% in 2021) | | Company Leadership | Increase by 50% | 21% (from 16% in 2021) | - Approximately 9% of employees are represented by labor unions under 27 local collective bargaining agreements[80] Our Corporate Responsibility and Sustainability TEGNA's corporate responsibility focuses on environmental stewardship, social impact through journalism and community support, and strong corporate governance - The company's reporting is aligned with Sustainability Accounting Standards Board (SASB) guidelines for the Media & Entertainment industry[93] - Through the TEGNA Foundation's Community Grants program, stations made 385 grants totaling $1.85 million in 2023, primarily supporting health, education, and hunger initiatives[107][108] - TEGNA stations help raise over $100 million annually for diverse local causes[108] - The Board of Directors is led by an independent chair, with eight out of nine directors being independent[121] Risk Factors TEGNA faces risks from advertising demand, competition, cybersecurity, system failures, network affiliation renewals, regulatory changes, and asset impairment - Advertising revenue, which constituted 44% of 2023 revenues, is highly dependent on economic strength and subject to cyclicality from political election cycles[129][131] - Subscription revenue from retransmission consent agreements represented approximately 52% of 2023 total revenues, and failure to renew these agreements could negatively impact financial results[139] - Goodwill and other intangible assets were approximately $5.31 billion as of December 31, 2023, representing about 76% of total assets, which are subject to impairment risk[149] - The company faces risks from potential changes in FCC regulations, which could impact media ownership rules, retransmission negotiations, and opportunities for growth[141][143] Unresolved Staff Comments The company reports no unresolved staff comments - None[154] Cybersecurity TEGNA's cybersecurity program, aligned with NIST, is overseen by its CTO and Board, with quarterly updates and annual risk assessments - The company's cybersecurity strategy is aligned with the NIST Cybersecurity Framework and is overseen at a high level by the Senior Vice President and Chief Technology Officer[155][156] - The Board of Directors receives quarterly and annual cybersecurity updates and oversees the annual enterprise risk assessment[155] Properties TEGNA owns and leases offices, studios, and tower sites for its television stations, with corporate headquarters in Tysons, VA - The company owns and leases properties such as offices, studios, and transmitter sites to support its television stations[160] - The corporate headquarters in Tysons, VA is a leased facility[160] Legal Proceedings Information regarding the company's legal proceedings is provided in Note 11 of the Notes to the consolidated financial statements - Details on legal proceedings are available in Note 11 to the consolidated financial statements[162] Mine Safety Disclosures This item is not applicable to the company - Not applicable[163] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities TEGNA's common stock trades on NYSE (TGNA); the company executed significant share repurchases and increased dividends in 2023, with a new capital allocation framework for 2024-2025 - As of February 26, 2024, there were approximately 176.1 million shares of common stock outstanding held by 5,483 shareholders of record[164] - In 2023, the company executed two Accelerated Share Repurchase (ASR) programs totaling $625 million[166][167] - In December 2023, the Board authorized a new share repurchase program for up to $650.0 million through December 31, 2025[168] - The quarterly dividend was increased by 20% from 9.5 cents to 11.375 cents per share in Q2 2023[173] - A new capital allocation framework for 2024-2025 aims to return 40-60% of free cash flow to shareholders through dividends and buybacks[174] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, TEGNA's revenues decreased 11% to $2.91 billion due to lower political and AMS advertising, while operating income fell 26% to $733.5 million, partially offset by a merger termination fee Consolidated Results from Operations TEGNA's 2023 revenues decreased 11% to $2.91 billion, with operating income down 26% to $733.5 million, and net income falling 25% to $476.3 million Consolidated Financial Summary (in thousands, except per share data) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $2,910,930 | $3,279,245 | (11%) | | Operating Income | $733,545 | $990,632 | (26%) | | Net Income | $476,347 | $631,198 | (25%) | | Diluted EPS | $2.28 | $2.81 | (19%) | - The decrease in revenue was primarily driven by a $295.3 million decline in political revenue due to the absence of the 2022 mid-term election cycle[195] - Operating expenses were reduced by a $136.0 million merger termination fee received in Q2 2023[205][206] Operating results non-GAAP information Adjusted EBITDA for 2023 was $742.3 million, a 34% decrease, with two-year free cash flow at $1.26 billion, representing 20.3% of revenue Adjusted EBITDA Reconciliation (in thousands) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Net income attributable to TEGNA Inc. (GAAP) | $476,724 | $630,469 | (24%) | | Adjusted EBITDA (non-GAAP) | $742,340 | $1,131,903 | (34%) | Free Cash Flow (Two-Year Period Ended Dec. 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Free cash flow (non-GAAP basis) | $1,255,261 | $1,373,664 | | Revenue | $6,190,175 | $6,270,338 | | Free cash flow as a % of revenue | 20.3% | 21.9% | FINANCIAL POSITION, Liquidity and capital resources TEGNA ended 2023 with $361.0 million in cash, $3.07 billion in fixed-rate debt, a 2.81x leverage ratio, and amended its revolving credit facility in January 2024 Cash Flow Summary (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash flow from operating activities | $587,249 | $812,151 | | Net cash flow used for investing activities | ($27,989) | ($51,232) | | Net cash flow used for financing activities | ($749,905) | ($266,227) | | Cash and cash equivalents at end of year | $361,036 | $551,681 | - Total long-term debt principal was $3.09 billion as of December 31, 2023, with the next maturity of $550 million due in 2026[253][259] - The company's leverage ratio was 2.81x as of December 31, 2023, significantly below the 4.50x covenant limit[257] - In January 2024, the revolving credit facility was amended to reduce its size from $1.51 billion to $750 million and extend its term to January 2029[255][384] Critical accounting policies and estimates TEGNA's critical accounting policies involve significant judgment for goodwill and indefinite-lived intangible assets, pension liabilities, and income taxes - Goodwill ($2.98 billion) and indefinite-lived intangible assets ($2.12 billion) comprised approximately 43% and 30% of total assets, respectively, as of December 31, 2023[268][275] - The 2023 annual goodwill impairment test indicated the fair value of the company's single reporting unit exceeded its carrying value by more than 20%[273] - Quantitative and qualitative impairment tests for FCC broadcast licenses in 2023 resulted in no impairment charges[277][278] Quantitative and Qualitative Disclosures about Market Risk TEGNA's primary market risk is interest rates; all long-term debt was fixed-rate as of December 31, 2023, with future revolving credit facility borrowings subject to variable rates - As of December 31, 2023, the company had no outstanding floating interest rate obligations[290] - In January 2024, the revolving credit facility was amended, reducing its size to $750 million and extending its term to 2029; future borrowings will be subject to a variable interest rate[291][292] Financial Statements and Supplementary Data This section includes TEGNA's audited consolidated financial statements for 2023, along with the independent auditor's report and accompanying notes - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2023[299] - The critical audit matter identified was the quantitative impairment assessment for certain FCC broadcast licenses, due to the significant management judgment involved in estimating their fair value[306][307] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[448] Controls and Procedures Management concluded that TEGNA's disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[449] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[450] Other Information The company reports no other information for this item - None[453] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - None[454] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 proxy statement[456] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 proxy statement[457] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and related stockholder matters is incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 proxy statement[458] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 proxy statement[459] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 proxy statement[460] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K report - This section provides an index of all financial statements and exhibits filed with the annual report[461][464] Form 10-K Summary The company provides no summary for this item - None[474]