TEGNA(TGNA) - 2023 Q4 - Annual Results

Report Highlights TEGNA's 2023 results surpassed expectations, leading to a new capital allocation framework, significant share repurchase, and a positive 2024 outlook - Full-year 2023 results met or exceeded all guidance metrics[1] - A new capital allocation framework aims to return 40-60% of 2024-2025 free cash flow to shareholders, expecting a total capital return of $1.3 billion from merger termination through 2025[1] - The Board authorized a new two-year, $650 million share repurchase program[1][9] - Received approximately $153 million in pre-tax cash proceeds from the sale of its ownership interest in Broadcast Music, Inc (BMI)[1][11] Financial Performance TEGNA's 2023 financial performance reflects cyclical revenue declines due to reduced political advertising and a Q4 subscription disruption Fourth Quarter 2023 Financial Highlights Q4 2023 revenue declined 21% to $726 million due to absent political revenue and a subscription service disruption, impacting net income and Adjusted EBITDA Q4 2023 Key Financial Metrics (in millions) | Metric | Q4 2023 | Q4 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $726M | $917M | -21% | | Subscription Revenue | $339M | $372M | -9% | | AMS Revenue | $352M | $353M | In-line | | Net Income (GAAP) | $76M | $219M | -65% | | Diluted EPS (GAAP) | $0.40 | $0.97 | -59% | | Adjusted EBITDA | $177M | $361M | -51% | | Free Cash Flow | $130M | $302M | -57% | - Subscription revenue was down 9% YoY primarily due to a temporary service disruption with a distribution partner, excluding which revenue would have been nearly flat[3] - Net leverage finished the year at 2.8x, which is below the full-year guidance of 3.0x[4] Full-Year 2023 Financial Highlights Full-year 2023 total revenue decreased 11% to $2.9 billion, driven by reduced political advertising, resulting in lower net income and Adjusted EBITDA Full-Year 2023 Key Financial Metrics (in millions) | Metric | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $2.9B | $3.3B | -11% | | Subscription Revenue | $1.5B | $1.5B | In-line | | AMS Revenue | $1.3B | $1.4B | -5% | | Net Income (GAAP) | $476M | $631M | -25% | | Diluted EPS (GAAP) | $2.28 | $2.81 | -19% | | Adjusted EBITDA | $742M | $1,132M | -34% | - The YoY revenue decline was also impacted by the absence of the Winter Olympics and Super Bowl on NBC in 2022, compared to the Super Bowl on FOX (TEGNA's smallest affiliate portfolio) in 2023[7] - Automotive and Services, the two largest advertising categories, generated strong growth throughout 2023[7] Outlook and Guidance TEGNA projects strong 2024-2025 free cash flow, supported by renewals, while anticipating a slight Q1 2024 revenue decline and stable full-year guidance 2024-2025 Free Cash Flow Guidance TEGNA forecasts $900 million to $1.1 billion in free cash flow for 2024-2025, bolstered by renewed agreements and transformation initiatives - The company expects to generate free cash flow in the range of $900 million to $1.1 billion during the 2024-2025 period[6] - Guidance is based on recently renewed affiliation agreements with NBC and ABC, as well as retransmission consent agreements repricing 30% of traditional subscribers[6] - Guidance includes the impact of transformation initiatives to streamline operations and achieve cost reductions, with initial benefits expected in H2 2024[7] Full-Year and First Quarter 2024 Outlook TEGNA's 2024 outlook includes a net leverage ratio below 3.0x, with Q1 revenue expected to decrease and operating expenses to increase slightly Full-Year 2024 Key Guidance Metrics | Metric | Guidance | | :--- | :--- | | Net Leverage Ratio | Below 3.0x at year-end | | Corporate Expenses | $40 - $45 million | | Interest Expense | $170 - $173 million | | Capital Expenditures | $62 - $67 million | | Effective Tax Rate | 23.5% - 24.5% | First Quarter 2024 Guidance (vs Q1 2023) | Metric | Guidance | | :--- | :--- | | Total Company GAAP Revenue | Down Low-to-Mid-Single Digit % | | Total Non-GAAP Operating Expenses | Up Low-Single Digit % | Capital Management and Corporate Strategy TEGNA's strategy emphasizes shareholder returns, operational efficiency, and strategic growth through a new capital allocation framework, share repurchases, and targeted acquisitions Capital Allocation Framework & Shareholder Returns TEGNA's new capital allocation framework aims to return 40-60% of 2024-2025 free cash flow to shareholders, supported by a $650 million share repurchase program - The company will return 40-60% of its free cash flow generated in 2024-2025 to shareholders through share repurchases and dividends[8] - A new share repurchase program for up to $650 million of common stock has been authorized, expiring on December 31, 2025[9] - The company received approximately $153 million in pre-tax cash from the sale of its BMI interest, which will be used for shareholder returns and/or bolt-on M&A[11] CEO Commentary CEO Dave Lougee highlights TEGNA's strong position, driven by a new capital allocation framework, successful agreement renewals, and transformation initiatives, anticipating a robust 2024 - CEO Dave Lougee described the company as being "back on offense, operating from a position of strength" with a new capital allocation framework to drive shareholder value[12] - Successful renegotiation of retransmission agreements (30% of traditional subs) and affiliation agreements with NBC and ABC provide visibility into future revenues and cash flow, with 93% of Big 4 network subscribers now under agreements through late 2026 or longer[13] - The company is leveraging its scale and new technologies to drive efficiencies, with financial benefits expected in the second half of 2024[14] Key Strategic Updates TEGNA's strategic updates include a new credit facility, NBC affiliation renewal, acquisition of Octillion Media for CTV, and investment in 6AM City for local content - Closed a new $750 million, five-year amended credit agreement, securing additional capacity for strategic objectives[21] - Renewed a multi-year affiliation agreement with NBC for 20 markets, covering nearly 17% of U.S TV households[21] - Premion acquired Octillion Media, a Connected TV (CTV) demand-side platform, to expand its capabilities and drive growth in serving local and regional advertisers[21] - Made a strategic investment in 6AM City, a local media brand, to enhance the distribution of local news and weather content[21] Detailed Financials and Reconciliations This section presents detailed GAAP financial statements and non-GAAP reconciliations, providing a granular view of revenue, expenses, profitability, and cash flow Consolidated Statements of Income (GAAP) GAAP consolidated statements detail TEGNA's Q4 and full-year 2023 revenues, operating expenses, and net income, showing declines from the prior year Consolidated Income Statement - Full Year (in thousands) | Line Item | 2023 | 2022 | | :--- | :--- | :--- | | Revenues | $2,910,930 | $3,279,245 | | Operating Expenses | $2,177,385 | $2,288,613 | | Operating Income | $733,545 | $990,632 | | Net Income Attributable to TEGNA Inc. | $476,724 | $630,469 | Consolidated Income Statement - Q4 (in thousands) | Line Item | Q4 2023 | Q4 2022 | | :--- | :--- | :--- | | Revenues | $725,854 | $917,130 | | Operating Income | $143,734 | $328,216 | | Net Income Attributable to TEGNA Inc. | $76,133 | $218,601 | Non-GAAP Reconciliations This section provides detailed reconciliations of GAAP to non-GAAP financial measures, including Adjusted EBITDA, Free Cash Flow, and Net Leverage Ratio, for evaluating ongoing performance Revenue Breakdown by Source - Full Year (in thousands) | Revenue Source | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Subscription | $1,527,563 | $1,530,402 | (0.2)% | | Advertising and Marketing Services | $1,289,903 | $1,363,417 | (5.4)% | | Political | $45,800 | $341,110 | (86.6)% | | Other | $47,664 | $44,316 | 7.6% | | Total Revenues | $2,910,930 | $3,279,245 | (11.2)% | Reconciliation of Net Income to Adjusted EBITDA - Full Year (in thousands) | Line Item | 2023 | 2022 | | :--- | :--- | :--- | | Net income attributable to TEGNA Inc. (GAAP) | $476,724 | $630,469 | | Adjustments (Taxes, Interest, D&A, Special Items, etc.) | $265,616 | $501,434 | | Adjusted EBITDA (non-GAAP) | $742,340 | $1,131,903 | Net Leverage Ratio Calculation as of Dec 31, 2023 (in thousands) | Component | Value | | :--- | :--- | | Net Debt | $2,728,964 | | T2Y Adjusted EBITDA | $981,304 | | Net Leverage Ratio | 2.8x |