TEGNA(TGNA) - 2020 Q4 - Annual Report

Part I Business TEGNA is a major U.S. media company operating 64 television stations, with revenue driven by subscription, advertising, and political spending Business Overview and Operating Structure The company operates 64 TV stations reaching 39% of U.S. households and has shifted to a pure-play broadcasting model - TEGNA operates 64 television stations and two radio stations in 51 U.S. markets, reaching approximately 39% of U.S. television households[9] - The company has transformed into a pure-play broadcasting company through strategic acquisitions of over 40 stations and divestment of non-core assets[10] Revenue Composition (2019-2020 vs. 2018-2019) | Revenue Source | Combined Two Year Period 2019 - 2020 | Combined Two Year Period 2018 - 2019 | | :--- | :--- | :--- | | Advertising & Marketing Services | 46% | 52% | | Subscription | 44% | 41% | | Political | 9% | 6% | | Other | 1% | 1% | Our Strategy The company's five-pillar strategy prioritizes operational excellence, M&A, innovation, balance sheet strength, and strong free cash flow - The company's five-pillar strategy includes: being a best-in-class operator, pursuing accretive M&A, driving organic innovation (e.g., Premion), maintaining a strong balance sheet, and strong free cash flow generation with optimized capital allocation[21][23] - Subscription revenue growth is a key focus, with multi-year distribution agreements renewed in Q4 2020 representing approximately 35% of paid subscribers at leading rates[22] - Premion, the company's OTT advertising service, continues strong growth, with revenue up more than 40% in 2020 to over $145 million[40] - The company is focused on de-levering following 2019 acquisitions, reducing its net leverage ratio from 4.92x at year-end 2019 to 3.95x at year-end 2020[48][49] Competition and Regulatory Environment The company faces competition from diverse media platforms and is subject to significant FCC ownership and operational regulations - The company competes for advertising revenue with other broadcast stations, cable providers, and digital platforms like Google and Facebook[54][55] - The business is subject to FCC regulations, including licensing, local and national broadcast ownership restrictions, and rules governing retransmission consent negotiations[57][58][59] - TEGNA's 64 television stations reach approximately 39.3% of U.S. television households without the UHF discount, which is close to the national ownership cap of 39%[63] Human Capital and Corporate Responsibility The company focuses on diversity and inclusion, corporate sustainability reporting, and significant community and philanthropic engagement - As of December 31, 2020, TEGNA employed approximately 6,430 people, with a workforce that is 47% female and 25% people of color[75] - In 2020, the company appointed its first Chief Diversity Officer and established a Diversity & Inclusion Working Group[79][82] - TEGNA has adopted Sustainability Accounting Standards Board (SASB) standards and plans to conduct a climate-related financial disclosures (TCFD) gap analysis in 2021[94][96] - In 2020, TEGNA stations helped raise over $100 million for local causes, including over $66 million for COVID-19 relief efforts[101][102] Risk Factors Key risks include dependency on cyclical advertising demand, competition from alternative media, and the financial impact of COVID-19 - A significant portion of revenue (40% in 2020) comes from advertising, which is highly dependent on the U.S. economy[116] - The COVID-19 pandemic has had and may continue to have a dampening effect on non-political Advertising & Marketing Services (AMS) revenues[120][123] - Subscription revenues, which represented approximately 44% of 2020 total revenues, depend on retransmission consent agreements, with about 30% of subscribers up for renewal in 2021[129] - Goodwill and other intangible assets were approximately $5.47 billion as of December 31, 2020, representing about 80% of total assets and are at risk of impairment[141] Unresolved Staff Comments The company reports no unresolved staff comments - None[142] Properties The company's properties consist of offices, studios, and transmitter sites for its television stations - Properties required to support television stations include offices, studios, sales offices, and tower/transmitter sites[143] Legal Proceedings Information regarding legal proceedings is referenced in Note 12 of the Notes to consolidated financial statements - Refer to Note 12 of the Notes to consolidated financial statements for information on legal proceedings[145] Mine Safety Disclosures This item is not applicable to the company - Not applicable[146] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, and a $300 million share repurchase program was renewed in December 2020 - In December 2020, the Board of Directors authorized the renewal of the share repurchase program for up to $300.0 million of common stock over the next three years[148] - The company has paid a regular quarterly cash dividend of $0.07 per share since 2017, with total dividends paid of $76.5 million in 2020[149] Selected Financial Data This section has been excluded pursuant to Regulation S-K Item 301, as amended - Excluded pursuant to Regulation S-K Item 301, as amended[150] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant revenue growth in 2020, driven by political advertising and subscription fees, alongside analysis of operations and liquidity Consolidated Results from Operations Revenues and operating income grew significantly in 2020, driven by record political advertising and subscription growth Consolidated Results of Operations (in thousands) | | 2020 | 2019 | Change from 2019 | 2018 | Change from 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $2,937,780 | $2,299,497 | 28% | $2,207,282 | 33% | | Total Operating expenses | $2,066,798 | $1,740,479 | 19% | $1,508,806 | 37% | | Operating income | $870,982 | $559,018 | 56% | $698,476 | 25% | | Income from continuing operations | $482,763 | $286,235 | 69% | $401,340 | 20% | | EPS from continuing operations - diluted | $2.19 | $1.31 | 67% | $1.85 | 18% | Revenue by Category (in thousands) | | 2020 | 2019 | Change from 2019 | 2018 | Change from 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | Subscription | $1,286,611 | $1,005,030 | 28% | $840,838 | 53% | | Advertising & Marketing Services | $1,174,774 | $1,226,607 | (4%) | $1,106,754 | 6% | | Political | $445,535 | $38,478 | *** | $233,613 | 91% | | Other | $30,860 | $29,382 | 5% | $26,077 | 18% | | Total revenues | $2,937,780 | $2,299,497 | 28% | $2,207,282 | 33% | - Total revenues increased by $638.3 million (28%) in 2020 compared to 2019, with $296.7 million contributed by the 2019 acquisitions[165] Operating results non-GAAP information Management utilizes non-GAAP metrics like Adjusted EBITDA and Free Cash Flow to assess core operational performance - Management uses non-GAAP measures such as Adjusted EBITDA and Free Cash Flow to evaluate company performance, excluding the impact of 'special items' like M&A costs and restructuring expenses[192][193] Adjusted EBITDA Reconciliation (in thousands) | | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Net income attributable to TEGNA Inc. (GAAP) | $482,778 | $286,235 | 69% | | Adjustments (Taxes, Interest, D&A, etc.) | $541,515 | $421,277 | 29% | | Adjusted EBITDA (non-GAAP) | $1,024,293 | $707,512 | 45% | Free Cash Flow Reconciliation (in thousands) | | 2020 | 2019 | | :--- | :--- | :--- | | Net Income attributable to TEGNA Inc. (GAAP) | $482,778 | $286,235 | | Plus/Less: Various non-cash and cash adjustments | $258,355 | $89,013 | | Free cash flow (non-GAAP) | $741,133 | $376,248 | Financial Position, Liquidity and Capital Resources The company generated strong operating cash flow, maintained ample liquidity, and actively managed its debt profile in 2020 - Operating activities generated $805.1 million in cash flow in 2020, a significant increase from $297.5 million in 2019, driven by a $407.1 million increase in political revenue[217] - As of Dec 31, 2020, total principal debt was $3.58 billion, with $1.13 billion of unused borrowing capacity and a leverage ratio of 3.86x[211][222] - In 2020, the company undertook several debt refinancing activities, including issuing $1.0 billion of 4.625% senior notes and $550 million of 4.750% senior notes[223][224] Critical Accounting Policies Key accounting estimates involve goodwill, intangible assets, and pension liabilities, with some assets facing impairment risk - Goodwill of $3.0 billion (43% of total assets) is tested for impairment annually, with the 2020 test indicating fair value significantly exceeded carrying value[233][238] - Indefinite-lived intangible assets of $2.1 billion (31% of total assets) are tested for impairment annually, with recently acquired licenses of $67.2 million at a heightened risk of future impairment[240][242][244] - Pension liabilities are subject to key assumptions, including the discount rate (2.55% for 2020) and the expected long-term rate of return on plan assets (6.75% for 2020)[248][250][251] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk exposure relates to interest rates on its $355 million of floating-rate debt - The main market risk is interest rate changes on floating-rate debt; a 50 basis point change in interest rates would impact annual interest expense by $1.8 million[256] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements and detailed notes for the fiscal years 2018 through 2020 Note 2 – Acquisitions The company completed four strategic acquisitions in 2019, adding significant net assets to its portfolio Summary of 2019 Acquisitions (in thousands) | Acquisition | Seller | Closing Date | Net Assets Acquired | | :--- | :--- | :--- | :--- | | Nexstar Stations | Nexstar Media Group | Sep 19, 2019 | $769,943 | | Dispatch Stations | Dispatch Broadcast Group | Aug 8, 2019 | $560,473 | | Justice & Quest | Cooper Media | Jun 18, 2019 | $90,046 | | Gray Stations | Gray Television | Jan 2, 2019 | $109,920 | | Total | | | $1,530,382 | Note 6 – Long-term debt Total long-term debt was reduced in 2020 through repayments and active management of credit facilities and unsecured notes Long-Term Debt Summary (in thousands) | | Dec. 31, 2020 | Dec. 31, 2019 | | :--- | :--- | :--- | | Borrowings under revolving credit facility | $355,000 | $903,000 | | Unsecured notes (various) | $3,227,000 | $3,165,000 | | Unsecured term loans | $0 | $125,000 | | Total principal long-term debt | $3,582,000 | $4,203,000 | Note 12 – Other matters The company faces an antitrust class action lawsuit and has substantial future programming contract commitments - The company is a defendant in a consolidated class action lawsuit alleging antitrust violations related to local television advertising sales practices[436] Programming Contract Commitments (in thousands) | Year | Amount | | :--- | :--- | | 2021 | $810,069 | | 2022 | $847,218 | | 2023 | $536,785 | | 2024 | $1,981 | | 2025 | $404 | | Total | $2,196,457 | 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[449] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2020 - Management concluded that disclosure controls and procedures were effective as of December 31, 2020[450] - Management concluded that internal control over financial reporting was effective as of December 31, 2020[451] Other Information The company reports no other information for this item - 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 2021 proxy statement - Information is incorporated by reference from the 2021 proxy statement[456] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's 2021 proxy statement - Information is incorporated by reference from the 2021 proxy statement[457] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and equity compensation plans is incorporated by reference from the company's 2021 proxy statement - Information is incorporated by reference from the 2021 proxy statement[458] Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the company's 2021 proxy statement - Information is incorporated by reference from the 2021 proxy statement[459] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2021 proxy statement - Information is incorporated by reference from the 2021 proxy statement[460] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report - This section contains a list of all financial statements, schedules, and exhibits filed with the Form 10-K, including certifications from the CEO and CFO[462][464] Form 10-K Summary The company provides no summary for this item - None[477]