TEGNA INC. Company Overview
We are an innovative media company serving the greater good of our communities. Across platforms, we tell empowering stories, conduct impactful investigations and deliver innovative marketing services. With 64 television stations and two radio stations in 51 U.S. markets, we are the largest owner of top four network affiliates in the top 25 markets among independent station groups, reaching approximately 39% of allU.S. television households. We also own leading multicast networks True Crime Network, Twist and Quest. Each television station also has a robust digital presence across online, mobile, connected television and social platforms, reaching consumers on all devices and platforms they use to consume news content. We have been consistently honored with the industry's top awards, includingEdward R. Murrow ,George Polk ,Alfred I. DuPont and Emmy Awards. Through TEGNA Marketing Solutions (TMS), our integrated sales and back-end fulfillment operations, we deliver results for advertisers across television, digital and over-the-top (OTT) platforms, including Premion, our OTT advertising network. We have one operating and reportable segment. The primary sources of our revenues are: 1) subscription revenues, reflecting fees paid by satellite, cable, OTT (companies that deliver video content to consumers over the Internet) and telecommunications providers to carry our television signals on their systems; 2) advertising & marketing services (AMS) revenues, which include local and national non-political television advertising, digital marketing services (including Premion), and advertising on the stations' websites, tablet and mobile products and OTT apps; 3) political advertising revenues, which are driven by even year election cycles at the local and national level (e.g. 2022, 2020, etc.) and particularly in the second half of those years; and 4) other services, such as production of programming, tower rentals, and distribution of our local news content. Merger Agreement OnFebruary 22, 2022 , we entered into the Merger Agreement with Parent, Merger Sub, and solely for purposes of certain provisions specified therein, other subsidiaries of Parent, certain affiliates of Standard General and CMG, and certain of its subsidiaries. We still expect the closing of the transaction, which is subject to regulatory approvals, and other customary closing conditions, to occur in the second half of 2022. See Notes 1 and 9 to the condensed consolidated financial statements for further information about the Merger Agreement, the pending Merger and related matters. We plan to continue to pay our regular quarterly dividend of$0.095 per share through the closing of the Merger, which is the maximum rate and frequency permitted by the Merger Agreement. As a result of the pending transaction, we suspended share repurchases under our previously announced share repurchase program. 18 --------------------------------------------------------------------------------
Consolidated Results from Operations
The following discussion is a comparison of our consolidated results on a GAAP basis. The year-to-year comparison of financial results is not necessarily indicative of future results. In addition, see the section titled "Results from Operations - Non-GAAP Information" for additional tables presenting information which supplements our financial information provided on a GAAP basis. Our operating results are subject to significant fluctuations across yearly periods (primarily driven by even-year political election cycles). As such, in addition to prior year comparisons, our management team and Board of Directors also review quarterly and year-to-date operating results compared to the same periods two years ago (e.g., 2022 vs. 2020). We believe these additional comparisons provide useful information to investors and therefore, have supplemented our prior year comparisons of consolidated results with comparisons against third quarter and nine months endedSeptember 30, 2020 results (through operating income).
Our consolidated results of operations on a GAAP basis were as follows (in thousands, except per share amounts):
Quarter ended Sept. 30, Nine months ended Sept. 30,
Change from Change from Change from Change from
2022 2021 2021 2020 2020 2022 2021 2021 2020 2020
Revenues $ 803,111 $ 756,487 6 % $ 738,389 9 % $ 2,362,115 $ 2,216,446 7 % $ 2,000,205 18 %
Operating expenses:
Cost of revenues 428,891 399,751 7 % 379,185 13 % 1,260,576 1,191,561 6 % 1,103,920 14 %
Business units - Selling,
general and
administrative expenses 98,582 100,425 (2 %) 89,943 10 % 300,136 286,700 5 % 267,919 12 %
Corporate - General and
administrative expenses 13,367 11,891 12 % 11,263 19 % 48,299 51,944 (7 %) 61,289 (21 %)
Depreciation 15,219 16,792 (9 %) 16,086 (5 %) 46,058 48,526 (5 %) 49,697 (7 %)
Amortization of
intangible assets 14,953 15,774 (5 %) 17,113 (13 %) 44,952 47,307 (5 %) 50,577 (11 %)
Spectrum repacking (159) 504 *** (2,902) (95 %) (322) (2,394) (87 %) (10,533) (97 %)
reimbursements and other,
net
Total operating expenses $ 570,853 $ 545,137 5 % $ 510,688 12 % $ 1,699,699 $ 1,623,644 5 % $ 1,522,869 12 %
Total operating income $ 232,258 $ 211,350 10 % $ 227,701 2 % $ 662,416 $ 592,802 12 % $ 477,336 39 %
Non-operating expenses (42,274) (45,781) (8 %) (53,464) (21 %) (117,437) (140,947) (17 %) (169,596) (31 %)
Provision for income
taxes 43,827 36,870 19 % 41,967 4 % 132,595 103,470 28 % 69,699 90 %
Net income 146,157 128,699 14 % 132,270 10 % 412,384 348,385 18 % 238,041 73 %
Net (income) loss
attributable to
redeemable noncontrolling
interest (92) (419) (78 %) (51) 80 % (516) (861) (40 %) 433 ***
Net income attributable
to TEGNA Inc. $ 146,065 $ 128,280 14 % $ 132,219 10 % $ 411,868 $ 347,524 19 % $ 238,474 73 %
Earnings per share -
basic $ 0.65 $ 0.58 12 % $ 0.60 8 % $ 1.84 $ 1.57 17 % $ 1.08 70 %
Earnings per share -
diluted $ 0.65 $ 0.58 12 % $ 0.60 8 % $ 1.83 $ 1.56 17 % $ 1.08 69 %
*** Not meaningful
Revenues
Our Subscription revenue category includes revenue earned from cable and
satellite providers for the right to carry our signals and the distribution of
TEGNA stations on OTT streaming services. Our AMS category includes all sources
of our traditional television advertising and digital revenues including Premion
and other digital advertising and marketing revenues across our platforms.
Our revenues and operating results are subject to seasonal fluctuations.
Generally, our second and fourth quarter revenues and operating results are
stronger than those we report for the first and third quarter. This is driven by
the second quarter reflecting increased spring seasonal advertising, while the
fourth quarter typically includes increased advertising related to the
19
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holiday season. In addition, our revenue and operating results are subject to
significant fluctuations across yearly periods resulting from political
advertising. In even numbered years, political spending is usually significantly
higher than in odd numbered years due to advertising for the local, state and
national elections. Additionally, every four years, we typically experience even
greater increases in political advertising in connection with the presidential
election. The strong demand for advertising from political advertisers in these
even years can result in the significant use of our available inventory (leading
to a "crowd out" effect), which can diminish our AMS revenue in the even year of
a two year election cycle, particularly in the fourth quarter of those years.
The following table summarizes the year-over-year changes in our revenue categories (in thousands):
Quarter ended Sept. 30 ,
Nine months ended
Change from Change from Change from Change from
2022 2021 2021 2020 2020 2022 2021 2021 2020 2020
Subscription $ 377,368 $ 368,672 2 % $ 316,677 19 % $ 1,158,101 $ 1,130,490 2 % $ 972,954 19 %
Advertising &
Marketing Services 320,764 364,234 (12) % 298,605 7 % 1,010,490 1,027,957 (2) % 822,841 23 %
Political 92,904 15,010 *** 116,494 (20) % 161,727 34,019 *** 181,425 (11) %
Other 12,075 8,571 41 % 6,613 83 % 31,797 23,980 33 % 22,985 38 %
Total revenues $ 803,111 $ 756,487 6 % $ 738,389 9 % $ 2,362,115 $ 2,216,446 7 % $ 2,000,205 18 %
*** Not meaningful
2022 vs. 2021
Total revenues increased $46.6 million in the third quarter of 2022 and $145.7
million in the first nine months of 2022 compared to the same periods in 2021.
The net increases were primarily due to growth in political revenue ($77.9
million third quarter, $127.7 million first nine months) due to contested
primaries and the run up to the mid-term elections which will occur in the
fourth quarter. Also contributing to the increase was growth in subscription
revenue ($8.7 million third quarter, $27.6 million first nine months) primarily
due to annual rate increases under existing agreements, partially offset by
declines in subscribers. Partially offsetting these increases was a decline in
AMS revenue ($43.5 million third quarter, $17.5 million first nine months). The
decline in third quarter revenue was partially due to the crowd out effect of
political revenue as well as the absence of last year's Olympics . Additionally,
macroeconomic headwinds negatively impacted AMS revenue in both current year
periods.
2022 vs. 2020
Total revenues increased $64.7 million in the third quarter of 2022 and
$361.9 million in the first nine months of 2022 compared to the same periods in
2020. The net increases were primarily due to growth in subscription revenue
($60.7 million third quarter, $185.1 million first nine months) mainly due to
annual rate increases under existing and newly renegotiated retransmission
agreements, partially offset by declines in subscribers. Also contributing was
growth in AMS revenue ($22.2 million third quarter, $187.6 million first nine
months) reflecting higher demand for advertising despite current macroeconomic
headwinds in 2022 (as fiscal year 2020 was adversely impacted by reduced demand
due to the COVID-19 pandemic). These increases were partially offset by a
decrease in political revenue ($23.6 million third quarter, $19.7 million first
nine months) primarily due to 2020 being a presidential election year.
Cost of revenues
2022 vs. 2021
Cost of revenues increased$29.1 million in the third quarter of 2022 and$69.0 million in the first nine months of 2022 compared to the same periods in 2021. The increases were partially due to higher digital expenses ($14.7 million third quarter,$26.4 million first nine months) driven by growth in Premion. Growth in programming costs ($11.8 million third quarter,$34.2 million first nine months) driven by rate increases under existing affiliation agreements also contributed to the increases. 2022 vs. 2020 Cost of revenues increased$49.7 million in the third quarter of 2022 and$156.7 million in the first nine months of 2022 compared to the same periods in 2020. The increases were partially due to growth in programming costs ($30.9 million third quarter,$94.9 million first nine months) driven by rate increases under existing and newly renegotiated affiliation agreements and growth in subscription revenue (certain programming costs are linked to such revenues). Higher digital expenses ($9.9 million third quarter,$40.4 million first nine months) driven by growth in Premion also contributed to the increases. 20 --------------------------------------------------------------------------------
Business units - Selling, general and administrative expenses
2022 vs. 2021
Business unit selling, general and administrative expenses decreased$1.8 million in the third quarter of 2022 and increased$13.4 million in the first nine months of 2022 compared to the same periods in 2021. The decrease for the quarter was primarily due to a$3.0 million decline in professional fees. This decline was partially offset by the absence in 2022 of a$0.7 million reduction in bad debt expense that occurred in 2021 which was primarily attributable to improved collection trends. The increase in the first nine months was primarily due to a$13.7 million increase in sales commissions and payroll costs driven by growth in digital revenue. Also contributing to the increase was a$2.6 million absence in 2022 of a reduction in bad debt expense primarily attributed to improved collection trends which occurred in 2021. These increases were partially offset by an$8.8 million decline in professional fees.
2022 vs. 2020
Business unit SG&A expenses increased$8.6 million in the third quarter of 2022 and$32.2 million in the first nine months of 2022 compared to the same periods in 2020. The increases were primarily due to higher sales commissions and payroll costs (together,$8.7 million third quarter,$26.9 million first nine months) driven by growth in AMS revenue.
Corporate - General and administrative expenses
Our corporate costs are separated from our business expenses and are recorded as general and administrative expenses in our Consolidated Statement of Income. This category primarily consists of broad corporate management functions including Legal, Human Resources, and Finance, as well as activities and costs not directly attributable to the operations of our media business.
2022 vs. 2021
Corporate general and administrative expenses increased$1.5 million in the third quarter of 2022 and decreased$3.6 million in the first nine months of 2022 compared to the same periods in 2021. The increase for the quarter was primarily driven by$3.7 million M&A-related costs mainly incurred in support of the regulatory review of the Merger. The decrease for the first nine months was primarily driven by the absence in 2022 of$16.6 million of advisory fees incurred in 2021 related to activism defense and a$3.5 million decline in professional fees, partially offset by$18.1 million of M&A-related costs incurred in 2022.
2022 vs. 2020
Corporate general and administrative expenses increased$2.1 million in the third quarter of 2022 and decreased$13.0 million in the first nine months of 2022 compared to the same periods in 2020. The increase for the quarter was primarily driven by$3.7 million of M&A-related costs incurred in support of the regulatory review of the Merger. The decrease for the first nine months was primarily driven by the absence in 2022 of$23.1 million of advisory fees and$4.6 million of M&A due diligence costs incurred in 2020, partially offset by$18.1 million of M&A-related costs incurred in 2022.
Depreciation
2022 vs. 2021
Depreciation expense decreased by$1.6 million in the third quarter of 2022 and$2.5 million in the first nine months of 2022 compared to the same periods in 2021. The decreases were due to certain assets reaching the end of their assumed useful lives. 2022 vs. 2020 Depreciation expense decreased by$0.9 million in the third quarter of 2022 and$3.6 million in the first nine months of 2022 compared to the same periods in 2020. The decreases were due to certain assets reaching the end of their assumed useful lives.
Amortization of intangible assets
2022 vs. 2021
Amortization expense decreased$0.8 million in the third quarter of 2022 and$2.4 million in the first nine months of 2022 compared to the same periods in 2021. The decreases were due to certain assets reaching the end of their assumed useful lives and therefore becoming fully amortized. 21 --------------------------------------------------------------------------------
2022 vs. 2020
Amortization expense decreased$2.2 million in the third quarter of 2022 and$5.6 million in the first nine months of 2022 compared to the same periods in 2020. The decreases were due to certain assets reaching the end of their assumed useful lives and therefore becoming fully amortized.
Spectrum repacking reimbursements and other, net
2022 vs. 2021
Spectrum repacking reimbursements and other net gains were$0.2 million in the third quarter of 2022 compared to net losses of$0.5 million in the same period in 2021 and net gains of$0.3 million in the first nine months of 2022 compared to$2.4 million in the same period in 2021. The 2022 activity is related to reimbursements received from theFederal Communications Commission (FCC) for required spectrum repacking. The 2021 activity is primarily related to reimbursements from spectrum repacking ($0.6 million third quarter,$5.0 million first nine months), partially offset by a$1.5 million contract termination fee which was incurred in the second quarter of 2021 and a$1.1 million write off of certain assets which impacted both prior year periods.
2022 vs. 2020
Spectrum repacking reimbursements and other net gains were$0.2 million in the third quarter of 2022 compared to net gains of$2.9 million in the same period in 2020 and$0.3 million in the first nine months of 2022 compared to$10.5 million in the same period in 2020. The 2022 activity consists of the reimbursements discussed above. The 2020 activity primarily consists of reimbursements received from the FCC for required spectrum repacking ($2.9 million third quarter,$12.7 million first nine months), partially offset by$2.1 million impairment charge which occurred in the second quarter of 2020 due to the retirement of a brand name.
Operating income
2022 vs. 2021
Operating income increased$20.9 million in the third quarter of 2022 and$69.6 million in the first nine months of 2022 compared to the same periods in 2021. The increases were driven by the changes in revenue and expenses discussed above, most notably the increase in political revenue.
2022 vs. 2020
Operating income increased$4.6 million in the third quarter of 2022 and$185.1 million in the first nine months of 2022 compared to the same periods in 2020. The increases were driven by the changes in revenue and expenses discussed above, most notably the increases in subscription and AMS revenues as well as programming expense.
Non-operating (expense) income
Non-operating expenses decreased$3.5 million in the third quarter of 2022 compared to the same period in 2021. This decrease was primarily due to a$3.1 million decrease in interest expense driven by lower average outstanding debt partially offset by a higher weighted average interest rate. Total average outstanding debt was$3.09 billion for the third quarter of 2022, compared to$3.37 billion in the same period of 2021. The weighted average interest rate on outstanding debt was 5.27% for the third quarter of 2022, compared to 5.18% in the same period of 2021. In the first nine months of 2022, non-operating expenses decreased$23.5 million compared to the same period in 2021. This decrease was primarily due to a$20.8 million gain recognized on our available for sale investment in MadHive (see Note 3 to the condensed consolidated financial statements). Further, interest expense decreased$9.6 million driven by lower average outstanding debt partially offset by a higher weighted average interest rate. The average debt outstanding was$3.12 billion for the first nine months of 2022, compared to$3.46 billion in the same period of 2021. The weighted average interest rate on outstanding debt was 5.25% for the first nine months of 2022, compared to 5.13% in the same period of 2021.
Provision for income taxes
Income tax expense increased$7.0 million in the third quarter of 2022 compared to the same period in 2021. Income tax expense increased$29.1 million in the first nine months of 2022 compared to the same period in 2021. The increases were primarily due to increases in net income before tax. Our effective income tax rate was 23.1% for the third quarter of 2022, compared to 22.3% for the third quarter of 2021. The tax rate for the third quarter of 2022 is higher than the comparable rate in 2021 primarily due to discrete tax benefits realized related to a previously-disposed business in 2021 and nondeductible M&A-related transaction costs incurred. Our effective income tax rate was 24.4% for the first nine months of 2022, compared to 22.9% for the same period in 2021. The tax rate for the first nine months of 2022 is higher than the comparable amount in 2021 primarily due to a valuation allowance recorded on a minority investment, nondeductible M&A-related transaction costs incurred, 22 --------------------------------------------------------------------------------
and net deferred tax benefits as a result of state tax planning strategies implemented in 2021. Partially offsetting the increase were tax benefits from the utilization of capital loss carryforwards in connection with certain transactions and the release of the associated valuation allowance.
Net income attributable to
Net income attributable toTEGNA Inc. was$146.1 million , or$0.65 per diluted share, in the third quarter of 2022 compared to$128.3 million , or$0.58 per diluted share, during the same period in 2021. For the first nine months of 2022, net income attributable toTEGNA Inc. was$411.9 million , or$1.83 per diluted share, compared to$347.5 million , or$1.56 per diluted share, for the same period in 2021. Both income and earnings per share were affected by the factors discussed above. The weighted average number of diluted common shares outstanding in the third quarter of 2022 and 2021 were 224.9 million and 222.8 million, respectively. The weighted average number of diluted shares outstanding in the first nine months of 2022 and 2021 was 224.2 million and 222.2 million, respectively. 23 --------------------------------------------------------------------------------
Results from Operations - Non-GAAP Information
Presentation of Non-GAAP information
We use non-GAAP financial performance measures to supplement the financial information presented on a GAAP basis. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, the related GAAP measures, nor should they be considered superior to the related GAAP measures, and should be read together with financial information presented on a GAAP basis. Also, our non-GAAP measures may not be comparable to similarly titled measures of other companies. Management and our Board of Directors use non-GAAP financial measures for purposes of evaluating company performance. Furthermore, theLeadership Development and Compensation Committee of our Board of Directors uses non-GAAP measures such as Adjusted EBITDA, non-GAAP net income, non-GAAP EPS and free cash flow to evaluate management's performance. Therefore, we believe that each of the non-GAAP measures presented provides useful information to investors and other stakeholders by allowing them to view our business through the eyes of management and our Board of Directors, facilitating comparisons of results across historical periods and focus on the underlying ongoing operating performance of our business. We also believe these non-GAAP measures are frequently used by investors, securities analysts and other interested parties in their evaluation of our business and other companies in the broadcast industry. We discuss in this Form 10-Q non-GAAP financial performance measures that exclude from our reported GAAP results the impact of "special items" which are described in detail below in the section titled "Discussion of Special Charges and Credits Affecting Reported Results." We believe that such expenses and gains are not indicative of normal, ongoing operations. While these items may be recurring in nature and should not be disregarded in evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends compared to other periods as these items can vary significantly from period to period depending on specific underlying transactions or events that may occur. Therefore, while we may incur or recognize these types of expenses and gains in the future, we believe that removing these items for purposes of calculating the non-GAAP financial measures provides investors with a more focused presentation of our ongoing operating performance. We discuss Adjusted EBITDA (with and without corporate expenses), a non-GAAP financial performance measure that we believe offers a useful view of the overall operation of our businesses. We define Adjusted EBITDA as net income attributable toTEGNA before (1) net income attributable to redeemable noncontrolling interest, (2) income taxes, (3) interest expense, (4) equity loss in unconsolidated investments, net, (5) other non-operating items, net, (6) M&A-related costs, (7) advisory fees related to activism defense, (8) spectrum repacking reimbursements and other, net, (9) depreciation and (10) amortization. We believe these adjustments facilitate company-to-company operating performance comparisons by removing potential differences caused by variations unrelated to operating performance, such as capital structures (interest expense), income taxes, and the age and book appreciation of property and equipment (and related depreciation expense). The most directly comparable GAAP financial measure to Adjusted EBITDA is Net income attributable toTEGNA . Users should consider the limitations of using Adjusted EBITDA, including the fact that this measure does not provide a complete measure of our operating performance. Adjusted EBITDA is not intended to purport to be an alternate to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. In particular, Adjusted EBITDA is not intended to be a measure of cash flow available for management's discretionary expenditures, as this measure does not consider certain cash requirements, such as working capital needs, capital expenditures, contractual commitments, interest payments, tax payments and other debt service requirements. We also discuss free cash flow, a non-GAAP performance measure that the Board of Directors uses to review the performance of the business. Free cash flow is reviewed by the Board of Directors as a percentage of revenue over a trailing two-year period (reflecting both an even and odd year reporting period given the political cyclicality of our business). The most directly comparable GAAP financial measure to free cash flow is Net income attributable toTEGNA . Free cash flow is calculated as non-GAAP Adjusted EBITDA (as defined above), further adjusted by adding back (1) stock-based compensation, (2) non-cash 401(k) company match, (3) syndicated programming amortization, (4) dividends received from equity method investments, (5) reimbursements from spectrum repacking and (6) proceeds from company-owned life insurance policies. This is further adjusted by deducting payments made for (1) syndicated programming, (2) pension, (3) interest, (4) taxes (net of refunds) and (5) purchases of property and equipment. Like Adjusted EBITDA, free cash flow is not intended to be a measure of cash flow available for management's discretionary use. 24 --------------------------------------------------------------------------------
Discussion of Special Charges and Credits Affecting Reported Results
Our results included the following items we consider "special items" that, while at times recurring, can vary significantly from period to period:
Quarter and nine months ended
•Spectrum repacking reimbursements and other, net consisting of gains due to reimbursements from the FCC for required spectrum repacking; •M&A-related costs; •Other non-operating items consisting of a gain recognized on an available-for-sale investment and an impairment charge related to another investment; and •Tax expense, net, associated with establishing a valuation allowance on a deferred tax asset related to an equity method investment.
Quarter and nine months ended
•Spectrum repacking reimbursements and other, net consisting of gains due to
reimbursements from the FCC for required spectrum repacking, a contract
termination fee, and the write off of certain fixed assets;
•Advisory fees related to activism defense;
•Other non-operating items consisting of a gain due to an observable price
increase in an equity investment; and
•Net deferred tax benefits as a result of state tax planning strategies
implemented during the second quarter of 2021 and deferred tax benefits related
to partial capital loss valuation allowance release.
Reconciliations of certain line items impacted by special items to the most
directly comparable financial measure calculated and presented in accordance
with GAAP on our Consolidated Statements of Income follow (in thousands, except
per share amounts):
Special Items
Spectrum repacking
GAAP
reimbursements and Special tax
M&A-related costs other item measure
Corporate - General and
administrative expenses $ 13,367 $ (3,701) $ - $ - $ 9,666
Spectrum repacking
reimbursements and other,
net (159) - 159 - -
Operating expenses 570,853 (3,701) 159 - 567,311
Operating income 232,258 3,701 (159) - 235,800
Income before income taxes 189,984 3,701 (159) - 193,526
Provision for income taxes 43,827 47 (37) 2,588 46,425
Net income attributable to
TEGNA Inc. 146,065 3,654 (122) (2,588) 147,009
Earnings per share - diluted
(a) $ 0.65 $ 0.02 $ - $ (0.01) $ 0.65 (a) Per share amounts do not sum due to rounding.
25
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Special Items
Spectrum repacking
GAAP reimbursements and Other non-operating Non-GAAP
Quarter ended Sept. 30, 2021 measure other items Special tax items measure
Spectrum repacking reimbursements and other, net$ 504 $ (504) $ - $ - $ - Operating expenses 545,137 (504) - - 544,633 Operating income 211,350 504 - - 211,854 Other non-operating items, net 2,486 - (1,941) -
545
Income before income taxes 165,569 504 (1,941) - 164,132 Provision for income taxes 36,870 115 (502) 4,347 40,830 Net income attributable to TEGNA Inc. 128,280 389 (1,439) (4,347)
122,883
Earnings per share - diluted$ 0.58 $ - $ (0.01) $ (0.02)$ 0.55 Special Items Spectrum repacking Nine months ended Sept. 30, GAAP reimbursements and Other non-operating Special tax 2022 measure M&A-related costs other items item Non-GAAP measure
Corporate - General and administrative expenses$ 48,299 $ (18,147) $ - $ - $ - $ 30,152 Spectrum repacking reimbursements and other, net (322) - 322 - - - Operating expenses 1,699,699 (18,147) 322 - - 1,681,874 Operating income 662,416 18,147 (322) - - 680,241 Other non-operating items, net 16,764 - - (18,308) - (1,544) Total non-operating expenses (117,437) - - (18,308) - (135,745) Income before income taxes 544,979 18,147 (322) (18,308) - 544,496 Provision for income taxes 132,595 85 (78) 168 (4,529) 128,241 Net income attributable to TEGNA Inc. 411,868 18,062 (244) (18,476) 4,529 415,739 Net income per share-diluted$ 1.83 $ 0.08 $ - $ (0.08)$ 0.02 $ 1.85 26
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Special Items
Advisory fees Spectrum repacking
Nine months ended Sept. 30, GAAP related to reimbursements and Other non-operating Special tax
2021 measure activism defense other items items Non-GAAP measure
Corporate - General and
administrative expenses $ 51,944 $ (16,611) $ - $ - $ - $ 35,333
Spectrum repacking
reimbursements and other, net (2,394) - 2,394 - - -
Operating expenses 1,623,644 (16,611) 2,394 - - 1,609,427
Operating income 592,802 16,611 (2,394) - - 607,019
Equity income (loss) in
unconsolidated investments, net (5,716) - - - - (5,716)
Other non-operating items, net 4,340 - - (1,941) - 2,399
Total non-operating expenses (140,947) - - (1,941) - (142,888)
Income before income taxes 451,855 16,611 (2,394) (1,941) - 464,131
Provision for income taxes 103,470 4,291 (626) (502) 7,144 113,777
Net income attributable to
TEGNA Inc. 347,524 12,320 (1,768) (1,439) (7,144) 349,493
Net income per share-diluted $ 1.56 $ 0.06 $ (0.01) $ (0.01) $ (0.03) $ 1.57
Adjusted EBITDA - Non-GAAP
Reconciliations of Adjusted EBITDA to net income presented in accordance with
GAAP on our Consolidated Statements of Income are presented below (in
thousands):
Quarter ended Sept. 30, Nine months ended Sept. 30,
2022 2021 Change 2022 2021 Change
Net income attributable to TEGNA Inc.
(GAAP basis) $ 146,065 $ 128,280 14 % $ 411,868 $ 347,524 19 %
Plus: Net income attributable to
redeemable noncontrolling interest 92 419 (78 %) 516 861 (40 %)
Plus: Provision for income taxes 43,827 36,870 19 % 132,595 103,470 28 % Plus: Interest expense 43,406 46,477 (7 %) 129,976 139,571 (7 %) Plus: Equity loss in unconsolidated investments, net 178 1,790 (90 %) 4,225 5,716 (26
%)
Less: Other non-operating items, net (1,310) (2,486) (47 %) (16,764) (4,340)
***
Operating income (GAAP basis) 232,258 211,350 10 % 662,416 592,802 12 % Plus: M&A-related costs 3,701 - *** 18,147 - *** Plus: Advisory fees related to activism defense - - *** - 16,611
***
Less (Plus): Spectrum repacking reimbursements and other, net (159) 504 *** (322) (2,394) (87
%)
Adjusted operating income (non-GAAP basis) 235,800 211,854 11 % 680,241 607,019 12 % Plus: Depreciation 15,219 16,792 (9 %) 46,058 48,526 (5 %) Plus: Amortization of intangible assets 14,953 15,774 (5 %) 44,952 47,307 (5
%)
Adjusted EBITDA (non-GAAP basis) 265,972 244,420 9 % 771,251 702,852 10 % Corporate - General and administrative expense (non-GAAP basis) 9,666 11,891 (19 %) 30,152 35,333 (15
%)
Adjusted EBITDA, excluding Corporate (non-GAAP basis)$ 275,638 $ 256,311 8 %$ 801,403 $ 738,185 9 % *** Not meaningful In the third quarter of 2022 Adjusted EBITDA margin was 34% without corporate expense or 33% with corporate expense, compared to third quarter of 2021 Adjusted EBITDA margin of 34% without corporate expense or 32% with corporate expense. For the nine months endedSeptember 30, 2022 , Adjusted EBITDA margin was 34% without corporate expense or 33% with corporate expense, compared to nine months endedSeptember 30, 2021 Adjusted EBITDA of 33% without corporate expense or 32% with corporate expense. These margin increases were primarily driven by the operational factors discussed above within the revenue and operating expense fluctuation explanation sections, most notably, the increase in political revenue due to the run up to the mid- 27 --------------------------------------------------------------------------------
term elections and subscription revenue from annual rate increases under existing and newly renegotiated retransmission agreements.
Free Cash Flow Reconciliation
Reconciliation from "Net income" to "Free cash flow" follow (in thousands):
Two-year period ended Sept. 30,
2022 2021
Net income attributable to TEGNA Inc. (GAAP basis) $ 1,133,127 $ 914,257
Plus: Provision for income taxes 352,670 294,453
Plus: Interest expense 365,187 410,169
Plus: M&A-related costs 21,885 6,252
Plus: Depreciation 128,082 131,100
Plus: Amortization 125,076 132,571
Plus: Stock-based compensation 62,868 49,702
Plus: Company stock 401(k) contribution 34,932 33,116
Plus: Syndicated programming amortization 142,980 141,983
Plus: Workforce restructuring expense - 5,933
Plus: Advisory fees related to activism defense 16,611 45,778
Plus: Cash dividend from equity investments for return on capital
6,035 9,235
Plus: Cash reimbursements from spectrum repacking 5,774 21,209
Plus: Net income attributable to redeemable noncontrolling interest
2,176 846
Plus: Reimbursement from Company-owned life insurance policies
1,456 530
Plus (Less): Equity loss (income) in unconsolidated investments, net
11,948 (3,908)
Less: Spectrum repacking reimbursements and other, net (2,051) (6,285)
(Less) Plus: Other non-operating items, net (6,830) 24,691
Less: Syndicated programming payments (146,021) (147,411)
Less: Income tax payments, net of refunds (348,387) (242,077)
Less: Pension contributions (10,250) (25,230)
Less: Interest payments (364,287) (434,763)
Less: Purchases of property and equipment (113,519) (122,042)
Free cash flow (non-GAAP basis) $
1,419,462
Revenue$ 6,290,783 $ 5,848,181 Free cash flow as a % of Revenue 22.6 % 21.2 % Our free cash flow, a non-GAAP performance measure, was$1.42 billion and$1.24 billion for the two-year periods endedSeptember 30, 2022 and 2021, respectively. The increase in free cash flow is primarily due to increases in subscription and political revenues. 28 --------------------------------------------------------------------------------
Liquidity, Capital Resources and Cash Flows
Our operations have historically generated positive cash flow which, along with availability under our existing revolving credit facility and cash and cash equivalents on hand, have been sufficient to fund our capital expenditures, interest expense, dividends, investments in strategic initiatives (including acquisitions) and other operating requirements. We paid dividends totaling$63.5 million in first nine months of 2022 and$57.4 million in first nine months of 2021. We expect to continue to pay our regular quarterly dividend of$0.095 per share through the closing of the Merger, which is the maximum rate and frequency permitted by the Merger Agreement. As ofSeptember 30, 2022 , we were in compliance with all covenants contained in our debt agreements and credit facility and our leverage ratio, calculated in accordance with our revolving credit agreement, was 2.47x, below the permitted leverage ratio of less than 4.75x. The leverage ratio is calculated using annualized adjusted EBITDA (as defined in the agreement) for the trailing eight quarters. We believe that we will remain compliant with all covenants for the foreseeable future.
As of
Our financial and operating performance, as well as our ability to generate sufficient cash flow to maintain compliance with credit facility covenants, are subject to certain risk factors. See Item 1A. "Risk Factors," in our 2021 Annual Report on Form 10-K for further discussion. We expect our existing cash and cash equivalents, cash flow from our operations, and borrowing capacity under the revolving credit facility will be more than sufficient to satisfy our recurring contractual commitments, debt service obligations, capital expenditure requirements, and other working capital needs for the next twelve months and beyond. Cash Flows
The following table provides a summary of our cash flow information followed by a discussion of the key elements of our cash flow (in thousands):
Nine months ended Sept. 30,
2022 2021
Balance of cash and cash equivalents beginning of the period $ 56,989 $ 40,968
Operating activities:
Net income 412,384 348,385
Depreciation, amortization and other non-cash adjustments 114,895 138,261
Pension contributions, net of income (1,697) (14,821)
Decrease (increase) in trade receivables 51,986 (49,687)
Decrease in interest and taxes payable (23,104) (76,372)
Other, net 46,241 (3,162)
Cash flow from operating activities 600,705 342,604
Investing activities:
Purchase of property and equipment (35,527) (39,418)
All other investing activities (535) (5,938)
Cash flow used for investing activities (36,062) (45,356)
Cash flow used for financing activities (244,991) (287,002)
Increase in cash and cash equivalents 319,652 10,246
Balance of cash and cash equivalents end of the period $
376,641
29
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Operating activities - Cash flow from operating activities was $600.7 million
for the nine months ended September 30, 2022 , compared to $342.6 million for the
same period in 2021. Driving the increase in operating cash flow was a favorable
change in accounts receivable of $101.7 million , primarily due to timing of cash
payments related to AMS revenue and an increase in subscription revenue.
Operating cash flow was also positively impacted by an increase in political
revenue of $127.7 million in the first nine months of 2022 as compared to 2021
(political revenue is paid upfront and provides an immediate benefit to cash
flow from operating activities). Also contributing to the increase was a
favorable change in accounts payable of $22.5 million in the first nine months
of 2022 as compared to the same period in 2021, due to timing of payments.
Lastly, tax payments declined $22.4 million due to the absence of elevated tax
payments made in arrears in 2021 related to record political-driven results
achieved in fourth quarter of 2020.
Investing activities - Cash flow used for investing activities was $36.1 million
for the nine months ended September 30, 2022 , compared to $45.4 million for the
same period in 2021. The decrease of $9.3 million was primary due to $13.3
million being invested on an acquisition in 2021 and an absence of acquisitions
in 2022. Also contributing to the decrease was a decrease in capital
expenditures of $3.9 million . These favorable changes were partially offset by a
$4.7 million reduction in reimbursements from spectrum repacking in the first
nine months of 2022 as compared to the same period in 2021.
Financing activities - Cash flow used for financing activities was $245.0
million for the nine months ended September 30, 2022 , compared to $287.0 million
for the same period in 2021. The change was primarily due to our revolving
credit facility which had net repayments of $166.0 million in the first nine
months of 2022 as compared to net repayments of $219.0 million in the first nine
months of 2021.
Certain Factors Affecting Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q that do not describe historical facts may constitute forward-looking statements within the meaning of the "safe harbor" provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on a number of assumptions about future events and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from the views, beliefs, projections and estimates expressed in such statements. These risks, uncertainties and other factors include, but are not limited to, those described within Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 and our Quarterly Reports on Form 10-Q, including the following: (1) the timing, receipt and terms and conditions of any required governmental or regulatory approvals of the proposed transaction and the related transactions involving the parties that could reduce the anticipated benefits of or cause the parties to abandon the proposed transaction, (2) risks related to the satisfaction of the conditions to closing the proposed transaction (including the failure to obtain necessary regulatory approvals), and the related transactions involving the parties, in the anticipated timeframe or at all, (3) the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of the Company's common stock, (4) disruption from the proposed transaction could make it more difficult to maintain business and operational relationships, including retaining and hiring key personnel and maintaining relationships with the Company's customers, vendors and others with whom it does business, (5) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement entered into pursuant to the proposed transaction or of the transactions involving the parties, (6) risks related to disruption of management's attention from the Company's ongoing business operations due to the proposed transaction, (7) significant transaction costs, (8) the risk of litigation and/or regulatory actions related to the proposed transaction or unfavorable results from currently pending litigation and proceedings or litigation and proceedings that could arise in the future, (9) other business effects, including the effects of industry, market, economic, political or regulatory conditions, (10) information technology system failures, data security breaches, data privacy compliance, network disruptions, and cybersecurity, malware or ransomware attacks, and (11) changes resulting from the COVID-19 pandemic (including the effect of COVID-19 on the Company's revenues, particularly our non-political advertising revenues), which could exacerbate any of the risks described above. Potential regulatory actions, changes in consumer behaviors and impacts on and modifications to our operations and business relating thereto and our ability to execute on our standalone plan can also cause actual results to differ materially. We are not responsible for updating the information contained in this Quarterly Report on Form 10-Q beyond the published date. Readers are cautioned not to place undue reliance on forward-looking statements made by or on behalf of the Company. Each such statement speaks only as of the day it was made. We undertake no obligation to update or to revise any forward-looking statements. The factors described above cannot be controlled by our Company. When used in this Quarterly Report on Form 10-Q, the words "believes," "estimates," "plans," "expects," "should," "could," "outlook," and "anticipates" and similar expressions as they relate to our Company or management are intended to identify forward looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q may include, without limitation: statements about the potential benefits of the proposed acquisition, anticipated growth rates, the Company's plans, objectives, expectations, and the anticipated timing of closing the proposed transaction. 30
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