TEGNA INC. Company Overview
We are an innovative media company that serves 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% ofU.S. television households. We also own leading multicast networks True Crime Network 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. 2020, 2018) and particularly in the second half of those years; and 4) other services, such as production of programming and advertising material. As illustrated in the table below, our business continues to evolve toward growing recurring and highly profitable revenue streams, driven by the increasing concentration of both political and subscription revenue streams. As a result of the growing importance of even-year political advertising on our results, management increasingly looks at revenue trends over two-year periods. High margin-subscription and political revenues account for approximately half of our total two-year revenue, a trend that began in 2019, and are expected to comprise an increasingly larger percentage on a rolling two-year cycle thereafter. Two-Year Period Ended June 30, 2021 2020 Advertising & Marketing Services 44 % 48 % Subscription 46 % } 55% 44 % } 51% Political 9 % 7 % Other 1 % 1 % Total revenues 100 % 100 % COVID-19 Update During fiscal year 2020 and continuing into 2021, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) pandemic. The COVID-19 pandemic has brought unprecedented challenges and widespread economic and social change throughoutthe United States . TheU.S. economy continued on a path to recovery during the first six months of 2021 with millions of Americans receiving COVID-19 vaccines, states/municipalities increasingly reopening and continued growth in employment. In addition, theU.S. federal government continued to enact policies to provide fiscal stimulus to the economy and relief to those affected by the pandemic, with the most recent stimulus expected to bolster household finances as well as those of small businesses, states and municipalities. Our AMS revenues were most negatively impacted by the pandemic in the second quarter of 2020. Since then, we have continued to experience quarterly sequential improvements on a pro forma basis (reflecting 2019 acquisitions as if they had been completed onJanuary 1, 2019 ). When compared to second quarter of 2019 (pre COVID-19 pandemic), our AMS revenue was only down less than one percent on a pro forma basis, despite continued impacts of COVID-19 in a few select advertising categories, most notably automotive due to ongoing semiconductor supply chain issues. Excluding the automotive category, AMS revenue was up mid-single digits percent compared to the second quarter of 2019 on a pro forma basis. The continued roll out of vaccines together with lower COVID-19 case counts in theU.S. are encouraging. However, the impact of COVID-19 and the extent of its adverse impact on our financial and operating results will be dictated by the length of time that the pandemic continues to affect our advertising customers. This will depend on future pandemic-related developments, including the duration of the pandemic; developments concerning the severity of COVID-19 variants; disruptions to our customers' supply chains and impacts to their advertising and marketing purchasing patterns; the effectiveness, distribution and acceptance of COVID-19 vaccines; consumer confidence; andU.S. government actions to prevent and manage the virus spread, all of which are uncertain and cannot be predicted. While we use the best information available in developing significant estimates included in our financial statements, the effects of the pandemic on our operations may not be fully realized, or 17 --------------------------------------------------------------------------------
reflected in our financial results, until future periods. As such, actual results could differ from our estimates, and these differences resulting from changes in facts and circumstances could be material.
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. As discussed above, our operating results are subject to significant fluctuations across yearly periods (primarily driven by even-year election cycles). As such, in addition to one year ago comparisons, our management team and Board of Directors also review current period operating results compared to the annual period two years ago (e.g., 2021 vs. 2019). We believe this comparison will also provide useful information to investors, and therefore, we have supplemented our prior year comparison of consolidated results to also include a comparison against the second quarter and six months endedJune 30, 2019 results (through operating income). During 2019, we acquired multiple local television stations and multicast networks. Specifically, we acquired certain stations divested by Gray (January 2, 2019 ), the Justice (rebranded as True Crime Network) and Quest multicast networks (June 18, 2019 ), the Dispatch stations (August 8, 2019 ) and certain stations divested byNexstar (September 19, 2019 ). The multicast networks, Dispatch stations, andNexstar stations are collectively referred to as the "2019 Acquisitions" in the discussion that follows. These 2019 Acquisitions did not contribute to the periods prior to their acquisition in our financial statements which therefore impacts comparisons to 2019 for operating results. The Gray stations do not impact the 2021 to 2019 comparability.
Our consolidated results of operations on a GAAP basis were as follows (in thousands, except per share amounts):
Quarter ended June 30 ,
Six months ended
Change from Change from Change from Change from
2021 2020 2020 2019 2019 2021 2020 2020 2019 2019
Revenues$ 732,908 $ 577,627 27 %$ 536,932 36 %$ 1,459,959 $ 1,261,816 16 %$ 1,053,685 39 % Operating expenses: Cost of revenues 397,118 355,367 12 % 285,293 39 % 791,810 724,735 9 % 566,604 40 % Business units - Selling, general and administrative expenses 96,949 85,008 14 % 73,941 31 % 186,275 177,976 5 % 145,406 28 % Corporate - General and administrative expenses 23,183 28,312 (18 %) 15,836 46 % 40,053 50,026 (20 %) 30,571 31 % Depreciation 15,838 16,711 (5 %) 14,533 9 % 31,734 33,611 (6 %) 29,450 8 % Amortization of intangible assets 15,773 17,248 (9 %) 8,823 79 % 31,533 33,464 (6 %) 17,512 80 % Spectrum repacking (1,475) (116) *** (4,306) (66 %) (2,898) (7,631) (62 %) (11,319) (74 %) reimbursements and other, net Total operating expenses$ 547,386 $ 502,530 9 %$ 394,120 39 %$ 1,078,507 $ 1,012,181 7 %$ 778,224 39 % Total operating income$ 185,522 $ 75,097 ***$ 142,812 30 %$ 381,452 $ 249,635 53 %$ 275,461 38 % Non-operating expenses (47,682) (48,917) (3 %) (37,978) 26 % (95,166) (116,132) (18 %) (73,874) 29 % Provision for income taxes 30,986 6,607 *** 24,879 25 % 66,600 27,732 *** 47,653 40 % Net income 106,854 19,573 *** 79,955 34 % 219,686 105,771 *** 153,934 43 % Net (income) loss attributable to redeemable noncontrolling interest (227) 374 *** - *** (442) 484 *** - *** Net income attributable toTEGNA Inc. $ 106,627 $ 19,947 ***$ 79,955 33 %$ 219,244 $ 106,255 ***$ 153,934 42 % Net income per share - basic$ 0.48 $ 0.09 ***$ 0.37 30 %$ 0.99 $ 0.48 ***$ 0.71 39 % Net income per share - diluted$ 0.48 $ 0.09 ***$ 0.37 30 %$ 0.99 $ 0.48 ***$ 0.71 39 % *** Not meaningful 18
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Revenues
Our Subscription revenue category includes revenue earned from cable and satellite providers for the right to carry our signals and the distribution ofTEGNA 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 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 June 30, Six months ended June 30,
Change from Change from Change from Change from
2021 2020 2020 2019 2019 2021 2020 2020 2019 2019
Subscription $ 375,081 $ 323,475 16 % $ 236,162 59 % $ 761,818 $ 656,277 16 % $ 477,737 59 %
Advertising &
Marketing Services 340,889 229,083 49 % 289,569 18 % 663,723 524,236 27 % 553,971 20 %
Political 9,581 17,544 (45) % 3,229 *** 19,009 64,931 (71) % 5,933 ***
Other 7,357 7,525 (2) % 7,972 (8) % 15,409 16,372 (6) % 16,044 (4) %
Total revenues $ 732,908 $ 577,627 27 % $ 536,932 36 % $ 1,459,959 $ 1,261,816 16 % $ 1,053,685 39 %
*** Not meaningful
2021 vs. 2020
Total revenues increased $155.3 million in the second quarter of 2021 and $198.1
million in the first six months of 2021 compared to the same periods in 2020.
The net increases were primarily due to growth in AMS revenue ($111.8 million
second quarter, $139.5 million first six months) reflecting higher demand for
advertising (as second quarter of 2020 was adversely impacted by sharply reduced
demand due to the COVID-19 pandemic). Also contributing were growth in
subscription revenue ($51.6 million second quarter, $105.5 million first six
months) primarily due to annual rate increases under existing and newly
renegotiated retransmission agreements, partially offset by declines in
subscribers. These increases were partially offset by a decrease in political
revenue ($8.0 million second quarter and $45.9 million first six months),
following the 2020 presidential election year.
2021 vs. 2019
Total revenues increased$196.0 million in the second quarter of 2021 and$406.3 million in the first six months of 2021 compared to the same periods in 2019. Our 2019 Acquisitions contributed total revenues of$110.5 million and$222.0 million in the second quarter and first six months of 2021, respectively. Excluding the 2019 Acquisitions, total revenues increased$85.5 million and$184.3 million in the second quarter and first six months of 2021, respectively. The increases were primarily due to a rise in subscription revenues ($85.2 million second quarter,$174.6 first six months) primarily due to annual rate increases under existing and newly renegotiated retransmission agreements, partially offset by declines in subscribers. Also contributing to the increase in the first six months of 2021 was political revenue which grew$11.7 million . Cost of Revenues 2021 vs. 2020 Cost of revenues increased$41.8 million in the second quarter of 2021 and$67.1 million in the first six months of 2021 compared to the same periods in 2020. The increases were partially due to growth in programming costs ($20.7 million second quarter,$41.3 million first six months) driven by a rise in rates under existing and newly renegotiated affiliation agreements and growth in subscription revenues (certain programming costs are linked to such revenues). Also contributing to the increases were higher digital expenses ($12.9 million second quarter,$18.8 million first six months) driven by growth in Premion. 19 --------------------------------------------------------------------------------
2021 vs. 2019
Cost of revenues increased$111.8 million in the second quarter of 2021 and$225.2 million in the first six months of 2021 compared to the same periods in 2019. Our 2019 Acquisitions added cost of revenues of$58.1 million and$116.8 million in the second quarter and first six months of 2021, respectively. Excluding the 2019 Acquisitions, cost of revenues increased$53.7 million and$108.4 million in the second quarter and first six months of 2021, respectively. The increases were partially due to rising programming costs ($48.3 million second quarter,$93.6 million first six months). Also contributing to the increases were higher digital expenses ($1.9 million second quarter,$7.6 million first six months) driven by growth in Premion.
Business Units - Selling, General and Administrative Expenses
2021 vs. 2020
Business unit selling, general and administrative expenses (SG&A) increased$11.9 million in the second quarter of 2021 and$8.3 million in the first six months of 2021 compared to the same periods in 2020. The increases were primarily due to higher professional fees ($5.6 million second quarter,$8.1 million first six months). Also contributing was a rise in marketing costs ($3.8 million second quarter,$3.3 million first six months). Sales commission also increased (approximately$4.1 million second quarter,$2.3 million first six months) driven by growth in AMS revenues. These increases were partially offset by a reduction in bad debt expense ($4.0 million second quarter,$7.0 million first six months) attributed to improved collection trends as a result of continued recovery in theU.S. economy.
2021 vs. 2019
Business unit SG&A expenses increased$23.0 million in the second quarter of 2021 and$40.9 million in the first six months of 2021 compared to the same periods in 2019. Our 2019 Acquisitions added business unit SG&A expenses of$12.6 million and$25.0 million in the second quarter and first six months of 2021, respectively. Excluding the 2019 Acquisitions, SG&A expenses increased$10.4 million and$15.9 million in the second quarter and first six months of 2021, respectively. The growth was primarily due to higher professional fees ($5.8 million second quarter,$7.8 million first six months). Also contributing were increases in stock based compensation ($0.7 million second quarter,$1.9 million first six months) driven by higher stock price. These increases were partially offset by reductions in bad debt expense ($1.0 million second quarter,$2.0 million first six months).
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.
2021 vs. 2020
Corporate general and administrative expenses decreased$5.1 million in the second quarter of 2021 and$10.0 million in the first six months of 2021 compared to the same periods in 2020. The decrease was primarily driven by a decline in advisory fees related to activism defense ($3.4 million second quarter,$6.5 million first six months). Also contributing to the decrease in the first six months of 2021 was the absence of$4.6 million of M&A due diligence costs. Decreases in the first six months of 2021 were partially offset by an increase in stock based compensation of$1.9 million (driven by higher stock price). 2021 vs. 2019 Corporate general and administrative expenses increased$7.3 million in the second quarter of 2021 and$9.5 million in the first six months of 2021 compared to the same periods in 2019. The increases were primarily due to advisory fees related to activism defense ($12.0 million second quarter,$16.6 million first six months). Also contributing to the increase in the first six months of 2021 was a rise in stock based compensation of$1.2 million . These increases were partially offset by the absence of acquisition-related costs, principally advisory fees, ($5.2 million second quarter,$9.1 million first six months) due to the reduction in acquisition activity in 2021.
Depreciation Expense
2021 vs. 2020
Depreciation expense decreased by$0.9 million in the second quarter of 2021 and$1.9 million in the first six months of 2021 compared to the same periods in 2020. The decreases were due to a decline in capital expenditures following the onset of COVID-19, resulting in less depreciation in 2021. 20 --------------------------------------------------------------------------------
2021 vs. 2019
Depreciation expense increased by$1.3 million in the second quarter of 2021 and$2.3 million in the first six months of 2021 compared to the same periods in 2019. Our 2019 Acquisitions added depreciation expense of$2.8 million and$5.8 million in the second quarter and first six months of 2021, respectively. Excluding the impact of the 2019 Acquisitions, depreciation expense decreased$1.5 million and$3.5 million in the second quarter and first six months of 2021, respectively, primarily due to certain assets reaching the end of their assumed useful lives. Amortization Expense 2021 vs. 2020 Amortization expense decreased$1.5 million in the second quarter of 2021 and$1.9 million in the first six months of 2021 compared to the same periods in 2020. The decreases were due to certain assets reaching the end of their assumed useful lives, therefore, becoming fully amortized.
2021 vs. 2019
Amortization expense increased$7.0 million in the second quarter of 2021 and$14.0 million in the first six months of 2021 compared to the same periods in 2019. Our 2019 Acquisitions added amortization expense of$9.7 million and$19.5 million in the second quarter and first six months of 2021, respectively. Excluding the impact of the 2019 Acquisitions, amortization expense decreased$2.7 million and$5.5 million in the second quarter and first six months of 2021, respectively, due to certain assets reaching the end of their assumed useful lives.
Spectrum Repacking Reimbursements and Other, net
2021 vs. 2020
Spectrum repacking reimbursements and other net gains were$1.5 million in the second quarter of 2021 compared to net gains of$0.1 million in the same period in 2020 and net gains of$2.9 million in the first six months of 2021 compared to$7.6 million in the same period in 2020. The 2021 activity is related to reimbursements received from theFederal Communications Commission (FCC) for required spectrum repacking ($3.0 million second quarter,$4.4 million first six months), partially offset a$1.5 million contract termination fee which impacted both periods. The 2020 activity primarily consists of reimbursements received from the FCC for required spectrum repacking ($2.3 million second quarter,$9.8 million first six months), partially offset by$2.1 million impairment charge due to the retirement of a brand name which impacted both periods.
2021 vs. 2019
Spectrum repacking reimbursements and other net gains were$1.5 million in the second quarter of 2021 compared to net gains of$4.3 million in the same period in 2019 and$2.9 million in the first six months of 2021 compared to$11.3 million in the same period in 2019. The 2021 activity consists of the items discussed above. The 2019 activity reflects gains due to reimbursements received from the FCC ($4.3 million second quarter,$8.4 million first six months). The first six months of 2019 also included a gain of$2.9 million as a result of the sale of real estate. Operating Income 2021 vs. 2020 Our operating income increased$110.4 million in the second quarter of 2021 and$131.8 million in the first six months of 2021 compared to the same periods in 2020. The increases were driven by the changes in revenue and expenses discussed above, most notably the growth in AMS and subscription revenues.
2021 vs. 2019
Our operating income increased$42.7 million in the second quarter of 2021 and$106.0 million in the first six months of 2021 compared to the same periods in 2019. Results from our 2019 Acquisitions added operating income of$27.2 million in the first quarter of 2021 and$54.9 million in the first six months of 2021. Excluding the 2019 Acquisitions, operating income increased$15.5 million and$51.1 million in the second quarter and first six months of 2021, respectively, driven by the changes in revenue and expenses discussed above. 21 --------------------------------------------------------------------------------
Non-Operating Expenses
Non-operating expenses decreased$1.2 million in the second quarter of 2021 compared to the same period in 2020. This decrease was primarily due to an interest expense decline of$5.3 million driven by a lower average outstanding debt partially offset by higher average interest rate. Total average outstanding debt was$3.51 billion for the second quarter of 2021, compared to$4.15 billion in the same period of 2020. The weighted average interest rate on total outstanding debt was 5.07% for the second quarter of 2021, compared to 4.84% in the same period of 2020. This was partially offset by increase in equity losses of$4.6 million from our CareerBuilder investment, primarily due to the absence of a 2020 gain due to the sale of its employment screening business resulting in our share of a pre-tax gain of$6.5 million recorded by us in the second quarter of 2020. In the first six months of 2021, non-operating expenses decreased$21.0 million compared to the same period in 2020. This decrease was partially due to the absence of a$13.8 million call premium related to the repayment of our 2023 Senior Notes and an acceleration of$7.9 million of previously deferred financing fees associated with the 2023 and 2020 Senior notes in the first quarter of 2020 due to their early repayments. Further, interest expense decreased$15.7 million driven by lower average outstanding debt. The average debt outstanding was$3.50 billion for the first six months of 2021, compared to$4.17 billion in the same period of 2020. Partially offsetting the decrease in non-operating expenses, was a decline in equity earnings of$15.0 million from our CareerBuilder investment (which sold its employment screening business in 2020 resulting in our share of a pre-tax gain of$18.6 million ).
Income Tax Expense
Income tax expense increased$24.4 million in the second quarter of 2021 compared to the same period in 2020. Income tax expense increased$38.9 million in the first six months of 2021 compared to the same period in 2020. The increases were primarily due to higher net income before tax. Our effective income tax rate was 22.5% for the second quarter of 2021, compared to 24.9% for the second quarter of 2020. The tax rate for the second quarter of 2021 is lower than the comparable rate in 2020 primarily due to net deferred tax benefits as a result of state tax planning strategies. Our effective income tax rate was 23.3% for the first six months of 2021, compared to 20.7% for the same period in 2020. The tax rate for the first six months of 2021 is higher than the comparable amount in 2020 primarily due to 2020 tax benefits from the utilization of capital loss carryforwards in connection with certain disposition transactions and the release of the associated valuation allowance.
Net Income attributable to
Net income attributable toTEGNA Inc. was$106.6 million , or$0.48 per diluted share, in the second quarter of 2021 compared to$19.9 million , or$0.09 per diluted share, during the same period in 2020. For the first six months of 2021, net income attributable toTEGNA Inc. was$219.2 million , or$0.99 per diluted share, compared to$106.3 million , or$0.48 per diluted share, for the same period in 2020. Both income and earnings per share were affected by the factors discussed above, most notably, an increase of AMS revenue due to increased advertising demand as a result of improving economic conditions and an increase in subscription revenue from annual rate increases under existing and newly renegotiated retransmission agreements. The weighted average number of diluted common shares outstanding in the second quarter of 2021 and 2020 were 222.5 million and 219.4 million, respectively. The weighted average number of diluted shares outstanding in the first six months of 2021 and 2020 was 221.9 million and 219.1 million, respectively. 22 --------------------------------------------------------------------------------
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 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) loss attributable to redeemable noncontrolling interest, (2) income taxes, (3) interest expense, (4) equity (loss) income in unconsolidated investments, net, (5) other non-operating items, net, (6) M&A due diligence 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 and (5) reimbursements from spectrum repacking. 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. 23
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Discussion of Special Charges 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 six months ended
•Spectrum repacking reimbursements and other, net consisting of gains due to reimbursements from the FCC for required spectrum repacking and a contract termination fee; •Advisory fees related to activism defense; and •Net deferred tax benefits as a result of state tax planning strategies implemented during the second quarter of 2021.
Quarter and six months ended
•Spectrum repacking reimbursements and other, net consists of gains due to
reimbursements from the FCC for required spectrum repacking, partially offset by
an intangible asset impairment charge due to the retirement of a brand name;
•Advisory fees related to activism defense;
•M&A due diligence costs we incurred to assist prospective buyers of our company
with their due diligence;
•A gain recognized in our equity income in unconsolidated investments, related
to our share of CareerBuilder's gain on the sale of its employment screening
business;
•Other non-operating items primarily related to costs incurred in connection
with the early extinguishment of debt; and
•Deferred tax benefits related to partial capital loss valuation allowance
release.
24
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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
Advisory fees Spectrum repacking
Quarter ended June 30, GAAP related to reimbursements and Non-GAAP
2021 measure activism defense other Special tax items measure
Corporate - General and
administrative expenses $ 23,183 $ (12,012) $ - $ - $ 11,171
Spectrum repacking
reimbursements and other,
net (1,475) - 1,475 - -
Operating expenses 547,386 (12,012) 1,475 - 536,849
Operating income 185,522 12,012 (1,475) - 196,059
Income before income
taxes 137,840 12,012 (1,475) - 148,377
Provision for income
taxes 30,986 3,111 (374) 2,797 36,520
Net income attributable
to TEGNA Inc. 106,627 8,901 (1,101) (2,797) 111,630
Net income per
share-diluted (a) $ 0.48 $ 0.04 $ - $ (0.01) $ 0.50 (a) Per share amounts do not sum due to rounding.
Special Items
Advisory fees Spectrum repacking
Quarter ended June 30, GAAP related to reimbursements and Gain on equity Non-GAAP
2020 measure activism defense other method investment measure
Corporate - General and
administrative expenses $ 28,312 $ (15,448) $ - $ - $ 12,864
Spectrum repacking
reimbursements and other,
net (116) - 116 - -
Operating expenses 502,530 (15,448) 116 - 487,198
Operating income 75,097 15,448 (116) - 90,429
Equity income (loss) in
unconsolidated
investments, net 1,921 - - (6,514) (4,593)
Total non-operating
expenses (48,917) - - (6,514) (55,431)
Income before income
taxes 26,180 15,448 (116) (6,514) 34,998
Provision for income
taxes 6,607 3,882 (27) (1,637) 8,825
Net income attributable
to TEGNA Inc. 19,947 11,566 (89) (4,877) 26,547
Net income per
share-diluted $ 0.09 $ 0.05 $ - $ (0.02) $ 0.12
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Special Items
Advisory fees Spectrum repacking
GAAP related to reimbursements and
Six months ended June 30, 2021 measure activism defense other Special tax items Non-GAAP measure
Corporate - General and
administrative expenses $ 40,053 $ (16,611) $ - $ - $ 23,442
Spectrum repacking
reimbursements and other, net (2,898) - 2,898 - -
Operating expenses 1,078,507 (16,611) 2,898 - 1,064,794
Operating income 381,452 16,611 (2,898) - 395,165
Equity income (loss) in
unconsolidated investments, net (3,926) - - - (3,926)
Other non-operating items, net 1,854 - - - 1,854
Total non-operating expenses (95,166) - - - (95,166)
Income before income taxes 286,286 16,611 (2,898) - 299,999
Provision for income taxes 66,600 4,291 (741) 2,797 72,947
Net income attributable to
TEGNA Inc. 219,244 12,320 (2,157) (2,797) 226,610
Net income per share-diluted
(a) $ 0.99 $ 0.06 $ (0.01) $ (0.01) $ 1.02
(a) Per share amounts do not sum due to rounding
Special Items
Spectrum
repacking
GAAP M&A due Advisory fees related reimbursements Gains on equity
Other non-operating Special tax Non-GAAP
Six months ended
measure diligence costs to activism defense and other method investment items benefits measure
Corporate - General and
administrative expenses $ 50,026 $ (4,588) $ (23,087) $ - $ - $ - $ - $ 22,351
Spectrum repacking
reimbursements and other, net (7,631) - - 7,631 - - - -
Operating expenses 1,012,181 (4,588) (23,087) 7,631 - - - 992,137
Operating income 249,635 4,588 23,087 (7,631) - - - 269,679
Equity income (loss) in
unconsolidated investments, net 10,936 - - - (18,585) - - (7,649)
Other non-operating items, net (18,231) - - - - 21,744 - 3,513
Total non-operating expenses (116,132) - - - (18,585) 21,744 - (112,973)
Income before income taxes 133,503 4,588 23,087 (7,631) (18,585) 21,744 - 156,706
Provision for income taxes 27,732 1,151 5,801 (2,017) (4,670) 5,463 3,944 37,404
Net income attributable to
TEGNA Inc. 106,255 3,437 17,286 (5,614) (13,915) 16,281 (3,944) 119,786
Net income per share-diluted $ 0.48 $ 0.02 $ 0.08 $ (0.03) $ (0.06) $ 0.07 $ (0.02) $ 0.54
26--------------------------------------------------------------------------------
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 June 30, Six months ended June 30,
2021 2020 Change 2021 2020 Change
Net income attributable to TEGNA Inc. (GAAP
basis) $ 106,627 $ 19,947 *** $ 219,244 $ 106,255 ***
Plus (Less): Net income (loss) attributable to
redeemable noncontrolling interest 227 (374) *** 442 (484) ***
Plus: Provision for income taxes 30,986 6,607 *** 66,600 27,732 *** Plus: Interest expense 46,609 51,877 (10 %) 93,094 108,837 (14 %) Plus (Less): Equity loss (income) in unconsolidated investments, net 2,597 (1,921) *** 3,926 (10,936) *** (Less) Plus: Other non-operating items, net (1,524) (1,039) 47 % (1,854) 18,231 *** Operating income (GAAP basis) 185,522 75,097 *** 381,452 249,635
53 %
Plus: M&A due diligence and acquisition-related costs - - *** - 4,588
***
Plus: Advisory fees related to activism defense 12,012 15,448 (22 %) 16,611 23,087 (28 %) Less: Spectrum repacking reimbursements and other, net (1,475) (116) *** (2,898) (7,631) (62 %) Adjusted operating income (non-GAAP basis) 196,059 90,429 *** 395,165 269,679 47 % Plus: Depreciation 15,838 16,711 (5 %) 31,734 33,611 (6 %) Plus: Amortization of intangible assets 15,773 17,248 (9 %) 31,533 33,464 (6 %) Adjusted EBITDA (non-GAAP basis) 227,670 124,388 83 % 458,432 336,754 36 % Corporate - General and administrative expense (non-GAAP basis) 11,171 12,864 (13 %) 23,442 22,351 5 % Adjusted EBITDA, excluding Corporate (non-GAAP basis)$ 238,841 $ 137,252 74 %$ 481,874 $ 359,105 34 % *** Not meaningful In the second quarter of 2021 Adjusted EBITDA margin was 33% without corporate expense or 31% with corporate expense, compared to second quarter of 2020 Adjusted EBITDA margin of 24% without corporate expense or 22% with corporate expense. For the six months endedJune 30, 2021 , Adjusted EBITDA margin was 33% without corporate expense or 31% with corporate expense, compared to six months endedJune 30, 2020 Adjusted EBITDA of 28% without corporate expense or 27% 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 AMS revenue due to the overall increase in economic activity and subscription revenue from annual rate increases under existing and newly renegotiated retransmission agreements. 27
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Free Cash Flow Reconciliation
Our free cash flow, a non-GAAP performance measure, was
Reconciliation from "Net income" to "Free cash flow" follow (in thousands):
Two-year period
ended
June 30, 2021
Net income attributable to TEGNA Inc. (GAAP basis) $ 834,323
Plus: Provision for income taxes 262,662
Plus: Interest expense 416,146
Plus: M&A due diligence and acquisition-related costs 26,225
Plus: Depreciation 129,689
Plus: Amortization 131,815
Plus: Stock-based compensation 47,182
Plus: Company stock 401(k) contribution 32,167
Plus: Syndicated programming amortization 139,793
Plus: Workforce restructuring expense 5,933
Plus: Advisory fees related to activism defense 45,778
Plus: Cash dividend from equity investments for return on capital
9,093
Plus: Cash reimbursements from spectrum repacking 26,153
Plus: Other non-operating items, net 27,640
Plus: Net income attributable to redeemable noncontrolling interest
427
Less: Income tax payments, net of refunds (230,749)
Less: Equity income in unconsolidated investments, net (5,207)
Less: Spectrum repacking reimbursements and other, net (6,869)
Less: Syndicated programming payments (145,058)
Less: Pension contributions (24,158)
Less: Interest payments (391,913)
Less: Purchases of property and equipment (123,792)
Free cash flow (non-GAAP basis) $ 1,207,280
Revenue $ 5,643,551
Free cash flow as a % of Revenue 21.4 %
28
--------------------------------------------------------------------------------Liquidity, Capital Resources and Cash Flows
Our operations have historically generated strong 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. The COVID-19 pandemic has had far-reaching impacts on many aspects of our operations, directly and indirectly, including our employees, consumer behavior, distribution of our content, our vendors, and the overall market. The full impact of the COVID-19 pandemic, particularly with regard to the broader advertising industry, remains uncertain and continues to evolve. However, during the first six months of 2021, theU.S. economy continued on a path towards recovery with millions of Americans receiving COVID-19 vaccines, states and municipalities increasingly reopening and continued growth in employment, although the reported impact from the Delta variant of the virus leaves room for further concern. In addition, theU.S. federal government continued to enact policies to provide fiscal stimulus to the economy and relief to those affected by the pandemic, with the most recent stimulus expected to bolster household finances as well as those of small businesses, states and municipalities. The improving conditions around the pandemic over the last 12 months, coupled with strategic actions we've taken with our 2020 and 2019 debt refinancings and reduction of discretionary spending, have helped strengthened our financial position. OnMarch 29, 2021 , we announced that our Board of Directors approved a dividend increase often cents per share on an annual basis, to$0.38 per common share (approximately 2.0% dividend yield as ofJune 30, 2021 ), which represents an approximately 36% increase above the prior dividend. The increase of the dividend demonstrates the Board's and management's confidence in our business and continued focus on making prudent, disciplined decisions intended to drive near and long-term shareholder value. Our capital allocation decisions focus on optimizing investments in organic and inorganic growth opportunities, paying down debt, issuing dividends, and repurchasing shares. As ofJune 30, 2021 , 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 and term loan agreements, was 3.62x, well below the permitted leverage ratio of less than 5.5x. 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 ofJune 30, 2021 , our total debt was$3.46 billion , cash and cash equivalents totaled$57.3 million , and we had unused borrowing capacity of$1.23 billion under our revolving credit facility. Approximately$3.23 billion , or 93%, of our debt has a fixed interest rate. 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 2020 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 debt service obligations, capital expenditure requirements, and working capital needs for the next twelve months. 29 --------------------------------------------------------------------------------
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):
Six months ended June 30,
2021 2020
Balance of cash and cash equivalents beginning of the period $ 40,968 $ 29,404
Operating activities:
Net income 219,686 105,771
Depreciation, amortization and other non-cash adjustments 92,749 72,273
Pension contributions, net of income (8,781) (5,885)
(Increase) decrease in trade receivables (37,207) 91,246
(Decrease) increase in interest and taxes payable (52,483) 32,056
Other, net (17,471) 18,081
Cash flow from operating activities 196,493 313,542
Investing activities: Payments for acquisitions of businesses and other assets, net of cash acquired
(13,341) (15,841)
All other investing activities (20,911) (5,216)
Cash flow used for investing activities (34,252) (21,057)
Cash flow used for financing activities (145,947) (148,819)
(Decrease) increase in cash and cash equivalents 16,294 143,666
Balance of cash and cash equivalents end of the period $
57,262
Operating Activities - Cash flow from operating activities was$196.5 million for the six months endedJune 30, 2021 , compared to$313.5 million for the same period in 2020. Driving the decrease was an increase in tax payments of$117.1 million in the six months endedJune 30, 2021 compared to the same period in 2020, as tax payments originally due in the second quarter of 2020 were impacted by guidance fromU.S. Department of the Treasury and the Internal Revenue Service that allowed the deferral of federal income tax payments toJuly 15, 2020 and would have otherwise been paid in the second quarter of 2020. In addition, the decline in operating cash flow was also impacted by a decrease of$45.9 million in political revenue (which are paid upfront and provide immediate benefit to operating cash flow). Partially offsetting these decreases were increases in operating cash flows associated with higher AMS and subscription revenues. Investing Activities - Cash flow used for investing activities was$34.3 million for the six months endedJune 30, 2021 , compared to$21.1 million for the same period in 2020. The increase was primarily due to a$5.3 million decline in spectrum repack reimbursements. Also contributing to the decline was a$4.7 million decrease in proceeds from the sale of assets and business. Financing Activities - Cash flow used for financing activities was$145.9 million for the six months endedJune 30, 2021 , compared to$148.8 million for the same period in 2020. The change was primarily due to debt activity in 2020. Specifically, inJanuary 2020 we issued$1.0 billion of unsecured notes, the proceeds of which were used to early redeem$650.0 million of unsecured notes due inOctober 2023 and$310.0 million due inJuly 2020 . We incurred combined debt issuance and early redemption fees of$29.9 million in the first six months of 2020 related to these actions. Additionally, we paid down$99.0 million on our revolving credit facility in the first six months of 2021 as compared to$68.0 million in the first six months of 2020. 30 --------------------------------------------------------------------------------
Certain Factors Affecting Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q contain forward-looking statements regarding business strategies, market potential, future financial performance and other matters, which include, but are not limited to the adverse impacts caused by the COVID-19 pandemic and its effect on our revenues, particularly our non-political advertising revenues. The words "believe," "expect," "estimate," "could," "should," "intend," "may," "plan," "seek," "anticipate," "project" and similar expressions, among others, generally identify "forward-looking statements". These forward-looking statements are subject to certain risks and uncertainties that could cause actual results and events to differ materially from those anticipated in the forward-looking statements, including those described within Item 1A. "Risk Factors" in our 2020 Annual Report on Form 10-K. Our actual financial results may be different from those projected due to the inherent nature of projections. Given these uncertainties, forward-looking statements should not be relied on in making investment decisions. The forward-looking statements contained in this Form 10-Q speak only as of the date of its filing. Except where required by applicable law, we expressly disclaim a duty to provide updates to forward-looking statements after the date of this Form 10-Q to reflect subsequent events, changed circumstances, changes in expectations, or the estimates and assumptions associated with them. The forward-looking statements in this Form 10-Q are intended to be subject to the safe harbor protection provided by the federal securities laws. Item 3. Quantitative and Qualitative Disclosures about Market Risk For quantitative and qualitative disclosures about market risk, refer to the following section of our 2020 Annual Report on Form 10-K: "Item 7A. Quantitative and Qualitative Disclosures about Market Risk." Our exposures to market risk have not changed materially sinceDecember 31, 2020 . As ofJune 30, 2021 , approximately$3.23 billion of our debt has a fixed interest rate (which represents approximately 93% of our total principal debt obligation). Our remaining debt obligation of$256 million has floating interest rates. These obligations fluctuate with market interest rates. By way of comparison, a 50 basis points increase or decrease in the average interest rate for these obligations would result in a change in annual interest expense of approximately$1.3 million . The fair value of our total debt, based on bid and ask quotes for the related debt, totaled$3.70 billion as ofJune 30, 2021 and$3.79 billion as ofDecember 31, 2020 .
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