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 Years Ending March 31, 2021 2020 Advertising & Marketing Services 45 % 50 % Subscription 45 % } 54% 42 % } 49% 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 quarter of 2021 with millions of Americans receiving COVID-19 vaccines and states/municipalities increasingly reopening. 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, but we have continued to experience quarterly sequential improvements since the height of the pandemic in the second quarter of 2020. The roll out of vaccines together with lower COVID-19 case counts are encouraging. That said, 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, any potential subsequent waves of COVID-19 virus, the effectiveness, distribution and acceptance of COVID-19 vaccines, and relatedU.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 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. 16 --------------------------------------------------------------------------------
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 first quarter of 2019 results (through operating income). During 2019, we acquired multiple local television stations and multicast networks. Specifically, we acquired the Gray stations (January 2, 2019 ), Justice (recently rebranded as True Crime Network) and Quest multicast networks (June 18, 2019 ), the Dispatch stations (August 8, 2019 ) and theNexstar stations (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 impacts the current quarter to prior two year period comparability of our consolidated 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 Mar. 31, Change from Change from 2021 2020 2020 2019 2019 Revenues$ 727,051 $ 684,189 6 %$ 516,753 41 % Operating expenses: Cost of revenues 394,692 369,368 7 % 281,311 40 % Business units - Selling, general and administrative expenses 89,326 92,968 (4 %) 71,465 25 % Corporate - General and administrative expenses 16,870 21,714 (22 %) 14,735 14 % Depreciation 15,896 16,900 (6 %) 14,917 7 % Amortization of intangible assets 15,760 16,216 (3 %) 8,689 81 % Spectrum repacking reimbursements and other, net (1,423) (7,515) (81 %) (7,013) (80 %) Total operating expenses$ 531,121 $ 509,651 4 %$ 384,104 38 % Total operating income$ 195,930 $ 174,538 12 %$ 132,649 48 % Non-operating expenses (47,484) (67,215) (29 %) (35,896) 32 % Provision for income taxes 35,614 21,125 69 % 22,774 56 % Net income 112,832 86,198 31 % 73,979 53 % Net (income) loss attributable to redeemable noncontrolling interest (215) 110 *** - *** Net income attributable to TEGNA Inc.$ 112,617 $ 86,308 30 %$ 73,979 52 % Net income per share - basic$ 0.51 $ 0.40 28 %$ 0.34 50 % Net income per share - diluted$ 0.51 $ 0.39 31 %$ 0.34 50 % *** 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 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. 17 -------------------------------------------------------------------------------- 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 Mar. 31, Change from Change from 2021 2020 2020 2019 2019 Subscription$ 386,737 $ 332,802 16 %$ 241,575 60 % Advertising & Marketing Services 322,834 295,153 9 % 264,402 22 % Political 9,428 47,387 (80) % 2,704 *** Other 8,052 8,847 (9) % 8,072 - % Total revenues$ 727,051 $ 684,189 6 %$ 516,753 41 % *** Not meaningful 2021 vs. 2020 Total revenues increased$42.9 million in the first quarter of 2021 compared to the same period in 2020. The net increase was primarily due to a$53.9 million increase in subscription revenue, primarily due to annual rate increases under existing and newly renegotiated retransmission agreements. In addition, AMS revenue increased$27.7 million , reflecting an increased demand for advertising, and incremental revenue from theSuper Bowl (which aired in 2021 onCBS and therefore reached more than 30% ofTEGNA's households, as compared to 2020 when the game aired on Fox, which reaches fewer than 6% ofTEGNA's households). These increases were partially offset by a decrease in political revenue of$38.0 million , following a presidential election year.
2021 vs. 2019
Total revenues increased$210.3 million in the first quarter of 2021 compared to the same period in 2019. Our 2019 Acquisitions contributed total revenues of$111.4 million in the first quarter of 2021. Excluding the 2019 Acquisitions, total revenues increased$98.9 million . This increase was primarily from a$89.3 million increase in subscription revenue, primarily due to annual rate increases under existing and newly renegotiated retransmission agreements and a$6.4 million increase in political advertising.
Cost of Revenues
2021 vs. 2020
Cost of revenues increased$25.3 million in the first quarter of 2021 compared to the same period in 2020. The increase was primarily due to a$20.6 million increase in programming costs driven by rate increases under existing and newly renegotiated affiliation agreements and growth in subscription revenues (certain programming costs are linked to such revenues).
2021 vs. 2019
Cost of revenues increased$113.4 million in the first quarter of 2021 compared to the same period in 2019. Our 2019 Acquisitions added cost of revenues of$58.6 million in the first quarter of 2021. Excluding the 2019 Acquisitions, cost of revenues increased$54.8 million . The increase was primarily due to a$45.3 million increase in programming costs and an increase in digital expenses of$5.7 million driven by growth in Premion. 18 --------------------------------------------------------------------------------
Business Units - Selling, General and Administrative Expenses
2021 vs. 2020
Business unit selling, general and administrative expenses (SG&A) decreased$3.6 million in the first quarter of 2021 compared to the same period in 2020. The decrease was primarily due to a$3.0 million reduction in bad debt expense, attributed to improved collection trends as a result of continued recovery in the economy. 2021 vs. 2019 Business unit SG&A expenses increased$17.9 million in the first quarter of 2021 compared to the same period in 2019. Our 2019 Acquisitions added business unit SG&A expenses of$12.4 million in the first quarter of 2021. Excluding the 2019 Acquisitions, SG&A expenses increased$5.5 million . This increase was primarily due to a$1.8 million increase in professional fees and a$1.2 million increase in stock based compensation expense (driven by higher stock price).
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$4.8 million in the first quarter of 2021 compared to the same period in 2020. The decrease was primarily driven by the absence in 2021 of$4.6 million of M&A due diligence costs and a decrease of$3.0 million of advisory fees related to activism defense. Partially offsetting this was a$2.4 million increase in stock-based compensation expense (driven by higher stock price).
2021 vs. 2019
Corporate general and administrative expenses increased$2.1 million in the first quarter of 2021 compared to the same period in 2019. The increase was primarily due to$4.6 million of advisory fees related to activism defense and a$0.9 million increase in stock-based compensation expense. These increases were partially offset by the absence of$3.9 million in acquisition-related costs (principally advisory fees) due to the reduction in acquisition activity in 2021. Depreciation Expense 2021 vs. 2020
Depreciation expense decreased by
2021 vs. 2019
Depreciation expense increased by
Amortization Expense
2021 vs. 2020
Amortization expense decreased
2021 vs. 2019
Amortization expense increased$7.1 million in the first quarter of 2021 compared to the same period in 2019. Our 2019 Acquisitions added amortization expense of$9.7 million . Excluding the impact of the 2019 Acquisitions, amortization expense decreased$2.6 million due to certain assets reaching the end of their assumed useful lives. 19 --------------------------------------------------------------------------------
Spectrum Repacking Reimbursements and Other, net
2021 vs. 2020
Spectrum repacking reimbursements and other net gains were$1.4 million in the first quarter of 2021 compared to net gains of$7.5 million in the same period in 2020. The 2021 activity is related to$1.4 million of reimbursements received from theFederal Communications Commission (FCC) for required spectrum repacking, compared to$7.5 million of reimbursements received in the first quarter of 2020.
2021 vs. 2019
Spectrum repacking reimbursements and other net gains were$1.4 million in the first quarter of 2021 compared to net gains of$7.0 million in the same period in 2019. The 2021 activity consists of$1.4 million of reimbursements received from the FCC for required spectrum repacking. The 2019 activity reflects$4.1 million of gains due to reimbursements received from the FCC and a$2.9 million gain as a result of the sale of certain real estate.
Operating Income
2021 vs. 2020
Our operating income increased$21.4 million in the first quarter of 2021 compared to the same period in 2020. The increase was driven by the changes in revenue and expenses discussed above, most notably the increase in subscription and AMS revenues. 2021 vs. 2019 Our operating income increased$63.3 million in the first quarter of 2021 compared to the same period in 2019. Results from our 2019 Acquisitions added operating income of$27.7 million in the first quarter of 2021. Excluding the 2019 Acquisitions, operating income increased$35.6 million . The increase was driven by the changes in revenue and expenses discussed above, most notably the increase of subscription revenue.
Non-Operating Expenses
Non-operating expenses decreased$19.7 million in the first quarter of 2021 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 acceleration of$7.9 million of previously deferred financing fees associated with the 2023 and 2020 Senior notes that occurred in the first quarter of 2020 due to their early repayment. Additionally, interest expense decreased by$10.5 million driven by a lower average outstanding debt and lower average interest rate due to the refinancings undertaken in 2019 and 2020. Total average outstanding debt was$3.50 billion for the first quarter of 2021, compared to$4.19 billion in the same period of 2020. The weighted average interest rate on total outstanding debt was 5.08% for the first quarter of 2021, compared to 5.27% in the same period of 2020. Partially offsetting this decline was the absence of$12.1 million gain related to our share of CareerBuilder's gain on the sale of its employment screening business recognized in the first quarter of 2020. Income Tax Expense Income tax expense increased$14.5 million in the first quarter of 2021 compared to the same period in 2020. The increase was primarily due to an increase in net income before tax. Our effective income tax rate was 24.0% for the first quarter of 2021, compared to 19.7% for the first quarter of 2020. The tax rate for the first quarter 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$112.6 million , or$0.51 per diluted share, in the first quarter of 2021 compared to$86.3 million , or$0.39 per diluted share, during the same period in 2020. Both income and earnings per share were affected by the factors discussed above, most notably, an increase in subscription revenue from annual rate increases under existing and newly renegotiated retransmission agreements and an increase of AMS revenue due to increased advertising demand as a result of improving economic conditions.
The weighted average number of diluted common shares outstanding in the first quarter of 2021 and 2020 were 221.2 million and 218.9 million, respectively.
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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. 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) pension reimbursements, (5) dividends received from equity method investments and (6) 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. 21 --------------------------------------------------------------------------------
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 ended
•Spectrum repacking reimbursements and other, net consisting of gains due to reimbursements from the FCC for required spectrum repacking; and •Advisory fees related to activism defense.
Quarter ended
•Spectrum repacking reimbursements and other, net primarily consisting of gains due to reimbursements from the FCC for required spectrum repacking; •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. 22
-------------------------------------------------------------------------------- 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 GAAP related to reimbursements and Quarter ended March 31, 2021 measure activism defense other Non-GAAP measure Corporate - General and administrative expenses$ 16,870 $ (4,599) $ - $ 12,271 Spectrum repacking reimbursements and other, net (1,423) - 1,423 - Operating expenses 531,121 (4,599) 1,423 527,945 Operating income 195,930 4,599 (1,423) 199,106 Income before income taxes 148,446 4,599 (1,423) 151,622 Provision for income taxes 35,614 1,180 (367) 36,427 Net income attributable to TEGNA Inc. 112,617 3,419 (1,056) 114,980
Net income per share-diluted
$ (0.01) $ 0.52 Special Items Spectrum repacking GAAP M&A due Advisory fees related reimbursements and Gain on equity
Other non-operating Special tax
measure diligence costs to activism defense other method investment items items measure Corporate - General and administrative expenses$ 21,714 $ (4,588) $ (7,639) $ - $ - $ - $ -$ 9,487 Spectrum repacking reimbursements and other, net (7,515) - - 7,515 - - - - Operating expenses 509,651 (4,588) (7,639) 7,515 - - - 504,939 Operating income 174,538 4,588 7,639 (7,515) - - - 179,250 Equity (loss) in unconsolidated investments, net 9,015 - - - (12,071) - - (3,056) Other non-operating items, net (19,270) - - - - 21,744 - 2,474 Total non-operating expenses (67,215) - - - (12,071) 21,744 - (57,542) Income before income taxes 107,323 4,588 7,639 (7,515) (12,071) 21,744 - 121,708 Provision for income taxes 21,125 1,151 1,919 (1,990) (3,033) 5,463 3,944 28,579 Net income attributable toTEGNA Inc. 86,308 3,437 5,720 (5,525) (9,038) 16,281 (3,944) 93,239 Net income per share-diluted (a)$ 0.39 $ 0.02 $ 0.03 $ (0.03)$ (0.04) $ 0.07$ (0.02) $ 0.43
(a) Per share amounts do not sum due to rounding
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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 Mar. 31, 2021 2020 Change Net income attributable to TEGNA Inc. (GAAP basis)$ 112,617 $ 86,308 30 %
Plus (Less): Net income (loss) attributable to redeemable noncontrolling interest
215 (110) *** Plus: Provision for income taxes 35,614 21,125 69 % Plus: Interest expense 46,485 56,960 (18 %)
Plus (Less): Equity loss (income) in unconsolidated investments, net
1,329 (9,015) *** (Less) Plus: Other non-operating items, net (330) 19,270 *** Operating income (GAAP basis) 195,930 174,538 12 % Plus: M&A due diligence costs - 4,588 *** Plus: Advisory fees related to activism defense 4,599 7,639 (40 %) Less: Spectrum repacking reimbursements and other, net (1,423) (7,515) (81 %) Adjusted operating income (non-GAAP basis) 199,106 179,250 11 % Plus: Depreciation 15,896 16,900 (6 %) Plus: Amortization of intangible assets 15,760 16,216 (3 %) Adjusted EBITDA (non-GAAP basis) 230,762 212,366 9 %
Corporate - General and administrative expense (non-GAAP basis)
12,271 9,487 29 %
Adjusted EBITDA, excluding Corporate (non-GAAP basis)
$ 221,853 10 % *** Not meaningful In the first quarter of 2021 Adjusted EBITDA margin was 33% without corporate expense or 32% with corporate expense, compared to first quarter of 2020 Adjusted EBITDA margin of 32% without corporate expense or 31% with corporate expense. Our total Adjusted EBITDA increased$18.4 million in the first quarter of 2021 compared to 2020. This increase was primarily driven by the operational factors discussed above within the revenue and operating expense fluctuation explanation sections, most notably, the increase in subscription revenue from annual rate increases under existing and newly renegotiated retransmission agreements and increase in AMS revenue. 24 --------------------------------------------------------------------------------
Free Cash Flow Reconciliation
Our free cash flow, a non-GAAP performance measure, was
Reconciliations from "Net income" to "Free cash flow" follow (in thousands): Three months ended Mar. 31, 2021 2020 Change Net income attributable to TEGNA Inc. (GAAP basis)$ 112,617 $ 86,308 30 % Plus: Provision for income taxes 35,614 21,125 69 % Plus: Interest expense 46,485 56,960 (18 %) Plus: M&A due diligence costs - 4,588 *** Plus: Depreciation 15,896 16,900 (6 %) Plus: Amortization 15,760 16,216 (3 %) Plus: Stock-based compensation 8,761 (757) *** Plus: Company stock 401(k) contribution 5,304 5,138 3 % Plus: Syndicated programming amortization 16,977 18,175 (7 %) Plus: Advisory fees related to activism defense 4,599 7,639 (40 %)
Plus: Cash dividend from equity investments for return on capital
1,357 208 *** Plus: Cash reimbursements from spectrum repacking 1,423 7,515 (81 %) Plus: Other non-operating items, net (330) 19,270 ***
Plus (Less): Net income (loss) attributable to redeemable noncontrolling interest
215 (110) *** Plus (Less): Income tax receipts (payments) 33 (793) ***
Plus (Less): Equity loss (income) in unconsolidated investments, net
1,329 (9,015) *** Less: Spectrum repacking reimbursements and other, net (1,423) (7,515) (81 %) Less: Syndicated programming payments (15,721) (17,865) (12 %) Less: Pension contributions (935) (2,309) (60 %) Less: Interest payments (76,045) (66,240) 15 % Less: Purchases of property and equipment (13,185) (13,264) (1 %) Free cash flow (non-GAAP basis)$ 158,731 $ 142,174 12 % *** Not meaningful 25
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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 material adverse 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 quarter of 2021, theU.S. economy continued on a path towards recovery with millions of Americans receiving COVID-19 vaccines and states and municipalities increasingly reopening. 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 roll out of vaccines together with lower COVID-19 case counts are encouraging. The improving conditions around the pandemic, coupled with strategic actions we've taken over the past couple years with our 2020 and 2019 debt refinancings and reduction of discretionary spending has 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 ofMarch 31, 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 ofMarch 31, 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 3.77x, 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. We often present a different leverage ratio in our investor communications than the one required to be computed by our revolving covenant agreement. The ratio disclosed in our investor communications, which is regularly reviewed by our management and our board of directors, was 3.82x as ofMarch 31, 2021 . The primary difference between this computation and the leverage ratio calculated in accordance with our revolving credit agreement is the definition of adjusted EBITDA in the revolving credit agreement version requires additional adjustments to add back non-cash compensation and contractual synergy benefits during periods in the trailing eight quarters that preceded a particular acquisition. As ofMarch 31, 2021 , our total debt was$3.52 billion , cash and cash equivalents totaled$12.9 million , and we had unused borrowing capacity of$1.17 billion under our revolving credit facility. Approximately$3.23 billion , or 91%, of our debt has a fixed interest rate. Our financial and operating performance, as well as our ability to generate sufficient cash flow to maintain compliance with credit facility covenants, are subject to certain risk factors. See Item 1A. "Risk Factors," in our 2020 Annual Report on Form 10-K for further discussion. We expect our existing cash and cash equivalents, cash flow from our operations, and borrowing capacity under the revolving credit facility will be more than sufficient to satisfy our debt service obligations, capital expenditure requirements, and working capital needs for the next twelve months. 26 --------------------------------------------------------------------------------
Cash Flows
The following table provides a summary of our cash flow information followed by a discussion of the key elements of our cash flow (in thousands):
Three months ended Mar. 31, 2021 2020 Balance of cash and cash equivalents beginning of the period$ 40,968 $ 29,404 Operating activities: Net income 112,832 86,198 Depreciation, amortization and other non-cash adjustments 47,050 28,482 Pension contributions, net of income (4,410) (3,642) Decrease (increase) in trade receivables (63,120) 38,131 Increase in interest and taxes payable 4,320 8,775 Other, net (38,601) 19,420 Cash flow from operating activities 58,071 177,364
Investing activities: Payments for acquisitions of businesses and other assets, net of cash acquired
(13,341) (15,000) All other investing activities (9,890) (563) Cash flow used for investing activities (23,231) (15,563) Cash flow used for financing activities (62,955) (156,146) (Decrease) increase in cash and cash equivalents (28,115) 5,655 Balance of cash and cash equivalents end of the period $
12,853
Operating Activities - Cash flow from operating activities was$58.1 million for the three months endedMarch 31, 2021 , compared to$177.4 million for the same period in 2020. Driving the decrease was a change in accounts receivable of$101.3 million primarily due year over year increases in AMS and subscription revenue of$27.7 million and$53.9 million , respectively, and a change in accounts payable of$18.7 million . Investing Activities - Cash flow used for investing activities was$23.2 million for the three months endedMarch 31, 2021 , compared to$15.6 million for the same period in 2020. The increase was primarily due to a$6.1 million decline in spectrum repack reimbursements. Also contributing to the decline was a$5.0 million decrease in proceeds from the sale of assets and business. Financing Activities - Cash flow used for financing activities was$63.0 million for the three months endedMarch 31, 2021 , compared to$156.1 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$27.6 million related to these actions. Additionally, we paid down$37.0 million on our revolving credit facility early in the first quarter of 2021 as compared to$118.0 million in the first quarter of 2020. 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. 27
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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 ofMarch 31, 2021 , approximately$3.23 billion of our debt has a fixed interest rate (which represents approximately 91%, of our total principal debt obligation). Our remaining debt obligation of$318 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$1.6 million . The fair value of our total debt, based on bid and ask quotes for the related debt, totaled$3.72 billion as ofMarch 31, 2021 and$3.79 billion as ofDecember 31, 2020 .
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