TEGNA Inc. Reports Solid 2019 First Quarter Results

Strength of organic growth resulted in performance at the high-end
of first quarter revenue expectations

Announced acquisition of 11 local television stations in eight
markets will be financially accretive immediately, and a strategic fit
for TEGNA’s Big Four affiliate portfolio

TYSONS, Va.–(BUSINESS WIRE)–TEGNA Inc. (NYSE: TGNA) today announced financial results for the first
quarter ended March 31, 2019. Key operating metrics all performed at the
high-end of previously announced guidance.

Highlights include:

  • Total company revenue was $517 million, up three percent
    year-over-year and at the high-end of the guidance range provided last
    quarter. Adjusted total company revenue, excluding political and
    estimated incremental Olympic and Super Bowl revenue, was up eight
    percent year-over-year, also at the high-end of guidance.
  • Record first quarter subscription revenue of $242 million increased 18
    percent, driven by rate increases and stable paying subscriber counts.
  • Total company adjusted EBITDA was $153 million, down $4 million, or
    less than three percent year-over-year as anticipated, nearly fully
    offsetting the absence of $21 million of high-margin political,
    Olympic and Super Bowl revenues.
  • Net income of $74 million increased 34 percent year-over-year, driven
    by a $12 million gain related to the sale of our interest in
    Captivate, a $3 million real estate sale gain as well as FCC repacking
    reimbursements of $4 million.
  • Free cash flow for the quarter was $109 million, and the company
    reduced debt by $53 million, resulting in total debt of $2.9 billion
    and net leverage of 4.0x.
  • The company announced an agreement with Nexstar Media Group on March
    20 to acquire 11 stations in eight markets, including eight Big Four
    affiliates, in a $740 million transaction.

    • Multiple of 7.7x based on average estimated 2018/2019 EBITDA after
      synergies but prior to tax savings, which reduce the multiple to
      6.7x.
    • Expected to be accretive to EPS within a year after close and
      immediately accretive to free cash flow per share.
    • Provides support for the high-end of the previously disclosed
      estimated 2019/2020 free cash flow range of 18 percent to 19
      percent of revenue.
  • GAAP earnings per diluted share were $0.34 in the first quarter and
    non-GAAP* earnings per diluted share were $0.29.

* See “Use of Non-GAAP Information” below for more detail.

“2019 is off to a good start, and we are executing on both the organic
and inorganic components of our strategy. Our subscription revenues
posted an 18 percent year-over-year increase and our key operating
metrics all performed at the high-end of our expectations,” said Dave
Lougee, president and chief executive officer, TEGNA. “Our paid
subscriber counts are extremely stable, and we expect to continue to
outperform the industry on this metric due to our geographic footprint
in growing markets with attractive demographics.”

Lougee continued, “On the M&A front, we announced the purchase of the
Nexstar divestitures, our largest acquisition since becoming a pure play
broadcaster in June 2017. These 11 local television stations complement
our existing portfolio of top affiliates and add four key markets to our
political footprint, putting us in an even stronger position to benefit
from the expected record spending around the 2020 presidential election.
This week, we also announced the acquisition of multicast channels
Justice Network and Quest, two fast-growing networks that leverage the
tailwinds of the increasing numbers of over-the-air viewers. As
previously announced, we also closed on the acquisitions of WTOL in
Toledo, OH and KWES in Midland-Odessa, TX in January.

“To date in 2019, we have announced or closed on more than $900 million
of attractive assets that fit our strategic profile and will be
immediately accretive to free cash flow. We will continue to pursue
acquisition opportunities that align with our strategy and meet our
financial criteria. Leveraging the strength of our balance sheet, we
will continue to execute on our plan and create value for shareholders.”

OVERVIEW OF FIRST QUARTER RESULTS

Total company revenues grew three percent in the quarter, primarily due
to a $36 million increase in subscription revenue, partially offset by
the absence of political, Olympic and Super Bowl revenues last year.

Subscription revenue grew 18 percent year-over-year due to the impact of
rate escalators and higher rates negotiated in new agreements in the
fourth quarter of 2018, highlighting the continued transition of TEGNA’s
business toward stable, subscription-based revenue streams.

Advertising and marketing services revenue declined seven percent in the
quarter compared to the first quarter of 2018, due to the comparisons
against the Olympics and Super Bowl which aired on TEGNA’s 17 NBC
stations last year. Excluding these sporting events, advertising and
marketing services revenue was flat.

GAAP operating expenses were up five percent year-over-year,
predominantly driven by higher programming fees. Excluding programming
costs, expenses were flat.

GAAP operating income totaled $133 million in the first quarter of 2019.
Adjusted EBITDA (a non-GAAP measure detailed in Table 3) totaled $153
million in the quarter and adjusted EBITDA margin equaled 29.6 percent.
Adjusted EBITDA excluding corporate expenses was $164 million, which
resulted in a margin of 31.7 percent.

Net income was $74 million. On a non-GAAP basis, net income was 12
percent lower year-over-year and totaled $62 million reflecting the
absence of high-margin political, Olympic and Super Bowl revenues
partially offset by subscription revenue growth.

Special items for the quarter included FCC spectrum repacking
reimbursements to TEGNA of $4 million, and a $3 million real estate sale
gain, both of which reduced operating expenses. These items were
partially offset by $4 million of transaction-related fees.
Non-operating items included $12 million of income primarily related to
a gain recognized as a result of our sale of our interest in Captivate.

FIRST QUARTER NON-OPERATING AND CASH FLOW ITEMS

Interest expense in the quarter declined to $46 million compared to $48
million in the first quarter of 2018, due to lower average debt
outstanding. Other non-operating items totaled $1.5 million for the
quarter compared to $12.5 million last year. Total cash at the end of
the quarter was $3.8 million.

SECOND QUARTER AND FULL YEAR 2019 OUTLOOK

In the second quarter of 2019, TEGNA will continue to experience healthy
subscription revenue growth, partially offset by the absence of heavy
political advertising spending last year. As provided last quarter,
TEGNA is reaffirming its guidance metrics for the full year of 2019; for
the second quarter, the company expects:

   
Second Quarter 2019 Key Guidance Metrics
Total Company GAAP Revenue     + low single digits
Non-GAAP Revenue (excluding political)     + mid single digits
Total Operating Expenses     + mid single digits
Operating Expenses (excluding programming)     – very low single digits
 
 

Full Year 2019 Key Guidance Metrics 1
(As
Presented in March 1, 2019 Earnings Release)

Subscription Revenue     + mid-teens percent
Corporate Expenses     approximately $45 million
Depreciation     $55 – 60 million
Amortization     approximately $35 million
Interest Expense     $190 – 195 million
Total Capital Expenditures     $70 – 75 million
Non-Recurring Cap Ex (includes $17M spectrum repack)     $35 – 40 million
Effective Tax Rate     23 – 25%
Leverage Ratio     approximately 4.0x
Free Cash Flow as a % of est. 2018/19 Revenue     17 – 18%
Free Cash Flow as a % of est. 2019/20 Revenue     18 – 19%
 
1   Guidance includes stations acquired in the first quarter of 2019;
excludes acquisitions announced but not yet closed.
 

UPDATE ON KEY STRATEGIC INITIATIVES

  • Announced Acquisition of Leading Multicast Channels Justice Network
    and Quest
    Acquired 24/7 multicast networks to
    capitalize on the growth in over-the-air television audiences. Justice
    Network and Quest each offer unique ad-supported programming for free
    to television consumers and are among the top distributed
    entertainment multicast networks in the U.S.
  • Launched VAULT Studios and Debuted BOMBER Podcast – Introduced
    VAULT Studios, a digital content studio offering high-quality
    storytelling from TEGNA’s owned archive of investigative reports.
    VAULT projects pull from real-life true crime cases investigated by
    TEGNA’s stable of award-winning reporters. In the quarter, VAULT’s
    first six-part crime investigation podcast series BOMBER debuted
    across podcast players and apps, including iTunes where it was among
    the top 12 podcasts in the News & Politics category.
  • Daily Blast LIVE (DBL) Continues to Grow – DBL has seen
    impressive year-over-year growth and increased its household reach by
    17 percent. There has also been a significant uptake in viewership by
    women 25-54, up 17 percent year-over-year.
  • Content Transformation Process – Initiatives continue to show
    results with audience share increases in key large markets. In
    the November-February ratings period, more than half of large
    market stations were up in morning and late local news in adults
    25-54. TEGNA innovators completed 10 additional pilots from December
    through February, including late news, podcast and YouTube pilots.
    TEGNA stations received 91 regional Edward R. Murrow Awards for
    excellence in journalism and innovation, more than any other local
    media company in the United States. Four TEGNA stations were awarded
    Walter Cronkite Awards for Excellence in Political Journalism, again
    more than any other news organization.

CAPITAL ALLOCATION AND M&A UPDATE

TEGNA’s disciplined capital allocation strategy is designed to create
long-term value for shareholders. The agreement with Nexstar to acquire
11 local television stations, including eight Big Four affiliates,
highlights the efficacy of TEGNA’s disciplined M&A process. As a result
of this acquisition, TEGNA has suspended share repurchases through the
end of 2020 and upon close, leverage will increase to approximately
4.3x. Following the close of the transaction, free cash flow will
subsequently be used to reduce debt, resulting in net leverage of under
4.0x by December 31, 2020, absent any further M&A.

TEGNA has a proven track record of acquiring highly attractive assets
that create sustainable value for shareholders. In addition to
significant synergies, with the addition of four key markets, TEGNA’s
political footprint is enhanced and the company is better positioned to
capture benefits of the increased advertising spending and political
fervor predicted for the upcoming 2020 presidential election. The
company will continue to look for ways to invest in growth both
organically and inorganically, and remains well-positioned to capitalize
on consolidation opportunities that are strategically and financially
prudent.

CONFERENCE CALL

TEGNA Inc. (NYSE: TGNA) will host its first quarter 2019 earnings
conference call with financial analysts on Thursday, May 9, 2019 at 8:30
a.m. (ET). The call will be accessible live to the media and general
public via webcast and through a limited number of dial-in conference
lines. TEGNA’s earnings announcement will be released to news outlets
and wire services before the market opens on May 9. Materials related to
the call will be available at that time through the Investor Relations
section of TEGNA’s website, investors.TEGNA.com.
The live webcast will be accessible through the company’s website. To
listen to the live webcast, access investors.TEGNA.com
and click on the link to the webcast. Allow at least 10 minutes to
access TEGNA’s home page and complete the links before the webcast
begins. To access the conference call, dial 800-458-4148 at least 10
minutes prior to the scheduled 8:30 a.m. (ET) start of the call.
International callers should dial 323-794-2093. The confirmation code
for the conference call is 7407171. A replay of the conference call will
be available under “Investor Relations” at www.TEGNA.com
from Thursday, May 9 at 12:30 p.m. (ET) to Thursday, May 23 at 12:30
p.m. (ET). To access the replay, dial 888-203-1112 or 719-457-0820. The
confirmation code for the replay is 7407171. A transcript of the
conference call will also be made available on the company’s website.

ADDITIONAL INFORMATION

TEGNA Inc. (NYSE: TGNA) is an innovative media company that serves the
greater good of our communities. With 49 television stations and two
radio stations in 41 markets, TEGNA delivers relevant content and
information to consumers across platforms. It is the largest owner of
top 4 affiliates in the top 25 markets, reaching approximately one-third
of all television households nationwide. Each month, TEGNA reaches 50
million adults on-air and approximately 35 million across its digital
platforms. TEGNA has been consistently honored with the industry’s top
awards, including Edward R. Murrow, George Polk, Alfred I. DuPont and
Emmy Awards. TEGNA also delivers innovative and unparalleled solutions
for advertisers through TEGNA Marketing Solutions (TMS). TMS is a
one-stop shop that helps businesses thrive through an unmatched suite of
services and solutions that reach consumers across television, email,
social and over-the-top (OTT) platforms, including Premion, TEGNA’s OTT
advertising service. Across platforms, TEGNA tells empowering stories,
conducts impactful investigations and delivers innovative marketing
solutions. For more information, visit www.TEGNA.com.

Certain statements in this press release may be forward looking in
nature or “forward-looking statements” as defined in the Private
Securities Litigation Reform Act of 1995. The forward-looking statements
contained in this press release are subject to a number of risks, trends
and uncertainties that could cause actual performance to differ
materially from these forward-looking statements. A number of those
risks, trends and uncertainties are discussed in the company’s SEC
reports, including the company’s annual report on Form 10-K and
quarterly reports on Form 10-Q. Any forward-looking statements in this
press release should be evaluated in light of these important risk
factors.

TEGNA is not responsible for updating the information contained in this
press release beyond the published date, or for changes made to this
press release by wire services, Internet service providers or other
media.

 
CONSOLIDATED STATEMENTS OF INCOME

TEGNA Inc.

Unaudited, in thousands of dollars (except per share amounts)

 
Table No. 1
  Quarter ended March 31,
2019   2018  

% Increase
(Decrease)

 
Revenues $ 516,753 $ 502,090 2.9
 
Operating expenses:
Cost of revenues, exclusive of depreciation 281,311 258,493 8.8
Business units – Selling, general and administrative expenses,
exclusive of depreciation
71,465 73,621 (2.9 )
Corporate – General and administrative expenses, exclusive of
depreciation
14,735 12,708 16.0
Depreciation 14,917 13,471 10.7
Amortization of intangible assets 8,689 6,782 28.1
Spectrum repacking reimbursements and other   (7,013 )     ***  
Total   384,104     365,075   5.2  
Operating income   132,649     137,015   (3.2 )
 
Non-operating income (expense):
Equity income (loss) in unconsolidated investments, net 12,028 (1,238 ) ***
Interest expense (46,385 ) (47,725 ) (2.8 )
Other non-operating items, net   (1,539 )   (12,480 ) (87.7 )
Total   (35,896 )   (61,443 ) (41.6 )
 
Income before income taxes 96,753 75,572 28.0
Provision for income taxes   22,774     20,385   11.7  
Net income $ 73,979   $ 55,187   34.1  
 
Earnings per share:
Basic $ 0.34 $ 0.26 30.8
Diluted $ 0.34 $ 0.25 36.0
 
Weighted average number of common shares outstanding:
Basic 216,709 216,276 0.2
Diluted 217,202 216,989 0.1
 

USE OF NON-GAAP INFORMATION

The company uses non-GAAP financial performance and liquidity 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 the company’s Board of Directors use the non-GAAP
financial measures for purposes of evaluating company performance.
Furthermore, the Leadership 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 Adjusted revenues to evaluate
management’s performance. The company, therefore, believes 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. The company discusses in this
release non-GAAP financial performance measures that exclude from its
reported GAAP results the impact of “special items” consisting of
spectrum repacking reimbursements and other, gains on sale of equity
method investments, transaction costs and certain non-operating expenses
(TEGNA Foundation donation and pension payment timing related charges).
In addition, we have income tax special items associated with tax
impacts related to the acquisition of KFMB.

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.

The company also discusses Adjusted EBITDA (with and without corporate
expenses), a non-GAAP financial performance measure that it believes
offers a useful view of the overall operation of its businesses. The
company defines Adjusted EBITDA as net income before (1) interest
expense, (2) income taxes, (3) equity income (loss) in unconsolidated
investments, net, (4) other non-operating items, net, (5) severance
expense, (6) transaction costs, (7) spectrum repacking reimbursements
and other, (8) depreciation and (9) amortization. The most directly
comparable GAAP financial measure to Adjusted EBITDA is Net income.
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.

The company also considers adjusted revenues to be an important non-GAAP
financial measure. Adjusted revenue is calculated by taking total
company revenues on a GAAP basis and adjusting it to exclude (1)
estimated incremental Olympic and Super Bowl revenue and (2) political
revenues. These adjustments are made to our reported revenue on a GAAP
basis in order to evaluate and assess our core operations on a
comparable basis, and it represents the ongoing operations of our media
business.

This earnings release also discusses free cash flow, a non-GAAP
performance measure. Beginning in the first quarter of 2019 we began
using a new methodology to compute free cash flow. The change in
methodology was determined to be preferable as it will better reflect
how the Board of Directors reviews the performance of the business and
it more closely aligns to how other companies in the broadcast industry
calculate this non-GAAP performance metric. The most directly comparable
GAAP financial measure to free cash flow is Net income. Free cash flow
is now calculated as non-GAAP Adjusted EBITDA (as defined above),
further adjusted by adding back (1) stock-based compensation, (2)
syndicated programming amortization, (3) dividends received from equity
method investments, (4) pension reimbursements, 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.

Tabular reconciliations for all of the non-GAAP financial measures to
the most directly comparable GAAP financial measures are presented in
the following tables.

 

NON-GAAP FINANCIAL INFORMATION

TEGNA Inc.
Unaudited, in thousands of dollars (except per share amounts)
 

Table No. 2

 
Reconciliations of certain line items impacted by special items to
the most directly comparable financial measure calculated and
presented in accordance with GAAP on the company’s Consolidated
Statements of Income follow:
 
           
Special Items
Quarter ended March 31, 2019

GAAP
measure

Spectrum
repacking
reimbursements
and
other

Transaction
costs

Net gains on
equity
method
investments

Other non-
operating
item

Non-GAAP
measure

 
Corporate – General and administrative expenses, exclusive of
depreciation
$ 14,735 $ $ (3,911 ) $ $ $ 10,824
Spectrum repacking reimbursements and other (7,013 ) 7,013
Operating expenses 384,104 7,013 (3,911 ) 387,206
Operating income 132,649 (7,013 ) 3,911 129,547
Equity income (loss) in unconsolidated investments, net 12,028 (13,126 ) (1,098 )
Other non-operating items, net (1,539 ) 1,000 (539 )
Total non-operating expense (35,896 ) (13,126 ) 1,000 (48,022 )
Income before income taxes 96,753 (7,013 ) 3,911 (13,126 ) 1,000 81,525
Provision for income taxes 22,774 (1,758 ) 979 (3,169 ) 251 19,077
Net income 73,979 (5,255 ) 2,932 (9,957 ) 749 62,448
Net income per share-diluted (a) $ 0.34 $ (0.02 ) $ 0.01 $ (0.05 ) $ $ 0.29
 
(a) – Per share amounts do not sum due to rounding.
 
Special Items
Quarter ended March 31, 2018

GAAP
measure

Pension lump-
sum payment
charge

Other non-
operating
items

Non-GAAP
measure

 
Other non-operating items, net $ (12,480 ) $ 6,300 $ 9,462 $ 3,282
Total non-operating expense (61,443 ) 6,300 9,462 (45,681 )
Income before income taxes 75,572 6,300 9,462 91,334
Provision for income taxes 20,385 1,608 (1,443 ) 20,550
Net income 55,187 4,692 10,905 70,784
Net income per share-diluted (a) $ 0.25 $ 0.02 $ 0.05 $ 0.33
 
(a) – Per share amounts do not sum due to rounding.
 

NON-GAAP FINANCIAL INFORMATION

TEGNA Inc.

Unaudited, in thousands of dollars
 

Table No. 3

 
Reconciliations of Adjusted EBITDA to net income presented in
accordance with GAAP on the company’s Consolidated Statements of
Income are presented below (in thousands):
 
 
Quarter ended March 31,
2019   2018  

% Increase
(Decrease)

Net income (GAAP basis) $ 73,979 $ 55,187 34.1
Plus: Provision for income taxes 22,774 20,385 11.7
Plus: Interest expense 46,385 47,725 (2.8 )
(Less) Plus: Equity (income) loss in unconsolidated investments, net (12,028 ) 1,238 ***
Plus: Other non-operating items, net   1,539     12,480 (87.7 )
Operating income (GAAP basis) 132,649 137,015 (3.2 )
Plus: Transaction costs 3,911 ***
Less: Spectrum repacking reimbursements and other   (7,013 )   ***  
Adjusted operating income (non-GAAP basis) 129,547 137,015 (5.5 )
Plus: Depreciation 14,917 13,471 10.7
Plus: Amortization of intangible assets   8,689     6,782 28.1  
Adjusted EBITDA (non-GAAP basis) $ 153,153   $ 157,268 (2.6 )
Corporate – General and administrative expense, exclusive of
depreciation (non-GAAP basis)
  10,824     12,708 (14.8 )
Adjusted EBITDA, excluding Corporate (non-GAAP basis) $ 163,977   $ 169,976 (3.5 )
 

Contacts

For investor inquiries, contact:
John Janedis, CFA
SVP,
Capital Markets & Investor Relations
703-873-6222
jjanedis@TEGNA.com

For media inquiries, contact:
Anne Bentley
Vice President,
Corporate Communications
703-873-6366
abentley@TEGNA.com

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