TEGNA INC - Quarter Report: 2023 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
_______________________
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-6961
___________________________
TEGNA INC.
(Exact name of registrant as specified in its charter)
___________________________
Delaware | 16-0442930 | ||||||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||||||||
| 8350 Broad Street, Suite 2000, | Tysons, | Virginia | 22102-5151 | ||||||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||||||||
| (703) | 873-6600 | |||||||||||||
| (Registrant’s telephone number, including area code) | ||||||||||||||
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
| Common Stock | TGNA | New York Stock Exchange | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
Emerging growth company | ☐ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
The total number of shares of the registrant’s Common Stock, $1 par value, outstanding as of April 30, 2023 was 225,028,376.
INDEX TO TEGNA INC.
March 31, 2023 FORM 10-Q
| Item No. | Page | |||||||
| PART I. FINANCIAL INFORMATION | ||||||||
| 1. | Financial Statements | |||||||
| 2. | ||||||||
| 3. | ||||||||
| 4. | ||||||||
| PART II. OTHER INFORMATION | ||||||||
| 1. | ||||||||
| 1A. | ||||||||
| 2. | ||||||||
| 3. | ||||||||
| 4. | ||||||||
| 5. | ||||||||
| 6. | ||||||||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TEGNA Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands of dollars (Unaudited)
| Mar. 31, 2023 | Dec. 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 683,179 | $ | 551,681 | |||||||
Accounts receivable, net of allowances of $3,965 and $3,697, respectively | 637,435 | 658,318 | |||||||||
| Other receivables | 10,906 | 13,493 | |||||||||
| Syndicated programming rights | 32,578 | 44,064 | |||||||||
| Prepaid expenses and other current assets | 35,915 | 36,152 | |||||||||
| Total current assets | 1,400,013 | 1,303,708 | |||||||||
| Property and equipment | |||||||||||
| Cost | 1,068,582 | 1,067,191 | |||||||||
| Less accumulated depreciation | (623,452) | (610,138) | |||||||||
| Net property and equipment | 445,130 | 457,053 | |||||||||
| Intangible and other assets | |||||||||||
| Goodwill | 2,981,587 | 2,981,587 | |||||||||
Indefinite-lived and amortizable intangible assets, less accumulated amortization of $250,187 and $348,087, respectively | 2,368,858 | 2,381,606 | |||||||||
| Right-of-use assets for operating leases | 75,860 | 78,448 | |||||||||
| Investments and other assets | 122,594 | 126,494 | |||||||||
| Total intangible and other assets | 5,548,899 | 5,568,135 | |||||||||
| Total assets | $ | 7,394,042 | $ | 7,328,896 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
TEGNA Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands of dollars, except par value and share amounts (Unaudited)
| Mar. 31, 2023 | Dec. 31, 2022 | ||||||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | 88,312 | $ | 76,212 | |||||||
| Accrued liabilities | |||||||||||
| Compensation | 40,647 | 50,339 | |||||||||
| Interest | 12,798 | 45,480 | |||||||||
| Contracts payable for programming rights | 111,318 | 117,743 | |||||||||
| Other | 73,560 | 78,265 | |||||||||
| Income taxes payable | 51,561 | 22,985 | |||||||||
| Total current liabilities | 378,196 | 391,024 | |||||||||
| Noncurrent liabilities | |||||||||||
| Deferred income tax liability | 557,387 | 556,131 | |||||||||
| Long-term debt | 3,070,164 | 3,069,316 | |||||||||
| Pension liabilities | 73,550 | 73,684 | |||||||||
| Operating lease liabilities | 76,674 | 79,503 | |||||||||
| Other noncurrent liabilities | 69,052 | 70,098 | |||||||||
| Total noncurrent liabilities | 3,846,827 | 3,848,732 | |||||||||
| Total liabilities | 4,225,023 | 4,239,756 | |||||||||
| Commitments and contingent liabilities (see Note 9) | |||||||||||
| Redeemable noncontrolling interest (see Note 1) | 17,754 | 17,418 | |||||||||
| Shareholders’ equity | |||||||||||
Common stock of $1 par value per share, 800,000,000 shares authorized, 324,418,632 shares issued | 324,419 | 324,419 | |||||||||
| Additional paid-in capital | 27,941 | 27,941 | |||||||||
| Retained earnings | 7,879,619 | 7,898,055 | |||||||||
| Accumulated other comprehensive loss | (124,455) | (125,533) | |||||||||
Less treasury stock at cost, 99,471,855 shares and 100,970,426 shares, respectively | (4,956,259) | (5,053,160) | |||||||||
| Total equity | 3,151,265 | 3,071,722 | |||||||||
| Total liabilities, redeemable noncontrolling interest and equity | $ | 7,394,042 | $ | 7,328,896 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
TEGNA Inc.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited, in thousands of dollars, except per share amounts
| Quarter ended Mar. 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenues | $ | 740,327 | $ | 774,123 | |||||||
| Operating expenses: | |||||||||||
Cost of revenues1 | 426,932 | 411,450 | |||||||||
Business units - Selling, general and administrative expenses | 99,109 | 101,969 | |||||||||
Corporate - General and administrative expenses | 12,100 | 21,320 | |||||||||
Depreciation | 15,049 | 15,305 | |||||||||
Amortization of intangible assets | 13,582 | 15,000 | |||||||||
Spectrum repacking reimbursements and other, net | — | (58) | |||||||||
| Total | 566,772 | 564,986 | |||||||||
| Operating income | 173,555 | 209,137 | |||||||||
| Non-operating (expense) income: | |||||||||||
| Equity loss in unconsolidated investments, net | (237) | (3,811) | |||||||||
Interest expense | (42,906) | (43,620) | |||||||||
| Other non-operating items, net | 5,411 | 17,319 | |||||||||
| Total | (37,732) | (30,112) | |||||||||
| Income before income taxes | 135,823 | 179,025 | |||||||||
| Provision for income taxes | 31,819 | 44,738 | |||||||||
Net Income | 104,004 | 134,287 | |||||||||
| Net loss (income) attributable to redeemable noncontrolling interest | 299 | (53) | |||||||||
| Net income attributable to TEGNA Inc. | $ | 104,303 | $ | 134,234 | |||||||
| Earnings per share: | |||||||||||
| Basic | $ | 0.46 | $ | 0.60 | |||||||
| Diluted | $ | 0.46 | $ | 0.60 | |||||||
| Weighted average number of common shares outstanding: | |||||||||||
| Basic shares | 224,544 | 222,712 | |||||||||
| Diluted shares | 224,839 | 223,240 | |||||||||
1 Cost of revenues exclude charges for depreciation and amortization expense, which are shown separately above. | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
TEGNA Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited, in thousands of dollars
| Quarter ended Mar. 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net income | $ | 104,004 | $ | 134,287 | |||||||
| Other comprehensive income, before tax: | |||||||||||
| Foreign currency translation adjustments | — | 142 | |||||||||
| Recognition of previously deferred post-retirement benefit plan costs | 1,450 | 975 | |||||||||
| Realized gain on available-for-sale investment during the period | — | (20,800) | |||||||||
| Other comprehensive income (loss), before tax | 1,450 | (19,683) | |||||||||
| Income tax effect related to components of other comprehensive income | (372) | 5,065 | |||||||||
| Other comprehensive income (loss), net of tax | 1,078 | (14,618) | |||||||||
| Comprehensive income | 105,082 | 119,669 | |||||||||
| Comprehensive loss (income) attributable to redeemable noncontrolling interest | 299 | (53) | |||||||||
| Comprehensive income attributable to TEGNA Inc. | $ | 105,381 | $ | 119,616 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
TEGNA Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, in thousands of dollars
| Three months ended Mar. 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 104,004 | $ | 134,287 | |||||||
| Adjustments to reconcile net income to net cash flow from operating activities: | |||||||||||
| Depreciation and amortization | 28,631 | 30,305 | |||||||||
| Stock-based compensation | 3,688 | 10,495 | |||||||||
| Company stock 401(k) contribution | 5,564 | 5,338 | |||||||||
| Gains on assets, net | — | (18,308) | |||||||||
| Equity losses from unconsolidated investments, net | 237 | 3,811 | |||||||||
| Pension expense, net of employer contributions | 1,416 | (585) | |||||||||
| Change in other assets and liabilities, net of acquisitions: | |||||||||||
| Decrease (increase) in trade receivables | 20,615 | (120) | |||||||||
| Increase in accounts payable | 12,100 | 13,987 | |||||||||
| (Decrease) increase in interest and taxes payable, net | (1,627) | 13,663 | |||||||||
| Increase in deferred revenue | 1,797 | 2,298 | |||||||||
| Change in other assets and liabilities, net | (6,038) | 1,089 | |||||||||
| Net cash flow from operating activities | 170,387 | 196,260 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property and equipment | (2,845) | (5,538) | |||||||||
| Reimbursements from spectrum repacking | — | 58 | |||||||||
| Payments for acquisition of assets | (1,150) | — | |||||||||
| Purchases of investments | (163) | (2,216) | |||||||||
| Proceeds from investments | 23 | — | |||||||||
| Proceeds from sale of assets | 13 | 366 | |||||||||
| Net cash flow used for investing activities | (4,122) | (7,330) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payments under revolving credit facilities, net | — | (166,000) | |||||||||
| Dividends paid | (21,360) | (21,151) | |||||||||
| Other, net | (13,407) | (15,452) | |||||||||
| Net cash flow used for financing activities | (34,767) | (202,603) | |||||||||
| Increase (decrease) in cash | 131,498 | (13,673) | |||||||||
| Balance of cash, beginning of period | 551,681 | 56,989 | |||||||||
| Balance of cash, end of period | $ | 683,179 | $ | 43,316 | |||||||
| Supplemental cash flow information: | |||||||||||
| Cash paid (received) for income taxes, net of refunds (payments) | $ | 914 | $ | (248) | |||||||
| Cash paid for interest | $ | 73,862 | $ | 75,063 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
TEGNA Inc.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTEREST
Unaudited, in thousands of dollars, except per share data
| Quarters ended: | Redeemable noncontrolling interest | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Treasury stock | Total Equity | ||||||||||||||||||||||
| Balance at Dec. 31, 2022 | $ | 17,418 | $ | 324,419 | $ | 27,941 | $ | 7,898,055 | $ | (125,533) | $ | (5,053,160) | $ | 3,071,722 | |||||||||||||||
| Net (loss) income | (299) | — | — | 104,303 | — | — | 104,303 | ||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 1,078 | — | 1,078 | ||||||||||||||||||||||
| Total comprehensive income | 105,381 | ||||||||||||||||||||||||||||
Dividends declared: $0.095 per share | — | — | — | (21,360) | — | — | (21,360) | ||||||||||||||||||||||
| Company stock 401(k) contribution | — | — | (575) | (14,491) | — | 20,630 | 5,564 | ||||||||||||||||||||||
| Stock-based awards activity | — | — | (3,425) | (86,253) | — | 76,271 | (13,407) | ||||||||||||||||||||||
| Stock-based compensation | — | — | 3,688 | — | — | — | 3,688 | ||||||||||||||||||||||
| Adjustment of redeemable noncontrolling interest to redemption value | 635 | — | — | (635) | — | — | (635) | ||||||||||||||||||||||
| Other activity | — | — | 312 | — | — | — | 312 | ||||||||||||||||||||||
| Balance at Mar. 31, 2023 | $ | 17,754 | $ | 324,419 | $ | 27,941 | $ | 7,879,619 | $ | (124,455) | $ | (4,956,259) | $ | 3,151,265 | |||||||||||||||
| Redeemable noncontrolling interest | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Treasury stock | Total Equity | |||||||||||||||||||||||
| Balance at Dec. 31, 2021 | $ | 16,129 | $ | 324,419 | $ | 27,941 | $ | 7,459,380 | $ | (97,216) | $ | (5,194,618) | $ | 2,519,906 | |||||||||||||||
| Net income | 53 | — | — | 134,234 | — | — | 134,234 | ||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | (14,618) | — | (14,618) | ||||||||||||||||||||||
| Total comprehensive income | 119,616 | ||||||||||||||||||||||||||||
Dividends declared: $0.095 per share | — | — | — | (21,150) | — | — | (21,150) | ||||||||||||||||||||||
| Company stock 401(k) contribution | — | — | (1,322) | (11,275) | — | 17,935 | 5,338 | ||||||||||||||||||||||
| Stock-based awards activity | — | — | (9,517) | (81,146) | — | 75,211 | (15,452) | ||||||||||||||||||||||
| Stock-based compensation | — | — | 10,495 | — | — | — | 10,495 | ||||||||||||||||||||||
| Adjustment of redeemable noncontrolling interest to redemption value | 248 | — | — | (248) | — | — | (248) | ||||||||||||||||||||||
| Other activity | — | — | 344 | — | — | — | 344 | ||||||||||||||||||||||
| Balance at Mar. 31, 2022 | $ | 16,430 | $ | 324,419 | $ | 27,941 | $ | 7,479,795 | $ | (111,834) | $ | (5,101,472) | $ | 2,618,849 | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
TEGNA Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – Basis of presentation, merger agreement and accounting policies
Basis of presentation: Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting, the instructions for Form 10-Q and Article 10 of the U.S. Securities and Exchange Commission (SEC) Regulation S-X. Accordingly, they do not include all information and footnotes which are normally included in the Form 10-K and annual report to shareholders. In our opinion, the condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with our (or TEGNA’s) audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.
The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. We use the best information available in developing significant estimates inherent in our financial statements. Actual results could differ from these estimates, and these differences resulting from changes in facts and circumstances could be material. Significant estimates include, but are not limited to, evaluation of goodwill and other intangible assets for impairment, fair value measurements, post-retirement benefit plans, income taxes including deferred taxes, and contingencies. The condensed consolidated financial statements include the accounts of subsidiaries we control. We eliminate all intercompany balances, transactions, and profits in consolidation. Investments in entities over which we have significant influence, but do not have control, are accounted for under the equity method. Our share of net earnings and losses from these ventures is included in “Equity loss in unconsolidated investments, net” in the Consolidated Statements of Income.
We operate one operating and reportable segment, which primarily consists of our 64 television stations and two radio stations operating in 51 markets, providing high-quality television programming and digital content. Our reportable segment determination is based on our management and internal reporting structure, the nature of products and services we offer, and the financial information that is evaluated regularly by our chief operating decision maker.
Merger Agreement: On February 22, 2022, we entered into an Agreement and Plan of Merger (as amended, the Merger Agreement), with Teton Parent Corp., a newly formed Delaware corporation (Parent), Teton Merger Corp., a newly formed Delaware corporation and an indirect wholly owned subsidiary of Parent (Merger Sub), and solely for purposes of certain provisions specified therein, other subsidiaries of Parent, certain affiliates of Standard General L.P., a Delaware limited partnership (Standard General) and CMG Media Corporation, a Delaware corporation (CMG), and certain of its subsidiaries. Parent, Merger Sub, the other subsidiaries of Parent, those affiliates of Standard General, CMG and those subsidiaries of CMG, are collectively, referred to as the “Parent Restructuring Entities.”
The Merger Agreement provides, among other things and subject to the terms and conditions set forth therein, that Merger Sub will be merged with and into TEGNA (the Merger), with TEGNA continuing as the surviving corporation and as an indirect wholly owned subsidiary of Parent. The Merger Agreement provides that each share of common stock, par value $1.00 per share, of TEGNA (the Common Stock) outstanding immediately prior to the effective time of the Merger (the Effective Time), other than certain excluded shares, will at the Effective Time automatically be converted into the right to receive (i) $24.00 per share of Common Stock in cash, without interest, plus (ii) additional amounts in cash, without interest, if the Merger does not close within a certain period of time after the date of the Merger Agreement. TEGNA shareholders will receive additional cash consideration in the form of a “ticking fee” of (a) if the Closing Date occurs after November 22, 2022 and before February 22, 2023, an amount in cash equal to (i) $0.00166667 multiplied by (ii) the number of calendar days elapsed after November 22, 2022 to and including the Closing Date, (b) if the Closing Date occurs on or after February 22, 2023 and before March 22, 2023, an amount in cash equal to (i) $0.15333333 plus (ii)(A) $0.0025 multiplied by (B) the number of calendar days elapsed after February 22, 2023 to and including the Closing Date, (c) if the Closing Date occurs on or after March 22, 2023 and before April 22, 2023, an amount in cash equal to (i) $0.22333333 plus (ii)(A) $0.00333333 multiplied by (B) the number of calendar days elapsed after March 22, 2023 to and including the Closing Date and (d) if the Closing Date occurs on or after April 22, 2023 and before May 22, 2023, an amount in cash equal to (i) $0.3266667 plus (ii)(A) $0.00416667 multiplied by (B) the number of calendar days elapsed after April 22, 2023 to and including the Closing Date.
The Merger Agreement contains certain termination rights and provides that, upon termination of the Merger Agreement under certain specified circumstances, Parent will be required to pay TEGNA a termination fee of either $136.0 million or $272.0 million.
TEGNA has made customary representations, warranties and covenants in the Merger Agreement. If the Merger is consummated, the Common Stock will be delisted from the New York Stock Exchange and deregistered under the Securities Exchange Act of 1934.
9
On March 10, 2022, TEGNA, Parent, Merger Sub, and, solely for purposes of certain provisions specified therein, the other Parent Restructuring Entities, entered into an amendment to the Merger Agreement (the Amendment). The Amendment provides, among other things and subject to the terms and conditions set forth therein, that certain regulatory efforts covenants will apply with respect to certain station transfers from Parent or an affiliate of Parent to CMG or an affiliate of CMG that are contemplated to be consummated as of immediately following the Effective Time.
On May 17, 2022 the stockholders of TEGNA voted to adopt the Merger Agreement. On February 21, 2023, TEGNA elected, pursuant to the terms of the Merger Agreement, to extend the Outside Date (as defined in the Merger Agreement) from 5:00 p.m. Eastern time on February 22, 2023 to 5:00 p.m. Eastern time on May 22, 2023. All waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, applicable to the Merger and related transactions have expired. The closing of the Merger remains subject to the approval of the Federal Communications Commission (the “FCC”) and customary closing conditions. On February 24, 2023, the FCC issued a hearing designation order (the “HDO”) with respect to the transaction. On March 27, 2023, certain of the parties to the Merger Agreement filed a notice of appeal of the HDO and a petition for a writ of mandamus with the United States Court of Appeals for the District of Columbia Circuit (the “D.C. Court of Appeals”). On April 3, 2023, the D.C. Court of Appeals dismissed the appeal of the HDO. On April 21, 2023, the D.C. Court of Appeals denied the petition for a writ mandamus. TEGNA is currently evaluating its options.
Accounting guidance adopted in 2023: We did not adopt any new accounting guidance in 2023 that had a material impact on our consolidated financial statements or disclosures.
New accounting guidance not yet adopted: There is currently no pending accounting guidance that we expect to have a material impact on our consolidated financial statements or disclosures.
Trade receivables and allowances for doubtful accounts: Trade receivables are recorded at invoiced amounts and generally do not bear interest. The allowance for doubtful accounts reflects our estimate of credit exposure, determined principally on the basis of our collection experience, aging of our receivables and any specific reserves needed for certain customers based on their credit risk. Our allowance also takes into account expected future trends which may impact our customers’ ability to pay, such as economic growth (or declines), unemployment and demand for our products and services. We monitor the credit quality of our customers and their ability to pay through the use of analytics and communication with individual customers. As of March 31, 2023, our allowance for doubtful accounts was $4.0 million as compared to $3.7 million as of December 31, 2022.
Redeemable Noncontrolling interest: Our Premion business operates an advertising network for over-the-top (OTT) streaming and connected television platforms. In March 2020, we sold a minority interest in Premion to an affiliate of Gray Television (Gray) and entered into a commercial reselling agreement with the affiliate. During the first quarter of 2023, we entered into a multi-year extension of the reselling agreement with Gray. Gray’s investment allows it to sell its interest to Premion if there is a change in control of TEGNA or if the commercial agreement terminates. Since redemption of the minority ownership interest is outside our control, Gray’s equity interest is presented outside of the Equity section on the Condensed Consolidated Balance Sheet in the caption “Redeemable noncontrolling interest.”
Treasury Stock: We account for treasury stock under the cost method. When treasury stock is re-issued at a price higher than its cost, the difference is recorded as a component of additional paid-in-capital (APIC) in our Condensed Consolidated Balance Sheets. When treasury stock is re-issued at a price lower than its cost, the difference is recorded as a component of APIC to the extent that there are previously recorded gains to offset the losses. If there are no treasury stock gains in APIC, the losses upon re-issuance of treasury stock are recorded as a reduction of retained earnings in our Condensed Consolidated Balance Sheets.
Revenue recognition: Revenue is recognized upon the transfer of control of promised services to our customers in an amount that reflects the consideration we expect to receive in exchange for those services. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Amounts received from customers in advance of providing services to our customers are recorded as deferred revenue.
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 revenues, which include local and national non-political television advertising, digital marketing services (including Premion), 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. 2024, 2022, etc.) and particularly in the second half of those years; and 4) other services, such as production of programming, tower rentals and distribution of our local news content.
10
Revenue earned by these sources in the first quarter of 2023 and 2022 are shown below (amounts in thousands):
| Quarter ended Mar. 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Subscription | $ | 414,280 | $ | 391,654 | |||||||
| Advertising & Marketing Services | 307,845 | 354,467 | |||||||||
| Political | 5,291 | 17,965 | |||||||||
| Other | 12,911 | 10,037 | |||||||||
| Total revenues | $ | 740,327 | $ | 774,123 | |||||||
NOTE 2 – Goodwill and other intangible assets
The following table displays goodwill, indefinite-lived intangible assets, and amortizable intangible assets as of March 31, 2023 and December 31, 2022 (in thousands):
| Mar. 31, 2023 | Dec. 31, 2022 | ||||||||||||||||||||||
| Gross | Accumulated Amortization | Gross | Accumulated Amortization | ||||||||||||||||||||
| Goodwill | $ | 2,981,587 | $ | — | $ | 2,981,587 | $ | — | |||||||||||||||
| Indefinite-lived intangibles: | |||||||||||||||||||||||
| Television and radio station FCC broadcast licenses | 2,124,731 | — | 2,123,898 | — | |||||||||||||||||||
| Amortizable intangible assets: | |||||||||||||||||||||||
| Retransmission agreements | 113,621 | (79,311) | 224,827 | (184,796) | |||||||||||||||||||
| Network affiliation agreements | 309,503 | (127,457) | 309,503 | (121,664) | |||||||||||||||||||
| Other | 71,190 | (43,419) | 71,465 | (41,627) | |||||||||||||||||||
| Total indefinite-lived and amortizable intangible assets | $ | 2,619,045 | $ | (250,187) | $ | 2,729,693 | $ | (348,087) | |||||||||||||||
Our retransmission agreements and network affiliation agreements are amortized on a straight-line basis over their estimated useful lives. Other intangibles primarily include distribution agreements from our multicast networks acquisition, which are also amortized on a straight-line basis over their useful lives. In the first quarter of 2023, gross retransmission agreement intangible assets and associated accumulated amortization decreased by $111.2 million, due to certain retransmission intangible assets reaching the end of their useful lives.
NOTE 3 – Investments and other assets
Our investments and other assets consisted of the following as of March 31, 2023 and December 31, 2022 (in thousands):
| Mar. 31, 2023 | Dec. 31, 2022 | ||||||||||
| Cash value insurance | $ | 49,552 | $ | 48,919 | |||||||
| Equity method investments | 16,928 | 17,003 | |||||||||
| Other equity investments | 20,158 | 20,158 | |||||||||
| Deferred debt issuance costs | 1,341 | 2,232 | |||||||||
| Long-term contract assets | 12,925 | 14,135 | |||||||||
| Other long-term assets | 21,690 | 24,047 | |||||||||
| Total | $ | 122,594 | $ | 126,494 | |||||||
Cash value life insurance: We are the beneficiary of life insurance policies on the lives of certain employees/retirees, which are recorded at their cash surrender value as determined by the insurance carrier. These policies are utilized as a partial funding source for deferred compensation and other non-qualified employee retirement plans. Gains and losses on these investments are included in “Other non-operating items, net” within our Consolidated Statement of Income and were not material for all periods presented.
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Other equity investments: Represents investments in non-public businesses that do not have readily determinable pricing, and for which we do not have control or do not exert significant influence. These investments are recorded at cost less impairments, if any, plus or minus changes in observable prices for those investments.
Deferred debt issuance costs: These costs consist of amounts paid to lenders related to our revolving credit facility. Debt issuance costs paid for our unsecured notes are accounted for as a reduction in the debt obligation.
Long-term contract assets: These amounts primarily consist of an asset related to a long-term services agreement for IT security and an asset representing the long-term portion of a contract asset related to favorable rates obtained on commercial agreements with Madhive. The contract asset was recognized in January 2022 and is being amortized over two years (through December 2023). See Note 9 for information regarding our related party transactions with MadHive.
NOTE 4 – Long-term debt
Our long-term debt is summarized below (in thousands):
| Mar. 31, 2023 | Dec. 31, 2022 | ||||||||||
Unsecured notes bearing fixed rate interest at 4.75% due March 2026 | $ | 550,000 | $ | 550,000 | |||||||
Unsecured notes bearing fixed rate interest at 7.75% due June 2027 | 200,000 | 200,000 | |||||||||
Unsecured notes bearing fixed rate interest at 7.25% due September 2027 | 240,000 | 240,000 | |||||||||
Unsecured notes bearing fixed rate interest at 4.625% due March 2028 | 1,000,000 | 1,000,000 | |||||||||
Unsecured notes bearing fixed rate interest at 5.00% due September 2029 | 1,100,000 | 1,100,000 | |||||||||
| Total principal long-term debt | 3,090,000 | 3,090,000 | |||||||||
| Debt issuance costs | (25,774) | (26,911) | |||||||||
| Unamortized premiums | 5,938 | 6,227 | |||||||||
| Total long-term debt | $ | 3,070,164 | $ | 3,069,316 | |||||||
As of March 31, 2023, cash and cash equivalents totaled $683.2 million and we had unused borrowing capacity of $1.49 billion under our $1.51 billion revolving credit facility, which expires in August 2024. We were in compliance with all covenants, including the leverage ratio (our one financial covenant) contained in our debt agreements and revolving credit facility. We believe, based on our current financial forecasts and trends, that we will remain compliant with all covenants for the foreseeable future.
Under our revolving credit facility we have the ability to draw loans based on two different interest rate indices, one of which is based on the London Interbank Offered Rate (LIBOR). We are able to draw LIBOR-based loans based on one month, three month, six month and twelve month durations originated through June 2023. We expect to amend our revolving credit facility in the second quarter of 2023 to replace the LIBOR-based interest rate index with a Secured Overnight Financing Rate (SOFR) based interest rate index. The transition from LIBOR is not expected to have a material impact on the Company.
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NOTE 5 – Retirement plans
We have various defined benefit retirement plans. Our principal defined benefit pension plan is the TEGNA Retirement Plan (TRP). The disclosure table below primarily includes the pension expenses of the TRP and the TEGNA Supplemental Retirement Plan (SERP). The total net pension obligations, including both current and non-current liabilities, as of March 31, 2023, were $79.1 million, of which $5.6 million is recorded as a current obligation within accrued liabilities on the Condensed Consolidated Balance Sheet.
Pension costs (income), which primarily include costs for the qualified TRP and the non-qualified SERP, are presented in the following table (in thousands):
| Quarter ended Mar. 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Interest cost on benefit obligation | $ | 6,150 | $ | 4,300 | |||||||
| Expected return on plan assets | (5,225) | (4,900) | |||||||||
| Amortization of prior service credit | (125) | (125) | |||||||||
| Amortization of actuarial loss | 1,575 | 1,100 | |||||||||
| Expense from company-sponsored retirement plans | $ | 2,375 | $ | 375 | |||||||
Benefits no longer accrue for TRP and SERP participants as a result of amendments to the plans in past years, and as such we no longer incur a service cost component of pension expense. All other components of our pension expense presented above are included within the “Other non-operating items, net” line item of the Consolidated Statements of Income.
During the three months ended March 31, 2023 and 2022, we did not make any cash contributions to the TRP. We made benefit payments to participants of the SERP of $0.9 million during both of the three month periods ended March 31, 2023 and 2022. Based on actuarial projections and funding levels, we do not expect to make any cash payments to the TRP in 2023 (as none are required based on our current funding levels). We expect to make additional cash payments of $4.6 million to our SERP participants during the remainder of 2023.
NOTE 6 – Accumulated other comprehensive loss
The following table summarizes the components of, and the changes in, Accumulated Other Comprehensive Loss (AOCL), net of tax (in thousands):
| Retirement Plans | Foreign Currency Translation | Available-For-Sale Investment | Total | ||||||||||||||||||||
| Quarters ended: | |||||||||||||||||||||||
| Balance at Dec. 31, 2022 | $ | (126,065) | $ | 532 | $ | — | $ | (125,533) | |||||||||||||||
| Amounts reclassified from AOCL | 1,078 | — | — | 1,078 | |||||||||||||||||||
| Total other comprehensive income | 1,078 | — | — | 1,078 | |||||||||||||||||||
| Balance at Mar. 31, 2023 | $ | (124,987) | $ | 532 | $ | — | $ | (124,455) | |||||||||||||||
| Balance at Dec. 31, 2021 | $ | (113,090) | $ | 455 | $ | 15,419 | $ | (97,216) | |||||||||||||||
| Other comprehensive loss before reclassifications | — | 77 | — | 77 | |||||||||||||||||||
| Amounts reclassified from AOCL | 724 | — | (15,419) | (14,695) | |||||||||||||||||||
| Total other comprehensive income | 724 | 77 | (15,419) | (14,618) | |||||||||||||||||||
| Balance at Mar. 31, 2022 | $ | (112,366) | $ | 532 | $ | — | $ | (111,834) | |||||||||||||||
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Reclassifications from AOCL to the Consolidated Statements of Income are comprised of recognition of a realized gain on an available-for-sale investment as well as pension and other post-retirement components. Pension and other post retirement reclassifications are related to the amortizations of prior service costs and actuarial losses. Amounts reclassified out of AOCL are summarized below (in thousands):
| Quarter ended Mar. 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Amortization of prior service credit, net | $ | (125) | $ | (125) | |||||||
| Amortization of actuarial loss | 1,575 | 1,100 | |||||||||
| Realized gain on available-for-sale investment | — | (20,800) | |||||||||
| Total reclassifications, before tax | 1,450 | (19,825) | |||||||||
| Income tax effect | (372) | 5,130 | |||||||||
| Total reclassifications, net of tax | $ | 1,078 | $ | (14,695) | |||||||
NOTE 7 – Earnings per share
Our earnings per share (basic and diluted) are presented below (in thousands, except per share amounts):
| Quarter ended Mar. 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net Income | $ | 104,004 | $ | 134,287 | |||||||
| Net loss (income) attributable to the noncontrolling interest | 299 | (53) | |||||||||
| Adjustment of redeemable noncontrolling interest to redemption value | (635) | (248) | |||||||||
| Earnings available to common shareholders | $ | 103,668 | $ | 133,986 | |||||||
Weighted average number of common shares outstanding - basic | 224,544 | 222,712 | |||||||||
| Effect of dilutive securities: | |||||||||||
| Restricted stock units | 187 | 321 | |||||||||
| Performance shares | 108 | 207 | |||||||||
| Weighted average number of common shares outstanding - diluted | 224,839 | 223,240 | |||||||||
| Earnings per share - basic | $ | 0.46 | $ | 0.60 | |||||||
| Earnings per share - diluted | $ | 0.46 | $ | 0.60 | |||||||
Our calculation of diluted earnings per share includes the dilutive effects for the assumed vesting of outstanding restricted stock units and performance shares.
NOTE 8 – Fair value measurement
We measure and record certain assets and liabilities at fair value in the accompanying condensed consolidated financial statements. U.S. GAAP establishes a hierarchy for those instruments measured at fair value that distinguishes between market data (observable inputs) and our own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 - Quoted market prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3 - Unobservable inputs developed using our own estimates and assumptions, which reflect those that a market participant would use.
In the first quarter of 2022, we recorded a $2.5 million impairment charge, in “Other non-operating items, net” within our Consolidated Statement of Income, due to the decline in the fair value of one of our investments. The fair value was determined using a market approach which was based on significant inputs not observable in the market, and thus represented a Level 3 fair value measurement. We also hold other financial instruments, including cash and cash equivalents, receivables, accounts payable and debt. The carrying amounts for cash and cash equivalents, receivables and accounts payable approximated their fair values. The fair value of our total debt, based on the bid and ask quotes for the related debt (Level 2), totaled $2.78 billion at March 31, 2023, and $2.95 billion at December 31, 2022.
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NOTE 9 – Other matters
Litigation
In the third quarter of 2018, certain national media outlets reported the existence of a confidential investigation by the United States Department of Justice Antitrust Division (DOJ) into the local television advertising sales practices of station owners. We received a Civil Investigative Demand (CID) in connection with the DOJ’s investigation. On November 13 and December 13, 2018, the DOJ and seven other broadcasters settled a DOJ complaint alleging the exchange of competitively sensitive information in the broadcast television industry. In June 2019, we and four other broadcasters entered into a substantially identical agreement with DOJ, which was entered by the court on December 3, 2019. The settlement contains no finding of wrongdoing or liability and carries no penalty. It prohibits us and the other settling entities from sharing certain confidential business information, or using such information pertaining to other broadcasters, except under limited circumstances. The settlement also requires the settling parties to make certain enhancements to their antitrust compliance programs, to continue to cooperate with the DOJ’s investigation, and to permit DOJ to verify compliance. The costs of compliance have not been material, nor do we expect future compliance costs to be material.
Since the national media reports, numerous putative class action lawsuits were filed against owners of television stations (the Advertising Cases) in different jurisdictions. Plaintiffs are a class consisting of all persons and entities in the United States who paid for all or a portion of advertisement time on local television provided by the defendants. The Advertising Cases assert antitrust and other claims and seek monetary damages, attorneys’ fees, costs and interest, as well as injunctions against the allegedly wrongful conduct.
These cases were consolidated into a single proceeding in the United States District Court for the Northern District of Illinois, captioned In re: Local TV Advertising Antitrust Litigation on October 3, 2018. At the court’s direction, plaintiffs filed an amended complaint on April 3, 2019, that superseded the original complaints. Although we were named as a defendant in sixteen of the original complaints, the amended complaint did not name TEGNA as a defendant. After TEGNA and four other broadcasters entered into consent decrees with the DOJ in June 2019, the plaintiffs sought leave from the court to further amend the complaint to add TEGNA and the other settling broadcasters to the proceeding. The court granted the plaintiffs’ motion, and the plaintiffs filed the second amended complaint on September 9, 2019. On October 8, 2019, the defendants jointly filed a motion to dismiss the matter. On November 6, 2020, the court denied the motion to dismiss. On March 16, 2022, the plaintiffs filed a third amended complaint, which, among other things, added ShareBuilders, Inc., as a named defendant. ShareBuilders filed a motion to dismiss on April 15, 2022, which was granted by the court without prejudice on August 29, 2022. TEGNA has filed its answer to the third amended complaint denying any violation of law and asserting various affirmative defenses. We believe that the claims asserted in the Advertising Cases are without merit, and intend to defend vigorously against them.
Litigation Relating to the Merger
As of May 10, 2023, seven lawsuits have been filed by purported TEGNA stockholders in connection with the Merger. The lawsuits have been filed against TEGNA and the current members of the Board of Directors of TEGNA (the Board of Directors). The complaints generally allege that the preliminary proxy statement filed by TEGNA with the SEC on March 25, 2022 in connection with the Merger contained alleged material misstatements and/or omissions in violation of federal law. Plaintiffs in the complaints generally seek, among other things, to enjoin TEGNA from consummating the Merger, or in the alternative, rescission of the Merger and/or compensatory damages, as well as attorneys’ fees. As of May 10, 2023, all but one of those lawsuits have been voluntarily dismissed.
In addition, as of May 10, 2023, TEGNA received four demand letters from purported TEGNA shareholders in connection with TEGNA’s filing of a definitive proxy statement with the SEC on April 13, 2022 relating to the Merger (the “definitive proxy statement”). Each letter alleged deficiencies in the definitive proxy statement that were similar to the deficiencies alleged in the complaints referenced above.
We believe that the claims asserted in the complaints and letters described above are without merit and no additional disclosures were or are required under applicable law. However, to moot the unmeritorious disclosure claims, to avoid the risks of the actions described above delaying or adversely affecting the Merger and to minimize the costs, risks and uncertainties inherent in litigation, without admitting any liability or wrongdoing, TEGNA voluntarily made supplemental disclosures to the definitive proxy statement as described in the Form 8-K filed by TEGNA with the SEC on May 9, 2022. Additional lawsuits arising out of the Merger may also be filed in the future.
We, along with a number of our subsidiaries, also are defendants in other judicial and administrative proceedings involving matters incidental to our business. We do not believe that any material liability will be imposed as a result of any of the foregoing matters.
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Related Party Transactions
We have equity investments in MadHive which is a related party of TEGNA. We also have a commercial agreement with MadHive, under which MadHive supports our Premion business in acquiring over-the-top advertising inventory and delivering corresponding advertising impressions. In the first quarter of 2023 and 2022, we incurred expenses of $25.1 million and $26.0 million, respectively, as a result of the commercial agreement with MadHive. As of March 31, 2023, and December 31, 2022 we had accounts payable and accrued liabilities associated with the MadHive commercial agreements of $15.2 million and $10.0 million, respectively.
In December 2021, we renewed two commercial agreements with MadHive. Simultaneously with the commercial agreement renewals, we also amended the terms of our then outstanding available-for-sale convertible debt security investment. In exchange for the convertible debt modifications, we received favorable terms in our renewed commercial agreements. We estimated the fair value of our available-for-sale security at December 31, 2021 using a market fair value approach based on the cash we expect to receive upon maturity of the note and the estimated cash savings that the favorable contract terms will provide over the term of the commercial agreements. In January 2022, we recorded an intangible contract asset for $20.8 million (equal to the estimated cash savings), and are amortizing this asset on a straight-line basis over the noncancellable term of the commercial agreements of two years. This non-cash expense is recorded within “Cost of revenues,” within our Consolidated Statement of Income. The debt matured in June 2022 at which time the principal balance of $3.0 million plus accrued interest was paid to us.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Company Overview
We are an innovative media company serving the greater good of our communities. Across platforms, we tell empowering stories, conduct impactful investigations and deliver innovative marketing services. With 64 television stations and two radio stations in 51 U.S. markets, we are the largest owner of top four network affiliates in the top 25 markets among independent station groups, reaching approximately 39% of all U.S. television households. We also own leading multicast networks True Crime Network, Twist and Quest. Each television station also has a robust digital presence across online, mobile, connected television and social platforms, reaching consumers on all devices and platforms they use to consume news content. We have been consistently honored with the industry’s top awards, including Edward 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. 2024, 2022, etc.) and particularly in the second half of those years; and 4) other services, such as production of programming, tower rentals, and distribution of our local news content.
Merger Agreement
On February 22, 2022, we entered into the Merger Agreement with Parent, Merger Sub, and solely for purposes of certain provisions specified therein, other subsidiaries of Parent, certain affiliates of Standard General and CMG, and certain of its subsidiaries. On February 24, 2023, the FCC issued a hearing designation order (the “HDO”) with respect to the transaction. On March 27, 2023, certain of the parties to the Merger Agreement filed a notice of appeal of the HDO and a petition for a writ of mandamus with the United States Court of Appeals for the District of Columbia Circuit, (the “D.C. Court of Appeals”). On April 3, 2023, the D.C. Court of Appeals dismissed the appeal of the HDO. On April 21, 2023, the D.C. Court of Appeals denied the petition for a writ mandamus. TEGNA is currently evaluating its options. See Notes 1 and 9 to the condensed consolidated financial statements for further information about the Merger Agreement, the pending Merger and related matters.
We plan to continue to pay our regular quarterly dividend of $0.095 per share through the closing of the Merger, which is the maximum rate and frequency permitted by the Merger Agreement. As a result of the pending transaction, we suspended share repurchases under our previously announced share repurchase program.
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Consolidated Results from Operations
The following discussion is a comparison of our consolidated results on a GAAP basis. The year-to-year comparison of financial results is not necessarily indicative of future results. In addition, see the section titled “Results from Operations - Non-GAAP Information” for additional tables presenting information which supplements our financial information provided on a GAAP basis.
Our operating results are subject to significant fluctuations across yearly periods (primarily driven by even-year political election cycles). As such, in addition to prior year comparisons, our management team and Board of Directors also review quarterly operating results compared to the same periods two years ago (e.g., 2023 vs. 2021). We believe these additional comparisons provide useful information to investors and therefore, have supplemented our prior year comparisons of consolidated results with comparisons against first quarter ended March 31, 2021 results (through operating income).
In recent years, our business has evolved toward generating more recurring and highly profitable revenue streams, driven by the increased contribution of political and subscription revenue streams as a percentage of our total revenue. Such revenues have been a majority of our overall revenue the past few years and we expect this to continue.
Our consolidated results of operations on a GAAP basis were as follows (in thousands, except per share amounts):
| Quarter ended Mar. 31, | |||||||||||||||||||||||||||||
| 2023 | 2022 | Change from 2022 | 2021 | Change from 2021 | |||||||||||||||||||||||||
| Revenues | $ | 740,327 | $ | 774,123 | (4 | %) | $ | 727,051 | 2 | % | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Cost of revenues | 426,932 | 411,450 | 4 | % | 394,692 | 8 | % | ||||||||||||||||||||||
| Business units - Selling, general and administrative expenses | 99,109 | 101,969 | (3 | %) | 89,326 | 11 | % | ||||||||||||||||||||||
| Corporate - General and administrative expenses | 12,100 | 21,320 | (43 | %) | 16,870 | (28 | %) | ||||||||||||||||||||||
| Depreciation | 15,049 | 15,305 | (2 | %) | 15,896 | (5 | %) | ||||||||||||||||||||||
| Amortization of intangible assets | 13,582 | 15,000 | (9 | %) | 15,760 | (14 | %) | ||||||||||||||||||||||
| Spectrum repacking reimbursements and other, net | — | (58) | *** | (1,423) | *** | ||||||||||||||||||||||||
| Total operating expenses | $ | 566,772 | $ | 564,986 | 0 | % | $ | 531,121 | 7 | % | |||||||||||||||||||
| Total operating income | $ | 173,555 | $ | 209,137 | (17 | %) | $ | 195,930 | (11 | %) | |||||||||||||||||||
| Non-operating expenses | (37,732) | (30,112) | 25 | % | (47,484) | (21 | %) | ||||||||||||||||||||||
| Provision for income taxes | 31,819 | 44,738 | (29 | %) | 35,614 | (11 | %) | ||||||||||||||||||||||
| Net income | 104,004 | 134,287 | (23 | %) | 112,832 | (8 | %) | ||||||||||||||||||||||
| Net (income) loss attributable to redeemable noncontrolling interest | 299 | (53) | *** | (215) | *** | ||||||||||||||||||||||||
| Net income attributable to TEGNA Inc. | $ | 104,303 | $ | 134,234 | (22 | %) | $ | 112,617 | (7 | %) | |||||||||||||||||||
| Earnings per share - basic | $ | 0.46 | $ | 0.60 | (23 | %) | $ | 0.51 | (10 | %) | |||||||||||||||||||
| Earnings per share - diluted | $ | 0.46 | $ | 0.60 | (23 | %) | $ | 0.51 | (10 | %) | |||||||||||||||||||
| *** Not meaningful | |||||||||||||||||||||||||||||
Revenues
Our Subscription revenue category includes revenue earned from cable and satellite providers for the right to carry our signals and the distribution of TEGNA stations on OTT streaming services. Our AMS category includes all sources of our traditional television advertising and digital revenues including Premion and other digital advertising and marketing revenues across our platforms.
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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, | |||||||||||||||||||||||||||||
| 2023 | 2022 | Change from 2022 | 2021 | Change from 2021 | |||||||||||||||||||||||||
| Subscription | $ | 414,280 | $ | 391,654 | 6 | % | $ | 386,737 | 7 | % | |||||||||||||||||||
| Advertising & Marketing Services | 307,845 | 354,467 | (13) | % | 322,834 | (5) | % | ||||||||||||||||||||||
| Political | 5,291 | 17,965 | (71) | % | 9,428 | (44) | % | ||||||||||||||||||||||
| Other | 12,911 | 10,037 | 29 | % | 8,052 | 60 | % | ||||||||||||||||||||||
| Total revenues | $ | 740,327 | $ | 774,123 | (4) | % | $ | 727,051 | 2 | % | |||||||||||||||||||
| *** Not meaningful | |||||||||||||||||||||||||||||
2023 vs. 2022
Total revenues decreased $33.8 million in the first quarter of 2023 compared to the same period in 2022. The net decrease was primarily driven by a $46.6 million decline in AMS revenue due to the impact of the Winter Olympics and Super Bowl airing last year on NBC, our largest network affiliate partner. Macroeconomic headwinds also negatively impacted our AMS revenue in 2023. Also contributing to the decrease was $12.7 million decline in political revenue. Partially offsetting these decreases was a $22.6 million increase in subscription revenue primarily due to annual rate increases under existing and newly renegotiated retransmission agreements, partially offset by declines in subscribers.
2023 vs. 2021
Total revenues increased $13.3 million in the first quarter of 2023 compared to the same period in 2021. The net increase was primarily due to $27.5 million growth in subscription revenue mainly due to annual rate increases under existing and newly renegotiated retransmission agreements, partially offset by declines in subscribers. Partially offsetting this increase was a $15.0 million decrease in AMS revenue reflecting softer demand for advertising caused by macroeconomic headwinds and a $4.1 million decrease in political revenue.
Cost of revenues
2023 vs. 2022
Cost of revenues increased $15.5 million in the first quarter of 2023 compared to the same period in 2022. The increase was primarily due to growth in programming costs of $15.3 million driven by rate increases under existing and newly renegotiated affiliation agreements.
2023 vs. 2021
Cost of revenues increased $32.2 million in the first quarter of 2023 compared to the same period in 2021. The increase was primarily due to $26.6 million growth in programming costs driven by rate increases under existing and newly renegotiated affiliation agreements.
Business units - Selling, general and administrative expenses
2023 vs. 2022
Business unit selling, general and administrative expenses decreased $2.9 million in the first quarter of 2023 compared to the same period in 2022. The decrease was primarily due to $2.0 million of lower stock-based compensation expense driven by a decline in our stock price. Additionally, selling costs, primarily sales compensation, declined $0.5 million in 2023 driven by a decline in advertising revenue.
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2023 vs. 2021
Business unit SG&A expenses increased $9.8 million in the first quarter of 2023 compared to the same period in 2021. The increase was due in part to an absence of bad debt expense reversal that occurred in 2021 that did not recur in 2023 as well as an increase in payroll and benefit costs.
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.
2023 vs. 2022
Corporate general and administrative expenses decreased $9.2 million in the first quarter of 2023 compared to the same period in 2022. The decrease for the quarter was primarily driven by a $7.5 million reduction in M&A-related costs incurred in connection with the Merger. Additionally, stock-based compensation expense was $1.6 million lower in 2023 driven by a decline in our stock price.
2023 vs. 2021
Corporate general and administrative expenses decreased $4.8 million in the first quarter of 2023 compared to the same period in 2021. The decrease for the quarter was primarily driven by the absence in 2023 of $4.6 million of advisory fees related to activism defense incurred in the first quarter of 2021. Partially offsetting this was an increase of $2.8 million in M&A-related costs mainly incurred in support of the regulatory review of the Merger.
Depreciation
2023 vs. 2022
Depreciation expense decreased by $0.3 million in the first quarter of 2023 compared to the same period in 2022. The decrease was due to certain assets reaching the end of their assumed useful lives.
2023 vs. 2021
Depreciation expense decreased by $0.8 million in the first quarter of 2023 compared to the same periods in 2021. The decreases were due to certain assets reaching the end of their assumed useful lives.
Amortization of intangible assets
2023 vs. 2022
Amortization expense decreased $1.4 million in the first quarter of 2023 compared to the same period in 2022. The decreases were due to certain assets reaching the end of their assumed useful lives and therefore becoming fully amortized.
2023 vs. 2021
Amortization expense decreased $2.2 million in the first quarter of 2023 compared to the same period in 2021. The decreases were due to certain assets reaching the end of their assumed useful lives and therefore becoming fully amortized.
Spectrum repacking reimbursements and other, net
2023 vs. 2022
No spectrum repacking reimbursements and other net gains were recognized in the first quarter of 2023 compared to $0.1 million in the same period in 2022. The 2022 activity is related to reimbursements received from the Federal Communications Commission (FCC) for required spectrum repacking.
2023 vs. 2021
No spectrum repacking reimbursements and other net gains were recognized in the first quarter of 2023 compared to net gains of $1.4 million in the same period in 2021. The 2021 activity related to reimbursements received from the FCC.
19
Operating income
2023 vs. 2022
Operating income decreased $35.6 million in the first quarter of 2023 compared to the same period in 2022. The decrease was driven by the changes in revenue and expenses discussed above, most notably the decrease in AMS revenue and increase in programming expense.
2023 vs. 2021
Operating income decreased $22.4 million in the first quarter of 2023 compared to the same period in 2021. The decrease was driven by the changes in revenue and expenses discussed above, most notably a decrease in AMS revenue and increases in programming expense, partially offset by an increase in subscription revenue.
Non-operating (expense) income
Non-operating expenses increased $7.6 million in the first quarter of 2023 compared to the same period in 2022. This increase was primarily due to the absence in 2023 of a $20.8 million gain recognized on our available for sale investment in MadHive during the first quarter of 2022. Partially offsetting this increase in expense was $7.5 million of interest income, primarily from interest earned on time-deposit investments. Additionally, interest expense decreased by $0.7 million driven by lower average outstanding debt. Total average outstanding debt was $3.09 billion for the first quarter of 2023, compared to $3.19 billion in the same period of 2022. The weighted average interest rate on outstanding debt was 5.27% for the first quarter of 2023, compared to 5.18% in the same period of 2022.
Provision for income taxes
Income tax expense decreased $12.9 million in the first quarter of 2023 compared to the same period in 2022. The decrease was primarily due to decreases in net income before tax. Our effective income tax rate was 23.4% for the first quarter of 2023, compared to 25.0% for the first quarter of 2022. The tax rate for the first quarter of 2023 is lower than the comparable amount in 2022 primarily due to a valuation allowance recorded on minority investments and higher nondeductible transaction costs incurred in 2022. Partially offsetting the decrease were tax benefits realized in 2022 from the utilization of capital loss carryforwards in connection with certain transactions and the release of the associated valuation allowance.
Net income attributable to TEGNA Inc.
Net income attributable to TEGNA Inc. was $104.3 million, or $0.46 per diluted share, in the first quarter of 2023 compared to $134.2 million, or $0.60 per diluted share, during the same period in 2022. Both income and earnings per share were affected by the factors discussed above.
The weighted average number of diluted common shares outstanding in the first quarter of 2023 and 2022 were 224.8 million and 223.2 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, 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 free cash flow to evaluate management’s performance. Therefore, we believe that each of the non-GAAP measures presented provides useful information to investors and other stakeholders by allowing them to view our business through the eyes of management and our Board of Directors, facilitating comparisons of results across historical periods and focus on the underlying ongoing operating performance of our business. We also believe these non-GAAP measures are frequently used by investors, securities analysts and other interested parties in their evaluation of our business and other companies in the broadcast industry.
We discuss in this Form 10-Q non-GAAP financial performance measures that exclude from our reported GAAP results the impact of “special items” which are described in detail below in the section titled “Discussion of Special Charges and Credits Affecting Reported Results.” We believe that such expenses and gains are not indicative of normal, ongoing operations. While these items 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, charges 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 to TEGNA before (1) net loss (income) attributable to redeemable noncontrolling interest, (2) income taxes, (3) interest expense, (4) equity loss in unconsolidated investments, net, (5) other non-operating items, net, (6) M&A-related costs, (7) spectrum repacking reimbursements and other, net, (8) depreciation and (9) 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 to TEGNA. 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 to TEGNA. Free cash flow is calculated as non-GAAP Adjusted EBITDA (as defined above), further adjusted by adding back (1) stock-based compensation, (2) non-cash 401(k) company match, (3) syndicated programming amortization, (4) dividends received from equity method investments, (5) reimbursements from spectrum repacking and (6) proceeds from company-owned life insurance policies. This is further adjusted by deducting payments made for (1) syndicated programming, (2) pension, (3) interest, (4) taxes (net of refunds) and (5) purchases of property and equipment. Like Adjusted EBITDA, free cash flow is not intended to be a measure of cash flow available for management’s discretionary use.
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Discussion of Special Charges and Credits Affecting Reported Results
Our results included the following items we consider “special items” that, while at times recurring, can vary significantly from period to period:
Quarter ended March 31, 2023:
•M&A-related costs.
Quarter ended March 31, 2022:
•Spectrum repacking reimbursements and other, net consisting of gains due to reimbursements from the FCC for required spectrum repacking;
•M&A-related costs;
•Other non-operating items consisting of a gain recognized on an available-for-sale investment and an impairment charge related to another investment; and
•Tax expense, net, associated with establishing a valuation allowance on a deferred tax asset related to an equity method investment.
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 | ||||||||||||||||||||||||||||||||||||||
| Quarter ended Mar. 31, 2023 | GAAP measure | M&A-related costs | Non-GAAP measure | |||||||||||||||||||||||||||||||||||
| Corporate - General and administrative expenses | $ | 12,100 | $ | (2,766) | $ | 9,334 | ||||||||||||||||||||||||||||||||
| Operating expenses | 566,772 | (2,766) | 564,006 | |||||||||||||||||||||||||||||||||||
| Operating income | 173,555 | 2,766 | 176,321 | |||||||||||||||||||||||||||||||||||
| Income before income taxes | 135,823 | 2,766 | 138,589 | |||||||||||||||||||||||||||||||||||
| Provision for income taxes | 31,819 | 181 | 32,000 | |||||||||||||||||||||||||||||||||||
| Net income attributable to TEGNA Inc. | 104,303 | 2,585 | 106,888 | |||||||||||||||||||||||||||||||||||
| Earnings per share - diluted | $ | 0.46 | $ | 0.01 | $ | 0.47 | ||||||||||||||||||||||||||||||||
| Special Items | ||||||||||||||||||||||||||||||||||||||
| Quarter ended Mar. 31, 2022 | GAAP measure | M&A-related costs | Spectrum repacking reimbursements and other | Other non-operating items | Special tax items | Non-GAAP measure | ||||||||||||||||||||||||||||||||
| Corporate - General and administrative expenses | $ | 21,320 | $ | (10,234) | $ | — | $ | — | $ | — | $ | 11,086 | ||||||||||||||||||||||||||
| Spectrum repacking reimbursements and other, net | (58) | — | 58 | — | — | — | ||||||||||||||||||||||||||||||||
| Operating expenses | 564,986 | (10,234) | 58 | — | — | 554,810 | ||||||||||||||||||||||||||||||||
| Operating income | 209,137 | 10,234 | (58) | — | — | 219,313 | ||||||||||||||||||||||||||||||||
| Other non-operating items, net | 17,319 | — | — | (18,308) | — | (989) | ||||||||||||||||||||||||||||||||
| Total non-operating expenses | (30,112) | — | — | (18,308) | — | (48,420) | ||||||||||||||||||||||||||||||||
| Income before income taxes | 179,025 | 10,234 | (58) | (18,308) | — | 170,893 | ||||||||||||||||||||||||||||||||
| Provision for income taxes | 44,738 | 31 | (14) | 168 | (7,117) | 37,806 | ||||||||||||||||||||||||||||||||
| Net income attributable to TEGNA Inc. | 134,234 | 10,203 | (44) | (18,476) | 7,117 | 133,034 | ||||||||||||||||||||||||||||||||
Earnings per share - diluted (a) | $ | 0.60 | $ | 0.05 | $ | — | $ | (0.08) | $ | 0.03 | $ | 0.59 | ||||||||||||||||||||||||||
(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, | ||||||||||||||||||||
| 2023 | 2022 | Change | ||||||||||||||||||
| Net income attributable to TEGNA Inc. (GAAP basis) | $ | 104,303 | $ | 134,234 | (22 | %) | ||||||||||||||
| (Less) Plus: Net (loss) income attributable to redeemable noncontrolling interest | (299) | 53 | *** | |||||||||||||||||
| Plus: Provision for income taxes | 31,819 | 44,738 | (29 | %) | ||||||||||||||||
| Plus: Interest expense | 42,906 | 43,620 | (2 | %) | ||||||||||||||||
| Plus: Equity loss in unconsolidated investments, net | 237 | 3,811 | (94 | %) | ||||||||||||||||
| Less: Other non-operating items, net | (5,411) | (17,319) | (69 | %) | ||||||||||||||||
| Operating income (GAAP basis) | 173,555 | 209,137 | (17 | %) | ||||||||||||||||
| Plus: M&A-related costs | 2,766 | 10,234 | (73 | %) | ||||||||||||||||
| Less: Spectrum repacking reimbursements and other, net | — | (58) | *** | |||||||||||||||||
| Adjusted operating income (non-GAAP basis) | 176,321 | 219,313 | (20 | %) | ||||||||||||||||
| Plus: Depreciation | 15,049 | 15,305 | (2 | %) | ||||||||||||||||
| Plus: Amortization of intangible assets | 13,582 | 15,000 | (9 | %) | ||||||||||||||||
| Adjusted EBITDA (non-GAAP basis) | 204,952 | 249,618 | (18 | %) | ||||||||||||||||
| Corporate - General and administrative expense (non-GAAP basis) | 9,334 | 11,086 | (16 | %) | ||||||||||||||||
| Adjusted EBITDA, excluding Corporate (non-GAAP basis) | $ | 214,286 | $ | 260,704 | (18 | %) | ||||||||||||||
| *** Not meaningful | ||||||||||||||||||||
In the first quarter of 2023 Adjusted EBITDA margin was 29% without corporate expense or 28% with corporate expense, compared to first quarter of 2022 Adjusted EBITDA margin of 34% without corporate expense or 32% with corporate expense. These margin decreases were primarily driven by the operational factors discussed above within the revenue and operating expense fluctuation explanation sections, most notably, the decrease in AMS revenue and increase in programming expenses.
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Free Cash Flow Reconciliation
Reconciliation from “Net income” to “Free cash flow” follow (in thousands):
| Two-year period ended Mar. 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net income attributable to TEGNA Inc. (GAAP basis) | $ | 1,099,110 | $ | 1,007,659 | |||||||
| Plus: Provision for income taxes | 334,056 | 313,387 | |||||||||
| Plus: Interest expense | 356,093 | 382,604 | |||||||||
| Plus: M&A-related costs | 27,021 | 13,972 | |||||||||
| Plus: Depreciation | 125,189 | 130,126 | |||||||||
| Plus: Amortization | 120,715 | 129,485 | |||||||||
| Plus: Stock-based compensation | 56,923 | 63,073 | |||||||||
| Plus: Company stock 401(k) contribution | 36,063 | 33,811 | |||||||||
| Plus: Syndicated programming amortization | 136,964 | 141,999 | |||||||||
| Plus: Workforce restructuring expense | — | 1,021 | |||||||||
| Plus: Advisory fees related to activism defense | 12,012 | 32,059 | |||||||||
| Plus: Cash dividend from equity investments for return on capital | 4,276 | 11,598 | |||||||||
| Plus: Cash reimbursements from spectrum repacking | 3,842 | 10,665 | |||||||||
| Plus: Net income attributable to redeemable noncontrolling interest | 1,457 | 1,390 | |||||||||
| Plus: Reimbursement from Company-owned life insurance policies | 1,929 | 1,005 | |||||||||
| Plus (Less): Equity loss (income) in unconsolidated investments, net | 13,094 | 12,142 | |||||||||
| Less: Spectrum repacking reimbursements and other, net | (1,207) | (4,805) | |||||||||
| (Less) Plus: Other non-operating items, net | (33,337) | (9,385) | |||||||||
| Less: Syndicated programming payments | (140,650) | (150,211) | |||||||||
| Less: Income tax payments, net of refunds | (351,206) | (263,012) | |||||||||
| Less: Pension contributions | (12,149) | (10,121) | |||||||||
| Less: Interest payments | (345,153) | (389,392) | |||||||||
| Less: Purchases of property and equipment | (104,069) | (100,849) | |||||||||
| Free cash flow (non-GAAP basis) | $ | 1,340,973 | $ | 1,358,221 | |||||||
| Revenue | $ | 6,286,614 | $ | 6,018,807 | |||||||
| Free cash flow as a % of Revenue | 21.3 | % | 22.6 | % | |||||||
Our free cash flow, a non-GAAP performance measure, was $1.34 billion and $1.36 billion for the two-year periods ended March 31, 2023 and 2022, respectively.
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Liquidity, Capital Resources and Cash Flows
Our operations have historically generated positive cash flow which, along with availability under our existing revolving credit facility and cash and cash equivalents on hand, have been sufficient to fund our capital expenditures, interest payments, dividends, investments in strategic initiatives and other operating requirements.
We paid dividends totaling $21.4 million and $21.2 million in first three months of 2023 and 2022, respectively. We expect to continue to pay our regular quarterly dividend of $0.095 per share through the closing of the Merger, which is the maximum rate and frequency permitted by the Merger Agreement. The Merger Agreement also does not permit us to repurchase our common stock. As a result of these two restrictions, our cash balance has increased from $551.7 million at the end of 2022 to $683.2 million at the end of the first quarter of 2023. During the first quarter of 2023, we primarily deployed surplus cash in time deposit investments with several financial institutions, given the limitations under the Merger Agreement.
As of March 31, 2023, we were in compliance with all covenants contained in our debt agreements and credit facility. Our leverage ratio, calculated in accordance with our revolving credit agreement, was 2.45x, below the maximum permitted leverage ratio of 4.50x. The leverage ratio is calculated using annualized adjusted EBITDA (as defined in the agreement) for the trailing eight quarters. We believe that we will remain compliant with all covenants for the foreseeable future.
As of March 31, 2023, our total debt was $3.07 billion, cash and cash equivalents totaled $683.2 million, and we had unused borrowing capacity of $1.49 billion under our revolving credit facility. Our debt consists of unsecured notes which have fixed interest rates.
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 2022 Annual Report on Form 10-K for further discussion. We expect our existing cash and cash equivalents, cash flow from our operations, and borrowing capacity under the revolving credit facility will be more than sufficient to satisfy our recurring contractual commitments, debt service obligations, capital expenditure requirements, and other working capital needs for the next twelve months and beyond.
Cash Flows
The following table provides a summary of our cash flow information followed by a discussion of the key elements of our cash flow (in thousands):
| Three months ended Mar. 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Balance of cash and cash equivalents beginning of the period | $ | 551,681 | $ | 56,989 | |||||||
| Operating activities: | |||||||||||
| Net income | 104,004 | 134,287 | |||||||||
| Depreciation, amortization and other non-cash adjustments | 38,120 | 31,641 | |||||||||
| Pension expense, net of contributions | 1,416 | (585) | |||||||||
| Decrease (increase) in trade receivables | 20,615 | (120) | |||||||||
| (Decrease) increase in interest and taxes payable | (1,627) | 13,663 | |||||||||
| Other, net | 7,859 | 17,374 | |||||||||
| Cash flow from operating activities | 170,387 | 196,260 | |||||||||
| Investing activities: | |||||||||||
| Purchase of property and equipment | (2,845) | (5,538) | |||||||||
| All other investing activities | (1,277) | (1,792) | |||||||||
| Cash flow used for investing activities | (4,122) | (7,330) | |||||||||
| Cash flow used for financing activities | (34,767) | (202,603) | |||||||||
| Increase in cash and cash equivalents | 131,498 | (13,673) | |||||||||
| Balance of cash and cash equivalents end of the period | $ | 683,179 | $ | 43,316 | |||||||
26
Operating activities - Cash flow from operating activities was $170.4 million for the three months ended March 31, 2023, compared to $196.3 million for the same period in 2022. Driving the decrease in operating cash flow was a $30.3 million decline in net income primarily a result of a decline in AMS and political revenue and an increase in programming expense in the first quarter of 2023 as compared to 2022.
Investing activities - Cash flow used for investing activities was $4.1 million for the three months ended March 31, 2023, compared to $7.3 million for the same period in 2022. The decrease of $3.2 million was primary due to a $2.7 million reduction in capital expenditures in the first three months of 2023 as compared to the same period in 2022.
Financing activities - Cash flow used for financing activities was $34.8 million for the three months ended March 31, 2023, compared to $202.6 million for the same period in 2022. The change was primarily due to our revolving credit facility which had no net repayments in the first three months of 2023 as compared to net repayments of $166.0 million in the first three months of 2022.
Certain Factors Affecting Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q that do not describe historical facts may constitute forward-looking statements within the meaning of the “safe harbor” provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on a number of assumptions about future events and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from the views, beliefs, projections and estimates expressed in such statements. These risks, uncertainties and other factors include, but are not limited to, those described within Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and our Quarterly Reports on Form 10-Q, including the following: (1) the timing, receipt and terms and conditions of any required governmental or regulatory approvals of the proposed transaction and the related transactions involving the parties that could reduce the anticipated benefits of or cause the parties to abandon the proposed transaction, (2) risks related to the satisfaction of the conditions to closing the proposed transaction (including the failure to obtain necessary regulatory approvals), and the related transactions involving the parties, in the anticipated timeframe or at all, (3) the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of the Company’s common stock, (4) disruption from the proposed transaction could make it more difficult to maintain business and operational relationships, including retaining and hiring key personnel and maintaining relationships with the Company’s customers, vendors and others with whom it does business, (5) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement entered into pursuant to the proposed transaction or of the transactions involving the parties, (6) risks related to disruption of management’s attention from the Company’s ongoing business operations due to the proposed transaction, (7) significant transaction costs, (8) the risk of litigation and/or regulatory actions related to the proposed transaction or unfavorable results from currently pending litigation and proceedings or litigation and proceedings that could arise in the future, (9) other business effects, including the effects of industry, market, economic, political or regulatory conditions, and (10) information technology system failures, data security breaches, data privacy compliance, network disruptions, and cybersecurity, malware or ransomware attacks.
Readers are cautioned not to place undue reliance on forward-looking statements made by or on behalf of the Company. Each such statement speaks only as of the day it was made. We undertake no obligation to update or to revise any forward-looking statements. The factors described above cannot be controlled by our Company. When used in this Quarterly Report on Form 10-Q, the words “believes,” “estimates,” “plans,” “expects,” “should,” “could,” “outlook,” and “anticipates” and similar expressions as they relate to our Company or management are intended to identify forward looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q may include, without limitation: statements about the potential benefits of the proposed acquisition, anticipated growth rates, the Company’s plans, objectives, expectations, and the anticipated timing of closing the proposed transaction.
27
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, refer to the following section of our 2022 Annual Report on Form 10-K: “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.” Our exposures to market risk have not changed materially since December 31, 2022.
As of March 31, 2023, we did not have any floating interest obligations outstanding and had unused borrowing capacity of $1.49 billion under our $1.51 billion revolving credit facility, which expires in August 2024. Any amounts borrowed under the revolving credit facility in the future are subject to a variable rate. Refer to Note 8 to the condensed consolidated financial statements for information regarding the fair value of our long-term debt.
Item 4. Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2023. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective, as of March 31, 2023, to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There have been no material changes in our internal controls or in other factors during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 9 to the condensed consolidated financial statements for information regarding our legal proceedings.
Item 1A. Risk Factors
While we attempt to identify, manage and mitigate risks and uncertainties associated with our business, some level of risk and uncertainty will always be present. “Item 1A. Risk Factors” of our 2022 Annual Report on Form 10-K describes the risks and uncertainties that we believe may have the potential to materially affect our business, results of operations, financial condition, cash flows, projected results and future prospects. We do not believe that there have been any material changes from the risk factors previously disclosed in our 2022 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In December 2020, our Board of Directors authorized the renewal of our share repurchase program for up to $300.0 million of our common stock over the next three years. No shares were repurchased during the three months ended March 31, 2023. As a result of the announcement of the Merger Agreement on February 22, 2022, we have suspended share repurchases under this program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibit Number | Description | |||||||
| 3-1 | ||||||||
| 3-2 | ||||||||
| 10-1 | ||||||||
| 10-2 | ||||||||
| 10-3 | ||||||||
| 10-4 | ||||||||
| 31-1 | ||||||||
| 31-2 | ||||||||
| 32-1 | ||||||||
| 32-2 | ||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
* Asterisks identify management contracts and compensatory plans and arrangements.
29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: May 10, 2023 | TEGNA INC. | ||||
| /s/ Clifton A. McClelland III | |||||
| Clifton A. McClelland III | |||||
| Senior Vice President and Controller | |||||
| (on behalf of Registrant and as Principal Accounting Officer) | |||||
30