Business Overview and History

TEGNA Inc. (TGNA) is a leading media company that operates 64 television stations and two radio stations across 51 U.S. markets, reaching approximately 100 million people every month. The company's robust portfolio of trusted local brands and innovative digital solutions make it a valued partner for both advertisers and local communities.

TEGNA's roots can be traced back to 1906 when the company was founded as the Gannett Company. Initially focused on newspaper publishing, the company expanded into broadcasting and digital media over the years. A significant milestone in TEGNA's history came in 1979 when Gannett acquired Combined Communications Corporation, which included several television stations. This acquisition marked the company's entrance into the broadcasting business and set the stage for its future growth in this sector.

Over the next few decades, Gannett continued to acquire additional television stations, solidifying its position as a leading local media company. In the early 2000s, Gannett faced challenges as the newspaper industry experienced declining revenues due to the rise of digital media. The company responded by prioritizing its television and digital operations, which became an increasingly important part of its business.

In 2015, Gannett spun off its publishing assets into a separate publicly traded company, allowing it to focus solely on its broadcasting and digital operations. This move was followed by a rebranding in 2017, when the company changed its name to TEGNA Inc. to better reflect its focus on television and digital media.

Today, TEGNA's core business is the operation of local television stations, which generate revenue from both subscription fees (retransmission consent) and advertising. The company's portfolio includes affiliates of major broadcast networks such as NBC, CBS, ABC, and FOX, giving it a strong presence in key markets across the country.

In addition to its linear television operations, TEGNA has also made significant investments in digital platforms and solutions. The company's Premion business, for example, is a leading provider of over-the-top (OTT) and connected TV (CTV) advertising solutions, enabling local and national advertisers to reach targeted audiences across various digital platforms.

Over the past several years, TEGNA has continued to expand its portfolio of television stations through strategic acquisitions, while also investing in its digital initiatives. Despite facing industry-wide challenges, such as declining pay-TV subscriber numbers and changing consumer habits, TEGNA has remained a resilient and adaptable media company. Through strategic acquisitions, cost-cutting measures, and a focus on diversifying its revenue streams, TEGNA has been able to navigate these challenges and maintain its position as a leading local media provider.

Financial Performance and Ratios

TEGNA's financial performance has been generally strong, with the company consistently generating robust cash flow and maintaining a healthy balance sheet. As of the latest reporting period, the company had $536.25 million in cash and cash equivalents and a net leverage ratio of 2.79x, well within its target range.

In the most recent fiscal year (2023), TEGNA reported total revenue of $2.91 billion and net income of $474.95 million. The company's gross profit margin stood at 41.0%, while its operating profit margin was 20.7%. TEGNA's return on assets (ROA) was 8.6%, and its return on equity (ROE) was 17.6%. Operating cash flow for 2023 was $587.25 million, with free cash flow of $532.55 million.

For the most recent quarter (Q3 2024), TEGNA reported revenue of $806.83 million, representing a 13% increase year-over-year. Net income for the quarter was $147.19 million, with operating cash flow of $196.76 million and free cash flow of $186.92 million. The strong performance was primarily driven by significant growth in political advertising revenue, which offset a 6% decline in subscription revenue.

The company's free cash flow generation has been impressive, enabling TEGNA to return capital to shareholders through dividends and share repurchases. In the most recent fiscal year, the company paid out $83.53 million in dividends and repurchased $652.91 million worth of shares.

Liquidity

TEGNA's liquidity position remains strong, supported by its robust cash flow generation and prudent financial management. The company's cash and cash equivalents of $536.25 million provide a solid cushion for operational needs and potential investment opportunities. Additionally, TEGNA's net leverage ratio of 2.79x demonstrates a balanced approach to capital structure, allowing the company to maintain financial flexibility while pursuing growth initiatives.

Further bolstering TEGNA's liquidity position is an available credit line of $737.9 million under a $750 million revolving credit facility expiring in 2029. The company's debt-to-equity ratio stands at 1.094, while both its current ratio and quick ratio are 2.604, indicating a strong ability to meet short-term obligations.

Risks and Challenges

Like any media company, TEGNA faces a range of risks and challenges. The shift towards digital media consumption and the declining subscriber base of traditional pay-TV providers pose a threat to the company's core linear television business. Additionally, the cyclical nature of the advertising market and the intense competition in the local media landscape can impact TEGNA's financial performance.

The company also faces regulatory risks, as changes in media ownership rules or the retransmission consent framework could affect its business model. TEGNA's dependence on a limited number of major network affiliations and the potential loss of these affiliations also represent a significant risk factor.

Guidance and Outlook

TEGNA has provided guidance for the fourth quarter of 2024, expecting total company GAAP revenue to be up 19% to 21% year-over-year, driven primarily by strength in political advertising. The company also anticipates total non-GAAP operating expenses to increase by 1% to 3% compared to Q4 2023, driven by growth in programming and Premion costs, partially offset by savings from core cost reduction initiatives.

For the full year 2024, TEGNA has reaffirmed its key guidance metrics, including its combined 2024-2025 adjusted free cash flow guidance of $900 million to $1.1 billion. The company has also lowered its full year 2024 effective tax rate guidance to 22-23%, reflecting the purchase of tax credits.

It's worth noting that TEGNA exceeded its Q3 2024 revenue guidance of 9-12% growth, reporting 13% year-over-year revenue growth, and is on track to meet its full year 2024 guidance metrics.

The company's leadership team, led by recently appointed CEO Mike Steib, has outlined several strategic priorities to drive long-term growth, including optimizing organizational structures and processes, leveraging technology and automation to improve efficiency, expanding the company's digital reach, and carefully managing expenses.

Business Segments and Products

TEGNA operates primarily in one business segment: broadcasting and digital media. The company's key product and service offerings within this segment include:

1. Subscription Revenues: Fees paid by satellite, cable, over-the-top (OTT) companies, and telecommunications providers to carry TEGNA's television signals on their systems.

2. Advertising and Marketing Services (AMS) Revenues: Revenue from local and national non-political television advertising, digital marketing services through the Premion platform, advertising on stations' websites, tablet and mobile products, and OTT apps.

3. Political Advertising Revenues: Revenue generated during election cycles, with higher political spending typically occurring in even-numbered years.

4. Other Services Revenues: Income from production of programming, tower rentals, and distribution of local news content.

In Q3 2024, subscription revenues were $356.20 million (down 6% year-over-year), AMS revenues were $312.96 million (relatively flat year-over-year), and political advertising revenues were $126.32 million (up significantly from $11.64 million in Q3 2023).

Geographic Markets

TEGNA operates primarily in the United States, with no significant international operations. The company's network of 64 television stations and two radio stations spans 51 U.S. markets, allowing it to reach approximately 100 million people monthly across linear television, digital platforms, and streaming.

Industry Trends

While specific industry growth rates or CAGR figures are not available, TEGNA acknowledges challenges in the industry, such as declining pay-TV households and traditional TV advertising revenues. However, the company has been adapting to these trends by investing in digital platforms and diversifying its revenue streams.

Conclusion

TEGNA's combination of trusted local brands, innovative digital solutions, and strong financial performance make it a compelling investment opportunity in the evolving media landscape. The company's focus on delivering high-quality local news and content, while also growing its digital footprint, positions it well to navigate the industry's challenges and capitalize on emerging opportunities. As TEGNA continues to execute on its strategic initiatives, investors may find the company's long-term growth prospects increasingly attractive.