Executive Summary / Key Takeaways

• TEGNA is executing a strategic transformation focused on operational efficiency, digital growth, and disciplined capital allocation under new leadership, aiming for $90-$100 million in annualized core non-programming cost savings by the end of 2025.
• Despite facing cyclical political revenue declines and macroeconomic headwinds impacting advertising, the company's core business remains resilient, supported by stable distribution revenue (excluding prior year disruption) and growth in digital advertising and local sports rights.
• A strong balance sheet with $716.6 million in cash and a low net leverage ratio of 2.89x provides significant financial flexibility for strategic investments, potential M&A in an evolving regulatory landscape, and continued capital returns to shareholders (targeting 40-60% of 2024-2025 Adjusted Free Cash Flow).
• The company's investment in technology, including AI for newsrooms and digital product development, alongside its established digital platforms like Premion, positions it to enhance content delivery, drive digital revenue growth, and improve operational efficiency relative to traditional competitors.
• Near-term outlook reflects expected revenue declines in Q2 2025 due to political cycle and advertising headwinds, offset by ongoing cost reduction benefits, while the long-term thesis hinges on successful execution of the transformation strategy and potential value creation from industry consolidation.

TEGNA's Strategic Pivot: Unlocking Value Through Efficiency and Optionality

TEGNA Inc., a long-standing pillar in the U.S. broadcasting landscape since 1906, stands at a pivotal juncture. As one of the nation's largest owners of top four network affiliates, operating 64 television and two radio stations across 51 markets and reaching over 100 million people monthly, the company possesses a foundational strength in local news and content delivery. However, the media industry is in flux, marked by shifts in audience consumption, subscriber declines in traditional pay TV, and intense competition from well-funded, often unregulated, digital giants like Meta (META) and Google (GOOGL).

In response to these dynamics and following significant corporate events, including a terminated merger attempt and a CEO transition, TEGNA is undergoing a strategic transformation. Under new leadership, the focus is sharply on operational excellence, leveraging technology, and disciplined capital deployment to build a sustainable future for local news and enhance shareholder value. This involves a critical examination of every aspect of the business, from content creation and delivery to sales and administrative functions, aiming to unlock efficiencies and drive growth in key areas.

A core component of this strategy is the aggressive pursuit of operational efficiency. The company has set a clear target to generate $90 million to $100 million in annualized core non-programming cost savings by the end of 2025. Progress is already evident, with approximately 60% of this target achieved by the end of the first quarter of 2025. This focus on cost reduction is manifesting in areas such as reduced payroll and professional service costs, rethinking the real estate footprint (including accelerating depreciation on assets related to the corporate headquarters lease termination), and scrutinizing vendor contracts. Non-GAAP operating expenses in Q1 2025 finished flat year-over-year, with expenses outside of programming down 4%, demonstrating sequential improvement in structural cost reduction efforts.

Technological differentiation is central to TEGNA's strategic evolution and competitive positioning. While the broadcasting industry has historically relied on traditional infrastructure, TEGNA is actively deploying modern technology, automation, and AI to enhance both content creation and operational efficiency. The company is testing a new proprietary AI system designed to assist newsrooms in identifying and covering more impactful local stories, aiming to support journalists and strengthen local news coverage. Furthermore, AI-augmented software development is being utilized to increase the productivity of the engineering team. Plans are also progressing for piloting "stations of the future" that will leverage reduced technology and real estate footprints for more sustainable news delivery.

Beyond traditional broadcast, TEGNA has built digital platforms like Premion, its connected TV (CTV) advertising network, and maintains a robust digital presence across station websites, mobile apps, and streaming platforms. Premion operates in the growing CTV advertising market, particularly strong in local communities. While national Premion revenue has seen some softness, local Premion continues to demonstrate growth, contributing to the company's overall digital advertising revenue growth, which was positive year-over-year in Q1 2025. The recent redemption of Gray Television's (GTN) minority interest in Premion for $20.8 million simplifies the ownership structure and allows TEGNA full control over the future direction of this digital asset. These digital initiatives, coupled with investments in new apps and AI-augmented development, are aimed at deepening engagement with the digital audience and unlocking new revenue streams.

In the competitive landscape, TEGNA faces direct competition from other large broadcast groups like Nexstar Media Group (NXST), Sinclair Broadcast Group (SBGI), Gray Television, and The E.W. Scripps Company (SSP). While competitors like NXST and SBGI may possess greater scale and potentially lower operating costs per station, TGNA differentiates itself through its focus on digital innovation, investigative journalism, and integrated advertising solutions like Premion and its overall digital suite.

Comparing recent TTM financial ratios, TGNA's Net Profit Margin (15.22%) and Operating Profit Margin (24.65%) are competitive, exceeding those of SBGI (9% NPM, 16% OPM) and SSP (6% NPM, 16% OPM), and comparable to GTN (10% NPM, 23% OPM) and NXST (13% NPM, 23% OPM). This suggests that while scale offers cost advantages, TGNA's operational focus and digital efforts are contributing to healthy profitability.

TGNA's investment in technology, such as AI for news and digital platforms, aims to create a competitive moat by enhancing content quality and delivery efficiency, areas where traditional broadcasters may lag. The company's securing of local sports rights across major leagues is another strategic move to drive audience engagement with live content, a key strength of broadcast, and attract advertisers, positioning it favorably against competitors and the declining reach of Regional Sports Networks (RSNs).

Financially, TEGNA's performance in Q1 2025 reflected the expected cyclical downturn in political advertising, with total revenues decreasing by 5% year-over-year to $680 million. Political revenue saw an 87% decline, consistent with the odd-to-even year comparison. Advertising Marketing Services (AMS) revenue was down 3% due to macroeconomic headwinds and the Super Bowl airing on a smaller affiliate group this year, though normalizing for the Super Bowl impact, AMS was flat. Growth in local sports rights partially offset the AMS decline. Distribution revenue remained relatively flat year-over-year at $380 million, impacted by subscriber declines but benefiting from distributor renewals and contractual rate increases, and the absence of a temporary service disruption from Q1 2024. Operating income decreased by 21% in Q1 2025, primarily driven by the revenue declines. However, the decrease in income before taxes and the effective tax rate (20.6% in Q1 2025 vs 24.5% in Q1 2024) resulted in net income attributable to TEGNA Inc. of $58.7 million, or $0.36 per diluted share.

The company maintains a strong balance sheet, ending Q1 2025 with $716.6 million in cash and cash equivalents. Total debt stood at $3.1 billion, consisting of unsecured notes with fixed interest rates. The net leverage ratio of 2.89x is comfortably below the maximum permitted 4.50x under its credit facility, and management expects to remain compliant for the foreseeable future. This financial strength provides significant liquidity and capital resources. The company's capital allocation framework prioritizes returning 40% to 60% of adjusted free cash flow generated over 2024-2025 to shareholders through dividends and share repurchases. In Q1 2025, $20.1 million was returned via dividends. While a share repurchase program of up to $650 million is authorized through December 31, 2025, no repurchases were made in Q1 2025, reflecting a more measured approach to preserve financial flexibility. This flexibility is particularly relevant given the evolving regulatory landscape, which management believes could unlock M&A opportunities in the broadcast space, potentially creating significant value through synergies, especially related to local operating costs. The nearest debt maturity is $550 million in March 2026, and the company plans to redeem at least $250 million of this in Q4 2025 using existing resources.

The outlook for Q2 2025 anticipates total company revenue to be down 4% to 7% year-over-year, primarily due to the political cycle comparison and expected advertising headwinds stemming from macroeconomic uncertainty and global trade dynamics. Non-GAAP operating expenses are guided to be flat to down 2%, reflecting the ongoing benefits of cost reduction initiatives offsetting investments. The company reaffirmed its combined 2024-2025 adjusted free cash flow guidance of $900 million to $1.1 billion and lowered its full-year 2025 effective tax rate guidance to 22-23% due to expected tax refunds.

Risks to this outlook include the sensitivity of advertising revenue to economic conditions, continued subscriber declines impacting distribution revenue, and the inherent cyclicality of political advertising. The ongoing antitrust litigation, while not expected to result in material liability, represents a potential distraction and cost. Competition from digital platforms continues to challenge traditional media consumption and advertising spend. However, the potential for regulatory changes could significantly alter the competitive landscape and unlock strategic opportunities.

Conclusion

TEGNA is actively transforming its business to adapt to a dynamic media environment. The core investment thesis rests on the company's ability to leverage its strong local market presence and trusted brands while simultaneously driving operational efficiency through aggressive cost management and embracing technological innovation in content creation and digital advertising. Despite facing near-term headwinds from cyclical political revenue and macroeconomic pressures on advertising, the company's stable distribution revenue base, growth in digital areas like Premion, and strategic investments in local sports provide a degree of resilience. The robust balance sheet and consistent free cash flow generation offer substantial financial flexibility, positioning TEGNA to navigate market uncertainties, continue returning capital to shareholders, and potentially capitalize on strategic M&A opportunities should the regulatory landscape evolve as anticipated. Successful execution of the cost-saving initiatives and digital growth strategies, coupled with prudent capital deployment in a potentially consolidating industry, will be key determinants of long-term value creation for TEGNA shareholders.