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

Highlights include:

• Total company revenue was $517 million, up three percent year-over-year and at the high-end of the guidance range provided last quarter. Adjusted total company revenue, excluding political and estimated incremental Olympic and Super Bowl revenue, was up eight percent year-over-year, also at the high-end of guidance.
• Record first quarter subscription revenue of $242 million increased 18 percent, driven by rate increases and stable paying subscriber counts.
• Total company adjusted EBITDA was $153 million, down $4 million, or less than three percent year-over-year as anticipated, nearly fully offsetting the absence of $21 million of high-margin political, Olympic and Super Bowl revenues.
• Net income of $74 million increased 34 percent year-over-year, driven by a $12 million gain related to the sale of our interest in Captivate, a $3 million real estate sale gain as well as FCC repacking reimbursements of $4 million.
• Free cash flow for the quarter was $109 million, and the company reduced debt by $53 million, resulting in total debt of $2.9 billion and net leverage of 4.0x.
• The company announced an agreement with Nexstar Media Group on March 20 to acquire 11 stations in eight markets, including eight Big Four affiliates, in a $740 million transaction.
  • Multiple of 7.7x based on average estimated 2018/2019 EBITDA after synergies but prior to tax savings, which reduce the multiple to 6.7x.
  • Expected to be accretive to EPS within a year after close and immediately accretive to free cash flow per share.
  • Provides support for the high-end of the previously disclosed estimated 2019/2020 free cash flow range of 18 percent to 19 percent of revenue.
• GAAP earnings per diluted share were $0.34 in the first quarter and non-GAAP* earnings per diluted share were $0.29.

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

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

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

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

OVERVIEW OF FIRST QUARTER RESULTS

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

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

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

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

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

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

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

FIRST QUARTER NON-OPERATING AND CASH FLOW ITEMS

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

SECOND QUARTER AND FULL YEAR 2019 OUTLOOK

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

UPDATE ON KEY STRATEGIC INITIATIVES

• Announced Acquisition of Leading Multicast Channels Justice Network and Quest -Acquired24/7 multicast networks to capitalize on the growth in over-the-air television audiences. Justice Network and Quest each offer unique ad-supported programming for free to television consumers and are among the top distributed entertainment multicast networks in the U.S.
• Launched VAULT Studios and Debuted BOMBER Podcast - Introduced VAULT Studios, a digital content studio offering high-quality storytelling from TEGNA’s owned archive of investigative reports. VAULT projects pull from real-life true crime cases investigated by TEGNA’s stable of award-winning reporters. In the quarter, VAULT’s first six-part crime investigation podcast series BOMBER debuted across podcast players and apps, including iTunes where it was among the top 12 podcasts in the News & Politics category.
• Daily Blast LIVE (DBL) Continues to Grow - DBL has seen impressive year-over-year growth and increased its household reach by 17 percent. There has also been a significant uptake in viewership by women 25-54, up 17 percent year-over-year.
• Content Transformation Process - Initiatives continue to show results with audience share increases in key large markets.In the November-February ratings period,more than half of large market stations were up in morning and late local news in adults 25-54. TEGNA innovators completed 10 additional pilots from December through February, including late news, podcast and YouTube pilots. TEGNA stations received 91 regional Edward R. Murrow Awards for excellence in journalism and innovation, more than any other local media company in the United States. Four TEGNA stations were awarded Walter Cronkite Awards for Excellence in Political Journalism, again more than any other news organization.

CAPITAL ALLOCATION AND M&A UPDATE

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

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

ADDITIONAL INFORMATION

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