August 1, 2017 Last Updated 8:16 am

TEGNA announced Q2 earnings following spin-off of Cars.com and sale of CareerBuilder

In May, TEGNA, formerly part of Gannett, completed the spin-off of Cars.com and received a tax-free distribution of $650 million in cash

MCLEAN, Va — August 1, 2017 — TEGNA Inc. today announced strong financial results for the 2017 second quarter subsequent to the now completed spin-off of Cars.com and sale of CareerBuilder.

Highlights for the second quarter include the following:

  • Total company revenue growth from continuing operations of 3 percent; Media revenue growth of 5 percent primarily driven by new initiatives and a substantial increase in subscription revenue
  • GAAP earnings per diluted share from continuing operations of $0.23; non-GAAP earnings per diluted share from continuing operations of $0.29
  • Net income from continuing operations was $49 million; Adjusted EBITDA excluding corporate totaled $186 million
  • Completed successful spin-off of Cars.com in the second quarter; received tax-free distribution of $650 million, most of which was used to reduce debt in the second quarter
  • Completed sale of CareerBuilder for gross proceeds of $250 million in cash and retained 12 percent ownership stake and two board seats
  • Finalized OTT distribution deals with all of the company’s major network partners and multiple OTT streaming services at per-subscriber economic terms equal to or better than per-subscriber economics of traditional MVPDs
  • OTT ad network Premion surged to 1,965 campaigns, 372 advertisers across 190 markets, from a base of zero since launching less than 9 months ago

Dave Lougee, president and chief executive officer, said, “For its first quarter reporting as a pure play media company, TEGNA delivered solid operating results. Comparable revenue was up five percent, at the high-end of guidance, and Adjusted EBITDA margin, excluding corporate, was 38 percent. We are successfully executing our strategy of being a best-in-class operator, transforming our content, sales and marketing offerings through innovation and data-driven decision making. Leveraging our scale derived from our industry-leading local stations in large markets across a third of the country, we are reaching new audiences and advertising clients, and expanding the markets we’re targeting with new products and businesses.”

Lougee continued, “Looking ahead, we believe industry consolidation in a changing regulatory environment presents a compelling opportunity for TEGNA. Our track record in broadcast operations, along with our scale and financial firepower, uniquely positions us to play an active role in vertical and horizontal consolidation, and we will evaluate and pursue accretive opportunities to enhance our organic growth strategy, all within our usual financial discipline. Our capital allocation strategy has provided us with a strong balance sheet that gives us the flexibility to act opportunistically, and our success in achieving synergy targets demonstrates our ability to execute. In addition, our strategic and innovative initiatives in content, programming and sales give us the ability to create additional shareholder value through M&A, whether vertical or horizontal, beyond traditional revenue and cost synergies.”

Lougee concluded, “Reflecting our ongoing investment in content-related initiatives, we made great progress across a number of innovations. Notably, we launched VERIFY news fact-checking segments across all our platforms, as well as HeartThreads, a new national digital content vertical. We announced the host line-up and September 11 premiere date for our TEGNA-owned daily, live syndicated program “Daily Blast LIVE,” which will air live in 36 TEGNA markets and nationally on Facebook and YouTube. We announced a new live, daily talk show, “Sister Circle,” produced out of WATL in Atlanta, which will premiere on September 11 in 12 TEGNA markets and nationally live on TV One, reaching 60 percent of U.S. television households. TEGNA and KXTV in Sacramento partnered with the Cheddar OTT network to launch “Cheddar Local,” which will provide KXTV with local business and technology segments relevant to the Sacramento community.”

On May 31, 2017, TEGNA completed the spin-off of Cars.com and received a tax-free distribution of $650 million in cash. On July 31, 2017, TEGNA, together with the other owners of CareerBuilder, completed the sale of a controlling interest in this non-core business. Results for Cars.com and CareerBuilder are now reflected as Discontinued Operations in TEGNA’s Statements of Income for all periods presented.

As a result, TEGNA will report one segment going forward which will include Media and a small remaining digital marketing services contract that was previously reported in the Digital Segment. However, the historical financial results include the impact of a transition services agreement with Gannett, which concluded in June 2017, as well as Cofactor, which was sold in December 2016. Neither the transition services agreement or Cofactor were included in the former Media Segment. In addition, the company repositioned digital marketing services in the past year and shut down its direct sales business late last year, also adversely impacting revenue comparisons to last year. These unfavorable comparisons will continue through the second quarter of 2018.

SECOND QUARTER

CONTINUING OPERATIONS

The following table summarizes the quarterly year-over-year changes in continuing operations for both GAAP and non-GAAP measures (in thousands).

See Table 2 for reconciliations between non-GAAP measures and the most directly comparable GAAP reported numbers.

Total company revenues were 3 percent higher year-over-year driven by 5 percent growth in Media from new initiatives and a substantial increase in subscription revenue. This growth was partially offset by the changes to the Digital Segment described above.

The company now reports a new revenue line, Advertising and Marketing Services, to better reflect its strategy to focus on marketing all products across platforms as well as new initiatives. This category includes all of the company’s traditional and digital revenues including Premion, Hatch, G/O Digital and other digital advertising and marketing revenues across our platforms.

The “Retransmission” revenue category has been renamed “Subscription” to better reflect the future changes in that revenue stream, including the distribution of TEGNA stations on OTT streaming services.

Revenue growth was driven by a $34.5 million increase in subscription revenue as well as revenue contributions from new initiatives including OTT ad network Premion and Hatch, the company’s centralized marketing resource. Revenue growth was partially offset by a decline in advertising and marketing services revenue and lower politically-related advertising.

The following table summarizes the year-over-year changes in revenue categories (in thousands).

(a) Includes traditional advertising, digital advertising as well as revenue from the company’s digital marketing services businesses.

(b) This change includes the impact of the conclusion of a transition services agreement with Gannett for several digital marketing services previously reported in the Digital Segment. Adjusting for the impact of this, Advertising and Marketing Services was down 3%.

(c) Reverse compensation to networks is included as part of programming costs.

Reported operating expenses were up 7 percent in the quarter. On a non-GAAP basis, operating expenses increased 10 percent primarily due to substantially higher programming fees and continued investment in growth initiatives offset partially by the absence of expenses associated with Cofactor. Corporate expenses in the second quarter of 2017 were $14.2 million.

Reported operating income declined 6 percent compared to the second quarter in 2016. On a non-GAAP basis, operating income was 10 percent lower as several factors impacted revenue growth comparisons and substantially higher programming fees drove the increase in operating expenses.

Adjusted EBITDA (a non-GAAP measure detailed in Table 3) was $171.5 million in the quarter and the Adjusted EBITDA margin equaled 35 percent. Adjusted EBITDA excluding corporate expenses totaled $185.6 million which resulted in a margin of 38 percent.

Net income from continuing operations totaled $49.3 million. On a non-GAAP basis, net income from continuing operations was $63.1 million, a decline of 18 percent.

Special items in the second quarter of 2017 unfavorably impacted GAAP results by $0.06 per share due to non-cash asset impairments, severance, other expenses primarily related to the spin-off of Cars.com and deferred tax adjustments (refer to Table 2 for a reconciliation of results on a GAAP and non-GAAP basis).

THIRD QUARTER

GUIDANCE

Total company revenue comparisons will be unfavorably impacted by the absence of record Olympic revenue in 2016 and substantially lower political advertising than a year ago, as well as the conclusion of a transition services agreement for several digital marketing services and the absence of revenue from the sale of Cofactor last year.

As a result, total company revenue is expected to decline in the high-single digits to low-double digits in the third quarter of 2017 compared to the year-ago quarter. However, on a comparable basis, excluding the impact of the Olympics, political spending, the conclusion of a transition services agreement for several digital marketing services previously reported in the Digital Segment and Cofactor, total company revenue is expected to increase in the mid-single digits year-over-year.

SECOND QUARTER

NON-OPERATING AND CASH FLOW ITEMS

Interest expense in the quarter was $54.8 million compared to $56.1 million in the second quarter of 2016. The decline was due primarily to lower average debt outstanding partially offset by a higher average interest rate.

Other non-operating expense was $21.1 million in the quarter compared to an expense of $4.6 million in the second quarter of 2016. The $16.5 million increase primarily reflects expenses associated with the spin-off of Cars.com and non-cash asset impairment charges. On a non-GAAP basis, other non-operating activity resulted in a net expense of $1.4 million in the second quarter of 2017, relatively unchanged from the second quarter of 2016.

Cash flow from operating activities for the second quarter of 2017 was $98.4 million. Free cash flow (a non-GAAP measure – Refer to Table 4) totaled $66.7 million for the quarter. Second quarter 2017 cash flow from operating activities and free cash flow were lower both year-over-year and sequentially due to the payment of NBC network reverse compensation on 11 TV stations for the first time in 2017. New tax legislation that changed the timing of cash tax payments from the first quarter to the second quarter in 2017 also contributed to the sequential decline.

Subsequent to the quarter end, TEGNA completed the sale of CareerBuilder for gross proceeds of $250 million. The company estimates that, net of taxes and other adjustments, cash proceeds will be approximately $220 million, which TEGNA intends to use to retire existing debt and for other general corporate purposes. Under the terms of the agreement, TEGNA will remain an ongoing partner in CareerBuilder, reducing its previous 53 percent controlling interest to 12 percent on a fully-diluted basis and retaining two seats on CareerBuilder’s Board of Directors.

Long-term debt outstanding was $3.3 billion and total cash was $65.7 million at the end of the quarter. Dividends paid in the quarter totaled $30.1 million. The effective tax rate in the quarter was 32.7 percent on a GAAP basis. On a non-GAAP basis, the effective tax rate was 34.0 percent.

SECOND QUARTER

DISCONTINUED OPERATIONS

Results for Cars.com and CareerBuilder are now reflected as Discontinued Operations in the company’s Statements of Income. As previously disclosed, the company will record a non-cash impairment charge in the second quarter in connection with the planned disposition of CareerBuilder. The non-cash charge attributable to TEGNA is expected to be approximately $275 million. As a result, net loss attributable to TEGNA including Discontinued Operations is expected to be approximately $130 million for the second quarter of 2017. Final results will be published when the company files its quarterly report on Form 10-Q, which is expected to occur before August 9, 2017.

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