TEGNA’s (TGNA - Free Report) first-quarter 2020 non-GAAP earnings of 43 cents per share came in line with the Zacks Consensus Estimate. Meanwhile, the bottom line surged 48.3% on a year-over-year basis.
Revenues rose 32.4% year over year to $684.2 million and also beat the consensus mark by 1.5%. This year-over-year growth was driven by solid contribution from acquisitions, a continued spike in subscription revenues and strong spending on political advertisements.
Excluding political advertising revenues, adjusted revenues increased 24% year over year.
Quarter in Detail
Advertising and Marketing services (43.1% of revenues) revenues improved 11.6% year over year to $295.2 million, attributable to acquisitions.
Revenues were affected by weak demand in late March due to the coronavirus impact as well as lower revenues recognized from Super Bowl, which was aired on Fox in February 2020, covering less than 6% of TEGNA's households.
Subscription (48.6% of revenues) revenues climbed 37.8% year over year to $332.8 million. The top line benefited from a strengthened subscriber base owing to new station acquisitions and higher rate.
Political (6.9% of revenues) revenues were $47.4 million compared with $2.7 in the year-ago quarter. Other revenues (1.3% of revenues) were $8.8 million, up 9.6% year over year.
Non-GAAP adjusted EBITDA ascended 38.7% year over year to $212.4 million. Adjusted EBITDA margin expanded 140 basis points (bps) to 31%.
The uptick in EBITDA was attributed to solid contributions from new stations and the ongoing cost-containment efforts.
Non-GAAP operating expenses (73.8% of revenues) of $504.9 million were up 30.4% year over year, primarily on account of buyouts and higher programming expenses in relation to a spurt in subscription revenues.
Non-GAAP operating income was up 38.4% year over year to $179.3 million. Operating margin expanded 110 bps to 26.2%.
Balance Sheet & Cash Flow
As of Mar 31, 2020, total cash was $35 million compared with $29 million as of Dec 31, 2019.
Total debt was $4.1 billion and net leverage was 4.7 times as of Mar 31, 2020 compared with $4.2 billion debt and net leverage of 4.9 times as of Dec 31, 2019.
The company ended the reported quarter with more than $700 million in undrawn capacity under its revolving credit facility, which requires financial covenant (debt coverage) was amended to 5.5X.
Notably, on Jan 9, TEGNA completed a $1-billion offering of 2028 senior notes at 4.625%, which reduced interest expense and boosted the balance sheet position. The proceeds from this debt were used to retire nearer-term maturity higher interest rate debt in February. This, in turn, is expected to result in net interest savings of $10 million in 2020.
TEGNA now has $100 million of remaining maturities in 2020 and $350 million for 2021.
Free cash flow in the first quarter was $142 million, up 30% year over year.
Key Q1 Developments
TEGNA inked a partnership deal with Gray Television (GTN - Free Report) during the quarter. Gray acquired a minority ownership interest in Premion, TEGNA’s Connected TV (CTV)/over-the-top (OTT) advertising business. Gray is currently serving as a reseller of Premion’s services across all its 93 television markets.
In January, Vault Studios announced the launch of the six-episode series THE OFFICER’S WIFE.
TEGNA expects coronavirus-led lockdowns and shelter-in-place guidelines to continue hurting non-political advertising revenues in the near term.
The company expects the second quarter of 2020 to be the most significantly impacted period by the coronavirus with a sequential improvement throughout the remainder of the year.
Zacks Rank and Stocks to Consider
Currently, TEGNA has a Zacks Rank #4 (Sell).
Electronic Arts (EA - Free Report) and Netflix (NFLX - Free Report) are two better-ranked stocks in the broader consumer discretionary sector. While Electronic Arts sports a Zacks Rank #1 (Strong Buy), Netflix carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for EA and Netflix is pegged at 8.2% and 30%, respectively.
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