Dear Fellow Shareholders,
TEGNA’s purpose is to serve the greater good of our communities through empowering stories, impactful investigations and innovative marketing services. We have never been more certain of the importance of our role than we are today. In 2020, our country faced an unprecedented global pandemic, witnessed acts of racial injustice and related demonstrations, and participated in local and presidential elections with record turnouts. Our journalists have provided ongoing coverage during each of these events, with an unwavering commitment to delivering factual, important updates to our audiences in the markets we serve across the country.
We want to thank you for your investment in our company during this unique time, and to update you on some of the important focus areas of our Board and management team this year:
Response To Covid-19 And Acts Of Racial Injustice
We made thoughtful decisions in support of our employees, businesses and communities during the pandemic. Since the onset of the pandemic, our COVID-19 Task Force has prioritized the health and safety of our employees, implementing new practices for employees in our buildings or reporting from the field. Our news production and technology teams worked to create innovative solutions to enable our stations to continue to broadcast news programs as employees transitioned to remote work. To help employees manage stress and receive support for family care needs while balancing time at work, we made additional mental health and back-up care resources available to employees and their families. Throughout the year, we also focused on turning the confusion and anxiety caused by the pandemic into confidence and clarity for our partners. Our advertising sales teams reached out personally to help businesses make informed decisions. The sales transformation improvements we have actively implemented over the past several years, including bringing national sales in-house and creating one, holistic sales organization, which we call “One Team TEGNA,” helped our colleagues accelerate growth and better serve clients and agencies. Our stations continued to partner with local nonprofit organizations to address community needs. Through virtual telethons, benefit concerts, fundraising drives and awareness campaigns, stations helped raise more than $66 million for local relief efforts, supporting frontline healthcare workers and helping to ensure families impacted by COVID-19 did not go hungry. Through the TEGNA Foundation’s Community Grants program, stations identified pressing needs in their communities and made 260 grants totaling $1.85 million.
We took further proactive steps to help address and combat systemic racism in our country and implemented changes to support Diversity, Equity and Inclusion efforts at our company. We believe the death of George Floyd was a seminal moment of clarity regarding systemic racism in our country. At TEGNA’s station in Minneapolis and throughout the country, our journalists covered the resulting demonstrations and helped bring their communities together, creating greater awareness of racial issues and facilitating honest discussions about race and inequality to bring about needed change in our communities. While we have been proud of our diverse and inclusive culture, the events of 2020 made it clear that we must do more to ensure that our company is truly representative of the diverse communities we serve. In 2020, our Board adopted specific areas of oversight for each Board committee regarding the way that TEGNA approaches diversity across a number of different dimensions. In June, we launched a Diversity & Inclusion Working Group comprised of employees from across TEGNA to provide input to our efforts. In September, Grady Tripp was appointed to the newly created position of Chief Diversity Officer, a role in which he partners with organizational leaders to head the development and execution of our diversity strategy. As a signatory to the CEO Action for Diversity and Inclusion pledge, the largest CEO-driven business commitment to advance diversity and inclusion in the workplace, we have committed to strengthening diversity and inclusion initiatives at TEGNA. We have developed and adopted Diversity, Equity and Inclusion goals for 2025 that include increasing Black, Indigenous and People of Color (BIPOC) representation in our content teams, content leadership and management roles. We are proud of these actions and the progress we have made so far, and our efforts with respect to diversity and inclusion will continue to be an area of heightened focus for our Board and management.
Recent Performance Reflects The Strength And Resilience Of Our Underlying Business And Our Long-term Strategy
We exceeded full-year 2020 guidance provided prior to the COVID-19 pandemic for all key financial metrics, despite the challenging external market environment. This strong performance is a reflection of the prudent business and strategic decisions our Board and management have made over the years. TEGNA achieved total revenues of $2.9 billion in 2020, a 28 percent increase from 2019, driven by record political revenue and continued growth of our subscription business. Adjusted EBITDA surpassed $1.0 billion for the year, a key milestone, resulting in an Adjusted EBITDA1 margin of 34.9 percent while continuing to invest in Premion, our OTT advertising platform, which grew its revenues by more than 40 percent in 2020 relative to the prior year, finishing the year with revenue of more than $145 million. We generated $741 million of free cash flow in 2020, driving free cash flow as a percentage of revenue of 21.3 percent for the 2019-2020 period. This has allowed us to rapidly repay debt and continue to evaluate the most appropriate use of capital to drive shareholder value.
Our subscription and political revenues continue to provide high margin, stable revenues, now comprising more than 50 percent of our total company revenues on a two-year basis and expected to comprise a larger percentage thereafter. Our multi-year distribution agreements with several cable and satellite TV providers, including the agreements we recently reached with AT&T for DirecTV and AT&T U-Verse, give us clear line of sight into future cash flows. In 2020, we repriced approximately 35 percent of our paid subscribers at leading Big Four affiliate rates and we will reprice an additional 30 percent in 2021. Our leading Big Four rates have driven and will continue to drive the growth in our subscription revenue, which grew by 28 percent from 2019 to 2020 to $1.3 billion. We continue to see the rate of subscriber declines improve and stabilize. Last year was also a record political year for us, with full-year political revenue of $446 million. The strength of our stations across the country positioned us well to capture spending from presidential and congressional candidates early on, continuing through both Election Day and the Georgia Senate runoffs early this year. These two stable and predictable revenue streams will continue to provide us with significant cash flows in the years to come.
Diligent Capital Allocation Philosophy Balances Growing The Business And Returning Value To Shareholders
Throughout the year, our Board continued its oversight of the diligent management of our expenses, balance sheet and liquidity through thoughtful cost and capital management and financing actions. In early 2020, we targeted reducing our annual run-rate expenses by $50 million by the end of 2021. With the efficiencies we have gained while operating through COVID-19, as well as continued operating cost reductions driven by innovative technologies and centralization, we now expect to realize these savings several quarters earlier than anticipated. In 2020, we also executed nearly $1.6 billion in refinancings to lower interest expense and extend maturities to increase capital flexibility. As of year-end 2020, we reached a net leverage amount of 3.95x and have no upcoming debt maturities until 2024. Thanks to our strong financial position, we were able to announce the renewal of our $300 million share repurchase program in January, which we had previously suspended alongside the announcement of our acquisition of the Nexstar-Tribune divestiture stations to prioritize debt repayment. Our capital allocation decisions will continue to focus on balancing investments in organic and inorganic growth opportunities, paying down debt, issuing dividends, and repurchasing shares. Our Board will remain open to all avenues that create shareholder value, and we will continue to be thoughtful in evaluating the best use of capital to create and return value to shareholders.
2021 Guidance Underscores Management’s Expectations For Continued Strong Performance And Growth In The New Year
Our full-year 2021 financial guidance metrics reflect the momentum from 2020’s record results, continued growth in our subscription business and operating efficiencies. This includes our projection of year-over-year subscription revenue growth of mid-to-high-teens percent, reflecting Big Four rates for our portfolio of stations. We also project net subscription profits to grow in the mid-to-high twenties percent in 2021. Full-year Adjusted EBITDA and free cash flow will continue to reflect year-over-year expense improvements resulting from significant cost reduction initiatives that have been underway for the past 24 months.
Continuing To Find Ways To Reach And Interact With Our Customers
Our news coverage and reporting initiatives continued to serve as our customers’ go-to source for information and trusted, verifiable news. This past year, our VERIFY fact-checking reporting initiative played a critical role in fighting disinformation during the pandemic and increasing accountability around the election, including through VERIFY’s expansion on Snapchat. Consumer demand for VERIFY content surged in 2020, with traffic to VERIFY content on stations’ websites increasing 423 percent year-over-year (source: Google Analytics). During the election, our award-winning journalists also played a critical role in building trust and countering disinformation during the voting process. Each member of our journalism team took part in training to detect misinformation campaigns, and our local stations created Voter Access teams to educate the general public on the election process including where and how to vote.
The continued expansion of our digital footprint allowed us to reach more consumers. Our digital properties averaged nearly 70 million unduplicated monthly visitors during the year (source: Google Analytics and YouTube Analytics) and video plays totaled 1.7 billion, representing a 49 percent increase in visitors and 100 percent increase in video plays year-over-year. We also found new ways to interact with our audiences through mobile features like “Near Me,” which allows viewers to share content and get breaking news updates in real time, including neighborhood-level information.
We continued to capitalize on the growth of viewing on streaming services and expanded our offerings for our customers. Premion is poised to continue to benefit from increased viewing on streaming services into 2021 and beyond, helping us expand our revenue base and giving us access to new markets. We are expecting Premion to achieve similar percentage revenue growth in 2021 as it experienced in 2020. In February 2020, we reached an agreement with Gray Television through which Gray serves as a reseller of our Premion services, which further expanded Premion’s reach to non-TEGNA markets. In July 2020, we entered into a renewed and expanded partnership with TV data and measurement company Alphonso to include Premion, in addition to our linear advertising platforms. The multi-year agreement will continue to provide TEGNA with metrics to help our advertising partners make more informed, data-driven decisions. We also updated Roku streaming apps for all stations and began the rollout of our station apps on Amazon Fire TV. These enhancements have allowed us to reach a wider audience than ever before, and to continue to deliver high quality news and entertainment at a time when our consumers need it the most. Streaming customers are now able to access live local news, weather forecasts, TEGNA’s daily news and entertainment program Daily Blast Live, and True Crime Network, which features premium, curated and original content for true crime fans.
Ongoing Strong Oversight By Our Experienced And Engaged Board And Commitment To Incorporating Shareholder Feedback
Our skilled, diverse Board continued to provide strong oversight of our long-term strategy. Our Board has continued to be actively engaged with management in overseeing and driving the business forward, including through ongoing self-assessment to ensure the Board has the right practices and composition in place to be effective stewards of value creation. The strong diversity of our Board (42 percent female and 17 percent racially and ethnically diverse Directors), and our Directors combined financial, media, operational, strategic, M&A, ESG and ancillary experience allows for rich conversations in the Boardroom and thoughtful evaluation of risks and opportunities for TEGNA through the lens of varied, informed perspectives. These combined skills proved to be invaluable in navigating the challenges that we faced in 2020, and in positioning us to continue to execute on our five-pillar strategy.
We expanded our commitment to integrating our ESG strategy throughout our business as a result of shareholder feedback and our ongoing work to align our initiatives in this space with TEGNA’s values. In 2020, our Board and management continued to engage with our shareholders to understand their key areas of focus and feedback. One of the most prominent topics discussed was our focus on our environmental, social and governance practices. This past year, our Board enhanced this focus area inside the Boardroom and spent significant time discussing the path forward for amplifying initiatives and reporting of these important matters. The Public Policy and Regulation Committee, which oversees TEGNA’s social responsibility and sustainability efforts, also specifically discussed a path forward for enhanced disclosure and reporting, including the decision to report metrics aligned with the Sustainability Accounting Standards Board’s (SASB) guidelines that are relevant to our industry group. We will also begin tracking greenhouse gas emissions and set goals for 2025 to prudently manage our environmental impact. The Board continued to oversee investment in our people, including developing talent, supporting employee well-being, and listening to our employees as part of our annual companywide employee survey. You will find more information on our ESG reporting in our 2020 Social Responsibility Highlights, which can be viewed at tegna.com/corporate-social-responsibility.
In Closing
As we reflect on the past year, we could not be prouder of our people and company. This past year has been the most unique and challenging of our history. However, we have emerged from the year in a position of strength by taking deliberate and decisive action and by institutionalizing key learnings of how we can continue to grow going forward. We look forward to the opportunities ahead of us in 2021 and beyond, for our company, our team, and all of our stakeholders. Thank you for your continued support.
Sincerely,
Howard D. Elias, Chairman of the Board
Dave Lougee, President and Chief Executive Officer