Saga Communications, Inc. — Q3 2022 Form 10-Q
Business context and period: Unaudited results for the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods. Saga operates radio properties in 27 markets, including 79 FM and 35 AM stations and 80 metro signals. Its primary revenue source is advertising; about 90% of radio-station gross revenue in the first nine months came from local advertising.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net operating revenue | $30.0m | $28.8m | $84.8m | $79.2m |
| Operating income | $1.1m | $4.6m | $8.1m | $10.1m |
| Net income (loss) | $(0.1)m | $3.5m | $4.9m | $7.5m |
| Diluted EPS | $(0.01) | $0.58 | $0.82 | $1.25 |
| Operating margin | 3.5% | 16.0% | 9.6% | 12.8% |
Cash flow and liquidity: Nine-month operating cash flow was $14.4m, versus $13.9m in 2021. Cash and cash equivalents were $48.2m at September 30, plus $10.1m of short-term U.S. Treasury investments; cash was $54.8m at year-end 2021. Net investing cash use was $14.7m, including $10.0m net purchases of short-term investments and $4.7m of capital expenditures. Financing cash use was $6.2m, primarily dividends paid.
Debt and balance sheet: No debt was outstanding at quarter-end; the company reported approximately $50m of unused revolver capacity and compliance with its financial covenants. Total assets were $251.4m and total liabilities were $63.4m at September 30, 2022. The credit facility is scheduled to mature June 27, 2023, and management said it was working to extend it on similar terms. The facility is secured by substantially all company and subsidiary assets, with stated exclusions.
Material changes and management commentary
- Q3 revenue rose 3.9%, while first-nine-month revenue rose 7.0%. Growth reflected higher local, digital/interactive, political and event-related revenue; nine-month national revenue declined. Political revenue benefited from more elections, and event revenue recovered from pandemic-related cancellations in 2021.
- Station operating expenses increased 2.8% in Q3 and 4.9% year to date. Corporate general and administrative expense rose $4.1m in Q3 and $4.5m year to date, largely due to costs related to founder, Chairman, President and CEO Edward K. Christian’s death.
- Mr. Christian died on August 19, 2022. The company recorded $3.9m of related employment-agreement expense in Q3; the agreement provides approximately $6.0m in total cash, stock and insurance benefits, including amounts accrued in earlier periods. His Class B shares converted to Class A shares, eliminating the Class B class; the estate held approximately 16% of voting rights after conversion. The filing identifies the ensuing control transition as a risk.
- Q3 interest expense fell to $32,000 from $73,000, reflecting repayment of debt in October 2021. Interest income increased with short-term investments. Other income was lower year over year because 2021 included insurance gains related to weather damage.
- The Q3 effective tax rate was approximately 108.7%, affected by $3.8m of CEO-death-related compensation expense treated as a permanent book-tax difference. The filing reports a nine-month effective tax rate of approximately 40.5%.
Outlook, capital allocation and risks
- Management anticipated 2022 capital expenditures of approximately $5.5m–$6.0m, funded from operating cash flow; $4.7m had been spent in the first nine months.
- The Board declared a $0.25 quarterly dividend and a $2.00 special dividend per share on September 20. The approximately $13.6m payment was made October 21, 2022 and was recorded as a payable at quarter-end. Dividend payments and future acquisitions may be funded from operations, cash, borrowing or financing; availability on acceptable terms is not assured.
- Management said inflation was beginning to affect costs, though its impact had not been significant to date. Risks cited include economic weakness, inflation and energy costs, interest rates, competition from new media, audience trends, key-person dependence, regulation, cyberattacks, COVID-19 effects, and the change in control following Mr. Christian’s death. No material litigation was reported.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. Interim results are not necessarily indicative of full-year results.
Investor facts to verify
- Whether the credit facility extension is completed before its June 2023 maturity, and the resulting terms, covenants and borrowing costs.
- Cash, investment balances and liquidity after the $13.6m special-dividend payment made in October 2022.
- The timing and total financial impact of remaining obligations under Mr. Christian’s employment agreement, and how the post-transition governance and control arrangements develop.
- Whether revenue gains from political advertising and reopened events persist, and whether station and corporate costs continue to outpace revenue growth.
- Whether inflation, economic conditions or impairment indicators affect operating performance or the carrying value of broadcast licenses and goodwill.