Saga Communications, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020; comparative periods are 2019. Unaudited consolidated results. Saga operates radio stations in 27 markets, with 79 FM and 34 AM stations.
Financial performance
Amounts below are in millions of dollars except per-share data. Revenue is primarily radio advertising; broadcast advertising accounted for $22.1 million of Q3 revenue and $61.1 million for the first nine months of 2020.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net operating revenue | $24.1 | $31.3 | $67.1 | $91.3 |
| Operating income (loss) | $0.2 | $4.8 | $(6.2) | $13.4 |
| Net income (loss) | $(1.0) | $3.3 | $(4.2) | $9.4 |
| Diluted EPS | $(0.16) | $0.56 | $(0.70) | $1.59 |
| Operating margin, approximate | 1.0% | 15.4% | (9.3)% | 14.6% |
Operating margins are calculated as operating income divided by revenue. Station operating expenses declined 16.9% in Q3 and 13.2% year to date, less than the respective revenue declines of 22.8% and 26.5%. Q3 impairment of broadcast licenses was $1.4 million; nine-month impairment was $5.1 million. The filing reports no goodwill or other long-lived-asset impairment.
Cash flow and liquidity: Operating cash flow was $8.2 million for the first nine months, down from $19.0 million in 2019. Cash increased to $48.3 million from $44.0 million at year-end 2019. Investing cash outflow was $0.2 million and financing cash outflow was $3.8 million. Debt remained $10.0 million; the $70 million revolving facility had approximately $60 million of unused capacity. The company reported compliance with its financial covenants. Cash exceeded debt by $38.3 million at quarter-end.
Total assets were $243.2 million and stockholders’ equity was $188.2 million at September 30, 2020. Broadcast licenses and goodwill totaled $109.3 million, approximately 45% of total assets.
Material changes and unusual items
- Q3 revenue fell $7.1 million year over year. Decreases in local and national advertising and event-related revenue were partly offset by $1.7 million of higher political advertising revenue.
- For the first nine months, revenue fell $24.2 million. The company attributed the decline primarily to COVID-19 disruption, shutdowns, and reduced advertiser spending. Political revenue increased but did not offset other declines.
- The company recorded $3.8 million of broadcast-license impairment in Q2 and $1.4 million in Q3, reflecting lower revenue projections, higher discount rates, and lower projected margins in some smaller markets. It cautioned that further impairment may be required if conditions worsen.
- Other operating income included a $1.4 million gain on the sale of land and a building at a tower site. Other income included a $0.2 million insurance gain related to weather damage.
- The Board suspended the quarterly cash dividend beginning in Q2 2020 because of COVID-19 uncertainty. No Q3 dividend was declared; $0.32 per share was declared in Q1. Share repurchases were also halted, although limited purchases occurred earlier in the year.
Outlook, management commentary, and risks
- Management expected Q4 2020 revenue to be 5%–10% below Q4 2019. Revenue had improved from its Q2 low but was recovering more slowly than previously expected. Cost reductions were not expected to fully offset revenue declines.
- Management estimated 2020 capital expenditures of approximately $2.0–$2.5 million, expected to be funded from operations; $1.9 million had been spent through September.
- COVID-19, further governmental restrictions, local economic conditions, and advertising demand remain key uncertainties. The company noted that the duration and severity of the pandemic’s business effects could materially affect financial position, results, and cash flows.
- The Q3 tax expense was $1.1 million despite pretax income of only $0.2 million, producing a reported effective tax rate of approximately 628%; the filing attributes interim tax-rate effects in part to discrete broadcast-license impairment tax benefits.
- Ordinary-course claims and legal proceedings were disclosed; management did not expect potential liabilities to materially affect the financial statements.
Key facts for investors to verify
- Whether advertising revenue and operating margins recover, and how Q4 results compare with the 5%–10% revenue decline outlook.
- Whether additional FCC-license impairments arise; the filing estimates that a 10% lower fair value could imply approximately $5.1 million of additional impairment.
- Cash generation, liquidity, revolving-facility availability, and continued compliance with debt covenants.
- Whether and when the dividend or share-repurchase program resumes.
- Concentration and performance in major markets: five markets generated approximately 38% of nine-month revenue and 52% of station operating income.