Saga Communications, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Saga operates broadcast properties in 27 markets, including 79 FM and 34 AM radio stations. Financial amounts below are in millions unless stated otherwise.
Key financial results
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Net operating revenue | $27.816 | $28.009 | Down 0.7% |
| Operating income | $1.965 | $2.319 | Down 15.3% |
| Net income | $1.370 | $1.529 | Down 10.4% |
| Diluted earnings per share | $0.23 | $0.26 | Down $0.03 |
| Cash provided by operating activities | $6.305 | $4.372 | Up $1.933 |
| Capital expenditures | $1.212 | $1.498 | Down $0.286 |
Operating margin was approximately 7.1%, compared with 8.3% a year earlier; net margin was approximately 4.9%, compared with 5.5%. Interest expense decreased to $0.208 million, while interest income increased to $0.163 million. The effective tax rate was approximately 28.6%.
Balance sheet and liquidity
At March 31, 2019, cash and cash equivalents were $39.170 million, versus $44.729 million at December 31, 2018. Total debt was $15 million, down from $20 million at year-end following a voluntary $5 million repayment. Cash exceeded debt by approximately $24.2 million. The company reported approximately $85 million of unused capacity under its $100 million revolving credit facility, which matures June 27, 2023; it was in compliance with its financial covenants.
Current assets were $59.673 million and current liabilities were $14.417 million. Cash declined by $5.559 million during the quarter, reflecting $10.138 million of net financing outflows—principally dividends and debt repayment—partly offset by operating cash flow. The company paid $5.058 million in dividends during the quarter and declared a regular dividend of $0.30 per share.
Changes versus the prior-year quarter
- Revenue from stations operated throughout both periods fell $1.179 million, or 4.2%; revenue from stations not operated for the full comparable period added approximately $0.986 million.
- Same-station revenue declines included gross national advertising down $0.653 million, political advertising down $0.215 million, and local advertising down $0.542 million. Fewer local and state elections contributed to the political decline.
- Station operating expenses fell 1.0% overall and 4.8% on a same-station basis. However, corporate general and administrative expense rose 5.5%, and other operating income fell by $0.254 million, partly because Q1 2018 included a gain on the sale of a tower.
- Broadcast advertising revenue was $25.191 million, digital advertising revenue $0.875 million, and other revenue $1.750 million. Digital revenue was down from $0.950 million; other revenue increased from $1.301 million.
Outlook, risks and notable items
- Management expects 2019 capital expenditures of approximately $5.0–$5.5 million, to be funded from operating cash flow. No specific revenue or earnings guidance is provided.
- Management expects lower political advertising in 2019 because fewer national, state and local elections are scheduled in most markets. Advertising is typically weakest in the first quarter.
- The company acquired WPVQ-AM and W222CH in Greenfield, Massachusetts, in January for $0.210 million. Management continues to seek acquisition opportunities.
- Adoption of the lease accounting standard on January 1, 2019 added approximately $6.7 million of right-of-use assets and lease liabilities. At quarter-end, those balances were $6.3 million and $6.4 million, respectively; the adoption did not affect retained earnings or cash flows.
- Management cites risks including economic and advertising-market conditions, dependence on key stations and personnel, financial leverage, acquisition integration, regulation, competition from new media technologies, and natural disasters or terrorist attacks. The five largest markets contributed about 38% of revenue and 43% of station operating income in the quarter.
- Ordinary-course claims and legal proceedings were disclosed; management did not expect them to materially affect the financial statements. Results for the quarter are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether the same-station advertising decline stabilizes, particularly in national and local advertising, and how lower expected political revenue affects 2019.
- Whether operating cash flow remains sufficient to fund dividends, planned capital spending, debt service, and potential acquisitions.
- Debt-facility terms, covenant compliance, available borrowing capacity, and the effects of interest-rate changes.
- The contribution and integration prospects of recent acquisitions, and the company’s concentration in its largest markets.
- The sustainability of the $0.30-per-share quarterly dividend and any future share repurchases; the filing reports remaining buyback authorization of approximately $20.3 million.