Saga Communications, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. Saga operated radio properties in 26 markets, with 75 FM and 33 AM stations. Its Joplin and Victoria television stations were sold in September 2017, so their prior-year results are presented as discontinued operations.
Financial performance
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Net operating revenue | $28.009 million | $26.155 million | +7.1% |
| Station operating expenses | $23.397 million | $21.340 million | +9.6% |
| Operating income, continuing operations | $2.319 million | $1.973 million | +17.5% |
| Income from continuing operations, net of tax | $1.529 million | $1.047 million | +46.0% |
| Net income | $1.529 million | $1.938 million | -21.1% |
| Diluted EPS | $0.26 | $0.33 | Down $0.07 |
| Cash provided by operating activities | $4.372 million | $5.455 million | -$1.083 million |
| Capital expenditures | $1.498 million | $1.439 million | +$0.059 million |
Operating margin was approximately 8.3%, compared with 7.5% a year earlier; continuing-operations net margin was approximately 5.5%, compared with 4.0%. Net income declined despite stronger continuing results because Q1 2017 included $891,000 of after-tax income from the television stations, which were no longer owned in 2018. Revenue included $25.758 million of broadcast advertising, $950,000 of digital advertising, and $1.301 million of other revenue.
Liquidity, debt, and capital allocation
- Cash and cash equivalents were $47.794 million at March 31, 2018, down from $53.030 million at December 31, 2017. Current assets were $68.650 million and current liabilities were $12.444 million.
- Long-term debt was $25.0 million, unchanged from year-end, under a $100 million revolving credit facility maturing August 18, 2020. Approximately $75 million of capacity remained available. Saga reported compliance with all financial covenants.
- Operating cash flow was below the prior-year quarter. Investing activities used $1.204 million; financing activities used $8.404 million, including $8.311 million of dividends paid and $93,000 of share repurchases.
- The board declared a regular dividend of $0.30 per share, paid March 30, 2018. The quarter’s cash dividends also included payment of the $0.80-per-share special dividend declared in December 2017.
Material changes and management commentary
- Revenue rose $1.854 million, but management attributed $1.775 million to stations not owned or operated for the full comparable period. Same-station revenue increased only $79,000, or 0.3%: higher national and political revenue was partly offset by a $492,000 decline in local revenue.
- Same-station operating expenses increased $108,000, or 0.5%. Continuing operating income also benefited from a $230,000 increase in other operating income, primarily from the sale of a tower in Keene, New Hampshire, and a $319,000 reduction in corporate general and administrative expenses.
- Management attributed lower income tax expense partly to the federal corporate tax rate reduction from 35% to 21%. Other income included $89,000 of interest and dividend income.
- Management anticipated increased political advertising in 2018 because of more national, state, and local elections. It expected 2018 capital expenditures of approximately $5 million to $6 million, funded from operating cash flow.
- The company adopted the new revenue-recognition standard on January 1, 2018 using the modified retrospective method; adoption had no material financial-statement impact.
Outlook, risks, and contingencies
Management said operating cash flow was expected to cover quarterly debt service, while cautioning that insufficient cash flow could require equity issuance, refinancing, or property sales, with no assurance such options would be available on favorable terms. The company highlighted risks including economic and advertising-market conditions, dependence on key stations and personnel, leverage and debt service, acquisition integration, regulation, competition from new media technologies, and natural disasters or terrorist attacks. Five markets represented approximately 41% of revenue and 52% of station operating income in Q1 2018. Ordinary-course claims and legal proceedings were disclosed; management did not expect them to materially affect the financial statements.
Important facts for investors to verify
- How much of reported revenue growth reflects acquired stations versus underlying same-station performance, particularly local advertising trends.
- Whether political-advertising gains and the tower-sale income are repeatable, and how operating costs develop relative to revenue.
- Cash generation and cash balances after dividends, share repurchases, and planned capital expenditures; confirm ongoing covenant compliance and borrowing availability.
- The effects of market concentration, advertising competition from digital media, and the company’s exposure to economic conditions.
- Any updates to tax-law provisional accounting, legal contingencies, or management’s expected 2018 outlook.