Saga Communications, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Saga operates radio and television stations; reported continuing operations exclude its Greenville, Mississippi television station, sold during the quarter.
Financial performance
- Revenue: $29.0 million, down 1.2% from $29.3 million. Radio revenue fell 2.9% to $24.5 million; television revenue rose 9.0% to $4.5 million.
- Operating results: Operating income from continuing operations was $4.9 million, down 1.9%. Operating margin was approximately 17.0%, compared with 17.1% in Q1 2012. Radio segment operating income declined 6.7% to $5.5 million; television segment operating income increased 26.5% to $1.4 million.
- Profit: Continuing-operations net income was $2.7 million, up 0.9%. Net income including discontinued operations was $2.9 million, up 9.0%. Diluted EPS was $0.51 versus $0.48, including $0.04 per share from discontinued operations.
- Cash flow: Operating cash flow was $7.7 million, down from $8.8 million. Capital expenditures were $1.2 million. Cash increased by $9.4 million to $25.3 million, including $3.0 million of proceeds from the station sale.
- Debt and liquidity: Long-term debt was $58.8 million, unchanged from year-end; cash exceeded the $6.7 million reported at March 31, 2012. The company had $60 million of unused revolving credit capacity under its $117.8 million credit facility, which matures June 13, 2016. No required term-loan amortization was due, and the company reported compliance with all financial covenants.
- Balance sheet: Total assets were $200.6 million and stockholders’ equity was $107.4 million at March 31, 2013.
Changes and management commentary
- Revenue declined mainly because of lower national radio advertising and lower political advertising in a non-election year. Local and retransmission-consent revenue increased overall.
- Radio results were pressured by weaker national and political revenue. Management cited Milwaukee competition and pricing, changes in rating methodology, demand for 30-second spots, and reduced spending in certain categories as factors behind that market’s revenue weakness.
- Television revenue and operating income improved, supported by local automotive advertising and higher retransmission-consent revenue.
- Lower station costs, including reduced health-care costs and music-licensing fees, partly offset lower revenue. Interest expense fell 32.2%, which management attributed to lower average market rates and lower average debt outstanding.
- The sale of WXVT closed January 31, 2013 for $3.0 million, subject to adjustments; Saga recognized a $223,000 after-tax gain in discontinued operations.
- The company completed a four-for-three stock split in January 2013; share and per-share data were retrospectively adjusted.
Outlook, risks, and other disclosures
- Management expected political revenue to decline significantly in 2013 because it was a non-election year. It anticipated approximately $5.0 million in 2013 capital expenditures, expected to be funded from operations.
- Management believed operating cash flow would cover quarterly debt-service requirements, but cautioned that insufficient cash flow could require equity issuance, refinancing, or asset sales; it gave no assurance such actions would be available on favorable terms.
- Key disclosed risks include leverage and debt service, economic conditions, dependence on key personnel and stations, competition and advertising demand, regulation, technology changes, natural disasters, and integration of acquired stations.
- The company reported no litigation it believed likely to have a material adverse effect. Disclosure controls were deemed effective, and no material change in internal control over financial reporting was reported for the quarter.
Investor verification points
- Assess whether radio advertising weakness—particularly in Milwaukee—and lower national and political revenue persist.
- Separate continuing operating performance from the WXVT sale gain when evaluating earnings and EPS.
- Verify cash generation, planned capital spending, debt service, and continued covenant compliance against the credit facility terms.
- Track the stated $5.0 million 2013 capital-expenditure expectation and the outlook for political advertising in the non-election year.
- Review the 2012 Form 10-K for detailed risk factors, contractual obligations, and credit-facility terms referenced but not reproduced in this filing.