Saga Communications Inc. - Q1 2007 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2007. Saga Communications, Inc. is a broadcast company operating radio and television stations across 23 markets. The company actively seeks expansion through acquisitions and operates under a reducing revolving credit facility.
Key Financial Metrics
| Metric | Q1 2007 | Q1 2006 |
|---|---|---|
| Net Operating Revenue | $31,883,000 | $31,191,000 |
| Operating Income | $3,572,000 | $4,507,000 |
| Net Income | $740,000 | $1,525,000 |
| Earnings Per Share (Diluted) | $0.04 | $0.07 |
| Cash from Operating Activities | $4,268,000 | $5,196,000 |
| Long-Term Debt | $131,911,000 | $133,911,000 |
| Cash and Equivalents | $7,594,000 | $10,799,000 |
Segment Performance: The Radio segment generated $27.9M in revenue with $5.4M operating income. The Television segment generated $4.0M in revenue with $0.5M operating income.
Material Changes vs. Prior Period
- Revenue: Increased 2.2% to $31.9M, driven by a 3% increase in local advertising revenue on same stations.
- Operating Income: Decreased 20.7% to $3.6M. This decline was caused by a 5.2% increase in station operating expenses and a 16.9% increase in corporate general and administrative (G&A) expenses.
- Net Income: Decreased 52.0% to $0.74M. The drop was primarily due to lower operating income and a $390,000 decrease in "other income" (which included a $500,000 asset disposal gain in the prior year).
- Expenses: Station operating expenses rose $1.3M, largely due to increased advertising, promotion, and sales compensation ($722,000) and higher healthcare costs ($165,000). Corporate G&A rose $335,000, attributed to stock-based compensation and the creation of an Integrated Media department.
Outlook, Risks, and Contingencies
- Acquisitions: The company acquired WCNR-FM (Charlottesville, VA) for $3.33M in January 2007. Pending acquisitions include WOXL-FM (Asheville, NC) for ~$8M and WKRT-AM/WIII-FM (Ithaca, NY) for ~$4M. The Ithaca deal is subject to an investigation by the NY Attorney General regarding potential anti-trust violations.
- Debt Covenants: The company is in compliance with all financial covenants under its $200M credit agreement. However, the agreement includes mandatory quarterly reductions in revolving commitments starting March 31, 2008, and restrictions on dividends and additional indebtedness.
- Market Risks: Results are heavily dependent on four key markets (Columbus, OH; Manchester, NH; Milwaukee, WI; Norfolk, VA), which represented 88% of consolidated operating income in Q1 2007. The company notes ratings softness and revenue declines in Columbus and Norfolk.
- Capital Expenditures: Anticipated to be approximately $10M for 2007, financed through operations or borrowings.
Investor Verification Checklist
- Verify the status of the pending Ithaca, NY acquisition and the outcome of the NY Attorney General's subpoena.
- Monitor the performance of the four key markets (Columbus, Manchester, Milwaukee, Norfolk) which drive the majority of operating income.
- Review the impact of the mandatory credit facility reductions beginning in 2008 on future liquidity and acquisition capacity.
- Assess the sustainability of the increased operating expense strategy (advertising/promotion) intended to drive future revenue growth.
- Confirm the timeline for the FCC approval of the Asheville, NC (WOXL-FM) acquisition.