Saga Communications, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. Unaudited results cover the three and six months ended June 30, 2022, compared with the same 2021 periods. Saga operates radio broadcasting properties in 27 markets, including 79 FM and 35 AM stations and 80 metro signals. Amounts below are in millions of dollars unless stated otherwise.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net operating revenue | $29.821 | $28.046 | $54.788 | $50.347 |
| Operating income | $5.381 | $4.615 | $7.091 | $5.498 |
| Operating margin | 18.0% | 16.5% | 12.9% | 10.9% |
| Net income | $3.823 | $3.253 | $5.027 | $4.011 |
| Diluted EPS | $0.63 | $0.54 | $0.83 | $0.67 |
- Revenue and cost trends: Q2 revenue grew 6.3%; station operating expenses rose 3.7% to $21.786 million and corporate G&A rose 4.6% to $2.609 million. For the first half, revenue increased 8.8%, while station expenses rose 6.0% and corporate G&A 7.5%.
- Revenue drivers: Q2 growth included non-spot/event revenue, digital interactive revenue, local advertising and political advertising; lower national advertising partly offset gains. First-half growth similarly reflected local, digital, event and political revenue, partly offset by national advertising declines.
- Cash flow: First-half operating cash flow was $7.340 million, down from $9.203 million. Investing used $13.612 million, including $9.999 million for short-term investments and $3.563 million for property and equipment. Financing used $6.167 million, primarily dividends. Cash declined $12.439 million to $42.321 million; the company also held $10.019 million of short-term Treasury investments.
- Liquidity and debt: Saga reported no debt outstanding at June 30, 2022 and approximately $50 million of available capacity on its revolving credit facility. Current assets were $74.135 million and current liabilities $15.843 million. Total liabilities were $47.280 million and stockholders’ equity $200.693 million.
- Capital returns and investment: Dividends declared were $0.20 per share for Q2 and $0.36 per share for the first half. No shares were repurchased during the quarter or first half.
Material changes versus the prior comparable period
- Q2 operating income increased 16.6%, and net income increased 17.5%; first-half operating income rose 29.0%, and net income rose 25.3%.
- Digital advertising revenue increased to $2.233 million in Q2 from $1.636 million; first-half digital revenue increased to $3.982 million from $2.636 million. Event-related revenue benefited from the return of events following pandemic-related cancellations or reductions in 2021.
- Interest expense declined as the company had repaid its remaining revolving-facility balance in October 2021. Interest income increased, associated with short-term investments.
- First-half 2021 other income included a $250,000 insurance gain related to antenna damage; this contributed to the year-over-year decline in first-half other income.
- Cash and cash equivalents were lower than at December 31, 2021, partly reflecting investment purchases and dividend payments. Short-term investments were newly recorded at $10.019 million.
Outlook, commentary, and risks
- The filing gives no formal earnings or revenue guidance. Saga anticipates 2022 capital expenditures of approximately $5.5–$6.0 million, expected to be funded from operating cash flow.
- Management expected more political advertising in 2022 due to the greater number of national, state and local elections. The company also said inflation was beginning to affect the cost of goods and services, though its impact had not been significant to date.
- Management cited economic conditions, inflation, energy costs, interest rates, competition from traditional and new media, changes in audience behavior, technology, regulation, COVID-19, cyber risks, and natural disasters among factors that could affect results. Five largest markets represented approximately 38% of first-half revenue, creating market-concentration exposure.
- Broadcast licenses and goodwill are subject to impairment testing. No triggering event requiring interim impairment testing was identified in the first half, but less favorable market conditions could require future impairment charges.
- The company reported compliance with credit-facility covenants, effective disclosure controls, no material changes to previously disclosed risk factors, and no material litigation known to management.
Important facts for investors to verify
- Whether revenue and margin gains persist as event activity normalizes and local, digital, political, and national advertising trends evolve.
- Whether operating cash generation covers planned capital expenditures, dividends, and any future acquisitions, particularly amid rising costs.
- The terms, covenant headroom, and June 2023 maturity of the $50 million revolving credit facility, despite there being no borrowings at quarter-end.
- The sustainability of the dividend and the company’s capital-allocation priorities; buybacks remain paused despite remaining authorization.
- Exposure to economic weakness and concentration in major markets, and whether changing market conditions could prompt broadcast-license or goodwill impairment.