Saga Communications, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a quarterly filing; selected fourth-quarter results are included below. Saga operates radio stations in 27 U.S. markets and relies primarily on advertising revenue.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Net operating revenue | $95.8 million | $123.1 million |
| Station operating expense | $81.6 million | $92.7 million |
| Operating income (loss) | $(1.2) million | $18.8 million |
| Net income (loss) | $(1.9) million | $13.3 million |
| Diluted earnings (loss) per share | $(0.32) | $2.23 |
| Cash from operating activities | $12.1 million | $25.3 million |
| Cash and cash equivalents at year-end | $51.4 million | $44.0 million |
| Long-term debt | $10.0 million | $10.0 million |
| Working capital | $57.0 million | $49.2 million |
- Revenue fell 22.1%; operating margin was approximately -1.3%, versus 15.3% in 2019. The 2020 net margin was approximately -2.0%.
- Station operating expenses declined 12.0%, but the reduction did not offset lost revenue and a $5.1 million non-cash broadcast-license impairment.
- Operating cash flow declined about 52% year over year. Capital expenditures were $2.3 million, compared with $5.7 million in 2019.
- The company reported approximately $60 million of unused capacity on its $70 million revolving facility. The $10 million drawn balance matures June 27, 2023; financial covenants were met at year-end.
- 2020 dividends declared were $0.32 per share, versus $1.20 in 2019. The quarterly dividend was suspended beginning in the second quarter in response to COVID-19 uncertainty.
Changes versus the prior period and fourth quarter
- Management attributed the annual revenue decline primarily to COVID-19 disruptions, business closures and advertiser cancellations. Local revenue decreased $27.0 million; higher political revenue, up $6.0 million, partly offset declines in other categories.
- Net income shifted from profit to loss. In addition to weaker operations, results included the $5.1 million impairment charge; lower interest expense and income taxes provided partial offsets.
- Fourth-quarter revenue was $28.8 million, down from $31.8 million a year earlier. Fourth-quarter net income was $2.3 million, compared with $3.8 million in Q4 2019.
- Other notable items included a $1.4 million gain on the sale of land and a building at a Bellingham tower site, and $0.2 million of insurance-related gain for weather damage.
Outlook, management commentary and risks
- Management said revenue had recovered from its second-quarter low but remained below the previously expected recovery pace. It cautioned that the duration and overall financial effects of the pandemic were uncertain.
- Management expects 2021 political revenue to decline from 2020 because fewer elections are expected. Planned 2021 capital expenditures are approximately $4.5–$5.5 million, expected to be funded from operations.
- Key risks include continued pressure on advertising, economic conditions in the company’s markets, competition from other media and streaming, dependence on key stations and personnel, debt covenants and interest rates, FCC licensing and regulation, and cybersecurity or operational disruptions.
- Broadcast licenses were 37% of total assets, with a $90.2 million carrying value at year-end. Impairment valuation depends on assumptions including projected revenue, margins and discount rates; further impairments are possible if conditions worsen.
- FCC renewal applications for South Dakota stations were pending. The filing also reports an FCC consent decree related to untimely political-file postings at a subsidiary. Management said ordinary-course litigation was not expected to materially affect the financial statements.
- Edward K. Christian held approximately 65% of combined voting power as of March 4, 2021, creating significant voting control and limiting other shareholders’ influence over certain matters.
Important facts for investors to verify
- Whether local and national advertising demand continues to recover, and whether political revenue declines as management expects.
- The assumptions supporting the broadcast-license valuations and the possibility of additional impairment charges.
- Liquidity, operating cash generation, covenant compliance and the June 2023 credit-facility maturity under continued economic uncertainty.
- The status of the suspended dividend and any capital allocation decisions, including buybacks and the stated 2021 capital-spending range.
- FCC license renewal and compliance matters, and the implications of the company’s concentrated voting control.