Saga Communications, Inc. — Form 10-Q Summary
Business context and reporting period
Quarter and six months ended June 30, 2019; filed August 9, 2019. Saga owns or operates 113 radio stations across 27 markets. Its principal revenue source is broadcast advertising.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Net operating revenue | $32.191m | $32.234m | $60.007m | $60.243m |
| Operating income | $6.608m | $6.033m | $8.573m | $8.352m |
| Operating margin | 20.5% | 18.7% | 14.3% | 13.9% |
| Net income | $4.734m | $4.171m | $6.104m | $5.700m |
| Diluted EPS | $0.80 | $0.70 | $1.03 | $0.96 |
For the first half, cash from operations was $12.830m, compared with $13.193m a year earlier. Investing used $3.662m, including $3.162m for property and equipment and $0.763m for broadcast properties. Financing used $15.385m, including $10.000m of debt repayments and $5.058m of dividends paid. Cash declined by $6.217m to $38.512m.
At June 30, cash was $38.512m, long-term debt was $10.000m, and total current assets and current liabilities were $61.373m and $17.566m, respectively. The company reported approximately $90m of unused credit capacity at June 30; on July 1 it reduced the revolving facility to $70m, leaving approximately $60m unused. Lease liabilities were $6.133m. The company was in compliance with its credit covenants.
Changes versus the prior comparable periods
- Q2 revenue was nearly flat, down 0.1%; first-half revenue declined 0.4%. Revenue from stations not owned or operated for the full comparable period partly offset same-station declines.
- Management attributed same-station weakness mainly to lower national, local, and political advertising. Fewer local and state elections reduced political revenue.
- Operating income rose 9.5% in Q2 and 2.7% for the first half, helped by lower station operating costs. Net income rose 13.5% and 7.1%, respectively. Lower interest expense also supported earnings.
- First-half broadcast advertising revenue was $54.683m versus $55.556m; digital advertising revenue was $1.890m versus $1.951m; other revenue increased to $3.434m from $2.736m.
- Debt fell from $20m at December 31, 2018 to $10m at June 30, following two voluntary $5m repayments. The first-half cash dividend paid was lower than in 2018, which included a special dividend payment.
Outlook, commentary, risks, and unusual items
- No specific earnings or revenue guidance is provided. Management anticipated 2019 capital expenditures of approximately $5.0m–$5.5m, funded from operations.
- Management expected lower political advertising in 2019 because there were fewer elections in most markets than in 2018. Advertising demand is seasonal and depends on economic conditions, audience ratings, competition, and pricing.
- The company continues to seek acquisition opportunities. It acquired WFAT and W222CH in Greenfield, Massachusetts, for $210,000 in January 2019. It also reported the prior-year acquisition of four Ocala-area stations, closed December 31, 2018.
- The board declared a regular $0.30-per-share dividend in May 2019, paid July 5. The company repurchased 8,602 shares for approximately $247,000 during Q2; $20.1m remained authorized for future repurchases at June 30.
- Risks identified include economic and advertising-market weakness, reliance on key personnel and stations, financial leverage, acquisition integration, regulation, new media technologies, and natural disasters or terrorist attacks. Five largest markets accounted for about 38% of first-half revenue and 45% of station operating income.
- Ordinary-course legal claims were not expected by management to materially affect the financial statements. Adoption of the new lease standard added approximately $6.7m of right-of-use assets and lease liabilities at January 1, 2019, with no effect on retained earnings or cash flows.
Important facts for investors to verify
- The MD&A narrative gives Q2 station operating expense as $21.968m, while the financial statements and MD&A comparison table report $22.879m. The latter matches the stated $261,000 year-over-year decrease; verify the narrative figure.
- Assess whether same-station advertising trends, particularly national and local sales, improve after the first-half declines.
- Monitor cash generation against dividends, planned capital spending, acquisitions, and the reduced revolving facility capacity.
- Review station operating income, a company-used non-GAAP measure, alongside GAAP results; the provided filing text does not state its consolidated value for these periods.