Saga Communications, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Unaudited results. Saga operates radio broadcasting properties in 27 markets, with 79 FM and 33 AM stations and 80 metro signals.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net operating revenue | $29.2m | $29.8m | $54.5m | $54.8m |
| Operating income | $4.3m | $5.4m | $5.2m | $7.1m |
| Operating margin | 14.7% | 18.0% | 9.5% | 12.9% |
| Net income | $3.4m | $3.8m | $4.3m | $5.0m |
| Diluted EPS | $0.55 | $0.63 | $0.70 | $0.83 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $6.0m | $7.3m |
For the six months, investing activities used $1.9m, financing activities used $16.8m—principally dividends—and cash declined $12.7m to $24.1m. Short-term investments were $10.3m, bringing cash and investments to $34.4m. Capital expenditures were $2.6m.
At June 30, total assets were $229.6m, total liabilities $49.1m, and shareholders’ equity $180.5m. The company reported no debt outstanding and approximately $50m of unused revolving credit capacity. Current assets were $55.8m versus current liabilities of $14.9m. The credit facility matures in December 2027; its floating-rate option is based on SOFR, which was 5.09% at quarter-end, plus a leverage-dependent spread.
Changes versus prior period
- Q2 revenue fell 2.2%; six-month revenue fell 0.6%. Broadcast advertising remained the main revenue source. Digital advertising revenue rose to $2.5m in Q2 from $2.2m and to $4.4m for six months from $4.0m.
- Management attributed revenue pressure mainly to lower local and political advertising. Q2 gross political and local revenue each declined $679,000; six-month gross local revenue declined $956,000 and political revenue declined $606,000. Interactive, national, and non-spot revenue partially offset declines.
- Station operating expenses increased 2.9% in Q2 and 4.1% for six months, including higher compensation, utilities, commissions, maintenance, and programming costs. Lower revenue combined with higher station costs reduced operating income by 20.2% in Q2 and 26.7% for six months.
- Net income declined 12.4% in Q2 and 15.1% for six months. Higher interest income partly offset lower operating income; interest expense also increased. Six-month results included $115,000 of FCC spectrum-repack reimbursement income.
- Corporate G&A declined year over year, partly reflecting lower compensation-related expense. Management said 2022 included approximately $3.8m of expenses related to CEO Edward Christian’s death and associated payments; anticipated G&A savings are partly offset by planned personnel and sales/training investments and higher directors’ fees.
Outlook, risks, and unusual items
- Management expects 2023 capital expenditures of approximately $5.0m–$5.5m, funded from operating cash flow. It expects political revenue to be lower in 2023 than in 2022 due to fewer elections; no specific revenue or earnings guidance was provided.
- Management said inflation has begun to affect costs, though its impact had not been significant to date. Other stated risks include economic weakness and advertising demand, competition from digital media, audience trends, key personnel and markets, regulation, technology and cybersecurity, and market or impairment changes affecting broadcast-license values.
- The company found no impairment-triggering event requiring interim testing during the first half of 2023, but adverse market conditions could lead to future impairment charges. Five largest markets accounted for approximately 37% of six-month revenue and 39% of station operating income.
- Following Mr. Christian’s August 2022 death, his Class B shares converted to Class A shares; no Class B shares remained outstanding at June 30, 2023. The company said it cannot currently estimate the potential income-tax obligation it may owe the estate under his employment agreement.
- Two Greenfield, Massachusetts AM properties were disposed of in 2023, with $65,000 of disclosed losses. Management reported no material litigation, no material changes to previously disclosed risk factors, and compliance with credit-facility covenants.
- The board declared quarterly dividends of $0.25 per share in both Q1 and Q2 2023. The filing reports $16.8m of dividends paid in the first half, including a $2.00-per-share special dividend declared in December 2022 and paid in January 2023.
Important facts for investors to verify
- Whether local and political advertising weakness persists and whether digital and other revenue growth can offset it.
- Whether station-cost increases moderate and operating margins stabilize.
- Cash generation and liquidity after substantial dividend payments, planned capital expenditures, and any future dividends or acquisitions.
- Floating-rate credit-facility terms, covenant headroom, and the estimated estate-related tax obligation, which the filing says cannot yet be determined.
- Developments in the concentrated largest markets and any changes in assumptions that could trigger broadcast-license impairment testing.