Saga Communications, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited consolidated results. Saga operates radio stations in 27 markets, with 79 FM stations, 34 AM stations and 79 metro signals.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net operating revenue | $28.845 million | $24.143 million | $79.192 million | $67.060 million |
| Operating income (loss) | $4.619 million | $0.247 million | $10.117 million | $(6.245) million |
| Net income (loss) | $3.454 million | $(0.950) million | $7.465 million | $(4.181) million |
| Diluted EPS | $0.58 | $(0.16) | $1.25 | $(0.70) |
- Q3 revenue increased 19.5%; nine-month revenue increased 18.1%. Management attributed much of the year-over-year growth to recovery from COVID-related weakness in 2020.
- Calculated operating margin was approximately 16.0% in Q3 2021 versus 1.0% in Q3 2020, and 12.8% for the first nine months of 2021 versus negative 9.3% in 2020.
- Q3 station operating expenses rose 10.6% to $21.690 million; nine-month expenses increased 1.9% to $61.630 million. Corporate G&A fell 10.6% in Q3 and 16.3% year to date.
- Revenue growth included local, digital/interactive and event revenue; lower political advertising partly offset increases. Digital advertising revenue was $1.984 million in Q3 and $4.620 million for nine months, up from $0.845 million and $2.412 million, respectively.
- Cash provided by operations was $13.905 million for the first nine months, versus $8.206 million in 2020. Capital spending was $2.687 million; investing cash outflow was $2.121 million. Dividends paid were $0.956 million, compared with $3.716 million in 2020.
Financial position and liquidity
- At September 30, cash and cash equivalents were $62.181 million; current assets were $82.070 million and current liabilities $26.363 million.
- Debt was $10.000 million, classified as current at quarter-end. The company repaid that amount on October 27, 2021 using operating funds. Unused revolver capacity was approximately $60 million at September 30; the company reduced the facility to $50 million on November 2, leaving $50 million of unused capacity at the filing date.
- The credit facility matures June 27, 2023; the company reported compliance with its financial covenants at September 30. Substantially all assets other than FCC licenses and certain assets secure the facility, and subsidiaries guarantee it.
- Stockholders’ equity was $197.364 million. Operating lease liabilities were $5.8 million.
Changes, outlook, risks and unusual items
- The turnaround versus 2020 reflects stronger advertising and event activity, as well as the absence of prior-year broadcast-license impairment charges: $1.392 million in Q3 2020 and $5.149 million for nine months 2020. No impairment was recorded in 2021 periods reported.
- Q3 2021 included $0.290 million of insurance gain related to weather damage to a Des Moines antenna; nine-month insurance gains totaled $0.540 million. In 2020, a $1.400 million gain on sale of a tower-site property and a $0.208 million insurance gain were recorded.
- Management said markets were operating at effectively full capacity, with health and safety protocols, and that event activity was increasing. It remained optimistic about future advertising revenue, but provided no quantified revenue or earnings guidance.
- Management expected 2021 capital expenditures of approximately $4.0 million to $4.5 million, funded from operations. The filing cautions that interim results may not indicate full-year results.
- COVID-19 and its economic effects remained uncertain. The company also identified supply-chain and labor shortages as risks to customers’ advertising budgets, alongside competition, audience changes, technology, cybersecurity, market concentration, and dependence on local and national economic conditions. Five largest markets represented about 39% of nine-month revenue.
- A third-party provider of a critical business application experienced a ransomware attack in September 2021; Saga reported no data breach and no material business or operational impact. Management said its disclosure controls were effective and no material internal-control changes occurred during the quarter.
- The board declared a $0.16-per-share quarterly dividend on September 28, payable October 22, 2021. Share repurchases remained halted; none occurred in the 2021 quarter or year-to-date period.
- Ordinary-course claims and proceedings were disclosed; management did not expect them to materially affect the financial statements.
Important facts for investors to verify
- Whether the advertising and event recovery continued after Q3, and how much of the year-over-year comparison reflects unusually weak 2020 results.
- Whether operating cash generation supports planned capital spending, dividends and future obligations, including the June 2023 credit-facility maturity.
- The terms and covenant headroom of the revolver after its reduction, and the effect of the October debt repayment on liquidity.
- Future impairment-test assumptions and exposure to changes in market conditions, especially given the prior-year license impairment.
- Whether supply-chain, labor, COVID-19 or cybersecurity developments affect advertisers, revenue, costs or business continuity.