Saga Communications Inc. Q1 2011 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2011. Saga Communications, Inc. is a broadcast company operating 91 radio stations across 23 markets and 5 television stations (plus 4 low-power stations) across 3 markets. The company generates revenue primarily through the sale of local and national advertising inventory.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Net Operating Revenue | $28.71 million | $27.99 million |
| Operating Income | $4.03 million | $3.55 million |
| Net Income | $1.66 million | $3.32 million |
| Earnings Per Share (Diluted) | $0.39 | $0.78 |
| Cash from Operating Activities | $5.89 million | $7.34 million |
| Total Debt (Long-term + Current) | $92.08 million | $96.08 million |
| Cash and Cash Equivalents | $12.75 million | $12.20 million |
| Unused Borrowing Capacity | $12.6 million | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenue increased 2.6% year-over-year, driven by a 1.5% increase in Radio revenue and a 9.3% increase in Television revenue. This growth is attributed to general economic improvement and higher local/national ad spending.
- Political Advertising Decline: Political revenue decreased significantly compared to Q1 2010, as 2010 was an election year while 2011 is not.
- Net Income Drop: Net income fell 50% to $1.66 million. This decrease is primarily due to the absence of a $3.56 million non-recurring gain from an FCC license downgrade recorded in Q1 2010.
- Expense Increases: Station operating expenses rose slightly (0.8%), with healthcare costs increasing by approximately $490,000. Corporate G&A expenses increased 3.1%.
- Debt Reduction: Total debt decreased by approximately $4 million due to scheduled principal payments under the reducing revolving credit facility.
Outlook, Risks, and Management Commentary
- Debt Refinancing: The company's current credit agreement matures on July 29, 2012. Management is actively seeking a new credit facility and expects to complete the process in 2011. Upon retirement of the current agreement, the company expects to write off approximately $1.4 million in unamortized debt issuance costs.
- Covenant Compliance: The company was in compliance with all financial covenants as of March 31, 2011. The credit agreement requires quarterly reductions in revolving commitments and limits on dividends and stock repurchases.
- Capital Expenditures: Q1 2011 capital expenditures were $1.15 million. The company anticipates total 2011 capital expenditures of approximately $5 million, to be funded by operating cash flows.
- Risks: Key risks include dependence on advertising revenue, economic conditions, regulatory changes, and the ability to refinance debt on satisfactory terms. The company notes that results for the first quarter are not necessarily indicative of full-year results.
Investor Verification Checklist
- Verify the status and terms of the new credit facility negotiations to replace the debt maturing in July 2012.
- Monitor the impact of the expected $1.4 million write-off of debt issuance costs on future earnings.
- Assess the sustainability of the 9.3% revenue growth in the Television segment compared to the more modest 1.5% growth in the Radio segment.
- Review the trajectory of healthcare costs, which increased significantly year-over-year.
- Confirm compliance with the restrictive financial covenants of the reducing credit facility as debt levels are managed.