Saga Communications, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014; comparative periods ended September 30, 2013. Amounts are in U.S. dollars; financial statement amounts are in thousands unless noted. Saga operates radio and television broadcasting businesses.
Financial performance
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $34.373 million | $32.929 million | $97.627 million | $95.718 million |
| Operating income from continuing operations | $5.700 million | $7.280 million | $18.235 million | $20.558 million |
| Net income | $3.245 million | $4.296 million | $10.461 million | $12.049 million |
| Diluted earnings per share | $0.56 | $0.75 | $1.80 | $2.10 |
| Operating margin | 16.6% | 22.1% | 18.7% | 21.5% |
Revenue increased 4.4% in Q3 and 2.0% for the nine-month period. Operating income fell 21.7% and 11.3%, respectively, as station expenses and corporate costs rose faster than revenue. Interest expense declined to $268,000 in Q3 and $812,000 year to date. The nine-month 2013 net income included $223,000 from discontinued operations; the Greenville, Mississippi television station sale was completed in January 2013.
Operating cash flow was $20.971 million for the first nine months of 2014, compared with $19.470 million in 2013. Investing activities used $4.653 million, including $3.801 million of property and equipment purchases; financing activities used $5.906 million, including $5.000 million of debt repayments. Cash increased by $10.412 million to $28.040 million.
At September 30, 2014, total debt was $41.078 million, down from $46.078 million at year-end 2013. The company had $80 million of unused revolving-credit capacity under a facility with total availability of $120 million and maturity in May 2018. Current assets were $53.736 million and current liabilities were $17.864 million. All financial covenants were reported as satisfied.
Material changes and operating drivers
- Q3 revenue benefited from increased political advertising and local advertising. Political revenue rose $912,000 and local revenue rose $734,000 year over year.
- Q3 station operating expense increased $2.768 million, primarily due to accrued fees expected under license agreements being negotiated and higher sales commissions. Corporate general and administrative expense rose $256,000, primarily reflecting restricted-stock compensation.
- For the first nine months, station expenses increased $3.633 million, with management citing license-agreement accruals, higher salaries and healthcare costs. Corporate general and administrative expense increased $599,000, primarily due to restricted-stock compensation.
- Radio revenue grew 4.6% in Q3 and 2.4% year to date, but radio operating income declined 18.6% and 7.0%. Television revenue grew 3.1% in Q3 but was nearly flat year to date; television operating income rose 7.9% in Q3 and declined 4.1% year to date.
Outlook, risks and unusual items
- Management expected 2014 capital expenditures of approximately $5.5 million, to be funded from operating cash flow. No specific revenue or earnings guidance was provided.
- The company attributed higher 2014 political advertising to congressional, senatorial, gubernatorial and local elections. It cautioned that results are seasonal and that interim results are not necessarily indicative of full-year results.
- Management cited economic and advertising conditions, competition from new media, technology changes, regulation, key-station and key-person dependence, acquisition integration, leverage and debt service as risks. Five large radio markets generated approximately 34% of consolidated revenue in the first nine months.
- Neilson Audio alleges copyright infringement and seeks $150,000 per alleged act, plus costs and fees. Saga said it was negotiating a resolution and had accrued an amount it anticipated incurring; the filing does not specify the accrual amount. Management did not expect other ordinary-course claims to have a material financial impact.
- The board declared a $0.20-per-share quarterly dividend, totaling approximately $1.1 million, paid October 17, 2014. The credit facility permits dividends subject to its terms. The company had $29.9 million remaining under its stock-repurchase authorization.
- Management reported no material changes in market-risk information and concluded disclosure controls were effective. New accounting standards discussed were not expected to have a material impact based on the company’s then-current evaluation, where applicable.
Key facts for investors to verify
- Whether the license-agreement negotiations result in additional fees, and how the related accruals affect operating costs.
- Whether revenue gains—particularly political advertising—persist after the 2014 election cycle, and whether expense growth moderates.
- Current cash, debt, revolver availability, covenant compliance and the capacity to sustain dividends, acquisitions or repurchases.
- The status and potential cost of the Neilson litigation and the adequacy of the recorded accrual.
- Progress toward the stated capital-expenditure plan and the operating performance of recent station and translator acquisitions.