Saga Communications, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; financial statements are unaudited. Saga operates radio and television broadcasting businesses, with 99 radio stations in 24 markets and four television stations plus five low-power television stations in two markets.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Net operating revenue | $32.745 million | $29.061 million | +12.7% |
| Operating income | $5.343 million | $3.814 million | +40.1% |
| Net income | $3.024 million | $2.131 million | +41.9% |
| Diluted EPS | $0.52 | $0.36 | Up $0.16 |
| Operating cash flow | $7.190 million | $7.587 million | Down $0.397 million |
- Operating margin was approximately 16.3%, versus 13.1% a year earlier; net margin was approximately 9.2%, versus 7.3%.
- Radio revenue was $27.464 million (+13.1%) and segment operating income was $6.327 million (+30.4%). Television revenue was $5.281 million (+10.4%) and segment operating income was $1.733 million (+20.2%).
- Cash and cash equivalents were $15.336 million at March 31, down from $21.614 million at year-end. Investing activities used $13.468 million, including $12.483 million for broadcast-property acquisitions; operating activities provided $7.190 million. No net cash was used in financing activities.
- Long-term debt was $36.365 million, unchanged from year-end: $35.287 million under the revolving facility and $1.078 million of secured affiliate debt. The $100 million revolver matures August 2020; approximately $65 million of borrowing capacity remained. The company reported compliance with all facility financial covenants.
- Current assets were $41.008 million and current liabilities were $16.005 million. The quarterly dividend was $0.25 per share, or approximately $1.5 million; it was recorded as a liability at quarter-end and paid April 15, 2016.
Material changes and management commentary
- Revenue growth reflected both acquisitions and comparable-station growth: management attributed approximately $1.667 million of the increase to stations not owned or operated for the full prior-year comparison period, and approximately $2.017 million to same-station growth.
- Same-station revenue benefited from higher political advertising (+$1.159 million consolidated) and local advertising (+$0.647 million); television retransmission revenue increased $0.261 million. Political advertising rose with the greater number of elections in Saga’s markets.
- Station operating expenses increased 8.4%, less than revenue growth; corporate general and administrative expense rose 9.5%, primarily due to consulting fees and restricted-stock compensation. Lower interest expense also supported earnings growth.
- Saga completed its acquisition of Columbus, Ohio FM station WLVQ on February 3, 2016, for approximately $13.791 million, funded from operations. It also acquired two FM translators for approximately $50,000 each. The 2016 acquisition purchase-price allocation remained preliminary.
Outlook, risks and other matters
- Management expected 2016 capital expenditures of approximately $5 million to $5.5 million, excluding acquisitions, to be funded from operating cash flow. It anticipated increased political advertising in 2016. The filing provides no specific earnings or revenue guidance.
- Management said operating cash flow was expected to cover scheduled debt service, but cautioned that insufficient cash flow could require equity issuance, refinancing or property sales; availability and terms are not assured. Future acquisitions and dividends may be funded with operating cash, borrowing, or additional financing.
- Risks highlighted include economic and advertising-market conditions, dependence on key stations and personnel, acquisition integration, leverage and debt service, regulation, competition from new technologies and media, and natural disasters or terrorist attacks. Five largest radio markets together generated approximately 35% of consolidated revenue in Q1 2016.
- Ordinary-course claims and legal proceedings were disclosed; management did not expect potential liability to materially affect the financial statements. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much revenue and operating income growth came from acquired stations versus comparable-station performance, and whether political-advertising gains persist after the 2016 election cycle.
- Cash generation after acquisitions, capital expenditures and dividends, including the effect of the reduced cash balance.
- Revolver availability, covenant headroom, interest-rate exposure and the affiliate debt maturity in May 2017.
- Integration and performance of WLVQ and other acquired properties, and the final acquisition purchase-price allocation.
- Concentration in major markets and the potential effects of local economic conditions, advertising competition and evolving media technology.