Saga Communications, Inc. — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012; filed November 9, 2012. Unaudited interim results. Dollar amounts below are in millions unless stated otherwise.
Business context
Saga operates 91 radio stations and five radio information networks in 23 markets, plus four television stations and four low-power TV stations in two markets. Revenue is primarily from advertising. The company has agreed to sell its Greenville, Mississippi television station, WXVT, for $3.0 million, subject to adjustments and FCC approval; WXVT is reported as discontinued operations and held for sale.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $32.409 | $32.027 | $94.718 | $93.039 |
| Operating income, continuing operations | $8.120 | $7.123 | $22.221 | $19.096 |
| Operating margin | 25.1% | 22.2% | 23.5% | 20.5% |
| Net income | $4.328 | $3.694 | $12.165 | $8.526 |
| Diluted EPS | $1.02 | $0.87 | $2.86 | $2.01 |
- Q3 revenue increased 1.2%; operating income rose 14.0% and net income rose 17.2%. Nine-month revenue increased 1.8%; operating income rose 16.4% and net income rose 42.3%.
- Radio revenue was $27.498 million in Q3, down 1.4%, while segment operating income increased 3.5% to $8.133 million. Nine-month radio revenue was nearly flat at $81.180 million; segment operating income rose 8.5% to $23.539 million.
- Television revenue increased 18.6% in Q3 to $4.911 million and 12.5% for nine months to $13.538 million. Segment operating income rose 54.0% in Q3 to $1.897 million and 37.5% for nine months to $4.481 million.
- For nine months, cash provided by operating activities was $21.521 million versus $19.421 million. Capital expenditures were $3.904 million versus $4.140 million; net cash used in investing activities was $4.058 million. Debt repayments were $10.250 million, and cash increased $7.133 million to $14.124 million.
- At September 30, total debt was $58.828 million, down from $69.078 million at December 31, 2011. The $60 million revolving facility was undrawn, providing $60 million of available capacity; the facility matures June 13, 2016. The company reported compliance with its financial covenants and no required term-loan amortization payment at quarter-end.
- Current assets were $39.024 million and current liabilities $13.222 million. Stockholders’ equity was $105.168 million.
Changes, outlook and management commentary
- Political advertising and retransmission-consent revenue supported results. Q3 gross political revenue rose $1.095 million and retransmission-consent revenue rose $343,000 year over year. For nine months, those sources increased $1.977 million and $971,000, respectively. National revenue weakened: down $2.111 million over nine months, partly offset by local revenue growth.
- Lower operating costs helped margins. Nine-month station expenses fell $1.391 million, including lower music-licensing fees, healthcare costs, and advertising and promotion spending; salary costs increased $963,000 following reinstatement of prior salary reductions and programming contract increases.
- Interest expense declined to $1.367 million for nine months from $2.837 million. Prior-year results included a $1.326 million write-off of debt issuance costs, which did not recur.
- Management anticipated Q4 2012 gross political revenue of $3.1 million for radio and $500,000 for television. It expected full-year 2012 capital expenditures of $5.0–$5.5 million, funded from operating cash flow, and stated operating cash flow was expected to cover quarterly debt service.
- On October 2, 2012, the board declared a special dividend of $1.65 per share, approximately $7.0 million in total, payable December 3 to shareholders of record November 15; it was to be funded from balance-sheet cash.
- The WXVT sale was expected to close in Q4 2012 or Q1 2013, subject to FCC approval. WXVT’s discontinued-operations loss was $39,000 in Q3 and $104,000 for nine months.
Risks and contingencies
Management cited financial leverage and debt service, reliance on key personnel and stations, economic conditions, station integration, regulation, new technologies, natural disasters and terrorist attacks as risks. Four radio markets together generated about 28% of nine-month revenue; Milwaukee revenue had declined amid competitive pricing, rating-methodology changes and weaker category spending. The company also noted seasonality in advertising and exposure to economic conditions. Substantially all assets other than FCC licenses and certain other assets secure the credit facility. Management reported no litigation expected to have a material adverse effect, no material market-risk changes, and effective disclosure controls.
Key facts for investors to verify
- Whether Q4 political advertising matched management’s $3.6 million gross estimate and how results perform after the election-driven boost.
- Completion, timing, proceeds and any adjustments associated with the WXVT sale and required FCC approval.
- Cash available after payment of the approximately $7.0 million special dividend, and the company’s ongoing debt repayment and covenant position.
- Whether retransmission-consent growth and lower licensing costs persist, and whether national advertising and the Milwaukee market stabilize.
- Actual 2012 capital expenditures compared with the $5.0–$5.5 million forecast.