Saga Communications, Inc. — Q3 2023 Form 10-Q
Business and period: Unaudited results for the three and nine months ended September 30, 2023, compared with the same 2022 periods. Saga owns or operates radio properties in 27 markets, including 79 FM and 33 AM stations. It reports one operating segment, Radio.
Financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net operating revenue | $29.1m | $30.0m | $83.6m | $84.8m |
| Operating income | $3.5m | $1.1m | $8.7m | $8.1m |
| Net income (loss) | $2.7m | $(0.1)m | $7.0m | $4.9m |
| Diluted EPS | $0.45 | $(0.01) | $1.15 | $0.82 |
| Operating margin | 12.0% | 3.5% | 10.4% | 9.6% |
Cash flow and liquidity: Nine-month operating cash flow was $13.9m, versus $14.4m. Capital expenditures were $3.4m, compared with $4.7m. Cash and equivalents were $31.2m at September 30, down from $36.8m at year-end; short-term investments were $10.5m. Cash declined by $5.6m, including $16.8m of dividends paid. Current assets were $61.2m and current liabilities $18.2m. Saga had no debt outstanding and approximately $50m of unused revolving credit capacity.
Balance sheet: Total assets were $234.4m, liabilities $52.4m, and shareholders’ equity $181.9m at September 30, 2023. The company was in compliance with its credit-facility financial covenants.
Changes versus prior periods
- Q3 revenue decreased 2.8%; nine-month revenue decreased 1.3%. Broadcast advertising revenue declined, while digital advertising revenue rose to $2.8m in Q3 from $2.1m and to $7.1m year to date from $6.1m.
- Lower local and political advertising weighed on revenue. Management attributed lower political revenue to fewer elections; higher interactive revenue primarily reflected streaming growth.
- Station operating expenses rose 2.1% in Q3 and 3.4% year to date, with compensation, healthcare, utilities and other costs contributing. Q3 corporate G&A fell $3.8m year over year, largely because Q3 2022 included $3.8m related to the former CEO’s death. This comparison materially lifted operating income and earnings.
- Higher interest income from cash and short-term investments supported earnings: $1.0m for nine months, versus $0.2m. Nine-month tax expense fell to $2.7m from $3.4m; the prior-year quarter tax rate was unusually high, partly due to nondeductible former-CEO compensation.
- Dividends declared were $0.25 per share quarterly in 2023; 2022 included special dividends of $2.00 per share. Nine-month cash dividends paid were $16.8m versus $6.2m, including payment in January 2023 of the special dividend declared in December 2022.
Outlook, risks and unusual items
- Management expects 2023 capital expenditures of approximately $4.5m–$5.0m, funded from operations. It expects political revenue to be lower in 2023 than in 2022. The filing provides no specific full-year revenue or earnings guidance.
- Management said inflation had not significantly affected operations to date but was beginning to increase costs. Key risks include economic and advertising-market conditions, competition from digital media, audience trends, technology, regulation, cybersecurity, and concentration in major markets. The five largest markets generated approximately 36% of nine-month revenue.
- Broadcast licenses and goodwill were not considered to have an impairment triggering event during the first nine months. Less favorable market conditions could require future impairment charges.
- The company sold WPVQ-AM for $2,000 and canceled the WHMQ-AM license in 2023, recording combined losses of $65,000. It received $115,000 in FCC reimbursement during Q1 and does not anticipate further reimbursements.
- The company may be responsible for the former CEO’s estate income-tax obligation related to life-insurance proceeds; the potential loss cannot currently be estimated. Management reported no material pending legal proceedings and no material changes to previously disclosed risk factors.
- The credit facility matures December 19, 2027, bears variable rates tied to SOFR or a base rate, and is secured by substantially all assets other than FCC licenses and certain other assets. The SOFR reference rate was 5.31% at September 30, 2023.
Important facts for investors to verify
- Whether underlying advertising demand and station-level cost trends improve, particularly after the year-over-year benefit from the prior-year CEO-related charge.
- Whether digital and streaming revenue growth can offset continued weakness in local and political broadcast advertising.
- Cash generation and liquidity after dividends, planned capital spending, and any future acquisitions or repurchases.
- Exposure to variable interest rates if Saga draws on its credit facility, and continued compliance with its covenants.
- Resolution and potential cost of the former CEO estate tax obligation, which the filing says cannot yet be estimated.