Saga Communications, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing also reports unaudited fourth-quarter results. Saga operates radio stations and related signals in 27 U.S. markets; local and national advertising are its principal revenue sources.
Financial results and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Net operating revenue | $114.9 million | $108.3 million |
| Operating income | $13.1 million | $15.1 million |
| Net income | $9.2 million | $11.2 million |
| Diluted earnings per share | $1.52 | $1.85 |
| Cash flow from operations | $17.1 million | $19.1 million |
- Revenue increased 6.0%; broadcast advertising revenue, net, was $98.7 million, digital advertising revenue $7.9 million, and other revenue $8.3 million.
- GAAP operating margin was approximately 11.4% (2021: 13.9%); net margin was approximately 8.0% (2021: 10.3%). Station operating expenses rose 5.2% to $87.5 million, while corporate G&A increased 42.4% to $14.3 million.
- Operating cash flow was $17.1 million. Investing used $15.0 million, including $10.0 million net purchases of short-term investments and $6.0 million of capital expenditures. Financing used $20.1 million, mainly for $19.8 million of dividends paid. Cash and cash equivalents ended at $36.8 million, versus $54.8 million; short-term Treasury investments were $10.1 million.
- At year-end, total current assets were $67.9 million and current liabilities $29.4 million (current ratio approximately 2.3). Total assets were $240.8 million and shareholders’ equity $178.5 million.
- No debt was outstanding. The amended revolving credit facility provides approximately $50 million of unused capacity and matures December 19, 2027. The facility is SOFR-based, secured by substantially all assets other than FCC licenses and certain other assets; the company reported compliance with its covenants.
Fourth-quarter results
Fourth-quarter 2022 revenue was $30.1 million, versus $29.2 million in 2021. Operating income was $4.9 million, approximately unchanged year over year; net income was $4.3 million, versus $3.7 million.
Changes, outlook, and material items
- Revenue growth reflected higher local and political advertising, events and non-spot revenue, and digital/interactive revenue; lower national revenue partly offset those increases. Political revenue was $3.6 million in 2022 versus $1.8 million in 2021. Management expects political revenue to decline in 2023 because fewer elections are anticipated.
- Net income fell 17.5% despite revenue growth, primarily due to higher operating and corporate costs. Corporate G&A included a $3.9 million expense recorded following founder and CEO Edward K. Christian’s death in August 2022, under his employment agreement. Related estate benefits were estimated at approximately $5.8 million in total, including cash, stock and insurance; the company also disclosed an unquantified potential tax obligation related to the life insurance payout.
- Christian’s Class B shares converted to Class A shares on his death; an estate planning trust holds approximately 16% of common shares. Christopher Forgy became CEO in December 2022. The change ended Christian’s prior voting control and management described a period of transition.
- Dividends declared were $4.86 per share in 2022, totaling approximately $29.6 million. The December dividend of $2.25 per share was payable in January 2023 and was included in year-end dividends payable. A new variable-dividend policy provides for an additional second-quarter dividend based on 70% of prior-year free cash flow, subject to specified adjustments and Board discretion. The Board declared a $0.25-per-share quarterly dividend in March 2023.
- Management expects 2023 capital expenditures of approximately $5.0–$5.5 million, funded from operations. No specific revenue or earnings guidance is provided. Management says inflation is beginning to affect costs; advertising remains exposed to economic conditions, seasonality, competition and changes in media technology.
- No broadcast-license impairment was recorded in 2022 or 2021; a $5.1 million noncash impairment was recorded in 2020. Broadcast licenses were $90.3 million at year-end 2022, and their valuation depends on forecast cash flows and other significant assumptions.
- Other income included insurance proceeds for weather-related damage and FCC spectrum-auction reimbursements. Ordinary-course legal claims were not expected by management to materially affect the financial statements. The filing identifies risks including advertising cyclicality, concentration in major markets, FCC regulation, key-person dependence, cybersecurity and potential future impairment.
Investor facts to verify
- Reconcile 2022 revenue growth with the rise in station costs and the unusual CEO-related expense, including its cash and tax effects.
- Confirm the timing and amount of dividends payable, and how the new variable-dividend formula is calculated alongside acquisition spending and capital needs.
- Review the revolving facility’s SOFR pricing, covenant limits, collateral provisions and availability before relying on the stated unused capacity.
- Assess the assumptions and sensitivity behind broadcast-license valuations, given their material share of assets and the 2020 impairment history.
- Monitor the CEO and ownership transition, expected 2023 political-advertising decline, and exposure to economic, regulatory and technology changes.
The financial statements received an unqualified audit opinion; management and the auditor reported effective internal control over financial reporting as of December 31, 2022.