Saga Communications, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Saga operates radio stations in 24 markets and television stations in two markets. Results are unaudited.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Net operating revenue | $36.1 million | $33.8 million | $105.3 million | $97.3 million |
| Operating income | $9.3 million | $6.5 million | $23.1 million | $17.8 million |
| Net income | $5.4 million | $3.1 million | $13.2 million | $9.7 million |
| Diluted EPS | $0.92 | $0.53 | $2.26 | $1.67 |
| Operating margin | 25.8% | 19.2% | 21.9% | 18.3% |
- Q3 revenue grew 6.8% and operating income 43.5%; nine-month revenue grew 8.3% and operating income 29.8%. Net income rose 74.0% in Q3 and 36.4% year to date.
- Radio revenue was $29.9 million in Q3 and $88.2 million year to date; television revenue was $6.2 million and $17.1 million, respectively. Political advertising boosted both segments, particularly television in Joplin.
- Management attributed most revenue growth to stations not owned or operated for the full comparison period: $1.6 million of Q3 growth and $5.1 million of nine-month growth. Same-station growth was substantially aided by political advertising; Q3 same-station local revenue declined.
- Operating income included a $1.4 million gain from a Norfolk tower sale-leaseback. The year-over-year comparison also benefited from the absence of a $0.4 million 2015 loss on donating a station. Q3 2015 additionally included a $0.6 million write-off of debt issuance costs; nine-month 2015 included a $0.4 million insurance gain.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $21.0 million, versus $19.3 million in 2015. Investing cash use was $15.2 million, including $4.1 million for property and equipment and $12.7 million for broadcast-property acquisitions, partly offset by $1.6 million of asset-sale proceeds. Financing cash use was $4.7 million, including $4.7 million of dividends paid. Cash increased $1.1 million to $22.7 million.
- At September 30, total debt was $36.4 million: $35.3 million drawn on the $100 million revolving facility and $1.1 million of affiliate debt due May 2017. Approximately $65 million of revolver capacity remained available. The facility matures August 2020; substantially all assets other than FCC licenses and certain other assets are pledged. The company reported compliance with its financial covenants.
- Current assets were $49.3 million and current liabilities $15.3 million. Stockholders’ equity was $133.2 million. Cash dividends declared were $0.30 per share in Q3 and $0.80 per share for the first nine months.
Outlook, commentary and risks
- Management expected increased 2016 political advertising because of the larger number of national, state and local elections; this was a key contributor to reported growth and may not recur at the same level.
- Management estimated 2016 capital expenditures of $5 million to $5.5 million, to be funded from operations. The company said operating cash flow was expected to cover debt service, while noting that insufficient cash flow could require equity issuance, refinancing or asset sales.
- No specific revenue or earnings guidance was provided. The company continues to pursue broadcast acquisitions and anticipates financing future acquisitions and dividends through operating cash, borrowing, equity or a combination; availability on acceptable terms is not assured.
- Risks identified include economic and advertising-market conditions, reliance on key stations and personnel, acquisition integration, financial leverage and debt service, regulation, new media technologies, and natural disasters or terrorist attacks. Five largest radio markets generated about 35% of nine-month revenue; Joplin contributed about 11%.
- Ordinary-course claims and legal proceedings were disclosed; management did not expect potential liabilities to materially affect the financial statements. Disclosure controls were judged effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- How much of revenue and profit growth came from acquisitions and election-related political advertising, and how same-station local advertising trends developed after Q3.
- The recurring earnings impact of the $1.4 million tower-sale gain and the comparability effects of 2015’s station-donation loss, insurance gain and debt-cost write-off.
- Actual 2016 capital spending versus the $5 million to $5.5 million estimate, and cash generation after acquisitions and dividends.
- Remaining revolver availability, covenant headroom, and repayment or refinancing plans for affiliate debt due May 2017.
- Acquisition integration, market concentration, advertising competition from digital media, and the effect of political-advertising normalization on future results.