Saga Communications, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparison with Q1 2023. Saga operates radio and related digital businesses in 27 markets, with 79 FM and 31 AM stations and 78 metro signals.
Financial performance
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net operating revenue | $24.664 | $25.304 | Down $0.640, or 2.5% |
| Operating income (loss) | $(2.417) | $0.905 | Down $3.322 |
| Operating margin | (9.8%) | 3.6% | Down 13.4 percentage points |
| Net income (loss) | $(1.577) | $0.920 | Down $2.497 |
| Diluted EPS | $(0.25) | $0.15 | Down $0.40 |
| Operating cash flow | $3.803 | $4.835 | Down $1.032 |
| Capital expenditures | $1.050 | $1.362 | Down $0.312 |
Revenue mix: Broadcast advertising was $20.482 million (down from $21.468 million); digital advertising was $2.449 million (up from $1.910 million); other revenue was $1.733 million (down from $1.926 million). Approximately 90% of station gross revenue came from local advertising in both periods.
Costs and margins: Station operating expenses rose 5.9% to $22.981 million; corporate general and administrative expense rose 19.6% to $3.129 million. Net margin was approximately (6.4%), compared with 3.6% a year earlier. Operating cash flow equaled approximately 15.4% of revenue, versus 19.1% in Q1 2023.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $20.177 million and short-term investments were $8.598 million, totaling $28.775 million; combined cash and investments were $40.177 million at December 31, 2023. Cash alone declined $9.405 million during the quarter.
- Current assets were $47.573 million and current liabilities were $20.357 million, a current ratio of approximately 2.3. Total assets were $218.046 million; total liabilities were $53.674 million; shareholders’ equity was $164.372 million.
- No debt was outstanding at quarter-end. The company reported approximately $50 million of unused capacity under its revolving credit facility, which matures December 19, 2027. The facility is secured by substantially all assets other than FCC licenses and certain other assets; the company reported compliance with its financial covenants.
- Q1 cash dividends paid were $14.068 million. The balance sheet showed a $3.758 million dividend payable at March 31, down from $12.505 million at year-end. Dividends declared per share were $0.85, versus $0.25 in Q1 2023.
Changes, unusual items and outlook
- Revenue declined as lower local and non-spot revenue outweighed growth in interactive and political advertising. Management cited stronger streaming and website advertising, and more elections than in Q1 2023, as drivers of the increases.
- Management attributed higher station costs primarily to compensation, bad debt, healthcare, streaming and content, sales surveys, insurance, repairs and maintenance, and music licensing. Higher corporate expense included increased stock compensation, compensation, travel and legal fees.
- Other operating expense was $0.971 million, compared with $0.080 million in Q1 2023. The 2024 amount primarily reflected losses associated with the sale of Asheville-area stations and the relinquishment of the KBAI-AM FCC license in Bellingham. The filing reports an $0.800 million loss on the KBAI-AM disposal and a $0.147 million loss on the Asheville sale.
- Management anticipates 2024 capital expenditures of approximately $5.0–$5.5 million, expected to be funded from operations. It expects political revenue to increase over 2023 levels due to the 2024 election cycle.
- Saga agreed to acquire six radio assets serving Greater Lafayette, Indiana, for $5.3 million, with closing expected in Q2 2024. It deposited $0.250 million in escrow and expects to use operating funds or credit-facility borrowings.
- The company intends to continue regular quarterly and variable dividends under its policy, but future dividends and buybacks remain at the board’s discretion. No shares were repurchased under the buyback program in the quarter.
- Management reported that inflation has not had a significant impact to date but is beginning to affect costs. Risks cited include economic and advertising weakness, competition and technology changes, dependence on key markets and personnel, interest rates, regulatory matters, cyber risks, and the ability to integrate acquisitions. The five largest markets contributed approximately 35% of Q1 revenue.
- A potential tax obligation related to payments to the estate of the late founder and CEO cannot currently be estimated. Management reported no material pending legal proceedings and no material changes to previously disclosed risk factors. Disclosure controls were judged effective.
Most important facts for investors to verify
- Whether advertising trends, particularly local revenue, improve and whether digital and political growth can offset broadcast declines.
- Whether expense increases and bad-debt costs persist, and how quickly operating performance recovers from the Q1 loss.
- Closing and financing of the $5.3 million Lafayette acquisition, and its subsequent contribution to results.
- The sustainability of dividend payments given Q1 operating cash flow, substantial cash dividends paid, planned capital spending and potential acquisition spending.
- Potential impairment exposure for broadcast licenses if market conditions weaken, and the eventual amount of the unestimable estate-related tax obligation.