Saga Communications, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone Q4 report; Q4 comparisons are included below. Saga operates radio stations and related digital and event businesses across 27 U.S. markets.
Financial results and liquidity
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net operating revenue | $112.8 million | $114.9 million | Down 1.8% |
| Operating income | $11.5 million | $13.1 million | Down 12.1% |
| Operating margin | 10.2% | 11.4% | Down 1.2 percentage points |
| Net income | $9.5 million | $9.2 million | Up 3.2% |
| Diluted EPS | $1.55 | $1.52 | Up $0.03 |
| Cash flow from operations | $15.4 million | $17.1 million | Down 10.2% |
| Capital expenditures | $4.4 million | $6.0 million | Down $1.6 million |
- Revenue mix in 2023: broadcast advertising, net, $94.2 million; digital advertising, $9.6 million; other revenue, $8.9 million. Local advertising accounted for about 90% of gross revenue.
- Operating expenses rose 3.0% to $90.2 million, including higher compensation, healthcare, utilities, maintenance and programming costs. Corporate G&A fell 23.3% to $11.0 million, principally because 2022 included expenses associated with founder Edward Christian’s death.
- Net income increased despite lower operating income, helped by higher interest income and lower income tax expense. Interest income was $1.4 million; the effective tax rate was 26.2%, versus 34.3% in 2022.
- At December 31, cash and cash equivalents were $29.6 million and short-term Treasury investments were $10.6 million, for combined cash and investments of $40.2 million, down from $46.9 million. Current assets were $60.6 million and current liabilities were $28.0 million.
- No debt was outstanding at year-end. The revolving credit facility had approximately $50 million of unused capacity, matures December 2027, and is subject to financial covenants; the company reported compliance at year-end. Substantially all assets other than FCC licenses and certain other assets secure the facility.
- Operating cash flow less capital expenditures was approximately $11.0 million, broadly level with 2022. Cash dividends paid were $19.9 million. A $2.00-per-share special dividend, about $12.5 million, was declared in December and paid in January 2024; it was recorded as a year-end payable.
Material changes and Q4 comparison
- 2023 revenue declined primarily because political revenue fell $2.7 million and local revenue fell $2.4 million. Growth in interactive revenue, mainly streaming, partly offset these decreases.
- Political revenue was $0.9 million in 2023 versus $3.6 million in 2022. Management expects 2024 political revenue to increase from 2023 as a result of more elections.
- Q4 2023 revenue was $29.1 million versus $30.1 million in Q4 2022; operating income was $2.8 million versus $4.9 million, and net income was $2.5 million versus $4.3 million.
- The five largest markets generated 36% of 2023 net operating revenue and 40% of station operating income, leaving results exposed to economic or competitive weakness in those markets.
- Founder Edward Christian’s death in 2022 ended his controlling voting position; his estate-planning trust holds approximately 16% of common shares. FCC consent to the transfer of control was approved in December 2023. Management identifies the control transition as a potential source of shareholder and governance risk.
Outlook, risks and unusual items
- No general revenue or earnings guidance is provided. Management estimates 2024 capital expenditures of $5.0 million to $5.5 million, expected to be funded from operations.
- In February 2024, Saga agreed to acquire six radio assets in the Greater Lafayette, Indiana market for $5.3 million, with closing expected in Q2 2024. Funding is expected from operations or credit-facility borrowings.
- The company’s variable-dividend policy and future dividend amounts remain at the Board’s discretion and depend on financial results, cash needs and other factors. A $0.25 quarterly dividend and a $0.60 variable dividend were declared after year-end for payment in March and April 2024, respectively.
- Key risks include cyclical and seasonal advertising demand, inflation and labor costs, competition from other media and streaming, reliance on key markets and personnel, FCC regulation and license renewals, possible higher music royalties, and cybersecurity or technology disruptions. Management reported no material company impact from a 2021 ransomware attack on a third-party provider and no material cybersecurity impact to date.
- Broadcast licenses were $90.2 million, about 39% of total assets; goodwill was $19.2 million. Annual impairment tests found no impairment in 2023, but valuation depends on assumptions about market revenue, margins, growth and discount rates. The independent auditor identified license impairment analysis as a critical audit matter.
- Ordinary-course legal claims are disclosed; management does not expect potential liability to materially affect the financial statements. A potential tax obligation related to the former CEO’s life insurance benefit could not be estimated because of timing uncertainties.
- The 2023 financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective as of year-end.
Important facts for investors to verify
- Whether the decline in local advertising and operating margin persists, and whether digital and streaming growth can offset broadcast softness.
- 2024 political-advertising contribution, given management’s expectation of an increase and the uneven election-driven revenue base.
- Cash available after the special dividend, planned capital spending and Lafayette acquisition; confirm whether borrowing is needed.
- Credit-facility terms, covenant headroom and interest-rate exposure if Saga draws on the variable-rate facility.
- Assumptions and sensitivity in the broadcast-license impairment valuation, given the substantial share of assets represented by licenses and goodwill.
- Execution and economics of the Lafayette acquisition, and any material developments in ownership transition, regulatory requirements or potential music-royalty obligations.