Saga Communications, Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014; comparisons are with the corresponding 2013 periods. Saga operates radio stations and networks across 23 markets and television stations in two markets. Financial figures below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Net operating revenue | $33.831 | $33.832 | $63.254 | $62.789 |
| Operating income from continuing operations | $8.212 | $8.357 | $12.535 | $13.278 |
| Net income | $4.777 | $4.804 | $7.216 | $7.753 |
| Diluted EPS | $0.82 | $0.84 | $1.24 | $1.35 |
| Operating margin | 24.3% | 24.7% | 19.8% | 21.1% |
| Cash provided by operating activities | Not separately reported for the quarter | $11.811 | $11.046 |
- Q2 revenue was essentially flat. Radio revenue increased 0.6% to $28.851 million, while television revenue declined 3.5% to $4.980 million. Radio operating income rose 2.3%; television operating income fell 10.6%.
- For the first half, revenue grew 0.7%, but operating income declined 5.6%. Radio revenue rose 1.2%, while television revenue fell 1.8%; operating income decreased 0.6% in radio and 9.8% in television.
- First-half station operating expenses increased 1.9% and corporate general and administrative costs increased 8.7%. Management cited higher health-care costs and salaries; Q2 corporate costs also reflected higher stock-based compensation and legal expenses.
- First-half continuing-operations income declined 4.2%. Total net income fell 6.9%, also reflecting the absence of the $0.223 million after-tax gain from the 2013 television-station sale.
Cash, debt and liquidity
- At June 30, cash and cash equivalents were $25.916 million, up from $17.628 million at December 31, 2013. Net cash from operations was $11.811 million; capital expenditures were $2.914 million. Net investing cash outflow was $3.766 million, and financing activities provided $0.243 million.
- Total debt was $46.078 million, including $30 million under the term loan, $15 million drawn on the revolver and $1.078 million of affiliate debt. The balance sheet classified $5 million as current and $41.078 million as long-term. Cash exceeded reported debt by about $20.2 million.
- The $120 million credit facility matures May 31, 2018; $75 million of revolving capacity was unused at June 30. The company reported compliance with its financial covenants. On July 31, it paid $5 million toward the revolver; the filing does not provide post-payment cash and debt balances.
- The board declared a $0.20-per-share quarterly dividend, totaling approximately $1.1 million, paid July 25. Capital expenditures for 2014 were expected to be approximately $5.5 million, funded from operating cash flow.
Outlook, risks and other notable items
- Management expected increased political advertising in 2014 due to congressional, senatorial, gubernatorial and local elections. This is an expectation, not quantified earnings guidance; the filing provides no formal revenue or EPS forecast.
- Management said operating cash flow was expected to cover scheduled debt service, while cautioning that a shortfall could require equity issuance, refinancing or asset sales. Advertising results depend on economic conditions, audience ratings, competition and local-market performance; new media technologies may take advertising share from traditional broadcasting.
- Five largest radio markets together represented approximately 34% of consolidated revenue and 40% of consolidated station operating income in the first half, creating market concentration exposure. Station operating income is a non-GAAP measure and is not a measure of liquidity.
- Arbitron alleged copyright infringement and sought $150,000 per act, plus costs and fees. Saga said a loss was reasonably possible but could not be reasonably estimated; mediation and discovery were ongoing, with trial scheduled for July 6, 2015 absent settlement.
- During the first half, Saga acquired one FM station and several translators for disclosed consideration totaling approximately $1.017 million. The filing also states that ordinary-course claims are not expected to materially affect the financial statements.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether political and local advertising gains continue, and whether they offset weakness in national advertising and television revenue.
- Progress on television-segment performance and the drivers of rising station and corporate costs.
- Post-July 31 cash, revolver borrowings, debt-service requirements and ongoing covenant compliance.
- Developments in the Arbitron litigation, including any settlement, change in estimated exposure or court outcome.
- Actual 2014 capital expenditures and the sustainability of the declared dividend relative to operating cash flow.