Saga Communications, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Saga operates radio and television stations, deriving most revenue from advertising. Amounts below are in millions unless otherwise noted.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Net operating revenue | $29.061 | $29.423 | Down 1.2% |
| Operating income | $3.814 | $4.323 | Down 11.8% |
| Net income | $2.131 | $2.439 | Down 12.6% |
| Diluted EPS | $0.36 | $0.42 | Down $0.06 |
| Cash from operating activities | $7.587 | $7.838 | Down $0.251 |
Operating margin was approximately 13.1%, versus 14.7% a year earlier; net margin was approximately 7.3%, versus 8.3%. Station operating expenses declined 0.8%, while corporate general and administrative expenses rose 15.3% to $2.482 million. The filing reports depreciation and amortization of $1.589 million.
At March 31, cash was $24.521 million and current assets were $47.514 million, against current liabilities of $14.252 million. Long-term debt was $36.078 million, unchanged from year-end: $30 million term debt, $5 million drawn on the revolver, and $1.078 million of affiliate debt. The company reported $85 million of unused revolving capacity under its $120 million credit facility, which matures May 31, 2018. It was in compliance with all stated financial covenants.
Capital expenditures were $0.950 million in the quarter. Cash and cash equivalents increased $6.614 million to $24.521 million. The board declared a $0.20-per-share quarterly dividend, totaling approximately $1.2 million, paid April 17, 2015.
Changes versus Q1 2014
- Radio revenue fell 2.6% to $24.276 million, primarily reflecting the 2014 sale of the Michigan and Minnesota radio networks. Radio operating income declined 6.4% to $4.854 million.
- Television revenue rose 6.4% to $4.785 million, primarily from retransmission revenue; segment operating income increased 11.8% to $1.442 million.
- Management attributed consolidated revenue declines to lower national, local, and political advertising, partly offset by higher retransmission and interactive revenue. Station expenses fell modestly, but higher corporate costs contributed to lower operating income.
- Restricted-stock compensation expense increased to $462,000 from $188,000. The filing attributes part of the increase in corporate costs to non-cash compensation, including vesting associated with an officer’s voluntary resignation and separation agreement.
Outlook, risks, and contingencies
- Management expects 2015 capital expenditures of approximately $4.5–$5 million, to be funded from operating cash flow. It expects lower political advertising in 2015 because fewer elections are scheduled in its markets. No quantified full-year revenue or earnings guidance is provided.
- After quarter-end, Saga agreed to acquire broadcast stations serving Harrisonburg, Virginia, for approximately $9.640 million and, separately, two FM stations for approximately $1.335 million. Both transactions require FCC approval and were expected to close in Q3 2015; Saga stated it intends to donate one station in the smaller transaction because of FCC ownership restrictions.
- Management says operating cash flow should cover quarterly debt service, but warns that insufficient cash flow could require asset sales, refinancing, or equity issuance. The credit facility is secured by substantially all assets except FCC licenses and certain other assets; it restricts, among other things, additional debt, dividends, and investments.
- Risks include advertising and economic conditions, reliance on key stations and personnel, leverage and debt service, acquisition integration, regulation, and competition from new media technologies. Five radio markets together generated approximately 34% of consolidated revenue in the quarter. Management expects ordinary-course legal matters not to materially affect the financial statements.
Important facts for investors to verify
- Whether radio advertising weakness persists and whether television retransmission revenue continues to grow.
- The expected timing, FCC approvals, financing, and integration of the two pending Harrisonburg acquisitions.
- Cash generation, capital spending, dividend funding, debt balances, and continued compliance with credit-facility covenants.
- The effect of higher corporate expenses and restricted-stock compensation on future operating results.
- Exposure to concentrated markets, reduced political advertising, and competition from digital and other media.