Saga Communications : Q2 2023 Earnings Call Transcript

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SAGA COMMUNICATIONS, INC. FQ2 2023 EARNINGS CALL AUG 08, 2023

Call Participants

EXECUTIVES

Christopher S. Forgy

CEO, President & Director

Samuel D. Bush

Senior VP, Treasurer & CFO

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SAGA COMMUNICATIONS, INC. FQ2 2023 EARNINGS CALL AUG 08, 2023

Presentation

Operator

Good morning, everybody, and welcome to the Saga Communications Inc. Second Quarter Earnings Release and Conference Call. [Operator Instructions] And it is now my pleasure to turn the floor over to your host, Mr. Chris Forgy of Saga Communications. Chris, the floor is yours.

Christopher S. Forgy

CEO, President & Director

Thank you, Jenny. And thanks to all of you on the call for your continued interest in Saga Communications. Welcome to the 2023 Second Quarter Conference Call. And I'm immediately going to turn it over to my partner in crime, Mr. Sam Bush.

Samuel D. Bush

Senior VP, Treasurer & CFO

Thank you, Chris. I'll start with the obligatory. This call will contain certain forward-looking statements. Performance and results of operations that involve risks and uncertainties that are described in the Risk Factors section of our most recent Form 10-K. This call will also contain a discussion of certain non-GAAP financial measures. Reconciliation for all the non-GAAP financial measures to the most directly comparable GAAP measure are attached in the selected financial data tables.

For the quarter ended June 30, 2023, net revenue decreased 2.2% to $29.2 million compared to $29.8 million last year. It should be noted that political impact to this year's performance. As for the quarter, we had $108,000 in gross political revenue this year compared to $787,000 for the same period last year.

Without political, our overall revenue for the quarter would have been flat with last year. Station operating expense increased 2.9% or $621,000 to $22.4 million for the 3-month period. As discussed in the first quarter conference call, after a number of years of giving our employees little to no compensation increases, we made the strategic decision to give our [indiscernible] pay increases in recognition of the tremendous work they do. These pay increases and related payroll taxes amounted to an estimated $446,000 in the first quarter, as previously reported and $444,000 in the second quarter of this year.

Similar to the first quarter, other smaller but still meaningful increases in our station operating expenses included increased utility expenses, music licensing fees, office maintenance and repairs, sales costs, including commissions and sales surveys.

For the 6-month period ended June 30, 2023, net revenue was down 0.6% to $54.5 million compared to $54.8 million last year. Adjusting for political for the 6-month period, gross revenue increased 0.7% for the 6-month period. Gross political revenue year-to- date was $301,000 for the 6 months this year compared to $907,000 for the same period last year.

Capital expenditures for the quarter ended June 30, 2023, were $1.3 million compared to $2.6 million for the same period last year. For the 6-month period, capital expenditures were $2.6 million this year compared to $3.6 million last year. And last year's capital expenditures for the 6-month period we included approximately $770,000 for the completion of the new studio building we built in Ocala, Florida.

We continue to expect to spend between $5 million and $5.5 million for capital expenditures during 2023. We continue to see nice growth in national, interactive and nontraditional revenue with them being up 12.1%, 17.3% and 10.4%, respectively, for the quarter. And 9.7%, 14.1% and 13.5% for the 6-month period ended June 30, 2023. Chris will talk more about that in a little bit as well.

We intend to continue to utilize our financial strength to strategically invest in our operations, both at a market and corporate level as we work to grow revenue types, including local, national, interactive, e-commerce and NTR. And as I said, Chris will talk more about some of these early successes in a few minutes.

Due to the SEC's renewed focus on the reporting of non-GAAP financial measures and the review of our filings, we've adjusted this quarter's press release to include a complete statement of cash flows as opposed to the abbreviated statement we historically have included on our Form 10-Q.

We continue to include the reconciliation of GAAP operating income to station operating income, which is a non-GAAP measure, but now also include another financial data table, which allows the users of our press release and of filings to make direct comparisons

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SAGA COMMUNICATIONS, INC. FQ2 2023 EARNINGS CALL AUG 08, 2023

to data reported in previous press releases and filings. The company paid a $0.25 per share quarterly cash dividend on June 16, 2023. We've now returned dividends of over $100 million to our shareholders since the first special dividend was paid in 2012.

All said, we believe Saga is in a strong financial position to continue to return value to our shareholders through our quarterly special and [indiscernible] The special dividends declared in 2022 were in line with the goal of maintaining our ongoing cash and short-term investment balances to between $30 million and $35 million prior to future cash flows being recognized.

The board continues to have discussions relative to the right level of cash to maintain on our balance sheet, and this may change based on global, national and local economic conditions, changes in the radio industry and potential for strategic acquisitions.

The company's balance sheet reflects $34.4 million in cash and short-term investments as of June 30, 2023, and $38.3 million as of August 7, 2023.

Pacing for the third quarter continues to be variable, and I probably could say volatile as well because it seems like we look at it 1 week and it's up doing better, 1 week gets down, doing worse and it just keeps bouncing back and forth. For the quarter, we are currently pacing down low to mid-single digits.

However, you have to keep in mind that we are comparing in the third quarter and fourth quarter to last year's political revenue of $3.6 million for the entire year and in particular, $900,000 in third quarter political revenue and $1.8 million in fourth quarter political revenue last year.

Also, the market continues to be an unsettled advertising market given the uncertain economy, the Fed's interest rate policy and the ongoing inflationary environment. We currently expect that our station operating expense will increase by approximately 3.5% to 4.5% for the year as compared to 2022.

In addition to the inflationary environment, this is significantly driven by our investments in our staff, sales training and ongoing interactive development. Corporate, general and administrative expense will decrease significantly from 2022, primarily because of expenses incurred as the result of Ed Christian's passing. This reduction will be somewhat offset by an increase in directors' fees and by investments we are making in corporate personnel that will be directly involved in growing specific revenue types, as previously mentioned.

We anticipate that the annual corporate general and administrative expense will be approximately $10.5 million to $11 million for 2023. Our tax rate is expected to be 27% to 30% with a deferred tax of 5% to 8% going forward.

And with that, I'll turn it back over to Chris.

Christopher S. Forgy

CEO, President & Director

Well, thank you, Sam, and thank you all again for being on the call with us today. Sam, if I seem a bit giddy on the call today, it's only because we have now completed the process of building what I consider to be the very best leadership team I've ever been around.

And Sam, it starts with you and continues with what we call a seal team of elite leaders at the top from a corporate office standpoint, like indulge me for a moment, I'm going to name some names like Cathy Bobinski, our Senior Vice President and Controller. Wayne Leland, our Senior Vice President of Operations; our Vice President of Engineering, Tom Atkins; our CMO, Eric Christian; our CTO, Tracy Cleeton; our Vice President of Facilities, Angela Parks; VP of Financial Analysts -- and Financial Analyst, [indiscernible]; and Annette Calcaterra, our VP of HR, along with a great group of corporate staff, GM and market employees who are all committed to the mission. And frankly, it's very exciting.

Okay. There's a phrase that we've shared with our leadership team over the years. It's been around for a few years at Saga, and it has more context today than ever before. If you've ever had any Latin in high school or college, you may be able to translate this, the phrase goes like this, finis origine pendet or the end hangs on the beginning.

In other words, your actions today will impact your future outcomes. That's how we've been behaving at Saga for about the last 8 months or so, focusing on really 3 areas of opportunistic growth that we've talked about before. People, products and perceptions. Not cost cutting, consolidating markets or offloading real estate, leaning into our economic headwinds and making investments, as I said, in people, products and perceptions.

So in the clouds of this current economic climate clear, we'll be able to emerge stronger, better trained with a head start into the future. Again, the end hangs on the beginning, finis origine pendet. And we did this not concerning ourselves with what our radio or audio

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