Q3 2022 Saga Communications Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to the Communications third quarter earnings Conference call at.
At this time, all participants have been placed on a listen only mode.
It is now my pleasure to turn the floor over to your host Warren Lada interim President and CEO at Saga Communications, Sir the floor is yours.
Thank you Holly and welcome everybody to our third quarter 2022 earnings call.
Joining me today is Sam Bush, our Chief Financial Officer extraordinary who has been with us for a million years somewhere thereabouts.
And also Chris Borghi senior VP operations.
And you have not heard my voice for over four years I used to do these calls when I was the chief operating officer for Saga.
And do too.
Very sad unfortunate circumstances that we are in today.
Well it trades relative to our.
Founder Chairman CEO passing in August .
I am back on again on an interim basis, and I'll have a little bit more to say about that a little bit further down the line.
You've heard Ed talk about the word saga.
Which is loosely translated in Icelandic.
It is a never ending journey.
And one person's journey is now over and that's it.
And we do deeply missing.
It feels very different not having them around.
And the losses palpable.
That said I will tell you and you'll hear more about this.
That.
Our company is extraordinarily solid stable.
In good shape doing the right things the right way and all of US you know continue to do those sorts of things that we did from the day that had passed to today.
So the news is good and the news is positive moving forward.
You'll hear more about this but let me turn it over to Sam and he can tell you more detail about the actual quarter and then we'll come back to you Airport Sam.
Thank you on.
This call will contain forward looking statements about our future 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.
First I want to take a minute as warranted to recognize the loss of Ed Christian Sarcous, founder Chairman, President and CEO and inspirational leader since saga was founded in 1986.
Not only are loss for saga, but for the entire radio industry.
This earnings call actually is my 100th call that I will have participated in since joining saga as CFO in 1997, it will only be the second one that I have done without it.
And that.
All this week, that's been amazing me that 90.
98 to 100 calls where the two of us together.
As all of you have heard and know from past calls Evernote had never liked reporting adjusted numbers. However, it is important that we do so and we did so in the press release for this quarter as the purely reported numbers do not reflect sagas strong operational performance as well as our extremely songs strong financial strength.
With that in mind for the quarter ended September 32022, net revenue increased three 9% to $30 million compared to $28 $8 million last year.
Gross political revenue during the quarter was $858000 compared to $256000 for the same period last year.
Without political gross revenue increased two 3%.
Station operating expense increased two 8% to $22 3 million for the three month period.
Station operating income increased 4.1% to $8 9 million.
Operating income was $1 1 million and free cash flow was $1 6 million for the quarter.
We had a net loss for the third quarter of $104000.
As a result of ads passing saga was required to make several payments to the state as outlined in his employment agreement.
These expenses were accrued during the third quarter, increasing the reported corporate general and administrative line item by $3 8 million for both the quarter and the nine month period.
Without these expenses operating income would've increased five 8% to $4 9 million compared to $4 6 million for the same period last year.
Free cash flow would have increased 36, 5% to $5 4 million compared to $4 million last year and net income would have increased seven 9% to $3 7 million. This.
This compares to $3 5 million for the third quarter of 2021 with.
With the adjustment diluted earnings per share would have been 62 per share this quarter as compared to <unk> 58 per share for the same quarter last year.
For the nine months period ended September 32022, net revenue increased 7% to $84 8 million compared to $79 2 million for the same period last year.
Gross political revenue during the nine month period was $1 8 million compared to 894000 for the same period last year.
Without political gross revenue increased six 1%. So we had a very strong quarter and have had very strong year.
Even without the political revenue, although the political revenue is always a nice stimulus to have stay.
Station operating expense increased four 9% to $64 6 million for the nine months period.
<unk> operating income increased nine 6% to $23 7 million, while operating income was $8 1 million free cash flow was $6 7 million for the period.
Net income for the first nine months was $4 9 million.
Adjusted for the $3 8 million and increased corporate general and administrative expenses as previously discussed operating income would've increased 18, 4% to $12 million compared to $10 1 million for the same period last year.
Free cash flow would have increased five 9% to $10 5 million compared to $9 9 million last year and net income would have increased 17, 3% to $8 $8 million.
This compares to $7 5 million for the third quarter of 2021 diluted earnings per share would have been one $1 45 for the nine month period as compared to 1.2.
One $1 25 for the same period last year.
Capital expenditures for the quarter were $1 2 million, which is basically flat with the same period last year.
$4 7 million for the nine month period compared to $2 7 million for the same period last year.
The increase in our Capex of approximately 2 million for the nine month period is primarily due to two projects as discussed in our second quarter earnings call capital expenditure includes $1 1 million for the purchase of a building in Norfolk that we will be converting to office and studio field facilities, allowing us to exit the current leased space we have.
This will be a sizable cost savings for our Norfolk operations over the upcoming years. We also completed work on our new studio building in the Gainesville, Ocala market with approximately 800000 being spent this year.
We still expect to spend approximately five five to 6 million for capital expenditures in 2022.
Fourth quarter 2022 is currently pacing ahead of the same period last year by approximately three 5% to 4%. Although we continue to watch the current interest rate environment, the potential recession on the horizon and the ongoing global turmoil as I stated in the second quarter in reality everything is still week by week month by month, and sometimes even day by day.
As we watch out of the economic turbulence factors.
We paid a quarterly dividend of <unk> 25 per share and a special dividend of $2 per share to our shareholders on October 21 2022.
The aggregate amount of quarterly and special dividend was approximately $13 6 million.
Saka paid its first special dividend on December three 2012, and has now paid out over $93 million in dividends over the past 10 years.
The company continues to pay continued intends to continue to pay regular quarterly cash dividends in the future.
And consistent with our strategic objective of maintaining a strong balance sheet and at the same time returning value to our shareholders. The board of directors will also continue to consider declaring special cash dividends, establishing a variable dividend policy and as well as stock buybacks in the future.
Our balance sheet shows $58 3 million in cash and short term investments as of September 32022.
As of October 31, we had $45 3 million of cash and short term investments on hand the.
The reduction in cash is primarily due to the $13 $6 million dividend paid on October 20, <unk> and the $2 million paid to adds a state as part of the $3 8 million accrual previously discussed.
We currently expect that our station operating expense will increase by approximately 5% to 7% for the year as compared to 2021. This includes additional sales commissions and music license fees based on our revenue growth as well as increases in our cost of sales surveys and overall expenses as a result of inflation.
Our tax rate is expected to be 28% to 30% with the deferral of tax of approximately 5% to 7%.
Resulting in an annualized tax rate of approximately 34% to 36% the.
The tax rate in quarter three was a direct result of the $3 8 million nondeductible expenses, we accrued as a result of its passage.
With that I'll turn the call back over to Warren and Chris.
Thank you Sam.
Let me let me just.
Go on with a little story, which.
Which is how I felt when I was asked to come back and fulfill the interim president and CEO position.
And the first thing I would tell you is that it truly truly has and is an honor to do this I've been with saga for 32 years now they've been fantastic 32 years.
When I retired.
Wood was appointed board member and have been an active board member for the past four and a half years.
On the day I walked into Ed's office.
I sat on the sofa with the lights off because it was just filled with so many good memories about conversations I had with him decisions that we made together the growth of the company and so on and so forth, but I kind of was honestly a little bit of a basket case that first day I walked out of the office I wandered around the halls.
Talk to everybody in the office on day, two I finally turned a lifetime and I sat on my desk and by about noon.
I began to feel like the maytag repairman.
You remember that AD campaign for some time ago. The Maytag repairman was the guy who because maytag manufactured according to them at least such a fantastic washer and dryer. He really didn't have too much to do so we sat around waiting for somebody to call to fix the washer and dryer.
It's kind of an exaggeration, but I cannot felt a little bit like the maytag repairman.
Second day that I was here.
Which is really a testament to the strength of our operation.
And to the way it has been managed and run for its entire history.
Yeah.
Yeah.
In addition to that.
On Ed's door on the bottom of the door there was a large toward us.
We frequently talk about the favorable of the race between the tortoise and the Hare.
And that taught us would always end up crossing the finish line first because they are right out of the chute what run was overconfident with Zig Zag, we'll do a lot of different things and that sort of just kind of kept the low profile and kept his nose to the ground that kept on planning forward or two miles an hour, but when it came time to the finish line.
The tortoise.
The hair and I take a look at saga and.
When I walked in here, we had a substantial amount of cash in the bank.
We really do not have and have not had any significant operational problems.
And we are able to return to our shareholders, a pretty healthy dividend and as Sam mentioned, we continue to revisit that.
And the saga continues.
We've always been stable we are stable now we've always had extraordinary people we have not had at all an exodus of people with Ed leaving.
In fact, if theres anything there's a heightened passion for continuing on with this journey to continuing doing what we've done as a company, which has been exemplary broadcasters. Good stewards of the licenses finding ways to touch audiences through on there whether it's an error on stream.
That's your audience is now over the past several years through digital.
Interaction with them.
None of this happened by accident, there's been a system to everything that we've done and we do run the company with a fair amount of discipline.
A very high expectation level set and the people that we have working for us expect that and we have people working for US now that had been working for us for a very very long period of time.
Normally wouldn't do this because it might be at the risk of embarrassing from people, but I'm going to do it because of the circumstances here.
And I'll start writing gross point farms, where our corporate offices or senior management as our vice presidents are counter.
Accounting Department internal audit I T engineering programming digital facilities management HR operations.
Most of the people here have been here for a very long period of time.
Some could say well, that's maybe not good because stagnate, maybe that's not good because you lose the energy.
And what I can tell you and the results of this quarter and the results of this year and the results of our history kind of bears it out none of us have lost any energy.
None of us have taken for granted the roles that we play and.
And we're quite aware of the responsibility we have.
And I would say that the numbers that Sam just reported reflect.
Kind of the culture of the company, which has contributed towards our ability quarter after quarter to do reasonably well.
And in our sector in an industry that you hear stories about not great things happening financially.
Not the case whatsoever with saga.
And again.
That all comes because that all happens because of our people showing up to work every day and wanting to do a good job in doing it.
I will we have everyone who works here is extraordinary everyone who works here is extraordinary.
One person, Kathy Babinski, who I kind of called the secret sauce of saga and I call. It the secret sauce, because she sits in her office and she surrounds herself all day long with numbers, and Sam and Chris and I and others sort of go into your office, almost everyday and sit down and talk.
And she is the person who.
Kind of has their eye on things for nationally in ways that we might not because were too close to the forests to see the trees and Kathy shows us the trees. So special thanks to her and also a special thanks to everybody who is in the gross point firms office and without them, we could not be doing.
What we're doing same goes the same holds true with our stations.
Our stations in a number of different markets. We have an on air personalities programming people salespeople digital people I T. Our business headman HR promotion engineering.
As in the corporate office I started thinking about it and I would it's probably not the majority, but the overwhelming number of people have been with us for a long time now.
Not because necessarily the easiest place to work in fact, we're not the easiest place to work, but what we provide or the tools the environment to do extraordinary broadcasting to look at new and innovative digital pathways to touch our.
Audience as well and it has been consistent year after year after year and again you know just looking at this quarter, which I am proud of and we are proud of.
It.
It all comes because of the people that are behind it.
As a woman named Lisa Norton in Portland, Maine, as one of our salespeople, who I met for the first time I think about 25 years ago to Romaine note. The other day, just saying she wanted me to know that she continues after 25 years as the salesperson to be extraordinarily energized I checked with our general manager in Portland fills.
Accurate and he said yeah.
As Don just great and she is one of many and she's emblematic of the one of many that we have not only in Portland, but in many of our markets as well as the.
Gentleman by the name of Jerry parent Who's our production director of production directors. The person who is in charge basically with all things that go on here, whether it's advertising promo spots you name. It. He does it Jerry was with saga before I was with the saga and is retiring this year.
That's pretty much eight to nine hours a day.
And the production room and makes magic come out of the speakers that come out of the cell phones or come out of however people are listening to us and while he is leaving he he he will then be supplanted by other people in our company who have been with US also for 2030 years, a manager in Milwaukee by Molina.
He is our general manager there Bob started with us as a program director.
Hum.
A number of years ago. He became our general manager I don't know how many years he's been with us, but it's been a long time and it's people like Bob and Jerry and Lisa that helped propel us to the position that we're in today and while we're on our first call as Sam mentioned without Ed.
I can assure everybody.
This company is as solid as ever has been and we continue to focus on local programming, we continue to find new ways to engage our audience, whether it's on air or through it digital.
<unk> of that.
And and we will continue to do that.
I also just want to thank our shareholders many of them long term holders as well.
One in particular has been with us since the inception of saga.
And they.
They've placed their trust in us to run this operation.
The way that they would want to see it run and because of the way that they invest with us which are really as investors and it has helped us quite a bit and you know remaining stable and not having to deal with other things that can happen when the investment community is not necessarily happy with you I want to also think Katz media.
Cats as our national Rep, they've been with us from day one.
Mark Gray President of Katz media.
Brown.
President of Katz radio.
These gentlemen in that organization are partners of ours and they are a significant reason why we continue to do as well as we have and just anecdotally Sam always reminds me never seen numbers that you can pick up but they're doing a pretty good job for us I really do appreciate their work are they reached out to us.
After had passed away to insurers that they will continue to focus on our company the way they always have and they've done that and we have two gentlemen, who work for us Bruce Warner and Tom how who our liaison with cats. They also have been with us for extremely long period of time and because of that national component to our revenue stream.
We continue to be able to report good earnings earnings.
Earnings per year. So the saga is going to continue.
We will announce soon.
My replacement and.
And we will appoint a permanent president and CEO .
I have undergone along with support with the board and a process that we established a comprehensive search.
What an interesting one we've looked at external candidates.
A lot of home.
What I would call names in the industry, both for private and public companies and.
And I've had an interesting and positive time and dialogue ing a lot of people who work for companies that are larger than saga in terms of revenue or numbers of stations.
It seemed to be quite interested in talking to us about saga, because we are somewhat unique in our industry. So we've had some very good dialogue and very good candidates to consider.
And we also have a very strong bench internally.
And I have spent quite a bit of time internally, taking a look at.
What.
Would work best if we were to promote somebody for more than two that possession.
What would that individuals bring to the table as compared to somebody coming in from outside so the results of that will soon be announced please stay tuned I appreciate everyone being patient, but it will not be too long before you hear about that so we continue to perform well we have already started to establish our strategy and.
Direction for next year.
I'd be remiss because it seems like if you Don mentioned.
How are you gonna grow and include digital would that.
We're not doing the job and I actually kind of agree with that I think digital will continue to is already a growing segment of our company will be an even bigger segment of our company over the next few years Chris.
Chris is going to talk a little bit more about that in a minute.
We were just brainstorming one idea recently about establishing because of the dearth of good local newspapers with good net closing up in nine of our markets you know their operations to basically be a one reporter type operation and where we have the ability.
Where we have relationships in the community not necessarily sessions that are news departments, but we can establish that we are looking around that waste that digitally deliver news and markets. We have a couple of beta.
Markets that are already fairly well established and we have a model for that we're going to take a look at that for next year. The remainder of this year as one of growth opportunity and there will be more.
So the news is not good news relative to our founder Chairman President and CEO passing away I deeply miss them.
But I am also very energized as is all of saga to continue to do that kind of work that we've been doing with that.
Ill turn it over to Chris for you.
Thank you ward.
Seamus pointed out a couple of different times I'm, serving as the color commentary to you as a play by play Guy warrants. So I'll give a little color to some of the things we've talked about and I'll keep my remarks brief however, I would be remiss if I didn't address it's passing and the impact that it's had.
In the context of our operations.
When our beloved forever leader like Ed Christian is lost.
Members of that leadership team, sometimes find themselves lost as well where do we turn who do we go to Oh My gosh, what are we going to do now not in saga.
We have the strongest most capable leadership.
Not I think I know I've ever been around in my 24 years in saga without question.
Our culture is so established and ingrained in the hearts and minds of our people.
That they're all moving ahead in the North campus.
I would call it with a renewed sense of purpose and resolve to finish what we started and what Ed was not able to finish with us.
You know this type of resolve and behavior.
As a tribute to our ongoing saga culture, and it's strong as worn pointed out.
And it's a credit to the leadership of our team and in our markets. We have a picture that hangs in all of our general managers markets.
That we sent out to all of them in the picture hanging on the wall simply says we cannot direct the wind.
But we can adjust the sails.
And so we deal a lot in the things that we can control we call them the controllable.
And there are really three revenue.
Silos that we we look at from that perspective, and one is local direct business business that is not affected by an advertising agency number two.
N T art non traditional radio typically their event type business and finally, our digital platform.
And I wanted to give you a little bit of color on that but before I do that we've also found another emerging revenue silo and mourn referenced it in his early remarks and that's that's in the area of our National We mentioned, Tom how it Bruce Warner and I'd also like to mention Kristine travel unique.
Who is also a big part of that team.
But from a national perspective, you know there you would say well, we don't really have a lot of control over that well I think I tend to disagree because I think it's not so much.
What you do it's how you do it and when you look at the team that's created with Tom how and Bruce Warner and Mark Gray, and Chad Brown, and Christine and the way they work together with the customers with the buyers in the market. It becomes a more of a of a controllable because of the way that they impact the business in the way that they build relationships inside of the buildings and.
The businesses that they're working with and that too has become a little more of a controllable for us and we will get more and more attention as we move forward.
And just give you an idea of nonpolitical song as National performance is very strong.
Right now in a climate, where most broadcast companies are down significantly in national business and that's a nonpolitical.
So getting back to the controllable themselves for the quarter.
Local direct.
Give me a little reference there, we do almost $5 million more in local direct business.
During the quarter.
And we did in local agency business.
And N T or for the quarter Nash nontraditional revenue, we were up $350000 or 21%.
And in digital revenue, our most emerging category.
We're up.
Over $350000 and up 14%.
So those are all those are on controllable categories and just to give you a little idea of how we impact those on this call last year at the end of 2021 or the beginning of 2022 I reported that we had produced in 2021 21000 spec spots that year spec spot as a commercial is done on a speculative basis to play.
For a customer to let it.
Let them hear what it might sound like if they were to communicate their message on our radio stations in our markets to the local community.
We produced 21000 of those last year and we're on track to surpass that number in 2022 in fact in Q3, we produced and presented nearly 6400 spec spots, where the closing ratio well north of 30%.
That's impressive.
In fact, one example of that and then I'll close is that we had a brand new seller very talented seller and we spend a lot of time on the front end.
Of the Onboarding process of our sales talent in evaluating talent and we determined if if their talent enough to be there and it's on us to be sure that we provide the environment to make sure. They are successful and we hired a brand new seller in Charlottesville, Virginia names Whitney Tedford.
Never sold anything never earned a dollar selling.
On a commission basis.
She went through our training with our general manager Gary Klingel there.
And.
She identified a prospect research the prospect prospect produced a spec spot made a cold call cold calls some of Coca Cola Coca Cola is called it you've never met the individual before in your life and you walk in cold and do a cold call with that client. She was well prepared like I said did research played the spec spot for the customer.
<unk> closed a long term schedule on her very first call yesterday or day before yesterday. She celebrated her first sale with saga.
And our next question was when are you going to go get another one.
So she is excited and as all of our team members are for the challenges ahead.
And what we can do.
In the spirit of what Ed would want us to do.
That's all I had one.
Thank you, Chris Sam do you have any questions or.
The.
The people on this call, yes, we did get some.
Some questions sent in ahead of time.
Questions about local versus national political revenue digital revenue fourth quarter pacing all of these I think we've already answered or addressed in your comments my comments Chris's comments we.
We did get a couple of questions, which I'll address now one was about acquisitions and what the market for acquisitions are and what we're seeing in the market and I would just tell you as it did in the second quarter as well something very similar.
The market for acquisitions is not currently very active mostly due to the turbulent economic conditions that exist throughout the economy. It.
And it's very difficult to establish a sale or purchase price given that market turbulence that said, we will always look at acquisitions anytime that they make sense and it would be accretive to the company, adding grained and all of us and all of US here have been here quite a while.
But it is ingrained in all of us how to look at acquisitions.
Not just as where youre going to be when you make the acquisition relative to it being accretive, but where are you going to be six months 12 months five years 10 years.
Relative to that acquisition and that's the philosophy and that ingrained.
Our thought process has not changed and will not change going forward. If the market does open up and present.
Appropriate acquisition opportunities.
We also got a question that we had not addressed so far about our dividends and stock buybacks and how we consider them.
And and we got several questions on that as you can imagine but.
But we have done both dividends and stock buybacks in the past and our board will continue to consider both these methods of returning value to shareholders in the future.
Both of these avenues are considered regularly at board meetings between board meetings and conversations here with thought given to what our stock price is what the stock float is what the trading patterns have been what our cash balances are what acquisition opportunities are.
Are there and in a lot of other things that go into that consideration and I believe if you stay tuned shareholders for the near future you'll continue to see and hear more on these subjects.
As you have recently with the special dividend, we just did it.
$2 million that was paid on October 21st along with the to me and I'm sorry, $2 per share that was paid on October 21st along with our regular quarterly dividend 25 cents a share.
And with that I think we're in good shape to wrap up in Holly will turn it back over to you to let you wrap up the call.
Thank you ladies and gentlemen, this does conclude today's conference call you may disconnect your phone lines.
And have a wonderful day. Thank you.
You for your participation.
Thank you Holly.
Yeah.