Saga Communications, Inc. (NASDAQ:SGA) Q3 2023 Earnings Call Transcript

Saga Communications, Inc. (NASDAQ:SGA) Q3 2023 Earnings Call Transcript November 5, 2023

Operator: Good day, and welcome to the Saga Communications Inc. Third Quarter Earnings Release and Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Chris Forgy, President and CEO. Sir, the floor is yours.

Chris Forgy: Thank you, Paul, and thanks to all of you who have taken the time to join Saga’s Q3 earnings call. We appreciate your continued interest and participation in Saga Communications. We’ve got a lot to talk about today. For starters, we’re pleased to report the addition of our people, resources, and renewed focus in specific opportunistic growth areas, is starting to impact our revenue in a real positive way. I’m pretty certain you won’t hear some of these things on other earnings calls you might be participating in over the next few days. For the quarter, National was up 1%. This is in a sector that’s down in national business double digits amongst our brethren. Digital was up 34% for the quarter and continues to grow with a great deal of headroom, and we do it differently than most.

And finally, NTR, the selling of events, is up 7.7 points for the quarter. And year-to-date, National is up, ready for this, 6.9%. Interactive is up 21%, and NTR, or the selling of events, is up 11.1%. Our other areas of focus, e-commerce, which is the selling of certificates, over the past trailing 12 months has totaled $1.3 million and is still growing. We are still in the process of deploying our online news and information service in several of our Saga markets, and have multiple markets in queue for installation this year and next. You may also refer to this or be familiar with this as metaphorically ClarksvilleNOW. We also continue to perform really well in targeted categories. Number one category continues to be home improvement, which includes HVAC, plumbing, roofing, insulation, and invisible fence companies, and things like that.

And that, too, is still growing. Automotive has made a surge and moves into our number two category business, and professional services has moved to number three, which is things like aesthetic plastic surgery, cosmetic dentistry, and weight loss. So, Sam, I think they called out a tease on the air when our on-air personalities, just give a little look inside. So, I’m going to send it back to Sam for some more performance news.

Sam Bush: Thank you, Chris, and that tease was very nicely done. Now, I do have to read the obligatory. 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 to our press release. So, now the fun part. For the quarter ended September 30, 2023, net revenue decreased 2.8% to $29.2 million, compared to $30 million last year. Political certainly impacted this year’s performance.

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Q&A Session

As for the quarter, we had $234,000 in gross political revenue this year compared to $858,000 for the same period last year. Without political, our overall revenue for the quarter would have been down less than 1% from last year. Station operating expense increased 2.1% to $22.8 million for the three-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 a strategic decision to give our remarkable staff pay increases in recognition of the tremendous work they do. These pay increases and related payroll taxes amounted to an estimated $331,000, or approximately 71% of the increase in the third quarter station operating expense, and $1.2 million or approximately 55% of the year-to-date increase.

Similar to previous quarters, other smaller but still meaningful increases in our station operating expenses included increased health insurance, utility expenses, music licensing fees, programming rights, and sales surveys. I can assure you that Chris and I, and the whole staff here, are always watching expenses and making sure that we’re making good solid decisions on where expenses increase and where they decrease. For the nine-month period ended September 30, 2023, net revenue decreased 1.3% to $83.6 million compared to $84.8 million last year. Adjusting for political, for the nine-month period, gross revenue was flat for the same period last year. Gross political revenue year-to-date was $538,000 for the nine months this year compared to $1.8 million for the same period last year.

Keep in mind that our third quarter and nine-month results for 2022 were impacted by the onetime expense of $3.8 million related to Ed Christian’s passing. These expenses were reported in more detail in our previous calls and filings. Capital expenditures for the quarter ended September 30, 2023, was $760,000, compared to $1.2 million for the same period last year. For the nine-month period, capital expenditures were $3.4 million this year, compared to $4.7 million last year. We currently expect to spend between $4.5 million and $5 million for capital expenditures during 2023. As Chris said, we continue to see growth in gross national, which was up 1.9%, gross interactive, which was up $695,000, or 34%, and gross non-traditional revenue, which was up $156,000, or 7.7%, for the quarter.

And as Chris said, 6.9%, 21.1%, and 11.1%, respectively, for the nine-month period ended September 30, 2023. While local revenue was down for the quarter, it’s important to note that e-commerce, which gets recorded as local direct revenue, increased 77% to $459,000 for the quarter, and 44% to $952,000 for the nine-month period. Trailing 12-month, as Chris teased earlier, e-commerce gross revenue was approximately $1.3 million. We believe that there is still significant growth to be achieved in these areas, as well as our continued digital effort. We continue to plan on utilizing our financial strength to strategically invest in our operations, both at a market and corporate level, as we work to grow specific revenue types, including local, national, interactive e-commerce, NTR, and anything else Chris and the team can think of, to put a little pressure on you, Chris.

Chris Forgy: Thank you.

Sam Bush: As discussed in our second quarter earnings call, due to the SEC’s renewed focus on the reporting of non-GAAP financial measures and their review of our filings, we have adjusted our quarterly press releases starting with our second quarter earnings press release, to include a complete statement of cash flows, as opposed to the abbreviated statement that we historically have included in 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 an other financial data table, which allows the users of our press release and filings to make direct comparisons to data reported in previous press releases and filings. The company will pay a $0.25 per share quarterly dividend tomorrow, November 3, to shareholders of record as of October 11, 2023.

We have now returned dividends of over $111 million to our shareholders since the first special dividend was paid in 2012. Every time I speak to this, I find this to be an amazing return to our investors and a great statement of confidence of what we believe the future looks like for Saga, having returned $111 million over the past 11 years. All said, we believe Saga is in a strong financial position to continue to return value to our shareholders through our quarterly, special, and variable dividends. The special dividends declared in 2022 were in line with the goal of maintaining our ongoing cash and short-term investment balances at between $30 million to $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.