Saga Communications, Inc. (NASDAQ:SGA) Q4 2023 Earnings Call Transcript

Saga Communications, Inc. (NASDAQ:SGA) Q4 2023 Earnings Call Transcript March 7, 2024

Saga Communications, Inc. beats earnings expectations. Reported EPS is $0.37, expectations were $0.31. SGA isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, everyone, and welcome to the Fourth Quarter and Year-End Earnings Release Conference Call. 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, Chris Forgy. Sir, the floor is yours.

Christopher Forgy: Thank you, Matt. Have you ever considered a career in broadcasting industry? [Indiscernible] you started with this morning, so thanks very much for that, and thank you to everyone who have taken the time to join Saga’s Q4 and year-end earnings call. We do appreciate your continued interest and participation in Saga Communications, a company that we believe is the best broadcast company on the planet. As usual, we have a lot to talk about today, a new variable dividend program, $40 million worth of dry powder on hand, and something else new and different in the broadcast sector these days, an accretive acquisition. Firstly, we are pleased to announce the addition of Lafayette, Indiana Cluster to the Saga family.

By way of Neuhoff Media and Lafayette is expected to close in mid-May of quarter two of this year. Lafayette is home to Purdue University, Sam Bush, and now the Saga Communications. Lafayette folds beautifully into Saga’s roster of markets and is consistent with our target market acquisition strategy. And as a market, frankly, that we have covered for a number of years, we are acquiring an entity with great brands and a talented group of passionate broadcasters who are frankly delighted to get started. And once Sagafied, Lafayette has the potential for growth in several verticals, including local, digital and e-commerce. We previously forecasted a 16 market launch of our new online news service. This was to be completed by the end of 2024. As of today, I’m pleased to announce that we have already generated over $1 million in pre-booked revenue for 2024, and the year-end time line has been accelerated to have not 16, but 18 markets online by the end of – not the end of the year, but by the end of quarter two.

Also, in previous earnings calls, we have reported the intensity with which we utilize audio spec spot creative to present ideas to customers to use as on our messaging. In 2021, we produced 21,000 spec spots in the company. In 2022, that number rose to 25,000. And again, I’m pleased to announce that in 2023, we have produced 25,500 spec spots for our customers in our marketplaces. The activity level on our Saga markets is at an all-time high, yet we really never – our appetite is really never – for success is really never satisfied. Are we experiencing the same countervailing forces you frequently hear about on other earnings calls? Absolutely, you bet we are. Inflation, interest rates, political upheaval and general economic headwinds.

Oh, yes, I almost forgot this one. Business booking later and later in the year. You probably heard that one a number of times on these – on the calls you have been on. The truth is that we really don’t or can’t control any of these things. Can we? We have a picture that hangs on the office of every one of our market managers, walls that reads. We cannot direct the wind, we can only adjust the sales, which is exactly what we set out to do 13 months ago. Adjust the sales. This was done to enable us to navigate an angry economic waters. In fact, we chronicled all that we have implemented in the last 13 months, and identified 37 different data points. Now this isn’t like 37 points of light that you may have heard of back in the ’80s and ’90s, this is 37 different data points that exist in Saga today that did not exist 13 months ago.

See also 14 Best Software Stocks To Buy According To Hedge Funds and 11 Countries with the Best Military Special Forces in the World.

Q&A Session

If you are interested, you will be able to find all of these data points in the Annual President’s letter in Saga’s 2023 annual report. And a note to make as we share the year-end and fourth quarter earnings with you, please note that, many of the processes installed are just now beginning to bear fruit. We asked the question, where will we be today without the deployment of these growth strategies, probably right where many of our operators in the sector are currently in double-digit decline. So with that, here are a few of the highlights from Q4 as well as the year ending 12/31/2023. National in Q4 was down 4.2%, but for the year ending 12/31/2023 was up 3.7%. Local Q4 was down 1.7% and for the year ending 12/31/2023 was down 2.7%. Streaming.

Streaming business, which monetizes the simulcast streams of our over-the-air broadcast through multiple distribution channels, both locally and programmatically, was up 46% for the year ending 12/31/2023. It was up from $2.6 million in 2022 to $3.9 million in 2023. Total interactive for the quarter was up 35.4% and for the year ending 12/31/2023, was up 24.6%. These interactive numbers represent 8% of our total net revenue with a total 2024 goal of achieving 11% in net rev. E-commerce. E-comm provides advertisers who had a limited budget or wish to augment an existing ad campaign, the opportunity to do so in exchange for gift certificates to their business. Those certificates are then posted on our station deal sites and sold at a discount.

We then retain the revenue and our customers utilize said revenue to purchase advertising on our market stations. This vertical helped us generate $1.4 million in the year ending 12/31/2023, by the way, a 100% increase and still growing. Total net rev Q4 was down 3.2%, and for the year ending 12/31/2023 was down 1.85%. Again, a note of interest, excluding political, gross revenue finished flat for the year ending 12/31/2023 and was up 1% in Q4 of 2023. With that, I will turn it over to our [indiscernible], Sam Bush.

Samuel Bush: Thank you, Chris. I’m going to start with the obligatory paragraphs. This call will and already has 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, let me say that Chris and I are quite proud that our Board of Directors were able to declare our first ever variable dividend along with our fourth quarter and year-end 2023 press release this morning.

The variable dividend policy was adopted and announced on December 7, 2022. The dividend is based on distributing to our shareholder 70% of a calculated amount that starts with net income and adds back non-cash expenses and deducts capital expenditures. Dividends declared during the year as well as in years where it’s applicable, the amount of any stock buyback or any acquisitions. I’ll call the result of this calculation cash available for the variable dividend for reference purposes. During 2023, the Board declared $6.1 million in quarterly cash dividends and a special cash dividend of $12.5 million. The Board considered the special cash dividend to capital allocation restructuring dividend based on its previously stated intentions to reduce our cash and liquid security balances over time from approximately $60 million in August of 2022 to a level being more appropriate based on Saga’s performance as well as economic conditions.

As the press release indicated, I wanted to stress that, including the quarterly dividend to be paid tomorrow as well as the first variable dividend to be paid on April 5, Saga will have paid out more than $130 million in dividends. Again, that is over $130 million in dividends since the inception of our dividend policy 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 variable dividends. 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 the potential for strategic acquisitions.

Also, as Chris indicated, it is exciting to be working towards closing of our previously announced acquisition of five radio stations in Lafayette, Indiana. We missed out on the opportunity to acquire them a number of years ago when they were sold to the Neuhoff family. The current staff’s commitment to serving their local community is a great foundation to build off of as we bring them into the Saga family. I’m especially pleased with this opportunity to purchase some great radio stations that have tremendous opportunities in front of them as I received my master’s degree from the Krannert School at Purdue. Unfortunately, I did promise Chris, that I would not break out singing back home again in Indiana, are the Purdue School.

Christopher Forgy: And I am glad for that. Thank you, Sam.

Samuel Bush: Now on to the numbers. As Chris said, for the quarter ended December 31, 2023, net revenue decreased 3.3% to $29.1 million compared to $30.1 million last year. Again, as Chris said, political impacted the performance as we had $407,000 in gross political revenue this year compared to $1.9 million for the same period last year. Without political, our overall gross revenue for the quarter would have increased approximately 1% from last year. Station operating expense increased 1.9% to $23.3 million for the three-month period. Operating income was $2.8 million, and station operating income, a non-GAAP measure, was $7.1 million for the quarter. For the 12-month period ended December 31, 2023, net revenue decreased 1.8% to $112.8 million compared to $114.9 million last year.