Saga Communications, Inc. (SGA) Q4 2020 Earnings Call Transcript

Saga Communications, Inc. (NASDAQ: SGA) Q4 2020 earnings call dated Mar. 12, 2021

Corporate Participants:

Edward K. Christian — President, Chief Executive Officer and Chairman

Samuel D. Bush — Senior Vice President, Treasurer, and Chief Financial Officer

Presentation:

Operator

Good morning, ladies and gentlemen, and welcome to the Saga Communications Fourth Quarter and Year End Earnings Release. 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, Ed Christian. Sir, the floor is yours.

Edward K. Christian — President, Chief Executive Officer and Chairman

Good morning, everybody. And let me, again, have the pleasure of introducing you to, after many years you should all know him, the amazing Sam Bush, who will dazzle you with numbers as it begins. So [Indecipherable] as they say in…

Samuel D. Bush — Senior Vice President, Treasurer, and Chief Financial Officer

Thank you, Ed.

Edward K. Christian — President, Chief Executive Officer and Chairman

Which is by the way means, let’s begin. Okay, go.

Samuel D. Bush — Senior Vice President, Treasurer, and Chief Financial Officer

Let’s go. Thank you, Ed. 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 table.

The fourth quarter saw our net revenue increase 19.1% to $28.8 million, up from the $24.1 million we reported for the third quarter of this year of 2020. Our focus on local continues to pay off as the combined local direct and local agency increased 10.4% between the third and fourth quarters of this — of 2020. Net revenue was down less than 10% when compared to the fourth quarter of 2019, which I think is pretty good performance, given the ongoing COVID issues that we are all still facing. Free cash flow for the quarter was also good at $5.1 million, compared to $5.4 million for the quarter last year [Phonetic].

For the year ended December 31, 2020, net revenue was $95.8 million. Station operating income was $20.4 million, and free cash flow was $7.6 million. As indicated in the press release, our net loss for the year was $1.3 million. But without the non-cash impairment charge, we would have shown net income of $1.7 million. I’ve heard a number of reports of other companies in the industry having increased bad debt issues in 2020 due to the pandemic. I’m happy to say that our markets have been able to do a great job, managing accounts receivable and collections that resulted in actual bad debt expense as a percent of revenue to remain almost the same when comparing 2019 to 2020 at less than one half of 1%.

Gross political revenue for the quarter was $3.8 million, for the year, it was $6.9 million. Some of you have asked how this compares to our annual political revenue in previous election years. We had gross political revenue of $2.9 million in 2018, and $3.8 million during the last presidential election in 2016. So we saw a nice increase in 2020.

We have $51.4 million in cash on hand as of December 31, compared to $44 million at the beginning of the year. Currently, as of our last check this week, we have $56 million of cash on hand. At the end of the year, our outstanding debt remained $10 million, which given the cash on hand presents no covenant or liquidity issues. Leverage per our bank covenants is actually negative, when you consider the cash we have on hand.

And Ed, with that short commentary on what was an unprecedented year, I will turn it back over to you.

Edward K. Christian — President, Chief Executive Officer and Chairman

As always, thank you, Sam, and let today be the last day that we discussed 2020. It is baked and over and truth. I actually thought, we would be done with 2020 in like November. I didn’t use the word pandemic there, but I thought we would be done with that in November, but it was not to be. We are right back in pandemic churn in late November, and through December, and even January of 2021. And it’s still kind of is lingering out there. When this was all over — the second wave or the third wave, and it was all over the media, and it drove our advertisers right back to where they were before. It looks like the economy was improving.

What I can say about 2020 as is obviously, Sam, just that we made it. We did structural rearranging of the enterprise. But we never compromised our stated mission of doing excellent broadcasting. We survived. But some of this is painful. Make no mistake for one — putting a hiatus and a dividend, it was something that we never before would have considered. And I personally, and I also speak for our Board of Directors on this. Feel that we’re seeing tiny sprouts emerge of normalcy. And that as soon as practical, we can get back on using our funds to reestablish Saga dividends. I do think our shareholder partners for their understanding and appreciation of the difficult situation that we successfully navigated.

For me personally, it was a very tough year. I never thought that in the for 33 years that — 33-plus years of upside that I would be having to go back and frankly deconstruct, albeit, lightly that which we have built all over the years. Fortunately, I do believe that I too, now, am optimistic that the dark times are slipping out of sight.

I would be remiss, if I didn’t thank also all of our Saga staffers for both their understanding and even commitment to keep our operations warm, and welcoming to our listeners during the darkness. My feelings are, this is the beginning of a proactive recovery with still the possibility outside surprises. It’s almost like going on a ride in an amusement park. I mean, if you think back to the early days of that where you would get in a little car and you would go through these doors that would open up and you would go into this darkness and you’d be riding in a car and suddenly a zombie jumps out at you. And then you ride further, when a hideous skeleton jumps out at you. And then another one, another until the doors open and your car rides into the sun. Maybe we’re not yet in the sun. But for sure, there’s daylight ahead, and that makes me feel good.

And for a while there are — during 2020, I certainly was not feeling good. I was not feeling pessimistic. But I was feeling just so challenged to keep everything going with where we were with the operation, and keep it in tiptop shape. But to put it in terms, we are well understood. Q1 for this year was still in recovery. But in March, we believe that we will be up perhaps 3% from last year, and now you go up to, yeah, 3%. Well, wait a minute, and that’s good. In the last two weeks in March last year, where one giant cascade of advertising cancellations. I can’t tell you about sitting and answering the phones, getting calls from our manager saying, what is going on here? Bam, bam, bam. Cancel our advertising, hold our advertising, now that’s — so 3% is good.

And by the way, I don’t want to jinx anything. But right now April and forward are showing us gaining much momentum as compared to 2020. Sam has always told me, don’t tell figures in advance or anything like that. It’s good looking towards a normalcy of 2019 growth — kind of growth that we were experiencing in ’18 and ’19. We do see that. We’re getting calls from a national advertisers wanting to get back on the year. Very encouraging, very encouraging.

Now honestly, not all companies are looking this way, but maybe — just maybe we can convince them that our model of the encirclement of our communities was love, laughter, information and carrying and concern is the right commitment. Frankly, we are not standing at the shredder and feeding radio into it, as that is not in our DNA. We’re proud — very proud of what we do and accomplish. It’s not bragging. It’s not showing off. It really is a caring. Hold on so — so unusual, but I’ll try, I’m going to try and do something here, If I can. I mean just find it.

So my computer here. I’m going to do something a little different, and Sam probably is rolling his eyes right now, wondering what’s going on. Yeah, hold on. All right. Let me try this. This is — I have to move a computer screen. And I have the link I think, and I have to come up with a Rube Goldberg [Phonetic] of sending audio. So just bear with me. And I want you to hear something. I want you to listen to something, and then we’ll talk about it. So, be patient for a sec here.

[Video Presentation]

Thank you. And sit back on here. That’s — we just got that the — on the other day, and it just — and we get these all the time from our stations, not all the time, but I mean. All plot you’re showing us, and this was — I mean, that’s Mr. Bob and Kathy, who have been there for years and years in K-Country, it’s an amazing radio station, WOGK, and it’s in Ocala, Florida. And it’s one that I lost it afterwards. That’s not sinful, but I wanted that station for many years, because it’s such a great radio station and we were fortunate enough that the family that own that, whoever is up north chose us to have the radio station. And I can’t tell you, how fulfilling it is to know that this is so real to the community. Mr. Bob and Kathy, at WOGK that they are iconic influencers, and personalities in a market. Essentially with their dominance, there is no second play station. And this is not just one market, but this happens all the time. It’s — and by the way, it’s a perfect example of why good radio will never die. Okay. Bring on the skeptics, bring on the podcasts, bring on the satellites, bring on the music streamers, none can compete locally better than great local radio. And you’ve just heard one example, and you’ve got to put yourself into that market to understand it.

So we can sit here all day long and go through figures and facts and everything else, but it is the emotion and a commitment that we put into the radio stations to ensure that we’re part of that community to make sure that we own top of mind awareness. And when you hear the outstanding commitment and service to your community, and that occurs every single day in Saga radio stations. I wish someday I could do a conference call with you sitting here, playing you audio clips of what comments we get from what we do, both outside the radio station and inside the radio station. But it is so important. You can’t measure by the way. You can’t measure this feeling of a good local radio with ratings or cost per point, or impressions. You really have to be in the community to feel both the commitment and the passion and the tactile imagery, the local radio has the ability to energize.

All right, I got off message. I’m sorry. But I’m actually not so worry about it. My job is also kind of to teaching position. This radio role is the only job that I’ve ever had. I — everything I understand it pretty well. We, as an industry, will survive. I mean there are some the naysayers out there going about, how radio is over — local radio is not functioning anymore, until relevant. Well, I’m sorry, we will prosper because what we do, cannot be replaced. Local radio have survived so many attacks. The list is long, starting with TV, outdoor drive-ins, 8-track audio cassettes, digital, local newspapers, magazines, music streaming, podcasts and more.

Let me give a great example. I was — another example here. I was talking with the — other day with Bill Holst, who is our General Manager in Yankton, South Dakota now. He is at WNAX radio. We’re extremely proud of what Bill was accomplished in the Yankton. And cell plays as part of our portfolio. We’ve had it for many years. Most people would probably say it, Yankton, it’s a spec kind of mapped, but those who know understand that this radio station, and steward [Phonetic] now for coming up on 100 years. 2022 marks the 100th anniversary of WNAX serving the community. And you think, [Indecipherable]. No, no, no, no, no. This station has an incredible signal, and it’s all agribusiness for the most part, and it’s reaching farmers in five different states.

In fact, if you look at it and you understand it, it has the largest WNAX, the signal itself, is the largest — covers the largest land mass coverage in the United States. And is, I said, it’s non-stop ag programing from Sunrise to, late in the afternoon with a lot of people just talking about that. It is a voice to the farm community of five states. And it’s been doing this for a 100 years. And by the way, what I was mentioning is the, Billy said, please, if you use this information, please tell the people that I am not the original manager. I think he’s been with us a lot of years, but he can’t make that claim there. But it’s a little aside to show you just the power of this. About 80 years ago, WNAX had gas stations. WNAX actually had, and it was — in gas stations in South Dakota, and Nebraska, and Iowa and Minnesota and elsewhere.

And the mono of the gas stations were that you will run out of gas before you run out of signal, that’s how powerful it is and this is a necessity. This is — and WNAX is a big example of what the importance of local broadcasting is all about. If you’re ever in South Dakota and you end up in Yankton, please visit our studios, talk to our people. And in the lobby, we actually find a copy of the WNAX gas pump. One other final thing about WNAX, and a lot of people won’t even know the name, but the original band leader for the radio station was Lawrence Welk. Okay. This is back in his days of radio, when they had studio bands. It’s — we are getting ourselves here. Not that I remember that either.

What’s in our future? Well, we’ll know it when we hear it, and we will adapt to it. We’re very agile, and we’ll still be on the air. I have got no message, and I apologize. But actually, no, I don’t apologize for my passion and for what we do sometimes, outweighs reporting numbers and percentages and EBITDA, and all the other BS it goes with it. We have picked middle-market Americas, and fitting in with the categories that we have, and then criteria for working at radio stations, which are state capitals, big college towns, non-closable military bases, high net worth retirement communities like, Ocala, which also has the villages and there’s hundreds of thousands of people there, and they’re building another copy of the village right there, which is we’re going to have another have room for 100,000 new residents to Florida.

We have all of this going for us. And it’s — and the stations have never been bought in mass, or in big numbers, but one at a time with individual understanding of the marketplace, and what it can do and what it can have as revenue, and that it’s secure, and is not going to go away in the long run, and it will continue to grow, as the marketplace grows itself. And as long as we have that relationship with the marketplace, Saga will continue to be a strong profitable company with excellent perspective in the industry. And as I said, I’m sorry, I got off message. My job is to let the passion flow, and let the stations do what is right. With that said, Sam — and I’m sorry, if I got off well — and after that, we still answer your questions. And with that, I’ll ask Sam, if there are any questions, and by the way anyone out there who didn’t have an opportunity to ask a question about Saga, our financials, or whatever, can still call either call me or call Sam. We’re always accessible, as our managers are at any Saga radio station. Sam, do we have a question?

Questions and Answers:

Samuel D. Bush — Senior Vice President, Treasurer, and Chief Financial Officer

Yeah, we did have one question that came in, and it basically was asking about what our policy was, or what our future was when we were talking about the internet/podcasting, and our activity in web broadcasting, which are mainstreaming and so forth? And how we were doing that to defend our enviable, he says enviable dominant position in local markets?

Edward K. Christian — President, Chief Executive Officer and Chairman

Well, let’s talk about streaming first off. We are doing very well in monetizing it, and I think we’ll be up about three times the revenue that we had last year. The issue of course, is it SoundExchange’s rates, their rates, which means that we have to work harder just to meet the delta of servicing the money to SoundExchange for the right to play music on the internet. And that’s a problem there. As far as podcasting goes and you might have some numbers on this, I’m not sure, but the way we even look at it and view it is we have — I understand that and I understand it’s great for social media communication, and it certainly has a function and a purpose, but it’s got to the point that it’s almost — and it’s getting bigger every day. It’s getting too big to make it economically feasible to make any profit in podcasting. Sam, do you have any numbers at all?

Samuel D. Bush — Senior Vice President, Treasurer, and Chief Financial Officer

Yeah, we’d done some research on this Ed, and an article that we’d gotten here not long ago from Edison Research had indicated that there are currently, and this changes every day, apparently. But currently over 1,750,000 podcasts that are available as of January of this year. And that includes over 43 million episodes of those podcasts. And I think that what you were pointing out is that the industry — the podcasting issue is just so fragmented that it’s very difficult to monetize the podcast. And I think that’s what some of the others that have gone into podcasting in a significant fashion have found is that you can have a lot of podcasts and a lot of listeners, which there are a lot of folks that listen to podcasts. But it’s just tough to monetize.

Edward K. Christian — President, Chief Executive Officer and Chairman

I think part of the problem really is to survive, they’re taking remnant inventory and remnant inventory is that which is left up in his soul, very cheaply. It’s like — this is the word remnant reflects on the garment industry. And I think the problem is they can do some really interesting stuff in podcasting, but can they make it — is it anything more than a boutique. Now, there are some that are quite profitable, coupled again, we are ones and a few of the other ones, but for the most part they’re still in the range of boutiques and struggling to find money to do that. And when money is available it’s at a very cheap price point. So I think that’s all that I have. Anything else that we missed today?

Samuel D. Bush — Senior Vice President, Treasurer, and Chief Financial Officer

Yeah. The only thing I would do is add to your streaming comment. That in just recent conversations, I mean, we’re doing a lot of different things on the streaming side to enhance the revenue. As you were saying, Ed, we’ve separated our streams from our over the air broadcasts. We’re selling sponsorships on the streams in our website. We’re selling ad inventory with some streaming injections, but also selling a lot of local inventory to our clients on our streams versus on the air. We’re working with our clients on targeted display, targeting audio advertising, targeted display advertising, targeted video advertising, banner ads, pre-rolls. I mean, we’ve got a very active interactive — very active interactive department. So I think we’re seeing a lot of growth in that this year, as you said.

Edward K. Christian — President, Chief Executive Officer and Chairman

No. And that’s — that was something we purposely designed to revamp probably a year and a half ago, I think, yeah. What we were doing and how we were doing to make that an actual profit center of the Company, and it’s turned out that it is becoming that very nicely. So I’m really pleased about what we’ve done on that. So again, if you have questions call Sam, call me. We thank you for your time. We thank you for being interested in Saga. If you’re a Saga’s shareholder, you see that fast 10 times, sums up to you and we promise our commitment to continue to do what we’ve been doing for all these years now. So thank you very much, and that should be it for this time. And we’ll see you all in about 90 days, right? Sam?

Samuel D. Bush — Senior Vice President, Treasurer, and Chief Financial Officer

Well, a little less than that since we are in March now, and next month in May, the first quarter always sneaks up on us.

Edward K. Christian — President, Chief Executive Officer and Chairman

Okay. Thanks everybody. We appreciate it very much.

Samuel D. Bush — Senior Vice President, Treasurer, and Chief Financial Officer

Thank you, Catherine. We’ll turn it back over to you.

Operator

[Operator Closing Remarks]

Samuel D. Bush — Senior Vice President, Treasurer, and Chief Financial Officer

Thank you, Catherine.