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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.
Ed Christian
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. Thank you, Ed.
Sam Bush
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 factor section of our most recent form, 10-K. This call will also contain a discussion of certain non gap financial measures reconciliation for all the non gap financial measures to the most directly comparable gap 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.
spk07
Cole he's my miracle child. So how does your miracle child get cancer. How does that happen?
spk12
There was a mass, basically a tennis ball-sized tumor at the base of his brain. We were then rushed over to our local children's hospital, and that's when they told us that he had cancer. I couldn't believe that something that big was inside his little head. Everybody always says the worst sentence in the world is you have cancer, and it's not. The worst sentence in the world is your child has cancer. Our oncologist reached out to St. Jude.
spk07
St. Jude knew exactly what was happening. They already had a clinical trial going on. The discoveries that St. Jude makes are shared freely around the world. What was important to me was knowing that anything that we did would help future kids because no child should die of cancer ever. We never got a bill from St. Jude, ever, nor will we ever.
spk10
Thanks to generous donors like you, families never receive a bill from St. Jude for treatment, travel, housing, or food, so they can focus on helping their child live.
spk07
Nobody expects their child to get diagnosed with cancer, but then when they are, you are so grateful that there's a place like St. Jude. We were just treated from the very beginning like family. I think it's the most worthwhile place to put your money when it comes to childhood cancer.
spk10
Join with your debit or credit card right now and we'll send you this St. Jude t-shirt that you can proudly wear to show your support.
spk12
If it weren't for St. Jude and the people who donate and give money, I wouldn't have my boy.
spk05
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spk11
Monday.com is ingrained in our work life and our project tracking and has become an essential operating system at Nissan. The extensive customization allows us to build whatever we need. And for a large organization, it saves a lot of confusion and a lot of time.
spk05
Monday.com allows us to connect all of the platforms we use through integrations. If we need to share a file with someone or a calendar with someone, we can do that with Monday.
spk00
We've tried quite a few different platforms, and I've seen them come and go. I believe Monday.com has to stay in power because they're transforming as we're growing and transforming, so we know that they're growing right along with us.
spk18
of 2020.
Sam Bush
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 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 year. 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 31st, 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 for 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.
Ed Christian
As always, thank you, Sam, and let today be the last day that we discuss 2020. It is baked and over. In truth, I actually thought we would be done with 2020 in 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 were right back in pandemic turn in late November and through December and even January of 2021. And it still kind of is lingering out there. When this was all over the second wave or the third wave and was all over the media. And it drove our advertisers right back to where they were before. It looked like the economy was improving. What I can say about 2020, as is obviously, as Sam just said, 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.
Sam
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Ed Christian
Make no mistake, for one, putting a hiatus on the dividend 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 thank 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 33 plus years of Saga that I would be having to go back and, frankly, deconstruct, albeit lightly, that which we had 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 that this is the beginning of a proactive recovery But still, the possibility of 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 and a hideous skeleton jumps out at you and then another and another until the doors open and your car rides into the sun. Maybe we're not yet in the sun, but for sure there was daylight ahead. And that makes me feel good. And for a while there 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 tip-top shape. But to put it in terms that are well understood, Q1 for this year was still in recovery. But in March, we believe that we'll be up perhaps 3% from last year. Now you go up to yet 3%. Well, wait a minute. And that's good. Because the last two weeks in March last year were one giant cascade of advertising cancellations. I can't tell you about sitting there answering the phones, getting calls from our managers saying, Oh, what is going on here? It's bam, bam, bam. Cancel our advertising. Hold our advertising. 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 2018 and 2019. We do see that. We're getting calls from national advertisers wanting to get back on the air. 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 with love, laughter, information, and caring and concern is the right commitment. Frankly, we are not standing at the shredder and feeding radio into it. 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. And, well, you know, hold on a sec. This is a little unusual, but I'll try. I'm going to try and do something here if I can. Let me 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 here. Hold on. All right, let me try this. This is... I have to move the computer screen, and I have the link, I think, and I have to come up with a Rube Goldberg 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.
Saga Dividends
I wear a few different hats as a CFO. You know, sometimes it's referred to as chief fixing officer. I'm often there first. And I think that's the bit that I really enjoy and love.
spk01
Whatever hat CFOs like Imran need to wear, Sage's tools and insights can make sure they fit. Sage, helping business flow.
Mark
Hi, Kate Guthrie, who's this? This is Mark. Good morning, Mr. Bob, Miss Kathy. Hey, morning, Mark. You doing all right? I'm doing all right. This is for you guys. Real quick, I'll be fast. Last weekend on Saturday, I donated a bunch of oak for firewood for smoking. There was a benefit in red level for a boy, Matthew Snodgrass. He's a young boy with terminal cancer. And it was a phenomenal event. The community came out. And the reason I say this is for you guys and props for you guys is This little boy come walking up with his chemo duck, explained how it worked to me. and had a matching scarf on his head. Oh, yeah. And the stuff you guys do, you don't get enough recognition. You recognize us for helping, but you don't get enough because if it wasn't for you guys, this wouldn't happen, and that little boy wouldn't walk up going, look, K-Country bought me this.
Kate Guthrie
Oh, that's from the marathon.
spk17
Now I'm getting all the clump rate.
Kate Guthrie
Oh, gosh. Well, you know, once again, back at you, too, because we couldn't do without y'all. You know it, Mark.
Mark
Right. But you guys, if you didn't put it out there, this was for you guys that I called up.
Kate Guthrie
to let you know what we think of you well thank you so much mark that means a lot yeah that's one of the reasons i love the chemo duck so much i mean because that little boy right there showing you exactly how it works and what it does and it helped him and the bears oh yeah you gotta love that man oh my gosh those are the those are the things we like to see yeah that come out of the marathon, too. Yes, absolutely. But as I said, we couldn't do it without you all.
spk17
Yeah, you guys make it happen.
Kate Guthrie
Yeah, you do. We're just like the conduit here. And proud to do it, too. Wow, what a great story.
spk17
I love it.
Kate Guthrie
Thank you for sharing that, Mark. Here's to Neil Lawrence, 93.7 KCountry.
Ed Christian
I'll get the headset back on here. We just got that the other day. Yes. And we get these all the time from our stations, not all the time, but I mean, a lot, just showing us. And this was sent in, and that's Mr. Bob and Kathy, who have been there for years and years. And K-Country is an amazing radio station, WOGK, and it's in Ocala, Florida. And it's one that I... lost it after. That's not sinful, but I wanted the station for many years because it's such a great radio station. And we were fortunate enough that the family that owned it, who 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, they are iconic influencers and personalities in the market. Essentially, with their dominance, there is no second PlayStation. And this is not just one market, but this happens all the time. And by the way, it's a perfect example of why good radio will never, 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 the commitment that we put into the radio stations to ensure that 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 it occurs every single day on Saga radio stations, I wish someday I could do a conference call just 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 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 that local radio has the ability to energize. All right, I got off message. I'm sorry. But I'm actually not sorry about it. My job is also kind of to, as a teaching position, as radio is the only job that I've ever had, I do think I understand it pretty well. We as an industry will survive. I mean, there are some of the naysayers out there going, oh, radio is over. You know, local radio is not.
Bob
instability around the world market disruptions today we face challenges never seen before but the solution has never been clearer out here an answer for a more stable world out here new technology will drastically reduce emissions out here vast solutions will power our future it's out here
Ed Christian
is not functioning anymore. It's irrelevant. Well, I'm sorry. We will prosper because what we do cannot be replaced. Local radio has 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 you a great example. Another example here. I was talking the other day with Bill Holst, who's our general manager in Yankton, South Dakota now. He's at WNAX Radio. We're extremely proud of what Bill has accomplished in Yankton and so pleased that it's part of our portfolio. We've had it for many years. Most people would probably say, Yankton? It's a speck on the map, but But those who know understand that this radio station has stood now for coming up on 100 years. 2022 marks the 100th anniversary of WNAX serving the community. And you think, oh, well, it janked it. 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, covers the largest land mass coverage in the United States. And as I said, it's nonstop ag programming from sunrise to late in the afternoon with a lot of people just talking about that. It is the voice to the farm community of five states. And it's been doing this for 100 years. And by the way, when I was mentioning this to Bill, he said, please, if you use this information, please tell the people that I am not the original manager. He's been with us a lot of years, but he can't make that claim there. But as a little aside to show you just the power of this, about 80 years ago, WNAX had gas stations. WNAX gas, and it was in gas stations in South Dakota and Nebraska and Iowa and Minnesota and elsewhere. And the motto of the gas stations were that you'll run out of gas before you run out of signal. That's how powerful it is. And this is a necessity. 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, you'll 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 The original band leader for the radio station was Lawrence Welk. This is back in the days of radio when they had studio bands. We are dating 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 gotten an off 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 EVTA and all the other BS that goes with it. We have picked middle market Americas and fitting in with the categories that we have and in criteria for looking at radio stations, which are, you know, state capitals, big college towns, non-closable military bases, high net worth retirement communities like Ocala, which also has the villages. There's hundreds of thousands of people there, and they're building another copy of the village right there, which is going to have room for 100,000 new residents to Florida. We have... All of this going for us. And the stations have not been bought in mass or in big numbers, but one at a time with an individual understanding of the marketplace and what it can do and what it can have as revenue. And it's secure. It's 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, well, enough of that. We still answer 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 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?
Sam Bush
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 slash podcasting and our activity in web broadcasting, which I read to mean streaming and so forth, and how we were doing that to defend our enviable, as he says it, enviable dominant position in local markets.
Ed Christian
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 that SoundExchange has raised 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 look at it and view it is, I understand it, 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 We are farmers. 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?
Sam Bush
Yeah, we've done some research on this ad 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 industry is just so fragmented that – you know, 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.
Ed Christian
I think part of the problem really is that to survive, they're taking remnant inventory, and remnant inventory is That which is left up and is sold very cheaply, it's like, this is the word remnant, it reflects in the garment industry. And I think that's the problem is they can do some really interesting stuff in podcasting, but can they make it a, is it anything more than a boutique? Now, there are some that are quite profitable, a couple of the NPR ones that do that 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?
Sam Bush
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 and on our websites. 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 good, very active, interactive department. So I think we're seeing a lot of growth in that this year, as you said.
Ed Christian
And that was something we purposely designed to revamp probably a year and a half ago, I think now, isn't it? 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 shareholder, you see that fast 10 times. Thumbs 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?
Sam Bush
Well, a little less than that since we're in March now and our next one's in May. The first quarter always sneaks up on us.
Ed Christian
Okay. Thanks, everybody. We appreciate it very much.
Sam Bush
Thank you, Catherine. We'll turn it back over to you.
Operator
Thank you, ladies and gentlemen. This does conclude today's conference call. I disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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