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Operator
Good day, ladies and gentlemen, and welcome to the Saga Communications, Inc. Q3 earnings 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, Ed Christian, President and CEO. Sir, the floor is yours.
Ed Christian
Thank you, Kay, and I was going to kind of freak you out by going, thank you for holding. Your parties will be with you soon, something like that, too, which would make me wonder if we really were alive or not. Hello, everybody, and thank you for joining us on this call. Sam Bush, as always, is here with me to discuss what we have done, and I will be here to discuss what we plan to do. Do you like that? Putting you in a historical? You're historical, and I'm the futuristic person on this. With that said, I'll be back in a few minutes after this.
Sam Bush
Sam does finish his recitation. Very good. 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 factor 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. Saga's third quarter results continue to show significant improvement as the economy continues to recover from the market uncertainties that are attributable to the COVID-19 pandemic and related economic issues. It's important to note that there are still numerous uncertainties that are ongoing, including the much-talked-about supply chain and employment issues. That said, net revenue for the third quarter increased 19.5% to $28.8 million. Free cash flow was $4 million for the quarter. Station operating expenses were up $2.1 million, with $1.7 million of that being due to increases in sales-related expenses, including commissions, sales surveys, and advertising and promotions expenses. Operating income was $4.6 million. Net income was $3.5 million, or 58 cents per fully diluted share. Gross political revenue for the quarter was $256,000 in 2021, compared to $1.8 million for the same period in 2020. Year-to-date through the end of the third quarter, gross political was $894,000 compared to $3.1 million for the same period last year. Without political, gross revenue increased 26% for the third quarter and 21.5% year-to-date. While we don't expect a return to 2019 revenue levels for the full year in 2021, we are pushing to get close to the 2019 monthly revenue levels as we approach the latter part of the year. Net revenue for July and August were both approximately 10% below 2019, while September was only down approximately 3%, resulting in the third quarter being down a little less than 8% when compared to the third quarter of 2019. Fourth quarter of 2021 is currently pacing ahead of the same period last year by a little over 8%, excluding political. Keep in mind that we had $3.8 million in gross political revenue during the fourth quarter of 2020. We are seeing some political in the fourth quarter this year, as in October we had a little less than 700,000, but we don't expect much additional political in November and December. Our strength continues to be local direct revenue, as when just that category for the third quarter is compared to 2019, we are down a little less than 1%. We are currently pacing approximately flat in local direct for the fourth quarter of this year compared to the fourth quarter of 2019. As a further comparison in the improvement in quarterly performance in 2021 compared to 2019, net revenue in the first quarter of 2021 was behind the same period in 2019 by 20%, while the second quarter of 2021 was behind 2019 by 13%. Of course, the current fourth quarter pacing numbers exclude the potential impact of ongoing events as previously mentioned. For the nine months ended September 30th, 2021, net revenue increased 18.1% to $79.2 million. Operating income was $10.1 million and station operating expense was $61.6 million for the nine months period ending September 30th, 2021. Free cash flow was $9.9 million for the period compared to $2.5 million for the same period in 2020. Net income for the nine months was $7.5 million or $1.25 per fully diluted share. Our balance sheet showed $62.2 million in cash on hand as of September 30th, 2021. Currently, we have $53.5 million of cash on hand, reflecting the $10 million pay down in bank debt on October 27, 2021. I also want to reiterate that Saga reinstated its quarterly dividend with the declaration of a $0.16 per share dividend, which was paid on July 16, 2021, followed up with another $0.16 per share dividend paid on October 22, 2021. This brings the total of all dividends paid since the first special dividend was paid in 2012 to over $73 million. And with that, I'll turn it back over to you.
Ed Christian
Thank you, Sam. We're talking about a few things today. And I've got to tell you, there is a great deal of accomplishment that we've had in the last couple of years. We're not going to sit here and go back and go through everything that you know about the historical area of the company, where we've come from, what we've done, But we do have a couple of things I want to talk about today. And let's talk about the general marketplace. And I'm not going to tell you too many things that you already know. But, boy, it's been a whirlwind gig in terms of what's happening. Because every time we turn around, something new occurs. in terms of global events or local events or whatever it might be, that makes us have to pivot and quickly pivot to find new ways of inventing ourselves in sales and marketing. And we've had that. And we're never one to really talk about a lot of complaints or anything like that. In fact, I was just thinking about something and looked it up to make sure I was correct on it, but 1975. Henry Ford, who was at that time president of Ford Motor Company, was supposed to be at a meeting in London and instead was at a meeting in California and found himself arrested by the small police department right below Santa Barbara and actually spent the night And it was released in the morning. Well, the word leaked out in Santa Barbara that Henry Ford was being released from a small jail in, as I said, below Santa Barbara. And so when he came out, there was a lot of police. Not police, but a lot of reporters, radio, TV, news, whatever might be there. And they were going, Mr. Ford, Mr. Ford, Mr. Ford, you know, whatever. What can you tell us about and went on to explain the situation. And Henry Ford just looked at all of the reporters and said, never complain and never explain. And got in a car and was driven away. Well, we're kind of the same way here. We don't complain and we don't really explain a lot because we know sometimes when we let our ideas out of the bag prematurely or even discuss it, It does create some problems for us with our competitors getting the idea and trying to get the jump on us. So we're a little guarded in how we explain the ideas and where we go to improve ourselves in times when they're difficult. And there's no question that the supply chain is creating just a havoc for us with a lot of our marketplaces. It's tough. Let me give you an example. if you're right now trying to go to an appliance store and call on them and talk to them about it's time to advertise and do all this and they'll say to you look we don't have any high end appliances especially washers and dryers we just don't have them but what we do have is we can sell you really cheap ones and they are cheap for a reason but those are what did I say the that they are not the most efficient ones. But we just can't get the high-end appliances. You go on to somebody else and you go on in and talk to a car dealer, and we all know the story there about the inventory that they don't have. It goes into construction, you name it. But you couple that with the fact of the lack of staff. Now, there is a good side to that because we've done just a tremendous amount of advertising for employees. And that's been a big money earner for us. But that kind of tells you it's a sad story when we have to have merchants take their money that they would normally spend in trying to promote their own stores into trying to find staff. to populate the store to try and create business for them. And we go in and talk to them. And one of the things that they say is, look, we've had to cut back here. We've had to reduce ourselves, especially because of staff, and we can't do that. So we're not going to advertise. Maybe we will, but certainly not to the level that we used. Maybe we'll take some of the money that we had and use it for recruiting staff or doing it. It makes it difficult for us, but we're finding ways around this difficulty to make things easy for us during this period. Let me give you an example. We don't normally discuss our marketing ideas, especially new ideas. We primarily talk with our market managers, our creative directors, and our sales staffs. once we get an idea that comes to us from within the company. And I'll give you an example of one that just shows you how we've had to pivot to find new product categories in new areas. And there's lots of them, but as I said before, we normally don't discuss a lot of the things that we're doing before we do them or what have been successful in the past for us. We are a very closed market when it comes to that within ourselves, but I've got to salute Eric Schmidt in Columbus for coming up with a great idea and forwarding it on to Lucy Lang, who is our market manager in Manchester, New Hampshire. And basically, Eric found a company that actuates a dentist that produces a product It stops and inhibits snoring. And you go, oh, great. Well, where is this going, Ed? Well, it's going right now. It's about $4,000 a month just in Columbus with one dentist with the idea. So Lucy took it and came up with a complete marketing plan for this, for our sellers to go on out on this. And then forwarded the complete pitch, the idea, the whole background on it. to our sellers and our managers in our other markets throughout the country. So from what started from Eric finding out about one product or one thing to inhibit snoring, which is essentially a mouse piece that was designed by this dentist, it proves to be effective. And now we have a number of sellers going out talking to their local dentist. It might not sound big to you, but in the As an example, and we could continue and sit here and I could give you a whole list of things during the day that would show you that where we are and try to be inventive in our production. But that's part of the whole plan here is to say, okay, we understand that there are problems in the supply chain. We're not going to complain or explain because that's something that you already know and it's nothing that we need to call attention to. As I said, the information that we have just on snoring right now is great. We have consumer profiles, testimonies, you name it, and it really is what helps us do it. That makes us different than others. Now you're going to go ahead and say, yes, sure, Ed. Everybody's going to claim they're different. But our idea is kind of the idea factory of finding out things and then finding out ways to market them. I'm not going to go into my personal background, but I spent a number of young years while I was going through college working on the ARS at Distracting and I actually ended my career in Flint, Michigan when I realized that I had reached my level of excellence on the air in Flint, Michigan and wouldn't do that. I ended up writing copy and I love words and we imbue our own people with words and ideas And it comes from kind of my thing about this is what sells it, the imagination. Using the imagination to be creative and finding ways and events to do it. That was it. And then I went into radio sales where I had a number of years in sales and whatever. But one of the things I do want to mention here, it's just something that occurred to me as I was kind of thinking about this today, and that is when I was in my early 20s, and I was selling for WCAR Radio in Detroit, and I was talking with the owner of the station, High Levinson. And High Levinson said to me, during a difficult time, by the way, it was a little offbeat time in Detroit with kind of a recession. Not a depressionary, but it was a recession because of the car business at that time. And I went and said, Ed, let me tell you this story about the man who sold hot dogs. I go, huh? What's the story about the man who sold hot dogs? He said, well, the man who sold hot dogs, he had a hot dog stand, but he made just the best hot dogs. He used quality meats. He used everything that was top of the line. And he had a special recipe that he had for coming up with that and how to prepare and how to sell the hot dogs. And then come lunchtime or after work, there were lines of people that were waiting to buy us hot dogs. And he did very well until one day his son came home and said, Dad, look at how much money you're spending on your product here, and don't you know there's a recession right now? And the father says, Really? There is a recession? The son said, Oh, yes. Listen, I'm a college graduate, and I know that there is a recession now. And... The father went out and said, the first thing he did was cut back on the type of mustard that he had. And then a little bit later, he noticed his business was down a little bit. So he cut back on the type of bun that he had and reduced the quality of the bun. And the quality of the sales went down again. And so then he stopped advertising and started promoting and doing everything else like that. And the lines kept getting smaller and smaller. And then he took down the quality of the hot dog itself. And the lines were used even less than that. And then his son came home from college and said, Dad, I see your business is down. And he said, you're right, son. There is a depression or a recession going on right now. Long story short is that you can't look at that, and we try not to. The reason for the fact that we are able to announce the numbers that we have and the profits that we have, the dividends that we have, is that basically we focus very much entirely on what we're doing in the business itself. Part of it is, and we've said it time and time again, local, local, local. It seems that a lot of people, a lot of other broadcasters right now, have kind of gotten into it and are trying to hide from the fact that they're not local, but they say, We're local, local, local. And to kind of give you just one example of what we're talking about, and I invite you to listen to any of our stations or to go to any of our stations and spend hours or a day even with our management people, with the other ones, and see how we operate and see what goes on there that gives us that little secret sauce that we have in our business here. And... I was listening to a station in Detroit here. I was driving around the other day to a meeting during the day. And it was actually afternoon. It was like 3 or 4 o'clock in the afternoon, something like that. And I turned on a local radio station, full-power radio station, well-named company. And all of a sudden I heard the jock come out of a record. And I'm sorry, I still use the term record. But the jock came out of a stop sign. And he's on the air, and he goes, hey, this is Willie Wonka on the Wonka Donka Show, and we'd like to say hi to Bill the Buffalo in Cheyenne, Lucy Love Money in Baton Rouge, Stanley the Sun Dog in San Diego, and of course, right here in our local town of Tucson, we're going to say hello to Hot Dog Oscar Meyer. I mean, I made up the names, obviously. But There was no mention of Detroit, and there was nothing there to say that. And I thought, this is at like 4 o'clock in the afternoon, and a big local radio station is piping it in. And if you ask any of the people there, they say, oh, sure, we're local. Yeah, we do that. We have little local drops every now and then to tell about events that might be going on. But the fact is that with Saga, we have this great embracement of the communities. And we try not to be, specifically, we don't look at radio stations in large markets. We look at radio stations that are very defined and fit the parameters of everything we talk about and what we're doing. This is the energy that builds Saga. This is the fact that we know in a compact area we can serve the community and serve them locally. Our sellers are local, where other companies are reducing the number of local sellers and concentrating on national sales where they can sell in bulk rather than work like we do in schedules for a month or two months or even much longer than that, and in some cases 52 weeks. But to us, it's building the relationship with the client that makes it so important for what we do, and build out and help them. And for the ones that are having trouble right now, for us to try and work with them to create ways that they can see areas of their business that can still be monetized and still be advertised. And that's kind of where we are. I will tell you right now that I don't think it's going to get any easier for a while, and now I'm not gonna be anybody who's gonna say, like others have, it's gonna be somewhere in 22, later 22, till we get the supply chain fixed. I don't think anybody really knows that. All we know is we have to prepare for, continue being creative, continue being local, continue being relevant in what we do, and continue to be thinkers in where we are, and constantly say to yourself, What's the next step? Where do we go? What's the next way that we enhance the existing core competency of our product? And that's what makes Zyga what it is. Sam read the numbers. I could have read them to you also. That's not the focus that we have here. The focus has to be creative. I'm sorry, Sam, of course it's numbers. But the focus still has to be where are we going? What's going to happen? How do we zig or zag? How do we prevent this without getting to the point where we're believing all what you might find in print or the newscast on this? How can we circumvent that to keep you as our shareholders? And thank you for being there. Thank you for being our investors. And we appreciate that. How do we keep this business moving forward during unfashionable times? And that's a question that we think we've answered. and you have our assurance that we will continue on and do that, because that's the only thing we know how to do. Sam, I know I'm close to timing out here, so if you do have any questions, and no surprises, let me know what they are.
Sam Bush
Yeah, we did get a couple of questions. By the way, I agree with you that the numbers are historical and statistical, but what you're talking about is where the future comes from, and that's the important part of the business from an ongoing basis. Anyway, the questions we got, we got a couple of them in. They're fairly similar to what we've had in the past, and that is about capital allocation relative to what we're going to be doing with the dividend relative to increasing it potentially back to the $0.32 a share that we at one point got to early last year, and then two about potential use of capital for stock buybacks. And then three, which we've already answered in our press release, was why not pay down the long-term debt with the excess cash? And it goes on to make a point that we believe in that companies with very low debt or no debt should be worth more than companies that are overleveraged. But long and short of it is we reported in the press release that we paid down the final $10 million in our outstanding debt on our revolver. October 27th. So we are now officially debt free. And Ed, I'll let you talk about the dividend potential increases and stock buyback.
Ed Christian
Well, we do also have a credit line, we should say that just in case. And that basically, we have a lot of cash. Thank you. We're very happy about it. It puts us on a great feeling. And we talked about this for several months, actually longer than that. Why are we still carrying this little debt? Why don't we just Write the check so we don't have to worry about Mr. Banker showing up at an improper time if something went wrong. I mean, that's a very short statement to it, not necessarily true, because we do have great banking relations with the ones that we did. We still consider them our partners and friends for looking at future investments. And by the way, we're not done with acquiring. We're looking at that. That's an ongoing task for us. is to find those opportunities that make sense for us, even in somewhat difficult times. But we intend to continue to grow the business in proper, defined ways that make sense for us as radio broadcasters, who will stay as radio broadcasters. And those are areas that are important for us. You know, we talked about dividends. We did declare one which we felt was appropriate for where we were in terms of revenue. It's still somewhat of an uncertainty going on. Believe me, with my commitment to solid communications and the dividends that I get, I'd certainly like to see them coming and continue to increase. And so do our managers who have stock in the company. and other people here. We are, the goal is to certainly build back to levels of revenue, levels of earnings, which will support it and never compromise the business, which is why we finally said, oh, come on, what is $10 million? Let's just pay it off and be done with it. And actually one of our investors even said to us, okay, fine, just pay off the, then pay off this, uh, $10 million, and we appreciated that. So get rid of it and then go on, build a business, and then remember us in dividends as you go forward. And we're constantly looking at this and trying to arrive at appropriate price points at appropriate times within a company because we will not compromise the company itself. I'm over-promising and under-delivering And that's one of the big things we're always aware of in that. Did I miss something, Sam?
Sam Bush
No, I think that covers it all. I think we're good.
Ed Christian
Well, we thank you for, and we try and keep these at 30 minutes. And this is exactly where I see the clock right now, that that's where we're headed. So anybody has any questions of Sam or if they have any questions of me, We are very friendly and very open, and you can just call us here, and we'll be glad to answer individually those areas that we might have missed in our discussion today. So with that said, Kay, we turn it back to you for a thank you. There is no anything else. Is there, Sam? No.
Sam Bush
Kate, we'll wrap it up as we go.
Operator
Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time and have a wonderful day. We thank you for your participation.
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