Saga Communications, Inc.

Good day, ladies and gentlemen, and welcome to the Saga Communications Third Quarter 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, Warren Latta, Interim President and CEO at Saga Communications. Sir, the floor is yours.

Thank you, Holly, and welcome everybody to our Third Quarter 2022 Earnings Call. Joining me today is Sam Bush, our Chief Financial Officer extraordinaire, who's been with us for a million years, somewhere thereabouts. And also Chris Forgey, Senior VP Operations. And you have not heard my voice for over four years. I used to do these calls when I was the Chief Operating Officer for Saga. And due to the very sad, unfortunate circumstances that we are in today relative relative to our founder, chairman, CEO passing in August. Uh, I am back on again on an interim basis, and I'll have a little bit more to say about that a little bit further down the. Uh, you've heard Ed talk about the word saga, which is loosely translated in Icelandic as a never ending journey. And one person's journey is now over and that's it. And we do deeply miss him. It feels very different not having him around. And the loss is palpable. That said, I will tell you, and you'll hear more about this, that our company is extraordinarily solid, stable, in good shape. doing the right things the right way, and all of us continue to do those sorts of things that we did from the day that had passed to today. So the news is good, and the news is positive moving forward. You'll hear more about this, but let me turn it over to Sam, and he can tell you more detail about the actual quarter, and then we'll come back to you afterward. Sam?

Thank you, Warren. 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. First, I want to take a minute, as Warren did, to recognize the loss of Ed Christian, Saga's founder, chairman, president, CEO, and inspirational leader since Saga was founded in 1986. It's not only a loss for Saga, but for the entire radio industry. This earnings call actually is my 100th call that I will have participated in since joining Saga as CFO in 1997. It will only be the second one that I have done without Ed, and that All this week that's been amazing me that 98 of 100 calls were the two of us together. As all of you have heard and know from past calls, Ed never liked reporting adjusted numbers. However, it is important that we do so and we did so in the press release for this quarter as the purely reported numbers do not reflect Saga's strong operational performance as well as our extremely strong financial strength. With that in mind for the quarter, Ended September 30, 2022, net revenue increased 3.9% to $30 million compared to $28.8 million last year. Gross political revenue during the quarter was $858,000 compared to $256,000 for the same period last year. Without political, gross revenue increased 2.3%. Station operating expense increased 2.8% to $22.3 million for the three-month period. Station operating income increased 4.1% to $8.9 million. Operating income was $1.1 million, and free cash flow was $1.6 million for the quarter. We had a net loss for the third quarter of $104,000. As a result of Ed's passing, Saga was required to make several payments to his estate, as outlined in his employment agreement. These expenses were accrued during the third quarter, increasing the reported corporate general and administrative line item by $3.8 million for both the quarter and the nine-month period. Without these expenses, operating income would have increased 5.8% to $4.9 million compared to $4.6 million for the same period last year. Free cash flow would have increased 36.5% to $5.4 million compared to $4 million last year, and that income would have increased 7.9% to $3.7 million. This compares to $3.5 million for the third quarter of 2021. With the adjustment, diluted earnings per share would have been $0.62 per share this quarter as compared to $0.58 per share for the same quarter last year. For the nine-month period ended September 30, 2022, net revenue increased 7% to $84.8 million compared to $79.2 million for the same period last year. Gross political revenue during the nine-month period was $1.8 million, compared to $894,000 for the same period last year. Without political, gross revenue increased 6.1%. So we had a very strong quarter and have had a very strong year even without the political revenue, although the political revenue is always a nice stimulus to have. Station operating expense increased 4.9% to $64.6 million for the nine-month period. Station operating income increased 9.6% to $23.7 million while operating income was $8.1 million. Free cash flow was $6.7 million for the period. Net income for the first nine months was $4.9 million. Adjusted for the $3.8 million in increased corporate general and administrative expenses, as previously discussed, operating income would have increased 18.4% to $12 million compared to $10.1 million for the same period last year. Free cash flow would have increased 5.9% to $10.5 million compared to $9.9 million last year, and net income would have increased 17.3% to $8.8 million. This compares to $7.5 million for the third quarter of 2021. Diluted earnings per share would have been $1.45 for the nine-month period as compared to $1.25 for the same period last year. Capital expenditures for the quarter were $1.2 million, which is basically flat with the same period last year, and $4.7 million for the nine-month period compared to $2.7 million for the same period last year. The increase in our capex of approximately $2 million for the nine-month period is primarily due to two projects. As discussed in our second quarter earnings call, capital expenditure includes $1.1 million for the purchase of a building in Norfolk, that we will be converting to office and studio facilities, allowing us to exit the current leased space we have. This will be a sizable cost savings for our Norfolk operations over the upcoming years. We also completed work on our new studio building in the Gainesville Ocala market with approximately $800,000 being spent this year. We still expect to spend approximately $5.5 to $6 million for capital expenditures in 2022. Fourth quarter 2022 is currently pacing ahead of the same period last year by approximately 3.5% to 4%, although we continue to watch the current interest rate environment, the potential recession on the horizon, and the ongoing global turmoil. As I stated in the second quarter, in reality, everything is still week by week, month by month, and sometimes even day by day as we watch how the economic turbulence factors in. We paid a quarterly dividend of 25 cents per share and a special dividend of $2 per share to our shareholders on October 21st, 2022. The aggregate amount of the quarterly and special dividend was approximately 13.6 million. Saga paid its first special dividend on December 3rd, 2012, and has now paid out over 93 million in dividends over the past 10 years. The company continues to pay, intends to continue to pay regular quarterly cash dividends in the future. Inconsistent with our strategic objective of maintaining a strong balance sheet and at the same time returning value to our shareholders, the Board of Directors will also continue to consider declaring special cash dividends, establishing a variable dividend policy, and as well as stock buybacks in the future. Our balance sheet shows $58.3 million in cash and short-term investments as of September 30, 2022. As of October 31, we have $45.3 million of cash and short-term investments on hand. The reduction in cash is primarily due to the $13.6 million dividend paid on October 21st and the $2 million paid to Ed's estate as part of the $3.8 million accrual previously discussed. We currently expect that our station operating expense will increase by approximately 5% to 7% for the year as compared to 2021. This includes additional sales commissions and music license fees based on our revenue growth as well as increases in our cost of sale surveys and overall expenses as a result of inflation. Our tax rate is expected to be 28 to 30% with a deferral tax of 1%, resulting in an annualized tax rate of approximately 34 to 36%. The tax rate in quarter three was a direct result of the 3.8 million non-deductible expenses we accrued as a result of its passing. With that, I'll turn the call back over to Warren and Chris.