Saga Communications, Inc.

Good day, ladies and gentlemen, and welcome to the Saga Communications 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 Forgey, President and CEO at Saga Communications. Chris, the floor is yours.

Thank you, Tom. Welcome to all of you, and thank you to all of you who have taken the time and interest in learning more about Saga today and Saga tomorrow. In a moment, I'm going to turn it over to Sam Bush. You'll notice that Sam will be unusually chatty this morning, and for very good reason. So, with that, Sam, I'd like to turn it over to you.

Thank you, Chris. This call will contain forward-looking statements, 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. As all of you have heard and know from past calls, Ed never liked reporting adjusted numbers. Actually, none of us do. However, it is important that we do so again for the year end due to Ed's passing last August and the impact of his passing on our third quarter results. The purely reported year-end 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 December 31, 2022, net revenue increased 3.3% to $30.1 million compared to $29.2 million last year. Gross political revenue during the quarter was $1.9 million compared to $886,000 for the same period last year. Without political, gross revenue increased a little less than 1%. Station operating expense increased 5.9% to $22.9 million for the three-month period. Station operating income decreased 4% to $8.5 million. Operating income and free cash flow were approximately flat with the same period last year at $4.9 million and $3.8 million respectively. Net income for the quarter was $4.3 million, which compares to $3.7 million for the fourth quarter last year. For the 12-month period into December 31, 2022, net revenue increased 6% to $114.9 million, compared to $108.3 million for the same period last year. Gross political revenue during the full year was $3.6 million, compared to $1.8 million for the same period last year. Without political gross revenue increased 4.7%. Station operating expense increased 5.2% to 87.5 million for the 12 month period. Station operating income increased 5.7% to 32.3 million while operating income was 13.1 million compared to 15.1 million for the same period last year. Free cash flow was 10.5 million for the period. Net income for the year was $9.2 million compared to $11.2 million for the year in December 31st, 2021, and diluted earnings per share were $1.52 for the year. As a result of Ed Christian's passing, the company was required to make several payments to his estate as outlined in his employment agreement and as previously discussed in the third quarter release. Without these expenses, operating income would have increased 12.3% to $16.9 million, Free cash flow would have been approximately flat with last year at $13.6 million, and net income would have increased 16.8% to $13 million. Diluted earnings per share would have been $2.15 per share as compared to $1.85 per share for the same period last year. Capital expenditures for the fourth quarter were $1.3 million, which is basically flat with the same period last year, and $6 million for the 12-month period compared to $4 million for the full year in 2021. First quarter 2023 is currently pacing approximately flat with the same period last year. With the current interest rate environment, the potential recession on the horizon and the ongoing global turmoil, everything is still week by week, month by month, and sometimes even day by day. The company declared a 25 cents per share quarterly cash divot on March 1st, 2023 to be paid on April 7th, 2023 to shareholders of record on March 20th, 2023. The aggregate amount of the quarterly dividend will be approximately $1.5 million. The company paid a quarterly dividend of $0.25 per share and a special dividend of $2 per share on January 13, 2023 that was declared in December 2022. As we reported last December, Saga's board adopted a new variable dividend policy. This policy is based on the goal of increasing cash returns to shareholders while simultaneously maintaining a strong balance sheet. and continuing to grow the company through strategic acquisitions. Under the new policy, in addition to any quarterly and special dividends paid, the company will declare an additional dividend in the second quarter of each year of 70% of the preceding year's annual free cash flow, net of acquisitions closed, special and quarterly dividends declared, debt pay downs, and stock buybacks. For Q2 of 2023, this calculation would result in no dividend being paid based on a free cash flow for the physical year 2022 of $10.5 million and a total of $29.5 million in dividends declared during the year, including $5.2 million of quarterly dividends and $24.3 million of special dividends. With a quarterly dividend per share of $0.25 and with a mid-20 stock price, which we believe is significantly undervalued, by the way, the yield is approximately 4%. On a pro forma basis, if you look at what the variable dividend would have been based on the free cash flow for 2022 adjusted for its passing, as well as the two special dividends declared in 2022, we would start with a free cash flow of 13.6 million. Our pro forma quarterly dividend at 25 cents per share would reduce the net free cash flow available for a variable dividend by 6.1 million, basically $1 per share multiplied the roughly 6.1 million shares outstanding. In a year with no acquisitions, no debt pay down, and no stock buybacks, the net free cash flow available for the variable dividend would have been $7.5 million, and a 70% of net free cash flow payout would have resulted in approximately $5.25 million being paid in a variable dividend. This would be approximately $0.86 per share. Along with a $0.25 per share pro forma quarterly dividend or $1 per share on an annual basis, The total dividend paid would have been approximately $1.86 per share or with a mid-20s stock price, a very, very nice yield of around 7.5%. Of course, all future dividends are subject to the risk factors we describe in our 10-K along with our potential acquisition opportunities. All said, we believe Saga is in a strong financial position. I say we believe. We know Saga is in a strong financial position to continue to return value to our shareholders through our quarterly, special, and variable dividends. The special dividends declared in 2022 were in line with the goal of maintaining our ongoing cash and short-term investment balances to between 30 and 35 million prior to future cash flows being recognized. 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. Including the dividend declared on March 1, 2023, the company will have paid $108.3 million in dividends to shareholders since the first special dividend was paid 10 years ago in 2012. The company's balance sheet currently reflects $46.9 million in cash and short-term investments as of December 31, 2022, and $38.4 million as of March 6, 2023. The reduction in cash is primarily due to the $13.8 million dividend paid on January 13th. The company expects to spend approximately $5 to $5.5 million for capital expenditures during 2023. We currently expect our station operating expense will increase by approximately 3.5 to 4.5% for the year as compared to 2022. This includes additional sales commissions, music license fees that are based on revenue growth, increases in our cost of sales surveys, increases as a result of inflation, as well as we continue to invest in the resources necessary to grow the company. Our tax rate is expected to be 28 to 30 percent, with a deferred tax rate of 3.6 percent going forward. And that may be the longest I have ever talked, Chris, at the start of a call, but I will turn it back over to you for now.