Saga Communications, Inc.

Good morning, everyone, and welcome to the Saga Communications first quarter 2024 earnings release and 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 Forgy. Sir, the floor is yours.

Thank you, Matt. And as I said last time, we're going to find a place for you in our company with that dulcet tones that you have, so we'll work on that. But again, thank you, Matt, and thanks to everyone. who has taken the time to join us on the Saga Q1 earnings call. We appreciate your continued interest, support, participation in Saga Communications, the company that we believe is the best broadcast company on the planet. Lately, I've been hearing from other broadcasters more and more things like, man, bad debt expense are increasing and 90-day-old plus receivables are on the rise. Clients are booking later and paying even later. Saga is a buyer, not a seller, so talk to us about buying our company. Well, we too have experienced some of the aforementioned, and it makes you kind of wonder, is there a, woe is me, bit of a cast over the sector? Perhaps there is. But look, the industry's not broken. It's just slowing down just a bit. And we could choose to sit still and do nothing and stay in the status quo and let gravity take its course. or we can behave differently, and we've chosen the latter. Remember those story math problems we used to have in school? Here's one for you. At best, radio gets 7% of the media spend pie. So for example, if you're in a market and the radio group does a 35% share of revenue in that market, that station group is really only getting just shy of 3% of the total ad spend in that market. Forget the 7%, yet customers we deal with every single day, the ones that have quote unquote great relationships with us, spend over 60% of their money or their ad budget with digital products and providers. And I'm not talking about web development, but digital advertising. And they use on an average three to four different digital vendors to do so. So for the most part, we as an industry have not yet earned their trust enough to have the 60% discussion with them yet. The majority of our advertisers trust us with just the 7% of that discussion. The fact is, and this is a bit shocking, but the fact is, in my opinion, all of our 7% is at risk. As stated many times before, Saga's objective is not to become a digital company, but to save and protect the 7% we have, to provide the skills to our sellers necessary to qualify us to have a 60% discussion with our customers, plus the 7% and do it all the time. And that is the primary and final part of the transformational change Saga has been going through for the past 16 months. And those of you who have been on our quarterly calls, you've heard us talk about this. We have provided the vision, the products, and now finally we are providing the skills to our leaders and our sellers to help them earn their place into the 60% discussion. So as a forward-facing statement of intention, we are renaming all of our radio station groups as media groups and have altered the title of all of our sellers, account managers, and account executives to media advisors. Much like a financial or travel advisor, where the approach to the customer would be, so Mr. or Mrs. Customer, where do you aspire or wish to go on your financial travel journey? Allow me to help take you there. Let me be your guide. And the conduit to this, we know the people who listen to our radio stations and our streams and how they behave. And we know this better than anyone else. As an industry, we know this. So why initiate this change now? Because only now can we bring more to bear for our advertisers and our advertising partners. by virtue of the prep work we have been doing for the last 16 months. It's radio and then some. And then some doesn't work without top-of-funnel traditional media, or in layman's terms, radio, and our saga online news sites and services. Sam will cover many of the details of what I would call and we would call, as I think you would agree, is a subpar Q1 performance. Some of the headlines are a bit shocking. and misleading, especially when you see the full story which Sam will provide. Although we don't manage to a quarter and manage long term, it's not saga-like by any means. Are we satisfied relative to the performance of our other broadcasters? Absolutely not. As someone recently told me, you can't spend relative performance. Our expenses are up as a part of this transformational change and other necessary operational costs. Yes, they are. Are we encouraged by the direction of the progress of this transformational change and the growth we're going through and we continue to go through voluntarily? You bet we are. You need a spark to start a fire. You probably all heard that, and the match has been lit. And with that, I will turn it over to our CFO, Sam Bush. Sam, the floor is now yours.

Thank you, Chris. Now for my favorite two paragraphs in the whole conference call. 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. Now on to the numbers. For the quarter ended March 31st, 2024, net revenue decreased 2.5% to 24.7 million compared to 25.3 million last year. Political did not have a major impact this quarter. As for the quarter, we had 312,000 in gross political revenue this year compared to 194,000 for the same period last year. Political has been slower than expected so far this year. We do expect it to pick up as the year progresses, but it's still difficult to determine where the hot races will be and how they will impact the states and markets we are in. Station operating expense, as Chris talked about, was up 5.9% to $23 million for the three-month period. As discussed in previous conference calls, we made a strategic decision to reward our staff pay increases in recognition of the work they do, and for economic and competitive purposes, we continue to do so. These pay increases and related payroll taxes amounted to an estimated $471,000 or approximately 37% of the increase in the first quarter's station operating expense. We also had other smaller but still meaningful increases in our station operating expenses, including increases in health insurance, sales surveys, interactive streaming and content, and bad debt expense. This in total amounted to approximately 50% of our total station operating expense increases in the first quarter. For a bit more color on the expenses, interactive streaming and content expense was up $109,000 for the quarter, which was in conjunction with the overall increase in gross interactive revenue of $572,000. This does include some of the startup expense for our online news product. Also, the bad debt expense was very unusual for Saga and was mainly the result of an issue incurred with one agency as well as the overall economic conditions impacting our clients. We will be working through this as the year progresses. We had an operating loss of $2.4 million for the quarter compared to an operating income of $905,000 for the same quarter last year. As indicated in the press release, the operating loss for the quarter included a $971,000 other operating expense, which was a non-cash write-off on the sale and abandonment of non-productive broadcast assets, licenses, in two of our markets during the quarter. Station operating income, a non-GAAP measure, was $2.8 million for the quarter. Capital expenditures for the quarter ended March 31, 2024, were $1.1 million compared to $1.4 million for the same period last year. We currently expect to spend between $5 million and $5.5 million for capital expenditures in 2024. For the quarter, we continued to see good growth in our interactive revenue, which was up, as previously stated, $572,000 for the quarter. While local revenue is down for the quarter, it's important to note that e-commerce, which mostly gets recorded as local direct revenue, increased $348,000 for the quarter. As Chris stated, we believe that there's still significant growth to be achieved in both of these areas. We continue to plan on utilizing our financial strength to strategically invest in our operations, both at a market and corporate level, as we work to grow specific revenue types, including local, national, interactive e-commerce, online news products, and NTR. Also, we are planning on closing on our previously announced acquisition of five radio stations in Lafayette, Indiana from the Newhoff family as of June 1, 2024. The current staff's commitment to serving their local community is a great foundation to build off of as we bring them into the Saga family. The purchase price, subject to adjustments, is $5.3 million. The company's balance sheet reflects $28.8 million in cash and short-term investments as of March 31, 2024, and $23.7 million as of March 6, 2024. We paid a quarterly dividend of $0.25 per share for an approximate total of $1.6 million on March 8. We also paid our first variable dividend of $0.60 per share for an approximate total of $3.8 million on April 5. To date, we have paid over $130 million in dividends to our shareholders since 2012. That's something I'm very proud of. Pacing for the second quarter remains soft and somewhat volatile as we ended April up low single digits, but both May and June are currently pacing down mid to high single digits. At this point, we would expect second quarter overall to be down low single digits. Based on the first quarter and our current projections, we currently expect that our station operating expense will increase by approximately 4% to 5%, which is a change from what we've suggested in the past, for the year as compared to 2023. in addition to the inflationary environment that is significantly driven by our investments in our staff, sales training, and ongoing interactive development, including our online news product. We anticipate the annual corporate general and administrative expense to be approximately $12 million for 2024. Our tax rate is expected to be 26% to 29%, with a deferred tax of 3% to 6% going forward. And Chris, with that, I will turn it back over to you.