Saga Communications, Inc.

Good day, everyone, and welcome to the Saga Communications second quarter earnings release and conference call. At this time, all participants are placed on a listen-only mode. It is now my pleasure to hand the floor over to your host, Chris Forgy, President and CEO of Saga. Sir, the floor is yours.

Thank you, Matthew. And once again, thank you to everyone who has taken the time to join Saga Communications' 2026 Q2 earnings call. We appreciate your continued support, your interest, and your participation in Saga Communications, Inc., what we believe is the best media company on the planet. Before my remarks, I'm going to surrender the floor to Sam, but only for a moment, Sam, so don't get comfortable. And then I'll be back with my comments shortly thereafter. Sam?

Thank you, Chris. 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 and 10-Qs. 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 included in the selected financial data tables. For the quarter ended June 30, 2026, net revenue decreased $1.8 million or 6.5% to $26.4 million compared to $28.2 million last year. Station operating expense increased $1.2 million or 5.4% for the quarter or 3.9% excluding the non-cash rent expense. We incurred the non-cash rent expense as a result of the tower sale we have discussed on previous calls. I will add more detail in a few minutes as well as talk more about station operating expenses in general as we continue to make progress on our digital initiatives. It is important to note that even with the revenue challenges we are facing and the added expenses that we are incurring with our ongoing digital transformation, we reported station operating income for the quarter of $3 million and operating income of $623,000. While this is not where we want it to be, It is a part of the challenge, as Chris says, of remodeling the house while we are still living in it. Chris will add more color to various revenue line items, both traditional and digital, in his comments. For the six-month period into June 30, 2026, net revenue decreased $3.2 million, or 6%, to $49.3 million. Station operating expense increased $1.3 million, or 2.8%, for the six months. are 1.9% excluding the non-cash tower rent expense. Gross political revenue for the second quarter this year was $450,000 compared to $50,000 for the same period last year, and $725,000 compared to $321,000 for the six-month period ended June 30th. For the remainder of the year, we currently have another $1.1 million in gross political revenue sold. This compares to gross political revenue of $650,000 for the total year in 2025 and $3.3 million for the total year in 2024. In addition to the non-cash tower rent expense mentioned above, station operating expenses were also impacted by our sales manager, digital campaign manager, and related digital fulfillment team hiring initiatives. During the second quarter, we hired nine sales managers, We hired sales managers in nine of our markets, increasing station operating expense by approximately $146,000 for the quarter and six-month period. We also continued our hiring of digital campaign managers and related fulfillment team members in the second quarter, which added $211,000 to station operating expenses and $290,000 for the six-month period. Operating income also reflects an impact from the tower sale as we transferred leases on the towers we sold. These leases were generating approximately $200,000 in revenue per quarter as we've previously reported. We expect our station operating expense to increase 1.5% to 2.5% for the year when including the added expenses that we are taking on to build out the infrastructure related to our digital transformation and the non-cash tower rental expense. Our corporate general and administrative expense was down 13% or $398,000 for the quarter and 9.4% or $589,000 for the six-month period. We expect that our corporate general and administrative expense to be approximately $11.8 to $12 million for 2026 compared with $12.3 million last year. As stated in our year-end filings, the company closed on the sale of telecommunications towers and related property on October 17th The purchase agreement and related lease documents were amended during the second quarter of this year to align the previously executed documents with the intended economic substance of the transaction. The structure of the transaction allowed us to be able to defer taxes related to the gain on the $5.4 million non-cash proceeds from the sale over the 25-year term of lease agreements. We are reporting in our financial statements a non-cash tower rent expense and non-cash interest income. The press release, our forthcoming 10Q, which will be filed tomorrow, and my previous comments as well as our previous public disclosures give a more detailed explanation of this complex transaction. The key takeaway is that we were able to monetize a number of our towers, maintain the ability to use those same towers for our ongoing operations and not incur any cash tower rent. Unlike other Unlike other tower sale transactions that have been in the industry, we did not leverage the future tower rent expenses that might have been incurred to obtain the increased liquidity that the tower sale afforded us. The company paid a quarterly dividend of $0.25 per share on June 12, 2026. The aggregate value of the quarterly dividend was approximately $1.6 million. With the most recent declared dividend, Saga will have paid over $145 million in dividends to shareholders since the first special dividend was paid in 2012. The company's balance sheet reflected $27.8 million in cash and short-term investments as of June 30, 2026, and $22.9 million as of August 10, 2026. The reduction in cash and short-term investments was primarily due to the repayment in full of the $5 million We had outstanding under our revolving credit agreement. After repayment of the $5 million and after evaluating our cash position, short-term investments, expected operating cash flows, and anticipated liquidity needs, we terminated our existing credit agreement as it would have given us less flexibility to use our cash in short-term investments relative to paying dividends, share repurchases, investments in our digital initiatives, capital expenditures, or other strategic opportunities. We will put a new agreement in place when it makes sense as we continue with our transformation. For the quarter ended June 30, 2026, the company recorded capital expenditures of $1.3 million, which was comparable to the same period last year. For the six-month period, capital expenditures were $2 million, which was also comparable to the same period last year. The company expects to spend approximately $3 to $3.5 million in capital expenditures during 2026. In addition to the tower sale, which generated $10.5 million in cash, we've also stated that we've been working to evaluate our non-core assets with the intent of monetizing those assets at a value that is higher than is recognized in Saga's stock price. This allows us, from a cash perspective, to offset the cash spent on some, if not all, the capital expenses and operational expenses increases required to operate our core business as well as invest in our digital transformation. Since the fourth quarter of last year, we have sold or are selling, including a scheduled closing tomorrow on a property in South Carolina, six non-core properties for proceeds of over $4 million. This includes Saga's former Sarasota house, which sold for $1.7 million, and an unused tower site in Portland, Maine, for $1 million. Revenue for the third quarter is pacing down mid-single digits, with digital up mid-to-high single digits. Thank you for joining us. and more. The sales manager and digital campaign managers and related fulfillment team hiring initiatives will allow our media advisors to have more direct hands-on involvement with the sales resources they need to increase their levels of productivity while the digital campaign managers and related fulfillment team initiative will allow them to spend more time calling on existing and potential clients to solicit new business as they now have the assistance they need to help build the unique blended campaigns that are required to grow our digital business and mitigate the decline in radio ad spend. It also allows us to have the talent to monitor the performance of the blended campaigns which will allow us to retain a higher percentage of Return Blended Clients. All said, we believe Saga is in a strong financial position to improve profitability as our digital initiative improves both local radio and digital revenue. And with Chris, I'll turn it back over to you.