Transcript
Good morning, ladies and gentlemen, and welcome to the Saga Communications Q3 Earnings Conference Call. At this time, all participants are placed on listen-only mode. It is now my pleasure to turn the floor over to your host, Ed Christian, President and CEO of Saga Communications. Sir, the floor is yours.
Catherine, thank you very much, and welcome everybody. We have a lot of information to convey to you and some additional thoughts. And with that, let me start by turning it over to Sam Bush as usual.
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 Factors 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 is attached in the selected financial data table. The third quarter continued to be materially impacted by the COVID pandemic, but as reported in the press release, we have seen significant increases in net revenue every month from the low point in April. Our net revenue in the third quarter was $24.1 million compared to $16.9 million in the second quarter. This is an increase of $7.3 million or 43.1% between the second and third quarters. Gross political for the quarter was $1.8 million; for the second quarter, it was $289,000 and for the nine months ended September 30, 2020, it was $3.1 million. As I already indicated, net revenue was up $7.3 million from the second to third quarter. So political certainly helped, but it was not an overriding factor. Political continued to be strong in October and for the first few days of November. So we expect October to be our highest revenue month for the year with November remaining strong, but falling below October as political revenue finished yesterday. Without political, we expect gross revenue to continue a positive trend throughout the rest of the year. Our focus on local continues to pay off as the combined local direct and local agency increased 32.4% between the second and third quarters of this year. We have $49.8 million in cash on hand as of November 2nd compared to approximately $44 million at the beginning of the year. We expect there to be some fluctuation in this amount as the year continues, but we believe that our cash balances will continue to increase as we get to year-end. Again, this is if the current market conditions continue and we don't face another prolonged government-mandated shutdown in our markets. At the end of the quarter, our outstanding debt remained $10 million, which given the cash on hand presents no covenant or liquidity issues. Leverage per our bank covenants calculates at 0.82%, but is really negative when you consider the cash we have on hand. Ed, with that short commentary on what continues to be an unprecedented year, I will turn it back over to you.
It could be a precedented year, I don't know, Sam. But let me ask you a quick question. What did you compute the other day that the value of the cash per share of what it's currently trading at is like what, $6? Something around that?
Yeah, around $6 per share.
Okay. So I'm just checking that up. Hello, everybody, and let's start in on this with me saying that it's been a long nine months and we have not burned a dollar of your money. There's been no cash burn at this company, which I think is, in itself, a pretty good achievement. We accomplished this through a number of different ways, and let's talk about that for a second. One was obviously, trying to find a way to reverse the slide and bring it back up so that it decelerates each month in terms of that and begins to build back up a little bit. We haven't seen the rebuilding from ground zero yet or normalcy as it was from 2019. But nevertheless, we've had some interesting things happen. Let me tell you, for instance, if we look at our local direct, and for those of you who have been on the call before, know that Saga is a big proponent of directly reaching retailers to service providers and a number of businesses like that. Right now, we're running about $1.5 million per month ahead of our local direct. Overall, probably our local directors, excuse me, $1.5 million over our local agency, which is pretty impressive for us. It really continues our commitment and accelerates it, which we're very happy about. We're adding more programs to promote non-traditional revenue. We're doing, for instance, best of books with a sales component attached to it, which has bought in hundreds of thousands of dollars and the lack of non-traditional revenue. Where we have been impacted, and it's a good healthy number, is in events. A station that is attuned to the community is constantly looking for events to provide for the community and I am finding ways for us to monetize those events. It goes from concerts that we sponsor in Ocala to plays. We are behind in various performing venues across our markets. So, we have a lot of things going that generate additional income. So, we've been impacted because we're not able to reach out and have masses of people or numbers of people even attending our events, and that was a big part of what we did. And that really hurt when the country was shut down. And even now today, we're seeing that there are no shutdowns in Massachusetts and Illinois. We're just re-changed and re-categorized in certain counties. So, while competitors are off-boarding salespeople, which is what's happening, we are actually hiring them and adding services and account executives. We're very committed to the idea of retraining our new salespeople or training and retraining existing salespeople. We're using a number of different programs when we bring in new salespeople. P1, the Radio Advertising Bureau, has a tremendous program and Cash by Creative, there are a number of different programs that we are showing and telling to our people. We're also training the people that we have for the future. Because we believe sincerely that there is a future, without a doubt. Just to give you one example, we work with Jeff Smith and Kim Johnson at the Radio Advertising Bureau and they did for us a special six-week virtual training session for Saga, where we had a number of our senior salespeople, and nine of them took the course for six weeks and they just earned their credentials as certified radio sales managers. These are people that are there for us in the future because we've been building our team based on what we're doing. So, it's keeping in content and promotions where we're still trying to figure out ways to promote. Examples of some of the ones that we have right now that are important to mention, we did a number of virtual Halloweens. In Champaign, Illinois for instance, we did this at the Champaign County fairgrounds, where we had 30 merchants with booths or tents along the road inside the area, passing out candy to each car that stopped, and we had a line probably a mile and a half long outside of cars waiting to get in with their kids in their Halloween costumes to enter into the area and enjoy it. It was all sponsored by us exclusively. And the story invited paying businesses who were there to hand out information to the parents. We did quite a bit there. Additionally, in one of the other events that is kind of important to mention right now, we did a program for sponsorship to support first responders, the police, and fire departments. We did imaging and conversational messages with top officials discussing relevant community issues which were sponsored at the end. And that's created hundreds of thousands of dollars for us. We've done this in 18 of our markets so far and we're rolling it out in all of the markets, and that will be happening pretty soon. One of the other things that we're doing now to reposition the station is because I think it's well put, Paul Romer, who is an economist and Nobel Prize winner, had a great line: 'A crisis is a terrible thing to waste.' We have been using this while other companies are offloading talent. We are raising and hiring that talent and improving our stature in terms of professionalism. It's been really great. While the others are hiring risks, we are hiring talent. So we're taking advantage as much as we can of what is going on in the community. This is all a part of the idea that we have here of keeping Saga fresh and current, even during downturns. This has been a very important part of us being able to state that, listen, we're still making money, not the kind we want to, but the kind that we want to will be coming. We don't know exactly the definition yet of when it will come because it's subject to a number of variables. But by doing the things that we have been doing, increasing the commitment to our salespeople, bringing in new salespeople, and training them in the new methodology of selling. And there is one, by the way, the things have changed in terms of how we're doing it. It's not the same old radio sales of 20 years ago, but it's using newer, more inventive methods. It's also relying upon digital advertising sales as a component to what we're doing. So in every area, in every single department that we have, there has been a concentration and a commitment to make them better during this time. So that when a sense of normalcy returns and other people begin to open up their radio stations, and by the way, we never closed any of our stations. But when they open up their radio stations again to try to resume business, we will be ahead of the pack on that. Part of the whole idea of what we do is to position ourselves as community leaders, and build one-on-one relationships with our advertisers, and we'll get back there. The very fact that we haven't had anything embarrassing occur to us in the last nine months, I think is attributed to all the people who work for the company who really work hard to see what they're doing. I'm pleased as much as one can be pleased, that's a very touching thing right there. But I'm pleased with what we're doing. What I'd like to see more of, of course. Am I going to see more? Yes. We have that commitment behind there that we're not going away. We're not going to fold. It's unfortunate that radio stations have closed in this country, with some licenses having been mailed back to the government which is more common in some of the smaller markets. But it happens. We're seeing even large companies relinquishing unnecessary radio licenses. We're not. We're actually looking for some acquisitions in our market field. I won't say smaller markets, but that's a relative term. What I ask for is your understanding and your patience. We're no different than a lot of other companies that got hit hard. Only we're trying to do proactive things to change this, and the proactive things are in sales, and that's what is important to us. I have a quote that I thought was pretty good to sum this up. Arthur Rubenstein, a concert pianist, once said, 'There is no formula for success except perhaps an unconditional acceptance of life and what it brings.' And why did that resonate with me? Because we have to face the issues that we have, deal with, and fix our company, keep our company strong, keep it focused, and keep finding ways to grow it, while inspiring the people in our company to be committed to us, knowing that this company will be long-standing while some others might go by the wayside because of economic conditions. And Sam, with that, I'm going to wrap up my comments. I don't know if we have some questions today.
Yes, we do. We have two questions today.
That's nice. That's nice.
It is, it is. Somebody cares. The first question is --
Only two people care, I guess.
The first question is, do you see a stabilization of revenue or a continuing downward trend or what?
Well, that's a good open-ended question. It depends. And that's not dodging the answer. Let me just share some information. Like any good scout, I always keep my ear down to the railroad track so I can tell when the trains are coming. So I can tell when the trains are coming. I'm not literally putting my ear to the track, Sam, just so you get that straight. What I'm hearing is, in the larger markets, the top 10, top 25, whatever it is. There is a fear that they have reached a new normal, which in the larger markets, is running like minus 20 from comparable years. The fear is that this is going to be where they are. For several months they've kinds of hung in there, and they're not seeing minus 15, minus whatever it is. In the secondary markets, where we operate, we do have some -- we are not in the top 25, but I think 7% of our stations are in the top 50 or 25 to 50, whatever it is. It's more down in the lower teens, 12%, 14% and holding kind of right there for now. Now is that going to change? Well, that all depends. It depends on where the economy goes and everything else. But it seems that the larger markets are getting hit harder than the secondary markets where you have more control over what you do in terms of sales, where you can be creative. You have a smaller universe to play in, but a bigger playing field within that universe itself. So do I see anything catastrophic coming up? No. But that could change tomorrow. That's asking me to look into some sort of magic ball and figure that out, or do it with a Ouija board like we did years ago. If we get down to 12% and that becomes a new normal for a while, we're okay. Because we have made, as you noted, without giving the exact figures, we have reduced our overhead substantially without impacting the effect of our organization. We've had no risk to speak of. We don't go in there with wholesale layoffs announcing 40 or 50 people are gone. That hasn't happened with us. We have crafted surgically, literally, a path that reduces expenses while holding us there. So we're good. But the question is, is it 20%? Is it 12%? It depends on the marketplace. It depends on the size of the market and the station itself. So it's a very hard question to answer. Am I optimistic? Yes. Do I think that we're going to be right back to where we were last year? No. I think 2021 is going to be another challenging year, as long as the economy keeps some momentum moving forward. And it's not a quick turnaround with other issues. Okay. That's my answer.
Very good. And the second question is, Nielsen has made a policy change under which it will no longer include the ratings for non-subscribing radio stations in the summary data set that fuels the major buying systems used by agencies and advertisers. What revenue impact do you expect the policy change to have in Saga's markets, where it doesn't subscribe to Nielsen ratings?
Well, okay. Good question actually. It's the hot topic in the industry right now. I presume that was written by when the question came in from one of the trades. I won't ask you then. We don't discuss that. Well, what I mean by first saying, there is no secret to this. Saga is not a client of Nielsen. Therefore what I'm saying is not based on a client relationship. Let me explain to those who don't understand exactly what's going on here. Nielsen surveys two different sets of markets. One is the diary market which is, in my opinion, a highly automated way of surveying, where you're asking a responder to carry personally a diary for seven days and contemporaneously fill out line-by-line what he listens to, what radio station, what time it starts, what time it ends. I'll give you an example because this will take a few minutes to answer. When I was an adjunct professor at Central Eastern University, one of the lectures I did was with grad students. When talking about statistics and ratings, and questions in broadcasting radio and television, primarily radio in this case. We would sit down, and I would say to them, and I had from Nielsen diaries and they punch holes in them so they cannot be used. I passed them out to about 15 grad students in the class. Pass back each one, and had them look at it kind of strange. I nicely explained to them that, you are expected to carry this for a week and contemporaneously record your radio listening. These are again grad students, so we weren't talking about freshman or anything like that. Contemporaneously record your radio listening for seven days and then mail the diary back. By the way, for doing this and keeping track, I will give you a six-pack of PBR, which at that time was about $5. Nielsen has raised what they pay. I submit to you that was flying back 40 years ago when it was a proud thing to be a Nielsen family or whatever it might be, and we had a responsibility to fill out our recordings with that, but that doesn't happen now. The other one is the PPM, which are the meters attached to people's belts that track for up to two years. When they gather this information and put it out, there's plus or minus two standard deviations of the norm. If you chose that you have an 8 share, you could have a 6 share or a 10 share, either one of them is statistically valid. When they send this information out, people -- radio stations subscribe to the information, and the same with the people meter, they subscribe for the information. It is then sold to advertising agencies at a highly discounted rate compared to what stations pay. What they are doing now with this new proposal is that each year they change a feature punishing non-subscribers like us. I won't say punishing but changing to benefit subscribers. The agency has got two levels of information, summary data and respondent data. The summary data is basically, you get the information, feed it into a computer, and it shows you exactly what the market looks like, so that you can determine your buying. Now the summary data is what 30%? I don't know what percentage, but not all their subscribers. This is the basic one. I think they're saying 65% of one release, 35% get the other, or vice versa. I'm sorry I'm not quite clear on that. If the agency gets that, the summary data, they can put it in and see the entire market, and make their buy at the agency level. By the way, I must say this is a terrible disservice to the advertising agencies by eliminating this. This in many respects invalidates the whole thing. On the last, you decide now that the summary data, which is most popular to be replaced by the respondent level data, which is more information than the agencies really need and therefore really don't buy it. Because it has ZIP code analysis and a lot of things that go into very granular levels for the meter and eventually for PPM acknowledgment. What Nielsen is doing is essentially increasing the rates by 50% or more to the individual agencies that subscribe just to the summary data. If you want the respondent data, in other words, eventually the summary data will not be a valid buying service because it doesn't show the entire radio market. The number of AM radio stations that are there are probably going to go away and any of the secondary stations. However, as a kind gesture, Nielsen is keeping the public radio stations in there and I don't believe they are charging that much at all. For years, they wouldn't show them on NPR because they didn't consider them real forces in the advertising market. Now they do. But with this said, what happens is that every agency that has a conscience has to pay at least 50% more to get the respondent level data. Otherwise, you can't even manually enter it. You have to use Tapscan, which is owned by Nielsen. I'm not sure if that's a thing on this. But Nielsen is blaming the radio stations. Well, any station that doesn't subscribe shouldn't be shown. The agency shouldn't – nobody exists unless you pay us 50% more then you can see it. So it's unfair to blame the radio stations. We have enough relationship issues with Nielsen without pointing a finger and saying, bad dog, bad dog. That’s what's happening here. I'm taking way too long to answer the question and really should kind of shut up on this. I'd be glad to discuss this with anybody that wants to know about it, or wants to hear about the media rating console and how many markets they don't have in the PPM thing certified by MRC, or the efficacy of the diary method or how they’re approaching agencies trying to place the blame on radio stations for forcing agencies to pay more to get the same product they had with a summary level data. I'll close myself with a quote that I read this morning and another trade sheet right now from Jerry del Colliano. His trade sheet this morning said, 'It's like doing a census but not including the people who don't pay taxes to Caesar, as if they didn't exist.' This is essentially what is occurring here with Nielsen. Like it or not, I’m sure they’re sitting there rumbling at me now for my diatribe. All I want is honesty and a level playing field for radio stations so that you're going to measure correctly and properly. Leaving out, in some cases, 40% of the radio market because they don't subscribe to your service is punitive, and that just feels mean-spirited in some respects. Have I said too much, Sam?
No. I think you've covered. And you certainly have said what you feel, as you always do, which is great.
No. It's all logic.
It is totally.
Do I have time for one more quick story? In our retraining of salespeople, one of the things that we have mandated is that you can't sell short. Everything has to be long on it. One of the new salespeople went out there, in one of the markets, and I'm not going to say who or where. But, she was out calling on an HVAC dealer. This is a category we've really started working very heavily to get HVAC companies in. Because in a depressed or under economy, if your air conditioning or heater goes out, you need to call somebody. So she sat down and did the presentation to the owner of the HVAC location and went through it all. Finally, he said, okay, yeah, I think I'm trying radio. I know. Let's do it for three weeks. She said, sir, I'm sorry I can't sell you three weeks. He said, fine. She said, no sir, I can't -- our minimum at the radio station is 12 weeks. Because if we sold just three weeks, we wouldn't be doing you any good. There wouldn't be enough repetitions. There’s not enough branding, there's not enough imaging. There's not enough chance for us for brand building. Finally, the guy said, okay, I'll take 12 weeks. Under the old school of thinking in radio, the salespeople would come in and say, hey, I just scored so and so for three weeks for a new advertising. No. We're going in to prove radio works and we do it for 12 weeks. That's where we get results and returns from people. So now I can shut up and say, Catherine, please sign me off. Okay.
Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time. Have a wonderful day. Thank you for your participation.
Thank you, Catherine.