Earnings Call Transcript - SGA Q3 2025

Operator, Operator

Good day, everyone, and welcome to Saga Communications' Third Quarter 2025 Earnings Release and Conference Call. It is now my pleasure to hand the floor over to your host, Chris Forgy. Sir, the floor is yours.

Christopher Forgy, Host

Thank you, Matt, and thank you for your dulcet tones. And thank you to everyone who has taken the time to join Saga's 2025 Q3 Earnings Call. We appreciate your continued interest and support and your participation in Saga Communications, what we believe is the best media company on the planet. I'm here with Sam Bush, and today represents 28 years of Sam doing Saga earnings calls. So, Sam, congratulations. And with that, I'm going to relinquish the floor to you for now, and I'll save my remarks for later in the call.

Samuel D. Bush, CFO

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 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 are attached in the selected financial data tables. For the quarter ended September 30, 2025, net revenue decreased $528,000 or 1.8% to $28.2 million compared to $28.7 million last year. Station operating expense increased $2 million to $24.7 million for the 3-month period. As reported in the press release, this increase was primarily the result of an industry-wide settlement with 2 of the music licensing organizations we are licensed by. In mid-August, the Radio Music License Committee, of which Saga is a member, announced separate rate-setting settlements with ASCAP and BMI. The settlements established license fees, which applied retroactively for the periods from January 1, 2022, through September 30, 2025, and on a go-forward basis through December 31, 2029. In September, we booked $1.7 million for the periods from January 1, 2022, to December 31, 2024, and another $407,000 for the 9-month period ending September 30, 2025. The fourth-quarter impact of the increased rates will be approximately $135,000 over our previously projected music licensing fees. We reported an operating loss of $626,000 for the quarter, which without the settlement would have been an operating income of $1.5 million compared to $1.6 million for the same period last year. We also reported station operating income, which is a non-GAAP financial measure, of $3.5 million for the quarter. Without the settlement, station operating income would have been $5.6 million for the quarter compared to $6 million for the same period last year. It is important to note that the company would have reported net income for the quarter without the music licensing settlement. For the quarter, gross broadcast revenue, including NTR, non-traditional revenue, which is mostly events we are involved in, decreased $1.8 million or 6.8%, while our gross interactive revenue increased $1.1 million or 32.6%. Gross political revenue was $73,000 for the quarter this year compared to $677,000 last year. For the third quarter this year, the increase in our interactive revenue made up almost the entire decrease in our broadcast revenue when adjusted for political. I think Chris is going to emphasize this again but we're in radio, so repetition is always a good thing. And I just want to say again, for the third quarter this year, the increase in our interactive revenue made up almost the entire decrease in our broadcast revenue when adjusted for political. For the 9-month period ended September 30, 2025, net revenue decreased $3.1 million or 3.7% to $80.6 million compared to $83.7 million last year. I won't go through the 9-month numbers that were reported in the press release other than to indicate that without the music licensing settlements, station operating expense would have decreased $1.7 million instead of the reported increase of $390,000. Without the settlement, operating income would have been $574,000 instead of an operating loss of $1.5 million and station operating income, again, a non-GAAP measure, would have been $13.8 million instead of $11.7 million. Also, without the settlement on a same-station basis for the 9 months ended September 30, 2025, station operating expense would have decreased 3.9% or $2.6 million. Corporate expenses decreased $80,000 for the quarter and increased $74,000 for the 9 months ended September 30, 2025. Corporate expenses included $226,000 for the 9-month period relating to a potential proxy contest initiated earlier this year by one Saga shareholder. This has been disclosed in our previous public filings. The decrease in other operating expense for the 9 months ended September 30, 2025, compared to the same period in 2024 is primarily due to the sale of a nonproductive AM station along with 2 translators in Asheville, North Carolina, the sale of WNDN, FM in Chiefland, Florida, and the shutting down of a nonproductive AM station in Bellingham, Washington in 2024. The decrease in other income is due to a one-time gain in 2024 related to the sale of Saga's equity investment in BMI when the organization was sold. In addition to what Saga and I have already said, I want to emphasize that for the quarter, total interactive revenue was up 32.6% and for the 9-month period, up 17.1% with a 54% profit margin for both the quarter and the 9-month period, excluding sales commissions for the quarter and for the year. Pacing for the fourth quarter is currently tough as we are up against $2 million in political revenue we booked in the fourth quarter of last year. This was $1.6 million in October, $389,000 in November and $10,000 in December. For the fourth quarter, we are currently pacing down approximately 11%, including political and 4.7% when political is excluded. On a positive note, our interactive pacing is strong for the fourth quarter being up 32% as of now. The company paid a quarterly dividend of $0.25 per share on September 19, 2025. The total dividend paid was approximately $1.6 million. To date, Saga has paid over $140 million in dividends to shareholders since the first special dividend was paid in 2012 as well as has bought back over $58 million in Saga stock. The company intends to pay regular quarterly cash dividends in the future. Further, as part of our overall capital allocation plan for 2025 and beyond and as stated in the press release on October 17, 2025, the company entered into an agreement to sell telecommunications towers and related property and other assets located at 22 sites for a total cash purchase price of approximately $10.7 million. Sales proceeds net of brokerage commissions and certain adjustments in the amount of approximately $8.7 million were paid to the company, with the remaining cash proceeds of $1.8 million, representing 4 sites being deposited into an escrow account pending final landlord consents to assign the ground leases where the towers are located. We also entered into long-term leases at each of the sites to allow us continued use of the towers at a nominal cost. We are continuing to work through the tax and accounting implications of this transaction, which will be disclosed in our future filings. As we have previously stated, we intend to use a portion of the proceeds from the sale to fund stock buybacks, which may include open market purchases, block trades or other forms of buybacks. All said, we believe Saga is in a strong financial position to improve profitability as our digital initiative improves both local radio and interactive revenue. The company's balance sheet reflects $26.3 million in cash and short-term investments as of September 30, 2025, and $34.2 million as of November 3, 2025. We currently expect to spend between $3.25 million to $3.75 million for capital expenditures in 2025. We currently expect that our station operating expense will be flat for the year as compared to 2024. This takes into consideration the expense reductions we have made, offset by the music license fee settlement with ASCAP and BMI as well as for our continued investment in our ongoing revenue initiatives. Without the music licensing settlement expense, we would expect station operating expense to decrease by 2% to 3%. We anticipate that the annual corporate general and administrative expense will be approximately $12 million for 2025 compared to $12.4 million in 2024. And with that, Chris, I'll turn it back over to you.

Christopher Forgy, Host

Did you say crass? That's a bit crass, Sam. Congratulations on your 28 years of earnings calls. Over the past several years and especially in the last few months, Saga's leaders, employees, corporate team, and Board of Directors have been very active in the Saga verse. Since the beginning of this year, we have been working hard to implement Saga's blended digital strategy, which includes thorough training and development for our market leaders, sales managers, media advisors, on-air content creators, and directors of content creation. We've made additional investments in research and development and resources to help our team operate faster with this blended strategy. Our goal is to double our gross revenue, mainly through digital means, within the next 18 to 24 months by capturing just 5% of the available search and display advertising dollars in our 27 markets. We have also enhanced our Board of Directors with additional expertise in digital strategies, mergers and acquisitions, and financial audit and consulting. We plan to sell one tower and the land it sits on to a local developer, along with some excess land we own, and we are also working on selling our company-owned home in Sarasota, Florida, following several hurricanes that impacted Florida's West Coast. As Sam mentioned, we have successfully sold several Saga towers, not due to financial need, but as part of a larger strategic plan to return value to shareholders through stock buybacks and other capital allocation, while still maintaining a robust quarterly dividend strategy. I want to personally thank Executive Vice President and CFO, Sam Bush; Senior Vice President and Controller, Cathy Bobinski; Vice President of Engineering, Tom Atkins; Vice President of Finance and Board Secretary, Katie Semivan; and Financial analysts, Cynthia Loerlein and everyone involved, for their hard work in completing these tower sales. This tremendous effort is much appreciated and is ongoing. We are not finished yet. We continue to focus on strategic expense reductions at both the market and corporate levels to enable reinvestment in our digital transformation and enhance our agility. We are also selectively utilizing AI to improve efficiency and performance, reduce costs, and increase margins. Over the next few months, we plan to bring more of our digital services in-house to better serve our team members and our customers, aiming for efficiencies, scalability, and improved margins, which will require hiring additional talent. Saga has made significant progress in a short time, but there is still work to be done. To fully appreciate our journey and the rationale behind our blended strategy, we should revisit the foundational principles established by Ed Christian when he founded the company. Internally, we refer to this with a Latin phrase meaning the end hangs on the beginning. Saga focuses on small and medium markets; indeed, 21 of our 27 markets rank below Market 100. Our acquisition strategy targets markets with state capitals, state universities, military bases, strong agricultural sectors, and affluent retirement communities, such as those in Ocala, Florida. Saga's market employees are well-known and trusted in their local communities. We deeply engage in local markets, with our leaders participating in city government and raising funds for local causes. We build connections with influencers and decision-makers to support local businesses. Saga is truly embedded in the communities we serve; the focus is on our local media groups rather than the Saga name itself, with examples like the Columbus Media Group. On average, Saga generates $1 million to $1.5 million more each month in local direct revenue compared to local agency revenue, and as stated, local direct revenue drives Saga's blended strategy. I hope this clarifies things for you. Saga was late to the digital transition, beginning our transformation while behind the competition, but we've had the advantage of learning from others in the industry. From a digital advertising standpoint, Saga operates like a cash-rich start-up. We recognize that the local advertising market needs disruption, and Saga operates in markets where we can significantly influence local communities, including the advertising sector. These markets are ripe for change because businesses are increasingly investing in digital advertising, but the rapid growth of digital spending has overwhelmed advertisers, making it hard for them to fully understand or effectively utilize their options. There's a surplus of digital providers and conflicting solutions, leaving businesses unsure of whom to trust. In this context, a focus on trust, simplicity, clarity, and a consumer journey-oriented approach is critical, as opposed to traditional product-based selling. Advertisers are frustrated with ineffective campaigns and empty promises; they are dissatisfied with what they are buying and who they are buying from. Also, consumer behavior is shifting, and advertising strategies haven’t adapted to the modern buying journey. We believe that by emphasizing the influence of ads on actual consumer interactions with products or services, we can not only capture market share but also redefine it. Internally, we've begun seeing measurable returns from the hard work our team has invested in this transformation. Notably, when local direct advertisers were not pitched blended options, we lost 29% of our existing radio business. However, local direct advertisers who engaged with a blended product increased their radio spending by 9%, and their overall spending on radio and blended products grew by 27%. Now, we need to scale this success. The most encouraging news comes from Sam's report, which highlighted that during today's earnings call, the increase in Saga's interactive revenue almost completely offset the decrease in our broadcast revenue after accounting for political factors. The ongoing question has been whether we can accelerate our blended strategy enough to counterbalance the downturn in the sector. While hope alone is not a strategy, this may indicate that we can indeed move forward. However, we are still in the early stages of our digital transformation, which is challenging and demanding work. I am fortunate to work with the most dedicated and passionate team of broadcasters I have ever encountered, and they are the driving force behind our blended transformation. Thank you all for your time, support, and involvement in Saga Communications, which we believe is the best media company in the world. Sam, do we have any questions?

Samuel D. Bush, CFO

We did. We got questions from 3 different shareholders and an analyst. And I'll start with Michael Kupinski's question from NOBLE Capital. The first 2, he had 3 questions but the first 2 are interrelated, so I'm going to read both of them and let you address them jointly. Can you give us some color on the tone of the market, pacings into the upcoming quarter, local spot versus digital versus national? And then the second part of that is, while Saga does not get a lot of national advertising, it had been a key revenue growth driver for the company. How is this category performing going forward?

Christopher Forgy, Host

So I'll address the last vertical first. National is weak in the fourth quarter. And it has had a little bit of a tradition in coming in later and later, which impacts our forward pacing. And Saga has 2 outstanding national sales managers and Tom Howe and Bruce Werner and a really proactive partner in Katz Radio. Unfortunately, we don't really control a lot of what happens in that vertical. As Sam mentioned, overall, total revenue pacing, excluding political, is down 4.7% for the quarter. Local pacing is consistent across the quarter, and digital pacing is still pacing plus 32% for the quarter, which is why we are running to the Saga's digital transformation in the first place. I hope that answered the question.

Samuel D. Bush, CFO

I think it made a great start towards it. Historically, advertisers reacted favorably in anticipation of Fed rate cuts given the favorable influence they had on the economy. As we have seen in many radio company results, the Fed rate action has had no impact and the radio spot advertising remains weak. Any thoughts on why there is this anomaly?

Christopher Forgy, Host

Well, first of all, Sam, I don't believe it's an anomaly. And by no means, what I'm about to say is directed at the person who asked this question, and it's the economy, stupid. On Main Street, there's a delayed reaction, in my opinion, to rate cuts by the Fed. In our world, rate cuts impact our 2 largest economic indicators as to how radio will perform going forward, and they are housing starts and auto purchases. The 50 basis points reduction the Fed has dribbled out, kicking and screaming, simply has not gotten to Main Street just yet. We believe spot radio's downdraft is more a function of the macro decline in the sector and not the rate cuts or lack thereof. And as I said, not really based on the interest rate reduction.

Samuel D. Bush, CFO

Very good. Thank you, Chris. We received two additional questions from shareholders, which I will combine as they were quite similar. One question was about the absence of a clear buyback plan, including timing and amounts, after the tower sale closed. There were several complexities involved in the tower sale. Saga had specific expectations regarding the final terms and conditions, and there were real estate transfer issues that had to be resolved, which are still ongoing. This is evident as four of our tower sites remain in escrow, and we are currently addressing the timing and complexities of finalizing these transactions. We only felt confident about the final sale proceeds a few days prior to the closing. As Chris mentioned, the sale was not driven by a need for cash; rather, it was a strategic decision regarding capital allocation. Thus, we didn't have a clear understanding of the proceeds or the closing timeline until just before the closure. This information is essential for the Board when contemplating final buyback plans. Buybacks remain a priority for a portion of these proceeds, as we have stated previously. We expect to provide more clarity soon as the Board continues to assess the amount and timing for making final decisions.

Christopher Forgy, Host

And I think that’s it. We appreciate all of you joining, and I think we can turn it back over to Matt to wrap up the call.

Samuel D. Bush, CFO

Thank you, Matt.

Operator, Operator

Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.