Earnings Call Transcript - SGA Q2 2025

Operator, Operator

Good day, and welcome to the Saga Communications Second Quarter Earnings Release Conference Call. It is now my pleasure to turn the floor over to your host, Chris Forgy, President and CEO at Saga Communications. Sir, the floor is yours.

Christopher S. Forgy, President and CEO

Thank you, Paul, and thank you to everyone who has taken the time to join Saga's 2025 Q2 Earnings Call. As always, we appreciate your continued support, your interest, and your participation in Saga Communications, what we believe is the best media company on the planet. Before my remarks, I will turn the floor over to Sam for our introduction. Sam?

Samuel D. Bush, CFO

Thank you, Chris. As a reminder, 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. And now Chris, on with the show.

Christopher S. Forgy, President and CEO

Thank you, Sam. You probably remember, Sam, during the most recent Saga Board meeting, the Board of Directors meeting, I received a text from Matt Burgoyne. Matt serves as Saga's Director of Innovation and Growth and leads and oversees Saga's transformational digital strategy that you've heard so much about. We call it blended advertising. In the text, Matt shared with me an experience he and the team in one of our Saga markets were navigating through. And this single client represented an opportunity to win $1.3 million annually. Although this type of account is atypical, we refer to this type of customer as a whale. And whales, frankly, they're very complex beasts. Our opportunity to win this business was created in part by the failure of another broadcast company to deliver and fulfill the customer's needs and by the relationship our market manager had developed with this customer. The fact of the matter is they trusted us to perform. So long story short, the problems that existed with this poor performance of the campaign were not of our doing, but of the result of poor performance of other third-party providers the customer was using. Matt and his team provided an outline of the necessary changes needed and a roadmap on how to fix them. The customer left the meeting knowing their third-party providers were the problem. But more importantly, they now had a partner, a partner in Saga who knew how to identify the issues and how to fix them. In Matt's words, 'they trust us implicitly.' As they all left the meeting, the customer was talking about an additional campaign and advice they wanted us to put together for them. This account alone has the potential this time next year to be a $150,000 a month account. Most to 'no digital' could not have navigated this meeting. In fact, this client had already fired one broadcaster who knew digital. It is only because of Saga's training and teaching of its leaders and media advisers over the past 1.5 years that we could have even had a seat at the table to discuss this type of money let alone win the money and then coach the client on how to fix issues they were experiencing with other third-party providers. I read the entire text to our Board of Directors at this Saga Board of Directors meeting and their response was this: Chris, what do you and your team need to run faster and more efficiently. You see this as a Board who sees the opportunity and supports management's efforts to accomplish something that some have said can't be done. I guess we'll see. In a moment, Sam will share details of Saga's Q2 and 6-month 2025 performance. Are we delighted with where we are today? No, not at all. We should be doing better, but this isn't the '90s or early 2000s where you can see that a new grocery store chain is opened in your market. And you go out and sell a big schedule or report some antiquated promotion that has been done a hundred times and get a windfall of cash. It just doesn't happen that way. We are now playing in the modern ever-evolving digital age. It's now much more sophisticated and requires skills and abilities to play and to play fast, and we are extremely optimistic. We're looking ahead to the near future. As you know, Saga still has $27 million in cash and short-term investments on hand and has a plan that is being forged and gaining traction. Saga's digital culture continues to grow year-over-year, quarter-over-quarter, and month-to-month. In 2025, July is better than June, August is better than July, and September is better than August. Also, our digital percentage of total net revenue has also increased quarter-over-quarter from 13.6% to 15.6%. And recently, one of our few select third-party digital partners referred to Saga as one of their leading and fastest-growing digital channel partners. Recently, I heard a quote that I think is appropriate, not only for Saga but for everyone listening. It says, 'those forged by the fire of adversity become living symbols of unbreakable will.' Ladies and gentlemen, the traditional broadcast verticals that have carried us for years are challenged at best. And we're seeing signs that some of these traditional revenue verticals will return. But the degree to which they will return as well as the timing of those returns really remains to be seen. The truth is we have to sell our way out of this macro downdrift and refuse the urge to cut our way out where you're left with a shell of an organization with fewer people, fewer products, no process, no culture, and no performance. I've said it before, I'll say it again, money comes from customers. We're going to continue to produce great content that works and continue to provide service to the community and create an on-air atmosphere conducive to the success of our media partners. To do this, we must have talented, well-trained media advisers who are equipped to help these advertisers navigate through a fragmented and confusing marketplace where a gap exists when tech meets human behavior, a marketplace full of frustrated buyers with unmet needs, a marketplace with more available money than we've ever known and a marketplace that is ripe for disruption. This all takes time, money, commitment, and resolve like no other. So what do we need to go faster? Reduce unnecessary operating expenses to be more nimble, reinvest in research and development and in our people. To help support the efforts of our media advisers, continue to train our leaders and our media advisers to help them earn the trust of our advertising partners in the digital space, all the while continuing to bring value to our shareholders through accretive acquisitions, capital management, and capital allocation. I've often thought of Saga currently in its current state, in essence, as a cash-positive startup. We iterate and iterate again with speed, not wasting time or money, and we fail fast. And when we succeed, we reinvest to become even faster. We repeat the good and eliminate the not-so-good. By being nimble, it allows us in one of Saga's markets to experience material success like the example of the whale I cited earlier. We're able to push that success and process out to our other 26 Saga markets and do it, not now, but right now. Sam, I'm going to turn it back over to you.

Samuel D. Bush, CFO

Thank you, Chris. For the quarter that ended on June 30, 2025, net revenue decreased by $1.5 million or 5%, reaching $28.2 million, down from $29.7 million a year ago. Station operating expenses declined by $1.1 million or 4.6%, totaling $22.2 million for the three-month period. We reported an operating income of $1.4 million compared to $2.1 million last year. Station operating income, a non-GAAP measure, was $6 million for the quarter, down from $6.4 million for the same period last year. Capital expenditures were $1.3 million for the quarter, compared to $1.5 million in the second quarter of last year. Our net income for the quarter was $1.1 million, down from $2.5 million for the same period last year. On a same-station basis for the quarter ending June 30, 2025, net revenue fell by $1.9 million or 6.4% to $27.6 million, and station operating expense dropped by $1.5 million or 6.4% to $21.7 million. For the six-month period ending June 30, 2025, net revenue decreased by $2.6 million or 4.7%, amounting to $52.4 million compared to $55 million last year. Station operating expenses decreased by $1.6 million or 3.4%, totaling $44.2 million for the six-month period. We experienced an operating loss of $889,000 in this period, contrasting with an operating loss of $274,000 last year. Station operating income, again a non-GAAP measure, was $8.2 million for this period, down from $9.2 million a year prior. Capital expenditures were $2 million for the six-month period compared to $2.6 million for the same period last year. We reported a net loss of $447,000 for the six-month period, down from net income of $924,000 last year. On a same-station basis for the six months ending June 30, 2025, net revenue decreased by $3.6 million or 6.5% to $51.2 million, and station operating expenses decreased by 5.7% to $43 million. Notably, it was encouraging to see a 4.6% reduction in station operating expenses for the second quarter and a 3.4% decrease for the six-month period. This was largely driven by an increase in operating expenses of about $390,000 related to the Lafayette acquisition for the quarter and $1 million for the six-month period, combined with a decrease in same-station operating expenses by approximately $1.5 million for the quarter and $2.6 million for the six-month period. The reduction in same-station expenses was mainly attributed to cuts in compensation and compensation-related costs, along with digital services expenses as we have begun managing some digital ad placements in-house and reduced bad debt expenses. Corporate expenses rose by $70,000 for the quarter and $154,000 for the six months ending June 30, 2025. These figures included an expense of $89,000 in the quarter and $199,000 for the six-month period related to a potential proxy contest initiated by Saga's shareholder. Additionally, significant time was invested in addressing this issue. The drop in other operating expenses for the six months ended June 30, 2025, compared to the same period in 2024, is primarily due to the sale of a nonproductive AM station and two translators in Asheville, North Carolina, as well as the closure of a nonproductive AM station in Bellingham, Washington, in 2024. The reduction in other income results from a one-time gain in 2024 related to the sale of Saga's equity investment in BMI when it was sold. Beyond what Chris has mentioned, total interactive revenue saw a 7% increase for the quarter and a 10% increase for the six-month period, with profit margins at 58% for the quarter and 55% for the half-year, excluding sales commissions. Although still nascent in total dollar terms, our online news initiative revenue, which contributes to our interactive figures, grew by 26% for the quarter and 51% for the six-month period compared to 2024. E-commerce revenue, which is part of our local direct numbers, increased by 17% for the second quarter and is up 8% for the six-month period. For the third quarter, the current pace shows improvement over the first and second quarters' results, indicating we are pacing down about 1%. However, we have some positive developments this month, with September currently showing an increase of 1.5%. These figures can fluctuate daily. When excluding political revenue, we are pacing flat compared to last year for the third quarter. Last year, we recorded political revenue of $312,000, $287,000, and $680,000 in the first, second, and third quarters, respectively. The fourth quarter is poised to be more challenging from a political revenue perspective, with nearly $2 million generated in political revenue during the quarter in 2024. As Chris mentioned, our interactive pacing is strong for the third quarter, currently showing an increase of 40%. We are also observing improvements, though not fully as desired, in our traditional broadcasting revenue categories. For the third quarter, local direct is down 4.4%, local agency is down 0.8%, and national is the exception with a decline of 19.1%. However, national revenue seems to be arriving later in the quarter than it has in previous years. The company paid a quarterly dividend of $0.25 per share on June 27, 2025, with the total dividend amounting to approximately $1.6 million. To date, Saga has distributed over $138 million in dividends to shareholders since the first special dividend was issued in 2012, and we have repurchased over $58 million in Saga stock. As part of our broader capital allocation strategy for 2025, as mentioned in the press release, Saga has entered nonbinding negotiations to sell some of our tower sites. We anticipate these negotiations, if completed—which we expect they will be—could yield proceeds in the high seven-figure to low eight-figure range, closing before the end of the third quarter. We are also evaluating potential sales of other noncore assets, intending to utilize part of the proceeds for stock buybacks. We believe Saga is well-positioned financially to enhance profitability as our digital initiatives bolster both local radio and interactive revenue. The company's balance sheet shows $24.9 million in cash and short-term investments as of June 30, 2025, and $27.3 million as of August 4, 2025, as noted by Chris. We currently expect capital expenditures to fall between $3 million and $3.5 million for 2025. We also anticipate a decrease of 2% to 3% in station operating expenses compared to 2024, accounting for expense reductions and ongoing revenue initiatives. We project that our annual corporate general and administrative expenses will be around $12 million for 2025, down from $12.6 million in 2024. With that, Chris, I'll hand it back to you.

Christopher S. Forgy, President and CEO

Thank you, Sam. As a part of that significant expense reduction Sam referred to, we're bringing several of our third-party digital expenses in-house to save money, increase margins, and really to be more efficient. We're also selectively utilizing AI solutions for things like digital reconciliation of invoices and in the area of radio station voice and imaging, we are realizing $0.25 million in annual savings by using voice to voice AI versus the third-party production providers used previously. These two examples saved employees' jobs, money, and made us more efficient. So what's the plan? Speed, reiteration, reduced expenses, reinvestment, research and development, capital allocation, capital management, and growth. That's the plan. Thank you again for your time and interest and support of Saga Communications, what we believe to be the best media company on the planet. Sam, do we have any questions?

Samuel D. Bush, CFO

We did get a few questions, Chris. The first one, we did talk about Q3 pacing a little bit. And obviously, we will continue to let folks know as we see where pacing goes as we go into the future. Then we got the question, and you and I talked about this last week. It says in terms of your digital business, many continue to report strong indications for the growth of this business. And we've already reported today that we are seeing strong growth. We had strong growth in the second quarter, and we're seeing very strong pacing growth for the third quarter. There is a second part to this question. Are you seeing any impact from customers on the recent decline in search traffic? And are there any implications on lower eyeballs to sites?

Christopher S. Forgy, President and CEO

Well, I think part of that is a little bit of a misnomer, Sam. There aren't fewer searches being done, just more places to search. It's a little bit fragmented right now. And when a client goes searching, it's fragmented as they go on to search. Our goal is to make sure that we are there when they are searching and where they are searching. And we're committed to doing that, whether it's on Google, AI or social. We really want to meet them where they are.

Samuel D. Bush, CFO

Very good. The last question we received is, can we talk about capital allocations at this point? And I referred to that in my comments that we have looked at and are in nonbinding negotiations to sell some of our tower sites, and we expect proceeds from that sale to be in the high 7-figure or low 8-figure range. We have a number of other somewhat smaller potential sites that we are looking at as well as other opportunities to sell noncore assets. And we have committed at a Board level and to our shareholders that we are looking at what we will do with the proceeds from this and that some of the proceeds will go into stock buybacks as well as obviously continuing the quarterly dividend. And with that, Chris, I think we're good. And Paul, I'll turn it back over to you to wrap up.

Operator, Operator

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.

Samuel D. Bush, CFO

Thank you, Paul.