Saga munications(SGA) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section covers the company's unaudited financial statements, management's analysis, market risk, and internal controls Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income, equity, and cash flows, with detailed notes Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity for the specified periods Condensed Consolidated Balance Sheets (In thousands) | Metric (In thousands) | Sep 30, 2019 | Dec 31, 2018 | | :-------------------- | :----------- | :----------- | | Cash and cash equivalents | $41,072 | $44,729 | | Total current assets | $63,440 | $68,595 | | Total assets | $248,999 | $248,477 | | Total current liabilities | $17,206 | $23,165 | | Long-term debt | $10,000 | $15,000 | | Total liabilities | $58,596 | $63,478 | | Total stockholders' equity | $190,403 | $184,999 | - Total assets increased slightly to $248,999 thousand as of September 30, 2019, from $248,477 thousand at December 31, 2018[9] - Total liabilities decreased to $58,596 thousand as of September 30, 2019, from $63,478 thousand at December 31, 2018, primarily due to a reduction in current portion of long-term debt[9] Condensed Consolidated Statements of Income This section presents the company's financial performance, including revenue, operating income, and net income for the specified periods Condensed Consolidated Statements of Income (In thousands, except per share data) | Metric (In thousands, except per share data) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net operating revenue | $31,274 | $31,648 | $91,281 | $91,891 | | Operating income | $4,801 | $5,321 | $13,374 | $13,673 | | Net income | $3,334 | $3,695 | $9,438 | $9,395 | | Basic earnings per share | $0.56 | $0.62 | $1.59 | $1.58 | | Diluted earnings per share | $0.56 | $0.62 | $1.59 | $1.58 | | Dividends declared per share | $0.30 | $0.30 | $0.90 | $0.90 | - Net operating revenue decreased by 1.2% for the three months ended September 30, 2019, and by less than 1% for the nine months ended September 30, 2019, compared to the same periods in 2018[12] - Net income decreased by 9.7% for the three months ended September 30, 2019, but increased by 0.5% for the nine months ended September 30, 2019, year-over-year[12] Condensed Consolidated Statements of Stockholders' Equity This section presents changes in stockholders' equity, including net income, dividends, and share repurchases for the specified periods Condensed Consolidated Statements of Stockholders' Equity (In thousands) | Metric (In thousands) | Balance at Dec 31, 2018 | Balance at Sep 30, 2019 | | :-------------------- | :---------------------- | :---------------------- | | Total Stockholders' Equity | $184,999 | $190,403 | | Net income (9 months) | N/A | $9,438 | | Dividends declared per common share (9 months) | N/A | ($5,349) | | Purchase of shares held in treasury (9 months) | N/A | ($603) | - Total stockholders' equity increased from $184,999 thousand at December 31, 2018, to $190,403 thousand at September 30, 2019[15][16] - The company declared regular cash dividends of $0.30 per share for each quarter in 2019, totaling $0.90 per share for the nine months ended September 30, 2019[15][16] Condensed Consolidated Statements of Cash Flows This section presents the company's cash flows from operating, investing, and financing activities for the specified periods Condensed Consolidated Statements of Cash Flows (In thousands) | Metric (In thousands) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------- | :-------------------------- | :-------------------------- | | Cash provided by operating activities | $18,968 | $18,167 | | Net cash used in investing activities | ($5,180) | ($4,124) | | Net cash used in financing activities | ($17,445) | ($18,279) | | Net decrease in cash and cash equivalents | ($3,657) | ($4,236) | | Cash and cash equivalents, end of period | $41,072 | $48,794 | - Cash provided by operating activities increased to $18,968 thousand for the nine months ended September 30, 2019, from $18,167 thousand in the prior year[18] - Net cash used in investing activities increased to $5,180 thousand, primarily due to the acquisition of broadcast properties in 2019[18] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the financial statements, covering key accounting policies and significant items 1. Summary of Significant Accounting Policies This section outlines the key accounting principles and policies used in preparing the financial statements - The financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions[21] - The company owns or operates broadcast properties in 27 markets, including 79 FM and 34 AM radio stations[23] Earnings Per Share Information This section details the calculation of basic and diluted earnings per share, using the two-class method - Earnings per share is calculated using the two-class method, allocating earnings to common shares and participating securities (restricted stock units)[26] Earnings Per Share Information (In thousands, except per share data) | Metric (In thousands, except per share data) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income available to common stockholders | $3,273 | $3,632 | $9,265 | $9,235 | | Basic earnings per share | $0.56 | $0.62 | $1.59 | $1.58 | | Diluted earnings per share | $0.56 | $0.62 | $1.59 | $1.58 | Financial Instruments This section discusses the fair value of the company's financial instruments, including cash, receivables, payables, and long-term debt - The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and long-term debt approximates fair value due to short maturities or prevailing market interest rates[29] Income Taxes (Effective Tax Rate) This section explains the company's effective tax rate and its components, including the impact of state taxes - The company's effective tax rate is higher than the federal statutory rate due to the inclusion of state taxes[30] Time Brokerage Agreements/Local Marketing Agreements This section clarifies the accounting treatment for revenue and expenses derived from Time Brokerage Agreements and Local Marketing Agreements - Revenue and expenses related to Time Brokerage Agreements (TBAs) or Local Marketing Agreements (LMAs) are included in the condensed consolidated statements of income[31] 2. Recent Accounting Pronouncements This section discusses the adoption of new accounting standards, including ASU 2016-02 on Leases, and the evaluation of other pronouncements - The company adopted ASU 2016-02, 'Leases (Topic 842)', on January 1, 2019, recording approximately $6.7 million in right-of-use assets and lease liabilities, with no impact on retained earnings or cash flows[32] - The company is evaluating ASU 2017-04 (Goodwill Impairment) and ASU 2016-13 (Credit Losses) but does not expect a material impact from ASU 2017-04[34][35] 3. Revenue This section details the company's revenue recognition policies and disaggregates revenue by source for the specified periods - The company adopted Topic 606, 'Revenue from Contract with Customers', on January 1, 2018, with no impact on financial statements[36] Revenue by Type (in thousands) | Type of Revenue (in thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :----------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Broadcast Advertising Revenue, net | $28,562 | $28,895 | $83,245 | $84,451 | | Digital Advertising Revenue | $879 | $936 | $2,769 | $2,887 | | Other Revenue | $1,833 | $1,817 | $5,267 | $4,553 | | Net Revenue | $31,274 | $31,648 | $91,281 | $91,891 | - Primary revenue sources are broadcast advertising (recognized upon airing), digital advertising (recognized when performance obligation takes place), and other revenue (from concerts, events, tower rent)[38][39][40] 4. Intangible Assets This section describes the company's intangible assets, including FCC licenses and goodwill, and their impairment and amortization policies - FCC licenses and goodwill are evaluated for impairment annually as of October 1 or more frequently if circumstances indicate impairment[45] - Intangible assets with finite lives (favorable lease agreements, other intangibles, customer relationships) are amortized using the straight-line method over their useful lives (1 to 26 years)[46] 5. Common Stock and Treasury Stock This section details the company's common stock and treasury stock activities, including the Stock Buy-Back Program and share repurchases - The company has a Stock Buy-Back Program with $19.8 million remaining authorization for future repurchases of Class A Common Stock as of September 30, 2019[47] Common Stock and Treasury Stock Repurchases (in thousands) | Period | Shares Repurchased | Amount (in thousands) | | :----- | :----------------- | :-------------------- | | 3 months ended Sep 30, 2019 | 9,600 | $276 | | 9 months ended Sep 30, 2019 | 20,700 | $603 | | 3 months ended Sep 30, 2018 | 20,100 | $748 | | 9 months ended Sep 30, 2018 | 34,600 | $1,295 | 6. Leases This section details the company's lease accounting, including right-of-use assets, lease liabilities, and future payments - Right-of-use (ROU) assets and lease liabilities were $6.0 million and $6.1 million, respectively, at September 30, 2019[51] - Total lease expense for the three and nine months ended September 30, 2019, was $420 thousand and $1,272 thousand, respectively[52] Future Lease Payments (in thousands) | Years Ending December 31, | Total Lease Payments (in thousands) | | :------------------------ | :---------------------------------- | | 2019 (remaining) | $418 | | 2020 | $1,524 | | 2021 | $1,390 | | 2022 | $1,205 | | 2023 | $864 | | Thereafter | $1,889 | | Total lease payments | $7,290 | | Less: Interest | $1,156 | | Present value of lease liabilities | $6,134 | 7. Acquisitions and Dispositions This section outlines the company's acquisition activities, including details of broadcast property purchases and their pro forma financial impact - On January 9, 2019, the company acquired WFAT and W222CH for $210 thousand, attributing goodwill to existing brands and expected synergies[57][141] - On December 31, 2018, the company closed on the acquisition of WOGK-FM, WNDT-FM, WNDD-FM, and WNDN-FM for $9.3 million, funded by operations[58][142] Pro Forma Results (in thousands, except per share) | Pro Forma Results (in thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net operating revenue | $31,274 | $32,772 | $91,281 | $95,220 | | Net income | $3,334 | $3,858 | $9,438 | $9,870 | | Basic EPS | $0.56 | $0.65 | $1.59 | $1.66 | 8. Income Taxes (Tax Cuts and Jobs Act) This section discusses the impact of the Tax Cuts and Jobs Act on the company's income taxes, including the provisional net tax benefit recorded - The company recorded a provisional net tax benefit of $11.5 million in 2017 due to the Tax Cuts and Jobs Act, with no material adjustments required in 2018[69] 9. Stock-Based Compensation This section details the company's stock-based compensation plan, including amendments, authorized shares, and related expenses - The Second Amended and Restated 2005 Incentive Compensation Plan was amended in 2018, extending the award date to September 6, 2023, and increasing authorized shares[70] Stock-Based Compensation Expense (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2018 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total compensation expense related to restricted stock | $532 | $1,656 | $571 | $1,675 | | Associated tax benefit | $51 | $176 | $66 | $191 | 10. Long-Term Debt This section provides information on the company's long-term debt, including its revolving credit facility, borrowing capacity, and voluntary paydowns Long-Term Debt (In thousands) | Metric (In thousands) | Sep 30, 2019 | Dec 31, 2018 | | :-------------------- | :----------- | :----------- | | Revolving credit facility | $10,000 | $20,000 | | Amounts payable within one year | $0 | $5,000 | | Total Long-Term Debt | $10,000 | $15,000 | - The company's revolving credit facility was reduced to $70 million on July 1, 2019, and had $60 million of unused borrowing capacity at September 30, 2019[75][130][82][136] - Voluntary paydowns of $5 million each were made on the Revolving Credit Facility in February and June 2019, using funds generated from operations[80][81][134][135][147] 11. Litigation This section addresses legal proceedings, with management anticipating no material impact on the company's financial statements - Management anticipates that potential liability from various outstanding claims in the ordinary course of business will not materially affect the company's financial statements[83] 12. Dividends This section details the dividends declared by the Board of Directors, including regular and special cash dividends per share - The Board of Directors declared regular cash dividends of $0.30 per share on Class A and B Common Stock in September, May, and February 2019, each totaling approximately $1.8 million[85][86][87][143][144][145] - A quarterly cash dividend of $0.30 per share and a special cash dividend of $0.25 per share were declared in November 2018, totaling approximately $3.3 million[88][146] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition and results of operations, detailing revenue, expenses, liquidity, capital resources, and forward-looking statements Results of Operations This section analyzes the company's financial performance, focusing on changes in net operating revenue, operating income, and expenses - Consolidated net operating revenue decreased by $374 thousand (1.2%) for the three months and $610 thousand (less than 1%) for the nine months ended September 30, 2019, compared to 2018[114][122] - Operating income decreased by $520 thousand (9.8%) for the three months and $299 thousand (2.2%) for the nine months ended September 30, 2019[116][124] Results of Operations (in thousands, except per share) | Metric (in thousands, except per share) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net operating revenue | $31,274 | $31,648 | $91,281 | $91,891 | | Station operating expense | $23,600 | $23,429 | $69,642 | $69,966 | | Operating income | $4,801 | $5,321 | $13,374 | $13,673 | | Net income | $3,334 | $3,695 | $9,438 | $9,395 | | Diluted EPS | $0.56 | $0.62 | $1.59 | $1.58 | - Same station gross local revenue decreased by $847 thousand (3 months) and $1,764 thousand (9 months), while gross political revenue decreased by $390 thousand (3 months) and $926 thousand (9 months) due to fewer elections[114][122] - Station operating expense increased by $171 thousand (less than 1%) for the three months but decreased by $324 thousand (less than 1%) for the nine months, primarily due to decreases in healthcare costs and commissions[115][123] General Business Overview This section provides an overview of the company's broadcast operations, primary revenue sources, and key market contributions - The company is a broadcast company primarily engaged in acquiring, developing, and operating broadcast properties, owning or operating 79 FM and 34 AM radio stations in 27 markets[95] - The primary source of revenue is from the sale of advertising, with approximately 89% of radio segment's gross revenue from local advertising for the nine months ended September 30, 2019[96][97] - Five largest markets (Columbus, Des Moines, Manchester, Milwaukee, Norfolk) represented approximately 38% of consolidated net operating revenue and 44% of consolidated station operating income for the nine months ended September 30, 2019[108][109] Forward-Looking Statements This section highlights that forward-looking statements are subject to various risks and uncertainties, including financial, operational, and external factors - Forward-looking statements are subject to risks and uncertainties, including financial leverage, dependence on key personnel/stations, economic conditions, ability to integrate acquisitions, regulatory requirements, new technologies, natural disasters, and terrorist attacks[127] Liquidity and Capital Resources This section discusses the company's liquidity and capital resources, including its credit facility, cash flows, capital expenditures, and share repurchases - The company's Credit Facility was amended in June 2018, extending the maturity date to June 27, 2023, and the revolving credit facility was reduced to $70 million on July 1, 2019[130] - Net cash flows from operating activities were $18,968 thousand for the nine months ended September 30, 2019, an increase from $18,167 thousand in 2018[138] - Capital expenditures for 2019 are anticipated to be $5.5 million to $6.0 million, expected to be financed through funds generated from operations[140] - The company repurchased 20,700 shares of Class A Common Stock for $603 thousand during the nine months ended September 30, 2019, under its Stock Buy-Back Program[139] Summary Disclosures About Contractual Obligations and Commercial Commitments This section summarizes the company's contractual cash obligations and commercial commitments, outlining their expected financing sources - Contractual cash obligations are expected to be financed through funds generated from operations or additional borrowings under the Credit Facility[150] Critical Accounting Policies and Estimates This section confirms no significant changes to the company's critical accounting policies and estimates since the prior annual report - There have been no significant changes to the company's critical accounting policies and estimates since the Annual Report on Form 10-K for the year ended December 31, 2018[151] Recent Accounting Pronouncements (MD&A Reference) This section refers to Note 2 of the financial statements for details on recent accounting pronouncements - Recent accounting pronouncements are described in Note 2 to the accompanying financial statements[152] Inflation This section addresses the impact of inflation on the company's operations, noting that it has not been significant to date - The impact of inflation on the company's operations has not been significant to date[153] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section refers to the Annual Report on Form 10-K for market risk disclosures, noting no material changes since that report - There have been no material changes to the market risk information included in the 2018 Annual Report on Form 10-K[154] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The company's disclosure controls and procedures were effective as of September 30, 2019[155] - No material changes occurred in the company's internal controls over financial reporting during the quarter ended September 30, 2019[155] PART II OTHER INFORMATION This section covers other information not included in the financial statements, such as legal proceedings, equity sales, exhibits, and official signatures Item 1. Legal Proceedings This section addresses legal proceedings, with management anticipating no material impact on the company's financial statements from current claims - Management anticipates that any potential liability from various outstanding claims in the ordinary course of business will not materially affect the company's financial statements[157] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's repurchases of Class A Common Stock under its Stock Buy-Back Program during the third quarter of 2019 Class A Common Stock Repurchases (in thousands) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet be Purchased Under the Program | | :----- | :------------------------------- | :--------------------------- | :--------------------------------------------------------------------------- | | July 1 – July 31, 2019 | — | $— | $20,079,838 | | August 1 – August 31, 2019 | 8,679 | $28.80 | $19,829,876 | | September 1 – September 30, 2019 | 905 | $28.52 | $19,804,062 | | Total | 9,584 | $28.78 | $19,804,062 | - The company repurchased 9,584 shares of Class A Common Stock for an average price of $28.78 per share during the three months ended September 30, 2019[159] - As of September 30, 2019, approximately $19.8 million remained authorized for future repurchases under the Stock Buy-Back Program[159] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and XBRL documents - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer pursuant to the Securities Exchange Act of 1934 and Sarbanes-Oxley Act of 2002[161][163] - XBRL Instance, Schema, Calculation, Definition, Labels, and Presentation Linkbase Documents are also filed as exhibits[163] Signatures This section contains the official signatures of authorized officers, Samuel D. Bush and Catherine A. Bobinski, certifying the report - The report was signed on November 12, 2019, by Samuel D. Bush, Senior Vice President and Chief Financial Officer, and Catherine A. Bobinski, Senior Vice President, Chief Accounting Officer and Corporate Controller[166]