What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-09 · 57 added, 48 removed, 203 unchanged (34% of the section changed)

30 unchanged sentences

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes thereto of Saga Communications, Inc.

and its subsidiaries contained elsewhere herein and the audited financial statements and Management Discussion and Analysis contained in our annual report on Form 10-K for the year ended December 31, 2020.

and its subsidiaries contained elsewhere herein and the audited financial statements and Management’s Discussion and Analysis contained in our annual report on Form 10-K for the year ended December 31, 2020.

The following discussion is presented on a consolidated basis.

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COVID-19 Impact and Response

During the six months ended June 30, 2021, the effects of the COVID-19 pandemic and related actions by governments to attempt to contain the spread of the virus have continued to impact our business.

During the nine months ended September 30, 2021, the effects of the COVID-19 pandemic and related actions by governments to attempt to contain the spread of the virus have continued to impact our business.

Despite the development of vaccines and more effective treatments for the physical impacts of COVID-19, there are no reliable estimates of how long the COVID-19 pandemic, and its negative effect on our business, will last.

Therefore, the unpredictability of the current economic and public health conditions continues.

However, all of our markets are functioning at effectively full capacity, subject to ongoing health and safety protocols, which vary from state-to-state and we have begun to host our non-spot events again.

As we exited the second quarter of 2021, we remain optimistic about future advertising revenue.

However, all of our markets are functioning at effectively full capacity, subject to ongoing health and safety protocols, which vary from state-to-state and we have continued to increase the number of our non-spot events again.

As we exited the third quarter of 2021, we remain optimistic about future advertising revenue.

Additional information regarding all actions taken by the Company since the onset of the pandemic can be found in our audited financial statements and Management Discussion and Analysis contained in our annual report on Form 10-K for the year ended December 31, 2020.

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Most advertising contracts are short-term and generally run for a few weeks only.

The majority of our revenue is generated from local advertising, which is sold primarily by each radio markets’ sales staff.

For the six months ended June 30, 2021 and 2020, approximately 89% and 89%, respectively, of our radio station’s gross revenue was from local advertising.

The majority of our revenue is generated from local advertising, which is sold primarily by each radio market’s sales staff.

For the nine months ended September 30, 2021 and 2020, approximately 89% and 87%, respectively, of our radio stations’ gross revenue was from local advertising.

To generate national advertising sales, we engage independent advertising sales representative firms that specialize in national sales for each of our broadcast markets.

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We continue to create opportunities through targeted digital advertising and an array of digital services that include online promotions, mobile messaging, and email marketing.

During the six months ended June 30, 2021 and 2020 and the years ended December 31, 2020 and 2019, our Charleston, South Carolina;

During the nine months ended September 30, 2021 and 2020 and the years ended December 31, 2020 and 2019, our Charleston, South Carolina;

Columbus, Ohio;

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Net Operating Revenue

the Six Months Ended

the Nine Months Ended

for the Years Ended

September 30,

Charleston, South Carolina

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Norfolk, Virginia

During the six months ended June 30, 2021 and 2020 and the years ended December 31, 2021 and 2020, the radio stations in our five largest markets, when combined, represented approximately 39%, 56%, 49% and 43%, respectively, of our consolidated station operating income.

We note that the percentage of consolidated station operating income at June 30, 2020 and December 31, 2020 is higher than what would normally be expected due to the impact of the COVID-19 pandemic on our markets.

During the nine months ended September 30, 2021 and 2020 and the years ended December 31, 2020 and 2019, the radio stations in our five largest markets, when combined, represented approximately 39%, 52%, 49% and 43%, respectively, of our consolidated station operating income.

We note that the percentage of consolidated station operating income at September 30, 2020 and December 31, 2020 is higher than what would normally be expected due to the impact of the COVID-19 pandemic on our markets.

If the pandemic is resolved, we would anticipate results for each market to be back to normalized amounts in future years.

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Station Operating Income(*)

for the Six Months Ended

for the Nine Months Ended

for the Years Ended

September 30,

Charleston, South Carolina

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Operating income adjusted for corporate general and administrative expenses, depreciation and amortization, other operating (income) expenses, and impairment of intangible assets.

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Results of Operations

The following table summarizes our results of operations for the three months ended June 30, 2021 and 2020.

The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020.

Consolidated Results of Operations

Three Months Ended

September 30,

(In thousands, except percentages and per share information)

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N/M = Not Meaningful

For the three months ended June 30, 2021, consolidated net operating revenue was $28,046,000 compared with $16,866,000 for the three months ended June 30, 2020, an increase of $11,180,000 or 66.3%.

The increase in revenue in the second quarter of 2021 was attributable to lower-than-normal revenue in 2020 due to the COVID-19 pandemic.

We had increases in gross local revenue of $8,737,000, gross national revenue of $1,481,000, gross interactive revenue of $930,000, non-spot gross revenue of $541,000, gross political revenue of $141,000, and gross barter revenue of $111,000, partially offset by an increase in agency commissions of $842,000, from the second quarter of 2020.

The increases in gross local, national, and barter revenue and agency commissions occurred in the majority of our markets as a result of the impact of the COVID-19 pandemic and the disruption to our advertisers’ businesses in 2020, in contrast with the beginning of the economic recovery in the second quarter of 2021.

For the three months ended September 30, 2021, consolidated net operating revenue was $28,845,000 compared with $24,143,000 for the three months ended September 30, 2020, an increase of $4,702,000 or 19.5%.

The increase in revenue in the third quarter of 2021 was attributable to lower-than-normal revenue in 2020 due to the COVID-19 pandemic.

We had increases in gross local revenue of $3,945,000, gross interactive revenue of $1,139,000, non-spot gross revenue of $709,000, gross barter revenue of $205,000 and gross national revenue of $178,000, partially offset by a decrease in gross political revenue of $1,532,000, from the third quarter of 2020.

The increases in gross local revenue and agency commissions occurred in the majority of our markets as a result of the impact of the COVID-19 pandemic and the disruption to our advertisers’ businesses in 2020, in contrast with the economic recovery that has begun to take place in 2021.

The increase in gross interactive revenue is primarily due to an increase in our streaming and website content revenue.

The increase in non-spot gross revenue is primarily due to us starting to host events again in the second quarter of 2021, whereas the number of events that were being held in 2020 due to the COVID-19 pandemic was relatively very few.

The increase in gross political revenue was attributable to an increase at our Portland, Maine market, partially offset by fewer national, local and state elections in 2021 versus 2020 at our other markets.

Station operating expense was $21,017,000 for the three months ended June 30, 2021, compared with $18,652,000 for the three months ended June 30, 2020, an increase of $2,365,000 or 12.7%.

The increase in operating expense was primarily a result of increases in commission expense, healthcare costs, sales rating survey expenses, and music licensing fees, of $1,270,000, $500,000, $481,000 and $102,000, respectively, from the second quarter of 2020.

We had operating income for the three months ended June 30, 2021 of $4,615,000 compared to an operating loss of $8,659,000 for the three months ended June 30, 2020, an increase of $13,274,000.

The increase was a result of the increase in net operating revenue partially offset by the increase in station operating expense, noted above, a non cash impairment charge related to our broadcast licenses in the second quarter of 2020 of $3,757,000, a decrease in corporate general and administrative expenses of $576,000 and an increase in other operating income of $126,000.

The decrease in corporate general and administrative expenses was primarily attributable to decreases in non cash compensation expenses of $255,000, legal expenses of $81,000, compensation-related expenses of $55,000 and overall expense reductions of $185,000, respectively, from second quarter of 2020.

In the second quarter of 2021 we recorded a gain on the sale of fixed assets of $80,000 compared to a loss on the sale of fixed assets of $46,000 in the second quarter of 2020 in other operating (income) expense.

We generated net income of $3,253,000 ($0.54 per share on a fully diluted basis) during the three months ended June 30, 2021, compared to a net loss of $4,911,000 ($0.82 per share on a fully diluted basis) for the three months ended June 30, 2020, an increase of $8,164,000.

The increase in net income is primarily due to the increase in operating income, described above and an increase in income tax expense of $5,130,000.

The increase in non-spot gross revenue is primarily due to us starting to host events again in 2021, whereas the number of events that were being held in 2020 due to the COVID-19 pandemic was relatively very few.

The decrease in gross political revenue was attributable to fewer national, local and state elections in 2021 versus 2020 in the majority of our markets.

Station operating expense was $21,690,000 for the three months ended September 30, 2021, compared with $19,616,000 for the three months ended September 30, 2020, an increase of $2,074,000 or 10.6%.

The increase in operating expense was primarily a result of increases in sales rating survey expenses, commission expense, interactive services expenses, barter expenses, healthcare costs, bad debt expenses, and music licensing fees, of $511,000, $470,000, $328,000, $304,000, $232,000, $186,000 and $145,000, respectively, from the third quarter of 2020.

We had operating income for the three months ended September 30, 2021 of $4,619,000 compared to $247,000 for the three months ended September 30, 2020, an increase of $4,372,000.

The increase was a result of the increase in net operating revenue partially offset by the increase in station operating expense, noted above, a non-cash impairment charge related to our broadcast licenses in the third quarter of 2020 of $1,392,000, a decrease in corporate general and administrative expenses of $300,000 and an increase in other operating income of $52,000.

The decrease in corporate general and administrative expenses was primarily attributable to a decrease in non-cash compensation expenses of $270,000, from third quarter of 2020.

In the third quarter of 2021 we recorded a gain on the sale of fixed assets of $2,000 compared to a loss on the sale of fixed assets of $50,000 in the third quarter of 2020 in other operating (income) expense.

We generated net income of $3,454,000 ($0.58 per share on a fully diluted basis) during the three months ended September 30, 2021, compared to a net loss of $950,000 ($0.16 per share on a fully diluted basis) for the three months ended September 30, 2020, an increase of $4,404,000.

The increase in net income is primarily due to the increase in operating income, described above and an increase in other income of $279,000 and an increase in income tax expense of $245,000.

The increase in other income is related to a gain on insurance proceeds as described in footnote 13 other income.

The increase in our income tax expense is due to the increase in income before income tax.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Results of Operations

The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020.

The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020.

Consolidated Results of Operations

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages and per share information)

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N/M = Not Meaningful

For the six months ended June 30, 2021, consolidated net operating revenue was $50,347,000 compared with $42,917,000 for the six months ended June 30, 2020, an increase of $7,430,000 or 17.3%.

For the nine months ended September 30, 2021, consolidated net operating revenue was $79,192,000 compared with $67,060,000 for the nine months ended September 30, 2020, an increase of $12,132,000 or 18.1%.

The increase in revenue was attributable to lower-than-normal revenue in 2020 due to the COVID-19 pandemic.

We had increases in gross local revenue of $5,836,000, gross national revenue of $1,214,000, gross interactive revenue of $1,070,000, and non-spot gross revenue of $386,000 partially offset by a decrease in gross political revenue of $672,000 and an increase in agency commissions of $427,000, for the comparable period of 2020.

We had increases in gross local revenue of $9,774,000, gross interactive revenue of $2,206,000, gross national revenue of $1,391,000, and non-spot gross revenue of $1,088,000 partially offset by a decrease in gross political revenue of $2,206,000, for the comparable period of 2020.

The increase in gross local and national revenue occurred in the majority of our markets.

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The decrease in gross political revenue was attributable to less national, local and state elections in 2021 versus 2020.

The increase in agency commissions was due to the increase in gross revenue.

Station operating expense was $39,940,000 for the six months ended June 30, 2021, compared with $40,851,000 for the six months ended June 30, 2020, a decrease of $911,000 or 2.2%.

The decrease in operating expense was primarily result of decreases in compensation related expense, bad debt expense, depreciation and amortization expense and tower lease expense of $1,196,000, $588,000, $511,000 and $188,000, respectively partially offset by an increase in sales rating survey expenses and commission expense of $768,000 and $767,000, respectively for the comparable period of 2020.

We had operating income for the six months ended June 30, 2021 of $5,498,000 compared to an operating loss of $6,492,000 for the six months ended June 30, 2020, an increase of $11,990,000.

The increase was a result of the increase in net operating revenue and a decrease in station operating expense, noted above, and a non-cash impairment charge related to our broadcast licenses of $3,757,000 in 2020, a decrease in corporate general and administrative expenses of $1,153,000 partially offset by a decrease in other operating income of $1,261,000.

Station operating expense was $61,630,000 for the nine months ended September 30, 2021, compared with $60,467,000 for the nine months ended September 30, 2020, an increase of $1,163,000 or 1.9%.

The increase in operating expense was primarily the result of increases in sales survey expenses, and commission expenses, of $1,279,000, and $1,179,000, respectively, partially offset by a decrease in compensation related expense of $1,398,000 for the comparable period of 2020.

We had operating income for the nine months ended September 30, 2021 of $10,117,000 compared to an operating loss of $6,245,000 for the nine months ended September 30, 2020, an increase of $16,362,000.

The increase was a result of the increase in net operating revenue and partially offset by an increase in station operating expense, noted above, and a non-cash impairment charge related to our broadcast licenses of $5,149,000 in 2020, a decrease in corporate general and administrative expenses of $1,453,000 offset by a decrease in other operating income of $1,209,000.

The decrease in corporate general and administrative expenses was primarily attributable to decreases in non-cash compensation expenses of $751,000, legal expenses of $240,000, contribution expenses of $158,000, compensation-related expenses of $77,000 and overall expense reductions of $230,000, respectively, from the comparable period of 2020.

In the first quarter of 2020, we recorded the gain on the sale of a tower and a building on one of our tower sites in our Bellingham, Washington market of $1,400,000 in other operating (income) expenses.

We generated net income of $4,011,000 ($0.67 per share on a fully diluted basis) during the six months ended June 30, 2021, compared to a net loss of $3,231,000 ($0.54 per share on a fully diluted basis) for the six months ended June 30, 2020, an increase of $7,242,000.

The increase in net income is primarily due to the increase in operating income, described above, partially offset by an increase in income tax expense of $4,760,000.

We generated net income of $7,465,000 ($1.25 per share on a fully diluted basis) during the nine months ended September 30, 2021, compared to a net loss of $4,181,000 ($0.70 per share on a fully diluted basis) for the nine months ended September 30, 2020, an increase of $11,646,000.

The increase in net income is primarily due to the increase in operating income, described above, an increase in other income of $369,000 partially offset by an increase in income tax expense of $5,005,000.

The increase in other income is related to a gain on insurance proceeds as described in footnote 13 other income.

The increase in our income tax expense is due to the increase in income before income tax.

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On August 18, 2015, we entered into a new credit facility (the “Credit Facility”) with JPMorgan Chase Bank, N.A., The Huntington National Bank, Citizens Bank, National Association and J.P.

Morgan Securities LLC (collectively, the “Lenders”).

Morgan Securities LLC (collectively, the “Lenders”) pursuant to a credit agreement of even date (the “Credit Agreement”).

The Credit Facility consists of a $100 million five-year revolving facility (the “Revolving Credit Facility”) and originally matured on August 18, 2020.

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On May 11, 2020, as part of our reincorporation as a Florida corporation, we entered into an assumption agreement and amendment of loan documents.

On November 2, 2021, we elected to further reduce our Revolving Credit Facility to $50 million.

We have pledged substantially all of our assets (excluding our FCC licenses and certain other assets) in support of the Credit Facility and each of our subsidiaries has guaranteed the Credit Facility and has pledged substantially all of their assets (excluding their FCC licenses and certain other assets) in support of the Credit Facility.

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The cumulative transaction fees are being amortized over the remaining life of the Credit Facility.

Interest rates under the Credit Facility are payable, at our option, at alternatives equal to LIBOR (0.1250% at June 30, 2021), plus 1% to 2% or the base rate plus 0% to 1%.

Interest rates under the Credit Facility are payable, at our option, at alternatives equal to LIBOR (0.1250% at September 30, 2021), plus 1% to 2% or the base rate plus 0% to 1%.

The spread over LIBOR and the base rate vary from time to time, depending upon our financial leverage.

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We also pay quarterly commitment fees of 0.2% to 0.3% per annum on the unused portion of the Revolving Credit Facility.

The Credit Facility contains a number of financial covenants (all of which we were in compliance with at June 30, 2021) which, among other things, require us to maintain specified financial ratios and impose certain limitations on us with respect to investments, additional indebtedness, dividends, distributions, guarantees, liens and encumbrances.

We had approximately $60 million of unused borrowing capacity under the Revolving Credit Facility at June 30, 2021.

The Credit Facility contains a number of financial covenants (all of which we were in compliance with at September 30, 2021) which, among other things, require us to maintain specified financial ratios and impose certain limitations on us with respect to investments, additional indebtedness, dividends, distributions, guarantees, liens and encumbrances.

On October 27, 2021, we used $10 million from funds generated by operations to voluntarily pay down the remaining amount on our Revolving Credit Facility, which was presented in the current portion of long-term debt on our balance sheet at September 30, 2021.

We had approximately $60 million of unused borrowing capacity under the Revolving Credit Facility at September 30, 2021.

Sources and Uses of Cash

During the six months ended June 30, 2021 and 2020, we had net cash flows from operating activities of $9,203,000 and $8,319,000, respectively.

We believe that cash flow from operations will be sufficient to meet quarterly debt service requirements for interest and payments of principal under our Credit Facility.

During the nine months ended September 30, 2021 and 2020, we had net cash flows from operating activities of $13,905,000 and $8,206,000, respectively.

We believe that cash flow from operations will be sufficient to meet quarterly debt service requirements for payments of interest and principal under our Credit Facility.

However, if such cash flow is not sufficient we may be required to sell additional equity securities, refinance our obligations or dispose of one or more of our properties in order to make such scheduled payments.

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In March 2013, our board of directors authorized an increase to our Stock Buy-Back Program (the “Buy-Back Program”) to allow us to purchase up to $75.8 million of our Class A Common Stock.

From its inception in 1998 through June 30, 2021, we have repurchased 2.2 million shares of our Class A Common Stock for $57 million.

During the three and six months ended June 30, 2021, we did not repurchase any shares related to the Buy-Back Program.

From its inception in 1998 through September 30, 2021, we have repurchased 2.2 million shares of our Class A Common Stock for $57 million.

During the three and six months ended September 30, 2021, we did not repurchase any shares related to the Buy-Back Program.

Given the unprecedented uncertainty surrounding the COVID-19 virus and the resulting economic issues we have halted the directions for any additional buybacks under our plan.

Our capital expenditures, exclusive of acquisitions, for the six months ended June 30, 2021 were $1,455,000 (versus $1,379,000 in 2020).

Our capital expenditures, exclusive of acquisitions, for the nine months ended September 30, 2021 were $2,687,000 ($1,880,000 in 2020).

We anticipate capital expenditures in 2021 to be approximately $4.0 million to $4.5 million, which we expect to finance through funds generated from operations.

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Management attributes the goodwill recognized in the acquisition to the power of the existing brands in the Manchester, New Hampshire market as well as synergies and growth opportunities expected through the combination with the Company’s existing stations.

On September 28, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.16 per shares on its Classes A and B Common Stock.

This dividend, totaling approximately $960,000, was paid on October 22, 2021 to shareholders of record on October 8, 2021 and was recorded in dividends payable on the Company’s Condensed Consolidated Balance sheet at September 30, 2021.

On June 18, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.16 per shares on its Classes A and B Common Stock.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis