Ed Christian - President and CEO Sam Bush - Senior Vice President and CFO.

Analysts:.

Ladies and gentlemen, thank you for standing by. And welcome to the Fourth Quarter and Year Ending Earnings Call. During the call all lines will be in a listen-only mode. [Operator Instructions] And today’s call is being recorded. I’d now like to turn the conference over to Ed Christian, President and CEO of Saga Communications. Please go ahead..

Yeah. As we have some open lines, sounds like we have some open lines..

We’ll get those closed for you..

Thank you. Still some..

Yeah. I’ve set off sir..

Thank you. Hello and welcome. It’s 11 o’clock. Sam Bush is ready to start. I am Ed Christian and I will be back after Mr. Bush’s marvelous presentation..

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 are attached in the selected financial data table. During the fourth quarter 2016, historical net revenue increased 4.7%.

Adjusting for same station, net revenue increased 2.9%. Gross political revenue for the quarter was $3.3 million compared to $929,000 for the fourth quarter in 2015. All $929,000 for the quarter in 2015 was radio. For the 2016 quarter, radio was $1.9 million, while television was $1.4 million.

For the year ended December 31, 2016, historical net revenue increased 7.3%. Adjusting for same station, net revenue increased 3%. Gross political revenue for the year was $6.7 million compared to $1.3 million for the same period in 2015. All the $10,000 of 2015 political revenue was radio.

For the full year 2016, radio was $3.8 million and television was $2.9 million. I should remind you that when you are comparing 2016 to 2015 year-end numbers, we reported $1.4 million of other operating income in the third quarter of 2016 as a result of our selling a tower in the Norfolk, Virginia market, SBA towers for $1.6 million.

We also entered into an extremely favorable long-term lease on the tower. Keep in mind that relative to the same station and historical comparison, we closed on the bulk of our Harrisonburg acquisition on August 1, 2015, with the final piece closing on September 1, 2015.

So Harrisonburg was fully reported in our historical numbers with the fourth quarter. We started operating our acquisition of WLVQ in Columbus through an LMA on November 1, 2015, so it was still a part of the same station historical reporting in fourth quarter and for the year.

National accounting for approximately 11.2% of gross revenue for the quarter compared to 11.4% for the quarter in 2015. During the fourth quarter 2016, our Board of Directors declared a $0.30 per share quarterly cash dividend with a record date of December 5, 2016, and a payment date of December 23, 2016.

This is our 11th straight quarterly cash dividend, the first six at $0.20 per share, followed by three at $0.25 per share and now two at $0.30 per share. This brings the total dividends paid including the special dividends over the last five years to almost $42 million.

During the first quarter of 2017, our Board of Directors declared another $0.30 per share quarterly dividend with a record date of March 28, 2017 and a payment date of April 14, 2017. We intend to pay regular quarterly cash dividends in the future, as well as considering special cash and stock dividends as declared by our Board of Directors.

At the end of 2016 we had $36.4 million debt outstanding. Cash on hand at the end of 2016 was $26.6 million. Currently we have cash on hand of approximately $30.8 million. Retrans revenue was $1.2 million in the quarter, up from $1.1 million for the quarter in 2015. Retrans payments to the networks were $262,000 compared to $244,000 in 2015.

Capital expenditures were $712,000 for the quarter in 2016 compared to $1.1 million in 2015 and $4.9 million for the year in 2016 compared to $5.5 million for the year in 2015. We currently expect our CapEx for 2017 to be between $5 million and $5.5 million.

Pacing is always a bit uncertain these days but currently we anticipate first quarter revenue to be down low-single digits. We expect station operating expenses to be up 2% to 3% on an historical basis for 2017. We expect interest expense for 2017 to be between $800,000 and $900,000 given the existing interest rate environment.

Our anticipated total tax rate going forward will be between 40% and 41%. We anticipate deferred taxes for 2017 to be between $3.2 million and $3.4 million. And with that, I will turn it back over to you, Ed..

Sam, thank you very much. And I really only have one request right now. Maybe you can be Mr. Peabody and I will be Sherman and we can step into the way back machine and we can make those 2016 again..

I always like this, Ed, and if I could I would definitely do that..

I think, yeah, it was really a great job and we won’t go into the greater and everything else that happen, but it was one of my favorite shows, being a revision as to history it was always fun. It was very nice year and I am thankful to everything that happened. Business was good. Political was appreciated.

And by the way, I was thinking about that, I mean, number that when several years ago, number of years ago, when I was said that they are going to have a caucus ahead of New Hampshire.

I said, I just got out, because it actually kind of it is like the golden egg for political money and but I want to thank all the candidates for stopping by the caucus in Iowa, because it was very helpful for Iowa and very helpful in New Hampshire we tried to have to them, maybe good for us for the year.

As I said, business was good and Sam told you, Sam said that Harrisonburg and Columbus are up and running, excellent radio stations and very good markets. Can we do this again in 2017 we don’t have any political, so that does make a difference. Sam did a very good summary on last quarter. So let’s take quite moment. Thank you for the quite moment.

And let’s talk about 2017 and our future. Sam touched on it, but candidly Q1, especially January was a cold weather wake up call, it wasn’t just for us, but for business in general and it was painful for broadcasters. Our business wasn’t there or broke late and I will tell you very late, it was just, I mean, like stereo late at time.

Certain sectors pulled back in January such as automotives, big chunks from car stores were missing along with medical to the categories. I did notice in January that car payment defaults were up substantially by the way and that perhaps was indicative of two easy credit for buyers kind of the many repeat of the housing boom.

Now I believe that’s been quickly corrected and hopefully we will see -- we are seeing signs, we will see, but we are seeing signs from car stores, car stores spending will return. The Q1 could actually, probably, be down in single digits as Sam said and that’s something we could tell you that before.

I think January was the one that was start reality. March I heard from our managers is coming on line very quickly, so let’s keep our fingers crossed. By the way this isn’t all the sign of as Sam and I’ve had candid conversations and remarks with other broadcasters and this is country-wide.

It will be interesting to watch other companies let announce and I think you will see that the patterns is going to establish that this is what we are seeing right now in the industry. Now, I am alarmed, I am not ringing the belling and shouting alert, alert, okay. It’s not 2008, but it is time to be somewhat watchful. Cars stores I understand that.

Medical I think is probably really by the two uncertainties in legislation, but we are watching this very much. So but there are very good signs too and I think that something we need to focus on for a bit. Home improvement, big category for us, it’s holding its own. In a number of cases it’s up. Lastly for instance rose of spend Home Depot in radio.

Those were about 40,000 radio commercials in the week countrywide, making it the certain largest radio spender. Home Depot was number five and they have about 28,600 spots running last week nationally. Big jump in national for the week was Walgreens up to ninth from 99th and Diaco continue to believe in radio, 46,684 radio spots last week.

So, obviously, on the national side radio still working for advertisers. But I do you see kind of divide coming, certain national retailers are getting stronger and bottom two is falling out.

Now, usually that’s good management and good branding and advertizing and it is winning with smaller national companies that don’t have scale and momentum are getting hurt. Categories in the store count they are both impressive. I believe our cash in good share but we are subject to market swings.

I really do think 2017 will be okay and I do wish that momentum will return and that we can’t get that small and sustainable growth. Now don’t take this [inaudible] (10:37), okay, because business is still good for our industry. It does require more focus and dedication and it’s also going to require more grip on what we control.

At Saga, we are revaluating operational strategies and seeking greater areas of efficiency. Right now for instance we are reviewing the metrics for goal setting and achieving levels to our management team. We do need and we think our structural and operational levels without causing damage to our marketing image and infrastructure.

Let me say that for industry because you are currently start to see that in the industry everybody is kind of say, how can we do this better but maybe a little bit more efficient in what we do, we are having this conversation for lot recently.

When you see measured if not modest growth for 2017 and our most important product categories will not be reshaped. For instance let me talk about this restaurant, we also do pretty well in restaurant sales. They are projected to be this year $800 billion in 2017 and that’s up from $766 billion.

But the growth is coming in quicker and convenience way of options, much more so than full-service. The quicker and convenience options are projected to be up 2.5% and a lot of it in Southeast, which is interesting, Midwest not so much. We also have kind of targeted in on the Southeast as a growth opportunity area for Saga to really invest in it.

And speaking of growth, we were talked about two market acquisitions we did last year and I should mention that answering about three days ago we took over operational control of WUVA in Charlottesville, Virginia, little stroke here, the call notes and we have SEC approval. The transaction has been approved.

It has been finalized by the SEC and we are just waiting for closing which should occur very quickly.

And the call dates will be changed as our agreement with the broadcasting and group had the radio station which was kind of the alumni option from the University of Virginia that we will not return WUVA call letters upon closing it will be [ph] WCDL-FM (13:14) for Charlottesville.

CVille is the word that is used as a substitute for Charlottesville throughout the marketplace and so we are fortunate we get very good call letters for this country and its 90 into that country and see the country what we are branding in that sense. We are right now running 10,000 commercial free to get our footprint establish in the marketplace.

I think it should be very nice addition. We will then have four FMs and two AMs in Charlottesville, Virginia. We have also identified several other opportunities that I am working at right now and we have the dry power to accomplish them with our reserves. Sam mentioned currently we are sitting at above $30.8 million.

So that we can do this some reserves so not having to go back and extend our [inaudible] (14:11) really have this much or [inaudible] (14:14) we usually like that we will have $5 million to $7 million just to run the company and the rest can be use for the dividends, anything else for the Board looks at until the acquisition.

Acquisitions, definitely on our forefront, but we are -- we spend a lot of time, we are very measured and very research-oriented in terms of what we do at the forefront. We certainly analyze our transaction. Very quickly we don’t agonize over.

We have the final refine what we do and we are also patience and patience has always been a virtue for us in terms of being able to find the right properties to add, WLVA was one that we responded to very quickly. It was efficiently managed. It’s in. We are operating so much to this right now.

We have done a lot and still maintain our main studios and it’s going to be bit of investment for the company. For those of you who interested in Saga, I just want to thank you for your trust.

I mean, I do that sincerely we have number of long-term holders who have watched us grow in measured way and but we reward with our dividends and for those you on the call who are new to Saga, pick up the phone and call Sam or me. We are [inaudible] (15:49) questions when it comes to this.

We would love to discuss radio and broadcasting, television or whatever and discuss the dynamics and especially the challenges in broadcasting we have, but those of you that know us just don’t hold back on that thought, we are very open and accessible. And with that, Sam, do we have any questions..

I think, most of them we have already answered as we typically, but the one that did come was from one of our shareholders. Given the nature of some of the transactions we are seeing specifically referring to the Intercom, CBS and the Beasley deals.

How do you think -- how does that think about transformative deals both for the industry and for Saga?.

Well, I think, certainly we are -- it’s going to because we went through this dry power so long where there were really needing acquisitions done and I think that’s changing up.

It’s also interesting to note that couple of weeks ago and it wasn't really need a big deal, but I think, it’s a something it should be watch and observe and that is the commission first time approved 100% ownership, foreign ownership of radio stations. I have to do recently it’s been limited to 25% or so.

But several weeks ago they approved a couple of who owned minority interest in stations in Alaska and also in Texas, and allowed -- and they are Australian, so allowed them to increase to 100% ownership. Now that's presidential in terms of what it might be.

So we could be looking at a lot of intrusion foreign money into broadcasting in U.S., because now we have a President who established on that. That’s something to park on the side and think about it. It don’t happen substantially. Also there’s been a lot of conversation since the new chairman got into the SEC. We are leasing broadcast holdings.

The – I am really going to start new business if there was, you look at 7 AMs and several FMs and that was them, then we have the 14 radio stations and then we came into a number of years ago just opening the market up to, we could have up to six and seven stations in the marketplace. No more than five in one service in a very large markets.

And now, there is very serious talk about removing the market caps and really changing things about. Well, where that will be, I don’t know, and I don’t know, how long it will take. But I certainly do see as we have watched in other industries, airlines, whatever it might be, it were going down of the field and stations more in their mainstream focus.

Our saying is we market. There is no question about that. We are -- we like to provide below the radar and above the weather, so those are two things that we look at. But seeing else going into big markets, no, that’s not in our DNA, that’s not really what we do.

We like the middle science markets and we feel that we have the ability to really have more bulk control in those markets. So I do see more consolidation coming. I do see some smaller players or the private equity firms actually might be getting out in some respects and it will be interesting to see what happens right now.

We are in the transformative time and the City of Silicon playing -- shows a tremendous amount of confidence in the industry by the field [inaudible] (19:30) and intercom, because I know that this has been kind of on their radar scope to try and accomplish for number of years now.

And yes, I think, there is going to be some follow-up from some companies that got ahead of themselves in terms of structure and got number of years ago, I think, that’s going to have to be reworked and I think it will be opportunities when that comes depends on how the restructuring occurs. In total radio and TV is a good sector.

We really don’t have scale until others, but there are plenty of mergers and acquisitions going on there and the commission could well lift the caps on the TV side also, if that’s happen you can see some very definitely growth, let’s say the big leader.

In broadcasting just as we have seen in other industries, the big get bigger and the small tend to retreat or be a precious feeling in terms of whether this -- about this is happening globally and this is happening in our industry or will be I think happening in our industry.

Is that too long answer?.

I think that was a good answer Ed..

Okay. Just checking. And with that we showed you 15 minutes, by the way 20 minutes, so we actually run over probably with that answer..

I think we can turn back over to Art. Art, if you wrap up the call for us..

Well, I can do at the end of Art, if not available..

Probably sir, I will be delighted. Gentlemen, that’s concludes the conference for today..

Okay. I can do it too. We could sing along if you want, go ahead..

Yeah. Thank you for using AT&T executive teleconference service. You may now disconnect..

Thanks..

Thanks..