Edward Christian - Chairman, President & CEO Samuel Bush - SVP, Treasurer & CFO.

Analysts:.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Saga Communications Second Quarter Earnings Conference Call. [Operator Instructions] And as a reminder, today's conference call is being recorded. I would now like to turn the conference call over to your first speaker, President and CEO, Ed Christian. Please go ahead..

Allen, thank you so much. Good morning, everybody, and thank you for joining us on our Q2 earnings call. I do need to send you a regulatory thing, okay..

You can do so..

Usually you've got the big regulatory thing lined up, I'm going to be sure.

Should I use my radio voice or not now?.

Use your radio voice. That would be good..

Okay. Please be advised that Mr. Samuel Bush will be using lots of the words. Not to take words, but lots of words, in fact, too many words. So a warning, this conversation is not for small children. Go ahead..

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.

And as Ed said, this call is going to differ a little bit from our historical calls because this was noted in the press release are reporting this quarter changed from our historical earnings reports due to the pending sale of our television station.

Our television stations are now classified as held-for-sale and as such are being reported as discontinued operations. Thus the sum total of their operations data for the quarter and for the 6-month period ending June 30, 2017, is reported on the selected consolidated financial data as one line, income from discontinued operations.

We did include additional financial data on the operations of the television stations including net operating revenue, station operating expense, operating income, et cetera, and in the supplemental schedule that was included with our full press release.

So when you're looking at the press release, keep in mind that to do a full comparison with previous releases, you will need to refer not only to the selected consolidated financial data schedule, but also to the included supplemental schedules. We expect the television station sale to close on September 1, 2017.

At the closing, part of the proceeds from the sale will be deposited into a Section 1031 like-kind exchange ESCROW account. We will then use $23 million from this account to purchase the radio stations in Charleston and Hilton Head, allowing us to defer a portion of the gain.

This acquisition is also expected to occur with an effective date of September 1. We are confident that during the 180 days following the closing as allowed by the IRS, we will be able to make at least one more acquisition to further increase the gain to be deferred.

Our goal with the 1031 exchange is to minimize the current tax implications from this sale.

If we were reporting for the quarter as was done prior to the television station sale being announced, and the television stations being moved to discontinued operations for reporting purposes, we were -- would have reported net revenue was down 1.3% to $36 million, station operating expense was down 1.4% to $25.1 million, and station operating income was a $7.9 million.

All this was calculated by consolidating the specific line items from the continuing operations table and the discontinued operations table. For radio, National accounted for approximately 10.2% of gross revenue for the quarter compared to 11.1% for the quarter in 2016.

For Television, retrans revenue was $1.3 million in the quarter, up from $1.2 million for the quarter last year. Retrans' payments to the networks were $302,000 compared to $245,000 last year. At the end of the quarter, we had $36.4 million debt outstanding. Cash on hand at the quarter was $30.1 million.

Currently, we have cash on hand of approximately $33 million. During the quarter, our Board of Directors declared a $0.30 per share quarterly cash dividend with a record date of a May 22, and a payment date of June 9.

This was our 13th quarterly cash dividend bringing the total dividends paid including special dividends over the last five years to $45.3 million. 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.

Capital expenditures were $2 million for the quarter compared to $1.5 million in 2016. We still currently expect our CapEx for 2017 to be between $5 million and $5.5 million. Radio pacing continues to be choppy. July was down slightly over 1%, while August is currently down 3.6%. Ed will talk a bit more about this shortly.

We expect same-station operating expenses to be up approximately 1% 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 41% and 42%.

Without the deferral from the like-kind exchange transactions, we anticipate deferred taxes for 2017 to be between $3 million and $3.2 million. Finally, you will note that the last few weeks and particularly, early last week, there was some great volatility in the trading of our stock.

The NYSE American activated their Pillar platform on Monday, July 24, which was designed to allow the American exchange to move to an all-electronic trading platform. NYSE Arca has been using the platform since 2016. On that Monday, our stock opened $42, traded to a high $42.15, and then was listed with a bid of approximately $41 at the closing bell.

Somehow a trade took place right at the closing bell for $37.75. One of our existing shareholders had a bid out at a higher price, but did not get filled as it was passed over for the $37.75 closing trade.

While we moved up on Tuesday to close at $38.70, we were again trading higher until the closing bell when there was a bid at approximately $40, yet the closing trade was $38.70.

I've spoken several times to the gentleman responsible for all equity trading at the NYSE, NYSE American and NYSE Arca exchanges, and he acknowledged that the Pillar platform had some initial implementation issues.

While we have not seen the same day end of -- same end-of-day spread since the first couple of days we have seen similar activities with smaller spreads. We hope that the worst is behind us relative to our stock trading, but we will continue to monitor and talk to the NYSE and our designated market maker Advertu.

Ed, little bit different end to my usual commentary, but I'll turn the call back over to you..

Yes, okay, I winked out there for a second. Do you think there is anything left on the call? I mean -- nothing, nothing..

Always there left to hear your....

Really, I've been gotten waiting for my just edification of where we're going and where we're coming from. Thanks, Sam. Let me start by saying that even though we did tell we arrived in advance that the Q2 would be choppy, it's still very painful for me personally, to see a down quarter, it's just -- it's not in my DNA.

Even though it was not as severe as other companies are reporting. I showed this to Sam before that, that's probably a -- there's still small amount of shot in Florida on my part. But, nevertheless, the good news is, there is good news and that we continue to add many businesses to our advertiser list.

And this, to me is, really encouraging because when I talk to the managers, they'll say we ended up boarding new businesses this month. We ended up with 20 new businesses this month that we've added, going out to your prospecting.

I haven't tallied it up, but I know it's 100s, which is really very good of new companies, new companies who advertise on this section. But the ticket is less. So when we experience an eruptions in, like cards for advertising, it takes a lot of smaller advertisers to equal one good car store.

With that said, we're also not seeing attrition with new account. And as the old bromide goes, "mighty oaks from little acorns grow". I know that sounds a little corny, but this is a curious factor for those who are -- the line initially comes from Chaucer back in 1374 in Troilus and Criseyde, and Sam, this is for you.

My medieval English is a little sloppy, but as an oak cometh up a little spire..

Very nicely done..

Yes, Spear is a sapling. That's our history lesson for today. Now we do seek to build new foundations -- to short-existing foundations, of course, of radio. This is a -- counsel him to try and reinvent yourself. Really have to look for all the other angles to build your market position and your business.

Sam has told you the numbers, and we were soft in automotive. If you worked at the last seven months in car sales they have been going down. There is a little bit of a panic and little bit of a crisis in there. Companies are doing well to try to stimulate this.

The Southern California Broadcasters Association, led by Thom Callahan, did a wonderful research piece on this, who showed the effectiveness of where you are advertising for car stores to -- even during tough times like this.

And we're using that and we thank the SCBA for letting us have a copy of the research that's really excellent, showing the power of radio. National is down 1%, that's okay because, well, it's not okay, I shouldn't say that.

But National either is or is not, as I said before many times in the call, there's precious little that we can do to influence if it's there, we will gladly accept, but if it's not, and that's something that we have to build our other foundations to compensate for the diminution of our national revenue.

We can stabilize our business like I would and enhance focus on new business. Sam told you, and we've announced that we elected to exit the Television sector. We will cover on that. Our stations have been very good to us and they're really wonderful stations, and well run and very well respected in the communities and we'll miss them.

Unfortunately, in an age of consolidation we didn't have scale and there was really no way to achieve scale or growth outside of the business from our perspective. Thus, we went out and found a really good company, excellent company, with great standards and reputation.

Family-owned, they will continue to do good things for the communities that they serve. We're -- been using the sales, as Sam said, in the proceeds to accomplish several things. First is to acquire addition radio properties in secure markets and utilize the like-kind exchange through tax, but for our gains.

We -- as we've told you, we bought four -- are in the process of purchasing, make that proper attempts on that. Four FMs, two Metro stations, two FM Metro stations, and an AM station in Charleston. The market is a gross machine and it really is in a boom cycle. It's just -- it's amazing what's going on in Charleston.

And it will be for the foreseeable future. Also included will be three FMs and two additional metro signals in the close-by Hilton Head, Boston, Beaufort, South Carolina, and this is another growing coastal market. Southern living refers to that area.

Beaufort especially is the market of choice -- the number one market for small southern towns, in terms of quality of life. And Charleston was named the number one town in southern living for quality of life.

So we are really thrilled to get into the market and that's coming along fine and that's been approved by the FCC, and we're just waiting for the September closing. We are working on several other opportunities we hope to announce shortly. Also from the sales proceeds, we will be probably paying down some debt to retain our existing debt ratios.

And that's just a function of keeping the balance same as it was before we went into this. We're allocating monies for our stock buyback plan and as well as continuing and possibly increasing our quarterly dividends and also considering special dividends from time to time as we have done in the past.

Since the company became a public company, we have repurchased $52 million worth of Saga stock, and it indeed is clearly time for us to study and reopen our buyback plan and use these funds when appropriate. We're disappointed with the current behavior of our stock.

We believe the stock has just -- Well, Sam kind of told you what happened and I'm not going to go back and do that, except that there are elements that are aberrational and perhaps enhanced by artificial intelligence and algorithms that were not favorable to us and very disappointing.

In our business depends fund promotion, we're advertising and we're subject to an ease that sometimes permeates into business decisions. Facts like overall retail sales were down or flat in May and June, doesn't help, especially as operating costs increase. And we're working very hard on holding the line and cutting.

We have goals that we hope to achieve this year in terms of minor, very minor tweaking of our operating structure to bring it down in balance with everything else we're doing. But we are also getting some headwinds from various angles, for instance, we have several stations that are very egg dependent for revenue.

And things like -- strange things like egg prices, which are a huge -- I didn't really realize this till I got into this overproduction of eggs, okay? The cost of eggs -- the cost of the store of eggs have dropped like 42% this year and we have a lot of eggs. I mean, for the average person that doesn't mean much but to an agro businessman, it does.

So in corn -- corn farm incomes, are in the tank and they're also very much worried about large traffic on the Missouri -- on the Mississippi river because most of the corn and soys are transported that way, and the Watch system is in danger of failure in several places.

And if it does, the farm economy which is already depressed, puts up for further. So I mean, things like that come into play a little bit. This is just one slice of our revenue plan. Nevertheless, consumers remain upbeat, and that's the key thing and this keeps us on a revenue on solid ground. Sam talked about our pacing going into August.

Actually, that's lower than -- that number of being down is over the normal is. And I think I've said this before on the call that normally, in the old times, what I'm talking about, I can you would think there is an old guy here talk to me. But were going to a month and try to make the month by the 12th -- to 10th or 12th of the month.

And then we would say, okay we're done with the month, let's move on to next month as always.

But everything now is breaking so much rapidly that, I watched us you know on the -- since as we get our daily reports on a production at each station, and I watched it each week began to narrow down and this core business was coming in later and the gap was coming down.

And I think we if we had another two days, we would've ended up the month basically since we've planned. Anyway, that's kind of what's happening in the industry and we're not alone in this. We're seeing this as -- and affecting many other industries with last minute rushes to get things done. We know what we're doing and we do it well.

Other companies sometimes follow will-o'-the-wisp looking for solutions, we don't. We pone our craft to a sharp edge and continue to run a solid and highly profitable radio centered company. That's really I think where we are. The industry is still good, friends.

I mean, it's wavy and soft and nobody is happy, but the fact is we're not seeing tremendous decreases in our volumes like we were in 2009, if we want to go back to that level. So we've rebuilt, we're there. It's still a healthy business in terms of the fact that there is lots of free cash coming out of broadcasting.

And there's nothing wrong with having -- even though we are a mature industry and we'll say that we are. It's been around for -- one of our stations, I just got word is celebrating its 95th anniversary of being on air, 95 years..

That's pretty incredible..

Yes, I know that is. That's -- so that kind of gives you an idea. And I think that's where I am. I don't believe we have an any questions....

The only questions we really got that we've addressed as best as we can at this point, it really has to do with what we're going to do with acquisitions from the TV proceeds and so on and so forth.

But at this point, given it's a 1031 like-kind exchange, it's really a pretty good time even after the September 1, before that'll all be clear as we work through additional acquisitions, as I said, we've got six months after the closing to still defer taxes and so that there'll be more information on that as we go forward..

I do think I want to mention one other thing, and that is that the corporate expenses were up because of legal and other things associated to the -- on the disposition of the TV stations and the acquisition of Charleston and Hilton Head -- and I've been spending a great deal of time on the acquisition front to try to find things, that are proper.

And remember, we are a company that doesn't buy huge quantities or baskets full of radio station. We are kind of an -- where we select, individually markets and add one by one to the mix because I have to ted it so that we're not left with things in the basket that we didn't order or want.

And so, like having little children in the supermarket who are constantly sweeping things into your basket and find out when you were at the checkout line. We don't want that experience with us. I think, that's it.

You -- anything else that you want to add?.

No. I think that's good. Allen, I think you can wrap it up for us..

If you would, Allen would be so kind and go for it..

All right. Thank you, ladies and gentlemen. That will conclude your conference call for today. Thank you for your participation and for using AT&T's Executive Teleconference Service. You may now disconnect..