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

Analysts:.

Ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter and Year-End Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, President and CEO of Saga Communications, Mr. Ed Christian. Please go ahead..

Thanks Greg, appreciate it. Welcome everybody. As usual we have the highlights and the lowlights from Sam Bush. And then we'll have to dialog on that and if there are any questions that have been sent in, we'll deal with those right at that point and time.

Sam?.

Thank you. Thank you, Ed. I prefer the highlights versus the lowlight but, we'll cover everything we can cover. This call will contain forward-looking statements about our future performance and results of operations that involve risk and uncertainties that are described in the risk factor 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. Again this quarter I'm not going to spend much time talking about the numbers for the quarter and year-end.

I think the time is better spent in making sure that it is clear what the numbers represent. The press release mentioned four items you need to keep in mind as you are looking at our competitive numbers. First, the television station sale, which closed September 1, resulted in an approximate gain of $51 million pretax or $30 million net of tax.

This gain does not reflect in our free cash flow for the year since the television segment was reported as a discontinued operation. In reality, we had over $50 million in free cash flow in 2017, if you include both the operating and sale results. Second, is the sale we reported during third quarter of 2016 of one of our towers in North Virginia.

We previously reported a net gain of $1.4 million on this transaction. Third is the $1.5 million charge we recorded during the fourth quarter of 2017 for impairment of intangible assets, due to our analysis of the Springfield, Illinois market. The market is heavily impacted by the State of Illinois' financial difficulties.

We do expect to begin to show growth in this market as soon as this year. Unfortunately the fair value requirements only allow for decreases in license values and not increases when warranted. It should also be noted that this charge is a non-cash charge.

Finally, we reported an $11.2 million income tax benefit during the fourth quarter, primarily due to the reduction in our deferred tax liability as a result of the recent Tax Cuts and Jobs Act.

As a result of this act, we also expect our ongoing tax rate to decline from our historic level of 40% to 41% to a current level of 29% to 30% including a 13% to 14% deferred tax rate. Our expectations are subject to change give the various states in which we operate may adjust their rates in response to the Federal Act.

During the fourth quarter, gross political revenue was $880,000, compared to $1.9 million in 2016. And for the year, gross political revenue was $1.5 million, compared to $3.8 million in 2016. Gross revenue on a historical reporting basis would have been up 0.8% to 1% for the year excluding political.

On a same station basis, excluding political for the year, gross revenue would be down 1.7%. It should also be noted that in a difficult revenue environment, we continue to do a very good job controlling expenses. Our same station operating expense was down $1.5 million for the year and $556,000 for the quarter.

These amounts represent declines of 1.7% and 2.5% respectively. CapEx for continuing operations was $6.3 million for the year. In addition to routine maintenance CapEx, we spend more than $1.5 million on studio building upgrades and more than $1 million on a tower acquisition and other tower upgrades.

In 2018, we will be continuing to upgrade a couple of our tower and studio sites, including the studio facility in Charleston that we've recently purchased. At this point, we expect CapEx for the year to be between $5 million and $6 million. At the end of the year, we had $25 million in debt outstanding.

Cash-on-hand at the end of the year was $53 million. Currently we have cash on hand of approximately $49 million. On February 28, our Board of Directors declared a $0.30 per share quarterly cash dividend with a record date of March 12, and a payment date of March 30.

This will bring the total dividends paid including special dividends since December 3, 2012 to over $55 million. We intend to pay regular quarterly cash dividends in the future, as well as considering special cash in stock dividends as declared by our Board of directors.

We expect same station operating expenses to be up 1% to 2% for 2018, we expect interest expense for 2018 to be around $1 million. At this point, we expect free cash flow for the year to be in the range of $19 million to $20 million. And with that Ed, I will turn it back to you. .

I think that, that was long one. .

A lot to cover with the TV sale and the tax change and everything else. .

We think we need to read it over again. We get to that. Some people might have trouble [indiscernible] therefore few clarifications..

Well, they can call me, and I’ll be glad to adding the detail. .

Okay, why don't you just reaffirm the first --.

I can do so. .

All right. I need to recognize Goldman Sachs for inspiration on this. And they have a publication titled outlook, and they had this last issue add a great number of excellent articles on the economy. The cover of the report, it just came out, shows a sail boat in a storm.

And the headline was -- and I really love this kind of work where we are with -- I think with everything, Unsteady As She Goes, under the picture was an adage that rang of home and so true was its saga [ph]. We cannot direct that wind, but we can adjust the sails. And that’s says it all. There were elements we cannot control, but we're skilled sailors.

And with this knowledge saga we’ll continue to sail through the sunny skies and the unexpected storms. Quick comments from me, what Sam brought up at the office reports. In summary, we had a flat to a little off year in radio, similar to other radio companies. We made up for it by selling the TV station, which we owned for many years.

But we exited this sector, because we didn’t have scale, and sold to a company, who needed more TV stations. And then we paid taxes, but we didn’t pay all that was due, as we deferred taxes by buying more radio stations, which is what we do. While we still paid all other taxes, but the government changed the laws and we got money credited to us.

And we can acquire more radio stations, if we found some that we like. But this time we do not get any tax credit, because it's too late, but we can get some really fast depreciation, if we buy hard assets.

And like Sam, did I do pretty good?.

I like that one. .

An Inside view of -- as the book says, An Inside View of the Fee-Cutting Clients, Profit Hungry Owners and Declining Ad Agencies. Now, I bought a number of copies for our managers. And if any of you are interested, we have a few left. And if you contact Sam Bush, he'll send one to you.

If you are interested in the radio, then you should also try to understand the component parts of our business. I mentioned earlier we're in a transformative phase. It's good and it will be better, but it's not something that occurs overnight. We at Saga have always played the long ball.

We develop and nurture our stations to obtain a top hierarchy in our markets. We're building more and more relationships with local businesses and are working with them to build their brands and image through radio.

And if needed, we work with these clients, adding white label digital advertising as a supplemental, the white label products we supply to them. It takes time to accentuate change. In [indiscernible], the radio industry did get seduced by the heady days, no question I believe, and when you look back a decade or shorter, or longer.

In previous years business was like the lyrics from the iconic Broadway Musical EVITA, and I love the song. The Money Keeps Rolling In. And I am just quote two lines from that. I'm not going to sing it, so don’t get nervous. When the money keeps rolling in, you don’t ask how? Think about the people guaranteed a good time now.

And that’s was kind of the industry. We enjoy this flush of money rolling in from advertising agencies and seeing the cycle would meant, and it has changed, and that’s good. And we don’t mind that. Radio is still a valuable tool for branding.

And we can do good work and help advertisers with top of mind ways [ph] for all the excellent attributes that they claim. We have a thing called brand formation, which really originated in Demoine and market there, which where we concentrate specific with the advertiser.

And bring them into the media in a 52-week schedule and creating a way for them to gain brand awareness in the marketplace and it really has paid off. And we are spreading it and rolling it out to market after market in Saga, it's going to be great. Our sector still has great cash streams. Points to remember that.

And then if you remember the old Boston Consulting Group, Matrix, the definition of cash cow, doesn’t need to deploy [indiscernible] to radio companies. Well what about '18? We work our plan. January was off a bit for us, but I think if you're fine when another broadcast companies report. Larger markets got hit harder, some even got slammed in January.

Reinsurance charges didn’t help on our expense side in January, where we had to write off some unexpected bad debt that was on the book, when we acquired the radio group in both Charleston South Carolina and, Hilton Head – Variety Hits, South Carolina market.

February revenues lines was about the same, maybe a tab better than January, but March is coming and pacing up for a first time in a while. And Saga and other companies are beginning to breeze normally in some certain categories. Some are way down with automotive advertising leading the way in January. Healthcare was also challenged.

Margins in that sector are beginning to show some deterioration. And also like just, like other industry our operational expenses are increasing. But we are also spending more time in seeking ways. Sam said, to keep our product solid and streamline production without impacting brand, image, sound or effectiveness.

Caution when I tell you that we're not keeping our packages of same size and shrinking the content length, our managers are concentrated on profits, not sales. And we have the integrity of our brands we must maintain to be able to get the sales with spend which gets the profits. Now I do tend to run out of time, so I need to watch myself.

And I could keep talking about radio philosophy of good media sales affecting these towers, transmitters, for some time, but we do kind of have internal rule at Saga, that after 15 minutes, your eyes and ear turn to kind gloss over, what you are hearing for the message. And I'm running close to probably little close to the 15 minutes.

We are fine, we do good work. We create a great broadcast environment for our people. We don’t disappoint our audiences. And we want to support you if you are a shareholder of our company, and tying it back in to Goldman Sachs. Our boats won’t sink under our watch.

Sam, do we have any questions, we can get anything at this time?.

We did get a couple of questions in, but I believe was answered in between your comments and my comments. And as always as you suggest if anybody has additional questions or wants to further with our comments, please give us a call. .

Yeah, and don’t forget to call Sam and ask for the book if you are interested. It's really good compelling reading and it provides a tangential look at sector that we have a dependency on. And we’re trying to reduce and change a little bit on that. Sam, I don’t think we have anything else. Greg if you are there, you can wrap it up.

And thank you everybody for being on the call today. .

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

End of Q&A:.