Edward K. Christian - Saga Communications, Inc. Samuel D. Bush - Saga Communications, Inc..

Ladies and gentlemen, thank you for standing by, and welcome to the Saga First Quarter Earnings Call. At this time, all lines are in a listen-only mode. And as a reminder, today's conference is being recorded. I'd now like to turn the conference over to President and CEO, Ed Christian. Please go ahead..

Thank you, Ryan. Good morning, everybody. And as always for many years now, sitting here next to me is Sam Bush..

Thank you, Ed. Now the preliminaries, of course, at first. 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.

First as you look at this quarter, and this will be true for the second and third quarters of this year as well, you need to keep in mind that for the comparable periods in 2017, we have reported the financial performance of the television stations that we sold on September 1, 2017 as income from discontinued operations net of tax.

This is important to know when you compare the net income, free cash flow and diluted earnings per share information. We also acquired the stations in Charleston and Hilton Head, South Carolina as of the same date. Now to the numbers. For the quarter, our net revenue increased 7.1% on an as reported basis and 0.3% on a same station basis.

Operating income from continuing operations increased 17.5% and station operating expense increased 9.6% on an as reported basis. On a same station basis, operating income increased 26.3% and station operating expense increased 0.5%. We're still doing a really good job, I believe, of keeping expenses under control.

Free cash flow from continuing operations increased $191,000 to $2.3 million. To better understand, our calculations of free cash flow, net income and net income per share from continuing operations, we've included a couple of additional reconciliation tables as a part of the Supplemental Financial Data section of our press release.

One additional item to note is that we reported other operating income of $251,000 for the quarter this year. This primarily is due to the sale of a tower outside of Keene, New Hampshire that we are no longer using.

As a result of the Tax Cut and Jobs Act passed in 2017, we 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 given the various states in which we operate, may adjust their rates in response to the Federal Act.

CapEx for continuing operations was $1.5 million for the quarter compared to $1.3 million last year. In 2018, we will be continuing to upgrade a couple of our tower and studio sites, including the studio facility in Charleston that we recently purchased. At this point, we expect CapEx for the year to be between $5 million and $6 million.

At the end of the quarter, we had $25 million in debt outstanding. Cash on hand at the end of the quarter was $47.8 million. Currently, we have cash on hand of approximately $50 million. Including a $0.30 per share dividend, which was paid on March 30, 2018, we've now paid over $55 million in dividends since December 3, 2012.

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. Additionally, as we have previously reported, we have a Stock Buyback Program that is active pursuant to the SEC's Rule 10b5.

During the quarter, we repurchased approximately 2,500 shares $93,000. Subsequent to the end of the quarter, we repurchased another approximately 9,000 shares for $337,000. Currently, we expect the second quarter revenue to be flat. We do expect political to have a positive impact on revenue later in the year as the political season progresses.

During the first quarter, gross political revenue was $277,000 compared to $43,000 in 2017. 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 $18 million to $19 million.

And with that, I will turn it back over to you, Ed..

(00:04:51) expecting.

Right?.

That's right..

Okay. There we go. By the way, I'm looking at Sam, there's about a one second delay between the two phones that we're on. So it's kind of a....

A little bit of an echo as well..

Well, all right, Sam. Well, another quarter where the Dread Pirate Roberts did not appear. Okay. Let's add a little bit of color to quarter one. If we go back to our last call, as we return to those thrilling tales of yesteryear, I said – and I was a little queasy about Q1. Well, that was true.

We did manage to move the needle just a bit upwards and it's better than I anticipated, and I was skeptical about the conditions surrounding Q1. Some of the categories were disappointing, both automotive and medical, primarily hospital spend.

And automotive is a category that is either hot or it is not and Q1 saw the burner turned down and costs were spent (00:05:51). I think it's because the automotive sales were off in a couple of months and there were some caution exercised by the dealers and the dealer groups. Hospital's another story.

In markets, we saw that there were several hospitals, more than that actually, that put out reduction in-force notices to their staff in anticipation of further loss of admissions.

Now, several years ago, I was on the board of directors of a hospital for about a decade, and I still talk to some friends of mine and acquaintances, and they tell me that there was a fear of a paradigm shift and a loss of share in value to growing outpatient servicemen rather than inpatient, that their hospitals were becoming obsolescent, but there was more of a growth in the outpatient area.

For radio, and this is, I think, where we have to ramp up a little bit. We can shift our focus to working with outpatient service centers and providers.

It does take, as I said, a little bit of ramp-up time to get there, but that's one that we're working on hard trying to identify – well, not identify, we have already – categories and try to figure the approaches on working that for branding and advertising.

Our plan to expand our product categories continues to grow well, and we did see some really nice increases such as employees needed category.

That's working well for us, especially in a low environment, a low rate environment for unemployment, and our branding business working with clients, new clients to establish branding for their products and using radio to create a brand awareness with a long-term marketing is beginning to work out very well for us.

Two other factors to consider about Q1, they're not excuses, as we do accept pain head on, these are somewhat realities that we have had to face during Q1. Frankly, it was an awful winter in the Northeast. And our mass markets in Massachusetts, Vermont, New Hampshire, and Maine got slammed with the weather.

I remember in nearly end of the season, there were like four heavy snowfalls in a row that kept coming and coming and coming, and it's very disruptive for the businesses in that area there, and it really did hurt our business with cancellations, when businesses are closed or whatever else might be.

And another weather-related thing that I haven't seen as before, we closed on Charleston and suddenly the town ended up being closed for a week literally.

Sam mentioned this morning, the airport in Charleston, South Carolina was closed because of icing for a week, and that's – how did they get to see whatever they are transports are (00:08:51)?.

They're pretty much less nothing. I mean there is a big joint military base there, Air Command with the Navy and the Air Force, and they were not able to fly anything in and out of Charleston along with the commercial airport for almost a week and a half, which is unheard of..

Yeah, well, that plus the hurricane did create a little bit of a problem down there. Now when the weather conditions happen and we do have alternate service revenues that kick in such as generator sales, roof repairs, but it's not enough to make up for the cancellations that occur. So, the weather was a little bit of an element for us in Q1.

And also talking about the new acquisition with Charleston and Hilton Head. In Charleston, we experienced longer ramp-up conditions than we anticipated.

The previous management had frankly well exceeded our normative value of commercial limitations, and we had to reduce the inventory markedly and put in place strict limits for commercial inventory, which is in keeping with things we do in all of our markets.

Another area that we're watching is the ag sector, and impact weather and tariffs can have on agribusiness. So far this year, we're having another excellent year with our ag radio stations. I don't see this changing. We are cautious, especially on the tariffs and how they could affect the farming industry for soybeans.

Saga has been in business now for over 30 years. Every year has been profitable. We have stayed true to our principle of being a disciplined buyer. We do not buy companies with a number of markets and try to bring the men and consolidate them. It's a tough merger for us into our culture.

And we do take our time to look at and analyze individual properties to see if they fit and they make sense for us. We've been doing that for 30 years. The formula seems to work. We have absolutely no intention of changing that. We do championing independence of management in our markets and our managers know they are independent, but not autonomous.

I think I've mentioned this before. We insist that they treat our staff well and do compelling radio and focus on forward movement and new sales development, very simple philosophy. We believe these positions put us in a good shape. We'll continue to look daily for new opportunities to selectively grow our enterprise. We are not stopping growing.

We are looking and if we see something that we would like and it fits the criteria, then we do our diligence, we move quickly and bring it into the fold. We're patient. We don't have to buy for the sake of making acquisitions, nor would you want us to do that. Like it or not – I just want to bring up this one thing here.

Like it or not, our country could well be facing some depressing economics and we keep saying some really things that are a little bit troubling. Internally, at Saga, we've referred to the environment in which we operate as a jitterbug economy.

And I think that basically puts it up and as I've said so many times before, we're really dependent upon the economy and the feeling of wellbeing in this country as a radio industry. But dealing with a jitterbug economy, and this is why we manage our cash, we limit our downside, pay dividends, which Sam has said so far totaled $55 million.

We didn't initially because we were using the money to grow the company as we could. Right now, we happen to have powered past that point where dividends are part of our daily life. We have a great company and we have some cheers, but mostly it is caution. And the future of our industry is sound and the markets in which we operate.

And I sincerely appreciate that all of our employees always work towards balance and excellence. And for anybody who's on the call that's a shareholder, I really personally thank you for your belief in Saga and what we do. We're always available to talk. And we're here, Sam is here, I'm here, any of our people are here to talk about radio.

We will love to do that. And I think I've pretty well covered most of it.

Did we have any questions?.

We did have a few questions, but once again I think we anticipated a lot of what the questions were going to be, and I think we answered them all in between yours and my comments..

And one thing I will say Sam, I'm also feeling that we have some good states, good election states in where we are, and I think that that could be a hopefully surprising factor for us coming up in the year. Other than that, we'll continue on just doing what we're doing.

Ryan, I told you 15 minutes, we're probably at 16 minutes or 17 minutes, but it's back to you..

Okay. Ladies and gentlemen, it does conclude today's conference. Thank you for your participation. And you can disconnect. Thank you..