Good morning, ladies and gentlemen, and welcome to the Saga Communications Q3 Earnings Conference Call. At this time, all participants are placed on listen-only mode. It is now my pleasure to turn the floor over to your host, Ed Christian, President and CEO of Saga Communications. Sir, the floor is yours..

Catherine, thank you very much, and welcome everybody. We have a lot of information to convey to you and some other additional thoughts. And with that, let me start by turning it over to Sam Bush as usual..

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.

The third quarter continued to be materially impacted by the COVID pandemic, but as reported in the press release, we have seen significant increases in net revenue every month from the low point in April. Our net revenue in the third quarter was $24.1 million compared to $16.9 million in the second quarter.

This is an increase of $7.3 million or 43.1% between the second and third quarters. Gross political for the quarter was $1.8 million, for the second quarter, it was $289,000 and for the nine months ended September 30, 2020, it was $3.1 million. As I already indicated, net revenue was up $7.3 million from the second to third quarter.

So political certainly helped, but was not an overriding factor. Political continued to be strong in October and for the first few days of November. So we expect October to be our highest revenue month for the year with November remaining strong, but falling below October as political revenue was finished yesterday.

Without political, we expect gross revenue to continue a positive trend throughout the rest of the year. Our focus on local continues to pay off as the combined local direct and local agency increased 32.4% between the second and third quarters of this year.

We have $49.8 million in cash on hand as of November 2nd compared to approximately $44 million at the beginning of the year. We expect there to be some fluctuation in this amount as the year continues, but we believe that our cash balances will continue to increase, as we get to year-end.

Again this is – if the current market conditions continue and we don't face another prolonged government-mandated shutdown in our markets. At the end of the quarter, our outstanding debt remained $10 million, which given the cash on hand presents no covenant or liquidity issues.

Leverage per our bank covenants calculates at 0.82%, but is really negative when you consider the cash we have on hand. Ed with that short commentary on what continues to be an unprecedented year, I will turn it back over to you..

It could be precedented year, I don't know, Sam. But let me ask you a quick question.

What did you compute the other day that the value of the cash per share of what it's currently trading at is like what $6? Something around that?.

Yeah. Around number $6 per share..

Okay. So I'm just – just checking that up. Hello, everybody, and let's start in on this with me saying that, it's been a long nine months and we have not burned $1 of your money. There's been no cash burn at this company, which I think unto itself is a pretty good achievement.

And we accomplished this through a number of different ways, and let's talk about that for a second. One was obviously, two things that you have to do is one is try to find a way to reverse the slide and bring it back up so that it decelerates each month in terms of that and begins to build back up a little bit.

We haven't seen the rebuilding from ground zero yet from – or normalcy as it was from 2019. But nevertheless, we've had some really interesting things happen.

Let me tell you for instance that, if we look at our local direct and for those of you who have been on the call before know that, Saga's big proponent of doing, reaching, teaching, selling directly to retailers to service providers to a number of the businesses like that.

Right now, we're running about $1.5 million per month, ahead of our local direct. Overall, probably our local directors, excuse me, $1.5 million over our local agency which is pretty impressive for us. It really continues our commitment and accelerates it, which is – we're very happy about that.

We're adding more programs to promote non-traditional revenue. We're doing for instance best of books with sales component attached to it, which is bought in hundreds of thousands of dollars and the lack of – because of the lack of non-traditional revenue. Where we have been impacted and it's a good healthy number is in events.

And a station that is attuned to the community is constantly looking for events to provide for the community and I am finding ways for us to monetize those events. And it goes from concerts that we sponsor in Ocala to plays. We are behind in various performing venues across in our markets.

So, we have a lot of things going that generate additional income. So, we've been impacted because we're not able to reach out and have masses of people or numbers of people even attending our events and that was a big part of what we did. And that really hurt when the country was shut down.

And even now today we're seeing that there's no shutdowns in Massachusetts and Illinois. We're just re-changed and re-categorized in certain counties. So, while the competitors are off-boarding salespeople which is what's happening we are actually hiring them and adding services and account executives.

We're very big in the idea of retraining our new salespeople or training -- retraining existing salespeople and training the new salespeople. We're using a number of different programs when we bring in new sales people.

P1 the RAB, Radio Advertising Bureau, has a tremendous program and Cash by Creative there's a number of different programs that we are showing and telling to our people. We're -- and then we're also breathing the people that we have for the future. Because we believe sincerely that there is a future without a doubt there is a future on this.

Just to give you one example. We work with Jeff Smith and Kim Johnson at the Radio Advertising Bureau and they did for us a special six-week virtual training session for Saga own way where we took a number of our senior salespeople and nine of them took the course for six weeks and they just earned their credentials as certified radio sales managers.

These are people that are there for us in the future because we've been building our team and building our field on what we're doing. So, it's keeping in content keeping in promotions where we're still trying to figure out ways to do for promotions.

Examples some of the ones that we have right now that we did for promotions and it just occurred to me to mention this is we did a number of virtual Halloweens. And in Champagne Illinois for instance we did it at the Champagne County fairgrounds where we had 30 merchants with booths or tents along the road inside the area there.

And passing out candy to each car that stopped and we had a line it's probably a mile and a half long outside of cars waiting to get in with their kids in their Halloween costume to enter into the area and do it. It was all sponsored by us exclusively. And the story invited paying businesses were there to hand out information to the parents.

We did quite a bit there. We also in one of the other events that is kind of important to mention right now is we did a program for sponsorship to support first responders, the police and fire. We did imaging and the conversational messages with top officials discussing relevant community issues and what is brought to you by at the end.

And that's created hundreds of thousands of dollars for us. We've done it in 18 of our markets so far and we're rolling it out in all of the markets and that will be happening pretty soon.

So, one of the other things that we're doing now to reposition the station because I think it's well Paul Romer who's an economist and Nobel Prize winner he's a Stanford economist had a great line it says in a crisis -- a crisis is a terrible thing to waste. And what we've been doing is using this while other companies are offloading talent.

We have been raising and hiring those talents and improving our stature in terms of professionalism. It's been really great. While the other ones are hiring risk, we are hiring talent. So we're taking advantage as much as we can of what is going on in the community.

This is all a part of the idea that we have here of keeping Saga fresh and current even in downturns times right now. This has been a very important part to us to be able to have what we do and be able to say hey listen, we're still making money not the kind we want to, but the kind we want to will be coming.

We don't know exactly the definition yet of when coming is because it's subject to a number of variables. But by doing the things that we have been doing, by increasing the commitment to our salespeople, bringing in new salespeople and training them in the new methodology of selling. And there is one by the way.

The things have changed in terms of how we're doing it. It's not the same old radio sales of 20 years ago, but it's using new more inventive things. It's also relying upon digital advertising sales as a component to what we're doing.

So in every area every single department that we have, there has been a concentration and a commitment to make them better during this time. So that when a sense of normalcy returns and other people begin to open up their radio stations and by the way which we never closed any of our stations.

But when they open up the radio stations again to try to resume business, we're ahead of the pack on that. And that's part of the whole idea of what we do is try to position ourselves in the community as community leaders, community relations, one-on-one relationships with our advertisers and we'll get back there.

And the very fact that we haven't had anything embarrassing occur to us in the last nine months, I think is applauded to all the people who work for the company and who really work hard to see what they're doing. I'm pleased as much as one can be pleased. That's a very touching thing right there. But I'm pleased with what we're doing.

What I'd like to see more of course. Am I going to see more? Yes. We have that commitment behind there that we're not going away. We're not going to fold up. It's unfortunate that radio stations have closed in a country, with some licenses have been mailed back to the government and that's more in some of the smaller markets. But it happens.

And we're seeing even large companies turning unnecessary radio licenses. We're not. We're actually looking for some acquisitions in our market field. I won't say smaller markets, but that's a relative term but we're doing that. So what I ask is your understanding and your patience. And we're no different than a lot of other companies that got whacked.

Only we're trying to do proactive things to change this and the proactive things are in sales and that's what is important to us. I got -- I'm big in quotes and things like that as you know. And I saw one the other day I thought it was pretty good now to sum this up here. And that is one from Arthur Rubenstein.

For lovers of you who may not be familiar with him, he was a concert pianist from eight decades as one of the finest contra pianist in the world. He was an expert in Chopin and he had a great thing. He said there was no formula for success except perhaps an unconditional acceptance of life and what it brings. And why did that reside with me.

And that's what we have is, we have to face the issues that we have and deal with and fix our company, keep our company strong, keep our company focused, keep finding ways to grow the company, to inspire the people in a company to be committed to the company, to have that in their heart knowing that this is the company that will be long-standing, whereas some others might go by the wayside because of economic conditions.

And Sam with that I'm going to wrap up my comments after you've got -- I don't know.

Do we have some questions today?.

Yes we do. We have two questions today. .

That's nice. That's nice. .

It is, it is. Somebody cares. The first question is --.

Only two people care, I guess..

The first question is, do you see a stabilization of revenue or a continuing downward trend or what?.

Well, that's a good open-ended question. It depends. And that's not a ducking answer. But let me just share some information. And like any good scout, I always keep my ear down to the railroad track. So I can tell when the trains are coming. And that's an old thing, I don't really put my ear to the track, Sam, just so you get that straight.

What I'm hearing is, in the larger markets, the top 10 top 25, whatever it is. There is a fear that they have reached a new norm, which, in the larger markets, is running like minus 20 from comparable years. And the fear is that this is going to be where they are.

And for several months they've kind of hung in there and they're not seeing minus 15, minus whatever it is. In the secondary markets, where we operate, we do have some -- we are not in the top 25, but I think 7% of our stations are in the top 50, or 25 to 50, whatever it is.

It's more down in the lower teens 12%, 14% and holding kind of right there for now. Now is that going to change? Well that all depends. It depends on where the economy goes and everything else.

But it seems that the larger markets are getting hit harder than the secondary markets where you have more ball control over what you do in terms of sales, where you can be creative. And you have a smaller universe to play in, but a bigger playing field within that universe itself. So do I see anything catastrophic coming up? No.

But that could change tomorrow. That's asking me to look into some sort of magic ball and figure that out, or do it in the Ouija board like we did years ago. That, if we get down to 12% and that becomes a new normal for a while, we're okay.

Because we have made, as you noted, and they're without giving the exact figures -- we have reduced our overhead substantially without impacting the effect of our organization. We've had no risk to speak of. We don't go in there with wholesale, laying off of people and announcing a 40 or 50 people are gone. That hasn't happened with us.

We have crafted surgically, literally, a pass that reduces expenses that holds us there. So we're good. But the question is, is it 20%? Is it 12%? It depends on the marketplace. It depends on the size of the market and it depends on the station itself. So it's a very hard question to answer. Am I optimistic? Yes.

Do I think that we're going to be right back to where we were last year? No. I think 2021 is going to be another slagging year, as long as the economy keeps some momentum moving forward. And it's not a quick turnaround is other issues. Okay. That's my answer..

Very good. And the second question is, Nielsen has made a policy change, under which it will no longer include the ratings for non-subscribing radio stations in the summary data set that fuels the major buying systems used by agencies and advertisers.

What revenue impact do you expect the policy change to have in Saga's markets, where it doesn't subscribe to Nielsen ratings?.

Well, okay. Good question actually. It's the hot topic in the industry right now. I presume that's written by when the question comes in from one of the trades. I won't ask you then. We don't discuss that. Well, what I mean by first saying, there is no secret to this. And Saga is not a client of Nielsen.

And so, therefore what I'm saying is not based on a client relationship with the Nielsen company. Let me explain to some of those who don't understand exactly what's going on here. Nielsen surveys two different sets of markets.

One is the diary market, which is, in my opinion, a highly automated way of surveying, where you're asking a responder to carry personally a diary for seven days and contemporaneously fill out line-by-line, what he listens to, what radio station, what time it starts, what time it ends.

And well, I'll give you an example on this, because this will take a few minutes to answer. When I was an adjunct professor at Central Eastern University, one of the lectures that I did was with grad students. When talking about statistics and ratings, and questions in broadcasting radio and television, but primarily radio with that case.

And we would sit down, and I would say to them, and I had from Nielsen in that time diaries, they punch holes in them, so they can't be used. And I pass them out to the -- it was like 15 grad students in the class. Past month, each one of them, have looked at the kind of strange, so nicely explained to them.

You're right now expected to as a class exercise, carry this for a week and contemporaneously record your radio listening. These are again grad students, so we weren't talking about freshman or anything like that. Contemporaneously record your radio listening for seven days, and then mail diary back.

And by the way, for this -- doing this and keeping this, I will give you a six pack of PBR, which at that time was about $5, which is what Nielsen has raised is what they pay.

And I submit to you that that was flying back 40 years ago, when it was a proud thing to be a Nielsen to Emily or whatever it might be, and we have a responsibility to fill out on recording with that, but that doesn't happen now.

So that's part of -- and the other one is the PPM, which is the meters that are attached to people's belts and it warrants for up to two years for listening. When they gather this information then and put it out in the PPM form, there's plus or minus two standard deviations of the norm involved.

So if you chose that you have an eight share you could have a six share or a 10 share, either one of them is statistically accurate. When they send this information out people -- radio stations subscribe, to the information, and the same with the people meter they subscribe for the information.

It then is also sold to the advertising agencies at a highly discounted rate compared to what stations pay. And what they are doing now with this new proposal they've come in. And by the way, this has been creeping up, because each -- several years they cut out another feature punishing non-subscribers like us.

I won't say punishing, but changing to benefit subscribers. And now there's -- the agency has got two levels of information, summary data and respondent data. Now the summary data is basically, you get the information, you feed it into a strata computer, and it shows you exactly what the market looks like, so that you can determine your buying.

Now the summary data, which is what 30? I don't know what percentage, but not all their subscribers. This is the basic one. And I think there's 65 -- they say 65% in one of their releases. 35% we get the other, and I'll get to that in a second. But 35% get the summary data or vice versa, whichever it might be. I'm sorry I'm not quite clear on that.

If they get that, the summary data, they can put it in and see the entire market, and make their buy at the agency level. By the way, I must say this is a terrible disservice to the advertising agencies by eliminating this. This in many respects invalidates the whole thing.

On the last, you decide now that the summary data which is most popular is to be replaced by the respondent level data, which is more information than the agencies really need and therefore really don't buy it.

Because it's got ZIP code analysis and a lot of things that gets into -- very granular things for the meter and eventually for PPM acknowledgment. What Nielsen is doing is essentially increasing the rates by 50% or more to the individual agencies that subscribe to just the summary data.

If you want the respondent data, in other words, eventually the summary data will not be able to be used as buying service because by – because it doesn't show the entire radio market. The number of AM radio stations that are there are probably going to go away or any of the secondary stations.

However, as a kind of benevolent gesture, Nielsen is keeping the public radio stations in there and I don't believe charging that much at all. Now for years, they wouldn't show up on NPR because they didn't consider them real forces in the advertising market. Now they do.

But with this said, what happens is that every agency that has a conscience, in terms of being responsible as buying service for the clients has to pay at least 50% more to get the respondent level data. And then because – otherwise, you can't even manually enter it really. And you have to use Tapscan, which is a company that's owned by Nielsen.

So that could be more. I'm not sure if that there's a thing on this. But Nielsen is blaming the radio stations. Well, any station that doesn't subscribe shouldn't be shown. The agency shouldn't – nobody exists unless you pay us 50% more and then you can see it. So it's unfair to blame the radio stations.

We have enough relationship issues with Nielsen without pointing a finger and saying, bad dog, bad dog. And that's what's happening on this. I'm taking way too long to answer the question and I really should kind of shut up on this.

And I would be glad to discuss this with anybody, that wants to know about it, wants to hear about the media rating console and how many markets they don't have in the PPM thing certified by MRC or the efficacy of the diary method or the way that they're approaching agencies, trying to put the blame for them forcing the agencies to pay more to get the same product they had with a summary level data.

And I'll close yourself with the quote that I read this morning and another trade sheet right now from Jerry del Colliano. And Jerry's trade sheet this morning said, it's like doing a census but not including the people who don't pay their taxes to Cesar, as if they didn't exist. And this is essentially what is occurring here with Nielsen.

Like it or don't. And I'm sure they're sitting there rumbling at me now for my diatribe. But all I want is honesty and I want to have a level-playing field for everybody to going to show radio stations and you're going to measure correctly and properly.

And that leave out, in some cases 40% of the radio market, because they don't subscribe your service, that's punitive, and that just almost mean spirited in some respects.

Have I said too much, Sam?.

No. I think you've covered. And you certainly have said what you feel, as you always do, which is great..

No. It's all logic..

It is totally..

It is what it is. And nobody is taking the thing, they're being powered into, well, maybe we're better radio stations. You're not. Like us, we have the relationships with our clients, one-on-one. They know what we can do, in the community.

And this is something that Nielsen has a little problem understanding is that, radio stations can be successful through one-on-one client relationships, because they can see and feel and touch, and believe what happens in the community. I'm done. Okay..

Absolutely, when somebody walks in their store and buys they know why it's there is why local direct is doing, what it's doing, which is terrific..

It works. Do I have time for one more, quick story? In our -- the retraining of salespeople our new salespeople, one of the things that we have kind of mandated is that, you can't sell short. Everything has got to be long on it. And so one of the new salespeople went out there, in one of the markets and I'm not going to do, who or where.

But, why don't and was trained went through all the certification. And she was out calling out an HVAC dealer. This is a category we've really started working very heavily to get HVAC companies in. Because in a depressed economy or an under economy, if your air-conditioning or heater goes out, you need to call somebody.

So she sat down and did the presentation to the owner of the HVAC location and went through it all. And he finally said, okay, yeah, I think, I'm trying radio. I know. Let's do it for three weeks. She said sir, I'm sorry I can't sell you three weeks. He said fine. She said no sir, I would -- I can't -- our minimum at the radio station it's 12 weeks.

Because if we sold just three weeks, we wouldn't be doing you any good because, there's not enough repetitions. There's not enough imaging, there's not enough chance for us for brand building and everything else like this. Finally the guy said, okay, I'll take 12 weeks.

Under the old school of thinking in a radio, the salespeople would come in and say, hey, I just scored so and so for three weeks, for a new advertising. No. We're going in to prove the radio works and we do it for 12 weeks. That's where we get the results. And get the returns from people. So, now I can shut up and say, Catherine, please sign me off.

Okay..

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines, at this time. And have a wonderful day. Thank you for your participation..

Thank you, Catherine..