Saga Communications, Inc. (SGA) Earnings Call Transcript

Good day, everyone, and welcome to the Saga Communications Third Quarter Earnings Release and Conference Call. [Operator Instructions] It is now my pleasure to hand the floor over to your host, Chris Forgy, President and CEO of Saga. Sir, the floor is yours.

Thank you, Tom, and thank you to everyone who has taken the time to join Saga's 2026 Q3 earnings call. We appreciate your continued support, your interest and your participation in Saga Communications, what we still believe is the best media company on the planet. As I was preparing my remarks for today's call, I was reminded of our founder, Ed Christian, who used to say many times to shareholders and those looking to invest in Saga. Saga is not a short-term play and is really a longer-term investment offering slow and steady growth and deliver highly focused disciplined approach to acquisitions, capital management, capital allocation and to growth. And part of that culture included an aversion to participating, which at that time was considered a digital gold rush. That position placed Saga 10 to 11 years behind most of its broadcast brother, so migrating towards the windfall of digital revenue, then 3 years ago, we started to see the beginnings of a significant downdraft in what we call the macro sector or the traditional advertising sector. We knew we needed to adjust in order to be viable for the future. And so we set out to transform our company. As I have said before on these calls, it takes time to construct and implement a strategy that will sustain and scale. And radio remains central to that strategy and to the value we bring to our communities. Our stations have established brands, local audiences, advertising relationships, content capabilities and community credibility that cannot be replicated quickly or easily. At the same time, our customers increasingly need solutions that extend beyond traditional radio schedules. Our strategy is, therefore, to become a broader local media and marketing company. build on the strength of our broadcast platform. We do not view radio and digital as mutually exclusive, however. Radio can generate broad awareness and intent while digital products can help target measure and convert that interest. The long-term objective is an integrated business in which each capability makes the other one more valuable. So why is this important today and going forward? Primarily because as we move towards 2030, discussions of digital versus nondigital advertising will, in essence, cease to exist. Projections predict that by 2030, $4 out of every $5 spent on advertising will involve digital of some kind. Thus one must integrate and execute. More on that in a minute. So with that, I'm going to briefly relinquish the floor to Sam Bush for his remarks. Sam?

Thank you, Chris. Our remarks today 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 and 10-Qs. 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 included in these selected financial data tables. For the quarter ended September 30, 2026, net revenue decreased 5.4% or $1.5 million to $26.7 million compared to $28.2 million last year. Station operating expense decreased $427,000 or 1.7% for the quarter of 2.4%, excluding the $154,000 noncash rent expense associated with the previously disclosed tower sale transaction. . We reported station operating income for the quarter of $2.4 million. For the quarter, we recorded a $9.2 million noncash impairment charge based on an evaluation of FCC license values. The noncash charge was driven by an increased discount rate due to interest rate increases, a decrease in operating margins and reductions in market revenue projections used in the calculation. Including the noncash impairment charge, the company recorded an operating loss of $9.8 million. Excluding the noncash impairment charge, the operating loss was $563,000 compared to an operating loss of $626,000 for the same quarter last year. For the 9-month period ended September 30, 2026, net revenue decreased 5.8% to $75.9 million. Station operating expense increased $832,000 or 1.2% for the 9 months are less than 1%, excluding the noncash tower rent expense of $561,000. Net revenues for the quarter and year-to-date ended September 30, 2026, were reduced by $188,000 for the quarter, and $564,000 year-to-date due to assigning certain income-producing leases to the buyer on the towers that we sold. Adjusting for the lease revenue, net revenue would have been down 4.7% for the quarter and 5.1% year-to-date. Gross political revenue for the third quarter this year was $1.2 million compared to $73,000 for the same period last year and $1.9 million compared to $395,000 for the 9-month period ended September 30. For the remainder of the year, we sold an additional $3.6 million in gross political revenue, which will result in total gross political revenue expected for the year of $5.7 million. This was significantly above what we've experienced in the past years. The company gross political revenue was $650,000 for the total year in 2025 and $3.3 million for the total year in 2024. Again, the gross political revenue expected for this year is $5.7 million as we finish out the fourth quarter. As we reported in our Q2 earnings call, our local national and nontraditional revenue have all experienced double-digit declines year-over-year, and this has continued into the third quarter. Local revenue was down 11%, both for the quarter and the 9-month period ended September 30. National revenue was down 13.2% for the quarter and 17.4% for the 9-month period. Nontraditional revenue was down 5% for the quarter and 14.8% year-to-date. A positive to local revenue was that e-commerce was up 5% for the quarter and 11.7% year-to-date. Saga's blended digital strategy, which includes search, targeted display, SEO, social, managed email and video, including OTT and CTV was up 24.9% for the third quarter and 55% year-to-date. Non-blade digital revenue was down -- was down 7% for the quarter and 8% year-to-date primarily due to declines in our streaming revenue. We did see increases in some of our newer digital initiatives, including mobile streaming and lead generation services. For the 9-month period ended September 30, digital was 19% of gross revenue compared to 16% during the same period in 2025. Digital revenue for that same period was $14.5 million compared to $12.6 million last year. For the third quarter, digital revenue was $4.9 million in 2026 and $4.6 million in 2025. Revenue for the fourth quarter is pacing up 9%. Digital for the fourth quarter is pacing up 10.7%. Without political, we are pacing down 5.7%. While it is still really early as of November 9, revenue for the first quarter, 2027 is pacing up 5.8% with political not being a factor. Digital is pacing up 29.5% for the same period. Again, while it's still early and these are as November 9 numbers, that's very encouraging. For the quarter ended September 30, 2026, the company recorded capital expenditures of $881,000 compared to $590,000 for the same period last year. For the 9-month period, capital expenditures were $2.9 million, which was comparable to $2.6 million for the same period last year. The company expects to spend approximately $3 million to $3.5 million on capital expenditures this year. The company which we usually address this separately because the timing doesn't work out to be in conjunction with an earnings call, but it's nice to be able to say that the company paid a quarterly dividend of $0.25 per share on October 16, 2026. The value of the quarterly dividend was approximately $1.6 million. Saga's Board of Directors yesterday declared a quarterly cash dividend of $0.25 per share which we are putting out today in this press release, reflecting the Board's continued commitment to a disciplined and balanced approach to capital allocation. The dividend will be paid on December 11, 2026 to shareholders of record on November 23, 2026. The aggregate amount of the payment will be approximately $1.6 million. Including the recently declared dividend, the company will have paid over $148 million in dividends to shareholders since the first special dividend was paid in 2012. The Board regularly evaluates Saga's capital allocation priorities with a focus on maximizing long-term shareholder value. In maintaining the quarterly dividend, the Board determined that the company's current financial position provides flexibility to continue returning capital to shareholders while also investing in Saga's strategic priorities and digital transformation and evaluating other opportunities to deploy capital. The Board will continue to assess dividends, share repurchases, investments in the business and other potential uses of capital based on the relative opportunities available to create long-term shareholder value. During the third quarter, as part of the company's previously disclosed capital allocation plan to sell noncore assets, the company closed on the sale of a piece of land we owned in the Hillhead market, our old Brattleboro, Vermont studio building and a noncore tower site in Portland, Maine, for cash proceeds of approximately $1.8 million, with a gain on the sale of assets of approximately $1 million. Year-to-date through September 30, the plan to sell noncore assets has resulted in total cash proceeds of approximately $4 million, with a gain on the sale of assets of approximately $2.5 million. The amounts stated are exclusive of routine selling costs. The company's balance sheet reflected $23.5 million in cash and short-term investments as of September 30, 2026. And $22.4 million as of November 9, 2026. We expect our station operating expenses to increase 1.5% to 2.5% for the year when including the added expenses that we are taking on to build out the infrastructure related to our digital transformation and the noncash tower rental expense. We expect that our corporate, general and administrative expenses to be approximately $11.8 million to $12 million for 2026. All said, we believe Sage is in a strong financial position to improve profitability as our digital initiative improves both local radio and digital revenue. And I'm going to turn it back over to Chris as he will provide a lot more insight on where that initiative is going. Thank you, Chris.

Thank you, Sam. Thank you, Sam, very much. Look, our team subscribes to a not now but right now attitude. We all live today in an immediate gratification society. I get it. And as of today, we are not pleased with our results, clearly, we must do better. It is taking longer than we would like to answer that question that we've been asking ourselves since we started this journey, and our digital strategy outrun the decline in our traditional business. As you will hear in a moment, we are currently experiencing success in the execution of our blended strategy. The acceleration of our success is increasing. Growth rates are still in double digits, and the transition efforts made are beginning to pay off. And as Sam mentioned earlier, as it did -- and digital as a percentage of gross revenue is up 3 points. So we're seeing more revenue, more customers and longer contracts. And we will continue to be transparent about the timing and we will evaluate our progress based on the measurable financial results rather than simply basing it on amount of digital revenue generated. And please, if you would understand the time energy resources and Fortive it takes to be successful in a frustrating, confusing disruptive buyers marketplace, market where 75% of all media spend today is digital and radio share of media pie continues to hover in that 3.5% to 4% range. Saga's transformational strategy may not be the most popular or even the fastest growing, but it is our path, and we believe it is the right path for Saga's future. I read recently, business author, Alex Formosa in his book 42 Rules of Money said this money love speed and wealth loves time. Speed is for generating quick revenue capturing opportunities and building early momentum. Fast action, testing and launching can bring quick cash flow and early wins, but wealth loves time. Lasting financial success comes from patients, consistency, disciplined long-term building. The fact is we need a little more time for the strategy to completely take hold. And although the results don't reflect it yet, we remain very encouraged. Our leaders and media advisers are qualifying to present on more advertising money than we've ever seen, primarily due to the training and the back-end support the company has provided. The opportunities and the wins are growing as mentioned earlier, at an accelerated rate. They are recurring fuse together with more frequency and recurring in smaller and large markets alike. One opportunity that is happening as we speak is, one, we are 1 of 2 finalists for a piece of business that would generate $100,000 per month in 1 of our Saga markets. Now I don't know yet if we're going to win that, but we haven't seen at the table because we've earned it. And that is significant progress. As I mentioned earlier, I was going to share some other successes with you. And these are just a few that happened in the last 2 weeks, a very recent successes we've seen in Springfield, Massachusetts, we had $109,000 blended renewal that we won that included radio targeted display, and this recruitment campaign is only 7 months long. In Columbus, Ohio, 1 of our Columbus morning share members gave a lead to our General Manager. The initial meeting occurred in late March of '26, the client started advertising in April of '26. And prior to that, they had never spent a dime with us. The initial order was $15,000 a month or $180,000 annually and included radio, search and display. The team managed, optimized and generated results for the client. And then 2 weeks ago, the same client awarded Columbus with 2 additional North Carolina markets. or an additional $27,700 per month for a 12-month order of $332,400. So in total, this Columbus, Ohio order went from 0 in March of '26 to today at $500,000 annually. In Spencer, Iowa, one of our smallest markets. The team was working with a client, which was a school district that was 165 miles away from Spencer. For months, the media advisor told the blended story, gain trust and ultimately won a 2027 order for online learning in the school district, a $15,000 per month order for 3 months or $45,000 total. And in this, they celebrated their very first blended order. And then finally, in Bellingham, Washington, a roofing company in Bellingham, the team presented a blended campaign to a $38,000 per year radio-only client. Recently, they renewed the radio buy, then added $46,000 in search and $90,000 in video to the 2027 campaign. Client spend went from $38,000 radio only to $174,000 annually, with a complete blended campaign. That increase from start to finish, currently sits at 357% increase in ad spend. We also experienced big wins in markets like Milwaukee and Portland, Maine and other markets as well. And in all of these cases, the same thing is taking place. The orders are happening closer together, they're larger in scope, and they're happening in both large and smaller markets and all of them almost to the number, include a great deal of persistence, time, patience and expertise that we've provided our leaders and our media advisers. We continue to dig with diligence, and we are now beginning to break through in many of our Saga markets. I found liken this image to something you may have seen where there's a diamond miner and he's digging deep into the mine with a stick axe. And he's digging and digging and several of his tires. And he sites quit and leave the month. As the picture pans out, it shows that it's just miner had dug just a little deeper and for just a little longer he would have realized all the diamonds his heart desires equipped before it was quitting time. We're now in that space, that difficult middle stretch where resolve gets challenged, but the difficult middle stretch is all part of the process. It's not proof that the process has failed. And to be clear, we're not championing or even asking for blind loyalty to our mission. Our teams must execute period. And as the evidence shows something isn't working, we will and have already adjusted. Smart course correction makes the plan stronger. Course correction, it includes things like strategic expense reductions and the sale of noncore assets to name a few. But there is a difference between adjusting because of evidence and retreating because of inpatients or fear 1 builds the company, the other keeps us stuck. We made the transformational decision for good and sound reasons, and those reasons have not gone away. The only way this transformation fails is if we abandon it before adequate time has been given to it to take hold to indulge for a minute. -- the hardest part of any journey is not the journey itself, but it's resisting the urge to turn back quickly in '15, '19, Bernan Cortez landed on the coast of Mexico with a few hundred man small fleet -- the journey ahead was long and dangerous and uncertainty, some of his men were already whispering about failing home. So Cortes distort the ships. Leasing says he burner history says that he had colead on the ground. Either way, the message was sustained, there is no going back. The only way out is forward. Burning the ships didn't make the journey easier and made the decision final. As long as the ship set in the harbor, every bird ship became a debate, should we keep going, should we turn back? That debate, frankly, brings energy, splits, teams and breathes in decision. Once the ships were gone, the question disappeared, all the energy that had gone into dolling went into moving forward. The lesson is reckless -- is this commitment removes the escape route that fear keeps looking for. Most of us never burn our ships, we keep them really close to us just in case. And here's what happens. -- people will turn back with their feet first. They turn back with their heads. And then the journey hits hard, the MineStar failing home loan before the body does. The old way starts to look safe and comfortable, even though it was the very thing we left behind. The hardship does something else and makes us forget why we started in the first place. We remember the struggle with today. But we lose sight of the reason we chose this road to start. Without that reason, the pain feels pointless. And turning back feels sensible. And that's where indecision is born. When this happens, leaders, employees and supporters lose their focus and fortitude. And it doesn't usually break all at once, it erodes a little each day, and that ships are still sitting there. We made a decision to change because the only way wasn't going to take us where we needed to go -- or manager saw it. When the journey got hard, results came slower than we hoped they would. And some of our people quietly started rolling back in the old and what was once comfortable, not because the old local would work because it feels familiar, it is not as hard. Beer sets in and Fortitude is a loss in this case. And we see the same thing with our clients. An advertiser commits to search, display or audio and in 6 weeks, the leases haven't flooded in yet. So they pulled the budget and sail back to what they did before. And then they claim advertising doesn't work. It just turned around before they reach the shore. So a new direction never gets the chance to take root when people keep 1 foot on the ship. -- inverting the ship doesn't mean ignoring reality. Of course, if the evidence says we need to adjust our route, we adjust. But we adjust by going forward, not by sailing home and with the company and the company has adjusted when it was being necessary. As stated in our Q2 2026 earnings call, we made changes and adjustments and made investments in partners with people and companies that we believe will help us with the success of this digital transformation, and these partnerships are just a few short months old. At the end of Q2 2026, we partnered with Marketron NXT for all of Sage's digital fulfillment products other than search. Market churn was already trusted source for sages, traffic and billing and is now a much improved and robust digital fulfillment solution as well. So the migration was natural for Saga to move our digital fulfillment to NXT. This migration provides consistency, better preparation and speed to market for our leaders, our digital campaign managers and our media advisers. Saga was also pleased to announce its partnership with Boreland Associates. Gordon Borrell and his team are now working with our leadership and sales teams to give us more visibility into the markets. As we've evolved our transformation strategy, there will be moments where we need to recalibrate. Those course corrections are part of getting it right, not a sign we're off track. And as we do beer off track or of course, we are and continue to be quick to recognize it and adjust. So burning the shifts means remember why we came when it gets hard, go back to the reason, not the old way. Decide once stop reopening the question of whether to turn back at the bases where fortitude leaks out. Commit fully, 1 foot onshore and 1 foot on the ship is the most dangerous place to stand. -- and give it to. The middle of the journey where we are right now is supposed to be a little hard. That's not true for a loss. It's proof of on our way. What we are doing is worthy. And if we're easy, we'd already be there. we don't look back at the harbor, frankly, because the ships are going. The only way out is forward and forward is exactly where we're going. Thank you to everyone who has taken time to join Saga's 2026 Q3 earnings call. All of us appreciate your interest in and your support of San Communications through this transition. Thank you all very much.

Tom, we'll turn it back over to you to wrap up the call. Thank you.

Thank you. Everyone, this does conclude today's event. You may disconnect at this time, and have a wonderful day. Thank you once again for your participation.