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…

(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…

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…

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.