Good morning, ladies and gentlemen, and welcome to the Saga Communications Second Quarter 2021 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Ed Christian. Sir, the floor is yours.

Thank you very much for setting us up for us for this interesting conference call we should have today. Well, we're going to start in a second here, but I'm -- I was just telling Sam a few minutes ago about a story that I remember as we were going through some items before the call. And years ago, 30-plus years ago when we started Saga Communications, we actually first find ourselves one FM station in New York. And when we did, we sold it to 2 young burgeoning entrepreneurs. And then they went to -- and arranged the meeting with 2 different banks to combine and talk to them about the financing. And they sat in the conference room with banks. And in the beginning of the meeting, he said, "Do you mind if we just run a few numbers by you?" And the bankers walked in and said, "No, not at all. Be glad to have you run a few numbers by us." And so the bankers opened their books reports and everything and started taking notes on this. And these 2 young entrepreneurs said, "Are you ready?" They said, "Yes, go for it." So they immediately got up and took out spreadsheets and ran around the table and said, "We're running numbers around you." What I happen to think it was the most clever story in the world. Unfortunately, the banks didn't quite react that way. And as a result, they were probably some of the shortest operators of radio station. So normally, I would say to Sam take it and run, and you can run a few numbers by us. But in that respect, I think Sam will be a much more cogent speaker when it comes to explaining exactly what we have. We've got a lot of things to talk about today. So we'll start with Sam. And also joining us on this call for a few words on a couple of areas will be Chris Forgy. Chris is our Senior Vice President of Operations, and is a very important part of our little small group of men here and women that fight the everlasting battle of being radio broadcasters. More on that, too, in a few minutes. Sam, it's up to you.

Thank you, Ed, and no I will talk about the numbers, but I will not run them around the room. 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 tables. Saga's second quarter results show significant improvement as the economy continues to recover from the market uncertainties that are attributable to the COVID pandemic and related economic issues. It is important to note that these uncertainties are ongoing and may increase with the recent uptick in the Delta strain and its ensuing effects. That said, net revenue for the second quarter increased a healthy 66.3% to $28 million. Free cash flow was $4.2 million for the quarter. During this time, we continue to manage the business at every level. Station operating expenses were up $2.4 million, with over half of the increase being in sales commissions and music licensing fees that are directly related to the growth in revenue. Operating income was $4.6 million. Last year's second quarter was the only quarter during the pandemic that both our operating income and free cash flow were negative. As bad as things got beginning in mid-March last year, we returned to both a positive operating income and free cash flow in the third quarter and have continued with positive results up to and including this quarter. Net income was $3.3 million or $0.54 per fully diluted share. Gross political revenue for the quarter was $430,000 in 2021 compared to $289,000 for the same period in…

Thank you, Sam. I think that was better than having you run a few numbers around us. So we were -- we are good in that respect. This is a kind of a hard call to really adjust and come into speaking points that are real because some companies come and they just report 2020 to 2021 and then rave about how they were doing bad in a year that was just a miserable year for business in general. And then others look at '19 and '20 and '21. So it's hard for us to really get the hands on numbers and know where we're going, especially with the changes that are going on in the industry. By the way, pardon us, but there is some allergies going around up here in Michigan right now. And so if I sound like I'm losing my voice, I probably am, but we'll get back to that. So with this said, let's talk a little bit about what's going on in the industry and why we feel that we're in a really good position for what we're doing. It amazes me as I look over the last couple of years that how radio companies, strong radio companies have decided that one of the easiest ways to try and choose -- change the paradigm is to change your name from radio. And I don't quite understand that part. Why you would take an identifier that is so highly recognized and -- as radio and say, we're not that anymore, we're audio. And it's a very difficult thing to go out and tell people. What do you do for a living? Well, I'm in audio. Oh? But if you say, I'm in radio. Oh, really, you're in radio? How -- what are you doing in…

I am.

Go ahead. Okay. Chris said his 2 words. And so that just identifies. Thanks, Chris.

You're so welcome. It's 5 words.

Chris and I started talking about this earlier. And a number of years ago, we really started to identify where our business is, and that's in the local businesses in the marketplace. And maybe you can speak for a few seconds or 1 minute or whatever about what we've done there in the last couple of years as you look over the numbers every single day as to what's coming in and what's happening in that in terms of how our business has been changed and what the effect is and how it has helped us really kind of survive the pandemic area.

And I'll do that all in a few seconds. So to your point, Ed, we're not distancing ourselves from the word radio. We're actually embracing it and have been for some time, and we'll continue to do so. You've heard digital first and radio first. Well, we're customer first. And it's all how you approach your business. For example, over the -- just quarterly -- talking from a quarterly perspective through our live and local initiatives, it's really paid off. Local direct in Q2 represented 50% of our total revenue for that period. And we averaged $1.8 million more per month in local direct revenue than we did in local agency revenue. And that is greatly due to our nonnegotiable ongoing commitment to the use of spec spot selling and the process selling and also focusing on new emerging categories that heretofore really haven't been involved in radio. And as a result, in Q2, we produced and created almost 5,500 spec spots over the quarter...

Just wanted you to explain exactly what a spec spot is?

Yes. So a spec spot would be -- spec stands for speculative. So in other words, what we would do is make some assumptions about the client that we're going to be talking to. Also have a Q&A or CNA, customer needs analysis, with them, spend some time to find out exactly where they want their business to go. Then we would come back, take that information and get with our creative team, write a commercial and then have it produced with the client's information on it. And we have standard operating procedure of taking things like, and I mean this literally, boom boxes or very nice audio playbacks that we can really make it sound big. And we take the commercial back in, and that's one of the biggest pieces that we use in terms of trying to move a business forward is giving them a sample of what their commercial and their messaging would sound like should they be talking to our audiences. And...

Even more than that, and I think to me the value of spec spots as such is that when you walk in to talk to our customers, even if it's cold-call, and you have something to say, "let me play this for you."

That's right.

It shows that you've already made an investment in his business. And that's the one-on-one tactile glue that you have with a client where you're able to say that, "Let me play this for you." Now whether it's right or wrong, what it does show is that we made the investment and taking the time to learn about the client. And that jump starts our people over the others in the market. And I'll get back to that in a second. Go ahead, Chris. I'm sorry.

Yes. And no, that's great. That's a great -- that's great input. We've had that happen an awful lot because they, in essence, what the customer would typically say no to if they would say no, is not to us, but to the idea. So we have an opportunity to get feedback from the customer, make the changes on the spec spot and then make it even more effective for them. But as I mentioned, also focusing not only on spec spot activity and productivity there, but also the types of categories of business that we approach. You would typically think is -- it -- traditionally, automotive is the #1 category, followed by banks and insurance and finances. Those typically are 2 largest categories. But in Saga, particularly in Q2, our 2 largest categories were home improvement and professional services. Professional services includes things like plumbing, HVAC and the like. And if I could, there was one example that happened in Columbus that I think really tells the story. One of our markets in Columbus, Ohio, tells the story about how you approach the business affects how you get the business and the thought process -- processes that you use to try to win business from advertiser. We had a -- had an avail that came from the Kentucky Board of Tourism. And it's a typical avail from an advertising agency out of town in Indiana in this case. And the avail came through, and it was a 30- to 45-day lead time on it, went out to all TV and radio. It was a winner-take-all basically for a budget over a 2-month period of time for $65,000. So when the Columbus Group got this avail, they didn't do what most companies would do and most broadcasters would do, and…

Well, and I think it is also important for us to mention that we have through this process that we've been going through, this change in the way we're looking at things that we have discovered so many businesses that have never been approached before. And if I look at the quality that they're coming in with and the difference was, what I'd just tell you that I saw in Ocala, where we just signed a new customer as an archery school -- no, no, no. I'm sorry, excuse me, an axe-throwing.

Axe-throwing.

Frankly, I got to go, whoa. And think about that for a second. I got to process it. And maybe that's perfect in Ocala. I don't know how to play here in Michigan so much. But again, the salesperson, they've never been told don't go to any axe-throwing schools. And we're out there with the commercial and made a pitch and got it, and then got a renewal on the order again too with the invitation to come on back and learn how to throw axes. I think that, that's what we're doing very well in a lot of respects is adding the new categories. And with the change in the industry where they're getting away from saying the name radio, you're also seeing the degradation of the sellers in the business. The other day we were talking about a radio company that is kind of downsizing in some of their locations, maybe more than some. And we're talking about the fact that they were -- they had initially 20 cubes in the business in a building there for their sellers. And they've gone within a few years, down from 20 sellers down to 3 sellers. And for us, we're looking to add people because we have more need to fall in a smaller marketplace. And that's what's really helping us out in a lot of things that we're doing. There was one other category we wanted to bring up that we've been pushing to change from where we were a couple of years ago. And Chris, you can speak to that for a second.

Yes. And again, we are a radio -- customer-first, radio-first company. But we also recognize the value of digital to complement what our core business is. And we're continuing to show rather nice growth there. Now digital represents about 6% of our total revenue. But what's happening most recently is, I think, what's most exciting, and if you look at just Q2 alone again, streaming revenue alone totaled in excess of $350,000, and that's just for the quarter. And year-to-date, we've written over $1 million in streaming revenue compared to just 460 in all of 2019. So the significant changes are taking place, and they're starting to -- we're starting to see the results of our efforts. And then from a digital partner standpoint, which is targeted display and audience extension, year-to-date, that actual revenue category has also eclipsed the entire year of both 2019 and 2020 and really 6 months -- in this case, 6 months into the year. So we're seeing some nice growth there.

Yes. I'm excited, too. It's not dilutive from our core competency in radio.

Right.

In other words, we're not saying, okay, instead of saying $0.80 in a dollar for radio and 20% for the other, we're still going on a 100 cents on the dollar and then adding more in digital because it's in a different genre, per se.

Yes.

And that's what's helping a lot in there. Chris, thanks.

You're welcome.

Do you have any questions in mind, Chris, while you're...

Yes. What time is lunch?

Did you get lunch?

Yes.

Well, go ahead. Thanks, Chris.

Okay. You're welcome.

We'll call you for lunch the next time, okay?

Okay.

Nice to hear from you there.

Thank you.

Down the hallway here. Anyway, I think that that's some of the important things we're looking at, and part of what we're talking about is the tradition of radio. We're talking about the fact that the people that are inside still care about what they're doing in terms of this net cutting, not trying to find quick ways to pretend that they're serving their community, but doing what we're doing. And that's so important to us. One of the things we're doing now, for instance, is we've got some advertising going out where we're looking to hire -- Geez, I don't want to indicate a number, but it's quite a few new broadcast newsperson -- newspeople, not a newsperson, but newspeople. And one that can also cross-pollinate from being [indiscernible] as a good news reporter [indiscernible] But then can also bicycle over to the morning show or whatever else and segue right out of the news class and do a conversation in a morning show, that again shows this whole infrastructure that we're trying to build that is one thing to the community, that when they want to find news, when they want to find whatever else is going on, when they want to be entertained, when they want to know what's happening to this local sports team or whatever, we can deliver that. And that's what leaking out of radio today. And even as the leak continues to go faster and faster, and unless there is a bunch of little Dutch boys out there with their fingers in the dam, we could be in trouble, but we won't be. A lot of other people could be in trouble. And that's what we kind of looked at on that. So we're kind of getting close to being over. What else to share we talk about?

The only thing we had come in -- we had a few questions come in, but they're all basically the same questions. And one, I think, you've already talked about a little bit, and I'll just address briefly is the fact that we do believe radio advertising, as Chris pointed out, is very effective with what we're doing with spec spots and so forth and is very competitive with digital advertising. We hear on every newscast, every entertainment cast about digital, digital, digital. Well, that's great, but it works so much better in conjunction with radio advertising. And we feel very competitive and very strongly that our stations will be able to continue to compete with the Googles of the world, the Facebooks of the world because we are live and local, and we do it online, we do it on air, we do it on site. And I think that's very important. And then, Ed, the other question, again, came in from several people, but it's a question we talk about. We've been very conservative, to a degree anyway, with our cash balances during the downturn and building cash during the downturn in anticipation for the future. And the question becomes your thoughts at this point about plans for that cash position relative to acquisitions, relative to stock buybacks, relative to dividends?

Let's take dividends first because I know that comes up a lot. And believe me, it was difficult in 2020 when we had to stop the dividend -- where we just had to hold that for a temporary period of time. It was nothing at all that we liked doing, but we had no idea because we didn't have any visibility into the future. And we didn't know what down would be. So we wanted to maintain the fact -- we've always said the fact that we have a great deal of cash liquidity in the company. And it makes it difficult for us to analyze that. We sat down and we said, all right, let's increase it to half of where it was [indiscernible] Board of Directors, and let's do this. So that we then have the ability to watch and see how we can build this point back up to where it was historically. And that's something that certainly is high on our screen is to use our cash to reward the shareholders who have been very, very understanding of the company in good times and bad times. So that's important for shareholders to have that. Secondly, I feel that in the next couple of years, you're going to see some really good opportunities in the markets in which we serve to acquire and build or even the markets we don't currently serve, but the market's that -- there's a very fine criteria that we use for looking for radio stations. And that is -- and when I tell you it's a tough criteria because we're not out there just adding stations for the sake of adding them. We're not out to say, well, we just want a cluster of 12 radio stations. They have to fit the…

I don't have it ready with me, but it's been a sizable number in the tens of millions of dollars.

I want to say 72 or something like.

Yes. That 72 is the total dividends we've paid since we started the dividend in 2012, and I've actually got the total stock repurchase in my office, but I don't have it right here with me. Just looking to see if...

Well, over the years -- it's been -- and Sam's quickly rushing through his reams of paper.

Actually, okay, here, I've got it. Actually, I do have it here with me. Total purchases since the inception of the plan, which goes back many, many years, is 50 -- almost $57 million in stock.

I wasn't too far off.

Yes.

Okay.

So $50 million in dividends...

Good boy, Sam. That was really -- that's a fast catch right there, I got to say thank you for that.

I was running again, Ed. I was running. There we go.

Anything else that I missed?

No. I think that's a good coverage, and it was good to have Chris on the line with us today.

Well, we got to introduce him every now and then. I mean, you got to bring Chris out and give him a chance to stay on the edge of the stage and say, "Hi, I'm Chris." Actually, Chris has been with us for a number of years. He was our General Manager in Columbus, and was brought up here several years ago and -- when Warren Lada retired. Chris has been just wonderful for us in the team here. So we just -- so we bring him from behind the stage and get him to say his few words on the big mic here.

Thank you, Ed, and thank you, Sam.

See he speaks again. All right. That's -- and I thank everybody for being on the call today. Listen, Sam and I and even Chris would be available to talk to anybody. And we're here in the office, and please feel free. We've always been accessible. We don't use scripted material. We use our hearts and our feeling and our love for the radio. And so we've had to make some modifications in how we do it. We know that, believe me, radio is still an integral part of America. And you will never find us using the word calling us we're audio proliferators. Like that? That's pretty good.

Like that.

That was good. Audio proliferators.

Yes. Okay.

Write that down.

Thank you. All right, everybody. Thanks so much for joining us on the call today. And again, anybody who wants to talk to us, we love to talk about radio. Thanks.

Catherine, we'll turn it back over to you to wrap it up.

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.

Thanks, Catherine.