How did the drop in net income from $2.5M to $1.1M affect the company's cash flow and dividend coverage?
Short answer:
The press release does not give any specific figures for cash‑flow generation or for the dividend that Saga Communications, Inc. (NASDAQ: SGA) paid in the second quarter of 2025. Because of that, we cannot calculate the exact change in cash‑flow or dividend‑coverage ratio that results from the net‑income decline from $2.5 million to $1.1 million. However, we can outline the logical chain of how a lower net income typically influences cash‑flow and dividend‑coverage, and point out what additional data would be needed for a precise assessment.
1. What the release tells us
| Metric (Q2 2025) | Q2 2024 (prior year) | % Change |
|---|---|---|
| Net revenue | $28.2 M vs $29.7 M | –5.0 % |
| Station operating expense | $22.2 M vs $22.9 M | –4.6 % |
| Operating income | $1.4 M vs $2.1 M | –33 % |
| Station operating income (non‑GAAP) | $6.0 M vs $6.4 M | –6.4 % |
| Capital expenditures (CapEx) | $1.3 M vs $1.5 M | –13 % |
| Net income | $1.1 M vs $2.5 M | –56 % |
| Diluted EPS | $0.18 (Q2 2025) | (no prior‑year EPS shown) |
Key take‑aways:
- Revenue and expenses both fell, but revenue fell a bit faster, so the top‑line contraction translated into a steeper drop in operating income.
- Operating income fell 33 %, while the “station operating income” (a non‑GAAP measure) fell only 6.4 %, indicating that some non‑operating items (e.g., interest, taxes, depreciation) contributed to the larger net‑income decline.
- CapEx was modestly lower (‑$0.2 M), which means the cash‑outflow for new or replacement assets was slightly reduced.
2. How net‑income moves into cash flow (the usual mechanics)
| Cash‑flow component | Typical relationship to net income |
|---|---|
| Operating cash flow (OCF) | Starts with net income, then adds back non‑cash charges (depreciation & amortization, stock‑based compensation, etc.) and adjusts for working‑capital changes (accounts receivable, inventory, payables, accrued expenses). A 56 % net‑income drop usually reduces OCF, but the magnitude depends on the proportion of non‑cash items. |
| Investing cash flow | Primarily driven by CapEx and proceeds from asset sales. The release shows CapEx fell from $1.5 M to $1.3 M, a $0.2 M reduction in cash outflow. |
| Financing cash flow | Includes dividend payments, debt issuances/repayments, share repurchases, etc. The release does not disclose any of these items. |
Because the release does not disclose:
- Depreciation & amortization (a major add‑back to net income)
- Changes in working capital (e.g., receivables, payables)
- Actual cash‑flow from operations (the “cash flow from operating activities” line in the statement of cash flows)
we cannot quantify the net‑cash impact of the net‑income decline.
3. How dividend coverage is normally measured
Dividend coverage is often expressed as:
[
\text{Dividend Coverage Ratio} = \frac{\text{Cash flow from operating activities (or net income)}}{\text{Dividends paid}}
]
or, for a more conservative view, the payout ratio:
[
\text{Payout Ratio} = \frac{\text{Dividends per share}}{\text{EPS}}.
]
The press release only provides EPS = $0.18 for Q2 2025. It does not disclose:
- The dividend per share that the board declared or paid for the quarter (or for the year to date).
- The total cash dividends paid in the quarter.
- The company’s dividend policy (e.g., target payout ratio, minimum cash‑flow coverage).
Without the dividend amount, we cannot compute the payout ratio or the cash‑flow‑to‑dividend coverage ratio.
4. Reasonable qualitative expectations
4.1 Cash‑flow impact
- Lower net income → less “bottom‑line” cash available after non‑cash adjustments.
- Reduced CapEx (‑$0.2 M) partially offsets the cash‑flow hit, because the company spent less on assets.
- If depreciation and amortization are relatively stable, the operating cash flow would still be expected to decline, but the exact percentage could be less than the 56 % net‑income drop because non‑cash expenses are added back.
4.2 Dividend‑coverage impact
- Dividend sustainability is generally tied to cash‑flow rather than net income. A 56 % net‑income decline could tighten the “cushion” for dividends if cash‑flow falls in tandem.
- If Saga follows a stable payout policy (e.g., paying a fixed dividend per share each quarter), the board may simply keep the dividend unchanged, resulting in a higher payout ratio (i.e., a larger share of earnings being paid out) for the quarter.
- Conversely, if the board adjusts dividends based on earnings or cash‑flow, we would expect a reduction in the dividend amount to preserve a target coverage ratio (e.g., 1.5 × cash‑flow). The press release does not mention any dividend change, so we cannot confirm which path was taken.
5. What data would be needed for a precise answer
| Required metric | Where it appears | Why it matters |
|---|---|---|
| Cash flow from operating activities (quarterly) | Statement of cash flows, “Cash flow from operating activities” line | Directly shows the cash generated by the business; the denominator for dividend‑coverage ratio. |
| Dividends paid (quarterly) | Statement of cash flows, “Dividends paid” line, or a press release announcing the dividend. | Numerator for dividend‑coverage ratio; needed to compute payout ratio. |
| Depreciation & amortization | Cash‑flow statement (add‑backs) or footnotes. | Determines how much of net income is non‑cash. |
| Working‑capital changes (ΔAR, ΔAP, etc.) | Cash‑flow statement or balance‑sheet footnotes. | Influences operating cash flow. |
| Total cash and cash equivalents (beginning & ending) | Balance sheet. | Helps reconcile cash‑flow changes. |
| Dividend per share declared for Q2 2025 | Investor relations release, proxy statement, or dividend announcement. | Needed to compute payout ratio relative to EPS. |
6. Bottom‑line answer
Based solely on the information in the press release, we cannot quantify the exact effect of the net‑income decline from $2.5 million to $1.1 million on Saga Communications’ cash‑flow generation or on its ability to cover dividends.
The release tells us that net revenue, operating income, and net income all fell, while capital expenditures were modestly lower. In a typical scenario, a 56 % drop in net income would also reduce operating cash flow unless offset by larger non‑cash adjustments or working‑capital changes. A lower cash‑flow would, in turn, tighten the cash‑flow‑to‑dividend coverage ratio, potentially prompting the board to either keep the dividend unchanged (raising the payout ratio) or to cut the dividend to preserve a target coverage level.
To move from a qualitative assessment to a precise, quantitative one, we would need the company’s quarterly cash‑flow statement and the exact dividend amount paid (or declared) for the quarter. Only with those figures could we calculate the cash‑flow coverage ratio and the dividend payout ratio and determine the true magnitude of the impact.