In a filing with the Securities and Exchange Commission, Gate City Capital Management LLC revealed it is withdrawing its nominees to the board of Saga Communications as Saga requested. Founder and portfolio manager Michael Melby states, “The continued pursuit of our Nominees would not be in the best interest of Gate City or the Company’s shareholders at this time. Gate City appreciated the opportunity to
communicate directly with the Company’s management and directors regarding our views and concerns.” Gate City owns an almost 14% stake in Saga. Melby expresses Gate City’s concerns about Saga, saying, “Gate City’s decision to nominate directors was based on our belief that Saga was determined to pursue its Digital Transformation regardless of the negative impact the transformation could have on Saga’s profitability, cash flow, and share price. Our determination was made following careful analysis and nearly nine months of conversations with the Company’s senior leadership and Board. We repeatedly expressed our concerns 
that Saga lacked the expertise, and the competitive advantages required to succeed in the low-margin and highly competitive digital advertising space. The pursuit of the Digital Transformation would also divert time, attention, and resources away from the Saga’s core broadcast business, where Saga has competitive advantages and earns high incremental margins. Saga also failed to provide investors with any meaningful financial targets or metrics associated with the Digital Transformation including expectations for incremental revenues, costs, margins, and return on investment. Our recommendation that Saga partner with a digitally-savvy company with the capability and experience to execute Saga’s digital strategy without the added costs and risks associated with the transformation was also dismissed.” Melby’s criticism of Saga Communications’ business strategy continues, “In 2024, the Company’s station operating income fell 23.1% year-over-year to $21.1 million, the Company’s operating income fell 79% year-over-year to $2.4 million, and the Company’s operating profit margin fell to 2.1% in 2024 from 10.2% in 2023, a decline of over 800 bps. To make matters worse, this deterioration in financial results occurred during a presidential election year, when Saga should benefit from elevated levels of political spending. Our concern that the pursuit of the Digital Transformation strategy could detract from the Company’s highly profitable broadcast business also appears prescient. On Saga’s Q4 2024 earnings call, the Company noted that it generated $3.3 million in political revenue in 2024. Saga’s 2024 political advertising revenue declined 52% from the $6.9 million generated in 2020 (the last presidential election year) and also fell from the $3.6 million generated in the 2022 midterm election year. The Company’s two largest stations by revenue are located in the battleground states of Ohio and Wisconsin, calling into question the Company’s explanation that Saga’s stations were not in the correct markets. In addition to posting poor financial results, on March 18, 2025, Saga issued a financial filing stating that the Company would be unable to file its 10-K annual report in a timely fashion. This filing further highlights the potential challenges faced by the Company in executing the Digital Transformation.” You can find the full text of Gate City’s filing with the SEC here.
