Q3 2019 Earnings Call
Greetings and welcome to Salem Media groups third quarter 2019 earnings call.
At this time, all participants are in listen only mode.
A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Evan May serve CFO . Please go ahead.
Thank you and thank you all for joining us today for sale and media group.
Third quarter 2019 earnings call.
A reminder, if you got disconnected anytime you can dial back then or listen from our website at Www Dot Salem media Dot com.
With me today, or Edward Atsinger, Chief Executive Officer, David Evans, President of interactive in publishing.
David Santrella President of broadcast media is out of town, but on the Caldwell.
We will begin in just a moment with our prepared remarks and once we are done the conference call operator, we'll come back on the line construction and how to submit questions.
Please be advised that statements made on this call that relate to future plans event.
Actual results prospects well performance are forward looking statements as defined under the private Securities Litigation Reform Act like 95.
These forward looking statements are based on currently available information.
Actual results may differ materially from those anticipated reported results should not be considered an indication that future performance.
We do not intend to undertake no obligation to update our forward looking statements, including forecasts of future performance.
Potential for growth of existing markets, the opening up new markets.
Well the potential growth from future acquisition.
This conference call also contains non-GAAP financial measures within the meaning of regulation G.
Specifically station operating income or X or Y EBITDA adjusted EBITDA.
Adjusted free cash flow.
Conformity with regulation G information required to accompany the disclosure of non-GAAP financial measures is available on the Investor relations portion of the company's website.
At Www Dot Salem media Dot com.
I'll now turn the call overhead would actually go ahead.
Do you happen. Thanks to all of you protect the tied to join US for this quarterly update.
I'll begin my prepared remarks, with an overview of the third quarter financial performance.
Proceed to update you on recent M&A activity.
I'll conclude with a brief comment on a quarterly cash distribution.
At that point I'll turn the call back to Evan who will provide a more detailed explanation information on third quarter and also provide guidance for the last quarter of the year.
With that said.
The third quarter 2019, or revenue was a bit better than the guidance. We provided on our last earnings call.
Pacing at that time suggested there's quite a good revenue of between 4% and 6%.
However, we were able to finished the quarter little better than predicted that the decline of only 2.2%.
Great operating expenses were down zero point, not reset which was given that within the guidance we provided.
For the quarter adjusted EBITDA was down 13%.
Let me break down those numbers by division.
In terms of revenue and expenses.
The quarter broadcast revenue declined 2.3% or $1.1 billion.
Meaningful amount of this decline was due to the fact that we sold radio stations in the Miami and then the all markets.
When considered on a same station basis broadcast revenue was down 1.4% or $650000.
In addition to be impacted revenue come to stations that were sold broadcast revenue was also impacted by the absence of political revenue.
And this not election year I looked at recorded last year. This division had $1.2 million a political revenue, but only 200000 the board rapidly in the third quarter for sure but declined $1 million.
Adjusting for the impact of the radio station sales as a reduction in political revenue broadcast revenues actually increased 0.7% or $350000.
On a same station basis, excluding political revenue total spot revenue, including local and national was down 1%.
And that weren't component of the broadcast division, how it performed well with revenue up 9% what political revenues factored out.
We've been pleased with the success achieved by our network talent, especially pleased with the growth of Sebastian Gawkers Americas first program.
Which we only launched in January of 2019.
[noise] local digital revenue continues to perform well largely due to our investment in Salem, So around <unk>.
Third quarter total digital revenue was up $1.5 billion or 68.3% to $3.7 billion. Additionally, the golden profitability of sensor out has been consistent with our expectations.
Broadcast expenses increased only 0.4% despite the increased digital revenue, which has a higher cost structure.
We're continually looking for ways to be more efficient and contain the growth in expenses.
And our National Digital Division, both page views and programmatic revenue were up direct advertising revenue. However, it was down due to the continued level of competition for revenue from Google Facebook.
Oh, this led to revenue declined 12% or $1.2 million.
Third quarter 2000 like field.
We were able to cut expenses by 9.2% to offset at least part of the revenue decline.
Finally, our publishing division posted strong third quarter results with revenue, increasing 15.3% or by almost a million dollars.
The growth came entirely from Gregory our traditional book publisher as a result of the strong book publishing schedule in the quarter. In particular, we had strong book sales from carry Severino in Mali Hemingway's Justice on trial, the cabinet confirmation of the future of the Supreme Court.
Also for Michelle Alcons open borders Ache, whose funding Americas destruction, and finally, Greg lorries, Johnny cash the redemption of American Idol polled all those books have done well in the quarter.
You should also add that we have a sort of why did the books scheduled to be released in fourth quarter.
Included in the wind up or Sebastian Gawkers The war for America's sole Donald Trump the west assault on American how we take back our country and then Charlotte and Karen Pets is Marlin bundles best Christmas ever [laughter] Finally, David Limbaugh's guilty by region live in Sadly why the Democrats must now with.
Expenses and publishing division were up 4.9% due to the cost of sales related to the revenue growth.
Order the publishing bridge and generally the profit of almost $800000 compared to all the $100000 in Q3 of last year.
Oh, let's take a look at the M&A activity.
We had quite a bit to report on September 18th we sold W. O R. L a gun to Orlando for $900000.
Additionally at September 26, we sold for radio stations W. Ell C.C.A.M.W.W.M. I hear you had in Tampa and W. O C. N am formally WK T. I M Nwz A.B.A.M. in Miami for $8.2 billion.
Despite the fact that the stations closed in September I might add the proceeds.
Were held in escrow until stuff Cc Fidelity was issued accordingly, we did not receive appreciate proceeds until October 20, there, but that deal to know completed.
Also on September 27.
We finalized the swap okay, Oh, well am in Seattle for Kate P.A.M.A.M. in Portland.
Oh, we currently have to sales spending we're selling nine radio stations were $8.7 million.
The stations to be sold R.W.A.M.S.A.M. in Atlanta, W.W.D.J.M. in Boston, W.H. KZ again in Cleveland.
Okay E X B.A.M. formally K T O am in Dallas KD T M. A and then Denver, KTVK and Houston K R. D wave in San Antonio K X Kathryn.
In Saint Louis and W. after the D.A.M. in Saint Louis we're expecting the this transaction closed end fund.
Later this week early next week, and we intend to use all the proceeds to pay down debt.
On October 31st we also entered into a transaction to sell the FCC license and transmitter site equipment associated with Wbz WH piano, Pubco, Florida, a suburban Orlando $485000.
Hey numbers, we're changing the 10 acre transmitter site, we expect to close on this transaction in the first half 2020.
We also had two small website acquisitions. Our July 10th we acquired to selected we acquired selected items from the digital content Library from Steelhouse Productions gained.
The $100000 in cash and on July 25th we bought journey box media Dot com.
I was in bars.
Finally, with regard to our cash distribution, we paid $1.7 million accordingly.
Color dividends or six gonna have sets per share on September Thirtyth 2019.
The 26 cents per share and we'll just represents a very attractive 16.4% dividend yield based upon the current stock prices of course, it's not a dividends of cash distribution.
Capital.
And with that I'll turn the call back to you Evan for additional details on the course.
Like guidance for Q4.
Thank you Ed and before I get started we've given the numbers allow me to address the delay in our earnings release.
Because we had a three year cumulative pre tax loss in large part due to the sale of some stations.
We were required to perform a detailed analysis on the necessity of additional valuation allowances against our deferred tax asset.
This resulted in $5.4 million in valuation allowances being recorded during the third quarter.
Now turning back to results for the third quarter total revenue decreased 2.2% to $64.1 million.
Operating expenses on a recurring basis decreased 0.1% to $55.1 million, which resulted in a 13.0% decrease in adjusted EBITDA to $9.0 million.
Net broadcast revenue decreased 2.3% to $47.7 million and broadcast operating expenses increased 0.4% to $37.3 million, resulting in station operating income of $10.4 million or a decline of 11.0%.
On a same station basis net broadcast revenue decreased 1.4% to $46.5 million and that's why decreased 11.4% to $10.6 million.
The same station results include broadcast revenue from 104 of our 109 radio stations in our network operations and represents about 90% of our net broadcast revenue.
I will briefly review revenue performance of our strategic formats.
38 of our radio stations are programmed in our foundational Christian teaching and talk format.
These stations contributed 40% of total broadcast revenue decreased 6.6% for the quarter driven in large part by a reduction in event revenue due to timing and a 2.3% decrease in national block programming revenue.
Our 33 news talk stations had a decrease of 10.9% in revenue for the quarter.
Some of this decrease was due to the lack of political revenue.
Overall these stations contributed 18% of total broadcast revenue.
Revenue from our 12 contemporary Christian music stations contributed 19% of total broadcast revenue and decreased 5.3% for the fourth.
Our network revenue with political factored in decreased 4.9% for the quarter and represents 10% of totally broadcast revenue.
Revenue from our National digital media businesses decreased 12.0% to $9.1 million and represents 14% of our total revenue.
Our publishing revenue increased 15.3% to $7.3 million and represents 11% of our total revenue.
As of September Thirtyth, 2019, we have $231.9 million outstanding on our bonds and 18.1 million outstanding under the revolver, our leverage ratio was 6.57.
And for the fourth quarter of 2019 were projecting total revenue to decrease between 4% and 6% from fourth quarter 2018, total revenue of $67.2 million.
Excluding the impact of political revenue in recent acquisitions and dispositions.
We are projecting total revenue to be between flat and a decrease of 2%.
We're also projecting operating expenses before gains or losses on disposition of assets stock based compensation expense changes in the estimated fair value of contingent earn out consideration impairments depreciation expense and amortization expense to be between an increase of 1% and a decrease of 2% compared to the fourth quarter.
2018, non-GAAP operating expenses, a $55.6 million.
This now concludes our prepared remarks, and we'd like to answer any questions. You may have traveled turn the call back over to the operator.
And Bracken you take it from here.
Thank you.
This time will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation total into key airline isn't the question Q you May press star too if you would like to remove your question from the Q.
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Our first question today is from Michael Kupinski Noble capital markets. Please go ahead.
Thank you I was wondering first if you can just talk a little bit about the fact that you have all these plans station sales it looks like you're going to be closing here shortly and given the perspective free cash flow in Q4, where we'll get leverage be by year end and what are your goals looking to maybe 2020.
Yes, so with respect to a leverage and our plans first of all you know as Ed mentioned, we should be getting additional eight.
Yes, $7 million here in the next week or so we're going to use that along with the proceeds that we already had to really focus on paying down our our debt.
You know leverage will still be.
Given the.
Guidance that we gave will still probably be north of six at the end of.
Q4, but our goal is to continue to get that lever down as low as possible.
And at this point.
There's no plan on cutting the dividend to be more aggressive on debt pare down that sort of thing at this point.
Our board looks at it every quarter. We we helped our next board meeting is in early December and I'm sure as it has been in every board meeting and recent past the it'll be an object though.
Issue that they'll take a look at and make a decision at that time.
Gotcha and how does the plan station sales affect your network business is that have any effect at all.
No.
Most of these stations that we sold were not even what we consider a key mission formats. A lot of the stations were stations, we picked up from Disney at very attractive prices and so.
So.
Most of them, we're not significant in terms of network.
Okay, and then can you talk I'm sorry.
I'm, just gonna sorry, and we didn't we didn't give up a lot of cash flow with them either right.
Gotcha.
Can you talk a little bit about your block programming heading into 2020 in particular, if you could just talked about maybe to help the some of the ministries and is there a prospect that they will be able to absorb a price increase are you planning a price increase going into January 2020 can you just kind of give us some color there.
Yeah. This is Dave hopefully Aachen, Germany, that's not to the ambient noise isn't too bad.
Just begun the renewal process, so far it's going exceptionally well.
No we do or would you go for rate increases every year, because they're necessary and.
We'll be doing that again this year and so far that process just good our ministries are healthy and a you know we worked very strategically with them. So we anticipate this being another good season there.
Gotcha and then just a final question can you talk a little bit more color on the publishing segment.
Typically I know that they tend to do well as you kind of inter oh election cycle and it's surprising that you did so well in this quarter I was wondering if you could just get a frame.
What what happened in the quarter is this the time when publishing starts to pick up or is it more into next year. When we could expect maybe some continued follow through on the publishing segment.
Well, we have had a good year with book publishing it was a strong release schedule. Our Q3 was the the strongest quarter of the year in terms of the books that we released.
Definitely pleased with the performance this yeah.
Yeah political years, even numbered years election years tend to do a little bit better if you look back at history.
Even numbered years tend to be about 5% battles and off nothing but yes. So you know 2020 is something to look forward to but yeah. We do have some some tougher comps from 29 chain. So yes, I do expect a little bit of growth from 19 to 20, but not as much.
That's because of the tough comps from this yeah.
Thank you for that color I appreciate that pull ahead. Thank you.
Thank you.
The next question is from Lisa Springer of singular research. Please go ahead.
Thank you.
Got a lot of the news lately about the pressure on Facebook regarding political advertising does that create any opportunity for you are you feeling the same kind of pressure on political ads.
What's yours.
On the broadcast side I would tell.
Hi, David I'll answer quickly on the block has signed them give it to you on broadcast side certainly we do think that that provides opportunity to see increased political revenue.
Okay, and the Dave on the digital aside Facebook it definitely scrutinizing adds very closely anything of a political nature. Twitter has made the decision not to take any political ad.
Yeah that political spend is still going to take place and yeah, we hope to benefit from that.
Okay.
And a dentist trigger it seems to be doing fairly well what the new movie. The documentary that came out no say spaces I wonder if he's got any Oh books in the line up is there any way that you're going to be leveraging any success of the movie.
Yes, we we've already we've published.
Two books with Dennis a one lets yeah 29 chain. Another one last year 28 chain. His common trades on all the first two books of the Bible Genesis, an exodus and then most recently we did publish the book often moving those same spaces. So yes, we.
Participating in that and have participated in that on a book publishing level.
Okay, great. Thank you.
The next question is from Steve Basket of Calamos. Please go ahead.
Hi, a couple of questions one on the but the larger of the the two larger of the acquisition or acquisitions be asset sales that you discussed.
You know do.
Indicated that on that at pretty high multiples of EBITDA do you feel for the the buyers of those assets are they going to reformat those stations and and is that why they were willing to pay such a high multiple a run rate EBITDA and then I guess the second part of that.
Question is is there any more are there any more stations that you had better if you look into 2020, there may be your relative way under performing where you can be more aggressive in terms of looking to monetize was assets as well.
They they have re format at all of the stations is one large group a relevant radio and and they but they paid essentially stick values for the properties. They were good properties valuable properties and.
And and they were they were all am properties.
So they did command a very good price and we were pleased with it.
Oh, we don't have a whole lot more we you know if we we may have a few more that could be candidates.
You could all when you have 110 radio station you can always find a view that are probably not performing at the level you'd like them to window, you got a very attractive offer and they weren't a key network affiliate format.
Consider selling them.
Yeah, we have a few above don't have anything that I can mention today, but.
When those situations develop of course will.
The low announcer to the public.
Okay. Thanks, and just just lastly, circling back on the dividend.
I understand the fact that it's a quarter, where he board decision, but could you provide maybe a little bit of color in terms of you know what the discussion details and at what point and at what leverage profile and based on guidance for Q4, it looks like EBITDA for the year war wont be plus or minus $35 million words.
At shooter around seven times leveraged at what leverage profile would you say, that's just too high and we have to caught it.
Well, let me just give you know my perspective as I sit in on the board meetings and listen to the discussions you know we as a company wanting to be in a position that when we have to refinance again in 2023.
Well really in 2024, but sometime in 2003 is likely when will happen.
We're in a safe place to do that so we continually model out where we think EBITDA is gonna be where that's going to be and present that to the board as they.
Make their decisions. So we're really looking at where it not were leverages today, where it's going to be when we're looking to refinancing if it gets to a point, where we don't think we're going to be in a safe position I assume that's one of the board would make a decision and I might add that one of the major factors. The board considers that every quarterly meeting, but particularly at year end beatings is what the budget looks like for next year.
So when we meet in December we will pay taking a look at a proposed budget for the come upcoming year. It is an election year, we'll assess the strength of it.
And I think that will be a major factor in whatever decision is made.
Okay. Thank you that's helpful.
[noise].
The next question is from Anthony Petrone of Jefferies. Please go ahead.
Mr. Brown your line is open.
Yeah.
Okay, well move to the next question.
And just as a reminder, if you would like to ask a question. Please press Star then one on your Touchtone telephone.
Your next question is from just kind of based stuff Ftn financial. Please go ahead.
Hey, guys just a couple of quick ones for me did you say Edward that the proceeds from the Florida sale weren't on the 930 balance sheet.
That's this is having that's correct. It was held in escrow until FCC granted finality and we got that money on October 23rd Okay. Okay, Great and then with respect to the B.L. can you tell me what either what the borrowing base was at quarter end or what availability none of the borrowing base was a quarter.
Right.
I don't have that exact number only but it's usually somewhere in the 25 to 26 million dollar range.
Okay.
And then our as availability are there. So you had 18 one of borrowings.
Are there.
Hello sees that further reduce or should I take or kind of take 20 526 less.
18, one is about 8 million availability is there anything reducing availability I'm not considering.
I think at September Thirtyth, there was $1 million LLC, but that is since been.
Returned back to us so for today's purposes, you could use the you know 26 minus 18 as a as a proxy.
About aided then you got 8 million or proceeds you just mentioned in October from the Florida sale, Okay, and then with respect.
Okay, Okay, and we have another 8.7 coming into the next week or so in the fourth quarter right. Yeah, Great and then with respect to so obviously a lot of Ah acquisition divestiture activity.
Would you characterize the the these moves as as opportunistic or strategic.
Well I would say, they're probably both.
We're very satisfied with the price we found a buyer that had to pick her goals and objectives that we were able to satisfy with a very large group of stations in big cities that they were interested in.
And it's a company we've done business with before and they're very they like their like how we do business and they like the way either the properties have been maintain so I think it was both strategic and opportunistic for us.
Okay, Great and then what was the distinction count at quarter end and the mix between am NFV.
We have a bouton pro forma for the sales about 100 stations.
I don't.
Remember, how many FM in Atlanta.
It's probably you know a.
Two thirds am third FM somewhere in that neighborhood, maybe a little bit more am.
Okay, Great. That's all I have thanks.
Thanks, guys I appreciate it but we do all we do also have a very large number FM translators most of the am stations, we have translator companion translators.
Okay.
Right.
Okay. That's all I have thank you very much.
Thank you.
[noise] there are no additional questions at this time I like to turn the call back to Edward Atsinger for closing remarks.
Thank you operator, thanks to all of you for joining us for the call. We look forward to talking about the yearend results on our next call.
This concludes todays conference you may disconnect your lines at this time. Thank you for your participation.