Q1 2020 Salem Media Group Inc Earnings Call

[music], ladies and gentlemen, please consider the whole to Congress will be good momentarily. We appreciate your patience. Thank you.

Greetings and welcome to the Salem Media Group first quarter 2020, <unk> earnings call. At this time all participants are in listen only mode. A question answer session will follow the formal presentation. If anyone should require operator systems during the conference. Please.

Press Star Zero on your telephone keypad.

Please note that this conference is being recorded.

Well now turn the conference over to our speaker.

Evan Maicer executive Vice President and Chief Financial Officer thinking you may begin.

Oh, Thank you I'd welcome all of you after joining us today for Salem media groups first quarter 2020, <unk> earnings call.

I Wonder if you got disconnected at any time, you can dial back in or listen from our website at Www Dot, Scotland media Dot com.

Joining me on the call today, our Edward Atsinger, Chief Executive Officer, David Santrella, President of broadcast media and David Evans, President of interactive and publishing.

We'll be getting just a moment with our prepared remarks once we're done the conference call operator, we'll come back on the line to instruct you on how to submit questions.

Given the current circumstances, we are all working remotely so that may cause some extra coordination efforts during the Q and a portion of the call.

Please be advised that the statements made on this call that relate to future plans events financial results prospects for performance. Our forward looking statements as defined under the private Securities Litigation Reform Act of 1995.

These forward looking statements are based on currently available information.

Actual results may differ materially from was anticipated and reported results should not be considered an indication of future performance.

We do not know candid undertake no obligation to update our forward looking statements, including forecasts of future performance.

The potential for growth of existing markets.

Opening up new markets, where the potential growth from future acquisitions.

This conference call also contains non-GAAP financial measures within the meaning of regulation G.

Typically station operating income or X or y.

EBITDA adjusted EBITDA and adjusted free cash flow.

In conformity with regulation G information required to accompany the disclosure of non-GAAP financial measures is available under the Investor Relations portion of our website at Www Dot failing media dot com.

And with that I would now like to turn the call Overture Edward Atsinger Ed.

Thank you Evan.

Thank you all for taking the time to join us on todays call.

I'm going to begin with an overview of first quarter financial performance discuss our quarterly cash distribution.

Position.

Conclude with some comments on our liquidity.

My remarks will certainly addresses the impact to cope with like the daughter results. I'll, then turn the call back to Evan who will provide more detailed information on the first quarter.

So for the first quarter of 2020 revenue declined 3.7% expenses were up 3.4%, resulting in a decline of adjusted EBITDA of 55%.

Clearly we were impacted by the financial help fallout from cobot like James.

We had approximately $1.9 million a business that either outright cancelled in March or move to later in the year.

But before I get into the numbers, let me detail for use some of the actions we've taken thus far to help us position ourselves to get through this crisis.

And.

Preservers much financial strength as we can.

First of all we've reduced discretionary spending such as well travel entertainment, which of course has been easy so far we've eliminated open positions, we've instituted a hiring freeze.

We made request for discounts or forbearance from vendors and landlords.

We laid off and for a lot about 10% of our employees.

Limited capital expenditures to emergency.

Expenses only.

We suspended the quarterly dividends, we suspended the four one k. match.

We've taken advantage of the ability for payroll taxes of approximately 3.6 billion under the cares Act.

Had we produce base salary for every employee salary cuts ranged from between 5% and 10% depending upon.

The.

The salary levels.

Let me review the numbers by Division to give you better understanding of Q1 performance.

For the quarter.

[noise] broadcast revenue declined 2% or $900000.

Given however that we disposed of 16 stations in 2019.

It is necessary to look at revenue on a same station basis.

So if you exclude the impact of those dispose stations broadcast revenue it was actually up 0.6%.

With the way with the way the advertising environment completely changed in the closing weeks for the quarter, we were pleased to see.

Increase in same station revenues, so it's a little comfort there.

Oh, breaking this growth down in more detail January same station revenue was up 3.2% and same station now so I was up 14%.

In February same station revenue was up 6.3% and same station S. <unk> was up 15.8%.

You can certainly see the immediate impact of cobot 19, starting in March.

Same station revenue declined 6.9% and same station as to why declined 61.8%.

So once again, the driving force of Oh, the increases in same station revenue.

It was the continued.

The continued growth of our local digital business was one highlight we want to point out it was up 52% or $1.5 million.

You may recall last year. This category was up 57.4%. So we remain encouraged by our investment in say lumps around.

Local spot revenue was down 5.8% on the quarter, though much of that decline was due to the radio station say Olin sales and cancellations, we took related to cope with 19.

Additionally, as a result with a pandemic we had to cancel a number of advance which caused a 17.5% decline in miscellaneous revenue.

Local program revenue declined 13.9% or $1.1 billion.

Approximately half of this decline was due to the sale of the radio stations.

Two above.

Additionally, we lost some sports programming due to canceled events.

Broadcast expenses increased 2.4% in the quarter, because we are concerned about the collectability of our accounts receivable in the current environment. We felt it was prudent to record an extra bad debt reserve of $1.2 million of which 1.1 billion was allocated to the broadcast division.

Excluding this extra reserve broadcast expenses declined to 0.6%.

The National Digital Division revenue declined 11.1% about one third of the decline is due to last years. So you'll have a Newport natural health business. The remainder of the decline was from the continued.

Competition for direct advertising dollars from Facebook, Google and Amazon.

Despite continuing growth in page views and Programatic expense excuse me programmatic revenue.

<unk> expenses increased 3.3% largely due to startup cost associated with the launch of town Hall, the IP a premium subscription.

Product, that's going reasonably well and we're pleased with the progress so far.

Finally revenue at our publishing Division was down 4.1% as result of an 8.3% decline in ourself publishing business Regnery was pacing to be up for the quarter, but the shutdown in the second half of March two two cobot 19 resulted in no further orders from Amazon Barnes and noble and other booksellers publish an expense.

It is were up 5% due to higher royalties.

Corporate expenses were up 8.8% or zero point $3 million. Most of this increase was due to increased accounting fees. The change in in the cash surrender value was split dollar life insurance policies and some increase in travel cost prior to the go but 19 pandemic.

Before the impact of Cowen 19 was being felt throughout the economy. Our board of directors at already approved and we have publicly announced a quarterly cash distribution of 2.5 cents per share that payment was made on March 31st.

As I mentioned earlier, the board of directors as since voted to suspend the dividend until further notice.

With respect to liquidity at March 31st we had $1.3 million in cash and $14 million drawn on our revolver earlier today, we made our semiannual bond interest payment that was $7.3 million.

After the interest payments, we have 15.6 billion in cash and 19 billion drawn on the revolver. We will continue to remain in compliance with both our bond and revolver credit agreements.

And with that I'll turn the call back to Evan for additional details on the quarter's performance Evan.

Great. Thank you Ed.

For the first quarter total revenue decreased 3.7% to $58.3 million operating expenses on a recurring basis increased 3.4% to $54.8 million, which resulted in a 55.0% decrease in adjusted EBITDA to $3.4 million.

Net broadcast revenue decreased 2% a $45.2 million.

And broadcast operating expenses increased 2.4% to $37.3 million, resulting in station operating income.

7.9 million a decline of 18.6%.

On the same station basis net broadcast revenue increased 0.6% to 44.3 million and that's why decreased 18.8%.

$8.0 million.

The same station results include broadcast revenue from 96 of our 100 radio stations in our network operations.

Represents 98% of our net broadcast revenue.

I'll now briefly look at revenue performance to our strategic format.

37 of our radio stations are programmed in our foundational Christian teaching and talk format.

These stations contributed 41% of total broadcast revenue and decreased 5.1% for the quarter.

Our 32 news talk stations had an increase of 4.7% in revenue for the quarter somewhat due to an increase in political revenue.

Overall these stations contributed 19% of broadcasts of total broadcast revenue.

Revenue from our 12 contemporary Christian music stations contributed 17% of total broadcast revenue decreased 8.7% for the quarter.

Our network revenue increased 1.9% for the quarter and represents 10% of total broadcast revenue.

Revenue from our National digital media businesses decreased 11.1% to $9.1 million and represents 16% of our total revenue.

Our publishing revenue decreased 4.1% to $4 million and represents 7% I've called away.

You are the financial impact of the covert 19 pandemic, we recorded $17.6 million in noncash impairments.

Which included 17.0 million of FCC license impairments 300000, goodwill impairments and 300000 masthead impaired in an asset impairment.

Additionally, given the uncertainty of the future economic environment, and our ability to use and a wells.

We increased our valuation allowance by $37.1 million.

During the quarter, we repurchased $3.5 million or bonds on the open market for $3.4 million.

And as of March 31st 2020, we had $216.3 million outstanding on our bond and 14.0 million outstanding under the revolver, our leverage ratio was 6.87.

On April 7th we amended our asset based revolver to increase the amount available under the revolver from 85% of eligible receivables to 90% of eligible receivables.

In addition, we extended the maturity date to March 2024.

Finally in light of.

Certainly surrounding the current economic environment due to covert 19, we will not be providing guidance for the second quarter.

Instead I can tell you to April revenue was down 24%.

I'll break that declined a little bit more detail.

Broadcast revenue in total declined 24% local spot advertising was down 49% and national spot.

Advertising was down 38%.

Local programs were down 26%, while national programs were down 2%.

Local digital revenue was up 30%.

National Digital revenue declined 11% in publishing revenue declined 45% in.

And then maybe revenue was down just around 23%.

This concludes our prepared remarks, and now we would like to answer any questions. So I'll turn it back over to the operator.

Thank you ladies and gentlemen at this time, we will conduct our question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad.

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Once again to ask a question press star one on your telephone keypad.

Our first question comes from David Hubert with Wells Fargo. Please state your question.

Hi, good afternoon, everyone its might have the dividend suspension the increase in the A.B.L.

Percentage I Wonder if you could just comment on your liquidity profile.

For the rest of the year I know, it's kind of hard to call. What you know the third and fourth quarter look like but I just have your comfort level in liquidity runway for the rest of the year. Thanks.

Yeah. This is Evan I'll answer that Davis, what I would say with what we're seeing in the way. The economy is beginning to recover a little bit I will be fine from a liquidity perspective for the foreseeable future so unless things take a.

Another big negative turn we should be fine.

Great and is that to say that you are seeing some sequential improvement from the April numbers would you say that that that month was the trough based on trends you're saying thanks.

That's correct, so far or maybe just a little bit better but June is looking quite a bit better than than me.

Great. Thank you very much.

Thank you.

Our next question comes from Lisa Springer with singular research. Please state your question.

Thank you I'm, sorry, I missed it but did you mentioned what political revenues were for the for the March quarter.

Oh, we did not the political revenue was about 600000 for the first quarter of a 20 as compared to about 400000 in the first quarter of 19.

Okay and typically in a presidential election year will the majority of the political AD spending be seen in the third and fourth quarter.

Yeah, we typically would see a large increase in Q3 in Q4.

So that's what we're expecting a this year as well.

Okay. Thank you.

Thank you.

Our next question comes from Matthew San Schaffer with Missouri. Please state your question.

Hi, guys can can you provide an update on I know you mentioned, if I didn't quite catch it on the cash balance revolver balance revolver availability post the coupon.

Yeah. So we have as a today after we paid the interest payment we have $15.6 million in the bank that's net of outstanding check.

And we had $19 million drawn on the revolver.

That's like you generated quite a bit of cash the ended the quarter and any sense for.

Any sense you can provide on what drove that.

Yeah, I can I'm one of the things that we did get as some advance payments from some customers. Some of our block programming partners that helped with some of it but also we did not see the decline in collections.

We were seeing or that we were expecting a and also from talking to other CFO as an industry. They were seeing much bigger declines in cash collections. Our collections have held up pretty well I do think a lot of it has to do with the nature of our programming the block programming they weren't seeing.

The same declines as a public regular advertisers like Oh, and auto dealer or health club that was closed. So a couple of questions have held up reasonably strong during a this pandemic so far.

Okay, and then just to confirm you said 15.6 million of cash.

That's correct.

Okay, and what kind of availability does that 19 million draw on the revolver on the new a borrowing base.

Our new advance rate.

Yep.

We are based on our.

Last report two wells Fargo and looking at the eligible receivables, we had about 24 and a half million dollars that we could borrow.

Okay. Thank you.

Next question is a the various cost cuts that a that are detailed at the top of the call can you give me a sense for what those sum up to on an annualized basis.

Yeah, I give me a minute.

We don't expect you know it won't be for a full year, our hope and expectation when it comes to.

The pay cuts and the four one k. match, we're hoping we can restore that by the end of the year, depending on how the economy.

Plays out so we're hoping that this will be not a full year, but certainly I can give you a.

An idea of annual numbers [noise].

Well, we're probably looking at.

Just shy of about.

The little less than a million a month, probably 800000 850000 savings a month.

Okay, great. Thank you.

Thank you [laughter] there no further questions at this time I'll turn it back over to Mr. Edward Atsinger for closing remarks. Thank you.

Okay. Thank you operator and again, thanks to all of you for joining us on the call we'll look forward to.

[noise] with you again, when we report next quarter's performance.

Thank you. This concludes today's call all part of it doesn't may disconnect have a great day.