Q3 2020 Salem Media Group Inc Earnings Call
[music].
Greetings and welcome to the Salem Media Group third quarter 2020 earnings call. At this time, all participants are in a listen.
Only mode a question and answer session will follow the formal presentation. If anyone should require operator assistance. During this conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I will now turn the conference over to our host Evan Maicer Executive Vice President and Chief Financial Officer. Thank you Sir you may.
[music]. Thank you and welcome all of you for joining us today for sound Media Group third quarter 2020 earnings call as.
A reminder, if you get disconnected at any time, you can dial back in or listen from our website Www Dot Salem media Dot com.
Joining me on the call today.
They are Edward Atsinger, Chief Executive Officer, David Santrella, President of broadcast media and David Evans, President of interactive and publishing.
We'll begin in just a moment with our prepared remarks. Once we are done the conference call operator will come back on the line to instruct you on how to submit questions.
Good.
Given the current circumstances, we once again are continuing to work remotely so that may cause some extra coordination during the Q and a portion of the call.
Please be advised that statements made on this call that relate to future plans events financial results prospects or performance are 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 those anticipated and reported results should not be considered an indication of future performance.
We do not intend and undertake no obligation to update our forward.
These statements, including forecasts of future performance the.
The potential for growth of existing markets, the opening of new markets or the potential growth from future acquisitions.
This conference call also contains non-GAAP financial measures within the meaning of regulation G. Specifically.
Specifically station operating income.
Or Esa lie.
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 on the Investor Relations portion.
Of the company's website at Salem media Dot com.
With that I will now.
Ill turn the call over to Edward Atsinger Ed.
Thank you Evan and thanks to all of you who have joined the call today.
The third quarter of 2020 was certainly a much better quarter than the second quarter of 2020 due to the at least partial reopening of the economy.
My prepared remarks today ill focus on our.
I'd like financial results.
Also some of the challenges that we continue to deal with so due to the co COVID-19 pandemic I'll, then turn the call back to Evan to provide more detailed financial information on the third quarter.
So for the third quarter of 2020 total revenue declined 5.4% expenses declined by seven.
7.4%, which resulted in a 6.9% increase in adjusted EBITDA.
They get a little better understanding of performance, let me, let me look at our performance by Division.
For the third quarter broadcast revenue increased by 15% when compared to the second quarter, but declined.
4.8% when compared to the third quarter of last year.
Despite that decline or those numbers compare favorably to the industry as a whole according to Miller Kaplan.
In the markets, where we operate the radio industry was down 30.2% compared to last year.
Our performance I think highlights the difference.
And our business model with the foundation on National and local Ministry block programming.
And our most recent investments in Salem surround and Salem now Joe.
Just as a reminder, Salem surround is our local digital multimedia advertising agency and save them now is the over the top streaming movie business that we launched.
You too.
Political revenue certainly helped us as would be expected in the third quarter, we recorded $1.9 million of political revenue compared to only $200000 in the third quarter of 2019.
The $1.9 million compares favorably to both the third quarter of 2018, when we had.
$1.2 million of political revenue.
And interesting enough for the third quarter of 2016, when we had $1.5 million of political revenue.
National Christian Ministry Block revenue, which represents approximately 25% of our total broadcast revenue was down less than 2% and continues to provide.
Slide a solid foundation for our broadcast business.
On an organic basis alone local digital revenue was up 40.8% over last year add to that growth continue the contribution from Salem now.
And local digital in total was up 7.8 million.
Million dollars or 107.4%.
So we continue to see encouraging returns from our investments in Salem surround and more recently Salem now.
Turning to traditional radio advertising spot revenues continue to recover total spot was up 26.4% when compared to the second quarter of.
You're 2020.
However, compared to last year local spot revenue was down 25.8%, while national spot revenue only declined 8.4%.
Combined total spot revenue was down 21.7% of the third quarter compared to last years.
Again this was much.
Much better than the radio industry overall, which according to Miller Kaplan till.
Total revenue total spot revenue declined 33.6% for the industry as a whole.
Our syndicated network business remains strong and actually grew revenue, 4.9% in the third quarter when compared to last year.
And on October.
Over 50, we added to our already exceptional lineup of radio talk shows with the launch of the Charlie Kirk shows.
Charlie Kirk is an exceptionally talented young man with a very bright future we were quite excited to add into our lineup.
Broadcast expenses were down 8.1% due to the lower due.
The lower sales commissions and the cost control measures that we outlined to investors during our second quarter earnings call.
These cost control measures have included some furloughs, some layoffs and some pay cuts and other miscellaneous expense reductions.
The reductions and expenses resulted in an increase.
7.1% in station operating income.
And the National Digital Division revenue was up 7.2% Townhall media, our collection of Conservative news and opinion sites had a fantastic quarter with revenue up 55%. This certainly was driven largely by the heightened.
Interest in the election in politics.
Furthermore, we are seeing meaningful increases in web site visits which are up 71% over the prior year.
And that growth from our premium subscript premium subscription service Townhall, VIP, which launched at the end of 2019.
However, this revenue growth.
Somewhat offset by a revenue decline of 7.5% on our Christian websites, which saw reductions in advertising demand in advertising rates, which were directly related declines that were directly related to.
To cope at 19.
Expenses in the National Digital Division decreased.
Was 1.9% again due to the cost savings we put in place throughout the company.
The decline in expenses would have been greater but were partially offset by the costs associated with the rollout of town Hall VIP.
Finally revenue in our publishing division was down 25.3%.
Regnery our traditional.
Total book publisher was down 28.5% in the third quarter of this year.
Covered was a major factor.
Third party distribution facilities and printers that we use had a major slowdown as they had to.
Change work practices to properly socially distance their workers.
The pandemic also caused many book retail.
Colors to temporarily close had not had a significant impact on sales. Additionally, third quarter 2019 had strong book sales from Justice on trial.
Book that we offered from Mali Hemingway carry severino.
But that that strong third quarter 920, 19 performance exacerbated the decline.
<unk> third quarter 2020.
Revenue at Salem, author services declined 18.7% in the quarter again, primarily due to the impact of the pandemic as its authors and had minimal live events at which they sell many of their books, but.
But our publishing expenses were also down 10.8%.
We did have.
One small acquisition on September 15th we purchased hyper pixel media for $1.1 million, we paid $400 million at closing and have deferred payments for the remaining $700000.
Hi per pixel sells videos and other multimedia resources to churches.
And those should provide a nice.
Accretive tuck in acquisition to our Salem Church products business.
And with that I'll turn the call back to you Evan for additional details on the quarter's performance.
Thank you Ed for the third quarter total revenue decreased 5.4% to $60.6 million operate.
Operating expenses on a recurring basis decreased 7.4% to $51 million, which.
Which resulted in a 6.9% increase in adjusted EBITDA to $9.6 million.
Net broadcast revenue decreased 4.8% to $45.4 million and broadcast operating expense.
<unk> decreased 8.1%.
To $34.3 million, resulting in station operating income of $11.1 million, an increase of 7.1%.
On a same station basis net broadcast revenue decreased 2.4% to $44.6 million.
And Sri increased to 2.7% to $11.1 million.
These same station results include broadcast revenue from 95 of our 99 radio stations and our network operations and represents 98.3% of our net broadcast revenue.
I'll briefly briefly review.
Revenue performance of our strategic formats.
37 of our radio stations are programmed in our foundational Christian teaching and talk format.
These stations contributed 38% of total broadcast revenue and decreased 9.8% for the quarter.
Our 32 news talk stations had a decrease.
Crease of 3.3% in revenue for the quarter and overall these stations contributed 18% of total broadcast revenue.
Revenue from our 12 contemporary Christian music stations contributed 16% of total broadcast revenue and decreased 19.2% for the quarter.
Our network.
Revenue increased 4.9% for the quarter and represents 11% of total broadcast revenue.
Revenue from our digital media businesses increased 7.2% to $9.8 million and represents 16% of our total revenue.
Our publishing revenue decreased 25.3.
3% to $5.4 million and represents 9% of our total revenue.
As of September Thirtyth, we had $216.3 million in bonds outstanding and $16.6 million drawn on our revolver.
We also had $19.3 million.
It is in cash at the end of the quarter.
Our leverage ratio was 8.59.
And once again because of the continued uncertainty surrounding the economic environment due to COVID-19, we will not be providing guidance for the fourth quarter.
We are in the process of finalizing our books for October so.
So I can provide some preliminary.
Preliminary numbers for the month total.
Total revenue was up around 3%.
Broadcast revenue in total was down 1%.
Local spot advertising was down 20% and national spot advertising was up 34%.
Local programs, including sports programming, we're down.
18%.
While national programs were down 6%.
Local digital revenue was up 47% right.
Revenue in our National Digital Division increased 21% and publishing revenue increased 4%.
And that concludes our prepared remarks, and we would like to now answers.
And any questions. So I'll turn the call back over to the operator.
Thank you.
At this time, we'll be conducting a question and answer session.
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For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey one moment. Please while we poll for questions. Thank you.
Hi.
Yes.
Our first question comes from.
Michelle Kupinski with noble capital markets. Please state your question.
That's an interesting one michel okay.
Congratulations on your quarter actually beat my ex.
Rotations and things look like.
Steve certainly improved from the second quarter.
Just a couple of questions can you give us a little bit more color on how significant Salem surround is at this point and in terms of revenues in the third quarter and how thats looking as it as it goes into Q4, and then I know that you gave.
The political number for Q3 I was wondering now that.
Political is over what.
What is the total political for the year or can you just give us the political for Q4.
Yes, I'll start with answering the question on on political.
The fourth quarter.
First of all I think there.
We will still be some additional fourth quarter political revenue with the two Senate seats in Georgia that will be highly contested in that election is January 5th.
We have stations in Atlanta that should get some additional revenue.
For that.
It looks like our revenue will be north of $2 million of political.
Well in the fourth quarter of.
20, which by the way compares Favourably fourth quarter of 18 was 1.7 in fourth quarter of 16 was 1.4, so it looks like a robust political year for us.
And in terms of Michael in terms of sale and surround sound surround continues to be.
Grow.
With engine.
For the company right now it's generating.
Pretty regularly 40 plus percent revenue growth on a quarter over prior year quarter basis.
We really right now it's still pretty early on with that we don't see that slow.
Gross down to drastically at least within the next.
Several quarters.
And what margins are you getting on on that or are you getting some decent margins.
Yeah, I mean, the margins are okay. Certainly they are not the size of radio, but theres still Evan what.
Only 30, yes, I would say it it depends on what we're actually selling so different products have different margins.
I'd say that the high is 30 and some margins could be as low as as as 10 yeah.
Gotcha and you you obviously went through a lot of cost cuts earlier.
In the second quarter.
How should we think about the cost savings that you had so far as we cycle into Q4 and thing it looks like businesses trends are improving a little bit.
I would the cost cuts that we've had in place during the latter half of Q2 and all of Q3.
For the.
We'll continue through all of Q4.
Okay, Great I'll, let others ask questions. Thank you.
Thank you Michael.
Thank you.
And our next question comes from Lisa Springer with singular research. Please state your question.
Thank you.
In the publishing business I wondered in October if you're seeing any improvement in the books selling environment have you seen your booksellers with a little more ability to to sell and if you could give us some insight into what.
If you got new titles coming out in the fourth quarter and early into next year.
So we have.
We're seeing I'd say, a return or more of a return to normal and the book publishing area.
On numbers, beginning again in a much more comparable to last year.
Having said that Q4 is always pretty light since.
Mr Brewer leases.
And Thats, particularly you saw this year because with the election, we wanted to make sure that we released any political cycles, yeah early enough in the election cycle.
Myles.
Enough weeks to Sal so biggest.
Jay lease of Q3 was off Ted Cruz booked on the Supreme courts, which was extremely timely and that book has continued to sell very well in October and.
As a result of that we expect to see our book publishing.
In business in Q4 up.
Up on last year, yes.
Probably low double digits so.
That does reflect a return to normal and the strong sales of that particular title.
Great. Thank you.
Thank you. Our next question comes from Michelle Linn with New York Life. Please state your question.
Hi, Thanks for taking my questions just a quick one.
Can you update.
Lumpiness when you're on your revolver availability.
We typically at this point.
About four and a half million or so available. So we had 16.6.
Million drawn so we had about 21 million available at the end of the quarter.
Okay and.
Can you give us an update on how you're progressing with an asset sale.
Ed you may want to talk about any asset sales.
Well we haven't.
We haven't announced any station sales and we don't have any we don't have any thing.
Thing in the works.
We are looking at we are looking at opportunities to monetize.
Some of our real estate holdings that might provide.
Some capital but.
Nothing has been nothing has been finalized.
And.
Probably should have some progress on that we can make some further comments.
In Q1.
Maybe January February but right now.
Discussions are underway and we're exploring options.
Some of the challenges that we have or that we wanted to figure out how that we can continue to operate the summer.
Some of our facilities, while at the same time, monetizing surplus real estate and or putting together a situations where we can.
Where we can.
We have a dual use facility that doesn't impact negatively either of the uses.
So as we get closer to deals of course, we will announce them.
Can you give us a sense for or magnitude.
Yeah.
Potential proceeds and then where they're lumpy.
<unk> in the country.
It's difficult to do the biggest challenges is.
Determining whether or not you have a dual use opportunity and.
That gets into a lot of complicated engineering problems, but.
It's it's we've got we have a lot.
A lot of real estate holdings, all over the country how.
How many of them we can act.
Actually be able to develop and monetize and generate revenue is still an open question, but we were actively exploring all opportunities.
And I can't really at this point I think it would be highly speculative.
Because regulatory the regulatory.
Environment is so complicated these days and particularly if you have powers and you have to move towers.
It's a that can be a complicated road, which takes a lot of time and a lot of money in terms of.
The degree of entitlement requirements that you have sometimes in volumes involving environmental impact report you had extensive ones.
But it it's.
It's something that likely will continue for.
The foreseeable future will continue to explore it and I think that we'll find some opportunities of.
Next year and in subsequent years, but as we get closer we'll we'll certainly try to be transparent on that.
Great. Thank you and congratulations on a good quarter.
Thank you Michelle.
Thank you and just a reminder to ask a question press star one on your telephone keypad and to remove your question from the Q you can press star followed by the number two.
Our next question comes from Stephen Fifer.
With wells capital market management. Please state your question.
Hello, there thanks for taking the time to answer questions.
Good for you is about your cash management strategies I saw that your debt for the revolver went down by $3 million in the third quarter from the second quarter.
I'm not quite used to I think thats basically you keep it at about $5 million.
Less than the Max.
That means that the revolver availability dropped by $3 million in the quarter and that's why you paid it down or what was your cash seems to be about the same and then just kind of wondering what the general game plan is for cash management, and possibly paying down debt or buying back bonds would you did before well the general ideas. Thank you.
Yes.
The revolver, absolutely the availability did drop its a asset based loan so its.
A function of a calculation of some real estate availability that we have but more importantly base.
Based on.
Our receivables so as you would imagine during this pandemic you saw.
Not only us, but other companies revenues dropped therefore receivables dropped and therefore the amount we can borrow declined.
Now as far as cash management strategies and buying back bonds, it's something that we will.
Look to do again, but probably not at this point, we'd like to see the market state.
Stabilize.
Right now, we'd like to just maintain as much liquidity as possible.
Okay. Thank you very much.
Then in the <unk> as far as the asset sale I did the call cut out just a little bit on the previous comment on here you are.
Continuing the current asset sale process to continue is that what I heard it cut out.
No. What I said was that we are we are actively reviewing all of the opportunities that may exist within across the whole.
The landscape of the country, we've got have lots of real estate holding some of which.
Be monetized through dual use modification some of which can be monetized by relocation of station facilities from one location to another and then developed property and we are actively exploring all those opportunities as you might imagine they are complicated.
Entitlement that day.
Time with process today is.
It is very complicated and but we have what we've gotta holdings in many many states and there are many opportunities that should be explored and we are exploring.
And we think some of them will come to fruition and could result in some substantial.
Increased cash to.
The company that we would.
Would welcome and but we don't have anything that we can announce today and as we as things develop I'd be happy to to share that with the investment community.
Okay.
To make sure that I understood.
His ongoing Dan I, just want to make sure. It was you haven't could've been appraised. So no. We're we're doing.
We've got an active we've got an active group within the company that deals with our real estate issues and also the deals with the.
Non essential properties that we might consider that are not mission sensitive that we might consider.
Selling this is not a great environment for selling.
Radio stations right now given the you know the crunch the industry is facing so.
This is not a time, where we would be real aggressive in trying to self as the radio facilities, but we have some facilities and our repertory that that are probably not critical they're not if they're not mission oriented we have certain key formats that we like.
Like to offer in most of the cities, we picked up stations along the way that we're just bargains and that we could roll in and tuck into an existing cluster to get a little scale that aren't that essential and if they are underperforming interminably performing and we get offers that are attractive. We will look at those that just isn't that isn't a phenomena that.
Thats occurring very very widely today and I doubt that it will until this economy opens up fully and and business improves but we have an active we are actively reviewing all of our assets both station assets web.
Web assets real estate assets.
And you know we.
Constantly reviewing them and determining whether or not there's some that we can monetize it can tend to be better served the company. If we spend them off and that's an ongoing effort.
Okay. Thank you very much.
Thank you. Our next question comes from Michael Kupinski with noble.
The markets. Please state your question.
Thanks, just a clarification.
I mean, you mentioned that national was up but.
34% in October I was wondering how much of that was political ex political what would national beyond.
I don't have that number of.
Political but I can tell you that was a large driver of why national spot was up.
Okay, all right okay. Thanks.
Thank you.
Thank you there are no additional questions at this time I'll turn it back to Mr. Edward Atsinger for closing remarks. Thank you all right. Thank.
Operator, and again, thanks to all of you for joining us for the earnings call. We'll look forward to visiting with you again.
On our next call.
Thank you. This concludes today's conference all parties may disconnect have a great day.