Q4 2020 Salem Media Group Inc Earnings Call
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Greetings and welcome to the Salem Media Group, Inc. Fourth quarter 2020 earnings Conference call.
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Reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. Ebb and Maicer Chief Executive I'm, Sorry, Executive Vice President and Chief Financial Officer. Thank you. Sir. Please go ahead.
Thank you and welcome to all of you for joining US today on Salem Media group's fourth quarter 2020 earnings call.
As a reminder, if you get disconnected at any time, you can dial back in and or listen from our website at www Dot Salem media Dot com.
Joining me on the call today are Edward and singer Chief Executive Officer, David Centrella, President of broadcast media and David Evans, President of interactive and publishing.
We will begin and just a moment with our prepared remarks and once we're done the conference call operator will come back on the line to instruct you on how to submit questions.
Given the current circumstances, we're once again continuing to work remotely so that may cause some extra coordination during the question and answer 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.
<unk> results may differ materially from those anticipated and reported results should not be considered an indication of future performance.
And change and undertake no obligation to update our forward looking statements, including forecasts of future performance 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 station operating income or Soi.
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.
And with that I would now like to turn the call over to Edward that sooner.
Thanks, Kevin and thanks to all of you for being part of today's call.
Well I'm I'm pleased to report that Salem's business continues to improve.
And the fourth quarter of 2020 was the best quarter of the year.
But before I begin to review the quarter's financial performance I'd like to spend a little time discussing our growing digital platform.
And about a month ago, we launched and other digital initiative within our broadcast Division Salem podcast network.
And started this new venture with a partner with a new podcast by Dinesh D'souza we.
We have since added Charlie Kirk's podcast, which was previously distributed by podcast one.
And we expect to add more high profile conservative and Christian and podcasts and.
And the coming months.
The launch has been extremely successful with $11 2 million podcast downloads and the last four weeks alone as well as $1 9 million views of the video version of these podcasts.
Advertiser demand for the new products has been tremendous.
We've already booked $2 $1 billion of new business for these new platforms.
And Salem podcast network is layered on top of our other successful broadcast digital initiatives, including Salem surround our local digital and multimedia advertising agency, which we launched in 2018.
And Salem, now and over the top streaming movie business that was launched and the second quarter of 2020 have.
And this to our National Digital Division and you can see that we have developed quite a significant digital footprint.
In fact on a combined basis, we had $18 $1 million and total digital revenue and the fourth quarter of 2020.
Which was an increase of 24 eight per cent from the fourth quarter of 2019.
Total digital revenue represents now 28% of Salem as total revenue, which is about double the industry. According to the radio advertising Bureau.
This growth and digital revenue gives sale and quite a unique and diversified revenue mix compared to other radio broadcasters. So now we're 25 per cent traditional radio advertising 27 per cent national and local block programming 28 per cent digital revenue and that's a combination of advertising and e-commerce and eight per cent book publishing and <unk> 12 per cent missiles.
And as other revenue.
So with that let me now walk you through our financial results.
For the fourth quarter of 2020 total revenue decreased by 0.2% expenses increased by 0.3 per cent, which resulted in a day three per cent decrease and adjusted EBITDA.
I should point out that we had several one time expenses totaling $1 $9 million in the fourth quarter related to a legal accrual and and some other miscellaneous expenses.
When taking these one time items into account adjusted EBITDA would have been up $16 four per cent. So so you can see our performance despite the challenging economic conditions.
Was was robust and on the way back.
Let me now review the results by Division to give you a little more perspective.
We continue to see sequential improvement and the broadcast division.
For the fourth quarter broadcast revenue increased by five 9% when compared to the third quarter of 2020, but did decline four eight per cent when compared to the fourth quarter of 2019, while we're not happy obviously with the decline in revenue it does compare favorably to the industry as a whole.
If you look at the Miller Kaplan data for the radio industry as a whole the markets and which Salem operates was day.
And $15 four per cent.
So our performance five 9% and certainly better than that once again. This outperformance can be attributed to say and this business model with its foundation based on National local and Ministry block programming and also as a result of our recent investment in and the attention to our digital growth opportunities.
Political revenue was a big contributing factor and the fourth quarter and it's a matter of fact.
We had the biggest quarter political revenue and the history of our company recording $3 5 million.
Two political revenue and the fourth quarter of 2020.
By comparison, we book the only 400000 of political advertising revenue and the fourth quarter of 2019.
We also ended 2020 by the way.
With record political revenue totaling $6 $6 million, but to put that and prospective sale and the second best year ever for generating political revenue was 2012, when the company book $5 5 million in that category.
Even during the pandemic Salem Salem's National Christian Ministry Block programming revenue has held up quite well and.
And the fourth quarter revenue declined $2 four per cent primarily related to a couple of program producers, whose revenue model is heavily dependent upon event revenue for most of their budget, we expect them to be back once the once the.
Covid crisis is over.
This revenue stream provides a solid foundation for our businesses as it has from our inception and represents just about 25 per cent of our total broadcast revenue.
Local digital revenue increased $46 five per cent to $6 $8 million and the fourth quarter of 2020 compared to the fourth quarter of 2019, Inc.
<unk> in this category.
$6 8 billion did.
Digital revenue from our owned and operated local radio websites Salem surround and Salem now.
And we were and remain most encouraged by the returns we are beginning to reap on our digital investments and.
And we expect to see additional vigorous growth and this category in the coming quarters.
We're also continuing to see improvement and traditional radio advertising spot revenue total spot revenue improved 21.1% when compared with third quarter 2020.
Of course compared to fourth quarter 2019, local spot revenue declined 19, 3%.
While national spot revenue improved 16, 2%.
Combined total spot revenue was down 10, five per cent on the quarter compared to the prior year, which was better than the industry again, which according to Miller Kaplan showed a decline and total spot revenue of about 17, 8%.
And finally, we had another great quarter with our syndicated network business with revenue and improving 13, 8% driven by growth and affiliates.
And strong political revenue.
I mentioned on our last call that we launched the Charlie Kirk show in early October we were pleased with the early results of this show and his affiliate growth.
Expenses and the broadcast division were down four 6% due to lower sales commissions and cost control measures that we outlined during our second quarter earnings call. However, our reduction and expenses were partially offset by some of the onetime increases that I referred to earlier.
Revenue generated by our National Digital Division was up 14.5% Townhall media network on the Conservative news and opinion sites and and.
Great quarter with revenue up 36, 2%.
This growth was due to a combination of 61 per cent increase and website visits strong political revenue and the continued growth from Townhall VIP or premium subscription service, which was launched at the end of 2019.
And obviously the election was a large driver and the increase in traffic and revenue on our Christian websites increased $6, one per cent and Christian church products, our ecommerce business was up five 6%.
Expenses and the National Digital Division were up 10, 1% due to increased variable sales marketing and content cost.
Finally revenue in our publishing division.
Increased 19% of this increase was driven largely by at Regnery publishing and by the success of the book one vote away by Ted Cruz and <unk>.
We're quite optimistic about regnery and Salem books in 2020, one as we have a solid lineup for a non election year.
Some of you may have seen and the news that Simon and Schuster cancel centers, Josh Hawley's book, We're pleased to report that we will be releasing his book the tyranny of Big Tech on May 4th.
<unk>, our self publishing business.
It was up 11, 3% on the increase and author submissions and the rounding out of our sales force.
So with that let me turn the call back to Evan for additional detail on the quarter's performance Evan.
Thank you Ed.
For the fourth quarter total revenue decreased <unk>, 2% to $64 $5 million.
<unk> expenses on a recurring basis increased 0.3 per cent to $54 $6 million.
This resulted in a 3.0 per cent decrease and adjusted EBITDA to $9 $9 million.
Net broadcast revenue decreased $4 eight per cent to $48 $1 million and broadcast operating expenses decreased $4 six per cent to $36 2 million, resulting in station operating income of $11 $8 million a decrease of five 3%.
On a same station basis net broadcast revenue decreased 4.0 per cent to $47 $7 million and Soi decreased 7.1 per cent to $11 $9 million.
These same station results include broadcast revenue from 96 of our 99 radio stations and our network operations and represents 99, 3% of net broadcast revenue.
I'll briefly review revenue performance of our three strategic formats.
37% of our now 37 of our radio stations are programmed in our foundational Christian teaching and talk format.
These stations contributed 36% of total broadcast revenue and decreased 10, 1% from the quarter.
Our 32 news talk stations had a decrease of 8% and revenue for the quarter. Overall. These stations contributed 19% of total broadcast revenue.
Revenue from our 12 contemporary Christian music stations contributed 18% of total broadcast revenue and decreased $12 four per cent for the quarter.
Our network revenue increased 13 eight per cent for the quarter and represents 12% of total broadcast revenue.
Revenue from our digital media businesses increased 14, 5% to $11 2 million and represented 17% of total revenue.
Our publishing revenue increased 19.0 per cent to $5 $2 million and represents 8% of our total revenue.
As of December 31st we had $216 $3 million in bonds outstanding and $5 million drawn on the revolver.
Also at $6 3 million and cash and our leverage ratio was 846.
And due to the continued economic uncertainty surrounding the COVID-19 environment and we will.
Not be providing guidance for the first quarter, where.
And we're in the process of finalizing the financial results for February and I can provide some preliminary numbers.
For January and February combined.
Total revenue was down around 4%.
Broadcast revenue and total was down 7% local spot advertising was down 24 per cent and national spot advertising was down 24 per cent.
Local programs, including sports programming were down 12%, while national programs were down 7%.
Local digital revenue was up 15%.
Revenue in our National Digital Division increased 3% and publishing revenue increased 16%.
And we expect March performance to be notably better as the effects of the pandemic started to hit us and early to mid March of 2020.
And this concludes our prepared remarks, and now we would like to answer any questions. So I'll turn the call back over to the operator.
Thank you ladies and gentlemen, the floor is now open for questions.
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Our first question is coming from Michal Krupinski of noble capital markets. Please go ahead.
Thank you and congratulations on a solid fourth quarter.
Couple of questions is there a chance that your networks may pick up additional affiliates with the passing of rush Limbaugh and I.
Was just curious into how you're positioned to increase until he gets beyond what you did and the fourth quarter of last year.
Well I'd be happy to answer that and in fact, if you want to add any color. Welcome to obviously, we are you know we do think with the passing of Rush Limbaugh. He had about 650 affiliates that there is and.
And some opportunity there to pick up additional affiliates.
And right now and many of the affiliates are kind of and a wait and see mode.
And I think much of that is out of great respect for for rush himself. So we do offer two different programs and network programs and that day part Michael We had both the Dennis Prager show, which has been around for a long time is very successful.
But more recently of course, we've added Charlie Kirk and that same 12 noon to three P M Eastern East coast time and time period.
And Oh and.
And we anticipate that there'll be.
Some appetite for one of those two programs.
And with some of those rush Limbaugh affiliates.
Gotcha and then in terms of the the expense reduction that you went through in 2020. One and was wondering if you can give us a sense of how expenses are looking like as you go into the first quarter and and then as you cycle into Q2.
Yeah, I can I can address that.
We've mentioned before some of the larger pay cuts were layoffs.
Some furloughs, we had and across the board salary cut and then four one K match suspension.
We have brought back the rollback those pay cuts effective at the beginning of the year. So the employees are back to what they were earning and the beginning of 2020.
But the lay offs and the four one K suspension are still in place. So we expect expenses to be generally down in 2021.
Okay and then.
Do you have a sense of how much they would be down in the first quarter dose and we're not I guess, we're not lapping what went on this.
And this.
And I assume that most of these expense cuts started in Q2 and Q3, you have a sense of what expenses might be looking like and the Q Q1.
We do think expenses will be down and in Q1.
And the.
Low single digit range and the first quarter.
Okay, and then in terms of all your block programming.
Give us a sense of whether or not you've increased prices. There. This year and then if you could just tell us if you did what the price increases were.
Yeah, We did made and we made the decision early on and the pandemic debt, we would hold rates.
Because everybody and this was announced that some some time ago. So we don't plan any rate increases.
For 2021, and we have and implement entity.
Okay, and then and <unk>.
Media, obviously is doing quite well can you kind of give us a sense of the trajectory of digital media and how and <unk>.
National businesses are performing as.
And then off election year, how do you how do you anticipate that you know to be performing going for the balance of 2021.
Okay.
Well on the broadcast side and Michael David can address some of the more standalone digital businesses, but on the broadcast side of digital and we anticipate significant growth.
That will continue to do well there.
It's a relative you know and.
I'm relatively new part of our business.
And we're continuing to add products and services to it and we're continuing to create.
Create and greater efficiencies, there and you know we see solid growth moving forward.
Are there any metrics that you can add around channel surround and for us or even stay on and now in terms of.
The number of subscriptions the pricing up.
And <unk>.
And any any metrics and you can provide some more additional color.
Well I think I can share certainly share that for instance, streaming revenue, we do add injection on a great number of our radio stations and so and add injected revenue is a category that continues to grow for us.
Both internally with our own sellers selling it and then with third party sellers and so we've seen that revenue grow substantially.
Don't have an exact number for you here, but substantially and the last and the last.
Year in particular, we've seen that and have a really strong trajectory.
Thanks.
And nothing.
Yeah go ahead.
Just turning to our National digital media business says.
Two or three components within that.
Largest component is our AD supported and Christian content and websites.
On that business is pretty mature.
And it did it was held back a little bit in 2020 on pause.
Typically in Q2, and Q3, because digital advertising rights fell across the boards.
And Q2, probably down 20, if not 2%.
By Q4, they went down and I'd say single digits sorry.
So looking into 2021 would expect to see and improvement in those digital CPM.
Secondly, compiling and is our advertising supported conservative opinion websites.
And they had a record breaking year in 2020 because of the election.
And don't expect to repeat that's.
Non election years I'll always we kept on election years, both in terms of page views and in terms of political advertising revenue.
So we do expect that that to have a negative impact in 2020. One and then the final component is on church E Commerce business.
And that was held back a little bit and 2020, because obviously many churches closed on Sunday school programs.
Curtailed and does the yeah, and it's hopefully you know things open back up again in 2020, one with vaccines et cetera, we'd expect to see that business bounce back a little debt. So that's that kind of overview of how we see the national digital media businesses.
Got you and then just a final question on the publishing side, obviously, Josh Holiday book is not expected until May do so and any other significant titles that you're in the and this first quarter that you're.
On our or is it or just looking at a very tough comparison this year and the first quarter.
And so first quarter is always on.
In terms of release says we've always found that Q2 and Q3 are better quarters.
And 'twenty 'twenty, one is a non election year.
And the nature of REIT and Ray and its political titles as it always does better and even number yes. So 2021 we'll have.
It's not as strong as schedule Hasnt, even number yes. We are excited about the gel surety book and we have a title from Dennis Prager and the second half of the yeah. So it's a solid line up but it's not as strong as in.
And in an election year and Youre right on Q1 is light and sends releases.
Titled and Q2 is obviously Joshua alike.
Great. Okay. That's all I have thank you.
Once again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad at this time.
Our next question is coming from Robert Maltbie Singular research. Please go ahead.
Hello, gentlemen.
Congrats on some solid execution and a very difficult environment in 2020.
Thank you and I.
And while a lot of my questions were just cover that was pretty comprehensive but.
Let me let me ask.
About any changes to your cap structure and terms of opportunities to reduce.
Interest rate cost and in this environment.
Yeah as far as our capital structure, I mean, we have a pretty attractively priced bond debt $6, 75% that doesn't mature until 2024.
Given the way the industry has been hit our leverage ratios across the board and for Us and others have certainly increased and it would be challenging.
Challenging to get anything close to that rate. If we were to try to refinance the whole thing today, our focus is going to continue to be on reducing debt.
And improving EBITDA and to get that leverage ratio down.
Regarding the so called <unk> cancel culture and it looks like you benefit.
And from that with the Holly book.
On this team should be and ongoing trend.
Is that also do you feel is improving.
The growth and your digital division with Comcast.
Yeah.
Well I would say so I would say so look whenever.
And.
And when you transfer from supporting that.
Parties and power to those that are and the opposition.
People dig in and.
I think it has had the debt.
For example, on Townhall media, which is our digital conservative websites and they had an all time record year in 2020, driven largely by the election and all the interest and the election, but also townhall VIP.
And as Dave as David Evans said, we won't it won't be as good in 2020. One is not an election here, but they have ratchet it up to a new level and it will be it will be they have now they're not operating level of traffic and revenue that is ratchet up and above where they were in 2019.
So, yes, I think that.
Benefits and and as the loyal opposition.
People people get motivated and I think we'll see some some good interest and are and and the content that we offer a podcast and including.
The conservative websites.
Great.
And also regarding this push pull.
Your new election and versus the reopening.
The economy I think I missed your comments regarding the.
And the environment on pricing, but how.
How would you anticipate the year unfolding with debt that push flow pushed book effect.
You're talking about.
Pricing our products.
Yeah, just the general level of.
The.
<unk> ability to increase.
<unk> pricing AD rates and this evening.
And the economy.
Good looking pretty strong.
Can certainly address some of that and I think as the economy opens back up you'll see a you'll see business are in our industry and certainly for Salem increase.
Currently and so many things are just not available we can't do music concerts, which we do with our CCM radio stations and.
And get a fair amount of sports revenue the sporting events have largely been canceled and so you don't see that so you know and and other examples that are all we all know about and so as.
As the economy opens back up you'll see that in terms of what that will do to pricing and it's a supply and demand business. So as the demand for local spot advertising increases because.
Because restaurants will want to start to advertise their businesses again, and all sorts of other advertisers and wanted to start to get their businesses.
And going back to pre pandemic levels I would anticipate that youll see pricing go up for not just for Salem, but for the industry.
In general and I think that I think on the other side of this as a great opportunity.
For radio in particular and for our digital components as well because you'll just see people.
Business those are our owners are going to want to get their businesses back up and running they want to get her life's going again, and I think we stand to benefit from that.
Thank you.
Okay.
Thank you our next question and it's coming from Michal Krupinski of Noble capital markets. Please proceed with your follow up questions.
Thank you I just a quick one I know that you had talked about possible asset sales and it seems like you've got a little set back from a sale of some stations I was wondering if you could just talk a little bit about future asset sales and the prospect of additional debt.
Debt per down related to that.
And we don't have any plans to spin off any of our broadcast facilities right. Now we have mentioned on past calls that we are actively looking at opportunities to monetize some of our real estate holdings and those look from favorable I think that we will be able to do that and probably at least some progress on that regard.
In 2021.
Where we have sites, where we can.
And where they can be joint uses where we can continue to broadcast but then accommodate other uses as well there are several situations and we're looking at where that might be possible and where we're making progress on that.
Well, we'll know more as the year unfolds, but but.
But I expect to see I expect to see some at least one or two events this year.
And I'd be surprised if that didnt occur.
And by the way Michael when you asked the question earlier I was just thinking I don't know.
To give you a little more color on where we are you know here's the thing that's encouraging to me.
Consider this 2020, one 2020 was a disastrous year because of COVID-19 for all of us, but if you look at Salem as underlying business model, we were up at record levels and our digital business. We were up at record levels on our network syndication business. They they were up the whole the whole year.
We did very well with the Townhall media, our conservative websites, they've ratchet it up to a whole new level.
Driven by interest and the election, but also and which was unprecedented but also all of the other things associated the impeachment hearings, but not just apple so our VIP offering.
So very encouraged by that.
We were up and Salem, author services, particularly in fourth quarter, where we finally got a full fully staffed sales outfit and we found that many people during COVID-19 had time to write book. So we signed up any more authors. So we've got some very bright strong spots and in our and our company.
Where was the weakness.
The weakness was local spot local program dependent upon businesses that were shut down and Dave.
David mentioned sports events will sporting events were shut down and a lot of sport revenue spot revenue from sports cover and sports that was all that was wiped out the biggest thing that was wiped out was event revenue as David mentioned, we do a lot of concert, but we had while we have the listener listener trips that we sponsor we had over almost 900 people scheduled to go to a on Alaska.
Crews that was scheduled for last last summer that had to be canceled.
That was wiped out we had a trip to Israel with Sebastian Gorka that had I think about 500 people signed up that was wiped out and those are all directly COVID-19 related so with Covid disappearing, we expect to see those things back bounce back and on the.
Event on the event revenue alone we've rescheduled the Alaska crews, we're already at about 500 and folks that have signed up to go we expect that to continue to grow what's it's going to be late August August 28th if you're interested Michael you might want to sign up it'll be a good trip.
[laughter], we've got we've got another one going to Israel with Dennis Prager, and Mike Gallagher and we've already got about four or 500 people signed up for that and that's not until December. So the point is we have some great underlying strengths that didn't really stumble during the bad year, but we had massive stumble and on the broadcast side primarily.
Cause of <unk>.
Because of.
Covid related events cancel events canceled sports.
Business shutdown and local spot local program, our Regnery publishing and I said Salem author services. This is our self publishing business. It did quite well as I said because people were sequestered at home. They have more time to write books, we signed up a lot of new authors and we'd be we'd have to see that really take off and fourth quarter, particularly not only because of the authors.
The number of authors and the pipeline increase which is the key to future revenue, but also because we had fully staffed our sales were up to.
Full staff, we hadn't been for probably the last year and a half. So that has helped there and and then regnery think about regnery and irregularly book publishing 'twenty 'twenty, one first of all Barnes and noble the largest bookstore chain and all of the other bookstores closed down so you've got some of the books and book stores, Amazon and prioritizing essential services, they're not.
The size and book sales, so it would take a lot longer to fulfill books.
Trying to promote books on our platform COVID-19 news.
Sucked all the oxygen out on the air so and so the weaknesses, where local spot events sports regnery for all of those reasons and they're all COVID-19 related and so I'm on.
Look I don't want to I don't want to hype things I don't Wanna be unrealistic.
But I think the underlying strengths are very encouraging our digital business grew dramatically our national business group, our digital conservative platform Ratchet it up to a new level and even though it'll be down a little bit and 'twenty 'twenty, one because there's a non political year. It will operate at a new level that is higher than it was in 2019.
For all of those reasons I think that's the book keep your eye on those businesses and let's see how they recover and if they do I think well I think 2021 should turn out to be pretty good year. Once we get to herd immunity and I don't know if you saw the article in the Wall Street Journal by the Doctor from John Hopkins, which is generally considered to be.
The gold standard for Covid information. He says we'll have herd immunity by April.
And I think we will by the way I've had I've had both my shots on my second vaccine and my wife So.
As the country gets their vaccines and as people that have had it and get the little herd immunity I think we'll see things open up pretty dramatically next month.
Well you did a great job last year against your peers, and so I'm very optimistic as well so good luck.
Yep.
Thank you at this time I'd like to turn the floor back over to Mr. <unk> for closing comments. Thank you operator and again, thanks to all of you for joining us and.
We're encouraged and we look forward to a more optimistic report the even and this one on our next earnings call and we hope you'll join us for that so until then we will say goodbye.
Ladies and gentlemen, thank you for your participation in todays teleconference. You may now disconnect your lines on the webcast and have a wonderful day.
Yeah.
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Okay.
Yeah.
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