Q2 2021 Salem Media Group Inc Earnings Call
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Greetings and welcome to the Salem Media Group second quarter 2021 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 the 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 having Maicer executive Vice President and Chief Financial Officer. Thank you you may begin.
Welcome everyone and thank you for joining us today for Salem Media group's second quarter 2021 earnings call as.
As a reminder, if you get disconnected at any time, you can dial back in or listen from our website at www Dot Salem media Dot com.
Joining me on the call today are Edward <unk>, Chief Executive Officer.
David Centrella, President of broadcast media and David Evans, President of interactive and publishing.
We will 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.
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 1095.
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 undertakes 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 stock station operating income or Soi EBIT.
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.
All of our web site at Www Dot Salem media Dot com.
And with that I will now turn the call over to Edward Asner, Ed. Thank you Evan and thanks to all of you for being with us on today's call.
In my prepared remarks, I'll focus on our Q2 financial results on our continued growth in digital.
On an update on M&A.
Leverage I'll, then turn the call back to Evan who will provide more detail on Q2.
And we'll also give guidance for Q3.
So with that.
Let's talk about the second quarter from the second quarter of 2021 total revenue increased 26% expenses increased 9.9%, resulting in a 212, 1% increase on adjusted EBITDA.
While the increase in revenue and adjusted EBITDA are significant.
Honestly, we're comparing Q2.2020, which bore the biggest brunt of the Covid lockdown so.
The starts at a bit therefore also important to compare performance to 2019 to though the economy is still not fully recovered in 2021 as it was on 2019, but it's a better comparison comparing to 2019 total revenue decreased 1.4% expenses increased <unk>, 9% and adjusted EBITDA.
<unk> 13, 9%.
On the last couple of calls Ive been highlighting the combined digital revenue per Salem, both the digital revenue on the broadcast division.
The digital revenue on pure play digital Division.
In the second quarter combined digital revenue was up 19, 7% to $18.1 million and represents now $28.3 per sales sales total revenue.
Let's take a look at results by division to provide a little more perspective for.
For the second quarter of 2021 broadcast revenue increased 18, 5% when compared to the second quarter of 2020.
While the overall economy continues to improve and open more much of the second quarter saw continued continuing restrictions on many of the markets.
Which we operate on.
When comparing second quarter 2020 on revenue the second quarter of 2019, when the economy was fully open total broadcast revenue was down 4.7%.
With respect to the growth compared to last year, we continue to see meaningful growth in broadcast digital revenue, which was up 36, 7% compared to last year and up 110, 5% when compared to the second quarter of 2019.
So good progress there much of the of this growth is due to our recent digital initiatives Salem surround stable now and save on podcast network.
<unk> to growth in midstream on revenue.
The newest of these initiatives as the sales on podcast network, which was launched at the beginning of this year, both revenue and the number of podcasts continued growth.
We recently added tourist Reagan in mid June.
And we do expect revenue growth in the future to continue as we add more high profile talent, we certainly will provide updates as we do.
Traditional spot revenue advertising revenue was up 35% with local advertising up 35, 4% on national advertising up 33, 7% we're.
We're still not back to 2019 levels due to the economy, but if we compare it to 2019, we're making progress total spot revenue was down 29% on the quarter, but it's moving on the right direction, our National network had another strong quarter with a 17, 1% increase in revenue.
Growth was driven.
By an increase in affiliates, particularly from net Charlie Kirk show comparing to $2000 compared to 2019.
National Network revenue was essentially flat down all these 0.1%.
National Block programming was up 0.8% in the second quarter compared to the second quarter of last year, while local block programming was up 3.3% in total block programming was up 1.6% compared to last year and declined 9.3% compared to the second quarter of 2019.
Expenses on the broadcast division were up 9.3% due primarily to increased revenue with station operating income improving 66, 6%.
Yes.
When compared to 2019 expenses were down 4.1% due to cost containment initiatives that we've discussed on some of the previous calls and Soi was down 6.6%.
Okay.
At our National Digital Division revenue increased 9.5% compared to the second quarter of 2020 and increased 3.8% share second quarter 2019.
While sales on web networks or Christian on site and Townhall media had slight increases the <unk>.
Difficult growth driver in the second quarter was Eagle financial publications, which was up 26, 7% compared to 2020.
The increase was from the retirement watch newsletter as a result of increased investment in marketing.
Additionally, revenue with Salem Church products was up 11, 1% on the second quarter, primarily due to increased drop postings at church staffing dot com.
Sensors and the National Digital Division increased 9%.
Again due in large part to the increased marketing cost at Eagle financial obligations, partially offset by cost saving initiatives operating income improved 11, 8%.
Finally, our publishing division had a revenue increase of 68, 3% compared to the second quarter of 2020.
Revenue was up 18, 1% compared to the second quarter of 2019.
Both segments of this division had solid growth in the quarter compared to last year revenue at Salem, author services increased 42, 9% from growing the sales force and some increased marketing. Additionally, we had a small benefit from COVID-19 with people being stuck at home at some decided to take the time to write books, which always helps business.
Our traditional book publisher Reagan Regnery publishing.
102% increase in revenue compared to last year, we had a couple of titles that performed very well force, including speak low Spike Michael Rolls irreversible damage by Abigail Shire fault lines by voting Bachmann and the unanswered letter by ferrous to sell which was a national Jewish Book Award winner.
Publishing expenses were up 15, 4 percentage of the costs associated with increased book sales and we posted a $234000 profit in the division.
On the M&A front, we closed on a couple of previously announced transactions on.
On June 1st we acquired 2 am radio stations in San Francisco for $600000. We also acquired center line, New media for $1.3 million on April 28. Additionally, on May 25, we closed on the sale of singing News magazine and singing news radio for approximately on $1000 on cash plus the buyer assumed the subscriptions.
Subscription liability of approximately $400000 finally as far as transactions that were mentioned in our last earnings call. On June 23, we closed on the sales of approximately 34 acres of land in Lewisville, Texas, just outside of Dallas for $12.1 million, we retained 9 acres of the parcel of our broadcast from there with virtually no loss in coverage.
And therefore low loss in revenue.
With respect to previously unannounced transactions on July 1 we.
We closed on the acquisition of shift worship for $2.6 million, we will roll this business under the 7 church products Division.
Finally, I'd like to conclude my prepared remarks, with a brief discussion about debt and leverage if.
If you recall a year ago, our leverage ratio was 896, which was badly distorted by the impact of Covid, but has improved substantially since then.
As of June 32021, we had $216.300 million the $116.3 million in bonds outstanding and nothing drawn on our revolver. Additionally, we have PPP loans of $11.2 million recorded as debt on the balance sheet as of June 30, low.
Month, we were informed that the SBA is forgiven, all but $20000 of those loans. We also had $19.9 million in cash in June on June 30, our leverage ratio was 6.0 <unk> as defined by our credit agreements if however.
We net the cash we have on hand and reflect the forgiveness of the PPP loans, our leverage ratio would have been 5.23.
Substantial improvement, which we're very grateful. Additionally, if you factor in the $12.1 million of cash we received in July from the Dallas land sales leverage would be below 5.
So with that I'll turn the call back to have them for additional details on the quarter's performance and value.
Evan.
Thank you Ed for the second quarter total revenue increased 26% to $63.8 million.
Operating expenses on a recurring basis increased 9.9% to 55 zero million.
Which resulted in a 212, 1% increase in adjusted EBITDA to $8.7 million.
Net broadcast revenue increased 18, 5% to $46.8 million and broadcast operating expenses increased 9.3% to $36.2 million, resulting in station operating income of $10.6 million an increase of 66, 6%.
On a same station basis net broadcast revenue increased 18, 7% to $46.5 million and Soi increased 58, 7% to $10.6 million. These.
These same station results include broadcast revenue from 94 of our 100 radio stations and our network operations and represents 99, 3% of net broadcast revenue.
I'll now 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 38% of total broadcast revenue increased 5.0% for the quarter.
Our 31 news talk stations had an increase of 13, 2% and revenue for the quarter. Overall. These stations contributed 17% of total broadcast revenue.
Revenue from our 12 contemporary Christian music stations contributed 17% of total broadcast revenue and increased 57, 3% for the quarter.
Our network revenue increased 17, 1% for the quarter and represents 11% of total broadcast revenue.
Revenue from our National Digital Media Division increased 9.5% to $10.3 million and represented 16% of total revenue.
And publishing revenue increased 68, 3% to $6.7 million on represents 10% of our total revenue.
And for the third quarter, we're projecting total revenue to increase between 2% and 4% from third quarter 2020, total revenue of $60.6 million.
Compared to the third quarter of 2019, we're projecting revenue to decline between 2% and 4%.
Now on the third quarter of 2020, we had approximately $3.5 million of revenue from political and uncle Tom film on Salem now so.
So if we exclude that revenue revenues projected to increase between 9% and 11% from the third quarter of 2020.
We're also projecting operating expenses before gains or losses on the sale or disposal of assets stock based compensation expense changes in the estimated fair value of contingent earn out consideration impairments depreciation expense and amortization expense to increase between 7% and 10% compared to the third quarter of 2020 non-GAAP.
Operating expenses of $51 million.
Compared to the third quarter of 2019, we're projecting expenses to be between a decline of 1% and an increase of 2%.
This concludes our prepared remarks, and we would now like to answer any questions operator.
Thank you.
And at this time, we will be conducting a question and answer session.
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Okay.
Our first question comes from Michal Krupinski with noble capital markets. Please state your question.
Thank you and congratulations on your quarter.
A couple of questions Ed.
Talking about the leverage at the company being 5 times and I can recall that debt historically pretty much the average where Salem has been I think in terms of.
On the leverage.
Ratio, if I recall and I was just wondering what might be the allocation of capital kind of going forward here. Because historically you have maintained a relatively higher amount of leverage given the fact that you had such stable businesses, including the block programming and so forth.
What from here what are you looking at continuing to pare down debt or what are the options that you might be considering here.
We're still focusing on reducing debt and continuing to work on leverage I mean for a long time, our goal has been to get the low for our gift to 4 below low 5 now just barely if as of today with the additional adjustments that Evan mentioned, so we're on our way we feel pretty good about the sale of the Dallas land of course help.
And the forgiveness of the PPP loans that will help get us there a lot quicker, but we're making solid progress and thats going to be our focus.
To the extent that we engage in acquisitions that will look at them very very carefully and if they are they're going to be delevering. If we if we enter into them.
Unless there are some extraordinary circumstance, which I don't envision at this point.
So I think that.
Stay the course.
Not out of this the effects of Covid, we still have.
On a lot of cost cutting measures in place to make sure that.
This thing doesn't open up.
Can survive it and continue to.
And to be productive.
And just talking about the expenses. There can you can you talk a little bit about the expense guidance for Q3, and the contributing factors to the growth expected there.
The expense growth seems a little outsized relative to the revenue growth in this quarter year over year. I know you were making comparisons to 2019, but is there are there timing elements to the expenses on a particular division that is accounting for the majority of expenses or can you give us a little color on what's going on there.
Yes, if you recall last year in the second and third quarter on even through the remainder of the year, we were really tight on expenses and.
Some of those expenses have we've loosened up a little bit you talked about on our previous call. Some of the pay cuts that we've put in place we've restored.
So youre seeing some of that but I would just draw your attention really to 2019. If you look at the expenses, there, which I think is a better comparison, the expenses were saying youre going to be anywhere between down 1 and up to and I think that gives you a better sense.
On what expenses are really doing rather than comparing to a quarter in 'twenty where.
We were trying to tighten the belt everywhere we could.
Got you and.
Has the company cycled through all of the discounts that were given per the block programming.
Last year and can you give us a sense of where rates are going forward block programming at this point.
Yes, let me just talk about cycling through and then David May want to give some comment on rates, we have cycled through all of the discounts that were given to the ministries. They were giving given discounts on airtime on from May of 'twenty through December of 'twenty. So they are back to paying full rates.
Yes on in terms of going forward as we renew for 2022, I think youll see our rate increases back to kind of what they've traditionally been.
Michael on Youll see that somewhere in the 3% to 4% range.
Great and in terms of the publishing business then.
Sure.
Obviously, you are getting a little benefit from the pickup in personal publishing I guess is what you would call. It can.
Can you talk a little bit about the titles things that are coming up in the second half of this year as you kind of prepare going into a political year next year, where I think you tend to.
Some more book and have more titles can you kind of give us a sense on how book publishing division is caring for the second half.
So the second half of 2021 is going to be relatively quiet.
Pad 2 last year.
Obviously last year was on election, yet, it's also going to be quiet compared to the first half of this year, we had a very strong first half of this year.
There isn't really a breakout hi, Paul in the second half of this year.
<unk>.
We're more focused towards 2022 again on EBIT number yeah.
Tom elections.
<unk> got titles in 2022 into anticipating from David Limbaugh for example from debt.
It's Craig.
Yes.
Publishing schedule is coming together very nicely for 2020 to second half of 2021 is going to be a little Lena.
And in the digital operations are obviously growing really well sell them now Salem.
Around can you kind of give us a sense of what type of revenue growth that you might be looking for in terms of your digital businesses in the second half I know, obviously, you had a very strong second quarter, but I'm just trying to get some framework around all of the initiatives you might have there in terms of what the opportunity might be and how you anticipate the business to grow.
In the second half.
Well, let me start with the pure price digital.
Components and then thanks on trial I will kind of complement that with the radio just this hall.
<unk>.
For the pure play digital division revenue will probably be down compared to last year.
But thats solid EG to line item made saw conservative websites that had massive page views kind of leading up to the private finance presidential election had very significant political revenues side.
Yes, that's a very challenging income so that's why the pure price of digital duration will be down so slowly because of the conservative electrical websites.
Other than that.
Rest of the business would be up kind of low to mid single digits.
Yes, and on the broadcast side Michael.
We expect that we will see in some areas from growth and then we will have 1 particular challenge so.
<unk> surround and sales of our owned and operated digital assets on the broadcast side Thats been strong all year that will remain I think strong the pacing is good and so you've seen that.
Example, on Q2 with 36, 7% I think you can expect to see strong growth similar growth in the quarters going forward.
Salem podcast network continues to grow that will be strong the challenge will be.
Salem now Salem now in Q3 had.
Blockbuster movie with with uncle, Tom and.
So it will really depend on what kind of titles, we have for Q3 with sale on now and to be Frank Many times those titles come up rather quickly and opportunity will present itself to us and and.
And suddenly that movies available and we're putting it on so if there is if there is an opportunity for us to see a decline it would only be in that sale on net sales now aspects of our digital.
Cash a broadcast digital.
Great I'll, let others ask questions. Thanks, so much guys.
Thanks, Michael.
Our next question comes from Lisa Springer with singular research. Please go ahead.
Thank you.
Regarding the podcast business I'm wondering what strategies are you using to drive traffic to the podcast and what have you seen in terms of people actually doing broadcast in terms of that growth.
Yes, that's always the benefit of our business is that we already have a built in marketing machine.
100, plus radio stations and a lot of our own digital assets with which to drive people to the podcast and so we're using our own free marketing to be able to drive.
Podcast listens.
And we're seeing steady growth of those podcasts.
The number of downloads to for instance, the true.
Charlie Charlie.
Charlie Kirk podcast is in the half a million downloads a week to his show alone.
And we're seeing very strong revenues there.
Great. Thank you.
Thank you and just a reminder to ask a question at this time press star 1 on your telephone keypad share.
Remove yourself from the queue press star 2.
Our next question comes from Steven <unk> with Wells Capital Management. Please state your question.
Hello, and thank you very much for taking the questions I'll give a couple of quick easy ones on here the call actually had a slight problem I don't know its my phone or lung on there, but the revenue guidance and the expense guidance for third quarter fourth quarter came out tangled.
Tangled, so im not sure if I have the correct numbers can you. Please tell us what are you only operating numbers for third quarter or do you have it for the full year and can you. Please repeat what those numbers were.
We are only offering guidance for just the third quarter and so really briefly we said revenue would be up 2% to 4% compared to the third quarter of 'twenty.
Compared to 19 net revenue was down between 2% and 4% I also mentioned.
David just even alluded to the uncle Tom film and also with political that was.