Q3 2021 Salem Media Group Inc Earnings Call

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Greetings and welcome to the Salem Media Group, Inc. Third quarter 2021 earnings call. At this time, all participants are in a listen only mode.

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 this conference is being recorded.

I'll now turn the conference over to your host Evan Macy's Chief Financial Officer, you may begin.

Welcome and thank you for joining us today for Salem Media group's third quarter 2021 earnings call.

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 David <unk>, President of broadcast media and David Evans, President of interactive and publishing.

With a review of our third quarter financial results with a focus on the improvement in sale of <unk> financial performance as the economy rebounds, following the COVID-19 related shutdowns.

As well as the growth in ceilings overall digital business I will then turn the call over to David Evans to review the performance of our National Digital Division in publishing Division.

And then <unk> will conclude our prepared remarks by giving more details on the financial results, providing an update on recent M&A activity.

<unk> the substantial improvement in <unk> leverage ratio and our recent successful refinancing and.

And concluding with guidance for the fourth quarter.

For the third quarter of 2021 total revenue increased eight 8% expenses increased eight 1%, resulting in an adjusted EBITDA, increasing 12, 5% despite.

Despite Q3 2020 being soft due to the pandemic. We did have two meaningful revenue drivers in the third quarter of last year first we had $1 $9 million of political revenue as compared to only $400000 in the third quarter of this year. Additionally, we had $1 $7 million in revenue on sale.

Now from the uncle, Tom film with no comparable movie in 'twenty in Q3, 2021, when you factor out those significant 2020 revenue items third quarter total revenue grew 14, 8% in 2021 as.

As compared to last year.

Because 2020 as a difficult year to compare to where more focused internally on comparisons to 2019 performance, even though the economy is not yet fully reopened when comparing to 2019 total revenue increased two 9% expenses increased 0.1%.

Resulting in an adjusted EBITDA increase of 23%.

It's also worth looking at where we are on a year to date basis compared to 2019 through nine months total revenue is down 0.1% expenses are down <unk>, 6%, but adjusted EBITDA is actually up two 7%.

Paul Jackson did a terrific job filling in for Larry We Nonetheless had a slight decrease in revenue while arie overwhelmingly let all candidates running very garnered 48, 5% of the votes and the next highest candidate received nine 6%. The recall effort ultimately failed we're disappointed Larry is not.

The Governor is we think you would have done a fantastic job, but we're glad he is back doing this radio show. We expect has run for governor will have a favorable impact on his listenership and future revenue potential.

Expenses in the broadcast division were up nine 3%, resulting in an increase in station operating income of nine 2%.

The expense increase was due in large part to expenses associated with sale in podcast network, which started operating in January of this year and due to an increase in sales commissions, which is probably a good thing when compared to 2019 expenses were up only <unk>, 4% and Soi was up.

17% and with that I'll turn the call over to David Evans. Thank you, Dave turning to our National Digital Division revenue increased by eight 5% compared to the third quarter of 2020 and increased 16, 4% when compared to the third quarter of 'twenty.

19.

This revenue growth was led by increases in our sale of insurance products business unit due to increased job postings at staffing dot com and the recent acquisitions of centerline media and shift worship.

Additionally, we had growth in our financial newsletter business, principally from the retirement watch newsletter as well as good revenue growth at our Christian AD supported websites <unk> programming advertising rates than a year ago.

Expenses in the National Digital Division increased 15, 7% due to increased marketing costs as well as expenses related to the recent acquisitions.

Finally, the publishing division had a revenue increase of five 6% compared to Q3 2020.

Revenue from self publishing was up 18, 8% in the quarter due to an expanded sales force that was able to sell more books.

Revenue revenue at Regnery, our traditional book publisher was up nine 2% compared to last year.

Colors and broadcast operating expenses increased nine 3% to $37.5 million, resulting in station operating income of $12 $1 million an increase of 9.2%.

On the same station basis net broadcast revenue increased eight 9% to $49 $1 million and Soi increased 5.5% to $12.0 million. These.

These same station results include broadcast revenue from 94 of our 100 radio stations in our network operations and represents 99% of net broadcast revenue.

Now I will briefly review revenue performance of our strategic formats.

38 of our radio stations are programmed in our foundational Christian teaching and talk format. These stations contributed 37% of total broadcast revenue and increased seven 9% for the quarter.

Our 31 news talk stations had an increase of 6.0% in revenue for the quarter and these stations contributed 17% of total broadcast revenue.

Revenue from our 12 contemporary Christian music stations contributed 10% of total broadcast revenue and increased 10.5% for the quarter.

Our broadcast digital revenue increased 13.6% $288 million and represents 18% of our total broadcast revenue.

Our network revenue increased 0.3% for the quarter and represents 10% of broadcast revenue.

Revenue from our National Digital Media Division increased 8.5% to $10.6 million and represents 16% of total revenue.

Finally, our publishing division increased five 6% to five $7 million and represents 9% of total revenue.

And I want to provide some updates on our M&A activity during the quarter.

On July 1st we acquired the shift worship dot com domain and digital assets for $2.6 million and we operate this business is part of our church products Division.

Also on July 23rd we sold 34 acres of land just outside of Dallas for $12 $1 million, while while retaining nine acres will we will continue to broadcast K sky am while maintaining full metro coverage.

$5 two as of September 32021.

And if we net the debt with the $23 $8 million of cash we have our leverage ratio would be $4 91.

It is worth mentioning that since the end of the quarter, we have been able to purchase another $3 $6 million of our 2020 for bonds in the open market at an average price of $106 75.

That leaves us now with just over $95 million remaining of the 2024 bonds.

And looking forward for the fourth quarter of 2021, we are projecting total revenue to be between flat and an increase of 2% from the fourth quarter of 2020 total revenue was $64 5 million.

Excluding the impact of $3 5 million in political revenue in the fourth quarter of 2020, we're projecting revenue to increase between 6% and 8%.

Compared to the fourth quarter of 2019, we're projecting revenue to be between flat and an increase of 2%.

We're also projecting operating expenses before gains or losses on the sale of the sale or disposal of assets stock based compensation expense.

<unk> is in the estimated fair value of contingent earn out consideration impairments depreciation expense and amortization expense.

To increase between 1% and 4% compared to the fourth quarter of 2020, non-GAAP operating expenses of $54 6 million.

And comparing to the fourth quarter of 2019, we're also projecting expenses to increase between 1% and 4%.

This now concludes our prepared remarks, and we would like to answer any questions operator.

Thank you and at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

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Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Our first question is from Michal Krupinski with noble capital markets. Please proceed with your question.

Hi, this is andres.

Michael.

First of all congrats on a solid quarter.

What are you guys did a great job I guess I have a few questions. If you can help me out here.

First one being how has the company seen any impact on advertising from supply chain issues or labor shortages.

Similarly, as it relates to local spot advertising on national advertising.

Yes, certainly the supply chain issues are impacting some advertising categories. In Q3, we saw really favorable advertising from <unk>.

Real estate from obviously events in recruitment advertising is way up but there are other industries that are down some of that related to supply chain issues.

Okay.

That's it.

We are seeing a little bit of a slowdown in the publishing area, where we've got books that are sold out of inventory and there are delays in getting new books printed.

Okay.

Thank you.

Many radio companies have indicated that the gaming advertising cost taking out this lag in the outdoor advertising that is soft due to supply chain issues.

Could you give us some color on how the company has any issues with advertising from the gaming industry.

<unk> can you talk about the category.

Okay.

Several of them right now is really not doing advertising and the gaming industry, we recognize that that's been.

Certainly a category that many in our industry are going after is strong.

<unk>.

It has not yet gone after that business for.

Other reasons and we continue to debate to debate, whether we wanted to do that or not.

Yeah.

Mhm.

Thanks.

One more question given the issues that other companies.

We're just kind of early orders for political for next year.

Do you anticipate that next year will be a very strong political year.

But so far there has not been a big surge of orders, but it's going to be strong.

Great and one last question.

The company is starting to generate back to normal cash flow and has done a great deal of extending the debt maturities and reducing our leverage to roughly five times, what sort of flexibility does that give you in terms of capital allocation for the future could you give us some color on if you will consider being more aggressive.

So you can the M&A front or focus more in by insurers bug like some of the competitors.

Yeah I'll answer that.

Yeah I'll answer that.

Clearly the refinancing gives us some flexibility.

We certainly have enough capacity between the backstop that we've secured the cash on hand.

Our revolver never mind free cash flow that will continue to generate to take out the 2024 notes.

I would still say our number one use of free cash flow will continue to be debt retirement and get leverage even lower down, but we will continue to look at acquisitions that we've made acquisitions over the last several years and we'll continue to do so where that makes sense.

He remains in landfills I mean, how many of your stations have excess land that you might be able to profit from.

Yes.

We continue to look Lisa at at opportunities Theres several of those on a lot of our own properties on our am for our am radio stations and so we continue to look at opportunities.

A few others that we've identified that look quite promising.

But there is nothing definitive when we know of course, we will let you know of course, the great thing about these transactions.

It's like found money because.

We don't lose the revenue generating asset in the process of generating all sorts of new revenue from that from that land sale. So it's it works out quite well for us I'll. Let you know, we'll let you know when we have other deals to announce.

Okay and my final question for you that third quarter topline came in.

Stronger than you were guiding for I was just wondering what were the positive surprises you had during the quarter that drove that.

I think we had.

All the divisions did better than we expected I mean, we've had stronger than expected growth at the same podcast network that did much better for us.

Advertising just in general did better.

Digital division did a little bit better than what we were expecting when we gave guidance.

At the end of last quarter. So I'd say it was kind of a mixed bag across all of our different divisions.

Okay, well, thank you very much and congratulations on a good quarter.

Thank you.

Okay.

And as a reminder, if you have any questions you May press star one on your telephone keypad in order to join the question and answer queue.

Our next question comes from the line of Steven Frankfurt with Osprey. Please proceed with your question.

Hello, everyone. Thanks for taking the question you had a great quarter for operations on here and I just wanted to clarify some of the numbers I heard over about the debt balances on there I think I don't not sure if the cold cut off.

The numbers more than I did.

Cross selling will continue to acquire new content for sale them now.

And.

I think similar to what we see with regnery.

When we have.

Great hits for sale now it will do exceptionally well and when we don't it won't do as well in.

In terms of its overall contribution to the bottom line.

I don't.

I don't even have a number right now.

Relatively.

I wouldn't say insignificant, but it's not material.

Driver to our overall performance.

Okay. Thank you all for that I appreciate it.

And we have reached the end of the question and answer session. I will now turn the call back over to CFO, having Mason for closing remarks.

Thank you everyone for joining today's call and we look forward to updating you on our progress in the fourth quarter early in 2022.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.

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Okay.

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