Q4 2021 Salem Media Group Inc Earnings Call
Greetings and welcome to the Salem Media group fourth 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.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Evan Maicer CFO . Thank you you may begin.
Oh, Thank you and thank you all for joining us today for Salem Media group's fourth 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 Centrella, Chief Executive Officer, and David Evans, Chief Operating Officer 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 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 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 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.
At this point I would now like to turn the call over to Dave Centrella, Thanks, Kevin and thanks to everybody for being on today's earnings call.
I'll start my prepared remarks, with a review of some of our positive developments for the fourth quarter, including our growth in digital revenue.
I'll, then discuss our financial results and conclude with an update on land sales.
After that I'll turn the call back over to Evan who will provide more detail on fourth quarter financial performance and provide guidance for the first quarter of 2022.
We had three positive developments in the fourth quarter that are worth highlighting.
At the beginning of this call.
First is our continued growth in digital revenue.
As we continue to evolve into a multimedia company in.
In the fourth quarter of 2021, our total combined digital revenue.
That is digital revenue within the broadcast division plus the revenue from the National Digital Division was $22 million, an increase of 11, 9% compared to the fourth quarter of 2020.
That represents 29, 2% of our total revenue in the quarter and.
And we expect faster growth from this segment of our business.
By way of comparison.
Only 12.5% of our total revenue was digital just 10 years ago, and 19, 6% of our revenue was digital five years ago.
When you factor in book publishing revenue, which is 9.5% of total revenue in the fourth quarter.
Traditional radio revenue is just over 60% of our total revenue and 40% is from digital and publishing.
The second piece of good news is the closing of a couple of real estate sales in November 30th we sold 77 acres of land in Tampa, Florida for $13 $5 million also we sold $4 five acres of land in Phoenix, Arizona for $2 million on January 20th 10th in both cases.
We're moving our transfer locations.
Diplex on other Salem radio stations in the market.
The final significant development is our debt and leverage during the fourth quarter, we repurchased $38 $6 million of our 2024 bonds using cash from our balance sheet on December 31, 2021, we had $62 million of 2024 notes.
Mining and a total debt of $174 $9 million this reduced debt.
Burden coupled with the growth in adjusted EBITDA resulted in a leverage ratio of 4.46. This is the lowest our debt and leverage have been since 2000.
Okay.
Now, let me review, our financial performance compared to the fourth quarter of 2020 total revenue increased seven 2%.
Expenses increased six 8%, resulting in adjusted EBITDA, increasing nine 3% the fourth quarter of 2020 was still a bit soft due to the pandemic, but we did have a significant amount of political revenue, which impacts 2021 comps for comparative purposes, we had three.
$5 million of political revenue in Q4 of 2020 as compared to just a half a million dollars in Q4 of 2021 <unk>.
Despite that headwind, we still had a seven 2% growth in total revenue.
We were amongst route well, we remain focused internally on comparisons to 2019 to take out the effect of the pandemic. Despite the fact that almost two years later the economy is still not completely open.
Compared to the fourth quarter of 2019 total revenue increased 7%.
<unk> increased seven 1%, resulting in an adjusted EBITDA EBITDA increase of 6%.
In addition to performing better in fourth quarter of 2021 compared to 2019.
I'm also pleased to report that full year 2021 revenue is one 7% higher than 2019 and full year adjusted EBITDA is three 6%.
$1.3 million higher than 2019.
It's rewarding to see that for the full year, we've eclipsed the pre pandemic numbers of 2019.
Now, let's look at how each division performed in the fourth quarter in the broadcast division compared to Q4 2020 broadcast revenue increased six 1% when comparing to Q4 2019 pre pandemic numbers total broadcast revenue was up one 1%.
The largest component of growth in the broadcast division continues to be digital with revenue, increasing 26, 8% compared to fourth quarter of 2020.
This was also impacted by political as we had $800000 less in digital spending in Q4 2021 as compared to Q4 2020.
When comparing to 2019 broadcast digital revenue improved 85, 8%. This growth is being driven by some of our more recent digital initiatives, including Salem surround and the Salem podcast network, which was launched on January one 2021.
In Q4 alone the Salem podcast network generated revenue of $1 $6 million and then its first year of operation, we had revenue of $6 $4 million.
Local spot advertising revenue increased seven 2%, while national spot decreased 27% compared to Q4 2020 combined spot revenue decreased three 8% in the quarter, but was impacted by a meaningful amount of political revenue last year, excluding political local.
<unk> revenue would have increased 12, 8% and national advertising would have declined eight 6% excluding political total advertising revenue was up six 8% compared to the fourth quarter of 2020 advertising. However is still not back to its pre pandemic levels.
Due to the economy.
Comparing to Q4 2019 total spot advertising decreased 13, 9% in the quarter.
In total block programming increased 11, 6% in the fourth quarter of 2021 compared to the prior year nationally block programming increased 12, 3% and locally it increased 10, 4%. We just concluded our annual rate renewal process with the National Christian ministries.
Overall, we were able to increase rates to 6%.
More importantly, as I mentioned on our last call. We're seeing an increase in demand for our very limited block programming airtime with the rate increases expansion from some existing ministries and the launch of some new programs, we expect National Christian Ministry block programming to increase more than 8%.
In 2022.
Now this is important given that this business generally has a 95% renewal rate. We look at this growth is having a long term positive impact on our broadcast revenues.
Network revenue in the quarter was down 13, 7% when compared to fourth quarter of 2020. This was impacted by political revenue as well the network had a strong political quarter last year, excluding political network revenue was down six 2% when comparing Q4 2019 network revenue.
<unk> was down only one 8%.
Expenses in the broadcast division increased six 9%, resulting in increased station operating income of three 6% compared to the fourth quarter of 2020. The increase in expenses was largely due to the restoration of salary reductions taken in 2020 expenses associated with the sale of podcast network and incur.
<unk> sales commissions when compared to the fourth quarter of 2019 expenses were up two 1%.
So why was down one 9%.
At our National Digital Division revenue increased two 9% compared to the fourth quarter of 2020 excluding.
The impact of our political websites, which had a strong performance last year due to the election revenue in that division increased 6%. This.
This is due to some of the acquisitions, we made last year and a growth in programmatic advertising rates expenses in the National Digital division decreased 1% in the quarter compared to Q4 2020. This decline is due to ongoing cost containment efforts.
Finally, our publishing division increased.
I had a revenue increase of 27, 1% compared to the fourth quarter of 2020.
This growth was driven primarily by our traditional publishing business Regnery publishing in Salem books. The top performing titles included patent Emmenia by Alex Berenson.
By Molly Hemingway is atheism dead by Eric Metaxas, and the Babylon be guide to welcome. This we already have a few walk there is under contract for 2022, including books from Dinesh D'souza, David Limbaugh, Dennis Prager, Vod, Bochum and Greg Laurie.
Publishing expenses were up 15, 8% in the quarter compared to Q4 2020.
Directly related to the increase in book sales now.
Now I want to provide some updates on our M&A activity during the quarter, we had no acquisitions during the quarter and have nothing pending at this point I already mentioned.
Mentioned, the land sales in Tampa and in Phoenix.
We still have one sale pending nine acres in the Denver area for $8 $2 million, we expect to close on this in the second quarter of 2022.
We'll continue broadcasting both care chaos M K B J D. A M from this transmitter site after closing.
And with that I'll turn the call back to Evan for additional details on the quarter's performance and guidance for Q1 2022.
Thank you Dave for.
For the fourth quarter total revenue increased seven 2% to $69 $1 million operating expenses on a recurring basis increased six 8% to $58 $3 million, which resulted in a nine 3% increase in adjusted EBITDA to $10 $8 million.
Net broadcast revenue increased six 1% to $51 million and broadcast operating expenses increased six 9% to $38 $8 million, resulting in station operating income of $12 $3 million, an increase of three 6%.
On a same station basis net broadcast revenue increased five 7% to $56 million and Soi increased 0.8% to $12 2 million. These.
These same station results include broadcast revenue from 94 of our 100 radio stations and our network operations, representing 99.1 of our net broadcast revenue.
Now I'll briefly look at 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 to nine 7% for the quarter.
Our 31 news talk stations had an increase of two 4% in revenue for the quarter. Overall. These stations contributed 18% of total broadcast revenue.
Revenue from our 12 contemporary Christian music stations contributed 17% of total broadcast revenue and increased two 1% for the quarter.
Our broadcast digital revenue increased 26, 8% to $8 7 million and represents 17% of our total broadcast revenue.
Our network revenue decreased 13, 7% for the quarter and represents 10% of total broadcast revenue.
This decrease was primarily due to political revenue compared to the same quarter of the prior year.
Revenue from our National Digital Media Division increased two 9% to $11 6 million and represented 17% of our total revenue.
Our publishing revenue increased 27, 1% to $6 $5 million and represents 9% of our total revenue.
Dave already mentioned that we are at our lowest debt and leverage levels since 2000, and I'll provide a little bit more detail on our debt.
As of December 31, 2001, total debt was $174 $9 million made up of a $114 $7 million of our seven and 182028% 2028 notes.
And $62 million of our six and three quarter percent 2024 notes.
We had nothing drawn on our $30 million ABL revolver.
Our leverage ratio was 446 as defined by our credit agreement, but net of cash our leverage ratio would've been $4 four one.
With the extra cash generated from the sale of our Phoenix land, we repurchased an additional $2 $5 million of bond subsequent to year end.
This brings the balance of the 2024 notes to $57 $7 million as of today.
Looking forward for the first quarter of 2022, we're projecting total revenue to increase between 3% and 5% from the first quarter of 2021 total revenue of $59 4 million.
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 6% and 9% compared to the first quarter of 2021.
<unk> non-GAAP operating expenses of $51 4 million.
And this now concludes our prepared remarks, and we would like to answer any questions I'll turn it back over to you Hillary.
Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for 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 Mike Kuczynski of Noble capital markets. Please proceed with your question.
And first of all first of all congratulations on beating expectations. It a great job.
A couple of questions.
So the proceeds from the land sale or a nice surprise and I was just wondering you mentioned that.
Maybe just a little clarification are you still broad case broadcasting and those stations on the aimed at all or are you just working off your FM transponders I'm, just trying to understand how youre moving the signal.
Signal.
No we're still Mike. Thanks for the question, we're still broadcasting on the a M band and in fact at the same frequency in.
Those cases, but were diplex in the radio stations in other words, we use another transmitter tower in the area and basically.
Have our signal diet flexing off of that transmitter tower.
Gotcha, because I know that aam's stations typically require a lot of the towers would require a lot of land right and I was just wondering in terms of other real estate sales prospects outside of Denver are you still do you still have other real estate projects out there or that youre still thinking about.
Yes.
It's an ongoing process for us and land that may be is not valuable today, a year from now suddenly become valuable and so it's.
The sales that we're making right now.
Seem to be kind of the top of the you know the lowest hanging fruit for us, but we'll continue to look at additional land sale opportunities and literally do so every couple of weeks.
Gotcha and you know.
The interesting thing is that the book sales last quarter were much stronger than I was looking for and I. I guess is that just due to the political environment or because typically you do better I believe in election.
Election years, and I'm, just kind of curious.
Or how youre gearing up for this.
This season.
Cheniere and are you kind of holding back some firepower for 2024 I. If you can just give me a sense on how you look at the.
Publishing division.
But we're not holding back fire power yes.
We've got good titles.
They have to be released timely with the new cycle. So you know we released books when they are ready to go.
We did have very good Q4.
That was a function of false strong titles typically we're not going to have that many strong titles in a quarter. So I am very pleased with Q4 that it wasn't just success from a single title. It was multiple titles, having good results and we're pretty excited about 2022, it's a myth.
Terminal action, that's that's usually good for our book publishing business.
We've got titles lined up from folks like Dinesh D'souza.
On radio host Dennis Prager, Chris.
Christian side for the Vulcan and Greg Laurie So we feel pretty good about 'twenty two is lining up.
Too early to talk about 'twenty four we literally have no books.
Under contract for 2024 at this point just too early.
Got you on the radio side I just have a couple of quick questions on the radio side.
You know obviously, we had the passing of Rush Limbaugh and I was just wondering how have some of your conservative talk.
Formats performed have you been able to successfully pickups time slots, where rush had been and if you could just give me your thoughts about the radio network business overall.
Yeah, we offer two different close network coast that are in the same.
Day part as rush Limbaugh, So Dennis Prager, which has been there forever and then.
Charlie Kirk, who launched just about two years ago and so between the two of them we have picked up.
Some affiliates from rush Limbaugh.
Mike Michael I would be guessing right now if I gave you a number.
But a couple of at least a couple of dozen affiliates since rush limbaugh's.
Passing and they've really gone to a number of different people we've picked up some.
Cumulus has picked up some other.
Syndicators have picked up some.
I don't think anybody can claim that they've got kind of the lions share of what Schlumberger Limbos affiliate <unk>.
Departures so to speak.
So and the network business continues to be for us very very strong we're in a politically charged environment.
And our host are really kind of scratching the itching ears of listeners right now.
Gotcha and then.
Debt reduction has been significant and obviously, we talked a little bit about real estate sales that have accelerated.
Debt reduction.
Are there targets in terms of your debt leverage where do you like where do you anticipate this where would you like to see this company.
In terms of leverage and then what are your thoughts in terms of youre going to be generating here. Some nice free cash flow what are your thoughts in terms of allocation of capital.
Yeah as far as a Uh huh.
Target you know really I would say our target right now as we've said for wireless to get leverage under four.
We get to that point.
So we can maybe think about different allocations of capital, but right now our number one use of capital is debt retirement and will continue to be so until we get that leverage under four then we can look at other things, obviously acquisitions will play into it if there's some good acquisitions, but all else being equal youll see us continue to focus on.
Airing down the debt.
And just one final question on the National digital fraud.
Can you talk a little bit about the competition. There I know that we had issues with Facebook and so forth are you starting to see things kind of ease a little bit where competition is not as fierce or.
The ability for you to grow that business has gotten a little bit easier. What are you what are your thoughts there.
Yeah, I wouldn't necessarily call it competition.
We you know we are reliant upon traffic from Facebook and where reliance upon traffic from Google in the case of Facebook and social media traffic from Facebook community says in the case of Google, It's organic search engine traffic.
And those two organizations are constantly changing their algorithms.
And in some quarters the algorithm seems to work in our favor and other quarters. The algorithm works against US and you know, we're constantly having to kind of adjust.
How we approach those two platforms based upon the algorithm changes we say.
Check.
Yeah, our reliance on that with putting a big assets into growing our E mail newsletter subscribers, where people subscribe to receive content delivered to their email to that to that email inbox and then people click on news newsletters and yeah.
Vantage that that strategy is less reliance on the likes of Facebook and Google.
I would hope you know I'd like to the other side the big volatility is over we saw massive volatility from Facebook between 2016 and 2017. It does seem to have come down somewhat since then.
The world of social media is constantly changing so yeah I expect there to be continued changes and we're gonna have to respond and react to that.
Thanks for the color on the clarification, Dave that's all I have thank you.
Thank you Michael.
Our next question is from Lisa Springer of singular research. Please proceed with your question.
Congratulations on a very nice quarter.
Thank you. Thank you.
My question is with the digital media operating margins there was a nice bump up both sequentially and year over year. I was wondering if you can comment what drove that improvement in margin.
Well on.
On the broadcast side and then David you might might be you and I. Both answer this on the broadcast side.
We've taken more of that in house.
So our margins are reduced when we have to use a third party to fulfill that every time, we sell something digitally that is either something that we can fulfill ourselves.
We don't need a third party to do it or if it's simply owned and operated in other words buying a display AD on one of our own.
Owned and operated assets.
Keep a lot more of that money and so there was a lot more owned and operated sales aggressive in stream AD injected sales and streams and all of that is higher margin business for us, but probably more importantly revenue growth drives improved operating margins, we have a very solid incrementals.
Rental profit margin, our digital business. So if we're able to grow revenue faster than expense says you know what is it that there's good operating leverage in that business. So yeah revenue growth.
Yeah.
Combined with revenue mix, but you know revenue growth is probably the big driver.
Okay, well, thank you for the color.
Thank you.
Our next question is from Barry Sine of Spartan Capital. Please proceed with your question.
Hello, Good afternoon, a couple of questions first of all on the first quarter, our guidance, 3% to 5% revenue growth could.
Could you give us.
The normalized number I don't know how much that would be impacted by M&A transactions, what's the underlying normalized growth rate is that a material difference between that and the $3 three to five.
Yeah, Barry we haven't done much in the way of acquisitions that would that would change it materially from three to five so I think three to five is a reasonable kind.
Kind of same station type or same store approach number.
Okay. So that was an easy answer.
In terms of the M&A strategy I'm wondering if you could kind of step back and give us a sense of what your overall strategy is on the sales side it looks like you're always looking to monetize.
Excess assets land and so on that you have on the books on the purchase side is there are there any types of assets that you're looking to acquire looking to add to and how does the market look out there what should we be surprised if we see additional acquisitions. This year or are you pretty much happy where you are.
Probably the best indicator is to actually look back at 2021, I think we did three acquisitions in 2021.
A couple of radio stations in San Francisco.
$600000, and then to digital media assets shift worship and center line.
Both.
Producers of video content and other digital resources that we sell to churches. So you know we are looking for acquisitions in the digital media space that complement our existing assets and if we can find radio stations.
Tuck in radio stations that easily fit into the portfolio.
But those are the two areas of focus while all of those acquisitions have in common is they were immediately de levering.
Got what we think are very attractive multiples so yeah. They will.
Yeah either.
Either leverage neutral leverage neutral or de levering. So I'd say those are in our current criteria that were focused on tying back to Evans comment about a goal of getting leverage below four we're going to be pretty disciplined about acquisitions.
Okay and my last question is on the political advertising spending environment for both broadcast and digital could you kind of give us maybe a bit of a history I think if I recall correctly. The last mid terms were actually higher than the prior presidential elections. So I don't know if we're going to see that again.
This midterms and you know what are the trends for investors that they should be looking at and then are you seeing any early indications when we were still in primary elections.
Most of these offices so maybe it's too early but are you seeing any early indications that maybe investors can start thinking about for political AD spend for the rest of the year.
Yeah, a very let me give you some some historical numbers that may help so the last presidential we had $6 $6 million. The last mid terms were about $4 $8 million. If I go back to the previous mid terms in 14, it was $3 $2 million and by the way the previous presidential.
<unk> was $4 $6 million. So right now it seems like every cycle seems to be getting a little bit stronger, but I'll, let Dave and David maybe comment on political on the broadcast side, we are starting to see some digital dollars come our way, it's not yet at a fever pitch, but it's.
Increasing a little bit more.
Almost weekly at this point.
Okay.
David on the digital side I mean.
Very little political activity at this point in terms of political spending.
Thank you for taking my questions.
Thank you thank you Barry.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue for 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 additional questions.
Our next question is from Eddie Riley of E. F. Hutton. Please proceed with your question.
Hey, guys.
Just for guidance in the Q1 could you give us some insight into which segments.
Or are going to be strongest in driving that 3% to 5% growth youre expecting over Q1, 2021 .
Yeah, there's a few and if Q4 is any indication of it and I think it is.
Youre going to see a continuation of from these AD categories home improvement is very big right now.
Rents are back right.
The news of not having to wear a mask some of the vaccination requirements being lessened piece.
People are more comfortable gathering and so we're seeing events concerts or things like that come back recruitment advertising is is.
At an all time high right now real estate is very big and education is very big people are rethinking, where they're sending their kids to school based on what's happened over the last couple of years and that's creating opportunities for some institutions and we're seeing that result in ad schedules.
Our broadcast and digital and let me just get a slightly different perspective on that vis vis kind of our business segments. Our weakest segment is gonna be book publishing we have a lighter schedule of releases this year than last year. So I would expect book publishing to be down.
And I was struck this segment most surprise is gonna be digital.
Spec digital to be leading the way.
But we also expect to have a very solid quarter in terms of block programming revenue.
So that would be the kind of color commentary in terms of office of all.
China revenue segments.
Got it got it.
So the whole home improvement events recruitment advertising.
So all these will really.
I guess, what I'm trying to say is you are expecting to see a rebound in spot advertising a little bit.
Yeah.
Well, we expect to see spot advertising.
Continue to kind of call out of the.
The COVID-19 hole so to speak.
And the fact that so many of these AD categories, where for a long time, not spending money and now are spending money or spending money.
At a greater level I think yeah leads to our opportunity to see an improved local AD spending yeah. I'll just say there is still some ad categories.
That those particular industries are facing supply chain issues.
And those supply chain issues are causing them to.
Hold back on marketing spend.
There is an ongoing challenge.
Because of that.
Got it and last question for me could you guys just elaborate a little bit more on the sequential jump in unallocated corporate expenses.
Are you comparing.
From Q3 to Q4.
Yeah, Yeah, that's one of the bigger issues that you'll see us bonuses senior management bonuses, we werent planning on paying bonuses until we kind of saw it as the results were improving throughout the year, we started to accrue for that so that's one of the big things Youll see.
Okay got it thank you guys.
Thank you.
We have reached the end of the question and answer session I will now turn the call back over to David Centrella for closing remarks.
Well, thanks, everybody for being a part of the call and we will see you in a few more months. Thanks.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
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