Q1 2022 Salem Media Group Inc Earnings Call
Greetings and welcome to the Salem Media Group, Inc, Q1, 2022 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. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Evan <unk> CFO . Please go ahead Sir.
Sure.
Thank you and thank you all for joining us today for Salem Media group's first quarter 2022 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 dotcom.
In the room with me today is David Centrella, Chief Executive Officer, David Evans, Chief Operating Officer is traveling this week, but he's on the phone as well.
We'll begin in just a moment with our prepared remarks. Once we are done the conference call operator will come back on the line to instruct you on how to submit questions.
Please be advised that statements made on this call that relate to future plans events financial results prospects or performance are forward looking statements as defined under the private Securities Litigation Reform Act of 1995.
These forward looking statements are based on currently available information.
Actual results may differ materially from those anticipated and reported results should not be considered an indication of future performance.
We do not intend and undertake no obligation to update our forward looking statements, including forecast for 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 I would now like to turn the call over to David Centrella, Dave Thanks, Kevin and thanks to all of you for being on today's call.
In my prepared remarks, I'll focus on our Q1 financial results, including our continued growth in digital provide.
I'll provide an update on M&A and conclude with the discussion of our recently released movie produced in collaboration with Dinesh D'souza and true devote.
I'll, then turn the call back to Evan who will provide more detail on first quarter financial performance and give guidance for Q2.
Before I get into a discussion of Salem's overall numbers I want to highlight the continued growth in digital revenue and Salem's evolution into a multimedia company continues in the first quarter of 2022, our total combined digital revenue that is the digital revenue within the broadcast division plus the revenue from the Nash.
<unk> Digital division.
$18.5 million, an increase of 10, 9% from the first quarter of 2021.
Digital revenue now represents 30% of our total revenue.
Expect this elevated level of revenue growth to continue for some time.
With that said, let me turn to Standalone performance for the quarter compared to the first quarter of 2021 total revenue in the first quarter increased five 5% expenses increased eight 4%, resulting in a decline of 13, 6% or $1.1 million and adjust.
Did EBITDA.
It's worth noting the decline in book publishing operating income, which I'll discuss in more detail of $1 $1 million. So excluding the impact of the book Publishing Division, which is highly dependent on the timing and success of book releases adjusted EBITDA would have been flat for the quarter.
Compared to Q1 2019 total revenue was up three 5% and adjusted EBITDA was down eight 1%.
Now, let's look at how each division performed for the first quarter revenue in the broadcast division was up 10% compared to the first quarter of last year and it's encouraging to note that some of the biggest growth areas. In this division is from traditional radio revenue.
The largest driver of this growth in terms of dollars was a 10, 4% increase in block programming.
Local block programming was up three 6% in National block programming was up 13.9% principally due to six ministries that expanded their footprint and their national program Radio ministries.
I mentioned on St. Louis last two earnings calls the increase in the demand for limited airtime from National Christian Block programmers will result in elevated revenue and this growth is evidence of that keep in mind that we generally have a 95% plus renewal rate on this business. So this.
It will have a positive long term impact on our broadcast revenues.
Additionally, Salem had a 15.6% growth in local spot advertising revenue much of this improvement is due to the COVID-19 recovery.
Yeah local spot is still not back to its pre pandemic levels national spot advertising revenue was down just 0.5% as many national advertisers are being cautious with their AD spending due.
Due to concerns about inflation and the state of the economy.
Also network revenue was down slightly the 0.8% for the same reasons national spot is down concerned by advertisers over the economy.
You may have read that one of several national hosts Larry elder decided to leave the Salem radio network and pursue other opportunities.
While we are disappointed with Larry's decision to move on we do not expect a significant decline in revenue Carl Jackson has been filling and once again as he did during larry's run for governor.
We just announced that Brandon cadence will be joining over on the six to nine P. M. Eastern time slot permanently on the Salem Radio network, replacing Larry Elder. In addition, he'll be doing the daily podcast on the Salem podcast network.
Brandon is a well known political commentator and former police officer with 1.9 million Youtube subscribers and 900000 Instagram followers. We believe he will be a great fit for our network.
Finally digital revenue within the broadcast division increased 16.1% to $8 2 million driven primarily by the growth of revenue with Salem surround.
Expenses in the broadcast Division increased 14, 3%, which resulted in a three 7% decline in station operating income three big drivers of the increases in expenses are the reintroduction of the four one K match increases in bad debt expense and increases in travel.
On the entertainment expenses now that employees are traveling again.
Revenue increased seven 1% that Salem's National Digital division in the first quarter compared to the first quarter of last year.
All media Salem group of Conservative news and opinion websites SOG roofing, Townhall, VIP, which is which is a subscription service for exclusive content.
We also saw a growth in the digital division from an increase in AD rates. Finally, the church products business had meaningful growth in both childrens Ministry deals.
Sunday schools are now more open in church staffing, which received a large increase in job postings and finally, the impact of two acquisitions last year centerline media and shift worship have driven some of the increase in revenues expenses.
Expenses in the digital division were down two 3% due to reduced marketing spend for Salem's investment newsletters, partially offset by some increases as noted in the broadcast division.
Lastly, as I already briefly mentioned the book Publishing Division had a 31, 8% reduction in revenue in the first quarter as the book release schedule with significantly lighter compared to last year.
The book release scheduled for 2022 is heavily back loaded whereas in 2021 was more evenly distributed.
That being said our top books this quarter, where the rational Passover haggadah by Dennis Prager washed airmen by Charles Stanley read by Molly hammering away and Zalenski by Andrew Urban.
Book Publishing expenses were down 14, 2% due to the reduced level of books sold the book Publishing Division had an operating loss of zero point $6 million in the quarter compared to operating income of zero point $5 million in the first quarter of last year.
Corporate expenses increased 12, 2% due to the four one K match and then the cool for senior management bonuses in the quarter, which did not occur in the first quarter of last year.
I'll now turn the discussion to M&A activity there is continued.
Work on some land sales on January 10th we sold four five acres in Phoenix for $2 million. The site was used to transmit K X X T. A M. The station is now in process of being woken relocated from XIAFLEX.
On our K P X Q a M site. This will actually result in an improved signal for K X X P.
Closing the sale of nine acres in the Denver area for $8 $2 million is also still in progress with the close expected in June the stations will continue broadcasting both KR chaos am and Kb G. J D. A M from this transmitter site after closing.
Salem did make one small acquisition during the quarter on May 2nd Ego financial acquired retirement media, which owns six retirement websites for $190000.
Now before I turn the call back to Evan I want to share some very exciting news Salem who's the executive producer in Solon Baxter, a $4 $5 million in the film 2000 meals. The movie is a documentary display and video and mobile phone evidence of voting fraud in the 2020 presidential election.
The movie was released in their special Tonight event at almost 300 theaters and sold out 94% of available seats. The Red carpet premiere was last Wednesday at mall Lago hosted by President Donald Trump and included many prominent Conservatives media personalities and congressional representatives.
It is.
It's too early in the movie release window to properly estimate.
Q2 revenue for this film will end up but we are pleased with the results to date and certainly expect to make a solid profit from salem's investment in this movie.
This is another great example of settlements multimedia approach and generating both impact and revenue.
And with that I will turn the call back to Evan for additional details on the quarters performance and guidance for Q2.
Thank you Dave.
For the first quarter total revenue increased five 5% to $62 $6 million.
Operating expenses on a recurring basis increased eight 4% to $55 8 million, which resulted in a 13, 6% decrease in adjusted EBITDA to $6 $8 million.
It's worth noting that many of our broadcast peers I mentioned on their earnings calls how they are closing in on 2019 revenue levels.
For sale them. This is the third consecutive quarter with revenue ahead of the corresponding quarter in 2019, as Dave mentioned, comparing Q1 2020 to Q1 2019 total revenue increased three 5%.
Compared to last year net broadcast revenue increased 10% to $48 4 million and broadcast operating expenses increased 14, 3% to $38 1 million, resulting in station operating income of $10 $3 million a decrease of three 7%.
On a same station basis net broadcast revenue increased nine 4% to $48 $1 million and soi decreased 5.0% to $10 $3 million.
These same station results include broadcast revenue from 96 of our 101 radio stations and the network operations and represents 99, 3% of our net broadcast revenue.
I will briefly review revenue performance of our strategic formats.
39 of Salem's radio stations are programmed in our foundational Christian teaching and talk format. These.
These stations contributed 39% of total broadcast revenue and increased 11, 6% for the quarter.
Salem 32 news talk stations had an increase of 17, 5% in revenue for the quarter.
Overall these stations contributed 19% of total broadcast revenue.
Revenue from the 12 contemporary Christian music stations contributed 15% of total broadcast revenue and decreased 0.1% for the quarter.
Broadcast digital revenue increased 16, 1% to $8 2 million and represented 17% of our total broadcast revenue.
Our network revenue decreased 0.8% for the quarter and represents 10% of total broadcast revenue.
Revenue from the National Digital Division increased seven 1% to $10 3 million and represented 16% of our total revenue.
Book publishing revenue decreased 31, 8% to $3 $9 million and represents 6% of total revenue.
As of March 31, 2022, total debt was $172 $4 million.
Up of $114 $7 million of.
28 notes and $57 $7 million of six and three quarter percent 2024 notes sale.
Salem had nothing drawn on its $30 million ABL revolver the.
The leverage ratio was 459 as defined by our credit agreements.
And looking forward for the second quarter of 2022 Salem is projecting total revenue to increase between 6% and 8% from second quarter 2021, total revenue of $63 $8 million.
Settlements 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 second quarter of 2021 non <unk>.
GAAP operating expenses of 55.0 million.
And this concludes our prepared remarks, and we'd now like to answer any questions operator.
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, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd 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.
Yeah.
Your first question comes from line of Michael Kaplinsky with Noble capital markets. Please proceed with your question.
Thank you and good afternoon, everyone. So the let's start with the guidance. So the guidance looks a little stronger than what I was expecting and I was just wondering what are the key drivers. There. If maybe you could just talk a little bit about is that our recycling in now to a better environment with four books titles.
The number of titles versus last year. If you can get give us a little thought about that and then I have some further questions.
Yeah, David Evans May want to mention talk about some of the the book titled certainly its a better Q2 in our publishing revenue than than than Q1 that is a part.
Part of it but also just everyone else seems to be doing you know we're getting some positive indicators broadcast revenue is doing a little bit better digital is strong obviously, we have a little bit of revenue kind of a nominal amount in the guidance for this film 2000 Newell's.
That's also something that's different in Q2 that wasn't in Q1.
Gotcha and and in the titles are can you guys give us a sense of what that looks like for the balance of the year.
Book publishing.
Is still soft in Q2.
I'm kind of looking ahead.
We're saying the Big titles award in Q3, and Q4, we've got books lined out from Ted Cruz David Limbaugh.
Dennis Prager, our bap alone be cut snakes to who's one of our top reitzes on Townhall, but all of those books are scheduled for Q3 and Q4, so I wouldn't expect.
A big increase from book publishing in Q2, more likely to be flat or even down a little but its the second half of the year that you should be looking at.
Gotcha, and then can you talk a little bit about the film.
<unk>.
But you're you're just to understand a little bit you. It was a cost of $4 5 million and you're in 300 theaters. At this point do you have some sense of of what revenues you're kind of contemplating in terms of that what type of return you're expecting and then how you are I guess further commodity.
Is that on some of your other platforms.
So Michael the first off yeah, our $4 $5 million investment was an investment in both the production of the film and the marketing of the film.
The film was initially it premiered in about 300 theaters 400 screens for two days. It then moved to this Premier Mara Lago then had a.
A virtual showing at the war theater in Las Vegas, and then as a.
Saturday was also available on sale them now, which is salem's transactional video on demand platform as well as on a rumble slashed locals.
As a as a paid released there so that that's kind of and right now as of.
Sunday.
It was available and is available on on sale them now and then rumbles as well as a DVD sales, which are significant for the film. So that's kind of where we've gone with it in terms of the revenue it's really early on to too.
Speculate where that is but I will tell you that we're very pleased with the pace.
That we're seeing right now and you know and our and expect to see a nice profit there.
And David how do you view sale them down or what are your thoughts in terms of adding more.
More content I mean, I'm just kind of trying to understand are you are you thinking you're getting into the movie business. Obviously, it's more of a documentary if I recall, but can you kind of give us your thoughts on how you plan to develop.
I see them now.
Yeah, and I'll and I'll I'll I'll make some comments and I love, David Evans to give some color as well, but you know again Salem's Salem's, calling card is the fact that we appeal to a few very specific audience groups. That's what we do best is appealing to those that are interested in content related to Christian.
<unk> and family themed.
Values and so as a result of that it allows us to really be targeted in the kinds of things that we produce and so a sale I'm now is just another great example of us being able to either acquire.
We're in the vast span content that will appeal to that audience and put it on the sale of them now platform. We did that last year with no safe spaces from Dennis Prager, and Adam Carolla that was followed up with Larry elders, No say without worry elders uncle Tom.
We've had other movies of lesser of a hit than those and now of course. This movie 2000 meals, which is a which is a significant hit so Michael we continue to look at Curating additional content both from existing concept that's available that we can.
Put on the site and then potentially from investment in other Dod.
Documentary style movies going forward, David anything to add to that yeah. I think you should expect us to be highly selective.
We're not kind of just kind of jumping into the movie business into the deep end of a swimming pool.
So we'll be looking for movies that are a fantastic fit for our audience, we know who our audience is.
We think we know what topics resonate with them. So we're going to be very focused on our sweet spot of audience, yeah talking about the right topics that our audiences interested in.
What to you buy the right talent.
With the right timing you know I think you know we have to get all of those things aligned and I think you see that with 2000 meals and Dinesh D'souza finished as soon as is a great fit for our audience.
Topic of the movie is very much on the minds of our audience right. Now. So you know expect a small number of movie investments all thoughts about very selectively.
Gotcha and then my final question any updates on cable news channel and then if you can just kind of give us some thoughts on how.
How much would be elevated expenses that you're talking about 7% to 10% growth in Q2, how much of that might be related to all the expenses related to the news channel.
Well the sale of news channel continues to make progress you know we have our first video only program on with.
With Andrew will cow, we know if put a in addition to that.
Dinesh D'souza podcast as a edited video version. That's also on the sale of news channels. So in addition to our network host which are there. We now have a few video only programs where you have some additional video only programs that we'll be launching.
Kind of a rolling those out slowly to control expenses.
So we're pleased with where we're headed with the sale of news channel. We are just beginning.
And more significant.
Significant sales effort. There is we wanted the product to be right. We're starting to get good signals that the product is right and we'll be moving more aggressively in the sales process moving forward.
Yeah I'm sorry go ahead, Mike like I was going to say you know some of the increased expenses in Q2, certainly relate to expenses.
Expenses that weren't around in 2021 related to several news channel for example, the video only show a Andrew will calling some of the personnel needed to run the same on these channels. So that does impact some of the elevated expenses in second quarter of 2022.
And is there a way to break that out or you're not breaking the.
Those elevated expenses out at this time.
No we're not breaking out town news channel expenses separately at this point.
Okay, Alright, that's all I had guys. Thanks I appreciate it thank.
Thank you thanks, Michael.
Your next question comes from Lisa Springer with singular research. Please proceed with your question.
Oh, good afternoon, I have a couple of questions about political AD spending thinking more towards the second half I wonder with the Supreme Court potentially taking up the abortion issue again do you expect that to have any kind of meaningful impact on political ad spending.
You know.
A fair question and to be perfectly transparent and one that I have not.
Given a lot of thought to how it would impact political ad spending.
So Lisa you know I mean I can.
Can tell you. This political we're already seeing an increase in political AD spending and that was up you know.
You know significantly obviously in Q1 of this year.
Whether the ROE V Wade or reversal of ROE V. Wade would impact political AD spending I guess.
My intuition says it probably would because it becomes a hot button issue that both sides of the aisle will want a place you know play off of so I think it probably will increase the intensity of political ads spending.
For both parties.
Okay and the next question I have about political AD is are you expecting with this cycle that it's going to be more heavily weighted towards digital and broadcast and compared to previous cycles and if that is true how could that impact your margins.
Well the great. The so first off.
I think the trend with all political advertising.
In general has been an increased amount of there.
Ed budget going to digital the Great News is is that we have ample and robust digital digital vehicles to offer them now those those vehicles do come at a slightly smaller margin than radio does.
But any time that we talk about political advertising, we always talk about the very effective combination of radio and digital together radio creating awareness digital creating action and the two of them are potent and effective combination and so we.
We actually you know.
Look forward to this political season, because we have more to offer than we ever have.
Okay, great. Thank you for your answers.
Thank you.
Your next question comes from Barry Sine with Spartan Capital. Please proceed with your question.
Hey, good afternoon. Thank you for taking my questions.
First I know, you're not giving estimates on how much revenue 2000 murals.
Could generate but if you could kind of walk us through the mathematics, I think it's what $30 to stream. The movie on sale them now and I know that movie economics get kind of complex if I wish to make an estimate of how many people might stream that over the quarter.
Of that $30 to flow through as revenue how did the economics work. So we can kind of do our own math and do our own assumptions.
Yeah, and you're right very it is.
A complicated issue when you talk about a movie accounting, but the first thing that happens is the marketing money gets paid back first and then the second the production cost. So so sale and we'll get the first four and a half million plus a little bit of interest on that money proceeds so that will come to us.
Additionally, anyone that streams on sale them now we get a certain percentage for being the distributor of the film the rest of the proceeds after that go into the L. L C.
That is the owner of the film and then there's a split from there, which Sam will participate in as well.
Yeah.
So that first chance to $4 5 million recovery does not show up as revenue.
That's a great question and one that we're still wrestling with and discussing with our outside auditors to figure out the exact.
Correct accounting and has a lot to do with how the LLC is established.
Established and financial control and things like that so there was no revenue in Q1 so.
This is something we'll have certainly resolved as we get into Q2.
Okay, and kind of a larger macro question around sale them now and this also I guess relates to issues you've seen on publishing at regnery as you've seen other titles, whether their authors or movies get banned or blocked or canceled on more traditional publishing.
Or I don't know if M F. A amazon prime would've even allowed this movie to be shown is that creating a new longer term larger opportunity you know a large proportion of the population.
Describe themselves as conservative are you, becoming kind of the <unk>.
Welcoming platform not just in meat movies, but in publishing and do you see that as a significant growth driver over the next several years.
I'll, let David address that David Evans address the publishing part on the sale of them now part very I would say a couple of things first off even before you get into films that maybe or content that would be banned.
And more general marketplace platforms.
You know there is a very unique audience that we appeal to.
We can put content on sale them now that they you know, it's it's just easier for them to find it on our site than it would be shift it was 15 through Miller.
Millions of titles on some other platforms and so just general interest.
Content for politically conservative audiences and Christian audiences.
Can show up on our site and do well, but then beyond that.
Certainly sell them now becomes a home for content that may be just one find a home at all.
On other platforms, you know largely due to the cancel culture. However, I will say this and say and that's at Salem still has a responsibility and we take it very seriously to make sure that you know any content that shows up on our site is responsible content.
Yeah.
And David I don't know if you want to address the book publishing side.
We've certainly seen that.
The general market, New York Publishers.
Cancel or turned away a number of conservative authors.
And that's certainly been an opportunity for us and we've signed up those authors on those books.
And we see you know the there's definitely an opportunity there and that's a gap that we've sought to Phil yeah, but also recognizing what Dave said, we want to be proud of every book republish with select says.
And you know with publishing the books that we think are a good fit for our audience.
And that we think is already well written so it is an opportunity in both books and in movies.
Okay and my last question I'm actually a two part question around if you can help us put in forecasting free cash flow and there's two parts of that question first of all I know youre upgrading many of the radio stations to add video capabilities.
Capabilities, yeah, so, presumably that's going to elevate both operating expense and capital expense. So if he if he could give us any color on that and then also on cash interest expense I know, that's not linear that I think that tends to be higher in <unk> and for Q. If you could give us.
Some help there and some outlook there what that's likely to look like in the rest of the year.
Yeah. So we certainly are upgrading some of our studios you already have in New York, and Washington D. C. I'm, sorry in Los Angeles, and Washington D C.
Do you have kind of more T V friendly backdrops for our hosts that are on air on the radio but also on unsound news channel you'll see some more of that this year and certainly will be a cause for elevated.
Capex not necessarily much in the opex more in the in the Capex line I think that's where you'll where you will tend to see that.
And then as far as interest you're right. We pay interest every June 1st in every December 1st and with our interests are with our debt pare down you're talking just over $6 million is the interest payment in June and December So youre looking on a combined basis with.
Our current debt.
$12 $1 million.
Okay. Thank you.
Youre welcome.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please while we poll for more questions.
Your next question comes from Edward Riley with E. F. Hutton. Please proceed with your question.
Hey, guys just to piggyback.
On the Capex question, but would love to hear more on capital allocation throughout the year and if you think you're going to reach your target leverage ratio below four by the end of the year and kind of what capital allocation it looks like they're out there.
Yeah, you know I don't.
I'm not sure we're going to hit the below four level of leverage by the end of the year, but that's still continues to be our target and we're working very much towards that and as far as right now capital allocation really the default is debt retirement.
Unless we have something some good M&A opportunities are out there.
Obviously, where we look at opportunities we pass on a lot of them, but we certainly look at things to see if it makes.
Makes sense, but you'll see us continue to focus on paying down debt. The remainder of this year and yes, you will have elevated capex. This year due to some additional studio upgrades.
And then I guess to kind of round out your question, what that's going to look like when we get below four we'll see that.
And at that point I don't think we've made any decisions on how we will allocate capital definitely the first thing is just to get there.
Gotcha.
So we maybe use the first quarter as a guide.
For what subsequent quarters look like in terms of Capex.
Particularly on the tenant improvements.
Yeah, that's probably a decent number and the other thing that we are that we're doing that well.
Probably say that it'll be a little bit higher than that.
Back half of the year is we're also in the process of upgrading all of our automation systems to be through the same vendor right. Now we have four different vendors for our various automation systems in the markets and we're in the process of.
Getting them all on one uniform automation system, so there'll be some some capex associated with that as well.
Okay, great. Thank you guys.
Thank you.
Your next question is a follow up from Michael Kaplinsky with Noble capital markets. Please proceed with your question.
It seems like you guys are pulling a rabbit out of the hat and finding a.
Sales of land and so forth I was just wondering if maybe you can give us some update on any visibility of additional land sales or asset sales.
Yeah, Michael we continue to look for other opportunities.
Our real estate Division is always getting updates on what our land values are and what the market ability I E is for those sites and then you know.
At the same time, you know if we were to sell it what are the opportunities for you know that that transmitter being relocated or die plaques or whatever.
I think right now all of the low all the low hanging fruit that's available.
We're we're grabbing that and we wanted to get those to completion and then we'll move forward from there.
I appreciate the color. Thank you.
Thanks, Michael.
Yeah.
Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back to Mr. David Centrella for closing remarks.
Well, thanks, everybody for being on the call. Thank you for your questions. We appreciate your interest in the Salem Media group and I look forward to speaking you again next quarter.
This concludes today's conference you may disconnect your lines at this time. Thank you all for your participation.
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