Q2 2022 Salem Media Group Inc Earnings Call

Buyback some additional 2024 notes in the open market.

During the quarter, we repurchased $13 million of bonds at a slight discount.

The reduction in debt, coupled with a 33, 6% growth in adjusted EBITDA.

Brought our leverage ratio down to $3 97.

If you factor in the cash on hand as of June 30, the leverage ratio would be 3.91.

A significant improvement and the lowest it's been in more than 20 years.

As the company has been improving its balance sheet and getting our leverage ratio under control investors is investors have asked about sale and the plans to get back towards hurting capital to shareholders through dividends.

Since the start of the pandemic the board has not even discussed the subject of dividends.

Recognizing that leverage has been too high.

However, now that Leverages under four times the.

The board will likely start to debate the merits.

It is therefore worth reviewing friction Salem has on paying dividends.

Of the two bond issues outstanding the 2028 notes are more limited.

Under the terms of that adventure Salem can pay up to $500000 in quarterly dividends when the leverages below $4 75.

If the Leverages below 4.0, Salem is able to pay up to five.

$5 million in quarterly dividends.

Obviously, if the board makes any decisions to resume the payment of dividends.

We will let investors know.

And with that I'll turn the call back to Evan for additional details on the quarter's performance and guidance for Q3.

Thank you Dave for the second quarter total revenue increased.

7% to $68 million operating expenses on a recurring basis increased 10, 7% to $69 million and adjusted EBITDA increased 33, 6% to $11 $7 million, which includes a $3 million profit share from 2000 users.

As Dave outlined.

I know some of our broadcast peers are still mentioned, how theyre getting revenue close to 2019 levels for us.

This is our fourth consecutive quarter, where revenue was ahead of the corresponding 2019 quarter.

<unk> to the second quarter of 2019 total revenue increased six 2% and adjusted EBITDA increased 14, 1%.

Compared to last year net broadcast revenue increased 12, 1% to $52 5 million and.

And broadcast operating expenses increased 17, 5% to $42 5 million, resulting in station operating income of $10 million.

A decrease of six 2%.

On a same station basis net broadcast revenue increased $12 two to $52 4 million and Soi decreased five 9% to $10 million.

These same station results include broadcast revenue from 97 of our 98 radio stations and our network operations, representing 99, 9% of our net broadcast revenue.

I will briefly review revenue performance of Salem strategic formats.

39 of Salem's radio stations are programmed in our foundation and teaching and talk format and these stations contributed 36% of total broadcast revenue and increased eight 9% for the quarter.

Our 33 news talk stations had an increase of 21, 2% in revenue for the quarter. Overall. These stations contributed 18% of broadcast revenue.

Revenue from the 12 contemporary Christian music stations contributed 15% of total broadcast revenue and increased 2.0% for the quarter.

Yes.

Broadcast digital revenue increased 29.

<unk>, 9% to $9 9 million and represents 19% of our total broadcast revenue.

Network revenue increased $9 10 to $5 4 million for the quarter and represents 10% of total broadcast revenue.

Revenue from the National Digital Media Division increased four 5% to $10 8 million and represents 16% of our total revenue.

Our publishing revenue decreased 18, 5% to $5 4 million and represents 8% of total revenue.

As of June 30, total debt was $109 4 million made up of $114 $7 million of 7% and 8% 2028 notes and $44 $7 million of six and three quarter percent 2024 notes sale.

<unk> had virtually nothing drawn on its $30 million ABL revolver.

The leverage ratio as Dave mentioned was 397% defined.

<unk> credit agreements.

Looking forward for the third quarter of 2022 soundness projecting total revenue to increase between 6% and 8% from the third quarter 2021 total revenue was 66 zero million.

Salem is also projecting operating expenses before gains or losses on the sale or disposal of assets.

Based compensation expense changes in the estimated fair value of contingent earn out consideration impairments depreciation expense and amortization expense to increase between 11, and 14% compared to the third quarter of 2021, non-GAAP operating expenses of $55 2 million.

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

Yes.

At this time I would like to remind everyone in order to ask Chen. Please press Star then the number one on your telephone keypad.

Pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Michael Kaplinsky with noble capital markets.

Thank you and good afternoon, everyone.

So first of all congratulations on your quarter.

Just spectacular.

So the question is that I have a couple.

Q3 revenue.

Up 6% to 8% is far better than many of what I would call the meeting heroes out there.

Throughout the third quarter.

And I was wondering if you can just give us color on some of those components of that growth that you're expecting in Q3 number one if you could talk a little bit about the network business on the broadcast side, maybe also talk about a little bit about national and local spot. It seems like Youre Nashville business has performed far better than anyone else.

Particularly in the second quarter and I was just wondering how that is continuing as you go into the third quarter.

Stop there and then address some of the other questions.

So so Michael and Evan and IMI kind of tag team on this a little bit but.

I think some of the new driver as Youre seeing in Q3, certainly political will heat up even more.

In Q3.

Sir.

Is something as we've mentioned we've got to what we believe are very strong books in Q3.

That will drive revenue.

And then really digital.

No.

Components continues to be ever plus of course uncle, Tom two coming out we think that that's August 26 that will.

Like 2000 and fuels the big bulk of revenue when you released the movie is right.

Right away any net within the first four to six weeks.

It will.

We'll continue to add revenue, but 90% of it is real fast.

No.

That will add to the quarter as well and then having more now I guess, that's kind of that's.

That's what we think our revenue drivers now can you go to the next.

Lot, there and I forgot the rest of us.

I'm just wondering if.

Okay.

Just the network and the national business in general outside of political what can you kind of give us a total took place and what you are hearing.

And also maybe if you could update us on your thoughts about political for the year I mean, obviously youre pacing well.

Of.

Your prior.

Cycle I was wondering if maybe if you can update us I'm sorry for the year.

Yes so.

Our network business is doing well and I think thats driven really is as we look to do more.

What we would call 360 degree deals we've got as example, <unk> got a host who's doing a network program.

We're also doing a podcast.

<unk>.

They may be it might be on the sale of niche channel as well and so we're trying to incorporate kind of.

More into.

More media vehicles women salem's ecosystem into what they're doing and we're seeing positive response from their advertising base from that.

And I think that's helping overall in terms of political.

It's just such a.

The political environment has never.

Ben as interesting and as heated and intense as it is right now and so I think.

No.

Customers like us and others are radio programs.

Very politically.

I have a lot of political content in them.

Just have a particular interest right now interest too.

To the candidates in their campaign managers.

Gotcha and then in terms of your expense growth for the third quarter seemed a little strong than it was just wondering is there any particular.

Things going on in terms of the expenses for that quarter on things that are pushed forward into the quarter any extraordinary items that you are facing.

So what the 11.

14% this is about.

I think first of all we hope that the.

The guidance is a little conservative and that the company performs better than than that guidance now that being said some of the issues that led to the elevated Q2 expenses will affect us again in the third quarter things like the re institution of the 401K match the continued investment in Salem niche channel.

Increased travel and entertainment expenses also expecting to increase marketing spend in the third quarter. So those are couple of the real big drivers.

That will drive expenses in Q3.

And how much of that.

Those are just.

Youll recall.

Somewhat one time, because your increased marketing, but I suppose is really related to the distribution of your.

The sell them right.

Is that I guess going into the fourth quarter or when does the releases in third quarter right. So would you expect that the fourth quarter expenses will moderate a little bit.

Trying to get a flavor.

What what would be continuing into the fourth quarter.

Could we expect yes.

The items that we continue into the fourth quarter to 401K match, we started again in the first of this year. So that'll hit all four quarters traveling entertainment will likely hit most of the year as well.

The other thing that's that's a big item is we're continuing to invest in talent in the Sandal News channel.

We recently hired someone to run that division.

And I think it continued investment there with at.

At least to start very little revenue, but we think theres a great opportunity there and it's worth the investment so I think youll see some of that persist.

Through the remainder of the year.

Okay, I'll, let others ask questions. Thank you so much thanks.

Thanks, Mike Michael.

Your next question comes from the line of Edward Riley with F. Hutton.

Okay.

Good afternoon, guys. Thanks for taking my question.

Noticed the digital media segment.

Saw some margin pressure.

Sequentially.

And from Q2 2021.

Just wondering what platform is really driving that right now.

You see the increase margins.

Yes.

We're doing a better job quite frankly of selling our owned and operated digital assets. So when you sell third party market, whether it's a PC pay-per-click campaign or something like that right. You have a cost of goods sold because you got to pay Google a bank or whomever, but when you sell for instance.

Campaign or an email campaign, that's within your own database or.

Your owned and operated digital assets.

Keep a lot more of that money. So that helps our margins we've taken more of the fulfillment.

Our digital marketing in house, so that helps our margin as well.

And then what's what's really driving that growth right now.

Around which are the digital advertising agencies.

Associated with.

All of our radio station clusters.

These are selling that digital marketing and plus we have digital only sellers and many of those markets, that's driving and of course.

Salem podcast network and sale of now which are also more revenue that's helping drive that.

Got you it sounds like it's pretty sustainable would it would it be fair to maybe project.

In terms of the future.

Youre, saying projected current margins.

Sure.

Correct, yes.

Yes, I think thats reasonable.

Okay great.

Get some more color on what's driving this 17% increase in national spot.

Well politically political in there so.

<unk> is a huge part of that.

You guys did an index finger.

<unk>.

Political.

Yes.

I can give you.

Political numbers overall, obviously it includes network and other.

Dave mentioned some of them for the quarter.

For the quarter political walls.

One $5 million.

Compared to last.

Most $400000. What's also interesting about political and I know Michael Kaplinsky asked a question as well if you look year to date.

Political basically $2 $3 million last year was under $1 million in 2020, our biggest political year ever was $1 2 million. So we are actually pacing quite ahead of that so we don't have any national spot numbers ex political in front of me, but.

Certainly thats been one of the things.

Got you and.

And then on the publishing side.

You mentioned revenues.

And sort of being.

Produce them in the back half of the year.

You mentioned that there's going to be some.

Third quarter releases any any title is expected to be released in the fourth quarter that youre excited about.

David I don't know if you.

To that I know.

Youre on the line because you may have.

Biggest type.

Historically in Q4 is probably going to be Dennis breaker.

The next.

<unk>.

And as serious.

It will come in <unk>.

That's the most sick.

Sure.

But not as big as Q3, where we have both finished Souza Cruz.

Okay got you and then.

I'm curious.

The total.

But you guys have received from 2000 meals thus far.

Well if you take a look at the fact that we had about $900000 came in between.

The.

Advertising they did with us.

With.

The interest income that we got.

And.

The $3 $9 million.

So you are talking about basically $4 8 million.

<unk>.

In addition to the return of our $4 $5 million. So as Dave said to say the success with the same successful would be an understatement I think thats certainly underscores that when we invested $4 five we got that back in an additional $4 8 million.

Okay, Great Thats It from me guys congrats.

Thank you.

At this time there are no further questions I will now turn the call over to David Centrella, Chief Executive Officer for any closing remarks.

Well I have no closing remarks, thanks, everybody for being part of the call great questions and we'll look forward to talking to you next quarter.

Thank you for participating you may disconnect at this time.

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