Q3 2022 Salem Media Group Inc Earnings Call
Let me now discuss Salem's National Digital Division revenue declined four 3% compared to the third quarter of last year.
Much of the revenue decline is a result of Facebook, making changes to its algorithm leading to a significant decline in traffic for Facebook to Salem's Conservative opinion websites. Additionally, a number of browsers and mobile devices are increasingly blocking access to third party cookie information, which is hurting.
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Finally, the weakening economy has put pressure on digital revenues with less advertiser demand for digital inventory.
Digital expenses were up only <unk>, 8% due to very careful cost management.
Revenue at our book Publishing Division was down three 7% in the third quarter.
As we announced in late August we moved the re lease of the Dinesh D'souza book 2000 meals.
Q3 to Q4, which negatively impacted our third quarter revenues. In addition to the 2000 meals book, we have two other titles that we expect it to perform well in the fourth quarter Justice corrupted by Ted Cruz and the rational Bible Deuteronomy identify Dennis Prager.
Publishing expenses were up 25, 5% largely due to the fact that we had to recall the copies of 2000 meals that were printed in Q2 and destroy them.
While we did not close on any acquisitions or dispositions during the quarter, we do have some M&A and activity to report.
We recently entered into two separate agreements to buy radio stations in Miami, Florida first.
<unk> will be acquiring W. M Y 990, <unk> am and the related transmitter site.
$4 $5 million in a separate transaction, we are buying WWF and $6 70 and W. R. H C. A M <unk> 50, and the related transmitter site for an additional $5 million all.
All three stations have FM translators, we expect both transactions to close around the beginning of 2023.
These stations will be formatted with Spanish language Conservative News talk program.
Additionally on October one we acquired the day trades by investment website for zero point $6 million.
And with that I'll turn the call back to Evan for additional details on the quarter's performance and guidance for Q4.
Thank you Dave for the third quarter total revenue increased one 3% to $66 9 million.
Operating expenses on a recurring basis increased 10, 3% to $60 8 million and adjusted EBITDA decreased to $2 3 million.
Despite the softness we're seeing in the overall economy and its impact on financial results. This is the fifth consecutive quarter with revenue ahead of the corresponding pre pandemic quarter in 2019.
Know that many of our peers are still trying to get back to their pre pandemic revenue levels.
Compared to last year net broadcast revenue increased three 1% to $51 1 million and broadcast operating expenses increased nine 9% to $41 2 million, resulting in station operating income of $10 million a decrease of 17, 9%.
On a same station basis.
Net broadcast revenue increased three 2% to $51 1 million and Soi decreased.
Increased 16, 7% to $10 1 million.
These same station results include broadcast revenue from 97% of our 98 radio stations and network operations and represents 99, 9% of our net broadcast revenue.
As of September 32022, total debt was $159 $4 million made up of $114 7 million of seven and one 8% 2028 notes and $44 7 million of six and three quarter 2024 notes.
We have nothing drawn on our $30 million ABL revolver.
The leverage ratio was 438 as defined under Salem's credit agreements.
Looking forward for the fourth quarter of 2022 sailings projecting total revenue to decrease between 3% and 5% from fourth quarter 2021, total revenue of $69 1 million.
This decrease is due largely to the fact that regnery had an extremely strong fourth quarter in book sales last year.
Salem is also projecting operating expenses before gains or losses on the sale or disposal of assets stock.
Stock based compensation expense.
Legal settlement changes in the estimated fair value of contingent earn out consideration impairments depreciation expense and amortization expense.
To increase between 4% and 7% compared to the fourth quarter of 2021, non-GAAP operating expenses of $58 $3 million.
And this concludes our prepared remarks, and we would now like to answer any questions. So I'll turn it back over to you Adam.
Thank you.
As a reminder, in order to ask a question press star one on your telephone keypad, and we will pause for just a moment to compile the Q&A roster.
Okay.
And we will take our first question from Michael <unk> with Global capital markets. Your line is open.
I was wondering if you can give us.
Your thoughts since we're so close to.
And of the political season, if you could give us your thoughts on what political is going and any thoughts on what the total is going to be.
For this for this quarter.
And maybe just.
Maybe just give us a thought.
Political is going to wind up for the year.
Evan and I might need to answer this question kind of together, Michael I anticipate that.
Political will continue to be strong throughout the quarter, obviously ending on election day, but I think it's going to be strong. If there is any runoffs that would of course provide some additional revenue, but Kevin I know you and I were looking at some numbers earlier you may want to.
We review that.
Let me give a little historical context of what we've done in Q4, the last couple of <unk>.
Election year, So Q4 of 'twenty we.
We had $3 $5 million in the fourth quarter I will tell you that seems to be a bit of an anomaly that was a real high watermark for us in one quarter.
Q4 dollars 18 in the last mid terms were $1 $7 million of political revenue in Q4, 2016 was $1 4 million. So I think it's reasonable to expect something more in line with those two numbers rather than what we did.
Q4 of 2000.
Yes.
So the <unk>.
The fact that you're guiding towards revenues to be down in the quarter.
Can you just kind of give me a little thought about.
Our the number of titles than in <unk> down significantly from year ago can you just kind of giving you the ballpark of what the number or the number of titles were.
Yes.
Year over year the big.
<unk> for.
So the revenue guidance being down is correct right. It's not a function of the number of titles. It's a function of the number of big titles.
I think.
Some of that is kind of based upon the date shifts, but Q4, a year ago. I think we had three titles that were 50000 units plus.
Think Q4 this year will be ones, Hi, Paul 50000 units plus so its more about the number of big titles, which is obviously down rather than rather than the total number of titles.
If that makes sense, yes.
And as you gear up for 2024 do you tend to get more titles a year prior to the election year or do you get the titles in the election year.
Like I say bigger book.
If you look back over the last five or 10 years.
Hey, even numbered year election, Yeah, I think the revenues are typically about seven or 8% higher.
Then in a non election year.
Or more titles there is more interest in the election year.
2021, with the exception that proves the rule. So last year, we had four big titles in Q4 patent EMEA.
Rick.
Eric Metaxas his book on Acs.
And that book from the Babylon base I'll note that two of those titles were question. So that was a very very strong quarter a year ago.
Really tough comps.
And then if you look at Salem surround.
Kind of give us some thoughts about how that's performing into Q4.
Are we still seeing significant growth there.
I'm, just kind of give us a framework of what what youre seeing on that portion of your business.
Yes, Michael we're still very excited about Salem surround and the growth that we're seeing there.
Slowed down a bit in Q3 as you can imagine as the economy has slowed down people sat on their money a little bit but.
That's still an extremely strong growth initiative for us.
Both our east and west regions.
And we will be.
Yeah.
I wanted to put their money back in their pocket for a little while and so that's having some impact on us both at a national level, a little bit on the network side and certainly at a local level with a number of.
Local.
Refinance mortgage refinancing companies that do business with us. So that's that that single category is probably impacting us more than on the spot side than any other category.
And so from that perspective, when you are seeing.
More weakness on the national side than you are local.
Well, we're seeing we're seeing that that weakness largely locally, but then some nationally as well.
Couple of.
Key mortgage accounts on the national side as well.
And then given the.
The weakness that we're seeing in the revenues can you talk a little bit about the expenses because we're still seeing kind of mid to high single digit expense growth to kind of talk a little bit about what the outlook might be.
Still see a pro longed weakness in revenues the ability to cut cost what what are your thoughts on that.
If you want I can.
Yeah, a little bit about that.
First of all one of the things Youre seeing unexpected this year as compared to last year. That's driving it is we did reinstate the 401K match.
This year and Thats been driving costs up a little bit and you'll see in the fourth quarter compared to certainly this quarter less.
Less of an expense increase in our guidance I think as we get into next year.
We should see expenses more moderated because we won't have that difficult comp.
And look we'll see what this economy holds before we start making decisions on expense cuts.
If there is a deep and prolonged cut will take actions if not we hope to not have to take those actions and we hope that the economy will be able to.
Snapback hopefully quickly.
Got you okay.
All I have thank you.
Thank you.
And we will take our next question from Derrick Wenger with concise capital. Your line is open.
Yes. Thank you I have two questions. The first has to do with the four three times calculation that you cited on the.
The covenant what is the covenant restriction and how do you actually calculate the four three.
Because I get something a little higher and then I have a second question with regards to the Spanish stations, but we'll circle back.
Yes, so let's talk about the covenant calculation first of all it's only an incurrence test covenants. So its only if our leverage is above five in a quarter, we cannot incur any new debt.
So it's not a maintenance covenant so.
That's kind of issue one as far as you were wondering.
About the testing now as far as the calculation.
The credit agreements allow us to exclude unusual nonrecurring.
Nonrecurring type items like Youll see there was a separate line item on the financials called legal settlement.
We got to exclude that from the calculation because that is not necessarily reflective of ongoing operations and thats, probably the main difference you get.
From.
Looking at the financials, we also get to do other adjustments like pro forma.
Income for acquisitions and dispositions. So it is not something you can necessarily tie to straight from the financial statements.
So I can't use your 28.
Nine month year to date adjusted EBITDA is.
If that's not the same number.
Correct and it's also it's always on a LTM basis last 12 months no I know that but I think your fourth quarter, maybe I should just ask you what you look to fourth quarter was last year.
I don't have that number in front of me, but youre not going to even be able to tie there because if we have an acquisition or disposition. The credit agreement requires us to go back as if we didn't own if it's the case of a disposition as if we didn't own it for the entire time, where an acquisition as if we did for the entire time so.
The EBITDA number will vary from what's publicly reported.
Fair enough.
And then did you give EBITDA guidance for the fourth quarter.
We do not we only give revenue and expense guidance. So okay.
So wanted to jump to my second question, which is the purchase of the stations.
In Miami happen to be in Miami does.
Three am stations right.
Yes, yes. So this will be what is the content to these were they before who owned them.
And why the endeavor into Miami at this point.
Hi.
Well.
First of all if we look at Miami is a growing market and there's a lot of good information about Miami.
The economic growth that you see there so we look at it as an opportunity market for us and <unk>.
You know theres been some changes in the radio landscape, particularly on the Spanish side.
This year.
Miami and so we look at that as an opportunity to.
To step into the market and offer some some programming and content.
<unk>.
May change elsewhere. It may not be the same as it used to be elsewhere, and so we look at that as a great opportunity.
Sure.
Two.
To provide an alternative.
Sure.
Did that.
You had another question in there.
Yes, who you bought them from and what's the metric you use to justify the $15 million $10 million I'm sorry.
Okay.
So we bought that we bought these stations from two different owners and have been you might have that information I apologize guys Im a little bit.
Disadvantage today.
Im on the road in Chicago, So I don't have all of the data I normally have with me but.
Two stations were purchased from a <unk> another one was.
Two were purchased from.
Okay.
We're both independent owners that didn't own stations in any other markets. They were acquired from.
A large radio group.
Small independent operators.
In terms of the purchase price.
Those acquisitions came with land that is quite valuable.
So we value the land element separately.
And then the <unk>.
Purchase price is kind of aside from the land with based upon our projections of what we thought we could do with those properties over the next three.
345 years, and kind of an appropriate multiple based upon that evaluation.
Okay.
So.
Both purchases came with land I'm, assuming the two stations was one owner obviously and.
One piece of property or.
I believe.
Three pieces of property to pieces of land and a building if I recall correctly.
Thats.
Okay.
That's on the two station one.
Yes.
So thats and Thats inaccurate cuts across a three space okay too.
These two trends.
Thanks.
To transfer to a transmitter site in one studio slash building.
Okay. Okay.
So the first station 90, 90, AAM for $5 million that was an independent owner in that came with land and a building or no.
I don't recall, which one came with the building I apologize okay. Okay. Okay. So one of the two purchases came with a building in <unk>.
One of them is just land yes.
But both but both both acquisitions came with the pace of land one of them came with the building I wish I could remember, which one but building came with I apologize.
How are they operating as station with no land.
So I'm sorry, the land is only you can rent you can rent a tower sites, where economic Natal side okay.
Okay. Okay. So that was probably the case in this case, yes, yes.
Well.
Yes, Miami land has been going up in value that's for sure.
And.
I can get into more detail on that later.
Okay.
Okay. Okay. Thank you.
Yeah.
We will take our next question from Edward <unk> with <unk>. Your line is open.
Hey, guys all my questions were covered.
Thank you thanks for that.
Alright, we have no further questions at this time I will now turn the call back to David Centrella for closing remark.
Okay, well, thanks, everybody for being a part of the call will talk to you again next quarter.
Okay.
Ladies and gentlemen, this concludes today's conference call and we thank you for your participation you may now disconnect.
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