Q4 2022 Salem Media Group Inc Earnings Call
Please standby we're about to begin.
Good afternoon, ladies and gentlemen, welcome to be Salem Media Group's Q4 2022 earnings conference call. At this time all participants are in a listen only mode and please be advised that this call is being recorded after the speakers' prepared remarks, there will be a question and answer session. If you would like to ask a question. During this time.
Star one on your telephone keypad and if you would like to withdraw. Your question you can press star one again and now at this time I'll turn things over to Mr. Evan Nature Executive Vice President and Chief Financial Officer. Please go ahead Sir.
Thank you and thank you all for joining us for Salem Media group's fourth 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 Dot com.
In the room with me today are David Centrella, Chief Executive Officer, and David Evans, Chief Operating Officer.
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 1095.
These forward looking statements are based on currently available information.
Actual results may differ 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 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 and adjusted EBITDA in conformity with regulation G information required to accompany the disclosure of non-GAAP information a financial measures is available on the Investor relations portion of <unk>.
The Companys website at Salem media Dot com.
And with that I'll now turn the call over to Dave Centrella, Dave Thanks, Kevin and thanks, all for being a part of the call today.
Today, We'll review <unk> fourth quarter results discuss some new developments with respect to our debt and provide a brief M&A update I'll, then turn the call back to Kevin to provide more details on fourth quarter financial performance.
And to give guidance for the first quarter of 2023.
One thing that you'll hear throughout the call today is the slowing down of the overall economy and its impact on Salem, particularly on AD driven revenue.
Total revenue for the fourth quarter was down 0.5% expenses were up five 7% and adjusted EBITDA declined 33%.
Before I review the results by Division I want to summarize our overall digital revenue for you when you combine the digital revenue within the broadcast division and the National Digital Division overall digital revenue was flat in the quarter and is nearly 30% of total revenue.
The broadcast digital revenue grew 14%, while the more mature national Digital Division declined 10, 3%.
I'll address that declining a little bit despite the overall digital revenue being flat due to the softness in the economy. We still see digital revenue is the best source of future growth and where we will continue to invest our financial resources.
Now I'll go over the financial performance in the fourth quarter in each division.
Revenue in the broadcast division increased four 5% in the fourth quarter compared to the fourth quarter of 2021. This growth is well above the industry. According to Miller Kaplan, which shows industry growth of one 6% in the markets, where we operate one of the drivers growing revenue in the fourth quarter both.
For us and the overall industry was political revenue.
We recognized $2 $1 million in political in the fourth quarter compared to just 0.5 million in the fourth quarter of 2021.
For the year, we had $5 $9 million in political revenue, which is the highest level of political revenue in a mid term election for Salem.
The political revenue has seen principally in national spot, which is up seven 7% and network revenue up 11, 3%.
Local spot advertising was down four 3% due to the weak economy.
I am pleased to report that our block programming revenue was up three 4% in the quarter remember that block programming is a unique component to Standalone business model and has routinely shown resiliency during recessionary times.
This growth is being led by National Christian Ministry revenue, which was up four 8% in the quarter.
And nine 7% for the year.
This is due to ongoing increased demand for limited programming time.
I already talked about our combined digital revenue within the broadcast division digital revenue, which encompasses Salem surround the sale in podcast wet network sale them now and the sale of news channel increased 14% during the quarter. Because we believe this is our biggest growth opportunity we are <unk>.
<unk> further in these initiatives.
Broadcast expenses increased 11, 4% driven by our continued investment in the sale of news channel. The four one K match, which was re instituted in the beginning of 2022 and the impact of a bad debt credit in the fourth quarter of 2021.
Revenue with Salem's National Digital Division declined 10, 3% compared to the fourth quarter of 2021.
Similar to last quarter. The revenue decline is due to Facebook and the demise of the third party cookie.
In July Facebook implemented changes to its algorithm to feature less political content. This has led to a significant decline in traffic from Facebook to Salem's Conservative opinion websites also many browsers and mobile devices are blocking access to third party cookie information, which is hurting digital advertising CPM.
On top of these two issues the weak overall economy is also putting pressure on digital advertising revenues.
Digital expenses were up one 8% due to cost management initiatives.
Revenue at our book Publishing Division declined 21, 3% in the fourth quarter, we had a light book review schedule compared to a strong book schedule in the fourth quarter of 2021, our top books in the fourth quarter of 2022 were justice corrupted by Ted Cruz and letter to the American Church by Eric Metaxas.
As is normally the case there is not a strong book release schedule in the first quarter. The three biggest titles are dining with the saints by Leo.
Oh Wow.
David help me titling hub. Thank you Leo paddling hub forgive me.
And Michael Foale Scalia.
Hi, James Scalia, sorry, Scalia by James Rosen, and how to save the west by Spencer Cleveland as well as strong ongoing sales of books by Eric Metaxas.
Publishing expenses were down 10, 6% due to the related decline in revenue.
Wanted to provide an update on our capital structure last month, we exercised the delayed draw backstop, we negotiated back in September 2021, we will be issuing $44 $7 million in new seven 1% to 5% 2028 notes to take out the remaining 675% 2024.
Notes, we have initiated the call of the 2024 notes through our trustee and expect everything to close by the end of the month. After the close we will have access to approximately $4 million to pay down the ABL revolver.
I want to shift our discussion to M&A activity on October one we acquired the <unk> spy financial newsletter for $600000 also on December one we closed on the acquisition of K K O L. A M in Seattle for $500000. Finally on December 30, we purchased ISI publishing for 400.
$25000.
In January we closed on the purchase of three Miami Radio stations W. M. A y M. A M WWF EAM and W are HCI.
For $10 million sale and paid $6 $3 million for the FCC licenses and related broadcast assets and Edward <unk> Salem as executive Chairman pay $3 7 million for the transmitter sites. The company entered into an agreement whereby the company is able to acquire the land from AD for the same price sale and could have purchased the land.
From the radio station Sellers. This was done to preserve liquidity for the company.
On February one we closed on the acquisition of the George Gilder report and other digital newsletters and related websites. We did not pay any cash at closing for this transaction, but assume the deferred subscription liabilities and will pay 25% of certain future subscriptions.
And with that I'll turn the call back to Evan for additional details on the quarter's performance and guidance for Q1.
Thank you Dave for the fourth quarter total revenue decreased <unk>, 5% to $68 8 million operating expenses on a recurring basis increased five 7% to $61 6 million and adjusted EBITDA.
To $7 3 million.
Compared to last year net broadcast revenue increased four 5% to $53 3 million and broadcast operating expenses increased 11, 4% to $43 2 million, resulting in station operating income of $10 1 million a decrease of 17, 4%.
On a same station basis net broadcast revenue increased four 5% to $53 3 million and Soi decreased 15, 7% to $10 3 million. These.
These same station results include broadcast revenue from 98 of our 100 radio stations and network operations and represents virtually all of our net broadcast revenue.
As of December 31, 2022, total debt was $162 7 million made up of $114 7 million of seven and one 8% 2028 notes $39 million of six and three quarter 2024 notes.
And $9 million outstanding on the ABL facility the leverage ratio was $4 88 as defined under Salem's credit agreements.
Looking forward for the first quarter of 2023 soundness projecting total revenue to be between flat and a decline of 2% from first quarter 2022 revenue of $62 $6 million.
<unk> is also projecting operating expenses before gains or losses on the sale or disposal of assets 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 seven and 10% compared to the first.
Quarter, 2022, non-GAAP operating expenses of $55 $8 million.
And this concludes our prepared remarks, and we would now like to open the call up for any questions operator.
Thank you Mr May Sir ladies and gentlemen at this time any questions again. Please press star one antibody find that your question has already been addressed you can't remove yourself from the queue by pressing star one again I will pause for just one moment to assemble the queue.
Okay.
Okay.
We will take our first question. This afternoon from Mr. Michal Krupinski of noble capital markets.
Thanks for taking the questions and good afternoon, everyone.
First of all I know it was a difficult quarter, but I'm glad to see that you guys beat my estimates. So that's always a good thing.
A couple of things can you kind of give us a idea of what the price increase was for the block programming in the first quarter I know you typically put in your price increases in the first of the year any thoughts there.
Yes.
It was a <unk>.
Just shy of 3%.
Okay, and can you kind of give us a.
A little color on the revenue outlook for Q1, I know that your guide is actually a little better than what I was looking for and I was wondering if you can just kind of give us a flavor of our.
Are the same trends that were in the fourth quarter kind of continuing into the first quarter any particular things that are showing some bright.
Some signs of life or is it across the board just kind of give us a thought about that.
The revenue trends.
Yes January was pretty sluggish February actually got a little better.
And January was in terms of dollars written in the month for the month.
So far March has actually started out pretty good.
Look Michael at kind of how much do we write today for the current month and then how much do we write today for the next month in the next month after that and.
I've been pleased with at least what I've seen us writing in the first several days of March. So all of that is as good but there is no question you were fighting a headwind.
In a significant way as is it seems most of the industry right now.
I can't necessarily point to a particular category and tell you that this is a category thats going gangbusters I can tell you in Q4, we had.
As you might expect real estate and mortgage which is always a big radio category is not doing great right now because interest rates are really high in.
In 2021, we had a lot of spending from the government right promoting.
Vaccines and whatnot.
That advertising is not really.
They're as much anymore. So there's been a few categories that are down.
And.
And then again just overall headwinds.
Got you.
It's interesting that.
Your local was weak, whereas national is maybe a little bit better I was just wondering.
For the most part others have been saying national has been extremely weak and local has been holding up what are you seeing.
Between our national spot in local spot.
Well.
National Our network has really been what's stronger than national spot and I think it's our network is just strong Michael because of kind of that 360 degree approach that we're able to take because you can listen to that radio program. You can then also listened to a podcast of that.
We're selling different commercial.
In each of those.
And then of course national spot itself in Q4 was driven particularly by political.
Right right, but what are you seeing in terms of local then for Q1.
Uh huh.
Can you rephrase that I'd say.
We are seeing national stronger than local in Q1, which does seem a little at odds with the rest of the industry.
And I'd say thats, because our national organization has got momentum because of things like the asylum podcast net luck and Salem News channel and our new digital initiatives, that's feeding our national business.
Gotcha.
And then I guess in terms of just.
Assume that the.
The cash flow that you plan to drive this year is largely can be used to pay down debt I would assume so but just to kind of confirm that capital allocation for this year.
Yes, Michael definitely the single the number one use for free cash flow. This year, we will continue to be pay down debt as <unk> seen us do really compare back to two.
<unk> 2017, when we put the bond issue in place, we have $255 million of bonds in our debt's down.
Right a bit from there. So we will continue to focus on paying.
Paying down debt and deleveraging.
Gotcha.
Okay.
That's all I have for now thank you great. Thanks, Michael.
Thank you we'll go next to Edward Riley of ESI.
Hey, guys. Thank you for taking my question.
Most of my questions.
But just regarding this quarter's guidance Q4 guided towards.
Negative three to negative <unk>, 5% growth in the quarter I was I was wondering if you could maybe help us reconcile.
The difference between the guidance and the actual result.
Maybe maybe what surprised you in the months of November and December .
Just wondering if any of that momentum is carried through a little bit into 'twenty.
2023.
Okay.
I think a couple.
Couple of things that did a little better when we were putting together our guidance for the fourth quarter.
The biggest glaring negative was publishing.
And just because of the slate of books that we had in the fourth quarter.
The prior year.
But we did have a.
Better Q4 with the books at that Dave mentioned Justice corrupted by Ted Cruz and letter to the American Church by Eric Metaxas that was definitely part of why we did better than we expected from a guidance perspective, and I think political came in a little bit stronger as well.
Okay. Thanks.
Thanks for that and.
So it seems are really targeting the Florida market just with regard to capital allocation should we maybe expect more of the same for next year.
I don't see us at this point, adding any additional licenses in the in the Miami market I think we feel good with the three licenses that we have that we can achieve what we're trying to accomplish there.
Okay got it thank you.
Okay.
Thank you. Thank you.
And we will take our next question now from David Marsh of singular research.
Hey, guys. Thanks for taking the questions.
As we look out throughout the rest of year already publishing titles that you guys are particularly excited about that could get publishing moving back in the right direction.
Okay.
I wouldn't call out one particular.
Home runs highest hall.
When I look at the slate is a hall.
Think we will see both revenue and profit growth for the book publishing business in 2023 compared to 2022.
If I were to mention specific titles and authors.
Hi list books from Josh Hawley, George Gilder, Gad Fad, the Babylon B Telsey gathered Ted Cruz.
Okay. That's very helpful. I appreciate that.
And then.
Let's take a look at the asset portfolio as a whole.
Are there any.
Particular assets it makes sense to possibly look at.
Divesting here.
It's a tough market right now but.
As you look at the portfolio overall are there any that stand out as.
Maybe you could.
Could use as a source of liquidity going forward.
Well I can tell you we're constantly assessing that whether it's real estate that we have in continually looking at real estate in changing values. There then we constantly look at the performance of all of our.
Individual business units and assess on a regular basis.
If there are best in our hands are best in the hands of somebody else.
So that's there.
And then I guess, just lastly from me.
Actually I will just add.
Sirius XM is data.
Yeah.
Reduction in force.
Just curious if.
Perhaps there's some maybe some talent available that wasn't.
Perhaps previously available that you guys might be able to add that might.
I'll drive revenue as a result of that production for us or any other actions by other operators in the industry.
Yes, I think the best opportunity there is maybe less on the talent side. We always are looking for great talent and if theres a good talent that.
Fits.
The other profiles for Salem, with our formats, if theres a good talent there, we certainly will consider them.
The greater opportunity has been with other workforce reductions both at Sirius XM and at other broadcasters.
As we're investing in in Salem surround and our other digital assets.
There are some very talented people that are available and of course, we're looking at them.
For both sales and sales support within our digital.
Our digital initiatives.
That's great. That's really helpful. That's all I have thanks guys.
Thank you.
And we will take a follow up question now from Michael Lupinski.
Thanks, I appreciate that I, just kind of wanted to drill down on the expense outlook for Q1 can.
Can you repeat that.
That is in fact, the comparable from Q1 2022 of $55 8 million. If you can just kind of explain that a little bit.
Yes, I'll give you an update on our refresh on what the numbers were and then Dave can you maybe talk about what's driving the increase so it's a 7% to 10% increase in expenses from that $55 8 million in the first quarter of 'twenty, two and Dave do you want to talk about it in terms of the expense guidance. It's.
Really being impacted by as I, just mentioned hiring additional digital sales staff to continue to grow our digital business you have to remember on the broadcast side.
Sale of our digital business is really only about five years old we really launched later than other broadcasters did we kind of wanted to be faster fast followers as opposed to pioneer's, there and we're glad that we moved in that direction, but in order to keep it growing.
We have to add more people to it we have to build.
Both.
A larger sales force around it and then a larger digital.
The sales infrastructure, so that we can fulfill those digital orders in house, it's cheaper to fulfill them in house, but then by using third parties and.
So so we found that the ROI of new sellers is real positive for us and with Big Tech companies laying off really qualified salespeople, we're able to take advantage of that opportunity.
Thanks, Steve for that color is your digital business on the broadcast side profitable at this point.
Very much.
Yeah, right. So can you kind of give us an idea of what the margins are where do you think the margins could grow to.
Matures.
Yes, I guess, it's difficult to look at the margins because we sell a lot of different products I would say.
On average incrementally incremental digital is probably in the 35%.
Margin range, but as we look to bring some of the stuff in house, we want to grow that margin.
You can't really calculate kind of standalone profit margin because it's sharing the sales team with radio broadcast at Cynosure and the general manager.
So there's a bunch of shared expenses.
Low profit margin on an incremental basis than local spot sales because in.
When we're selling digital we are selling some owned and operated in inventory, but we're also reselling other people's inventory.
There is a cost of goods sold to our digital media business that we don't have with the core local spot business. So it is lower profit margin because of that.
But still nicely profitable, yes, the cost of goods sold on a local advertising our national spot advertising.
Our buckets for that matter the cost of goods sold is really baked into the operating expenses of the business unit, whereas with digital there is a real cost of goods sold were writing a check to somebody for that.
Gotcha. Thanks for the color I appreciate it that's all I had thanks, great. Thanks, Michael.
Yeah.
And gentlemen, it appears we have no further questions. This afternoon, Mr Sen, Charles I'd like to turn things back to you for any closing comments.
Okay, well, thanks, everybody for being a part of the call today, we appreciate it and we'll see you again.
Next quarter.
Thank you. Thank you Mr syndrome, ladies and gentlemen that does conclude the Salem Media Group Q4, 2022 earnings conference call I would like to thank you all so much for joining us and wish you all and create remainder of your day Goodbye.
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