Salem Media Group Inc. Q1 2023 Earnings Call

We settled a lawsuit for $5 $3 million, while we adamantly deny the allegations that were made.

Nevertheless believe settling the lawsuit was preferable to uncertain and costly litigation and in the best interests of the company.

Top of these one time items the economy as you know is weakening.

Before getting into the performance by Division, Let me talk about the performance of digital revenue as a whole the digital revenue within the broadcast division plus the National Digital Division.

Combined digital revenue represents 29% of our total revenue and was down <unk>, 5% in the quarter the.

The decline in revenue was due to the softening advertising market that we're starting to see across most of our businesses. Digital however continues to be the company's top growth initiative as <unk> continues its evolution into a multi media company.

Nevertheless, there were a number of positive developments in the quarter total revenue was up one 3%.

Broadcast revenue was up three 1% despite the headwinds I just mentioned shale and continues to outperform its pre pandemic numbers with total revenue up four 3% in broadcast revenue up seven 3% above the third quarter of 2019.

Now I'll review each division's performance in the third quarter in the broadcast Division revenue was up three 1% compared to the third quarter of last year. According to Miller Kaplan. This is well above the industry, which was down one 5% in the markets in which we operate.

Political revenue was driving much of this growth in the third quarter, we recognized $1 5 million in political revenue compared to only <unk> 4 million in the third quarter of last year.

On a year to date basis, we're still pacing above where we were in the last two election cycles.

In 2020, we had one point I'm, sorry, we had $3 $1 million in political revenue through September and $3 million political revenue through September of 2018. This year, we booked $3 8 million in political revenue for September .

While it is still difficult to predict where all the political spending will be salem's certainly is poised for a good year in political revenue.

Despite this robust political revenue traditional spot advertising was down 0.9% with national spot advertising, increasing five 7% in local spot advertising declining 3%. There is as you know a slowdown in spot advertising due to the current economic environment.

Block programming, which is a unique component to sale of <unk> business model continues to show resiliency with revenue up 5% in the quarter.

This growth is being led by National Christian Ministry revenue, which is up nine 1% due to an ongoing increased demand and programming time from both new industries and existing ministries looking to grow their footprint.

And their impact.

Digital revenue within the broadcast division, which encompasses Salem surround the Salem podcast network and scale them now grew four 2% during the quarter.

Economy is put pressure on digital revenues with less advertiser demand for digital inventory.

Digital expenses were up only 0.8% due to very careful cost management.

Revenue at our book Publishing Division was down 3.7% in the third quarter.

As we announced in late August we moved the lease of the Dinesh Dsouza book 2000 meals come Q3, Q for which negatively impacted our third quarter revenues. In addition to the 2000 meals book, we have two other titles that we expected to perform well in the fourth quarter Justice corrupted by Ted crews and the rationale.

Bible Deuteronomy died by Dennis Prager public.

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 destroyed.

While we did not closing any acquisitions or dispositions during the quarter. We do have some M&A an activity to report we recently entered into two separate agreements to by radio stations Miami, Florida.

First it will be acquiring W. M Y M at 990 am and the related transmitter site.

Four $5 million in a separate transaction, we're buying W. W. F E <unk>.

670, and W. R. H C 15, 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 1st we acquired the Day-trade spy investment website for zero point $6 million.

And with that I'll turn the call back to even for additional details on the quarter's performance and guidance for Q4.

Thank you Jade for the third quarter total revenue increased one 3% to $66 $9 million.

Operating expenses on a recurring basis increased 10.3% to $68 million.

And adjusted EBITDA decreased to two $3 million.

Despite the softness we're seeing 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.

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 9.9% to $41 $2 million, resulting efficient operating income of $10 million a decrease of 17.9%.

On the same station basis net broadcast revenue increased three 2% to $51 $1 million and.

And soi decreased 16.7% to $10 $1 million. These.

These same station results include broadcast revenue from 97 or 98 radio stations in network operations and represents 99.9% of our net broadcast revenue.

As of September 30th 2022, total that was $159 $4 million made up of $114 7 million of 718% 2028 notes and $44 $7 million of 63 quarter 2024 months.

We have nothing drawn on our $30 million ABL revolver.

The leverage ratio was four three as defined under Salem's credit agreements.

Looking forward for the fourth quarter of 2022 sale must projecting total revenue to decrease between 3% and 5% from fourth quarter of 2021 total revenue of $69 $1 million.

This decreases due largely to the fact that Gregory had an extremely strong fourth quarter and book sales last year.

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

Stock based compensation expense.

Legal settlement changes and estimated fair value of contingent earnout 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 Abbey.

Thank you.

As a reminder, in order to ask a question press star one on your telephone keypad, and we will possibly just a moment to compile the Q&A roster.

And we will take our first question from Michael <unk> with Global capital market. Your line is open.

I was wondering if you can give us your thoughts since we're so close to the.

The end of the political see that if you can give us your thoughts of what political is going.

So what the total is going to be.

For this for this quarter.

Maybe just.

He's just give us a pot with political is going to wind up for the year.

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.

Runoff that would of course provide some additional revenue but.

I know you and I were looking at some numbers earlier you may Wanna.

We'll review that.

Let me give a little historical context of what we've done in the queue for the last couple of <unk>.

Election year, So Q4 of 20, we.

We had three $5 million in the fourth quarter I will tell you that seems to be a bit of an anomaly that was a real high water mark for us and one quarter.

Q4 of 18, the last midterm for $1.7 million of political revenue in queue for 16 was one $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.

Yeah.

So the the the the.

The fact that your guidance towards revenues to be down to the quarter.

Can you just give me a little thought about.

Or the number of titles been in Gregory down significantly from year ago can you just kind of give me the ballpark of what the number the number of titles were.

Yeah. So.

<unk> said for the revenue guidance being down is ranked Mary it's not a function of the number of titles. It's a function of the number of big tie kohls.

And I think he is.

Some of that is kind of based upon the date shifts, but Q for a year ago. I think we have three titles that were 50000 units class.

Q for this year will be ones, Hi, Paul 50000 units plus so it's more about the number of big tie Paul's, which is obviously down rather rather than the total number of titles.

If that makes sense, yeah, 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 the bigger boy if.

If you look back over the last five or 10 years.

Even number yeah, I an election year.

The revenues are typically about seven or 8% higher.

Then in a nonelection yeah.

Are more typo, there is more interest in the election yeah.

2021, with the exception that proves the rule. So last year, we have four big titles in cue for Pan Vimy Ridge.

Rick.

Eric My taxes book on Acs.

And a book from the Battle on base I'll note that two of those titles were Christian so yeah that was a very very strong quarter a year ago. So I was just really tough comps.

And then if you look at sales surround can you give us some thoughts about how that performing into the queue for.

Are we still seeing significant growth there.

Kind of give us a framework of what what you're seeing on that portion of your business.

Michael we're still very excited about sailing surround and the growth that we're seeing there.

It's slowed down a bit in Q3 as you can imagine as the economy has slowed down people sat on their money in a little bit but.

That's still an extremely strong growth initiative for us.

Both on our eastern West regions.

And will be.

Right.

The revenue growth driver.

On the broadcast side.

I anticipate well into 2023 and beyond.

I would assume that you're not really seeing any weakness on your block programming. So if you could just talk a little bit about what you're hearing from advertisers.

Certainly you would.

One would assume that we're not really seeing that.

I guess the economy is still relatively healthy stick it in there.

Although we're getting rate increases in which maybe we're starting to see that affect the advertising what can you give us a thought about what you're hearing from the advertisers.

Most of your advertising tends to be more local in general I would I would imagine so can you give us your thoughts about what you're hearing.

Yeah. So many of our advertisers are are still healthy and going going relatively well. The problem is really in a few categories that are really big four four Salem, and perhaps big further broadcasters as well and that's for instance, the home mortgage business.

Mortgage business is a big category and when interest rates are where they are and where they're headed.

They wanted to put their money back in their pocket for a little while and so.

Having some impact on us both at a national level, a little bit I'm really kind of a network cited certainly at a local level with a number of.

[noise] local.

Refinance mortgage refinancing companies that do business with us. So that's that that single category is probably impacting us more of an on the spot side than any other category.

And so from from that perspective, 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 we have a a couple of of.

Qui 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 here 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 if we still see approved.

The weakness in revenues the ability to code caused 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 missing unexpected this year compared to last year, that's driving it as we did reinstate the 401k match.

This year and that's been driving costs up a little bit and you'll see in the fourth quarter compared to certainly this quarter.

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 what we will see what this economy holes 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.

Gotcha, Okay. That's all I have thank you.

Thank you.

Well, we'll take our next question from mechanic winger 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 <unk>.

Covenant what is the covenant restriction and how do you actually calculate the four three.

Cause I get something a little higher and then a second question with regards to the Spanish stations, but will cost circle back.

Yeah, So let's talk about the covenant calculation first of all it's only in current test covenants. So it's only if our leverage is above five and 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 non-recurring type items like you will see there was a separate line item on the financials called legal settlement.

So we got to exclude that from the calculation cause that's not necessarily reflective of ongoing operations and that's probably the main difference you get.

From.

Looking at the paper finances, we also get to do other adjustments like.

No form of.

Income for acquisitions and disposition. So it's not something you can necessarily tie too straight from the financial statements.

So I can't use your 28.

Nine months a year to date adjusted EBITDA is that's not the same number.

Correct and it's also it's always on LTM basis last 12 months, no I know that but I think your fourth quarter, maybe I should just ask you. What you look the fourth quarter was last year.

Don't have that that number in front of me, but you're not going to even be able to tie there because if we have an acquisition or disposition credit agreement requires us to go back as if we didn't own if it's in the case of the disposition is if we didn't own it for the entire time or an acquisition as if we did on it for the entire time so even.

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.

So why don't we jump to my second question, which is the <unk>.

Purchase of the stations.

Miami and happened to be in Miami.

Three a M stations right.

Yes, yes. So this will be what is the content disease and what were they before who owns them.

And why the endeavoring to Miami at this point.

Well.

First off we look at Miami is a growing market.

Good information about Miami and the economic growth that you see there. So when you look at it as an opportunity market for us and you know there's been some changes in the radio landscape, particularly on the Spanish side.

This year.

In Miami, and so we look at that as an opportunity.

To step into the market and offer some some programming and content.

That 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.

Two two.

To provide an alternative.

Did that.

Get another question in there.

Yeah, who you bought them from and what's the metrics you use to judge.

<unk> $5 million to $15 million $10 $10 million I'm sorry.

We bought we bought these stations from two different owners and Avenue might have that information I apologize guys I'm a little bit at a disadvantage today is that I'm I'm 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 that was.

The other two were purchased from.

They were both independent owners.

One stations in any other market they've acquired from.

A large radio group they were they were both.

Small independent operators.

In terms of the purchase price both players acquisitions came with land that is quite valuable.

We value the land elements separately.

Then the.

Such as prices aside from the land with based upon our projections of what we thought we could do with those properties. So over the next.

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 and that was one piece of property or.

I believe there are three pieces of property two pieces of land and the building if I recall correctly.

That's.

Okay. That's on the two station on one.

Is that an accurate cuts across the three space, Okay. Two nowadays.

<unk> <unk>.

To transfer the transmitter site and one studio Smash building.

Okay. Okay. So.

So the first station 990, ADM for $5 million that was an independent owner and that came with land and building our numbers.

I don't recall, which one came with the building high opponents ice okay.

Okay. Okay. Okay. So one one of the two purchases came with the building and one of them is just land.

Both both.

Acquisitions came with a piece of land one of them came with the building I wish I could remember, which one the building came with I apologize.

How are they operating a station with no land.

Sometimes the land is only you can rent you can rent this house I. So Ethan Allen This house okay.

Okay. Okay. So that was probably the case in this.

Yes.

Well.

Miami land has been going up in value that's for sure.

And I.

I can get into more detail on that later.

Okay. Okay. Thank you.

We will take our next question from Edward Randy with your line is open.

Hey, guys. All my questions were covered thanks.

Thank you thanks Ed.

Alright, and we have no further questions at this time, so I will now turn the call back to David controller for closing remark.

Okay, well, thanks, everybody for being a part of the call will talk to you again next quarter.

Ladies and gentlemen, this concludes today's conference call and we thank you for your participation you may now disconnect.