Q2 2023 Salem Media Group Inc Earnings Call
Okay.
Thank you for standing by my name is a cheap and I will be your conference operator today at this time I would like to.
Welcome everyone to the stable of media group incorporated 2020 earnings.
All lines have been placed on mute any background noise. After the speakers' remarks, there'll be a question and answer session.
I'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one again, thank you.
I'd like to turn the call over to Evan Baser, Chief Financial Officer.
Welcome and thank you for joining us today for Salem Media group's second quarter 2023 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 is David Centrella, Chief Executive Officer, and David Evans, Chief Operating Officer will.
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.
<unk> 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 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.
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 Dotcom.
And with that I will now turn the call over to Dave Centrella, Dave.
Thanks, Kevin and thanks to everyone for joining us on the call and on the webcast.
My prepared remarks will include a review of Salem financial performance in the second quarter ended discussion.
Some asset sales once I'm done I'll turn the call back to Evan to provide more details on our second quarter financial performance talk about our debt and give guidance for the third quarter.
Both in digital has slowed and was only up 0.5% in the quarter. We still believe that digital represents salem's most important growth opportunity.
Now I'll review the financial performance for each division in the second quarter.
Revenue from the broadcast division declined 5.3% in the quarter similar to last quarter spot revenue is the biggest driver of the decline with national spot down, 29.5% and local spot down 10, 1% more.
More than half of the decline is due to political revenue, which was zero point $3 million in the second quarter compared to $1.5 million in the second quarter of last year.
Excluding the impact of political broadcast revenue declined 3% in the quarter.
It is worth noting that the first of the Republican presidential debates is scheduled for later this month, we anticipate an increase in the pace of political revenue in the second half of this year.
Side from the reduction in political revenue and the continued decline in traditional spot advertising revenue.
Is due to the advertiser pullback in response to the overall economy.
We also saw slowing in the pace of revenue growth of the digital revenue in the broadcast division, which was up 0.6% in the quarter.
Revenue from National Block programming increased 0.8% in the quarter now as you know most of our block programming deals are long term many of our newer block programming deals were finalized in Q1 of 2022, so as they anniversary, we see that growth slowed down there.
Four were pleased to see that we continue to grow, albeit at a slower place space in the Pratt the previous 12 months.
Network revenue not surprisingly is feeling the impact of a tough economy as it decreased five 8% in the quarter. However, excluding political revenue in both Q2 this year and last year network revenue actually increased 0.4%.
The pace of growth and broadcast expenses that.
Decline compared to last quarter as a reminder, in Q1 broadcast expenses increased 12.3% as we continued to make investments and many of our digital initiatives, including the sale of news channel by comparison broadcast expenses in the second quarter increased 4.8%.
While we are still making these investments as we believe digital will play an even larger part of the future the reduced pace and expenses reflects the various cost cutting measures that we've taken.
Revenue, it's Salem's National Digital Division increased 0.5% in queue to this business continues to face challenges from algorithm changes made by Facebook and the declining use of the third party cookie.
And the National Digital Division expenses in the quarter increased nine 1%, primarily due to increased marketing and sales cost and professional services.
Publishing revenue decreased 3.5% in the second quarter book sales neck of the estimated returns allowance was just about flat in the second quarter compared to Q2 of last year.
The best selling titles in the quarter were manhood by Josh Holly letter to the American Church by Eric My taxes, and overture of hope by Isabel Vincent.
In the third quarter, we're releasing the ever loving truth by voting Bochum and the Babylon B guide to gender <unk>.
Expenses in the book Publishing Division were up 10.9%, primarily due to an increased inventory obsolescence reserve.
Turning to M&A activity, we have a few asset sales to report last month, we closed on the sale of two stations in Seattle K L. F E am for $500000 and K NTS am for $225000.
Additionally on June 29th we entered into an agreement to sell K S. A C F M in Sacramento.
For $1.0 million and expect to close that transaction in early October .
And with that I'll turn the call back over to Evan for more details on the quarter's performance and guidance for the third quarter.
Thank you David for the second quarter total revenue decreased 4.2% to $65 $8 million.
Operating expenses on a recurring basis increased 5.2% to $63 $1 million.
And adjusted EBITDA decreased to $2.7 million.
Compared to last year net broadcast revenue decreased 5.3% to $49.7 million.
And broadcast operating expenses increased 4.8% to $43.5 million, resulting in station operating income of $6 $2 million a decrease of 43.5%.
On the same station basis, net broadcast revenue decreased 5.8% to $49 $4 million and soi decreased 37.7% to $6 $8 million.
The same station results include broadcast revenue from 99 of our 102 radio stations and the network operations, which represents 99.4% of our net broadcast revenue.
As of June 30th total that was $182.0 million composed of 159.4 million of seven and 8% 2028 notes.
22.6 million outstanding on the asset base loan facility.
Because we had less than $4.5 million available on our revolver during the quarter, we were required to test against the fixed charge coverage ratio covenant.
Unfortunately, due to declining adjusted EBITDA and free cash flow, we were not in compliance with that covenant.
Yesterday, we signed a forbearance with Wells Fargo Bank, whereby they agreed not to exercise remedies on the default during the month of August .
Additionally, the notional amount of the revolver was reduced from $30 million to $25 million with a minimum availability required of $1 million.
Finally, the interest rate associated with the revolver increased by two percentage points effective July 1st through the effective date of the forbearance.
The company and the bank are mutually working toward a longer term amendment and waiver and we're optimistic that we will reach a reasonable outcome.
Looking forward for the third quarter of 2023 Salem is projecting total revenue to decline between 3% and 5% from third quarter of 2022 total revenue of $66 $9 million.
Excluding the impact of 2022 political revenue the company would project total revenue climbed between 1% and 3%.
Salem is also projecting operating expenses before gains or losses on the sale or disposal of assets stock based compensation expense legal settlement changes and the estimated fair value of contingent earn a consideration impairments depreciation expense and amortization expense to be between a decrease of 1% and an inquiry.
<unk> of 2% compared to third quarter of 2022, non-GAAP operating expenses of $68 million.
And this concludes our prepared remarks, and we would now like to answer any questions and with that I will turn it back to the operator to.
Pull for questions.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Okay.
Your first question comes from the line of Michael Henske from Noble capital market.
Please go ahead.
Thank you good afternoon, everyone. So as I kind of look at the trend line numbers as we could look poor 20 twenty-three. We're looking at roughly flat revenues to what you reported in 2021, but then if you look at the expenses. It's up you know what looks.
To be trained line growth of about $30 million I was just wondering if you can kind of give us a sense of where the the initiatives and what type of initiatives.
In terms of the expense growth that we've seen over the course of the last Coupla years, where that's being spent and what you anticipate are there.
Are there ways that we can see like I I understand that you're seems like you're going to kind of peered out some of the investments and some of the digital.
I'm just wondering if there are ways that we can see expense reduction going forward.
Yeah, So I mean, Michael what you're seeing is increased expenses.
In digital right primarily in from two places first off we're bringing more people in house.
Here with digital expertise and we're doing that to reduce.
Third party marketing costs right. So when we sell something on our owned and operated websites are owned and operated digital assets.
We saw it and it's much more profitable for us than when we sell something.
Where we have a cost of sales of those goods and so.
The more that we can control that by having people inside the better those margins will eventually become but there is that kind of curve when you're in when you're kind of in the middle of doing that which is where we are in many respects right now.
And so we're investing in digital <unk>.
Digital personnel and of course, as we sell more direct marketing services digital advertising that comes with a lower margin and a greater expanse.
Gotcha and then in terms of just looking at the publishing revenues it was a little bit better than what I was looking for where there's some expenses in publishing that were maybe <unk> may have been pulled for just because of the timing of the.
Publishing aspect of that marketing around the books.
So we're looking forward to like the third quarter.
Expense growth be slower because of that or I'm. Just wondering if there was any.
<unk>.
I guess that with two and the and the publishing expenses, we did increase our inventory obsolescence reserve.
And in the second quarter.
Which is why the expense increase in publishing.
Is larger than the kind of revenue being a flat.
And that that's really just to kind of an increase in the reserve so that wouldn't have any impact on Q3 Q for.
Okay and then just in general do you have any I'm sorry [laughter].
Two three Q for.
Biggest tie pulse.
Q fall.
Looking ahead, we've got Ted Cruz.
Rand, Paul and Chelsea Cabinet as three big books that will get published.
Maybe some books will ship Q3 bought the house majority of Q for Yeah. That's really what you should expect for the rest of the year is up.
Yeah.
Those opportunities.
Gotcha and do you have a sense of what the titles or the number of titles that you'll have for 2024, because I know that that's a very big year for Ya.
With still signing titles of 2024.
But I would say.
We will be targeting.
75 to 80 titles and how tall, but it it's really driven by.
What what big titles were we able to sign and it's.
A little too early to.
Comment on that but it is a political year.
Typically a.
Even numbered years are better for rectory, then outnumbered years.
18, 75 to 80 titles is that a typical year for yeah, even number yes.
Any change the number of typos from odd numbered years to even numbered years.
Just the bigger cycles tend to.
Yeah.
Published in the in the even numbered political yes.
Gotcha and then in terms of the expenses is there also.
Investments in a movie or can you can you talk a little bit about that because I think there was another movie that you guys were looking like you're going to invest in.
We are under contract for another Dinesh to Susan movie.
We've made the initial investments and that investment sitting on my balance sheets and yet.
The revenues and expenses associated with that movie with being recorded once it's released.
There's a few hundred thousand dollars sitting on the balance sheets I believe.
Gotcha and then just in terms of the the broadcast environment I know, you're you're you're reported kind of roughly Platt would say results can you talk a little bit about the the tone of the advertising market the scatter market spot market as you're kind of looking to Q3.
Yeah, I mean, Michael it.
It's it's it's spotty I would say it best right now I I don't you know, it's still sluggish and typically.
Local follows national at least that's been my experience. So national has been hit, particularly hard across our sector and you know when when the big guys aren't spending money.
The smaller they're smaller mom-and-pop competitors tendon sit on their cash as well. So I think we're going to see in at least the way pacing and would tell me right now I think we're gonna see.
A challenging third quarter from a spot perspective.
Final question in terms of the recent sturdy moves did you guys have made you said that 10 million on an annualized basis when does the bulk of that.
Savings come through does that begin in the third quarter or is it really kind of fully effective Q4.
Most of what we put in place you'll see hitting in queue.
Q3.
And continuing to queue for so some of it will phase in but most of it we've already taken action on.
And will you will see that impacting Q3, and that's why you see our expense guidance is you know.
The low side down one on the high side up too, but it's only a partial impact on Q3.
Very little impact on July for example.
Gotcha, Okay, Alright, I'll, let others ask questions. Thank you.
Michael.
Again, if you would like to ask a question press star one on your telephone keypad.
Your final question comes from the line of David Marsh from St. Louis Research David Go ahead.
Hi, guys. Thanks for taking the questions could you just tell me in terms of political have you guys seen any revenue as of today from political and you know what are you hearing on that front in terms of when that's gonna start to pick up.
And we you know we've seen a little political I think we mentioned 0.0 0.3 to about $300000.
So far in political which is which is almost nothing but it but it's a little bit.
You know just based on conversations we're having.
With different political agencies with our political contacts you know I would anticipate that will start to see some political revenue late.
Two three Q4 I think next year is going to be.
Big political year for all of us, but I do think you'll start to see some weight Q3, Q for David to us being a bit more specific.
There are three states may be for that half early Republican primaries for example, Iowa.
There is spending in those three of those sites.
However, those states, where we have radio stations. So we're picking up a little bit of business that well we have additional presence. So when we have a radio affiliates, but for us that is relatively small dollars because they're not the states that we have a radio presence there but.
<unk> spending has started in those early primary states.
Okay and could you remind us of what the top line contribution political was in 2022 and would it be safe to assume that.
It's probably going to grow from there and 24.
Yes, I believe our number in 22 was $6 $6 million, which was our biggest political year.
And look I think you would expect.
Political to grow next year from that.
Okay that makes a lotta sense and then just lastly from me yeah. Congrats on the station sales in the quarter any other assets that you know have been identified and classified as essentials for sale.
This point or any other assets in particular that there is maybe some significant potential interest where you could.
Perhaps spell it asked that and help with the love of the balance sheet about that.
Yeah. They were working on a number of asset sales. Some are further along than others until we you know have those transaction signed it it's a little too premature to discuss them.
Soon as we have those deals locked in will certainly let you know.
So would it be safe to assume that you wouldn't expect any other sales to close this fiscal year.
No I would not I would not agree with you on that.
Okay, Okay, well, that's that's good alright, well it sounds like things are moving along with the bank. So I wish you well on that look forward to a an announcement in the near term have a nice amendment there and.
Sure wish you well for the for the balance of the quarter and hopefully the political starts kicking in here and starts moving things right direction.
Thank you yeah. Thanks, Dave.
Alright, guys. Thanks.
I will now turn the call back over to David Centrella, Chief Executive Officer, David Okay. Thanks, operator, thanks, everybody for being a part of the call will talk to you again next quarter.
Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
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