Q2 2019 Earnings Call
Ladies and gentlemen, please standby the fat when media call will begin momentarily again, please stand by your fellow media call will begin momentarily.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Ebenezer Executive Vice President and Chief Financial Officer. Thank you Sir you may begin.
Oh, Thank you Justin and thank you everyone for joining us.
Today for Salem Media Group second quarter 2019 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 selling media Dot com.
With me today are Edward Atsinger, Chief Executive Officer, David Santrella, President of broadcast media and David Evans, President of interactive and publishing.
Well begin in just a moment with our prepared remarks once we're 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 to come back to 95.
These forward looking statements are based on currently available information.
Actual 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.
[laughter] perfectly station operating income or X or Y EBITDA adjusted EBITDA.
And adjusted free cash flow in conformity with regulation G information required to accompany the disclosure and non-GAAP financial measures is available on the Investor Relations portion of the company's website at Www Dot Salem media Dot com.
With that I would now like to turn the call over to Edward Atsinger, Ed. Thank you Evan and thanks again to all of you for joining this quarterly update.
In my prepared remarks, I will begin with an overview of our financial performance in the second quarter.
Then give you an update on recent M&A activity and conclude with brief comments on our quarterly cash distribution.
Now I'll turn the call back to Evan.
Provide more detailed information on the quarter and provide guidance.
Q3 2000, Mike.
So with that let's begin for the second quarter.
2019, total revenue declined 2.4%.
Expenses declined 1%, resulting in a 9.4% decline in adjusted EBITDA.
And then a little further financial performance in terms of divisions.
So the quarter broadcast division that radio network.
Broadcast revenue was down 2.9%.
Part of this decline is attributable to the sales of radio stations in three markets, Boston, Miami and Orlando.
On a same station basis broadcast revenue was down 1.9% or just over 900000 [laughter]. Another factor in the quarter of course was the absence of political revenue in.
Given this is a non political year in the second quarter last year, we had $1.1 million support ICL revenue.
In the quarter well, we only reported 400000 in the second quarter of this year or a decline of $700000.
So when you factor in.
The impact of those stations sales in those three markets and.
No the lack of political rather than a nonpolitical year broadcast revenue was close to flat for the quarter.
We had declines in several revenue categories again due to both the the station sales in those markets that I mentioned and again, the fact that Oh political.
Didn't show up this year.
The non election year local spot was down 6.4% or $900000 national spot and network revenue combined decline.
0.8% or less than $100000.
We had a 2.5% or 300000 dollar decline in national block programming revenue much of that decline was due.
[noise] district to the Threed Ministry the cancellations two of which are completely disbanded the ministry efforts.
Additionally, local program out it was down 6.5% to $500000.
Due to increased competition, particularly from podcasts.
On the other hand, we've seen we've experienced the strength and growth in local digital as you know we have been investing in Salem surround our multimedia advertising agency and the results continue to impress local digital increased 51.1% to $2.7 million in the second quarter.
The 1.2 million increase in digital revenue more than offset the decline in combined local and national spot.
We believe digital revenue will continue to grow at a strong pace in the coming quarters.
[noise] broadcast broadcast expenses increased 1.2% with the majority of the increase due to our continued investment in sales route.
Despite this increase in investments Sam slots profits.
Oh, well still modest.
The profit did improve over the probably achieved in the first quarter of this year. So we're getting fees.
Let's see progress positive progress with Salem soil.
And our National Digital Division revenue declined $300000 or 2.9% in the second quarter 2019.
This decline was the result, primarily of two developments first revenue at our National Christian Web sites Salem Web network declined almost $600000 due to a soft direct advertising sales as a result of increased Facebook and Google competition. We've commented on this in prior quarters and that continues to be a factor. Additionally, the sale of Eagle wellness resulted in a 300000 dollar revenue decline.
These declines were partially offset by increased revenue same church products first from the timing of Easter, which was more favorable this year and secondly from the acquisition of children Children's Ministry deals Dot com.
But despite the 2.9% decline in revenue or add to our National Digital Division.
[noise] through careful expense management, we were able to grow the bottom line in this division by 24.1% to $2.3 million.
Finally publishing revenue increased 3.5% in the second quarter. This revenue growth was driven principally by two books, Dennis Prager is the rational Bible exodus.
And Kerry Severino, and Molly Hemingway's Justice on trial, the Calvin all confirmation of the future of the Supreme Court.
Looking ahead, we've got a couple of titles it should perform well for us in the third quarter, including Michel Balkans Open borders Inc., whose funding Americas disruption.
And Sebastian go against the war for Americas, So Donald Trump left assault on America at how we take back our country.
[noise] Hi, it's worth discussing corporate expenses, which increased 7.5% doing before.
I should point out however that the entire increase is related to a non cash stock based compensation.
In may the conversations Lilian board of directors issued restricted stock to senior management in lieu of cash bonuses for 2018 performance, excluding the stock based compensation corporate expenses were actually down 3.1%.
[noise] during the quarter, we've made one small acquisition of an investment newsletter investment house for $550000.
We also closed on the sale of W.S.P.Z.A. into Washington, D.C. for $750000.
[noise] and we've recently entered into two agreements to sell non core radio stations on July 10, we entered into an agreement to sell W.R.L.A.N. in Orlando for $900000.
Additionally in July 25th we entered into agreement to sell four radio stations.
Ah two in Miami to Untap book for $8.2 million.
And we will continue to actively look for ways to right size, our portfolio and we will keep you informed and updated as things develop.
Let me conclude with just a brief comment on our cash distribution as I have mentioned before these quarterly distributions are currently characterized as return returns of capital and therefore, they have a more favorable tax treatment.
We paid $1.7 million of quarterly dividends for six and a half cent per share on June 28 2019.
26 cents per share annually. This represents an attractive 12.4% dividend yield based on the current stock price.
And with that I'll turn the call Dr. Evan for additional details on the quarter's performance and of course to provide guidance for the third quarter of 2019.
Thank you Ed for the second quarter total revenue decreased 2.4% to $64.7 million.
Operating expenses on a recurring basis decreased 1.0% to $54.5 million.
Which resulted in a 9.4% decrease in adjusted EBITDA to $10.2 million.
Net broadcast revenue decreased 2.9% to $49.1 million and broadcast operating expenses increased 1.2% to $37.7 million, resulting in station operating income of $11.4 million.
On a same station basis net broadcast revenue decreased 1.9% to $48.9 million and that's why decreased 13.8% to $11.5 million.
These same station results include broadcast revenue from 111 of our 115 radio stations and our network operations, representing 99.6% of net broadcast revenue.
I'll now briefly review revenue performance of our strategic formats.
38 of our radio stations are programmed in what we call our foundational Christian teaching and talk format.
These stations contributed 40% of total broadcast revenue and decreased 5.2% for the quarter.
Our 33 news talk stations had a decrease of 12.8% in revenue for the quarter and some of this decrease was due to the lack of political revenue that Ed mentioned earlier.
Overall these stations contributed 18% of total broadcast revenue.
Revenue from our 13 contemporary Christian music stations contributed 20% of total broadcast revenue and decreased 8.3% for the quarter.
We are continuing to see price per share tactics from other broadcasters with strong ratings related assets in the market that they are using for leverage, thereby keeping us off some local and national transactional business and we're trying to offset this by going after more local direct business.
Our network revenue decreased 0.7% for the quarter and represents 10% of total broadcast revenue.
Revenue from our digital media businesses decreased 2.9% to $10 million and represents 15% of our total revenue.
[noise] and finally publishing revenue increased 3.5% to $5.6 million and represents 9% of our total revenue.
As of June Thirtyth, 2019, we had $231.9 million outstanding on our bond and $22.4 million drawn under the revolver.
Our leverage ratio was 6.27.
For the third quarter of 2019, we're projecting total revenue to decrease between 4% and 6% from third quarter 2018, total revenue of 65 and a half million dollars.
Excluding the impact of political and recent acquisitions and dispositions.
We're projecting total revenue to decrease between 2% and 4%.
We're also projecting operating expenses before gains or losses on disposition of assets stock based compensation expense.
Changes in estimated fair value of contingent earn out consideration impairments depreciation depreciation expense and amortization expense.
To be between flat and a decrease of 3% compared to third quarter 2018, non-GAAP operating expenses of $55.2 million.
And that concludes our prepared remarks, and we would now like to answer any questions anyone has and with that I'll turn it back over to our operator Jesse.
Thank you ladies and gentlemen at this time, we will be conducting the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone would indicate that your line is in the question queue.
You May press Star two if you would like to remove your question from the Q.
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Our first question comes from the line of Michael Kupinski with Noble financial. Please proceed with your question.
Thank you so much.
Couple of questions.
Can you just quantify in the third quarter, what would be the impact of these station sale that you have identified.
What was the dollar amount that you're anticipating.
Are you talking about the stations that we just recently sold just yeah, Oh that we've been now well I I don't have the revenue numbers.
Hi, I'm from me for those stations so.
Let me see if I can pick it up here real quick no I don't I don't have that.
Okay and evident.
Do you have an annual number or on on those.
Oh, it's like what I do have is I can tell.
I would say what I can tell you is more kind of an idea of a multiple of cash flow on those stations.
He.
Orlando station is about a 20 multiple.
And he.
Oh for Florida stations that are in a separate transactions the two in Miami and Tampa equate to about an 11 multiple.
Okay.
All right got you have to put it in another way Michael they weren't they weren't they weren't throwing off a lot of cash flow.
Right and and for the most part they were not core.
Mission formats force.
Gotcha. Okay that was my next question would any of those station sales have any effect on the block programming business I guess not.
No correct.
In fact in fact in fact, the result of.
The result of at least the sale in.
Orlando will enhance the block programming, because we were able to buy.
Spending this non critical format off we were able to move our block programming to a more powerful station in the market.
So it's now on a 50000 station with an enhanced coverage and that will enhance block programming response certainly in.
And Orlando, which was already very solid.
Right.
Gotcha, and then on the digital media revenues, our digital media segment.
I know that you were you were talking about Google and Facebook, having some issues there in dog, Oh, well have things kind of bike cycled against that or.
Where do you stand out as you look into the.
Second half of the year, how things are shaping up for for that segment.
I think we continue to see pressure on that front.
I think that.
[laughter] advertisers.
Buying more programmatically.
And when they buy programmatically, they're able to utilize big data to target their advertising very effectively.
And Facebook and Google have the biggest big data assets, a much bigger yeah, most scalable and also how much more scale to the asset than we have.
So yeah that disadvantage that we have on data is what's weighing us down and I expect that to continue to be a factor in Q3 and Q4.
Gotcha and then some broadcasters have indicated that they are already seeing some.
Accidental money, even being booked and also.
Kind of.
A little bit more visibility on political are you seeing that as well because it seems like your second quarter certainly didn't have a huge drop off as you know you would have an off election years, but are you starting to see political being booked into the second half.
Yeah, No we're really not seeing that if you think about where some of the.
The big political spend right now is from the 20 or so.
Democratic candidates running for President and we're not seeing any money from them given the formats of our stations.
Right.
Would there be any reason why you wouldn't see a nice pick up in political next year, I mean, I know that a trump didn't really spending the last election cycle, but he has raised a lot of money. This time right I mean are you.
Are you optimistic about the political dollars you might get in 2020.
Well, it's it's been pretty consistent even in the midterm elections. This is a presidential election. So.
Now there won't be a Republican primary at least we don't think there'll be a primary so that would be a negative in terms of spend on the other hand, the the Trump organisation campaign is raised records amounts of money. So we expect that there will be a pretty aggressive spend and then you've got a number of you know that there's going to be a big contest on for both the house and the Senate.
And you've got a lot of local elections, and we play in a lot of those as well. So we think that there will be revenue there.
It's not coming as early as it did when the when we had the big Republican field. Prior to 16. So I think in in in 14, we actually had revenue Oh that was a lot of proportion to what you would normally get because of all of the.
The candidates running for the Republican primary, but you know were optics optimistically cautiously optimistic that we'll get revenue typically had has shown up we go aggressively after the Pac money Michael.
Gotcha, Yeah, and then in terms of just the publishing a book sales and that cycle. Oh, you have identified a couple of books that are coming out that way.
They'll should they should sell well.
And I know that you you cycle into next year. That's when these conservative book, So even better right it sounds like.
Could you just kind of give us an idea of the maybe the number of titles some of the as you head into next year, how that versus some of the previous election cycles are they similar or you think that there the potential for bigger blockbuster books that sort of thing you have you have any color on that you can.
Sorry about that.
At this point, we have very little karla on 2020 .
You know when it will probably publish in total around 50 books.
Yeah, I don't have specifics at this point in time 2020 , it's a little too early for that but yeah. We've we've always seen.
Even numbered years with elections outperform or not but yes, I see no reason why 2020 shouldn't be any difference.
Just don't quite have that business visibility gas on specific cycles.
Gotcha Okay.
Recommend I would recommend Michael I'd recommend that you get a copy of a.
Justice on trial the Calvin our book is this of course has been on the bestseller list is doing quite well and it's quite a good read.
I plan to do that thank you for the suggestion.
Oh, that's that's all I had that Oh, all the questions I had thank you.
Thanks, Michael.
Thank you. The next question comes from the line of Robert Maltbie with singular Research. Please proceed with your question.
Hi, guys House beautiful camera real these days.
Fantastic.
A lot of.
Strawberries.
Hi, I guess, Oh boy did they still come the option hard up or are there.
Our training or are they going to do.
Well, they still do they still do that.
Oh, great Yeah, I'm I'm in for Lisa. So she gave me a few questions here.
She chooses to run by you.
Some are already covered but here is what remains regarding the rollout of Salem surround how many markets has seen on surround been rolled into.
And what is the C. When so quarterly gross.
And is it or is it profitable in Q2.
So its been rolled out in virtually every market, where we own a cluster of radio stations or even just one radio stations.
So everywhere from Oxnard, where we have a standalone to Dallas, where we have our Hawaii, where we.
Seven radio stations. It's in every one of those markets totaled 34 and [noise].
Yeah.
It is profitable.
It's been profitable I think now evident for two quarters and yes. It was profitable for the first time last quarter and the profit grew in Q2 as compared to Q1.
And we continue to invest in that.
[noise] Oh terrific.
Second it's a question and final question that we that we have is.
Arnie.
On the M&A pipeline.
[noise] it looks as if it was a light or at least on the acquisition side and would you judge decision intentional slowdown.
Oh to focus on internal projects and debt reduction.
Or if you are looking still acquisitive, we are you finding.
The acquisition of climate or rather the devaluations are they too pricey now.
Well, we're clearly focused on improving the balance sheet and we've got to work as I made and as I commented, we want to rightsize our portfolio, we still have a number of stations.
That are not in core formats, we've acquired them for a variety of reasons.
Sometimes it's part of a package and sometimes because there were other valuable assets associated with them such as real estate.
They are not strategic and so we're spending those some of those off and they're not contributing they weren't contributing to cash flow.
We have a few more in that category, we're looking at them and so we're going to continue to rightsize our.
Our our portfolio of stations continue to focus on improving the balance sheet and we're deemphasizing acquisitions at this point.
If there's something that comes along that is.
De levering and Doesnt exacerbate.
[noise] our leverage then we would take a look at that and.
More typically we find that to be in the digital assets.
Typically we buy assets they are in format and so they have existing cash flow and normally we will.
Make offers that are de levering, so that would be of that would be the area, we look at but.
Things happen opportunities arise and there's always the possibility that if theres a an acquisition that makes sense that we can acquire it actually enhances our leverage we certainly would take advantage of that.
All right. Thank you very much.
Thanks Robert.
Thank you as a reminder, ladies and gentlemen, if you would like to ask a question at this time. Please press star one on your telephone keypad.
Our next question comes from the line of Davis Hebert with Wells Fargo. Please proceed with your question.
Good afternoon, everyone. Thanks for taking the questions I wanted to go back to the Q3 guidance I think excluding the divestitures and.
Political you are pacing are looking to be down 2% to 4% can you give a little bit more color on what's driving that weakness.
Well, we're seeing some.
Kind of continued weakness that we saw in this quarter I mean weakness in spot some challenges in digital publishing looks pretty good as David mentioned with or Ed mentioned with those new titles coming out.
That's kind of.
Kind of some of the same continued.
Challenges and weakness.
Okay.
And you mentioned or you view you outlined these asset sales.
So when I look at this Oh, I should expect to see 9 million of cash coming in the door and the third quarter is that is that accurate.
Our expectation is that we should be able to close both these transactions sometime in the latter part of.
Actually in Q4 is when we expect to close early Q4.
Yes.
Okay excellent and you would pay down I guess the.
The ABL debt first and then or would you potentially look to repurchase bonds in the open market.
David I think it would depend on what the market looks like at the time, where our revolver balance is at that point.
But regardless, we're certainly going to be keeping an eye on the market and see what opportunities are there with respect to bond buyback.
Okay excellent and.
Oh, it seemed like the tone changed a little bit on block block programming this quarter.
And you mentioned some national ministries.
Canceling.
Or are we starting to see some.
Some more financial strain and that part of the the industry and then secondly on local.
You mentioned podcast potentially having an impact is is this something that's going to be you know.
Impacting the next few quarters on that front.
Well I think what it is with regard to your first question no I don't think we're seeing some new trend what happened is I I cited three specific organizations one.
Where's the James Mcdonald organization out of Chicago, and if you follow that story, a basically a longtime organization that just came apart and he resigned and.
There's disputes and.
Financial issues and essentially they the [laughter].
The Ministry just.
Down very unusual rarely happens I don't think I've ever seen anything happened like that in all my years I've been in it.
Where.
They they just had to split the church that was the.
The organization it was supported and.
Disputes that weren't resolved and it resulted in us just shutting it down.
With regard to the other two days those are both startup organizations in both cases startup organizations that.
We're trying to launch a new ministry.
And they just simply weren't able to get it off the ground in some cases very inadequate resources then resources.
And that will happen from time to time or new organization, we'll try to launch a ministry and they will be very ambitious and.
I'm not able to.
Really sustain it with enough capital to get it to to get it to success and that was the case one of them I completely I think shutdown. After I think trying to launch a new program on a dozen stations or so.
They tried to do it and I think they were they are less than a year and a half two years.
The other one didnt or the other one was also started up and they just had to cut back they're still there and they are still growing but they reduce their footprint a bit for a while and then as they get a little more momentum I'm confident they will be a long term player they've got a very good organization and very good problem. So no I'm, not particularly concerned I don't see it as any reverse trend a unique one off situation in Chicago and you can read about that if you just Google.
Good call I don't remember the name of the Church organization Walking Award I won't walk in the word isn't able to program.
With regard to the podcast you know, we're saying Oh I don't I'm not quite sure how I would even reflect that I think perhaps some of the some of the pressure on spot business.
There's been some additional competition.
For audio.
And David you might yeah, I mean, we have a number of paid local programs, particularly on the weekend and some of those clients.
Have decided that they want to move exclusively into the podcast space.
You know, we don't think that that's a great idea because they're in there with a whole lot of other podcasts and then less that are really popular they're going to have a lot of trouble being found there and so we have put some strategies in place and some new packages in place too.
Help them.
You know be found if they're if they're married to just going podcast only them. We can we can help them and help ourselves to some revenue at the same time, while providing them with the service and so we do have some strategies in place for that.
And also I think you know and we're waiting for the podcast waters.
In other ways as well, but were waiting and slowly because.
You know a lot of broadcasters around podcasting now I don't know a ton of them that are making a lot of money with it.
So what kind of waiting for that water a little more slowly although you should know we.
Sale has been in the podcast business for a long time with our network hosts for the past 10 years.
We've been profitable since day, one with podcasting with our network coasts and David you could certainly speak to.
Yeah, we've had a question on the non public costing and streaming business actually since 2000, it's a cycle of one place dot com and you can go back and listen on demand too.
200 different Christian teaching talk radio programs and it's a very very good web site for us.
Right I mean, and podcasting has I guess been a bit of a craze for for your radio peers and you've been at Oh.
A longer period of time, that's certainly good to hear you already have a toehold there.
And then lastly.
In terms of debt reduction and de leveraging that seem it seems like the third quarter, you're going to see it.
Another slight increase in leverage.
What sort of levers do you feel like you have to to accelerate that de leveraging.
Ed you mentioned, maybe looking at other non core stations.
Could you reallocate the dividend toward debt reduction maybe just go through some some idea as you're thinking about as you head into 2020 around around the balance sheet. Thank you.
Well, we clearly have additional non core asset nonstrategic formats format and station. So we picked up a lot of stations from Disney.
We did package deals, where we bought blocks of stations on very attractive terms. They weren't always immediately profitable, but they had assets that we liked and not the least of which was some very valuable real estate and so we're working on harvesting some of those those real estate assets.
Well, so we still have some stations that we think that.
We could if we can get an attractive price for them.
We would spend them off and we've got.
There's some opportunities there that will will generate some revenue were fairly confident between now and the into the year.
I'm fairly confident that there will be additional revenue generator that way, we always have the option of the dividend.
Our quarterly dividend is decided every quarter by board.
And they'll take a look at our leverage or total debt our leverage and.
They'll look at the the look at our projections and budgets of going forward and every quarter decide and it's always an option.
That's there is to make if they want to reduce the dividend or eliminate the dividend or increase that if and then or anything they want to do but all of the above will be certainly looked at and utilized as they are available to to rightsize that balance sheet and we're working on that.
Great. Thank you for the questions.
Thank you. Our next question comes from Steve Bassett with Thomas. Please proceed with your question.
Oh, Thank you Davis actually just ask my my question.
Thank you.
In that case, we have no further questions at this time I'd like to pass the floor back over to Mr. singer for any additional concluding comments.
All right. Thank you operator, and again, thanks to all of you for joining us look forward to visiting with you again.
Let me give <unk> third quarter results.
Thank you ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation and you may disconnect your lines at this time.