Salem Media Group, Inc. Announces First Quarter 2019 Total Revenue of $60.5 Million

CAMARILLO, Calif.–(BUSINESS WIRE)–Salem Media Group, Inc. (Nasdaq: SALM) released its results for the
three months ended March 31, 2019.

First Quarter 2019 Results

For the quarter ended March 31, 2019 compared to the quarter ended March
31, 2018:

Consolidated

  • Total revenue decreased 5.2% to $60.5 million from $63.8 million;
  • Total operating expenses increased 5.7% to $61.5 million from $58.1
    million;
  • Operating expenses, excluding gains or losses on the disposition of
    assets, stock-based compensation expense, depreciation expense and
    amortization expense (1) decreased 1.0% to $53.0 million from $53.6
    million;
  • Operating income decreased to a $1.0 million operating loss from $5.7
    million operating income;
  • Net income decreased 61.1% to $0.3 million, or $0.01 net income per
    diluted share from $0.8 million, or $0.03 net income per diluted share;
  • EBITDA (1) decreased 64.1% to $3.7 million from $10.2 million;
  • Adjusted EBITDA (1) decreased 25.4% to $7.6 million from $10.2
    million; and
  • Net cash provided by operating activities decreased 30.3% to $9.0
    million from $12.9 million.

Broadcast

  • Net broadcast revenue decreased 4.1% to $46.1 million from $48.1
    million;
  • Station Operating Income (“SOI”) (1) decreased 21.6% to $9.6 million
    from $12.3 million;
  • Same Station (1) net broadcast revenue decreased 2.9% to $45.5 million
    from $46.8 million; and
  • Same Station SOI (1) decreased 22.7% to $9.9 million from $12.8
    million.

Digital Media

  • Digital media revenue decreased 1.5% to $10.2 million from $10.4
    million; and
  • Digital Media Operating Income (1) increased 8.0% to $2.2 million from
    $2.0 million.

Publishing

  • Publishing revenue decreased 22.7% to $4.1 million from $5.4 million;
    and
  • Publishing Operating Loss (1) increased to $0.7 million from $0.2
    million.

Included in the results for the quarter ended March 31, 2019 are:

  • A $4.0 million ($2.4 million, net of tax, or $0.09 per share) net loss
    on the disposition of assets including a $3.8 million estimated
    pre-tax loss for the sale of WSPZ-AM in Washington, D.C., a $0.2
    million pre-tax loss on the sale of Mike Turner’s line of investment
    products and a $0.2 million pre-tax loss on the sale of
    HumanEvents.com offset by a $0.1 million pre-tax gain on the sale of
    Newport Natural Health;
  • A $0.4 million gain ($0.3 million, net of tax, or $0.01 per diluted
    share) on early redemption of long-term debt due to the repurchase of
    the company’s 6.75% senior secured notes due 2024;
  • A $0.2 million one-time expense associated with the adoption of ASC
    842 ($0.1 million, net of tax) and
  • A $176,000 non-cash compensation charge ($106,000, net of tax) related
    to the expensing of stock options and restricted stock consisting of:

    • $107,000 non-cash compensation charge included in corporate
      expenses;
    • $39,000 non-cash compensation charge included in broadcast
      operating expenses;
    • $26,000 non-cash compensation charge included in digital media
      operating expenses; and
    • the remaining $4,000 non-cash compensation charge included in
      publishing operating expenses.

Included in the results for the quarter ended March 31, 2018 are:

  • A $46,000 non-cash compensation charge ($28,000, net of tax) related
    to the expensing of stock options and restricted stock consisting of:

    • $24,000 non-cash compensation charge included in corporate
      expenses;
    • $13,000 non-cash compensation charge included in broadcast
      operating expenses;
    • $5,000 non-cash compensation charge included in digital media
      operating expenses; and
    • the remaining $4,000 non-cash compensation charge included in
      publishing operating expenses.

Per share numbers are calculated based on 26,193,307 diluted weighted
average shares for the quarter ended March 31, 2019, and 26,304,891
diluted weighted average shares for the quarter ended March 31, 2018.

Balance Sheet

As of March 31, 2019, the company had $231.9 million outstanding on the
6.75% senior secured notes due 2024 and $16.0 million outstanding under
the Asset Based Revolving Credit Facility (“ABL Facility”) as of March
31, 2019.

Acquisitions and Divestitures

The following transactions were completed since January 1, 2019:

  • On March 21, 2019, the company sold Newport Natural Health, an
    e-commerce website operated by Eagle Wellness for $0.9 million in
    cash. The company recognized a pre-tax gain of $0.1 million associated
    with the sale reflecting the sales price as compared to the carrying
    value of the assets and the closing costs.
  • On March 18, 2019, the company acquired the pjmedia.com website for
    $0.1 million in cash.
  • On February 28, 2019, the company sold Mike Turner’s line of
    investment products, including TurnerTrends.com and other domain names
    and related assets. The company received no cash from the buyer who
    assumed all deferred subscription liabilities for Mike Turner’s
    investment products. The company recognized a pre-tax loss of
    approximately $0.2 million associated with the sale reflecting the
    sales price as compared to the carrying value of the assets and the
    closing costs.
  • On February 27, 2019, the company sold HumanEvents.com, a conservative
    opinion website, for $0.3 million in cash. The company recognized a
    pre-tax loss of approximately $0.2 million associated with the sale
    reflecting the sales price as compared to the carrying value of the
    assets and the closing costs.

Pending transactions:

  • On April 29, 2019 the company entered into an agreement to exchange FM
    Translator W276CR, in Bradenton, Florida with FM Translator W262CP in
    Bayonet Point, Florida. No cash will be exchanged for the assets.
  • On March 19, 2019, the company entered into an agreement to sell radio
    station WSPZ-AM (previously WWRC-AM) in Washington D.C. for $0.8
    million. The company recorded an estimated pre-tax loss of assets of
    $3.8 million as of March 31, 2019, which reflected the sales price as
    compared to the carrying value of the assets and the estimated costs
    of the sale. The sale is expected to close in the second quarter of
    2019. On April 3, 2019, the company entered into a Time Brokerage
    Agreement (“TBA”) effective April 12, 2019, under which radio station
    WSPZ-AM, is operated by the buyer pending the sale of the station.
  • In December 2018, Word Broadcasting notified the company of their
    intent to purchase its Louisville radio stations. They began operating
    the stations under a Time Brokerage Agreement beginning on January 3,
    2017 that will continue until the purchase agreement is executed and
    the transaction closes.
  • On April 26, 2018, the company entered an agreement to exchange radio
    station KKOL-AM, in Seattle, Washington for KPAM-AM in Portland,
    Oregon. The transaction is expected to close in the first half of 2019.

Conference Call Information

Salem will host a teleconference to discuss its results on May 10, 2019
at 12:00 p.m. Pacific Time. To access the teleconference, please dial
(877) 524-8416, and then ask to be joined into the Salem Media Group
First Quarter 2019 call or listen via the investor relations portion of
the company’s website, located at investor.salemmedia.com.
A replay of the teleconference will be available through May 24, 2019
and can be heard by dialing (877) 660-6853, passcode 13688917 or on the
investor relations portion of the company’s website, located at investor.salemmedia.com.

Second Quarter 2019 Outlook

For the second quarter of 2019, the company is projecting total revenue
to be between a decrease of 1% and an increase of 1% from second quarter
2018 total revenue of $66.3 million. Excluding the impact of political
revenue and recent acquisitions and dispositions, the company is
projecting total revenue to increase between 1% and 3%. The company is
also projecting operating expenses before gains or losses on the
disposition of assets, stock-based compensation expense, changes in the
estimated fair value of contingent earn-out consideration, impairments,
depreciation expense and amortization expense to be between flat and an
increase of 3% compared to the second quarter of 2018 non-GAAP operating
expenses of $55.1 million.

A reconciliation of non-GAAP operating expenses, excluding gains or
losses on the disposition of assets, stock-based compensation expense,
changes in the estimated fair value of contingent earn-out
consideration, impairments, depreciation expense and amortization
expense to the most directly comparable GAAP measure is not available
without unreasonable efforts on a forward-looking basis due to the
potential high variability, complexity and low visibility with respect
to the charges excluded from this non-GAAP financial measure, in
particular, the change in the estimated fair value of earn-out
consideration, impairments and gains or losses from the sale or disposal
of fixed assets. The company expects the variability of the above
charges may have a significant, and potentially unpredictable, impact on
its future GAAP financial results.

About Salem Media Group, Inc.

Salem Media Group is America’s leading multimedia company specializing
in Christian and conservative content, with media properties comprising
radio, digital media and book and newsletter publishing. Each day Salem
serves a loyal and dedicated audience of listeners and readers numbering
in the millions nationally. With its unique programming focus, Salem
provides compelling content, fresh commentary and relevant information
from some of the most respected figures across the Christian and
conservative media landscape. Learn more about Salem Media Group, Inc.,
at www.salemmediagroup.com,
Facebook and Twitter (@SalemMediaGrp).

Forward-Looking Statements

Statements used in this press release 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. Actual results may differ materially from those anticipated as
a result of certain risks and uncertainties, including but not limited
to the ability of Salem to close and integrate announced transactions,
market acceptance of Salem’s radio station formats, competition from new
technologies, adverse economic conditions, and other risks and
uncertainties detailed from time to time in Salem’s reports on Forms
10-K, 10-Q, 8-K and other filings filed with or furnished to the
Securities and Exchange Commission. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as
of the date hereof. Salem undertakes no obligation to update or revise
any forward-looking statements to reflect new information, changed
circumstances or unanticipated events.

(1) Regulation G

Management uses certain non-GAAP financial measures defined below in
communications with investors, analysts, rating agencies, banks and
others to assist such parties in understanding the impact of various
items on its financial statements.
The company uses these
non-GAAP financial measures to evaluate financial results, develop
budgets, manage expenditures and as a measure of performance under
compensation programs.

The company’s presentation of these non-GAAP financial measures
should not be considered as a substitute for or superior to the most
directly comparable financial measures as reported in accordance with
GAAP.

Regulation G defines and prescribes the conditions under which
certain non-GAAP financial information may be presented in this earnings
release.
The company closely monitors EBITDA, Adjusted EBITDA,
Station Operating Income (“SOI”), Same Station net broadcast revenue,
Same Station broadcast operating expenses, Same Station Operating
Income, Digital Media Operating Income, Publishing Operating Income
(Loss), and operating expenses excluding gains or losses on the
disposition of assets, stock-based compensation, changes in the
estimated fair value of contingent earn-out consideration, impairments,
depreciation and amortization, all of which are non-GAAP financial
measures.
The company believes that these non-GAAP financial
measures provide useful information about its core operating results,
and thus, are appropriate to enhance the overall understanding of its
financial performance.
These non-GAAP financial measures are
intended to provide management and investors a more complete
understanding of its underlying operational results, trends and
performance.

The company defines Station Operating Income (“SOI”) as net broadcast
revenue minus broadcast operating expenses. The company defines Digital
Media Operating Income as net Digital Media Revenue minus Digital Media
Operating Expenses.
The company defines Publishing Operating
Income (Loss) as net Publishing Revenue minus Publishing Operating
Expenses.
The company defines EBITDA as net income before
interest, taxes, depreciation, and amortization.
The company
defines Adjusted EBITDA as EBITDA before gains or losses on the
disposition of assets, before changes in the estimated fair value of
contingent earn-out consideration, before changes in the fair value of
interest rate swap, before impairments, before net miscellaneous income
and expenses, before gain on bargain purchase, before (gain) loss on
early retirement of long-term debt and before non-cash compensation
expense.
SOI, Digital Media Operating Income, Publishing
Operating Loss, EBITDA and Adjusted EBITDA are commonly used by the
broadcast and media industry as important measures of performance and
are used by investors and analysts who report on the industry to provide
meaningful comparisons between broadcasters.
SOI, Digital Media
Operating Income, Publishing Operating Loss, EBITDA and Adjusted EBITDA
are not measures of liquidity or of performance in accordance with GAAP
and should be viewed as a supplement to and not a substitute for or
superior to its results of operations and financial condition presented
in accordance with GAAP.
The company’s definitions of SOI,
Digital Media Operating Income, Publishing Operating Loss, EBITDA and
Adjusted EBITDA are not necessarily comparable to similarly titled
measures reported by other companies.

The company defines Adjusted Free Cash Flow as Adjusted EBITDA less
cash paid for capital expenditures, less cash paid for income taxes, and
less cash paid for interest.
The company considers Adjusted Free
Cash Flow to be a liquidity measure that provides useful information to
management and investors about the amount of cash generated by its
operations after cash paid for capital expenditures, cash paid for
income taxes and cash paid for interest.
A limitation of Adjusted
Free Cash Flow as a measure of liquidity is that it does not represent
the total increase or decrease in its cash balance for the period.
The
company uses Adjusted Free Cash Flow, a non-GAAP liquidity measure, both
in presenting its results to stockholders and the investment community,
and in its internal evaluation and management of the business.
The
company’s presentation of Adjusted Free Cash Flow is not intended to be
considered in isolation or as a substitute for the financial information
prepared and presented in accordance with GAAP.
The company’s
definition of Adjusted Free Cash Flow is not necessarily comparable to
similarly titled measures reported by other companies.

The company defines Same Station net broadcast revenue as broadcast
revenue from its radio stations and networks that the company owns or
operates in the same format on the first and last day of each quarter,
as well as the corresponding quarter of the prior year.
The
company defines Same Station broadcast operating expenses as broadcast
operating expenses from its radio stations and networks that the company
owns or operates in the same format on the first and last day of each
quarter, as well as the corresponding quarter of the prior year.
The
company defines Same Station SOI as Same Station net broadcast revenue
less Same Station broadcast operating expenses.
Same Station
operating results include those stations that the company owns or
operates in the same format on the first and last day of each quarter,
as well as the corresponding quarter of the prior year.
Same
Station operating results for a full calendar year are calculated as the
sum of the Same Station-results for each of the four quarters of that
year.
The company uses Same Station operating results, a non-GAAP
financial measure, both in presenting its results to stockholders and
the investment community, and in its internal evaluations and management
of the business.
The company believes that Same Station operating
results provide a meaningful comparison of period over period
performance of its core broadcast operations as this measure excludes
the impact of new stations, the impact of stations the company no longer
owns or operates, and the impact of stations operating under a new
programming format.
The company’s presentation of Same Station
operating results are not intended to be considered in isolation or as a
substitute for the financial information prepared and presented in
accordance with GAAP.
The company’s definition of Same Station
operating results is not necessarily comparable to similarly titled
measures reported by other companies.

For all non-GAAP financial measures, investors should consider the
limitations associated with these metrics, including the potential lack
of comparability of these measures from one company to another.

The Supplemental Information tables that follow the condensed
consolidated financial statements provide reconciliations of the
non-GAAP financial measures that the company uses in this earnings
release to the most directly comparable measures calculated in
accordance with GAAP.
The company uses non-GAAP financial
measures to evaluate financial performance, develop budgets, manage
expenditures, and determine employee compensation.
The company’s
presentation of this additional information is not to be considered as a
substitute for or superior to the directly comparable measures as
reported in accordance with GAAP.

 
Salem Media Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
     
Three Months Ended
March 31,
2018     2019
(Unaudited)
Net broadcast revenue $ 48,050   $ 46,093
Net digital media revenue 10,394 10,240
Net publishing revenue   5,351   4,136
Total revenue   63,795   60,469
Operating expenses:
Broadcast operating expenses 35,750 36,449
Digital media operating expenses 8,374 8,058
Publishing operating expenses 5,587 4,822
Unallocated corporate expenses 3,921 3,871
Depreciation and amortization 4,487 4,229
Net (gain) loss on the disposition of assets   5   4,024
Total operating expenses   58,124   61,453
Operating income (loss) 5,671 (984)
Other income (expense):
Interest income 2 1
Interest expense (4,518) (4,425)
Gain on early retirement of long-term debt 426
Net miscellaneous income and expenses   75   1
Net income (loss) before income taxes 1,230 (4,981)
Provision for (benefit from) income taxes   402   (5,303)
Net income $ 828 $ 322
 
Basic earnings per share Class A and Class B common stock $ 0.03 $ 0.01
Diluted earnings per share Class A and Class B common stock $ 0.03 $ 0.01
 
Basic weighted average Class A and Class B common stock shares
outstanding
  26,171,539   26,186,112
Diluted weighted average Class A and Class B common stock shares
outstanding
  26,304,891   26,193,307
 
 
Salem Media Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
               
  December 31, 2018   March 31, 2019
(Unaudited)
Assets
Cash $ 117 $ 4
Trade accounts receivable, net 33,020 30,405
Other current assets 10,500 9,423
Property and equipment, net 96,344 95,546
Operating and financing lease right-of-use assets 164 63,339
Intangible assets, net 414,646 408,386
Deferred financing costs 381 338
Other assets   3,856   4,826
Total assets $ 559,028 $ 612,267
 
Liabilities and Stockholders’ Equity
Current liabilities $ 52,878 $ 66,440
Long-term debt 234,030 227,683
Operating and financing lease liabilities, less current portion 105 62,003
Deferred income taxes 35,272 29,968
Other liabilities 14,874 5,508
Stockholders’ Equity   221,869     220,665
Total liabilities and stockholders’ equity $ 559,028   $ 612,267
 
                       

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands, except share and per share data)

 
 
Class A Class B
Common Stock Common Stock Additional
        Paid-In Retained Treasury  
Shares Amount Shares Amount Capital Earnings Stock Total

Stockholders’
equity, December
31, 2018

22,950,066 $ 227 5,553,696 $ 56 $ 245,220 $ 10,372 $ (34,006 ) $ 221,869

Stock-based
compensation

176 176
Cash distributions (1,702 ) (1,702 )
Net income             322       322  

Stockholders’
equity, March 31,
2019

  22,950,066 $ 227   5,553,696 $ 56 $ 245,396 $ 8,992   $ (34,006 ) $ 220,665  

Distributions per
share

$ 0.065 $ 0.065
 
 
Class A Class B
Common Stock Common Stock Additional
Paid-In Retained Treasury
Shares Amount Shares Amount Capital Earnings Stock Total

Stockholders’
equity, December
31, 2017

22,932,451 $ 227 5,553,696 $ 56 $ 244,634 $ 20,370 $ (34,006 ) $ 231,281

Stock-based
compensation

46 46
Options exercised 8,125 19 19
Cash distributions (1,701 ) (1,701 )
Net income             828       828  

Stockholders’
equity, March 31,
2018

  22,940,576 $ 227   5,553,696 $ 56 $ 244,699 $ 19,497   $ (34,006 ) $ 230,473  

Distributions per
share

$ 0.065 $ 0.065
 

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)
(Unaudited)
    Three Months Ended

March 31,

2018       2019  
OPERATING ACTIVITIES
Net income $ 828 $ 322
Adjustments to reconcile net income to net cash provided by
operating activities:
Non-cash stock-based compensation 46 176
Depreciation and amortization 4,487 4,229
Amortization of deferred financing costs 270 258
Non-cash lease expense 2,267
Accretion of acquisition-related deferred payments and contingent
consideration
16 1
Provision for bad debts 146 320
Deferred income taxes 382 (5,304 )
Gain on early retirement of long-term debt (426 )
Net (gain) loss on the disposition of assets 5 4,024
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue 1,176 1,758
Inventories (78 ) (256 )
Prepaid expenses and other current assets (69 ) 1,387
Accounts payable and accrued expenses 6,629 3,449
Deferred rent expense (119 )
Operating lease liabilities (3,458 )
Contract liabilities (938 ) 133
Deferred rent income (23 ) (43 )
Income taxes payable   115     130  
Net cash provided by operating activities   12,873     8,967  
INVESTING ACTIVITIES
Cash paid for capital expenditures net of tenant improvement
allowances
(2,472 ) (2,404 )
Capital expenditures reimbursable under tenant improvement
allowances and trade agreements
(4 )
Escrow deposits paid related to acquisitions (240 )
Escrow deposits received related to radio station sale 500
Purchases of digital media businesses and assets (100 )
Proceeds from sale of assets 1 1,255
Other   (170 )   (139 )
Net cash used in investing activities   (2,385 )   (1,388 )
FINANCING ACTIVITIES
Payments to repurchase 6.75% Senior Secured Notes (6,123 )
Proceeds from borrowings under ABL Facility 10,334 22,189
Payments on ABL Facility (19,334 ) (25,849 )
Refund (payments) of debt issuance costs 41 (13 )
Proceeds from the exercise of stock options 19
Payments on financing lease liabilities (31 ) (21 )
Payment of cash distribution on common stock (1,701 ) (1,702 )
Book overdraft   187     3,827  
Net cash used in financing activities   (10,485 )   (7,692 )
Net increase (decrease) in cash and cash equivalents 3 (113 )
Cash and cash equivalents at beginning of year   3     117  
Cash and cash equivalents at end of period $ 6   $ 4  
 

Contacts

Evan D. Masyr
Executive Vice President & Chief Financial Officer
(805)
384-4512
evan@SalemMedia.com

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