Greetings, and welcome to the Salem Media Group First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only. A question-and-answer session will follow the formal presentation [Operator Instructions]. Please note this that conference is being recorded.

I will now turn the conference over to our speaker, Evan Masyr, Executive Vice President and Chief Financial Officer. Thank you, you may begin..

Thank you. And welcome all of you for joining us today for Salem Media Group's first quarter 2020 earnings call. As a reminder, if you get disconnected at any time, you can dial back in or listen from our Web site at www.salemmedia.com.

Joining me on the call today are Edward Atsinger, Chief Executive Officer; David Santrella, President of Broadcast Media; and David Evans, President of Interactive and Publishing. 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.

Given the current circumstances, we all are working remotely so that may cause some extra coordination efforts during the Q&A portion of the call.

Please be advised that the 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.

Actual results may differ materially from thcose 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, adjusted EBITDA and adjusted free cash flow.

In conformity with Regulation G, information required to accompany the disclosure of non-GAAP financial measures is available on the Investor Relations portion of our Web site at www.salemmedia.com. And with that, I would now like to turn the call over to Edward Atsinger. Ed..

Thank you, Evan, and thank you all for taking the time to join us on today's call. I'm going to begin with an overview of first quarter financial performance, discuss our quarterly cash distribution position, and conclude with some comments on our liquidity. My remarks will certainly address the impact of COVID-19 on our results.

I'll then turn the call back to Evan who will provide a more detailed information on the first quarter. So, for the first quarter of 2020, revenue declined 3.7%. Expenses were up 3.4%, resulting in a decline of adjusted EBITDA of 55%. And clearly, we were impacted by the financial fallout from COVID-19.

We had approximately $1.9 million of business that either outright canceled in March or moved to later in the year. But before I get into the numbers, let me detail for you some of the actions we've taken thus far to help us position ourselves to get through this crisis and preserve as much financial strength as we can.

First of all, we've reduced discretionary spending such as travel and entertainment, which of course has been easy so far. We've eliminated open positions, we’ve instituted a hiring freeze, we’ve made request for discounts or forbearance from vendors and landlords, and we laid off and furloughed about 10% of our employees.

We have limited capital expenditures to emergency expenses only, we suspended the quarterly dividend, we suspended the 401(k) match, and we've taken advantage of the ability of deferred payroll taxes of approximately 3.6 million under the CARES Act, and we've reduced base salary for every employee with salary cuts ranging from between 5% and 10% depending upon the salary levels.

Let me review the numbers by division to give better understanding of the Q1 performance. For the quarter, broadcast revenue declined 2% or $900,000. Given, however, that we disposed the 16 stations in 2019, it is necessary to look at revenue on a same-station basis.

So, if you exclude the impact of those disposed stations, broadcast revenue was actually up 0.6%. With the way the advertising environment completely changed in the closing weeks of the quarter, we were pleased to see an increase in same-station revenue, so it's a little comfort there. Breaking this growth down in more detail.

January same-station revenue was up 3.2% and same-station SOI was up 14%. In February, same-station revenue was up 6.3% and same-station SOI was up 15.8%. You can certainly see the immediate impact of COVID-19 starting in March as same-station revenue declined 6.9% and same-station SOI declined 61.8%.

So once again, the driving force of the increases in same-station revenue was the continued growth of our local digital business with the one highlight we want to point out, it was up 52% or $1.5 million. You may recall last year this category was up 57.4%, so we remain encouraged by our investment in Salem Surround.

Local spot revenue was down 5.8% in the quarter. Though, much of that decline was due to the radio station sale and sales and cancellations we took related to COVID-19. Additionally, as a result of the pandemic, we had to cancel a number of events which caused 17.5% decline in miscellaneous revenue. Local program revenue declined 13.9% or $1.1 million.

Approximately half of this decline was due to the sale of the radio stations referred to above. Additionally, we lost some sports programming due to canceled events. Broadcast expenses increased 2.4% in the quarter.

Because we are concerned about the collectability of our accounts receivable in the current environment, we felt it was prudent to record an extra bad-debt reserve of $1.2 million, of which $1.1 million was allocated to the broadcast division. Excluding this extra reserve, broadcast expenses declined 0.6%.

International digital division revenue declined 11.1%. About one-third of the decline is due to last year's sale of Newport Natural Health business. The remainder of the decline was from the continued competition for direct advertising dollars from Facebook, Google, and Amazon, despite continuing growth in page views and programmatic revenue.

Expenses increased 3.3% largely due to startup costs associated with the launch of Townhall VIP, a premium subscription product that's going reasonably well, and we're pleased with the progress so far. Finally, revenue in our publishing division was down 4.1% as a result of an 8.3% decline in our self-publishing business.

Regnery was pacing to be up for the quarter, but the shutdown in the second half of March due to COVID-19 resulted in no further orders from Amazon, Barnes and Noble, and other booksellers. Publishing expenses were up 5% due to higher royalties. Corporate expenses were up 8.8% or $0.3 million.

Most of this increase was due to increased accounting fees, the change in the cash surrender value of split dollar life insurance policies, and some increase in travel costs prior to the COVID-19 pandemic.

Before the impact of COVID-19 that was being felt throughout the economy, our Board of Directors had already approved and we have publicly announced the quarterly cash distribution of $0.025 per share, and that payment was made on March 31. As I mentioned earlier, the Board of Directors have since voted to suspend the dividend until further notice.

With respect to liquidity, at March 31, we had $1.3 million in cash and $14 million drawn on our revolver. Earlier today, we made our semi-annual bond interest payment of $7.3 million. After the interest payment, we have $15.6 million in cash and $19 million drawn on the revolver.

We will continue to remain in compliance with both our bond and revolver credit agreements. And with that, I'll turn the call back to Evan for additional details on the quarter's performance.

Evan?.

Great, thank you, Ed. For the first quarter, total revenue decreased 3.7% to $58.3 million. Operating expenses on a recurring basis increased 3.4% to $54.8 million, which resulted in a 55% decrease in adjusted EBITDA to $3.4 million.

Net broadcast revenues decreased 2% to $45.2 million and broadcast operating expenses increased 2.4% to $37.3 million, resulting in station operating income of $7.9 million, a decline of 18.6%. On a same-station basis, net broadcast revenue increased 0.6% to $44.3 million, and SOI decreased 18.8% to $8 million.

These same-station results include broadcast revenue from 96 of our 100 radio stations in our network operations, and represents 98% of our net broadcast revenue. I'll now briefly look at revenue performance of our strategic formats. 37 of our radio stations are programmed in our foundational Christian teaching and talk format.

These stations contributed 41% of total broadcast revenue and decreased 5.1% for the quarter. Our 32 news talk stations had an increase of 4.7% in revenue for the quarter, somewhat due to an increase in political revenue. Overall, these stations contributed 19% of total broadcast revenue.

Revenue from our 12 contemporary Christian music stations contributed 17% of total broadcast revenue and decreased 8.7% for the quarter. Our network revenue increased 1.9% for the quarter and represents 10% of total broadcast revenue.

Revenue from our national digital media businesses decreased 11.1% to $9.1 million and represents 16% of our total revenue. Our publishing revenue decreased 4.1% to $4 million and represents 7% of total revenue.

Due to the financial impact of the COVID-19 pandemic, we recorded $17.6 million in non-cash impairments, which included $17 million of FCC license impairments, $300,000 in goodwill impairment, and $300,000 in asset impairment.

Additionally, given the uncertainty of the future economic environment and our ability to use NOLs, we increased our valuation allowance by $37.1 million. During the quarter, we repurchased $3.5 million of bonds on the open market for $3.4 million.

And as of March 31, 2020, we had $216.3 million outstanding on our bond and $14 million outstanding under the revolver. Our leverage ratio was 6.87. On April 7th, we amended our asset-based revolver to increase the amount available under the revolver from 85% of eligible receivables to 90% of eligible receivables.

In addition, we extended the maturity date to March of 2024. Finally, in light of the uncertainty surrounding the current economic environment due to COVID-19, we will not be providing guidance for the second quarter. Instead, I can tell you that April revenue is down 24%. I'll break that decline in a little bit more detail.

Broadcast revenue in total declined 24%; local spot advertising was down 49% and national spot advertising was down 38%; local programs were down 26% while national programs were down 2%; local digital revenue was up 30%; national digital revenue declined 11% and Publishing revenue declined 45%; and in May, revenue was down just around 23%.

This concludes our prepared remarks, and now we would like to answer any questions. So I'll turn it back over to the operator..

Thank you [Operator Instructions]. Our first question comes from Davis Hebert with Wells Fargo. Please state your question..

In light of the dividend suspension the increase in the ABL percentage, I wonder if you could just comment on your liquidity profile for the rest of the year. I know it's kind of hard to call what the third and fourth quarter looks like, but just your comfort level and liquidity runway for the rest of the year. Thanks..

So, I would say with what we're seeing in the way the economy is beginning to recover little bit, we'll be fine from a liquidity perspective for the foreseeable future. So, unless things take another big negative turn, we should be fine..

And is that to say that you are seeing some sequential improvement from the April numbers? Would you say that that month was the trough based on trends you're seeing? Thanks..

That's correct. So far, May is just a little bit better, but June is looking quite a bit better than May..

Our next question comes from Lisa Springer with Singular Research. Please state your question..

Thank you. I'm sorry if I missed it.

But did you mention what political revenues were for the March quarter?.

We did not. The political revenue was about $600,000 for the first quarter of '20 as compared to about $400,000 in the first quarter of '19..

And typically in a presidential election year, will the majority of the political ad spending be seen in the third and fourth quarters?.

Yes, we typically would see a large increase in Q3 and Q4. So, that's what we're expecting this year as well..

Thank you. Our next question comes from Matthew Sandschafer with Mesirow. Please state your question..

Can you provide an update on, and I know you mentioned it, but I didn't quite catch it on the cash balance, revolver balance, revolver availability post the coupon?.

So, we have -- as of today, after we paid the interest payment, we have $15.6 million in the bank that's net of outstanding checks, and we have $19 million drawn on the revolver..

It looks like you generated quite a bit of cash at the end of the quarter.

Any sense you can provide on what drove that?.

Yes, I think one of the things that we did get is some advance payments from some customers, some of our block programming partners that helped with some of it, but also we did not see the decline in collections that we were seeing or we were expecting, and also from talking to other CFOs in the industry, they were seeing much bigger declines in cash collections.

Our collections have held up pretty well. I do think a lot of it has to do with the nature of our programming. With the block programming, they weren't seeing the same declines as, call it regular advertisers, like an auto dealer or a health club that was closed. So, our collections have held up reasonably strong during this pandemic so far..

And then just to confirm, you said $15.6 million of cash?.

That's correct..

And what kind of availability does that $19 million drawn leave on the revolver on the new borrowing base or new advance rate issued?.

Yes, we, based on our last report to Wells Fargo and looking at the eligible receivables, we had about $24.5 million that we could borrow..

Next question is various cost cuts that detailed at the top of the call.

Can you give me a sense for what those sum up to on an annualized basis?.

We don't expect -- it will be for a full year. Our hope and expectation when it comes to the pay cuts and the 401(k) match, we're hoping we can restore that by the end of the year depending on how the economy plays out. So, we're hoping that this will be not a full year, but certainly I can give you an idea of annual numbers of that.

We're probably looking at just shy of about little less than a million a month, probably $800,000, $850,000 savings a month..

Thank you. There are no further questions at this time. I'll turn it back over to Mr. Edward Atsinger for closing remarks. Thank you..

Okay, thank you operator. And again, thanks to all of you for joining us in the call. We'll look forward to speaking with you again when we report next quarter's performance..

Thank you. This concludes today's call. All parties may disconnect. Have a great day..