Greetings. Welcome to the Salem Media Group, Inc., Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the conference over to your host Evan Masyr, Chief Financial Officer. You may begin..

Welcome and thank you for joining us today for Salem Media Group's third quarter 2021 earnings call. As a reminder if you get disconnected at any time, you can dial back in or listen from our website at www.salemmedia.com.

Joining me on the call today are David Santrella, President of Broadcast Media and David Evans, President of Interactive and Publishing. Edward Atsinger, Chief Executive Officer is unable to join the call as he had a lost minute conflict and had to travel to an important business meeting. 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.

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, 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 website at www.salemmedia.com. I will now turn the conference call over to David Santrella.

Dave?.

Thanks Evan and thanks all for being on today's earnings call. I'll start the call with a review of our third quarter financial results with a focus on the improvement in Salem’s financial performance as the economy rebounds following the COVID related shutdowns, as well as the growth and Salem's overall digital business.

I'll then turn the call over to David Evans to review the performance of our national digital division and publishing division.

And then Evan Masyr, will conclude our prepared remarks by giving more details on the financial results providing an update on recent the M&A activity, discussing the substantial improvement and Salem's leverage ratio and our recent successful refinancing and concluding with guidance for the fourth quarter.

For the third quarter of 2021, total revenue increased 8.8%, expenses increased 8.1%, resulting in an adjusted EBITDA increasing 12.5%. Despite Q3 2020 being soft due to the pandemic, we did have two meaningful revenue drivers in the third quarter of last year.

First, we had $1.9 million of political revenue as compared to only $400,000 in the third quarter of this year. Additionally, we had $1.7 million in revenue on Salem now from the Uncle Tom film with no comparable movie in Q3 2021.

When you factor out those significant 2020 revenue items, third quarter total revenue grew 14.8% in 2021, as compared to last year. Because 2020 is a difficult year to compare to, we're more focused internally on comparisons to 2019 performance, even though the economy has not yet fully reopened.

When comparing to 2019 total revenue increased 2.9%, expenses increased 0.1%, resulting in an adjusted EBITDA increase of 20.3%. It's also worth looking at where we are on a year-to-date basis compared to 2019. Through nine months, total revenue is down 0.1%, expenses are down 0.6%, but adjusted EBITDA is actually up 2.7%.

We're very pleased that Salem has reached the pre-pandemic levels of revenue and EBITDA that the industry has been shooting for. On the last several calls we've highlighted our digital revenue performance and I think bears repeating again.

In the third quarter our total combined digital revenue that is the digital revenue within the broadcast division plus the revenue from the national digital division, increased 10.8% to $19.5 million. That means 29.5% of our total revenue in the third quarter is digital and we expect that percentage to continue to increase.

David will discuss the national division in a few moments, but it's worth discussing the growth of 13.6% in digital revenue in the broadcast division. Compared to 2019, this revenue is up 135.6%. The Salem Podcast Network, which was launched at the beginning of this year, had revenue in the third quarter of $1.8 million.

And we continue to add high profile names to the lineup. Most recently, we added former Trump Attorney General Ellison, former congressman from Georgia, Doug Collins. I'll now provide an overview of the financial performance of the broadcast division.

For the third quarter of 2021, broadcast revenue increased 9.3% when compared to the third quarter of 2020. Again, I think it's more meaningful comparison when we look at third quarter of 2019, when comparing to those pre-pandemic numbers, total broadcast revenue was up 4%. Local spot advertising increased 12.6% while national spot decreased 5.2%.

These were impacted by political advertising last year. Excluding in political local advertising would have increased 15.1% and national advertising revenue would have been up 0.9%. Advertising is not back to 2019 levels due to the economy. Comparing to 2019, total spot advertising decreased 15.6% in the quarter.

National block programming was up 6.6% in the third quarter as compared to last year, while local block programming was up 9.1%. In total block programming was up 7.4% compared to last year, and declined 4.8% compared to the third quarter of 2019. We're just beginning our annual rate renewal process with the National ministries.

We expect our increased rates to be in the 3% range. Renewals will run as they typically do over 95%, but perhaps the very best news is that there is significant increased demand for the limited available airtime from new ministries, as well as from some existing ministries that want to increase their radio footprint.

Revenue from our network operations was essentially flat, 0.3% in the third quarter compared to last year. As you'll likely recall, one of our nationally syndicated host, Larry Elder, decided to run for Governor of California. During the recent recall election, when he announced his candidacy, he had to step down from his show.

While his replacement Carl Jackson did a terrific job filling in for Larry, we nonetheless had a slight decrease in revenue. While Larry overwhelmingly led all candidates running, where he garnered 48.5% of the votes and the next highest candidate received 9.6%. The recall effort ultimately failed.

We're disappointed Larry's not the Governor as we think he would have done a fantastic job, but we're glad he's back doing his radio show. We expect his run for Governor will have a favorable impact on his listenership and future revenue potential.

Expenses in the broadcast division were up 9.3%, resulting in an increase in station operating income of 9.2%. The expense increase was due in large part to expenses associated with Salem Podcast Network which started operating in January of this year and due to an increase in sales commissions, which is probably a good thing.

When compared to 2019 expenses were up only 0.4% and SOI was up 17%. And with that, I'll turn the call over to David Evans..

Thank you, Dave. Turning to our national digital division, revenue increased by 8.5% compared to the third quarter of 2020, an increase of 16.4% when compared to the third quarter of 2019.

This revenue growth was led by increases in our Salem Church products business unit, due to increase job postings at churchstaffing.com and the recent acquisitions of Centerline Media and ShiftWorship.

Additionally, we had growth in our financial newsletter business, principally from the retirement watch newsletter, as well as good revenue growth at our Christian ad supported websites due to better programming advertising rates than a year ago.

Expenses in the national digital division increased 15.7% due to increased marketing costs were expenses related to the recent acquisitions. Finally, the publishing division had a revenue increase of 5.6% compared to Q3 2020. Revenue from self-publishing was up 18.8% in the quarter due to an expanded sales force that was able to sell more books.

Revenue at Regnery, our traditional book publisher was up 9.2% compared to last year, due to some very good books getting published in the third quarter. Comparing to 2019 revenue in the publishing division was down 21%, but that was due to a particularly strong lineup of books in Q3 2019.

Looking ahead to the fourth quarter of 2021, we've got some good books in the process of being published, particularly Pandemia by Alex Berenson, Is Atheism Dead by Eric Metaxas, as well as the Babylon Bee Guide to Wokeness. Publishing expenses were down 10.3% due to the sale of our magazine business earlier in the year.

And I'll now turn the call back to ever mesa..

Thank you, David. Before I get into M&A and leverage, allow me to provide some additional details on this quarter's performance. For the third quarter total revenue increased 8.8% to $66.0 million. Operating expenses on a recurring basis increased 8.1% to $55.2 million, which resulted in a 12.5% increase in adjusted EBITDA to $10.8 million.

Net broadcast revenue increased 9.3% to $49.6 million. In broadcast operating expenses increased 9.3% to $37.5 million, resulting in station operating income of $12.1 million, an increase of 9.2%. On a same-station basis, net broadcast revenue increased 8.9% to $49.1 million, and SOI increased 5.5% to $12.0 million.

These same-station results include broadcast revenue from 94 of our 100 radio stations in our network operations, and represents 99% of net broadcast revenue. Now we'll briefly review revenue performance of our strategic formats. 38 of our radio stations are programmed in our foundational Christian teaching and talk format.

These stations contributed 37% of total broadcast revenue and increased 7.9% for the quarter. Our 31 news talk stations had an increase of 6.0% in revenue for the quarter, and these stations contributed 17% of total broadcast revenue.

Revenue from our 12 contemporary Christian music stations contributed 10% of total broadcast revenue, and increased 10.5% for the quarter. Our broadcast digital revenue increased 13.6% to $8.8 million and represents 18% of our total broadcast revenue. Our network revenue increased 0.3% for the quarter and represents 10% of broadcast revenue.

Revenue from our national digital media division increased 8.5% to $10.6 million and represents 16% of total revenue. Finally, our publishing division increased 5.6% to $5.7 million and represents 9% of total revenue. Now, I want to provide some updates on our M&A activity during the quarter.

On July 1, we acquired the ShiftWorship.com domain and digital assets for $2.6 million and we operate this business as part of our church products division. Also on July 23, we sold 34 acres of land just outside of Dallas for $12.1 million while retaining nine acres where we will continue to broadcast KSKY-AM while maintaining full Metro coverage.

We have two additional pieces of land that we're in the process of selling. First, we entered into an agreement, became effective in late August, to sell 77 acres of land in Tampa for $13.5 million. We will be moving the transmitter for WTBN-AM and diplex it at our owned and operated WGUL-AM facility.

We expect to close on this transaction by the end of the year. Second, we signed an agreement on August 31, to sell just over nine acres of land in the Denver area for $8.2 million. We expect this sale will close in early 2022 and plan to continue broadcasting both KRKS-AM and KBJD-AM from the site.

We do not anticipate losing any significant revenue from our broadcast operations in either Tampa or Denver resulting from these land sales as the impacted stations will continue their operations after these transactions close. I want to turn our attention now to debt and leverage.

On September 10, we completed an exchange of 52% of our 6.75% notes that are due in 2024 for 114.7 million of seven% and 18% notes due in 2028.

As part of the refinancing, we secured a $50 million backstop that in addition to our cash on hand, and the availability under our revolver, which is completely undrawn, assures us the ability to pay off the 2024 notes before they mature. As of June 30 2021, total debt was $227.5 million and was down to $213.5 million as of September 30, 2021.

The biggest contributing factor to the reduction was the forgiveness of $11.2 million of paycheck protection loans from the SBA in July of 2021. Additionally we repurchased $4.7 million of our '24 bonds during the quarter at a price of 100.25.

The reduced debt along with the improvement in adjusted EBITDA, resulted in our leverage ratio declining from 8.59 as of September 30 of 2020 to 5.52 as of September 30 of 2021. And if we net the debt with the $23.8 million of cash we have, our leverage ratio would be 4.91.

It is worth mentioning that since the end of the quarter, we have been able to purchase another $3.6 million of our 2024 bonds in the open market at an average price of 100.675. That leaves us now with just over $95 million remaining of the 2024 bonds.

And looking forward for the fourth quarter of 2021, we are projecting total revenue to be between flat and an increase of 2% from the fourth quarter of 2020 total revenue of $64.5 million. Excluding the impact of $3.5 million in political revenue in the fourth quarter of 2020, we're projecting revenue to increase between 6% and 8%.

Compared to the fourth quarter of 2019, we're projecting revenue to be between flat and increase of 2%.

We're also projecting operating expenses before gains or losses on the sale of sale or disposal of assets, stock based compensation expense, changes in the estimated fair value of contingent earnings consideration, impairments depreciation expense and amortization expense to increase between 1% and 4% compared to the fourth quarter of 2020 non-GAAP operating expenses of $54.6 million.

And comparing to the fourth quarter of 2019, we're also projecting expenses to increase between 1% and 4%. This now concludes our prepared remarks and we would like to answer any questions.

Operator?.

Thank you. And at this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Michael Kupinski with Noble Capital Markets. Please proceed with your question..

Hi, this is Andres Miranda filling in for Michael Kupinski. First of all, congrats on a solid quarter. You guys did a great job. I guess I have a few questions if you can help me out here.

The first one being, has the companies seen any impact on advertising from supply chain issues or there were shortages, particularly as it relates to work on spot advertising or national advertising..

Yeah, certainly the supply chain issues are impacting some advertising categories in Q3. We saw really favorable advertising from real estate, from obviously events and recruitment advertising is way up, but there are other industries that are down some of that related to supply chain issues. .

We are seeing a little bit of a slowdown in the book publishing area where we've got books that are sold out of inventory and there are delays in getting new books printed..

Thank you. Many radio companies have indicated that the gaming advertising has taken out this lag in the outdoor advertising that is soft due to supply chain issues.

Could you give us some color on how the company has any issues with advertising from the gaming industry? If you're having issues can you talk about the ad category for you?.

Salem right now is really not doing advertising in the gaming industry. We recognize that that's been certainly a category that many in our industry are going after strong. Salem has not yet gone after that business for other reasons. And we continue to debate whether we want to do that or not..

Thanks.

One more question, given the issues that other companies have with talent on the network side, are you seeing any lift in affiliates for your conservative talk for much or any benefit?.

Can you repeat that question? I'm not sure I understood that Andres..

Yeah, given the issues that another company has had with talent on the network side? Are you seeing any lift in affiliate for your conservative talk for much or any benefit?.

Yeah, we're seeing increased interest from affiliates in our – in what we have to offer some of that due to the fact that Larry Elder coming back from his gubernatorial race, has some increased popularity, obviously, some other changes in the marketplace are making some affiliates skittish about their choices, which is having them reach out to us.

The good news is that Salem is open for business. Our network is open for business. Our network hosts are quite happy with what we're doing, and we're happy to take on any new affiliates that are interested..

Thank you. Some companies have indicated that they're seeing political advertising this year for the raises that are not until the third quarter of next year.

Could you give us a sense of if you have begun to see any political advertising being booked for early as well? Or do you have any thoughts on the size of political advertising for the next year?.

I don't know that I've seen a big surge of kind of early orders for political for next year. We do anticipate that next year will be a very strong political year. But so far, there's not been a big surge of orders, but it's going to be strong..

Great. And one last question.

Since the company’s starting to generate back to normal cash flow, and has done a great deal have been extending the debt maturities and reducing leverage to roughly five times, what sort of flexibility does it give you in terms of capital allocation for the future? Could you give us some color on if you will consider being more aggressive in the M&A front or focus more in buying shares back like some of the competitors?.

Yeah, I’ll answer that. Clearly, the refinancing gives us some flexibility. We certainly have enough capacity between the backstop that we've secured, the cash on hand, and our revolver, never mind free cash flow that we'll continue to generate to take out the 2024 notes.

I’d still say our number one use of free cash flow will continue to be debt retirement and get leverage even lower down. But we'll continue to look at acquisitions. We've made acquisitions over the last several years. And we'll continue to do so where that makes sense..

That makes sense. That's helpful. That's all I got. Thank you very much, and congrats again..

Thank you. .

Thanks..

Our next question comes from the line of Lisa Springer with Singular Research. Please proceed with your question..

Thank you.

My question is, in view of the strong Republican performance during the elections this week, do you think that would help drive traffic to your conservative websites? And in general, do you see a shift in traffic to your websites when you see momentum building on the Republican side?.

The most significant driver of traffic to our political websites, big things in news cycle. So for example, there was a big traffic increase late August, early September, as a result of the crisis in Afghanistan. There was certainly a lift with the elections earlier this week.

So any kind of news cycle events that has political implications always drives traffic higher. Those traffic surges can be very short, or they can be longer depending upon the nature of the events. .

Okay, and land sales have been a good contributor to earnings lately.

I was just wondering, can you sort of quantify for us what opportunity remains in land sales and how many of your stations have excess land that you might be able to profit from?.

Yeah, we continue to look Lisa at opportunities, there's – Salem does own a lot of our own properties on our for AM radio stations. And so we continue to look at opportunities. There's a few others that we've identified that look quite promising. But there's nothing definitive. When we know of course will let you know.

Of course, the great thing about these transactions it's like sound money, because we don't lose the revenue generating asset in the process of generating all sorts of new revenue from that land sale. So it works out quite well for us. I'll let you know, we'll let you know when we have other deals to announce..

Okay, and my final question for you though, the third quarter top line came in stronger than you were guiding for.

I was just wondering, what were the positive surprises you had during the quarter that drove that?.

I think we had – all the divisions did better than we expected. I mean, we've had stronger than expected growth at the Salem Podcast Network that did much better for us. Advertising just in general did better. Our digital division did a little bit better than what we were expecting. We gave guidance at the end of last quarter.

So I'd say it was kind of a mixed bag across all of our different divisions..

Okay. Well, thank you very much, and congratulations on a good quarter. .

Thank you. .

Thank you..

Thank you..

[Operator Instructions] Our next question comes from the line of Steven Pfeiffer with Wells Capital Management. Please proceed with your question..

Hello, everyone. Thanks for taking the question. You had a great quarter for operations on here. And I just wanted to clarify some of the numbers I heard over about the debt balances on there. I think, I’m not sure if – the call cut off on the line here, the numbers might have been – I didn't hear it clearly.

So if you could please repeat off there? Did you read the refinancing of approximately half of the debt during the quarter, so that's 114.7 million of the new debt? Of the old debt, I think you said you purchased some in addition to the stuff that was taken out as part of that exchange? Can you please tell me the amount that you did and what was the price?.

Correct. We did Steven. We bought – during the quarter, we bought back $4.7 million of the 2024 notes at an average price of 100.25. And then subsequent to quarter end, we've been able to purchase another $3.6 million of the 2024 bonds at an average price of 100.675..

100.675, okay. That's – I thought – the way it says 106.25, sorry.

So its 100.625 correct?.

.675..

.675, okay. And the balance of that was 3.6 million of the ’24. And then 4.7 was taken out before quarter end..

That's correct..

All right. Thank you very much..

And our next question comes from the line of Richard Rice with Salem Media Group.

Please proceed with your question?.

This question for you guys. Again, congratulations on your third quarter. Just one quick question.

Are you guys going to expand the media content on SalemNow? And if so, what percentage really, does that contribute to your overall bottom line?.

Yeah, Salem will continue to acquire new content for SalemNow. And, and I think similar to what we see with Regnery when we have great hits for SalemNow, it will do exceptionally well. And when we don't, it won't do as well. In terms of its overall contribution to the bottom line, I don't even have a number right now. .

Yeah, I mean, it's relatively – I wouldn't say insignificant, but it's not a big material driver to our overall performance..

Okay, thank you all for that. Appreciate it..

And we have reached the end of the question-and-answer session. I'll now turn the call back over to CFO, Evan Masyr for closing remarks..

Thank you, everyone, for joining today's call and we look forward to updating you on our progress on the fourth quarter early in 2022..

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..