Salem Media Group, Inc. (NASDAQ:SALM) Q2 2022 Earnings Conference Call August 4, 2022 5:00 PM ET
Evan Masyr – Chief Financial Officer
David Santrella – Chief Executive Officer
Conference Call Participants
Michael Kupinski – NOBLE Capital Markets
Edward Riley – EF Hutton
Good day, and welcome to the Salem Media Group, Incorporated Second Quarter 2022 Conference Call. Please word as we speak’s convention is being recorded. [Operator Instructions]
Thank you. At this time, I’d like to show the convention over to Evan Masyr, Chief Financial Officer.
Welcome and thanks all for becoming a member of us as we speak for Salem Media Group’s second quarter 2022 earnings name. As a reminder, in the event you get disconnected at any time, you’ll be able to dial again in or pay attention from our web site at www.salemmedia.com. In the room with me as we speak is David Santrella, Chief Executive Officer; David Evans, Chief Operating Officer, is touring this week however is on the telephone as nicely.
We will start in only a second with our ready remarks. And as soon as we’re finished, the convention operator will come again on the telephone to instruct you on how one can submit questions.
Please be suggested that statements made on this name that relate to future plans, occasions, monetary outcomes, prospects or efficiency are ahead-trying statements as outlined beneath the Private Securities Litigation Reform Act of 1995. These ahead-trying statements are based mostly on at the moment accessible data. Actual outcomes could differ materially from these anticipated, and reported outcomes shouldn’t be thought-about a sign of future efficiency. We don’t intend and undertake no obligation to replace our ahead-trying statements, together with forecasts of future efficiency, the potential for development of current markets, the opening of recent markets or the potential development from future acquisitions.
This convention name additionally incorporates non-GAAP monetary measures inside the which means of Regulation G, particularly station working revenue or SOI, EBITDA, and adjusted EBITDA. In conformity with Regulation G, data required to accompany the disclosure of non-GAAP monetary measures is obtainable on the Investor Relations portion of the corporate’s web site at salemmedia.com.
With that, I’d now like to show the decision over to David Santrella. Dave?
Thanks, Evan, and due to all for becoming a member of as we speak’s name. Today, we’ll talk about Salem’s second quarter monetary outcomes focusing on the continued development in digital. We’ll present a quick M&A replace, discuss in regards to the success of the movie 2000 Mules, and conclude with a number of feedback on Salem’s leverage and future dividend coverage.
At that time, I’ll flip the decision again to Evan who will present extra element on second quarter monetary efficiency and can give steering for the third quarter. Let’s begin with a dialogue of the corporate’s efficiency for Q2 2022. Compared to the second quarter of 2021, whole income elevated 7.7%, expense elevated 10.7%, and adjusted EBITDA, which incorporates $3.9 million from the movie 2000 Mules, which I’ll talk about in additional element later on the decision, elevated 33.6%.
There are a number of gadgets driving enhance in bills, together with the reinstatement of the 401(okay) match, bills related to the launch of Salem’s News Channel, elevated journey and leisure value and elevated skilled companies prices. Without these will increase, total bills can be up solely 4.2%. Before we get into the detailed efficiency of every division, I need to take a minute to focus on our digital income.
The second quarter mixed digital income, which incorporates digital income inside the broadcast division plus income from the digital division grew 14.5% from the second quarter of final yr. Combined digital income represents simply over 30% of whole income as we proceed to evolve right into a multimedia firm. Our expectation is digital income will proceed to be our quickest rising section.
Now let’s have a look at every division’s efficiency within the second quarter of 2022. Revenue within the broadcast division was up 12.1% in comparison with the second quarter of final yr. Digital is the quickest rising part inside broadcast income. Digital income inside the broadcast division elevated 27.9% to $9.9 million. This development has been pushed by Salem Surround, SalemNOW, and the Salem Podcast Network.
Our extra conventional broadcast income streams additionally carried out nicely within the quarter. Block programming improved [Audio Dip] over final yr. Local block programming was up 20.0% [Audio Dip]
I’ve talked about final three earnings calls, the rise demand from programming from each new ministries and current ministries. With the excessive renewal charges in block programming, we count on us to proceed having a optimistic influence on our lengthy-time period income. Traditional spot promoting income elevated 9.5% within the quarter. Local promoting income elevated 6.9%, nationwide 17.4%. While proceed to see promoting native spot continues to be not again to its pre pandemic stage, particularly with concern inflation [indiscernible]. Network income was up 9.3%. This has pushed largely by development political income.
Before I transfer on divisions price reviewing political income as a complete. For the quarter, we had $1.5 million of income in comparison with solely $400,000 in Q2 of final yr. The [Audio Dip] million is greater than we had in Q2 2021 which was $6,000 than we had in Q2 2019 was $1.1 million.
Let me change to Salem nationwide digital division the place income elevated 4.5% in Q2 of 2021. Revenue at our [Audio Dip] 0.1% on account of robust promoting demand in each direct and programmatic income. Townhall Media, our conservative information and opinion web sites had [Audio Dip] enhance in income from its development at its VIP subscription service. The church merchandise enterprise had significant development of 18.2% on account of acquisitions made final yr.
Finally, we had a 22.5% decline in income at monetary publications on account of inventory market weak point and recession considerations. Our final division, guide publishing had an 18.5% lower in income within the second quarter. The principal purpose for the decline was a 20.6% lower in income at Regnery publishing on account of no important titles being launched in the course of the quarter.
We mentioned earlier than that the guide actually scheduled for 2022 is closely again loaded. We do have two titles scheduled for launch in Q3 that we count on to carry out very nicely, simply as corrupted by Ted Cruz and the guide 2000 Mules by Dinesh D’Souza. Additionally Salem creator companies was down 4.6% on account of creator considerations in regards to the economic system inflation and recession.
Turning to the dialogue of M&A exercise. On June 27, Salem closed on the sale of 9 acres of land within the Denver space for $8.2 million, each stations working at that web site KRKS-AM and KBJD-AM will proceed to broadcast from a portion of the positioning. We had one small acquisition in the course of the quarter on May 2, Eagle Financial acquired Retirement Media, which owns six retirement web sites for $190,000.
So now let’s discuss 2000 Mules I discussed that earlier. In addition to the strong efficiency we skilled total from our broadcast and digital property, we’re equally happy with the outcomes from our first ever Moody funding 2000 Mules. Salem was the manager producer and sole monetary investor of $4.5 million into the movie firm’s Standalone LLC.
On the final earnings name, I discussed that the movie had personal screenings all through the nation. It was then accessible for obtain on and DVD buy on SalemNOW and Rumble. Based on the success and the media buzz, the movie generated sure movie show chains and unbiased theaters determined to hold the film for a number of weeks. Not solely did we get the $4.5 million funding returned virtually instantly after the discharge, we generated roughly $900,000 of revenue distribution charges at SalemNOW, promoting income platform from the LLC and curiosity earned on our preliminary funding.
Finally, via June 30, now we have earned a further $3.9 million in revenue from the unconsolidated three way partnership. To say the movie has been a hit can be an understatement. Based on this success, Salem is different alternatives to put money into choose movie that we expect finest match our viewers. And certainly we’re already in a few of these discussions. We do acknowledge nonetheless that few movies can have the identical stage of monetary efficiency at 2000 Mules. It is price mentioning that Salem is the unique distributor of the upcoming movie Uncle Tom II, which is scheduled to be launched on August 26.
While Salem has not invested within the movie, we intend to market the film to make it as profitable as doable, given the economics we get for distributing the movie.
One ultimate level on 2000 Mules. If you issue the three.99 million of revenue share we earned into the revenues roughly 41% of our income within the quarter got here from non-broadcast sources. This additional demonstrates how Salem has really turn into a multimedia firm.
Finally, let’s talk about Salem’s leverage and dividend coverage. As a results of Salem’s robust operations and asset gross sales, the corporate had ample money circulation to purchase again some further 2024 notes within the open market. During the quarter, we repurchased $13 million of bonds at a slight low cost. The discount in debt coupled with a 33.6% development in adjusted EBITDA introduced our leverage ratio down to three.97%.
If you issue within the money on hand, as of June 30, the leverage ratio can be 3.91%, a major enchancment and the bottom it’s been in additional than 20 years. As the corporate has been bettering its steadiness sheet and getting our leverage ratio beneath management, buyers have requested about Salem’s plans to get again to returning capital to shareholders via dividends.
Since the beginning of the pandemic, the Board has not even mentioned the topic of dividends, recognizing that leverage has been too excessive. However, now that leverage is beneath 4 instances, the Board will possible begin to debate the deserves.
It is due to this fact price reviewing Fiction Film [ph] has on paying dividends. Of the 2 bond points excellent, the 2028 notes are extra limiting beneath the phrases of that in enterprise Salem will pay as much as $500,000 in quarterly dividends when the leverage is beneath 4.75. If the leverage is beneath 4.0, Salem is ready to pay as much as 0.5 million in quarterly dividends.
Obviously, if the Board makes any choices to renew the cost of dividends, we’ll let buyers know.
And with that, I’ll flip the decision again to Evan for extra particulars on the quarter’s efficiency and steering for Q3.
Thank you, Dave. For the second quarter, whole income elevated 7.7% to $68.7 million. Operating bills on a recurring foundation elevated 10.7% to $60.9 million and adjusted EBITDA elevated 33.6% to $11.7 million, which incorporates the three.99 million revenue share from 2000 Mules as Dave outlined.
I do know a few of our broadcast friends are nonetheless mentioning how they’re getting income near 2019 ranges. For us, that is our fourth consecutive quarter the place income was forward of the corresponding 2019 quarter. Comparing to the second quarter of 2019, whole income elevated 6.2% and adjusted EBITDA elevated 15.1%. [Ph] Compared to final yr, web broadcast income elevated 12.1% to $52.5 million and broadcast working bills elevated 17.5% to $42.5 million leading to station working revenue of $10 million, a lower of 6.2%.
On a similar station foundation, web broadcast income elevated 12.2% to $52.4 million and SOI decreased 5.9% to $10 million. These similar station outcomes embrace broadcast income from 97 of our 98 radio stations within the community operations representing 99.9% of our web broadcast income.
I’ll briefly overview income efficiency of Salem strategic codecs. 39 of Salem’s radio stations are programmed in our foundational educating and discuss format. And these stations contributed 36% of whole broadcast income and elevated 8.9% for the quarter.
Our 33 information discuss stations had a rise of 21.2% in income for the quarter. Overall, these stations contributed 18% of broadcast income.
Revenue from the 12 modern Christian music stations contributed 15% of whole broadcast income and elevated 2.0% for the quarter. Broadcast digital income elevated 20.9% to $9.9 million and represents 19% of our whole broadcast income. Network income elevated [indiscernible] million for the quarter and represents 10% of whole broadcast income.
Revenue from the National Digital Media division elevated 4.5% to $10.8 million and represents 16% of our whole income. Publishing income decreased 18.5% to $5.4 million and represents 8% whole income. As of June 30, whole debt was $109.4 million made up of $114.7 million of seven% and eight% 2028 notes and $44.7 million of 6.75% 2024 Notes. Salem had just about nothing drawn on its $30 million ABL revolver. The leverage ratio, as Dave talked about, was 3.97 as outlined by Salem’s credit score agreements.
Looking ahead for the third quarter of 2022, Salem was projecting whole income to extend between 6% and eight% from the third quarter 2021. Total income was $66.0 million. Salem can be projecting working bills earlier than positive factors or losses on the sale of disposal of property, inventory-based mostly compensation expense, adjustments within the estimated honest worth of contingent earnout consideration, impairments, depreciation expense and amortization expense to extend between 11% and 14% in comparison with the third quarter of 2021 non-GAAP working bills of $55.2 million.
This concludes our ready remarks. And now we wish to reply any questions. Operator?
[Operator Instructions] Your first query comes from the road of Michael Kupinski with NOBLE Capital Markets.
Thank you, and good afternoon, everybody. So initially, congratulations on your quarter, simply spectacular. So the query is that I’ve a pair. The Q3 income up 6% to eight% is much better than lots of what I’d name the meters on the market in regards to the third quarter. And I used to be questioning in the event you can simply give us coloration on a few of these parts of that development that you just’re anticipating in Q3.
Number one, in the event you may discuss somewhat bit in regards to the community enterprise on the published aspect, perhaps additionally discuss somewhat bit about nationwide native spot. It looks like your nationwide enterprise has carried out much better than anybody else, significantly within the second quarter and was simply questioning how that’s persevering with as you go into the third quarter and let’s cease up there after which deal with a number of the different questions.
So, Michael and Evan, I’d sort of tack him on this somewhat bit. But I feel a number of the new drivers you’re seeing in Q3 definitely political will warmth up much more in Q3. Certainly is one thing as we’ve talked about, we’ve obtained two. What we consider are very robust books in Q3 and that may drive income. And then actually digital, [Audio Dip] part continues to be ever plus in fact, Uncle Tom II, popping out. We suppose that’s August 26, that may like 2000 Mules, the massive bulk of income whenever you launch a film is immediately getting it inside the first 4 to 6 weeks. And then it’ll – you’ll proceed to that income, however 90% of it’s actual quick. And so that may add to the quarter as nicely. And then [Audio Dip] that’s what we consider the income drivers. Now are you able to go to the subsequent yr loads there, and I neglect the remainder of it.
Well, I’m simply questioning somewhat bit, simply the community and the nationwide enterprise usually, outdoors of political, are you able to sort of give us a ton to position on what you’re listening to? And additionally, perhaps in the event you can replace us on your ideas about political for the yr. I imply, clearly you’re pacing nicely of your prior cycle. Just questioning perhaps in the event you can replace us what ideas are for the yr?
Yes. So our community enterprise is doing nicely. And I feel it’s pushed actually as we glance to do extra. What we’d name 360-diploma offers. We’ve obtained as instance, you’ve obtained a bunch, who’s doing a community program. They’re additionally doing a podcast. They could also be – they may be on the Salem News Channel as nicely. And so we’re making an attempt to include sort of extra into extra media automobiles inside Salem’s ecosystem into what they’re doing. And we’re seeing optimistic response from their promoting base from that. And I feel that’s serving to total.
In phrases of political, it’s simply such a – the political atmosphere has by no means been as fascinating and as heated and intense as it’s proper now. And so I feel, buyers like us and others are radio packages that very politically – have a number of political content material in them, simply have a selected curiosity proper now, curiosity to the candidates and their marketing campaign managers.
Got you. And then when it comes to your expense development for the third quarter, appears somewhat robust, and I used to be simply questioning, is there any specific issues going on when it comes to the bills for that quarter, issues which can be pushed ahead into the quarter, any extraordinary gadgets that you just’re dealing with or sort of give us what the [indiscernible] about?
I feel initially, we hope that the steering is somewhat conservative and that the corporate performs higher than that steering. Now, that being mentioned, a number of the points that led to the elevated Q2 bills will have an effect on us once more within the third quarter, issues just like the reinstitution of the 401(okay) match, the continued funding in Salem News Channel elevated journey and leisure bills additionally anticipating to extend advertising spend within the third quarter. So these are a few the true huge drivers that may drive bills in Q3.
And how a lot of the – of these are simply actually what you’d name considerably one time as a result of your elevated advertising spend, I suppose, is basically associated to the distribution of your – of the movie, proper? And is that, I suppose, going into fourth quarter or when the discharge is in third quarter, proper? So would you count on that the fourth quarter bills will average somewhat bit? I’m simply making an attempt to get a taste of what can be persevering with into the fourth quarter? What may we count on?
Yes. The gadgets that continues within the fourth quarter, the 401(okay) match we began once more within the first of this yr. So that’ll hit all 4 quarters. Travel and leisure will possible hit many of the yr as nicely. The different factor that’s a giant merchandise is we’re persevering with to put money into expertise within the Salem News Channel. We not too long ago employed somebody to run that division and I feel they continued funding there with not less than to start out little or no income, however we expect there’s an ideal alternative there and it’s well worth the funding. So I feel you’ll see a few of that persist via the rest of the yr.
Okay. I’ll let others ask questions. Thank you a lot.
Your subsequent query comes from the road of Edward Riley with EF Hutton.
Good afternoon, guys. Thanks for taking my query. Noticed that the Digital Media section noticed some margin sequentially and from Q2 2021, simply questioning what platform is basically driving that proper now?
You see the elevated margins as we’re doing a greater job, fairly frankly, of promoting our owned and operated digital property. So whenever you promote third get together market, whether or not it’s a ppc marketing campaign or one thing like that, proper. You have a value of excellent bought since you obtained to pay Google or Bing or whomever. But whenever you promote as an example, marketing campaign or an e-mail marketing campaign that’s inside your individual database or your individual – your owned and operated digital property, you retain much more of that cash. So that helps our margins. We’ve taken extra of the success of our digital advertising in home. So that helps our margins as nicely.
And then what’s actually driving that development proper now could be gross sales round, that are the digital promoting companies which have related to all of our radio station clusters. Those gross sales are promoting that digital advertising. Plus now we have digital solely sellers and lots of of these markets that’s driving and naturally Salem Podcast Network and SalemNOW that are additionally income that’s serving to drive that.
Got you. It sounds prefer it’s fairly sustainable. Would it’s honest to perhaps undertaking into the long run?
You’re saying undertaking the present margins?
Yes, I feel that’s cheap.
Okay, nice. And some extra coloration on what’s driving the 17% enhance in nationwide?
Well, political – so political in there. Yes, so political is a big a part of that.
Do you guys have any influence in ex-political?
Let me provide the political numbers total, clearly contains community and different. Dave talked about a few of them for the quarter. For the quarter, political was $1.5 million in comparison with final yr of just about $400,000. But additionally fascinating about political And then Michael probably ask the query as nicely. If you look yr-to-date, political is principally $2.3 million, final yr was beneath $1 million. And 2020, our greatest political yr ever was $1.2 million. So we’re really pacing fairly forward of that. So don’t have any nationwide spot numbers ex political in entrance of me, however definitely that’s been [Audio Dip].
Got you. And then on the Publishing aspect, you talked about revenues form of being producing within the again half of the yr and talked about that there’s going to be some third quarter releases. Any titles anticipated to be launched within the fourth quarter that you just’re enthusiastic about?
David, I don’t know in the event you reply to that. I do know you’re on the road as a result of you might have.
Yes. The greatest cycle in This autumn might be going to be Dennis Prager with the subsequent in his sequence of viable commentaries. That’s essentially the most [Audio Dip] however not as huge as Q3 the place now we have each Dinesh D’Souza and Ted Cruz.
Okay. Got you. And then, I’m curious in regards to the whole profit that you just guys have acquired from 2000 Mules to date?
Well, in the event you check out the truth that we had about $900,000 got here in between the promoting they did with us with the curiosity revenue that we obtained and the $3.9 million. So you’re speaking principally $4.8 million along with the return of our $4.5 million. So as Dave mentioned to say the success – the protected success can be understatement I feel that definitely understored once we invested $4.5 million, we obtained that again from a further $4.8 million.
Okay, nice. That’s it for me guys. Congrats.
At this time, there aren’t any additional questions. I’ll now flip the decision over to David Santrella, Chief Executive Officer for any closing remarks.
Well, I’ve no closing remarks. Thanks everyone for being a part of the decision. Great questions, and we’ll look ahead to speaking to you subsequent quarter.
Thank you for collaborating. You could disconnect presently.