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Salem Media Group, Inc. Announces Third Quarter 2020 Total Revenue of $60.6 Million

·25 min read

Salem Media Group, Inc. (Nasdaq: SALM) released its results for the three and nine months ended September 30, 2020.

Third Quarter 2020 Highlights

  • Net broadcast revenue increased 15.0% compared to the second quarter of 2020 and declined 4.8% compared to the third quarter of 2019

  • Total broadcast advertising/spot revenue increased 26.4% compared to the second quarter of 2020 and declined 21.7% compared to the third quarter of 2019

  • Station Operating Income ("SOI") (1) increased 74.2% compared to the second quarter of 2020 and increased 7.1% compared to the third quarter of 2019

  • Digital media revenue increased 3.9% compared to the second quarter of 2020 and 7.2% compared to the third quarter of 2019

  • Adjusted EBITDA increased 243.4% compared to the second quarter of 2020 and 6.9% compared to the third quarter of 2019

  • $19.3 million in cash at September 30, 2020

Third Quarter 2020 Results

For the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019:

Consolidated

  • Total revenue decreased 5.4% to $60.6 million from $64.1 million;

  • Total operating expenses decreased 28.9% to $55.9 million from $78.6 million;

  • 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 (1) decreased 7.4% to $51.0 million from $55.1 million;

  • The company had operating income of $4.8 million compared to an operating loss of $14.5 million;

  • The company’s net income increased $20.3 million to $0.3 million, or $0.01 net income per diluted share compared to a net loss of $20.0 million, or $0.75 net loss per share;

  • EBITDA (1) was $8.2 million compared to negative EBITDA of $10.6 million;

  • Adjusted EBITDA (1) increased 6.9% to $9.6 million from $9.0 million; and

  • Net cash provided by operating activities decreased 37.7% to $4.2 million from $6.7 million.

Broadcast

  • Net broadcast revenue decreased 4.8% to $45.4 million from $47.7 million;

  • SOI(1) increased 7.1% to $11.1 million from $10.4 million;

  • Same Station (1) net broadcast revenue decreased 2.4% to $44.6 million from $45.7 million; and

  • Same Station SOI (1) increased 2.7% to $11.1 million from $10.8 million.

Digital Media

  • Digital media revenue increased 7.2% to $9.8 million from $9.1 million; and

  • Digital Media Operating Income (1) increased 42.7% to $2.7 million from $1.9 million.

Publishing

  • Publishing revenue decreased 25.3% to $5.4 million from $7.3 million; and

  • Publishing Operating Income (Loss) (1) decreased to an operating loss of $0.4 million from operating income of $0.8 million.

Included in the results for the quarter ended September 30, 2020 are:

  • A $1.4 million ($1.0 million, net of tax, or $0.04 per share) net loss on the disposition of assets which includes a $1.4 million estimated pre-tax loss for the write-off of Miami assets as a result of the company’s plan to exit the market and reflects various fixed asset disposals; and

  • A $0.1 million non-cash compensation charge related to the expensing of stock options.

Included in the results for the quarter ended September 30, 2019 are:

  • A $17.5 million ($13.0 million, net of tax, or $0.49 per share) net loss on the disposition of assets which includes a $9.9 million estimated pre-tax loss for the pending sale of radio stations WAFS-AM in Atlanta, Georgia, WWDJ-AM in Boston, Massachusetts, WHKZ-AM in Cleveland, Ohio, KEXB-AM (formerly KTNO-AM) in Dallas, Texas, KDMT-AM in Denver, Colorado, KTEK-AM in Houston, Texas, KRDY-AM in San Antonio, Texas and KXFN-AM and WSDZ-AM in St. Louis, Missouri, a $4.7 million pre-tax loss from the sale of radio stations WWMI-AM and WLCC-AM in Tampa, Florida and WZAB-AM and WOCN-AM (formerly WKAT-AM) in Miami, Florida, a $1.6 million pre-tax loss from the sale of radio station WDYZ-AM (formerly WORL-AM) in Orlando, Florida and a $1.3 million pre-tax loss on the exchange of radio station KKOL-AM in Seattle, Washington for KPAM-AM in Portland, Oregon;

  • A $1.9 million impairment charge ($1.4 million, net of tax, and $0.05 per share) associated with the company’s broadcast licenses. Broadcast licenses were deemed to be impaired in four of the seven markets tested. Impairments were recorded in its Louisville, Philadelphia, Portland and San Francisco markets; and

  • A $0.2 million non-cash compensation charge ($0.1 million, net of tax) related to the expensing of stock options primarily consisting of:

    • $0.1 million non-cash compensation charge included in corporate expenses; and

    • $0.1 million non-cash compensation charge included in broadcast, digital media and publishing operating expenses.

Per share numbers are calculated based on 26,791,353 diluted weighted average shares for the quarter ended September 30, 2020, and 26,616,696 diluted weighted average shares for the quarter ended September 30, 2019.

Year to Date 2020 Results

For the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019:

Consolidated

  • Total revenue decreased 9.2% to $171.8 million from $189.3 million;

  • Total operating expenses decreased 6.6% to $185.9 million from $199.1 million;

  • 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 decreased 4.2% to $155.9 million from $162.7 million;

  • The company’s net operating loss increased 43.3% to $14.1 million from $9.9 million;

  • The company’s net loss increased to $57.4 million, or $2.15 net loss per share from $23.3 million, or $0.88 net loss per share;

  • EBITDA (1) was a negative $3.5 million as compared to $2.7 million;

  • Adjusted EBITDA (1) decreased 40.8% to $15.9 million from $26.8 million; and

  • Net cash provided by operating activities increased 59.9% to $23.1 million from $14.5 million.

Broadcast

  • Net broadcast revenue decreased 9.0% to $130.0 million from $142.9 million;

  • SOI (1) decreased 19.3% to $25.3 million from $31.4 million;

  • Same station (1) net broadcast revenue decreased 6.6% to $127.6 million from $136.6 million; and

  • Same station SOI (1) decreased 20.6% to $25.7 million from $32.3 million.

Digital media

  • Digital media revenue decreased 3.4% to $28.4 million from $29.3 million; and

  • Digital media operating income (1) decreased 17.7% to $5.2 million from $6.4 million.

Publishing

  • Publishing revenue decreased 21.7% to $13.4 million from $17.1 million; and

  • Publishing Operating Loss (1) increased to $3.1 million from $0.1 million.

Included in the results for the nine months ended September 30, 2020 are:

  • A $1.5 million ($1.1 million, net of tax, or $0.04 per share) net loss on the disposition of assets which includes a $1.4 million estimated pre-tax loss for the write-off of Miami assets as a result of the company’s plan to exit the market and reflects various fixed asset disposals;

  • A $17.3 million impairment charge ($12.8 million, net of tax, or $0.48 per share), of which $0.3 million related to impairment of mastheads, and the remainder to broadcast licenses due to the financial impact of the COVID-19 pandemic;

  • A $0.3 million impairment charge ($0.2 million, net of tax, or $0.01 per share) related to the company’s goodwill; and

  • A $0.3 million non-cash compensation charge ($0.2 million, net of tax, or $0.01 per share) related to the expensing of stock options primarily consisting of:

    • $0.1 million non-cash compensation charge included in corporate expenses; and

    • $0.1 million non-cash compensation charge included in broadcast operating expenses; and

    • the remaining $0.1 million non-cash compensation charge included in digital media and publishing operating expenses.

Included in the results for the nine months ended September 30, 2019 are:

  • A $21.2 million ($15.7 million, net of tax, or $0.59 per share) net loss on the disposition of assets which includes a $9.9 million estimated pre-tax loss for the pending sale of radio stations WAFS-AM in Atlanta, Georgia, WWDJ-AM in Boston, Massachusetts, WHKZ-AM in Cleveland, Ohio, KEXB-AM (formerly KTNO-AM) in Dallas, Texas, KDMT-AM in Denver, Colorado, KTEK-AM in Houston, Texas, KRDY-AM in San Antonio, Texas and KXFN-AM and WSDZ-AM in St. Louis, Missouri, the $4.7 million pre-tax loss from the sale of radio stations WWMI-AM and WLCC-AM in Tampa, Florida and WZAB-AM and WOCN-AM (formerly WKAT-AM) in Miami, Florida, a $3.8 million pre-tax loss on the sale of radio station WSPZ-AM in Washington, D.C., a $1.6 million pre-tax loss from the sale of radio station WDYZ-AM (formerly WORL-AM) in Orlando, Florida, a $1.3 million pre-tax loss on the exchange of radio station KKOL-AM in Seattle, Washington for KPAM-AM in Portland, Oregon, a $0.2 million pre-tax loss on the sale Mike Turner’s line of investment products and a $0.2 million pre-tax loss on the sale of HumanEvents.com offset by a $0.4 million pre-tax gain on the sale of a portion of land on the company’s transmitter site in Miami, Florida and a $0.1 million pre-tax gain on the sale of Newport Natural Health;

  • A $1.9 million impairment charge ($1.4 million, net of tax, and $0.05 per share) associated with the company’s broadcast licenses. Broadcast licenses were deemed to be impaired in four of the seven markets tested. Impairments were recorded in its Louisville, Philadelphia, Portland and San Francisco markets;

  • 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 $1.3 million non-cash compensation charge ($1.0 million, net of tax, or $0.04 per share) related to the expensing of stock options and restricted stock primarily consisting of:

    • $0.7 million non-cash compensation charge included in corporate expenses; and

    • $0.5 million non-cash compensation charge included in broadcast operating expenses; and

    • the remaining $0.1 million non-cash compensation charge included in digital media and publishing operating expenses.

Per share numbers are calculated based on 26,683,363 diluted weighted average shares for the nine months ended September 30, 2020, and 26,442,791 diluted weighted average shares for the nine months ended September 30, 2019.

Balance Sheet

As of September 30, 2020, the company had $216.3 million outstanding on the 6.75% senior secured notes due 2024 (the "Notes") and $16.6 million outstanding on the Asset Based Revolving Credit Facility ("ABL Facility").

Acquisitions and Divestitures

The following transactions were completed since July 1, 2020:

  • On September 15, 2020, the company acquired the Hyper Pixels Media website and related assets for $1.1 million in cash. The company paid $0.4 million in cash upon closing with deferred payments of $0.4 million due January 31, 2021 and $0.3 million due September 15, 2021. The company recorded goodwill of approximately $0.1 million associated with the expected synergies to be realized upon combining the operations of Journeyboxmedia.com into the company’s digital media platform within Salem Web Network and from brand loyalty from its existing subscriber base that is not a separately identifiable intangible asset.

Pending transactions:

  • On September 10, 2020, the company entered an Asset Purchase Agreement ("APA") to sell radio station WKAT-AM and an FM translator in Miami, Florida, for $3.5 million in cash. The company will exit the Miami market upon the close of this transaction. The company entered a Local Marketing Agreement under which the buyer will being programming the station in November 2020. The company recognized an estimated pre-tax loss of approximately $1.4 million during the quarter ending September 30, 2020, which reflects the sale price as compared to the carrying value of the assets sold, the estimated closing costs, and the write-off of the remaining Miami assets as a result of exiting this market. This transaction is subject to the approval of the FCC and is expected to close in the fourth quarter of 2021.

  • On February 5, 2020, we entered an APA with Word Broadcasting to sell radio stations WFIA-AM, WFIA-FM and WGTK-AM in Louisville, Kentucky for $4.0 million with a $250,000 credit applied to the sale price if closing occurs before March 31, 2020. Additionally, Word Broadcasting would receive a credit toward the purchase price of a sum equal to the monthly fees paid under the Time Brokerage Agreement ("TBA") that began in January 2017 for months 4-29 of the TBA and a sum equal to $2,000 per month for each monthly fee payment for months 30 and thereafter of the TBA; and a credit of the $450,000 option payment. We estimated the loss on sale to be approximately $0.5 million net of tax if the sale closed by March 31, 2020 and $0.3 million net of tax if the sale closes later. Due to changes in debt markets, the transaction was not funded and it is uncertain when or if the transaction will close.

Conference Call Information

Salem will host a teleconference to discuss its results on November 12, 2020 at 2:00 p.m. Pacific Time. To access the teleconference, please dial (877) 524-8416, and then ask to be joined into the Salem Media Group Third Quarter 2020 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 November 26, 2020 and can be heard by dialing (877) 660-6853, passcode 13708311 or on the investor relations portion of the company’s website, located at investor.salemmedia.com.

Follow us on Twitter @SalemMediaGrp.

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 disposition 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.salemmedia.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 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 Income (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 Income (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 Income (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 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 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

Nine Months Ended

September 30,

September 30,

2019

2020

2019

2020

(Unaudited)

Net broadcast revenue

$

47,679

$

45,391

$

142,854

$

130,041

Net digital media revenue

9,149

9,808

29,349

28,355

Net publishing revenue

7,288

5,442

17,062

13,366

Total revenue

64,116

60,641

189,265

171,762

Operating expenses:

Broadcast operating expenses

37,310

34,283

111,466

104,704

Digital media operating expenses

7,282

7,144

22,988

23,123

Publishing operating expenses

6,517

5,814

17,112

16,443

Unallocated corporate expenses

4,183

3,849

12,386

11,909

Change in the estimated fair value of contingent earn-out consideration

(40)

(10)

(40)

(12)

Impairment of indefinite-lived long-term assets other than goodwill

1,915

1,915

17,254

Impairment of goodwill

307

Depreciation and amortization

3,891

3,428

12,096

10,686

Net (gain) loss on the disposition of assets

17,545

1,381

21,212

1,494

Total operating expenses

78,603

55,889

199,135

185,908

Operating income (loss)

(14,487)

4,752

(9,870)

(14,146)

Other income (expense):

Interest income

1

1

1

Interest expense

(4,410)

(4,024)

(13,206)

(12,069)

Gain on early retirement of long-term debt

426

49

Net miscellaneous income and (expenses)

1

19

(45)

Net income (loss) before income taxes

(18,897)

730

(22,630)

(26,210)

Provision for income taxes

1,108

401

697

31,180

Net income (loss)

$

(20,005)

$

329

$

(23,327)

$

(57,390)

Basic income (loss) per share Class A and Class B common stock

$

(0.75)

$

0.01

$

(0.88)

$

(2.15)

Diluted income (loss) per share Class A and Class B common stock

$

(0.75)

$

0.01

$

(0.88)

$

(2.15)

Basic weighted average Class A and Class B common stock shares outstanding

26,616,696

26,683,363

26,442,791

26,683,363

Diluted weighted average Class A and Class B common stock shares outstanding

26,616,696

26,791,353

26,442,791

26,683,363

Salem Media Group, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

December 31, 2019

September 30, 2020

(Unaudited)

Assets

Cash

$

6

$

19,298

Trade accounts receivable, net

30,824

24,223

Other current assets

10,893

15,188

Property and equipment, net

87,673

80,723

Operating and financing lease right-of-use assets

54,730

49,128

Intangible assets, net

369,216

348,249

Deferred financing costs

224

226

Other assets

4,864

3,582

Total assets

$

558,430

$

540,617

Liabilities and Stockholders’ Equity

Current liabilities

$

53,134

$

67,816

Long-term debt

216,468

213,580

Operating and financing lease liabilities, less current portion

54,174

49,138

Deferred income taxes

38,778

69,732

Other liabilities

6,213

8,472

Stockholders’ Equity

189,663

131,879

Total liabilities and stockholders’ equity

$

558,430

$

540,617

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

Accumulated

Treasury

Shares

Amount

Shares

Amount

Capital

Earnings (Deficit)

Stock

Total

Stockholders’ equity, December 31, 2019

23,447,317

$

227

5,553,696

$

56

$

246,680

$

(23,294)

$

(34,006)

$

189,663

Stock-based compensation

103

103

Cash distributions

(667)

(667)

Net loss

(55,204)

(55,204)

Stockholders’ equity, March 31, 2020

23,447,317

$

227

5,553,696

$

56

$

246,783

$

(79,165)

$

(34,006)

$

133,895

Distributions per share

$

0.025

$

0.025

Stock-based compensation

96

96

Net loss

(2,515)

(2,515)

Stockholders’ equity, June 30, 2020

23,447,317

$

227

5,553,696

$

56

$

246,879

$

(81,680)

$

(34,006)

$

131,476

Stock-based compensation

74

74

Net income

329

329

Stockholders’ equity, September 30, 2020

23,447,317

$

227

5,553,696

$

56

$

246,953

$

(81,351)

$

(34,006)

$

131,879

Class A

Class B

Common Stock

Common Stock

Additional

Paid-In

Accumulated

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

Stock-based compensation

936

936

Options exercised

200

Lapse of restricted shares

389,061

Cash distributions

(1,728)

(1,728)

Net loss

(3,644)

(3,644)

Stockholders’ equity, June 30, 2019

23,339,327

$

227

5,553,696

$

56

$

246,332

$

3,620

$

(34,006)

$

216,229

Distributions per share

$

0.065

$

0.065

Stock-based compensation

177

177

Options exercised

Lapse of restricted shares

41,323

Cash distributions

(1,730)

(1,730)

Net loss

(20,005)

(20,005)

Stockholders’ equity, September 30, 2019

23,380,650

$

227

5,553,696

$

56

$

246,509

$

(18,115)

$

(34,006)

$

194,671

Distributions per share

$

0.065

$

0.065

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2019

2020

2019

2020

OPERATING ACTIVITIES

Net income (loss)

$

(20,005)

$

329

$

(23,327)

$

(57,390)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Non-cash stock-based compensation

177

74

1,289

273

Depreciation and amortization

3,891

3,428

12,096

10,686

Amortization of deferred financing costs

253

214

766

675

Non-cash lease expense

2,287

2,281

6,735

6,745

Accretion of acquisition-related deferred payments and contingent consideration

2

Provision for bad debts

670

501

1,407

4,122

Deferred income taxes

1,033

325

487

30,954

Impairment of indefinite-lived long-term assets other than goodwill

1,915

1,915

17,254

Impairment of goodwill

307

Change in the estimated fair value of contingent earn-out consideration

(40)

(10)

...

(40)

(12)

Net (gain) loss on the disposition of assets

17,545

1,381

21,212

1,494

Gain on early retirement of long-term debt

(426)

(49)

Changes in operating assets and liabilities:

Accounts receivable and unbilled revenue

(2,366)

(2,965)

(2,363)

2,565

Inventories

(19)

89

(372)

99

Prepaid expenses and other current assets

(740)

(1,440)

338

(1,343)

Accounts payable and accrued expenses

4,963

4,151

4,504

5,871

Operating lease liabilities

(2,218)

(2,993)

(7,983)

(6,396)

Contract liabilities

(629)

(1,993)

(1,710)

5,274

Deferred rent income

(46)

(117)

(130)

(268)

Other liabilities

(16)

1,050

(16)

2,254

Income taxes payable

55

(125)

87

30

Net cash provided by operating activities

$

6,710

$

4,180

$

14,471

$

23,145

INVESTING ACTIVITIES

Cash paid for capital expenditures net of tenant improvement allowances

(1,367)

(1,040)

(6,064)

(3,565)

Capital expenditures reimbursable under tenant improvement allowances and trade agreements

(3)

(46)

(3)

(140)

Purchases of broadcast assets and radio stations

(35)

(35)

Purchases of digital media businesses and assets

(600)

(400)

(1,250)

(400)

Proceeds from sale of assets

1,330

4,202

188

Other

3

31

(725)

2,010

Net cash used in investing activities

$

(672)

$

(1,455)

$

(3,875)

$

(1,907)

FINANCING ACTIVITIES

Payments to repurchase 6.75% Senior Secured Notes

(6,123)

(3,392)

Proceeds from borrowings under ABL Facility

32,072

277

86,367

38,626

Payments on ABL Facility

(36,423)

(2,677)

(87,962)

(34,452)

Refund (payments) of debt issuance costs

(13)

(58)

(43)

(124)

Payments on financing lease liabilities

(22)

(17)

(65)

(52)

Payment of cash distribution on common stock

(1,730)

(5,160)

(667)

Book overdraft

76

2,280

(1,885)

Net cash used in financing activities

$

(6,040)

$

(2,475)

$

(10,706)

$

(1,946)

Net increase (decrease) in cash and cash equivalents

$

(2)

$

250

$

(110)

$

19,292

Cash and cash equivalents at beginning of year

9

19,048

117

6

Cash and cash equivalents at end of period

$

7

$

19,298

$

7

$

19,298

Salem Media Group, Inc.

Supplemental Information

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2020

2019

2020

(Unaudited)

Reconciliation of Total Operating Expenses to 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 and Depreciation and Amortization Expense (Recurring Operating Expenses)

Operating Expenses

$

78,603

$

55,889

$

199,135

$

185,908

Less depreciation and amortization expense

(3,891)

(3,428)

(12,096)

(10,686)

Less change in estimated fair value of contingent earn-out consideration

40

10

40

12

Less impairment of indefinite-lived long-term assets other than goodwill

(1,915)

(1,915)

(17,254)

Less impairment of goodwill

(307)

Less net gain (loss) on the disposition of assets

(17,545)

(1,381)

(21,212)

(1,494)

Less stock-based compensation expense

(177)

(74)

(1,289)

(273)

Total Recurring Operating Expenses

$

55,115

$

51,016

$

162,663

$

155,906

Reconciliation of Net Broadcast Revenue to Same Station Net Broadcast Revenue

Net broadcast revenue

$

47,679

$

45,391

$

142,854

$

130,041

Net broadcast revenue – acquisitions

Net broadcast revenue – dispositions

(1,328)

(24)

(4,342)

(72)

Net broadcast revenue – format change

(661)

(766)

(1,874)

(2,328)

Same Station net broadcast revenue

$

45,690

$

44,601

$

136,638

$

127,641

Reconciliation of Broadcast Operating Expenses to Same Station Broadcast Operating Expenses

Broadcast operating expenses

$

37,310

$

34,283

$

111,466

$

104,704

Broadcast operating expenses – acquisitions

(2)

Broadcast operating expenses – dispositions

(1,748)

(5,161)

(110)

Broadcast operating expenses – format change

(698)

(796)

(2,014)

(2,620)

Same Station broadcast operating expenses

$

34,864

$

33,487

$

104,291

$

101,972

Reconciliation of SOI to Same Station SOI

Station Operating Income

$

10,369

$

11,108

$

31,388

$

25,337

Station operating loss – acquisitions

2

Station operating (income) loss – dispositions

420

(24)

819

38

Station operating loss – format change

37

30

140

292

Same Station - Station Operating Income

$

10,826

$

11,114

$

32,347

$

25,669

Salem Media Group, Inc.

Supplemental Information

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2020

2019

2020

(Unaudited)

Calculation of Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)

Net broadcast revenue

$

47,679

$

45,391

$

142,854

$

130,041

Less broadcast operating expenses

(37,310)

(34,283)

(111,466)

(104,704)

Station Operating Income

$

10,369

$

11,108

$

31,388

$

25,337

Net digital media revenue

$

9,149

$

9,808

$

29,349

$

28,355

Less digital media operating expenses

(7,282)

(7,144)

(22,988)

(23,123)

Digital Media Operating Income

$

1,867

$

2,664

$

6,361

$

5,232

Net publishing revenue

$

7,288

$

5,442

$

17,062

$

13,366

Less publishing operating expenses

(6,517)

(5,814)

(17,112)

(16,443)

Publishing Operating Income (Loss)

$

771

$

(372)

$

(50)

$

(3,077)

The company defines EBITDA (1) as net income (loss) before interest, taxes, depreciation, and amortization. The table below presents a reconciliation of EBITDA (1) to Net Income (Loss), the most directly comparable GAAP measure. EBITDA (1) is a non-GAAP financial performance measure that is not to be considered a substitute for or superior to the directly comparable measures reported in accordance with GAAP.

Salem Media Group, Inc.

Supplemental Information

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2020

2019

2020

(Unaudited)

Net income (loss)

$

(20,005)

$

329

$

(23,327)

$

(57,390)

Plus interest expense, net of capitalized interest

4,410

4,024

13,206

12,069

Plus provision for income taxes

1,108

401

697

31,180

Plus depreciation and amortization

3,891

3,428

12,096

10,686

Less interest income

(1)

(1)

(1)

EBITDA

$

(10,596)

$

8,181

$

2,671

$

(3,456)

The company defines Adjusted EBITDA (1) as EBITDA (1) before gains or losses on the disposition of assets, before changes in the estimated fair value of contingent earn-out consideration, before impairments, before net miscellaneous income and expenses, before (gain) loss on early retirement of long-term debt and before non-cash compensation expense. The table below presents a reconciliation of Adjusted EBITDA (1) to Net Income (Loss), the most directly comparable GAAP measure. Adjusted EBITDA (1) is a non-GAAP financial performance measure that is not to be considered a substitute for or superior to the directly comparable measures reported in accordance with GAAP.

Three Months Ended

September 30,

Nine Months Ended

September 30,

2019

2020

2019

2020

(Unaudited)

Net income (loss)

$

(20,005)

$

329

$

(23,327)

$

(57,390)

Plus interest expense, net of capitalized interest

4,410

4,024

13,206

12,069

Plus provision for income taxes

1,108

401

697

31,180

Plus depreciation and amortization

3,891

3,428

12,096

10,686

Less interest income

(1)

(1)

(1)

EBITDA

$

(10,596)

$

8,181

$

2,671

$

(3,456)

Less net (gain) loss on the disposition of assets

17,545

1,381

21,212

1,494

Less change in the estimated fair value of contingent earn-out consideration

(40)

(10)

(40)

(12)

Plus impairment of indefinite-lived long-term assets other than goodwill

1,915

1,915

17,254

Plus impairment of goodwill

307

Plus gain on early retirement of long-term debt

(426)

(49)

Plus net miscellaneous (income) and expenses

(1)

(19)

45

Plus non-cash stock-based compensation

177

74

1,289

273

Plus ASC 842 lease adoption

171

Adjusted EBITDA

$

9,001

$

9,625

$

26,773

$

15,856

The company defines Adjusted Free Cash Flow (1) as Adjusted EBITDA (1) 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 table below presents a reconciliation of Adjusted Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure. Adjusted Free Cash Flow is a non-GAAP liquidity measure that is not to be considered a substitute for or superior to the directly comparable measures reported in accordance with GAAP.

Salem Media Group, Inc.

Supplemental Information

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2020

2019

2020

(Unaudited)

Net cash provided by operating activities

$

6,710

$

4,180

$

14,471

$

23,145

Non-cash stock-based compensation

(177)

(74)

(1,289)

(273)

Depreciation and amortization

(3,891)

(3,428)

(12,096)

(10,686)

Amortization of deferred financing costs

(253)

(214)

(766)

(675)

Non-cash lease expense

(2,287)

(2,281)

(6,735)

(6,745)

Accretion of acquisition-related deferred payments and contingent earn-out consideration

(2)

Provision for bad debts

(670)

(501)

(1,407)

(4,122)

Deferred income taxes

(1,033)

(325)

(487)

(30,954)

Change in the estimated fair value of contingent earn-out consideration

40

10

40

12

Impairment of indefinite-lived long-term assets other than goodwill

(1,915)

(1,915)

(17,254)

Impairment of goodwill

(307)

Net gain (loss) on the disposition of assets

(17,545)

(1,381)

(21,212)

(1,494)

Gain on early retirement of long-term debt

426

49

Changes in operating assets and liabilities:

Accounts receivable and unbilled revenue

2,366

2,965

2,363

(2,565)

Inventories

19

(89)

372

(99)

Prepaid expenses and other current assets

740

1,440

(338)

1,343

Accounts payable and accrued expenses

(4,963)

(4,151)

(4,504)

(5,871)

Contract liabilities

629

1,993

1,710

(5,274)

Operating lease liabilities (deferred rent)

2,218

2,993

7,983

6,396

Deferred rent revenue

46

117

130

268

Other liabilities

16

(1,050)

16

(2,254)

Income taxes payable

(55)

125

(87)

(30)

Net income (loss)

$

(20,005)

$

329

$

(23,327)

$

(57,390)

Plus interest expense, net of capitalized interest

4,410

4,024

13,206

12,069

Plus provision for income taxes

1,108

401

697

31,180

Plus depreciation and amortization

3,891

3,428

12,096

10,686

Less interest income

(1)

(1)

(1)

EBITDA

$

(10,596)

$

8,181

$

2,671

$

(3,456)

Plus net (gain) loss on the disposition of assets

17,545

1,381

21,212

1,494

Plus change in the estimated fair value of contingent earn-out consideration

(40)

(10)

(40)

(12)

Plus impairment of indefinite-lived long-term assets other than goodwill

1,915

1,915

17,254

Plus impairment of goodwill

307

Plus (gain) on the early retirement of long-term debt

(426)

(49)

Plus net miscellaneous (income) and expenses

(1)

(19)

45

Plus non-cash stock-based compensation

177

74

1,289

273

Plus ASC 842 lease adoption

171

Adjusted EBITDA

$

9,001

$

9,625

$

26,773

$

15,856

Less net cash paid for capital expenditures (1)

(1,367)

(1,040)

(6,064)

(3,565)

Less cash paid for taxes

(19)

(201)

(122)

(196)

Less cash paid for interest, net of capitalized interest

(258)

(133)

(8,575)

(7,737)

Adjusted Free Cash Flow

$

7,357

$

8,251

$

12,012

$

4,358

(1) Net cash paid for capital expenditures reflects actual cash payments net of cash reimbursements under tenant improvement allowances and net of property and equipment acquired in trade transactions.

Selected Debt Data

Outstanding at

September 30, 2020

Applicable

Interest Rate

Senior Secured Notes due 2024 (1)

$

216,341,000

6.75%

Asset-based revolving credit facility (2)

16,600,000

2.50%

(1) $216.3 million notes with semi-annual interest payments at an annual rate of 6.75%.

(2) Outstanding borrowings under the ABL Facility, with interest payments due at LIBOR plus 1.5% to 2.0% per annum with a LIBOR floor of $0.5% or prime rate plus 0.5% to 1.0% per annum.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201112006076/en/

Contacts

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