Salem Media Group, Inc. (NASDAQ:SALM) Q4 2020 Results Conference Call March 4, 2021 1:00 PM ET
Evan Masyr - EVP and CFO
Edward Atsinger - CEO
David Santrella - President, Broadcast Media
David Evans - President, Interactive and Publishing
Conference Call Participants
Michael Kupinski - Noble Capital Markets
Robert Maltbie - Singular Research
Greetings, and welcome to the Salem Media Group, Inc. Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Mr. Evan Masyr, Executive Vice President and Chief Financial Officer. Thank you, sir. Please go ahead.
Thank you, and welcome to all of you for joining us today on Salem Media Group’s fourth quarter 2020 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 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. And 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’re once again continuing to work remotely so that may cause some extra coordination during the question-and-answer portion of the call.
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 indication of future performance. We do 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 the Company’s website at salemmedia.com.
And with that, I would now like to turn the call over to Edward Atsinger.
Thanks, Evan, and thanks to all of you for being part of today’s call. Well, I’m pleased to report that Salem’s business continues to improve, and the fourth quarter of 2020 was the best quarter of the year.
But before I begin to review the quarter’s financial performance, I’d like to spend a little time discussing our growing digital platform. About a month ago, we launched another digital initiative within our broadcast division, the Salem Podcast Network. We started this new venture with a new podcast by Dinesh D’Souza. We have since added Charlie Kirk’s podcast, which was previously distributed by PodcastOne, and we expect to have more high-profile conservative and Christian podcast in the coming months.
The launch has been extremely successful with 11.2 million podcast downloads in the last four weeks alone as well as 1.9 million views of the video version of these podcasts. Advertiser demand for the new products has been tremendous, and we’ve already booked $2.1 million of new business for these new platforms.
The Salem Podcast Network is layered on top of our other successful broadcast digital initiatives, including Salem Surround, our local digital multimedia advertising agency, which we launched in 2018, and SalemNOW, an over-the-top streaming movie business that was launched in the second quarter of 2020, add this to our national digital division, and you can see that we have developed quite a significant digital footprint.
In fact, on a combined basis, we had $18.1 million in total digital revenue in the fourth quarter of 2020, which was an increase of 24.8% from the fourth quarter of 2019. Total digital revenue represents now 28% of Salem’s total revenue, which is about double the industry according to the Radio Advertising Bureau.
This growth in digital revenue gives Salem quite a unique and diversified revenue mix compared to other radio broadcasters. So, now, we’re 25% traditional radio advertising, 27% national and local block programming, 28% digital revenue, and that’s a combination of advertising and e-commerce, and 8% book publishing and 12% miscellaneous and other revenue.
So, with that, let me now walk you through our financial results. For the fourth quarter of 2020, total revenue decreased by 0.2%. Expenses increased by 0.3%, which resulted in a 3% decrease in adjusted EBITDA. I should point out that we had several onetime expenses totaling $1.9 million in the fourth quarter related to a legal accrual and some other miscellaneous expenses. When taking these onetime items into account, adjusted EBITDA would have been up 16.4%. So, as you can see, our performance, despite the challenging economic conditions, was robust on the way back.
Let me now review the results by division to give you a little more perspective. We continue to see sequential improvement in the broadcast division. For the fourth quarter, broadcast revenue increased by 5.9% when compared to the third quarter of 2020, but did decline 4.8% when compared to the fourth quarter of 2019. While we’re not happy, obviously, with the decline in revenue, it does compare favorably to the industry as a whole.
If you look at the Miller Kaplan data for the radio industry, as a whole, the markets in which Salem operates was down 15.4%. So, our performance, 5.9%, is certainly better than that. Once again, this outperformance can be attributed to Salem’s business model, with its foundation based on national and local ministry, block programming, and also as a result of our recent investment in attention to our digital growth opportunities.
Political revenue was a big contributing factor in the fourth quarter. As a matter of fact, we had the biggest quarter of political revenue in the history of our Company, recording $3.5 million to political revenue in the fourth quarter of 2020. By comparison, we booked only $400,000 of political advertising revenue in the fourth quarter of 2019. We also ended 2020, by the way, with record political revenue, totaling $6.6 million. To put that in perspective, Salem’s second best year ever for generating political revenue was 2012, when the Company booked $5.5 million in that category.
Even during the pandemic, Salem’s National Christian ministry block programming revenue has held up quite well. In the fourth quarter, revenue declined 2.4%, primarily related to a couple of program producers whose revenue model was heavily dependent upon event revenue for most of their budget. We expect them to be back once the COVID crisis is over. This revenue stream provides a solid foundation for our businesses as it has from our inception and represents just about 25% of our total broadcast revenue.
Local digital revenue increased 46.5% to $6.8 million in the fourth quarter of 2020 compared to the fourth quarter of 2019. Included in this category is $6.8 million digital revenue from our owned and operated local radio websites, Salem Surround and SalemNOW. We remain most encouraged by the returns, we are beginning to reap on our digital investments, and we expect to see additional vigorous growth in this category in the coming quarters.
We’re also continuing to see improvement in traditional radio advertising spot revenue. Total spot revenue improved 21.1% when compared to third quarter 2020, or as compared to fourth quarter 2019, local spot revenue declined 19.3%, while national spot revenue improved 16.2%. Combined, total spot revenue was down 10.5% in the quarter compared to the prior year, which was better than the industry again, which according to Miller Kaplan, showed a decline in total spot revenue of about 17.8%.
And finally, we had another great quarter with our syndicated network business, with revenue improving 13.8%, driven by growth in affiliates and strong political revenue. I mentioned on our last call that we launched the Charlie Kirk Show in early October. We’re pleased with the early results of this show and his affiliate growth.
Expenses in the broadcast division were down 4.6% due to lower sales commissions and cost control measures that we outlined during our second quarter earnings call. However, reduction in expenses were partially offset by some of the onetime increases that I referred to earlier.
Revenue generated by our national digital division was up 14.5%, Townhall Media, our network of conservative news and opinion sites, had another great quarter, with revenue up 36.2%. This growth was due to a combination of a 61% increase in website visits, strong political revenue and the continued growth from Townhall VIP, our premium subscription service, which was launched at the end of 2019. Obviously, the election was a large driver in the increase in traffic. Revenue on our Christian websites increased 6.1%. And Christian church products, our e-commerce business, was up 5.6%.
Expenses in the national digital division were up 10.1% due to increased variable sales, marketing and content costs.
Finally, revenue at our publishing division increased 19%. This increase was driven largely by -- at Regnery Publishing by the success of the vote away by Ted Cruz. And we’re quite optimistic about Regnery and Salem books in 2021 as we have a solid lineup for a nonelection year. Some of you may have seen in the news that Simon & Schuster cancel Senator Josh Hawley’s book. We’re pleased to report that we will be releasing his book, The Tyranny of Big Tech, on May 4th.
Additionally, our self-publishing business was up 11.3% on the increase in author submissions and the rounding out of our sales force.
So with that, let me turn the call back to Evan for additional detail on the quarter’s performance. Evan?
Thank you, Ed.
For the fourth quarter, total revenue decreased 0.2% to $64.5 million. Operating expenses on a recurring basis increased 0.3% to $54.6 million, which resulted in a 3.0% decrease in adjusted EBITDA to $9.9 million. Net broadcast revenue decreased 4.8% to $48.1 million, and broadcast operating expenses decreased 4.6% to $36.2 million, resulting in Station Operating Income of $11.8 million, a decrease of 5.3%.
On a same-station basis, net broadcast revenue decreased 4.0% to $47.7 million, and SOI decreased 7.1% to $11.9 million. These same-station results include broadcast revenue from 96 of our 99 radio stations in our network operations and represents 99.3% of net broadcast revenue.
I’ll briefly review revenue performance of our three strategic formats. 37% of our -- 37 of our radio stations are programmed in our foundational Christian teaching and talk format. These stations contributed 36% of total broadcast revenue and decreased 10.1% for the quarter. Our 32 news talk stations had a decrease of 8% in revenue for the quarter. Overall, these stations contributed 19% of total broadcast revenue.
Revenue from our 12 contemporary Christian music stations contributed 18% of total broadcast revenue and decreased 12.4% for the quarter. Our network revenue increased 13.8% for the quarter and represents 12% of total broadcast revenue. Revenue from our digital media businesses increased 14.5% to $11.2 million and represents 17% of total revenue. Our publishing revenue increased 19.0% to $5.2 million and represents 8% of our total revenue.
As of December 31st, we had $216.3 million in bonds outstanding and $5 million drawn on the revolver. We also had $6.3 million in cash, and our leverage ratio was 8.46. And due to the continued economic uncertainty surrounding the COVID-19 environment, we will not be providing guidance for the first quarter.
We’re in the process of finalizing the financial results for February, and I can provide some preliminary numbers for January and February combined. Total revenue was down around 4%. Broadcast revenue, in total, was down 7%. Local spot advertising was down 24%, and national spot advertising was down 24%. Local programs, including sports programming, were down 12%, while national programs were down 7%. Local digital revenue was up 15%. Revenue in our national digital division increased 3% and publishing revenue increased 16%. And we expect March performance to be notably better as the effects of the pandemic started to hit us in early to mid-March of 2020.
And this concludes our prepared remarks. And now, we would like to answer any questions. So, I’ll turn the call back over to the operator.
[Operator Instructions] Our first question is coming from Michael Kupinski of Noble Capital Markets. Please go ahead.
Thank you. And congratulations on a solid fourth quarter. A couple of questions. Is there a chance that your networks may pick up additional affiliates with the passing of Rush Limbaugh? And I was just curious in how you’re positioned to increase affiliates beyond what you did in the fourth quarter of last year?
I’d be happy to answer that. And Ed, if you want to add any color, welcome too, obviously.
We do think with the passing of Rush Limbaugh, he had about 650 affiliates that there’s some opportunity there to pick up additional affiliates. Right now, many of the affiliates are kind of in a wait-and-see mode. And I think much of that is out of great respect for Rush himself.
So, we do offer two different programs -- network programs in that daypart, Michael. We have both the Dennis Prager Show, which has been around for a long time, very successful. But more recently, of course, we’ve added Charlie Kirk in that same 12 noon to 3:00 p.m. Eastern -- East Coast time period. And we anticipate that there’ll be some appetite for one of those two programs with some of those Rush Limbaugh affiliates.
Got you. And then, in terms of the expense reduction that you went through in 2021, I was wondering if you can give us a sense of how expenses are looking like as you go into the first quarter and then as you cycle into Q2?
Yes, I can address that. We’ve mentioned before, some of the larger pay cuts were layoffs, some furloughs. We had across-the-board salary cut and then 401(k) match suspension. We have brought back the -- rolled back those pay cuts effective the beginning of the year. So, the employees are back to what they were earning in the beginning of 2020. But, the layoff and the 401(k) suspension are still in place. So, we expect expenses to be generally down in 2021.
Okay. And then, do you have a sense of how much they would be down in the first quarter, though, since we’re not -- I guess, we’re not lapping when -- I assumed that most of these expense cuts started in Q2 and Q3? Can you have a sense of what expenses might be looking like in Q1?
We do think expenses will be down in Q1, probably in the low-single-digit range in the first quarter.
Okay. And then, in terms of your block programming, can you give us a sense of whether or not you’ve increased prices there this year? And then, if you could just tell us, if you did, what the price increases were?
We made the decision early on in the pandemic that we would hold rates because everybody -- announced that some time ago. So, we don’t plan any rate increases for 2021, and we haven’t implemented any.
Okay. And then, digital media, obviously, is doing quite well. Can you give us a sense of the trajectory of digital media, and how your national businesses are performing as you -- in an off-election year, how do you anticipate that to be performing going for the balance of 2021?
Well, on the broadcast side, Michael, David can address some of the more standalone digital businesses. But on the broadcast side of digital, we anticipate significant growth that will continue to do well there. It’s a relatively new part of our business. We’re continuing to add products and services to it. We’re continuing to create greater efficiencies there. And we see solid growth moving forward.
Are there any metrics that you can add around Salem Surround for us, or even SalemNOW in terms of the number of subscriptions, the pricing, and any metrics that you can provide some more additional color?
Well, I can certainly share that, for instance, streaming revenue, we do add injection on a great number of our radio stations. And so, ad injected revenue is a category that continues to grow for us, both internally with our own sellers selling it and then with third-party sellers. And so, we’ve seen that revenue grow substantially. I don’t have an exact number for you here, but substantially in the last year, in particular, we’ve seen that have a really strong trajectory.
Just turning to our national digital media businesses. There are two or three components within that. The largest component is our ad-supported Christian content website. That business is pretty mature. It did -- it was held back a little bit in 2020, particularly in Q2 and Q3 because digital advertising rates fell across the board. In Q2, they were probably down 20%, if not 30%. By Q4, they were down, I’d say, single digits.
So, looking into 2021, we’d expect to see an improvement in those digital CPMs. The second component is our advertising-supported conservative opinion websites. They had a record-breaking year in 2020 because of the election. We don’t expect to repeat that. Non-election years are always weaker than election years, both in terms of paid views and in terms of political advertising revenue. So, we do expect to have a negative impact in 2021.
And then, the final component is our church e-commerce business. Yes, that was held back a little bit in 2020 because, obviously, many churches were closed, Sunday school programs were curtailed. And as the -- as hopefully things open back up again in 2021 with vaccines, et cetera, we’d expect to see that business bounce back a little bit. So, that’s the kind of overview of how we see the National Digital media businesses.
Got you. And then, just a final question on the publishing side. Obviously, the Josh Hawley book is not expected until May. Is there any other significant titles that -- in this first quarter that you’re going to lunch, or is it -- or are we just looking at a very tough comparison this year in the first quarter?
Yes. So, first quarter is always light in terms of releases. We’ve always found that Q2 and Q3 are the better quarters, and 2021 is a nonelection year. And the nature of Regnery and its political titles is -- always does better in even number of years. So 2021 will have -- it’s not as strong a schedule as an even numbered years, we are excited about the Josh Hawley book. We have a title from Dennis Prager in the second half of the year. So, it’s a solid lineup, but it’s not as strong as in an election year. And you’re right, Q1 is light in terms of releases. The big title in Q2 is obviously Josh Hawley.
[Operator Instructions] Our next question is coming from Robert Maltbie of Singular Research. Please go ahead.
Hello, gentlemen. Congrats on some solid execution in a very difficult environment in 2020. My -- a lot of my questions were just covered. That was pretty comprehensive. But, let me ask about any changes to your cap structure in terms of opportunities to reduce interest rate costs in this environment?
Yes. As far as capital structure, I mean, we have a pretty attractively priced bond at 6.75%. That doesn’t mature until 2024. Given the way the industry has been hit, leverage ratios across the board for us and others have certainly increased. I think, it would be challenging to get anything close to that rate if we were to try to refinance the whole thing today. Our focus is going to continue to be on reducing debt and improving EBITDA to get that leverage ratio down.
Regarding the so-called cancel culture, it looks like you benefited from that with the Hawley book. This seems to be an ongoing trend. Is that also do you feel improving the growth in your digital division with podcast?
Well, I would say so. Look, whenever -- when you transfer from supporting the parties and power to those that are in the opposition, people dig in. And I think it’s had -- for example, on Townhall Media, which is our digital conservative websites, they had an all-time record year in 2020, driven largely by the election and all the interest in the election, but also Townhall VIP.
As David Evans said, it won’t be as good in 2021 is not an election year, but they have ratcheted up to a new level. I mean, it will be -- they have no -- they’re now operating level of traffic and revenue that is ratchet of them above where they were in 2019. So yes, I think that it benefits us in, as the loyal opposition, people get motivated, and I think we’ll see some good interest in our and the content that we offer, podcast, including the conservative websites.
Great. And also regarding this push-pull, the off year, no election versus the reopening of the economy, I think, I missed your comments regarding the environment on pricing. But, how would you anticipate the year unfolding with that push-pull effect?
You’re talking about pricing our products?
Yes. Just a general level of the ability to increase pricing at rates in the economy that is looking pretty strong.
I can certainly address some of that. I think, as the economy opens back up, you’ll see business in our industry and certainly for Salem increase. Currently, so many things are just not available. We can’t do music concerts, which we do with our CCM radio stations. We get a fair amount of sports revenue. The sporting events have largely been canceled. And so, you don’t see that. So, -- and other examples that we all know about. And so, as the economy opens back up, you’ll see that. In terms of what that will do to pricing, it’s a supply and demand business. So, as the demand for local spot advertising increases because restaurants will want to start to advertise their businesses again, and all sorts of other advertisers who want to start to get their businesses up and going back to pre-pandemic levels, I would anticipate that you’ll see pricing go up for -- not just for Salem, but for the industry in general.
And I think on the other side of this is a great opportunity for radio, in particular and for our digital components as well because you’ll just see -- business owners are going to want to get their businesses back up and running. They want to get their lives going again, and I think we stand to benefit from that.
Our next question is coming from Michael Kupinski of Noble Capital Markets. Pleased proceed with your follow-up question.
Thank you. Just a quick one. I know that you have talked about possible asset sales, and it seems like you got a little setback from a sale of some stations. I was wondering if you could just talk a little bit about future asset sales and the prospect of additional debt paydown related to that.
We don’t have any plans to spin off any of our broadcast facilities right now. We have mentioned in past calls that we are actively looking at opportunities to monetize some of our real estate holdings, and those look favorable. I think that we will be able to do that and probably at least some progress in that regard in 2021, where we have sites where they can be joint uses, where we can continue to broadcast, but then accommodate other uses as well. There are several situations we’re looking at, where that might be possible. And we’re making progress on that. We’ll know more as the year unfolds, but I expect to see some -- at least one or two events this year. I’d be surprised if that didn’t occur.
And by the way, Michael, when you asked the question earlier, I was just thinking, to give you a little more color on where we are. Here’s the thing that’s encouraging to me. Consider this, 2020 was a disastrous year because of COVID-19 for all of us. But, if you look at Salem’s underlying business model, we were up at record levels in our digital business. We were up at record levels on our network syndication business. They were up the whole year. We did very well with Townhall Media, our conservative website. They’ve ratcheted up to a whole new level, driven by interest in the election, but also -- which was unprecedented, but also all of the other things associated, impeachment hearings, but not just that, also our VIP offering. So, very encouraged by that.
We were up in Salem Author Services, particularly in fourth quarter, where we finally got a fully staffed sales outfit. And we found that many people during COVID had time to write books. So, we signed up many more authors. So, we’ve got some very bright, strong spots in our Company.
Where was the weakness? The weakness was local spot, local program dependent upon businesses that were shut down. David mentioned sports events -- well, sporting events were shut down. We had a lot of sport revenue, spot revenue from sports, covering sports. That was all that was wiped out.
The biggest thing that was wiped out was event revenue. As David mentioned, we do a lot of concerts, but we had -- we had listener trips that we’ve sponsored. We had over -- almost 900 people scheduled to go to an Alaska cruise that was scheduled for last summer that had to be canceled. That was wiped out. We had a trip to Israel with Sebastian Gorka that had, I think, about 500 people signed up. That was wiped out.
And those are all directly COVID-related. So, with COVID disappearing, we expect to see those things bounce back. And on the event revenue alone, we’ve rescheduled the Alaska crews. We’re already at about 500 folks that have signed up to. We expect that to continue to grow. It’s going to be late August, August 28th. If you’re interested, Michael, you might want to sign up. It will be a good trip. We’ve got another one going to Israel with Dennis Prager and Mike Gallagher. We’ve already got about 400, 500 people signed up for that, and that’s not until December.
So, the point is, we have some great underlying strengths that didn’t really stumble during the bad year, but we had massive stumble in the broadcast side, primarily because of COVID-related events, cancel events, cancel sports, business shutdown, local spot, local program, our regularly publishing. I said Salem Author Services. This is our self publishing business. It did quite well, as I said, because people were sequestered at home, they have more time to write books. We signed up a lot of new authors. And we had to see that really take off in fourth quarter, particularly not only because the authors -- the number of authors in the pipeline increased, which is the key to future revenue, but also because we had fully staffed our sales. We’re up to full staff we hadn’t been for probably the last 1.5 years. So, that has helped there.
And then, on Regnery, think about Regnery, Regnery book publishing. 2021, first of all, Barnes & Noble, the largest bookstore chain and all of the other book stores closed down. So, you’ve got so many books and bookstores. Amazon prioritizing essential services, they’re not emphasizing book sales. So, it takes a lot longer to fulfill books. Trying to promote books on our platform, COVID-19 news sucked all the oxygen out of the air.
So, the weaknesses were local spot, events, sports, Regnery for all of those reasons, and they’re all COVID-related. And so, I -- look, I don’t want to hype things. I don’t want to be unrealistic. But I think, the underlying strengths are very encouraging. Our digital business grew dramatically. Our national business grew. Our digital conservative platform ratchet up to a new level, and even though it will be down a little bit in 2021 because it’s a nonpolitical year, it will operate at a new level that is higher than it was in 2019.
So, for all of those reasons, I think that’s -- keep your eye on those businesses, and let’s see how they recover. And if they do, I think we’ll -- I think 2021 should turn out to be a pretty good year, once we get to herd immunity. And I don’t know if you saw the article in the Wall Street Journal by the doctor from John Hopkins, which is generally considered to be the gold standard for COVID information. He says, we’ll have herd immunity by April.
And I think we will -- by the way, I’ve had both my shots and my second vaccine and my wife. So, as the country gets their vaccines and as people that have had it, get the little herd immunity, I think we’ll see things open up pretty dramatically next month.
Well, you did a good job last year against your peers. And so, I’m very optimistic as well. So, good luck.
Thank you. At this time, I’d like to turn the floor back over to Mr. Atsinger for closing comments.
Thank you, operator. And again, thanks to all of you for joining us. And we’re encouraged. We look forward to a more optimistic report even on this one on our next earnings call. And we hope you’ll join us for that. So, until then, we’ll say goodbye.
Ladies and gentlemen, thank you for your participation in today’s teleconference. You may now disconnect your lines or log off the webcast, and have a wonderful day.