Salem Media Group, Inc. Announces Third Quarter 2021 Total Revenue of $66.0 Million

Salem Media Group, Inc. (NASDAQ: SALM) released its results for the three and nine months ended September 30, 2021.

Third Quarter 2021 Results

For the quarter ended September 30, 2021 compared to the quarter ended September 30, 2020:

Consolidated

  • Total revenue increased 8.8% to $66.0 million from $60.6 million;
  • Total operating expenses decreased 10.2% to $50.2 million from $55.9 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, debt modification costs, depreciation expense and amortization expense (1) increased 8.1% to $55.2 million from $51.0 million;
  • Operating income increased 232.5% to $15.8 million from $4.8 million;
  • Net income increased 6,615.5% to $22.1 million, or $0.81 net income per diluted share from $0.3 million, or $0.01 net income per diluted share;
  • EBITDA (1) increased 268.8% to $30.2 million from $8.2 million;
  • Adjusted EBITDA (1) increased 12.5% to $10.8 million from $9.6 million; and
  • Net cash provided by operating activities increased 8.8% to $4.5 million from $4.2 million.

Broadcast

  • Net broadcast revenue increased 9.3% to $49.6 million from $45.4 million;
  • Station Operating Income (“SOI”) (1) increased 9.2% to $12.1 million from $11.1 million;
  • Same Station (1) net broadcast revenue increased 8.9% to $49.1 million from $45.1 million; and
  • Same Station SOI (1) increased 5.5% to $12.0 million from $11.4 million.

Digital Media

  • Digital media revenue increased 8.5% to $10.6 million from $9.8 million; and
  • Digital Media Operating Income (1) decreased 10.8% to $2.4 million from $2.7 million.

Publishing

  • Publishing revenue increased 5.6% to $5.7 million from $5.4 million; and
  • Publishing Operating Income (1) was $0.5 million to compared to an operating loss of $0.4 million.

Included in the results for the quarter ended September 30, 2021 are:

  • A $2.3 million ($1.7 million, net of tax, or $0.06 per share) charge for debt medication costs. On September 10, 2021, the company refinanced $112.8 million of the 2024 Notes by exchanging into $114.7 million (reflecting a call premium of 1.688%) of 2028 Notes. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with ASC 470 with $2.3 million of fees paid to third parties included in operating expenses for the period;
  • A $10.6 million ($7.8 million, net of tax, or $0.29 per diluted share) net gain on the disposition of assets relates to a $10.5 million pre-tax gain on the sale of land in Lewisville, Texas, and $0.1 million pre-tax gain on the sale of the Hilary Kramer Financial Newsletter and related assets as well as various other fixed asset disposals; and
  • A $0.1 million non-cash compensation charge ($0.1 million, net of tax) related to the expensing of stock options.

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 ($0.1 million, net of tax) related to the expensing of stock options.

Per share numbers are calculated based on 27,280,949 diluted weighted average shares for the quarter ended September 30, 2021, and 26,791,353 diluted weighted average shares for the quarter ended September 30, 2020.

Year to Date 2021 Results

For the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020:

Consolidated

  • Total revenue increased 10.1% to $189.1 million from $171.8 million;
  • Total operating expenses decreased 12.1% to $163.3 million from $185.9 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, debt modification costs, depreciation expense and amortization expense (1) increased 3.7% to $161.6 million from $155.9 million;
  • The company had operating income of $25.8 million compared to an operating loss of $14.1 million;
  • The company generated net income of $24.7 million, or $0.91 net income per diluted share compared to a net loss of $57.4 million, or $2.15 net loss per share;
  • EBITDA (1) was $46.7 million as compared to a loss of $3.5 million;
  • Adjusted EBITDA (1) increased 73.4% to $27.5 million from $15.9 million; and
  • Net cash provided by operating activities decreased 36.3% to $14.7 million from $23.1 million.

Broadcast

  • Net broadcast revenue increased 8.0% to $140.4 million from $130.0 million;
  • SOI (1) increased 32.0% to $33.5 million from $25.3 million;
  • Same station (1) net broadcast revenue increased 8.1% to $139.5 million from $129.0 million; and
  • Same station SOI (1) increased 27.4% to $33.5 million from $26.3 million.

Digital media

  • Digital media revenue increased 7.9% to $30.6 million from $28.4 million; and
  • Digital media operating income (1) increased 1.7% to $5.3 million from $5.2 million.

Publishing

  • Publishing revenue increased 35.4% to $18.1 million from $13.4 million; and
  • Publishing Operating Income (1) was $1.2 million compared to an operating loss of $3.1 million.

Included in the results for the nine months ended September 30, 2021 are:

  • A $2.3 million ($1.7 million, net of tax, or $0.06 per share) charge for debt medication costs. On September 10, 2021, the company refinanced $112.8 million of the 2024 Notes by exchanging into $114.7 million (reflecting a call premium of 1.688%) of 2028 Notes. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with ASC 470 with $2.3 million of fees paid to third parties included in operating expenses for the period;
  • A $10.6 million ($7.8 million, net of tax, or $0.29 per diluted share) net gain on the disposition of assets relating to a $10.5 million pre-tax gain on the sale of land in Lewisville, Texas, a $0.5 million pre-tax gain on the sale of Singing News Magazine and Singing News Radio and a $0.1 million pre-tax gain on the sale of the Hilary Kramer Financial Newsletter and related assets offset by $0.4 million additional loss recorded at closing on the sale of radio station WKAT-AM and FM translator in Miami, Florida and various fixed asset disposals; and
  • A $0.2 million non-cash compensation charge ($0.2 million, net of tax, or $0.01 per share) related to the expensing of stock options.

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.

Per share numbers are calculated based on 27,217,382 diluted weighted average shares for the nine months ended September 30, 2021, and 26,683,363 diluted weighted average shares for the nine months ended September 30, 2020.

Balance Sheet

On September 10, 2021, the company exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of newly issued 7.125% Senior Secured Notes due 2028 (“2028 Notes.”) Contemporaneously with the refinancing, the company obtained commitments from the holders of the 2028 Notes to purchase up to $50 million in additional 2028 Notes (“Delayed Draw 2028 Notes,”) contingent upon satisfying certain performance benchmarks, the proceeds of which are to be used exclusively to repurchase or repay the remaining balance outstanding of the 2024 Notes. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with FASB ASC Topic 470. The company incurred debt issuance costs of $4.2 million, of which $2.3 million of third-party debt modification costs are reflected in operating expenses for the current period, $0.8 million is deferred with the Delayed Draw 2028 Notes, and $1.1 million, along with $3.0 million from the exchanged 2024 Notes, is being amortized as part of the effective yield on the 2028 Notes.

The company received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a per-location basis. The PPP loans were accounted for as debt in accordance with ASC 470. The loan balances and accrued interest were forgivable provided that the proceeds were used for eligible purposes, including payroll, benefits, rent and utilities within the covered period. The company used the PPP loan proceeds according to the terms and filed timely applications for forgiveness. During July 2021, the SBA forgave all but $20,000 of the PPP loans resulting in a pre-tax gain on the forgiveness of $11.2 million. The remaining PPP loan was repaid in July 2021.

Acquisitions and Divestitures

The following transactions were completed since July 1, 2021:

  • On July 27, 2021, the company sold the Hilary Kramer Financial Newsletter and related assets for $0.2 million to be collected in quarterly installments over the two-year period ending September 30, 2023.
  • On July 23, 2021, the company sold approximately 34 acres of land in Lewisville, Texas, currently being used as the transmitter site for Company owned radio station KSKY-AM, for $12.1 million in cash. The company will retain enough of the property in the southwest corner of the site to operate the station.
  • On July 2, 2021, the company acquired SeniorResource.com for $0.1 million of cash.
  • On July 1, 2021, the company acquired the ShiftWorship.com domain and digital assets for $2.6 million of cash.

Pending transactions:

  • On August 31, 2021, the company entered an agreement to sell approximately 77 acres of land in Tampa, Florida for $13.5 million. The company will move the transmitter for WTBN-AM and diplex it at its owned and operated WGUL-AM facility. The company expects to close on this transaction by the end of the year.
  • On August 23, 2021, the company entered an agreement to sell just over nine acres of land in the Denver area for $8.2 million. The company expects to close this sale early in 2022 and plans to continue broadcasting both KRKS-AM and KBJD-AM from this site.
  • On June 2, 2021, the company entered into an agreement to acquire radio station KKOL-AM in Seattle, Washington for $0.5 million. The company paid $0.1 million of cash into an escrow account and began operating the station under a Local Marketing Agreement (“LMA”) on June 7, 2021.
  • On February 5, 2020, we entered into an agreement with Word Broadcasting to sell radio stations WFIA-AM, WFIA-FM and WGTK-AM in Louisville, Kentucky for $4.0 million with credits applied from amounts previously paid, including a portion of the monthly fees paid under a Time Brokerage Agreement (“TBA”). Due to changes in debt markets, the transaction was not funded, and it is uncertain when, or if, the transaction will close. Word Broadcasting continues to program the stations under a TBA that began in January 2017.

Conference Call Information

Salem will host a teleconference to discuss its results on November 4, 2021 at 4:00 p.m. Central Time. To access the teleconference, please dial (877) 524-8416, and then ask to be joined into the Salem Media Group Third Quarter 2021 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 18, 2021 and can be heard by dialing (877) 660-6853, passcode 13722694 or on the investor relations portion of the company’s website, located at investor.salemmedia.com.

Follow us on Twitter @SalemMediaGrp.

Fourth Quarter 2021 Outlook

For the fourth quarter of 2021, the company is projecting total revenue to be between flat and an increase of 2% from fourth quarter 2020 total revenue of $64.5 million. Excluding the impact of $3.5 million in political revenue in fourth quarter of 2020, we are projecting revenue to increase between 6% and 8%. Compared to the fourth quarter of 2019, we are projecting revenue to be between flat and an increase of 2%. The company is also projecting operating expenses before gains or losses on the sale or disposal of assets, stock-based compensation expense, changes in the estimated fair value of contingent earn-out consideration, impairments, depreciation expense and amortization expense to increase between 1% and 4% compared to the fourth quarter of 2020 non-GAAP operating expenses of $54.6 million. Compared to the fourth quarter of 2019, we are projecting expenses to also increase between 1% and 4%.

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 are 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,

2020

2021

2020

2021

(Unaudited)

Net broadcast revenue

$

45,391

$

49,591

$

130,041

$

140,422

Net digital media revenue

9,808

10,645

28,355

30,603

Net publishing revenue

5,442

5,747

13,366

18,093

Total revenue

60,641

65,983

171,762

189,118

Operating expenses:

Broadcast operating expenses

34,283

37,463

104,704

106,968

Digital media operating expenses

7,144

8,269

23,123

25,280

Publishing operating expenses

5,814

5,213

16,443

16,844

Unallocated corporate expenses

3,849

4,284

11,909

12,764

Debt modification costs

2,347

2,347

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

(10

)

(12

)

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

17,254

Impairment of goodwill

307

Depreciation and amortization

3,428

3,215

10,686

9,671

Net (gain) loss on the disposition of assets

1,381

(10,607

)

1,494

(10,552

)

Total operating expenses

55,889

50,184

185,908

163,322

Operating income (loss)

4,752

15,799

(14,146

)

25,796

Other income (expense):

Interest income

1

1

1

Interest expense

(4,024

)

(4,026

)

(12,069

)

(11,887

)

Gain on the forgiveness of PPP loans

11,212

11,212

Gain (loss) on the early retirement of long-term debt

(56

)

49

(56

)

Net miscellaneous income and (expenses)

1

2

(45

)

87

Net income (loss) before income taxes

730

22,931

(26,210

)

25,153

Provision for income taxes

401

837

31,180

479

Net income (loss)

$

329

$

22,094

$

(57,390

)

$

24,674

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

$

0.01

$

0.82

$

(2.15

)

$

0.92

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

$

0.01

$

0.81

$

(2.15

)

$

0.91

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

26,683,363

26,870,664

26,683,363

26,825,483

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

26,791,353

27,280,949

26,683,363

27,217,382

Salem Media Group, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

December 31, 2020

September 30, 2021

(Unaudited)

Assets

Cash

$

6,325

$

23,781

Trade accounts receivable, net

24,469

24,429

Other current assets

15,002

15,641

Property and equipment, net

79,122

78,425

Operating and financing lease right-of-use assets

48,355

44,221

Intangible assets, net

347,547

346,779

Deferred financing costs

213

895

Other assets

3,538

4,042

Total assets

$

524,571

$

538,213

Liabilities and Stockholders’ Equity

Current liabilities

$

50,860

$

48,386

Long-term debt

213,764

208,559

Operating and financing lease liabilities, less current portion

47,847

43,259

Deferred income taxes

68,883

69,287

Other liabilities

7,938

8,124

Stockholders’ Equity

135,279

160,598

Total liabilities and stockholders’ equity

$

524,571

$

538,213

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

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

Deficit

Stock

Total

Stockholders’ equity, December 31, 2020

23,447,317

$

227

5,553,696

$

56

$

247,025

$

(78,023

)

$

(34,006

)

$

135,279

Stock-based compensation

78

78

Options exercised

185,782

2

390

392

Net income

323

323

Stockholders’ equity, March 31, 2021

23,633,099

$

229

5,553,696

$

56

$

247,493

$

(77,700

)

$

(34,006

)

$

136,072

Stock-based compensation

84

84

Net income

2,257

2,257

Stockholders’ equity,

June 30, 2021

23,633,099

$

229

5,553,696

$

56

$

247,577

$

(75,443

)

$

(34,006

)

$

138,413

Stock-based compensation

78

78

Options exercised

6,725

13

13

Net income

22,094

22,094

Stockholders’ equity, September 30, 2021

23,639,824

$

229

5,553,696

$

56

$

247,668

$

(53,349

)

$

(34,006

)

$

160,598

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2021

2020

2021

OPERATING ACTIVITIES

Net income (loss)

$

329

$

22,094

$

(57,390

)

$

24,674

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

Non-cash stock-based compensation

74

78

273

240

Depreciation and amortization

3,428

3,215

10,686

9,671

Amortization of deferred financing costs

214

264

675

690

Non-cash lease expense

2,281

2,180

6,745

6,527

Provision for bad debts

501

77

4,122

(248

)

Deferred income taxes

325

807

30,954

404

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

17,254

Impairment of goodwill

307

Gain on the forgiveness of PPP loans

(11,212

)

(11,212

)

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

(10

)

(12

)

Net (gain) loss on the disposition of assets

1,381

(10,607

)

1,494

(10,552

)

(Gain) loss on early retirement of long-term debt

56

(49

)

56

Changes in operating assets and liabilities:

Accounts receivable and unbilled revenue

(2,965

)

(488

)

2,565

(67

)

Inventories

89

(188

)

99

(412

)

Prepaid expenses and other current assets

(1,440

)

(899

)

(1,343

)

(1,218

)

Accounts payable and accrued expenses

4,151

2,143

5,871

2,596

Operating lease liabilities

(2,993

)

(2,386

)

(6,396

)

(7,317

)

Contract liabilities

(1,993

)

(528

)

5,274

782

Deferred rent income

(117

)

(83

)

(268

)

28

Other liabilities

1,050

6

2,254

41

Income taxes payable

(125

)

20

30

63

Net cash provided by operating activities

$

4,180

$

4,549

$

23,145

$

14,746

INVESTING ACTIVITIES

Cash paid for capital expenditures net of tenant improvement allowances

(1,040

)

(2,958

)

(3,565

)

(6,952

)

Capital expenditures reimbursable under tenant improvement allowances and trade agreements

(46

)

(119

)

(140

)

(138

)

Deposits on broadcast assets and radio stations

(100

)

Purchases of broadcast assets and radio stations

(600

)

Purchases of digital media businesses and assets

(400

)

(2,680

)

(400

)

(3,980

)

Proceeds from sale of assets

12,144

188

15,771

Proceeds from the cash surrender value of life insurance policies

2,363

Other

31

(413

)

(353

)

(1,227

)

Net cash provided by (used in) investing activities

$

(1,455

)

$

5,974

$

(1,907

)

$

2,774

FINANCING ACTIVITIES

Proceeds from 2028 Notes

114,731

114,731

Payments to repurchase or exchange 2024 Notes

(119,443

)

(3,392

)

(119,443

)

Proceeds from borrowings under ABL Facility

277

38,626

16

Payments on ABL Facility

(2,677

)

(34,452

)

(5,016

)

Proceeds from borrowing under PPP loans

11,195

Payments under PPP loans

17

17

Payments of debt issuance costs

(58

)

(1,902

)

(124

)

(1,921

)

Proceeds from the exercise of stock options

13

405

Payments on financing lease liabilities

(17

)

(16

)

(52

)

(48

)

Payment of cash distribution on common stock

(667

)

Book overdraft

(1,885

)

Net cash used in financing activities

$

(2,475

)

$

(6,600

)

$

(1,946

)

$

(64

)

Net increase (decrease) in cash and cash equivalents

$

250

$

3,923

$

19,292

$

17,456

Cash and cash equivalents at beginning of year

19,048

19,858

6

6,325

Cash and cash equivalents at end of period

$

19,298

$

23,781

$

19,298

$

23,781

Salem Media Group, Inc.

Supplemental Information

(in thousands)

 

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2021

2020

2021

(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, Debt Modification Costs and Depreciation and Amortization Expense (Recurring Operating Expenses)

Operating Expenses

$

55,889

$

50,184

$

185,908

$

163,322

Less debt modification costs

(2,347

)

(2,347

)

Less depreciation and amortization expense

(3,428

)

(3,215

)

(10,686

)

(9,671

)

Less change in estimated fair value of contingent earn-out

consideration

10

12

Less impairment of indefinite-lived long-term assets other

than goodwill

(17,254

)

Less impairment of goodwill

(307

)

Less net gain (loss) on the disposition of assets

(1,381

)

10,607

(1,494

)

10,552

Less stock-based compensation expense

(74

)

(78

)

(273

)

(240

)

Total Recurring Operating Expenses

$

51,016

$

55,151

$

155,906

$

161,616

Reconciliation of Net Broadcast Revenue to Same Station Net Broadcast Revenue

Net broadcast revenue

$

45,391

$

49,591

$

130,041

$

140,422

Net broadcast revenue – acquisitions

(264

)

(343

)

Net broadcast revenue – dispositions

(192

)

2

(635

)

(36

)

Net broadcast revenue – format change

(104

)

(216

)

(384

)

(561

)

Same Station net broadcast revenue

$

45,095

$

49,113

$

129,022

$

139,482

Reconciliation of Broadcast Operating Expenses to Same Station Broadcast Operating Expenses

Broadcast operating expenses

$

34,283

$

37,463

$

104,704

$

106,968

Broadcast operating expenses – acquisitions

(168

)

(206

)

Broadcast operating expenses – dispositions

(344

)

(14

)

(1,225

)

(199

)

Broadcast operating expenses – format change

(252

)

(209

)

(771

)

(593

)

Same Station broadcast operating expenses

$

33,687

$

37,072

$

102,708

$

105,970

Reconciliation of SOI to Same Station SOI

Station Operating Income

$

11,108

$

12,128

$

14,229

$

33,454

Station operating (income) loss – acquisitions

(96

)

(137

)

Station operating loss – dispositions

152

16

438

163

Station operating (income) loss – format change

148

(7

)

239

32

Same Station - Station Operating Income

$

11,408

$

12,041

$

14,906

$

33,512

Salem Media Group, Inc.

Supplemental Information

(in thousands)

 

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2021

2020

2021

(Unaudited)

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

Net broadcast revenue

$

45,391

$

49,591

$

130,041

$

140,422

Less broadcast operating expenses

(34,283

)

(37,463

)

(104,704

)

(106,968

)

Station Operating Income

$

11,108

$

12,128

$

25,337

$

33,454

Net digital media revenue

$

9,808

$

10,645

$

28,355

$

30,603

Less digital media operating expenses

(7,144

)

(8,269

)

(23,123

)

(25,280

)

Digital Media Operating Income

$

2,664

$

2,376

$

5,232

$

5,323

Net publishing revenue

$

5,442

$

5,747

$

13,366

$

18,093

Less publishing operating expenses

(5,814

)

(5,213

)

(16,443

)

(16,844

)

Publishing Operating Income (Loss)

$

(372

)

$

534

$

(3,077

)

$

1,249

The company defines EBITDA (1) as net income 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. The company defines Adjusted EBITDA (1) as EBITDA (1) before gains or losses on the disposition of assets, before debt modification costs, 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, before gain on the forgiveness of PPP loans, 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,

2020

2021

2020

2021

(Unaudited)

Net income (loss)

$

329

$

22,094

$

(57,390

)

$

24,674

Plus interest expense, net of capitalized interest

4,024

4,026

12,069

11,887

Plus provision for income taxes

401

837

31,180

479

Plus depreciation and amortization

3,428

3,215

10,686

9,671

Less interest income

(1

)

(1

)

(1

)

EBITDA

$

8,181

$

30,172

$

(3,456

)

$

46,710

Less net (gain) loss on the disposition of assets

1,381

(10,607

)

1,494

(10,552

)

Less debt modification costs

2,347

2,347

Less change in the estimated fair value of contingent

earn-out consideration

(10

)

(12

)

Plus impairment of indefinite-lived long-term assets

other than goodwill

17,254

Plus impairment of goodwill

307

Plus (gain) loss on early retirement of long- term

debt

56

(49

)

56

Plus net miscellaneous (income) and expenses

(1

)

(2

)

45

(87

)

Plus gain on the forgiveness of PPP loans

(11,212

)

(11,212

)

Plus non-cash stock-based compensation

74

78

273

240

Adjusted EBITDA

$

9,625

$

10,832

$

15,856

$

27,502

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,

2020

2021

2020

2021

(Unaudited)

Net cash provided by operating activities

$

4,180

$

4,549

$

23,145

$

14,746

Non-cash stock-based compensation

(74

)

(78

)

(273

)

(240

)

Depreciation and amortization

(3,428

)

(3,215

)

(10,686

)

(9,671

)

Amortization of deferred financing costs

(214

)

(264

)

(675

)

(690

)

Non-cash lease expense

(2,281

)

(2,180

)

(6,745

)

(6,527

)

Provision for bad debts

(501

)

(77

)

(4,122

)

248

Deferred income taxes

(325

)

(807

)

(30,954

)

(404

)

Change in the estimated fair value of contingent earn-out

consideration

10

12

Impairment of indefinite-lived long-term assets other than

goodwill

(17,254

)

Impairment of goodwill

(307

)

Gain on forgiveness of PPP loans

11,212

11,212

Net gain (loss) on the disposition of assets

(1,381

)

10,607

(1,494

)

10,552

Gain (loss) on early retirement of long-term debt

(56

)

49

(56

)

Changes in operating assets and liabilities:

Accounts receivable and unbilled revenue

2,965

488

(2,565

)

67

Inventories

(89

)

188

(99

)

412

Prepaid expenses and other current assets

1,440

899

1,343

1,218

Accounts payable and accrued expenses

(4,151

)

(2,143

)

(5,871

)

(2,596

)

Contract liabilities

1,993

528

(5,274

)

(782

)

Operating lease liabilities (deferred rent)

2,993

2,386

6,396

7,317

Deferred rent revenue

117

83

268

(28

)

Other liabilities

(1,050

)

(6

)

(2,254

)

(41

)

Income taxes payable

125

(20

)

(30

)

(63

)

Net income (loss)

$

329

$

22,094

$

(57,390

)

$

24,674

Plus interest expense, net of capitalized interest

4,024

4,026

12,069

11,887

Plus provision for income taxes

401

837

31,180

479

Plus depreciation and amortization

3,428

3,215

10,686

9,671

Less interest income

(1

)

(1

)

(1

)

EBITDA

$

8,181

$

30,172

$

(3,456

)

$

46,710

Plus net (gain) loss on the disposition of assets

1,381

(10,607

)

1,494

(10,552

)

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

consideration

(10

)

(12

)

Plus debt modification costs

2,347

2,347

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

goodwill

17,254

Plus impairment of goodwill

307

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

56

(49

)

56

Plus gain on the forgiveness of PPP loans

(11,212

)

(11,212

)

Plus net miscellaneous (income) and expenses

(1

)

(2

)

45

(87

)

Plus non-cash stock-based compensation

74

78

273

240

Adjusted EBITDA

$

9,625

$

10,832

$

15,856

$

27,502

Less net cash paid for capital expenditures (1)

(1,040

)

(2,958

)

(3,565

)

(6,952

)

Less cash paid for taxes

(201

)

(10

)

(196

)

(13

)

Less cash paid for interest, net of capitalized interest

(133

)

(2,239

)

(7,737

)

(9,634

)

Adjusted Free Cash Flow

$

8,251

$

5,625

$

4,358

$

10,903

(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

Applicable
Interest Rate

September 30, 2021

Senior Secured Notes due 2028 (1)

$

114,731,000

7.125%

Senior Secured Notes due 2024 (2)

$

98,815,000

6.750%

(1) $114.7 million notes with semi-annual interest payments at an annual rate of 7.125%.

(2) $98.8 million notes with semi-annual interest payments at an annual rate of 6.750%.

Contacts:

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

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