Salem Media Group, Inc.

Greetings and welcome to the Salem Media Group first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to your host, Evan Masur, Executive Vice President and Chief Financial Officer. Thank you. You may begin.

Welcome and thank you for joining us today for Salem Media Group's first quarter 2021 earnings call. As a reminder, if you get disconnected at any time, you can dial back in or listen from our website at www.salemmedia.com. Joining me on the call today are Edward Atzinger, 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 have done, the conference call operator will come back on the line to instruct you on how to submit questions. Please be advised that statements made on this call that relate to future plans, events, financial results, prospects, or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on currently available information. Actual results may differ materially from those anticipated, and reported results should not be considered an indication of future performance. We do not intend and undertake no obligation to update our forward-looking statements, including forecasts of future performance, the potential for growth of existing markets, the opening of new markets, or the potential growth from future acquisitions. This conference column 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 salemedia.com. With that, I will now turn the conference call over to Edward Atzinger.

Ed? Thank you, Evan, and thanks to all of you for being on today's call. I'm pleased to say that Salem's business continues to recover, and the first quarter of 2021 was the best performing quarter we've seen since the start of the pandemic. In my prepared remarks, I'll focus on our Q1 financial results, our continued growth in digital, and an update on our M&A. I'll then turn the call back to Evan. He'll provide more detail on Q1 financial performance, and we will this year give guidance for Q2, and Evan will do that in his closing remarks. So then, for the first quarter of 2021, our total revenue increased by 1.9%. Expenses decreased by 6.2%, resulting in a 131.1% increase in adjusted EBITDA. Now, I recognize the financial performance in the first quarter of last year included the impact of the beginning of the COVID-19 pandemic. Specifically, beginning on March 16th of 2020, we started to see significant cancellations of ad revenue as businesses began to shut down. So you could dismiss the 131% growth in adjusted EBITDA as simply a comparison to a very low adjusted EBITDA in 2020, and there's some truth to that. However, what makes the 2021 adjusted EBITDA of $7.9 million a bit more noteworthy is the fact that it's actually 4% higher than the first quarter of 2019's adjusted EBITDA. It's also worth mentioning that included in first quarter expenses is an expense item of approximately $700,000, which represents a one-time bonus we paid to our employees. We decided to give back 25% of what our employees lost last year from the pay cuts that were made to deal with the COVID crisis. While neither the economy nor our businesses are backed to where we'd like them to be. We've made enough progress that we felt it was appropriate to show our appreciation to our employees for the tremendous work they've done helping us to navigate through the COVID-19 crisis. One area that has continued to drive our success is the growth in our digital revenue. On our last call, I discussed the recent launch of Salem Podcast Network that was launched with one podcast featuring Dinesh D'Souza. Since then, we've added podcasts featuring Charlie Kirk and Todd Starnes. And, of course, for many years, we've had the podcast product from all of our nationally syndicated hosts and some of our local hosts as well. Podcast revenue is ramping up nicely, and we expect to continue to see revenue growth as we add more high-profile personalities. Our overall digital revenue increased 24.6% to 16.7% in Q1. In total, digital revenue represented 28.1% of Salem's total revenue in Q1 2021. Included in Q1 digital revenue is Salem Podcast Network, Salem Surround, Salem Now, our over-the-top streaming movie business that was launched in the second quarter of 2020, and of course, our national digital division. Let's take a look at results by division to give you a little more perspective. For the first quarter of 2021, broadcast revenue decreased by 2.5% when compared to the first quarter of 2020. Remember that last year through two and a half months of the first quarter, there was no COVID impact. This year, the economy continues to remain partially closed, particularly in states like California, which is one of Salem's biggest radio markets. And you can see the impact on looking at broadcast revenue by month. January broadcast revenue was down 8.1% compared to prior year. February broadcast revenue was down 5.9%, while March broadcast revenue was actually up 6.3%. It's also worth noting that the 2.5% decline in broadcast revenue compares quite favorably to the overall broadcast market. which was down 13.6% in markets where we operate, according to Miller Kaplan. The strongest-performing segment within our broadcast division was broadcast local digital revenue, which includes the new digital initiative, Salem Surround, Salem Now, and Salem Podcast Network, all of which are continuing to make substantial progress, with a 64.7% increase in first-quarter local digital revenue. Additionally, our national network revenue had another solid quarter with revenue up 11%. This growth was driven by the addition of the Charlie Kirk Show, which was launched in October of 2020 by increased affiliates to America First with Sebastian Gorka and a growing affiliate list for Charlie Kirk. Spot advertising revenue in total was down 18% with a 21.7% decline in local advertising revenue and a 7.5% decline in national advertising revenue. This again can be explained by the fact that the economy was still completely open in January, February, and the first half of March last year, but it was still not fully opened up in Q1 2021. You can see it in the monthly numbers with total spot revenue down 26.3% in January, 28% in February, but up 1.2% in March. National block programming was down 4.8% in first quarter of 2021 as compared to first quarter of last year. When the pandemic started a little over a year ago, we did have a small number of cancellations, primarily from organizations that are dependent upon live in-person events to make up a significant portion of both their activities and their budget. Expenses in the broadcast division were down 10.7% due to reduced bad debt expense and lower employee-related costs due to lower sales commissions from reduced sales, salary savings from the layoffs that we made last year, a lot of reduced travel and entertainment costs, and some reduced health care claims. At our national digital division, revenue was up 5.7% driven by increases at Eagle Financial Publications, primarily in response to increased spending for marketing. There were also increases in revenue at church products, which has seen an increase in demand for its videos with church closures and virtual services, and also with the timing of Easter affecting it a bit, and increases in town hall VIP. These increases in revenue were partially offset by declines in page views at town hall media, which came off of a high traffic fourth quarter 2020 that included a presidential election. Expenses in the National Digital Division were up 4.2% due to the increased paid marketing of Eagle Financial, partially offset by layoffs and other cost savings instituted last year. Finally, revenue at our publishing division increased 43.4%. This growth was largely the result of increased book sales at Regnery due to a stronger book release schedule in the first quarter of this year as compared to last year. In particular, we had robust sales from The Enemy Within, or Enemy Within by David Horowitz, Fish Out of Water by Eric Lepaxis, and Fault Lines by Vadi Bakum. The second quarter should have a strong financial performance as well, as we just released Senator Josh Hawley's book, The Tyranny of Big Tech, two days ago. Despite the large growth in revenue, publishing expenses were up only 2.8%, again, due to cost savings measures that we implemented earlier last year. Before I wrap up my prepared remarks with a brief discussion on M&A, I want to mention that we applied for and received $11.2 million in loans under the federal government's Paycheck Protection Program. We will be using all of the funds for prescribed expenses in order that we can get the loans forgiven. With respect to M&A, we've made a few interesting acquisitions to report. On February 9th, we entered into an agreement to acquire two AM radio stations at the San Francisco market for $600,000. In our history, it's been a rare opportunity for us to acquire radio stations that are already in our strategic formats and that we don't have to reformat with existing cash flow. One of the AMs is in our foundational Christian teaching and talk format, and the other one is in an urban gospel format. This opportunistic acquisition will be immediately de-levering. We expect to close this transaction during the second quarter. Also, on April 28th, we acquired the Centerline New Media domain and digital assets for $1.3 million in cash. The digital content library will be operated within our church products division. With respect to sales, on March 18th, we closed on the sale of WKATAM in Miami for $3.5 million in With this disposition, we've exited the Miami market. Additionally, on April 20th, we entered into an agreement to sell Singing News magazine and the network Singing News radio for $127,000 plus the deferred subscription liability of approximately $400,000. We expect this to close later this month. Finally, on April 10th, we entered into an agreement to sell approximately 34 acres of land in the Dallas metro area for $12.1 million. We will retain enough of the property in the southwest corner of the site to operate our stations there, and there will be a due diligence period and the satisfaction of several contingencies, but we fully expect to close this transaction in the early part of the third quarter. I've mentioned exploring other opportunities in prior calls. There are other real estate transactions under consideration that look promising. And I will certainly update you on future calls on anything that develops in that area. So let me conclude my prepared remarks with some final thoughts. 2020 was a very challenging year due to COVID-19. As a result, Salem has taken significant financial hit that caused our leverage to increase from just over six immediately prior to COVID to a high of almost nine. But as a result of our unique features of our block programming business model and the significant growth of Salem's digital business, our losses were much less than most, if not all, of our radio peers. With the rollout of the vaccines and the reopening of the economy, our financial results are bouncing back with terrific financial results in Q1 2021. And as you will hear from Evan in just a moment, encouraging guidance for Q2. Add to this the $1.2 million in forgivable PPP loans and the Dallas land sale plus other land sales we're working on, we're on a clear path to getting our leverage significantly improved in very short order. And with that, I'll turn the call back to Evan for additional details on the quarter's performance and to give you guidance for Q2. Evan?