Salem Media Group, Inc.

Greetings. Welcome to the Salem Media Group Inc. Third 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 this conference is being recorded. I will now turn the conference over to your host, Evan Masur, Chief Financial Officer. You may begin.

Welcome and thank you for joining us today for Salem Media Group's third 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 David Santrella, President of Broadcast Media, and David Evans, President of Interactive and Publishing, Edward Atzinger, Chief Executive Officer is unable to join the call today as he had a last-minute conflict and had to travel to an important business meeting. We'll begin in just a moment with our prepared remarks. Once we're 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 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 our website at www.sammedia.com. I would now like to turn the call over to David Santrella. Dave? Thanks, Evan, and thanks all for being on today's earnings call. I'll start the call with a review of our third quarter financial results with a focus on the improvement in Salem's financial performance as the economy rebounds following the COVID-related shutdowns, as well as the growth in Salem's overall digital business. I'll then turn the call over to David Evans to review the performance of our National Digital Division and Publishing Division, and then Evan Masur will conclude our prepared remarks by giving more details on the financial results, providing an update on recent M&A activity, discussing the substantial improvement in Salem's leverage ratio and our recent successful refinancing, and concluding with guidance for the fourth quarter. For the third quarter of 2021, total revenue increased 8.8%, expenses increased 8.1%, resulting in an adjusted EBITDA increasing 12.5%. Despite Q3 2020 being soft due to the pandemic, we did have two meaningful revenue drivers in the third quarter of last year. First, we had $1.9 million of political revenue as compared to only $400,000 in the third quarter of this year. Additionally, we had $1.7 million in revenue on Salem Now from the Uncle Tom film with no comparable movie in Q3 2021. When you factor out those significant 2020 revenue items, third quarter total revenue grew 14.8% in 2021 as compared to last year. Because 2020 is a difficult year to compare to, we're more focused internally on comparisons to 2019 performance, even though the economy is not yet fully reopened. When comparing to 2019, total revenue increased 2.9%. Expenses increased 0.1%, resulting in an adjusted EBITDA increase of 20.3%. It's also worth looking at where we are on a year-to-date basis compared to 2019. Through nine months, total revenue is down 0.1%. Expenses are down 0.6%, but adjusted EBITDA is actually up 2.7%. We're very pleased that Salem has reached the pre-pandemic levels of revenue and EBITDA that the industry has been shooting for. On the last several calls, we've highlighted our digital revenue performance, and I think it bears repeating again. In the third quarter, our total combined digital revenue, that is the digital revenue within the broadcast division plus the revenue from the national digital division, increased 10.8% to $19.5 million today. That means 29.5% of our total revenue in the third quarter is digital, and we expect that percentage to continue to increase. David will discuss the national division in a few moments, but it's worth discussing the growth of 13.6% in digital revenue in the broadcast division. Compared to 2019, this revenue is up 135.6%. The Salem Podcast Network, which was launched at the beginning of this year, had revenue in the third quarter of $1.8 million. And we continue to add high profile names to the lineup. Most recently we added former Trump attorney, Jenna Ellison, former Congressman from Georgia, Doug Collins. Um, I'll provide an overview of the financial performance of the broadcast division for the third quarter of 2021 broadcast revenue increased 9.3% when compared to the third quarter of 2020. Again, I think it's more meaningful comparison. When we look at third quarter of 2019, when comparing to those pre-pandemic numbers, total broadcast revenue was up 4%. Local spot advertising increased 12.6%, while national spot decreased 5.2%. These were impacted by political advertising last year. Excluding political, local advertising would have increased 15.1%, and national advertising revenue would have been up 0.9%. Advertising is not back to 2019 levels due to the economy. Comparing to 2019, total spot advertising decreased 15.6% in the quarter. National block programming was up 6.6% in the third quarter as compared to last year, while local block programming was up 9.1%. In total, block programming was up 7.4% compared to last year and declined 4.8% compared to the third quarter of 2019. We're just beginning our annual rate renewal process with the national ministries. We expect our increased rates to be in the 3% range. Renewals will run as they typically do, over 95%. But perhaps the very best news is that there's significant increased demand for the limited available airtime from new ministries, as well as from some existing ministries that want to increase their radio footprint. Revenue from our network operations was essentially flat, up 0.3% in the third quarter compared to last year. As you'll likely recall, one of our nationally syndicated hosts, Larry Elder, decided to run for governor of California during the recent recall election. When he announced his candidacy, he had to step down from his show. While his replacement, Carl Jackson, did a terrific job filling in for Larry, we nonetheless had a slight decrease in revenue. While Larry overwhelmingly led all candidates running, Larry garnered 48.5% of the votes, and the next highest candidate received 9.6%, the recall effort ultimately failed. We're disappointed Larry's not the governor, as we think he would have done a fantastic job, but we're glad he's back doing his radio show. We expect his run for governor will have a favorable impact on his listenership and future revenue potential. Expenses in the broadcast division were up 9.3%, resulting in an increase in station operating income of 9.2%. The expense increase was due in large part to expenses associated with Salem Podcast Network, which started operating in January of this year, and due to an increase in sales commissions, which is probably a good thing. When compared to 2019, expenses were up only 0.4%, and SOI was up 17%. And with that, I'll turn the call over to David Evans.

Thank you, Dave. Turning to our National Digital Division, revenue increased by 8.5% compared to the third quarter of 2020 and increased 16.4% when compared to the third quarter of 2019. This revenue growth was led by increases in our Salem Church Products business unit due to increased job postings at churchstaffing.com and the recent acquisitions of Centerline Media and Shift Worship. Additionally, we had growth in our financial newsletter business, principally from the Retirement Watch newsletter, as well as good revenue growth at our Christian ad-supported websites due to better programming advertising rates than a year ago. Expenses in the National Digital Division increased 15.7% due to increased marketing costs as well as expenses related to the recent acquisitions. Finally, the publishing division had a revenue increase of 5.6% compared to Q3 2020. Revenue from self-publishing was up 18.8% in the quarter due to an expanded sales force that was able to sell more books. Revenue at Regnery, our traditional book publisher, was up 9.2% compared to last year due to some very good books getting published in the third quarter. Comparing to 2019, revenue in the publishing division was down 21%, but that was due to a particularly strong lineup of books in Q3 2019. Looking ahead to the fourth quarter of 2021, we've got some good books in the process of being published, particularly Pandemia by Alex Berenson Is Atheism Dead by Eric Metaxas, as well as the Babylon Bee Guide to Wokeness. Publishing expenses were down 10.3% due to the sale of our magazine business earlier in the year. And I'll now turn the call back to Evan Mason.