Salem Media Group, Inc.

Ladies and gentlemen, good afternoon. My name is Abby and I will be your conference operator today. I would like to welcome everyone to the Salem Media Group Incorporated third quarter 2022 earnings call. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 once again. Thank you, and I will now turn the conference over to Evan Masur, Chief Financial Officer. You may begin.

Thank you, Abby, and thank you all for joining us today for Salem Media Group's third quarter 2022 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. In the room with me today is David Evans, Chief Operating Officer. David Santrella, Chief Executive Officer, is traveling this week, but is also on the phone as well. We will 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. 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 security Relegation 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. And this conference call also contains non-GAAP financial measures within the meaning of Regulation G, specifically Station Operating Income, or SOI, EBITDA, and adjusted EBITDA. 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. And with that, I will now turn the call over to Dave Santrella.

Thanks, Evan, and thanks, everybody, for joining us on the call today. Today, we'll review Salem's third quarter financial results and provide a brief M&A update. I'll turn the call back to Evan to provide more details on third quarter financial performance and give guidance for the last quarter of the year. Let me start by saying that this was a very challenging quarter, to say the least. Total revenue increased 1.3%. Expenses increased 17.2% and adjusted EBITDA decreased 78.8%. While those numbers are obviously disappointing, there were a few one-time items impacting the quarter, all of which have previously been publicly announced. First, we had to push back the release date of the 2000 Mules book by Dinesh D'Souza from the third quarter to the fourth quarter. Additionally, the results from the release of Uncle Tom 2 were much less than expected. That was a movie. And finally, on September 26th, we settled a lawsuit for $5.3 million. While we adamantly deny the allegations that were made, we nevertheless believe settling the lawsuit was preferable to uncertain and costly litigation and in the best interests of the company. On top of these one-time items, the economy, as you know, is weakening. Before getting into performance by division, let me talk about the performance of digital revenue as a whole, the digital revenue within the broadcast division plus the national digital division. Combined digital revenue represents 29% of our total revenue and was down 0.5% in the quarter. The decline in revenue was due to the softening advertising market that we're starting to see across most of our businesses. Digital, however, continues to be the company's top growth initiative as Salem continues its evolution into a multimedia company. Nevertheless, there were a number of positive developments in the quarter. Total revenue was up 1.3%, and broadcast revenue was up 3.1%. Despite the headwinds I just mentioned, Salem continues to outperform its pre-pandemic numbers with total revenue up 4.3% and broadcast revenue up 7.3% above the third quarter of 2019. Now I'll review each division's performance in the third quarter. In the broadcast division, revenue was up 3.1% compared to the third quarter of last year. According to Miller Kaplan, this is well above the industry, which was down 1.5% in the markets in which we operate. Political revenue is driving much of this growth. In the third quarter, we recognized $1.5 million in political revenue compared to only $0.4 million in the third quarter of last year. On a year-to-date basis, we're still pacing above where we were in the last two election cycles. In 2020, we had $3.1 million in political revenue through September and $3 million in political revenue through September of 2018. This year, We've booked $3.8 million in political revenue for September. While it's still difficult to predict where all the political spending will be, Salem certainly is poised for a good year in political revenue. Despite this robust political revenue, traditional spot advertising was down 0.9%, with national spot advertising increasing 5.7% and local spot advertising declining 3%. There is, as you know, a slowdown in spot advertising due to the current economic environment. Block programming, which is a unique component to Salem's business model, continues to show resiliency with revenue up 5% in the quarter. This growth is being led by national Christian ministry revenue, which is up 9.1% due to an ongoing increased demand and programming time from both new ministries and existing ministries, looking to grow their footprint and their impact. Digital revenue within the broadcast division, which encompasses Salem Surround, the Salem Podcast Network, and Salem Now, grew 4.2% during the quarter. The macroeconomic conditions resulted in lower growth rate as compared to previous quarters. Network revenue was up 16.6% in the quarter, due in large part to the increases in political revenue. Broadcast expenses increased 9.9%, driven primarily by the costs associated with the rollout of the Salem News Channel, the reinstatement of the 401k match, and expenses associated with more listener events, which were held during the quarter. Let me now discuss Salem's National Digital Division, where revenue declined 4.3% compared to the third quarter of last year. Much of the revenue decline is a result of Facebook making changes to its algorithm, leading to a significant decline in traffic for Facebook to Salem's conservative opinion websites. Additionally, a number of browsers and mobile devices are increasingly blocking access to third-party cookie information, which is hurting CPMs. Finally, the weakening economy has put pressure on digital revenues with less advertiser demand for digital inventory. Digital expenses were up only 0.8% due to very careful cost management. Revenue at our book publishing division was down 3.7% in the third quarter. As we announced in late August, we moved the release of the Dinesh D'Souza book, 2000 Mules, from Q3 to Q4, which negatively impacted our third quarter revenues. In addition to the 2000 Mules book, we have two other titles that we expected to perform well in the fourth quarter. Justice Corrupted by Ted Cruz, and The Rational Bible, Deuteronomy by Dennis Prager. Publishing expenses were up 25.5% largely due to the fact that we had to recall the copies of 2,000 mules that were printed in Q2 and destroy them. While we did not close on any acquisitions or dispositions during the quarter, we do have some M&A and activity to report. We recently entered into two separate agreements to buy radio stations in Miami, Florida. First, we'll be acquiring WMYM 990AM and the related transmitter site for $5 million. In a separate transaction, we're buying WWFEAM 670 and WRHCAM 1550 and the related transmitter site for an additional $5 million. All three stations have FM translators. We expect both transactions to close around the beginning of 2023. These stations will be formatted with Spanish language conservative news talk program. Additionally, on October 1st, we acquired the day trade spy investment website for $0.6 million. And with that, I'll turn the call back to Evan for additional details on the quarter's performance and guidance for Q4.