Salem Media Group, Inc.

Good afternoon, ladies and gentlemen. Welcome to the Salem Media Group Q4 2022 earnings conference call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad, and if you would like to withdraw your question, you can press star 1 again. And now this time, I'll turn things over to Mr. Evan Masur, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, and thank you all for joining us for Salem Media Group's fourth 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 are David Santrella, Chief Executive Officer, and David Evans, Chief Operating Officer. We will begin in just a moment with our prepared remarks. 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 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 in 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 salemmedia.com. And with that, I will now turn the call over to Dave Santrella. Dave?

Thanks, Evan, and thanks all for being a part of the call today. Today we'll review Salem's fourth quarter results, discuss some new developments with respect to our debt, and provide a brief M&A update. I'll then turn the call back to Evan to provide more details on fourth quarter financial performance and to give guidance for the first quarter of 2023. One theme that you'll hear throughout the call today is the slowing down of the overall economy and its impact on Salem, particularly on ad-driven revenue. Total revenue for the fourth quarter was down 0.5%, expenses were up 5.7%, and adjusted EBITDA declined 33%. Before I review the results by division, I want to summarize our overall digital revenue for you. When you combine the digital revenue within the broadcast division and the national digital division, overall digital revenue was flat in the quarter and is nearly 30% of total revenue. The broadcast digital revenue grew 14%, while the more mature national digital division declined 10.3%. I will address that decline in a little bit. Despite the overall digital revenue being flat due to the softness in the economy, we still see digital revenue as the best source of future growth and where we will continue to invest our financial resources. Now I'll go over the financial performance in the fourth quarter in each division. Revenue in the broadcast division increased 4.5% in the fourth quarter compared to the fourth quarter of 2021. This growth is well above the industry, according to Miller Kaplan, which shows industry growth of 1.6% in the markets where we operate. One of the drivers growing revenue in the fourth quarter, both for us and the overall industry, was political revenue. We recognize $2.1 million in political in the fourth quarter compared to just 0.5 million in the fourth quarter of 2021. For the year, we had $5.9 million in political revenue, which is the highest level of political revenue in a midterm election for Salem. The political revenue is seen principally in national spot, which is up 7.7%, and network revenue up 11.3%. local spot advertising was down 4.3% due to the weak economy. I'm pleased to report that our block programming revenue was up 3.4% in the quarter. Remember that block programming is a unique component to Salem's business model and has routinely shown resiliency during recessionary times. This growth is being led by national Christian ministry revenue, which was up 4.8% in the quarter and 9.7% for the year. This is due to ongoing increased demand for limited programming time. I already talked about our combined digital revenue within the broadcast division. Digital revenue, which encompasses Salem Surround, the Salem Podcast Network, Salem Now, and the Salem News Channel, increased 14% during the quarter. Because we believe this is our biggest growth opportunity, we are investing further in these initiatives. Broadcast expenses increased 11.4%, driven by our continued investment in the Salem News Channel, the 401 match, which was reinstituted in the beginning of 2022, and the impact of a bad debt credit in the fourth quarter of 2021. Revenue at Salem's National Digital Division declined 10.3% compared to the fourth quarter of 2021. Similar to last quarter, the revenue decline is due to Facebook and the demise of the third-party cookie. In July, Facebook implemented changes to its algorithm to feature less political content. This has led to a significant decline in traffic from Facebook to Salem's conservative opinion websites. Also, many browsers and mobile devices are blocking access to third-party cookie information which is hurting digital advertising CPMs. On top of these two issues, the weak overall economy is also putting pressure on digital advertising revenues. Digital expenses were up 1.8% due to cost management initiatives. Revenue at our book publishing division declined 21.3% in the fourth quarter. We had a light book release schedule compared to a strong book schedule in the fourth quarter of 2021. Our top books in the fourth quarter of 2022 were Justice Corrupted by Ted Cruz and Letter to the American Church by Eric Metaxas. As is normally the case, there is not a strong book release schedule in the first quarter. The three biggest titles are Dining with the Saints by Leo Pantalinghob, and Michael Foley, Scalia, by James Scalia sorry Scalia by James Rosen and how to save the West by Spencer clayton as well as strong ongoing sales of books by Eric Metaxas publishing expenses were down 10.6% due to the related decline in revenue. I want to provide an update on our capital structure last month we exercise the delayed drawback stop we negotiated back in September 2021. We will be issuing $44.7 million in new 7.125% 2028 notes to take out the remaining 6.75% 2024 notes. We have initiated the call of the 2024 notes through our trustee and expect everything to close by the end of the month. After the close, we will have access to approximately $4 million to pay down the ABL revolver. I want to shift our discussion to M&A activity. On October 1st, we acquired the DTrade Spy financial newsletter for $600,000. Also, on December 1st, we closed on the acquisition of KKOL-AM in Seattle for $500,000. Finally, on December 30th, we purchased ISI Publishing for $425,000. In January, we closed on the purchase of three Miami radio stations. W-M-Y-M-A-M, W-W-F-E-A-M, and W-R-H-C-A-M for $10 million. Salem paid $6.3 million for the FCC licenses and related broadcast assets, and Edward Atzinger, Salem's executive chairman, paid $3.7 million for the transmitter sites. The company entered into an agreement whereby the company is able to acquire the land from Ed for the same price Salem could have purchased the land from the radio station sellers. This was done to preserve liquidity for the company. On February 1st, we closed on the acquisition of the George Gilder Report and other digital newsletters and related websites. We did not pay any cash at closing for this transaction, but assumed the deferred subscription liabilities and will pay 25% of certain future subscriptions. And with that, I'll turn the call back to Evan for additional details on the quarter's performance and guidance for Q1.