Salem Media Group, Inc.

This is Evan Masur. I'm the CFO of Salem Media Group, and I thank you all for joining us today for our first quarter 2023 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. I'm joined on the call by David Santrella, Chief Executive Officer, and David Evans, Chief Operating Officer. We'll begin in just a moment with our prepared remarks. I'll be staying on the line, and I will 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, and Adjusted EBITDA. In conformity with Regulation G, information required to accompany the disclosure of non-GAAP financial measures is available on the investor relation portion of our website at salemmedia.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. I'll start my prepared remarks with a review of Salem's first quarter results. I'll discuss some M&A and provide an update on our debt. I'll then turn the call back to Evan to provide more details. on the first quarter financial performance and give guidance for the second quarter. Overall, total revenue for the first quarter increased 1.4%, expenses were up 11.4%, and adjusted EBITDA declined 79.6%. Based on this performance and recognizing the state of the economy, we made the difficult but necessary decision in late March to lay off 44 positions representing about 3% of our workforce in addition to cutting other expenses. In total, we expect to save approximately $5 million annually through these cost containment actions. The associated severance cost in the first quarter was $0.4 million. As I've done on recent calls, I want to summarize our digital revenue to remind you of the magnitude of our overall digital footprint. When we combine digital revenue included in the Broadcast Division with the National Digital Division, Overall digital revenue increased 6.4% in the first quarter and now represents 31% of our total revenue. We continue to invest in digital and see it as the best opportunity for continued growth. Now I'll review the financial performance of each division in the first quarter. The broadcast division had a slight decrease of 0.2% in Q1. While it is a decline, it is noticeably better than the overall industry, which, according to Miller Kaplan, declined 2.8% in the markets where we operate. The biggest cause of the decline for both us and for the industry is traditional spot revenue. We saw national spot increase by 20.7%, while local spot decreased by 8.3%. This is due to the weakness in the broader economy, which is causing advertiser pullback. National block programming increased 3.6%, once again showing its resilience during challenging economic times. I mentioned earlier that overall digital revenue rate of 6.4% growth. Digital revenue within the broadcast division increased 12%. This included results from Salem Surround, the Salem Podcast Network, and the Salem News Channel. We're continuing to invest in these businesses to continue their growth. Network revenue also had very nice improvements, growing revenue by 5.9%. This growth came from a number of our network shows that are continuing to grow in popularity. On the expense side, broadcast expenses increased 12.3%, largely due to the continued investment in the Salem News Channel and our other digital initiatives. As I said earlier, we have eliminated a number of positions and have scaled back certain planned investments. Revenue at Salem's National Digital Division increased 2% in Q1. We're still facing some significant headwinds from the demise of the third-party cookie and algorithm changes made by Facebook to present less political-related content. That change has led to a decline of approximately 80% in Facebook traffic on Town Hall and our other conservative news and opinion websites. Additionally, advertising dollars have declined due to the softness in the overall economy. Offsetting these declines, however, is revenue associated with the acquisition of the George Gilder line of investment products in February 2023. Expenses in the digital division increased 6.1%, primarily due to increased marketing. Book publishing revenue increased 19.7 in the first quarter of the year due to a strong backlist in sales. The biggest titles were Scalia by James Rosen, Letter to the American Church by Eric Metaxas, and One China Attacks by Colonel Grant Newsham. In the second quarter, we're publishing Manhood by Josh Hawley and Life After Capitalism by George Gilder. Expenses in the book publishing division were up 20.3%, primarily due to variable expenses from increased revenue and increased marketing and sales costs. On the M&A front, we closed on the purchase of three Miami radio stations in January, WMYM-AM, WWFE-AM, and WRHC-AM, and three translators for $6.3 million for the FCC licenses and related broadcast assets. We're formatting the stations in Spanish language, conservative news talk, and Christian talk formats. Also, on February 1st, we acquired the George Gilder line of investment products for no cash. We assumed the deferred subscription liability and will pay the seller 25% of the net revenue generated from the assets acquired for a period of one year. I want to conclude my prepared remarks with a brief update on our capital structure. In March, we issued $44.7 million in new 7.125% 2028 notes and use the net proceeds to take out the remaining 6.75% 2024 notes. We now have $159.4 million in 2028 notes in addition to our revolver, which had $18.2 million drawn as of March 31st. And with that, I'll turn the call back over to Evan for additional details on the quarter's performance and guidance for the second quarter.

Thank you, Dave. For the first quarter, total revenue increased 1.4% to $63.5 million. Operating expenses on a recurring basis increased 11.4% to $62.1 million. And adjusted EBITDA decreased to $1.4 million. Compared to last year, net broadcast revenue decreased 0.2% to $48.3 million. and broadcast operating expenses increased 12.3% to $42.8 million, resulting in station operating income of $5.5 million, a decrease of 46.4%. On a same station basis, net broadcast revenue decreased 0.5% to $48.1 million, and SOI decreased 41.6% to $6.0 million. These same station results include broadcast revenue from 98 of our 103 radio stations and the network operations, representing 99.6% of our net broadcast revenue. As of March 31st, total debt was $177.6 million, made up of $159.4 million of 7-8-2028 notes and $18.2 million outstanding on the asset-based loan facility. The leverage ratio was 6.19 as defined in Salem's credit agreements. On March 20, 2023, we issued $44.7 million in new 7.8% senior secured notes due 2028 at a discount for $41.9 million, resulting in an effective yield of 8.625%. We used a portion of the proceeds of this borrowing to redeem the remaining $36.5 million of 6.75% senior notes due 2024. The redemption of the 2024 notes closed on March 27th, 2023. We are currently working on a new revolver. Our current revolver matures in March of 2024. As soon as we have more information on this, we will certainly provide an update. Looking forward for the second quarter of 2023, Salem is projecting total revenue to decline between 5% and 7% from second quarter 2022 total revenue of $68.7 million. Salem is also projecting operating expenses before gains or losses on the sale or disposal of assets, stock-based compensation expense, legal settlement, changes in the estimated fair value of contingent earn-out consideration, impairments, depreciation expense, and amortization expense to increase between 3% and 6% compared to the second quarter of 2022 non-GAAP operating expenses of $60.0 million. Now this concludes our prepared remarks and we will answer any questions. So if you wish to ask a question, hit star one. If your question has been answered, hit star one to remove yourself from the queue. And with that, I think we can open the call to Michael Kopinski at Noble.