Salem Media Group Inc (SALM) 2017 Q1 法說會逐字稿

Greetings, and welcome to the Salem Media Group First Quarter 2017 Earnings Release and Teleconference.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Evan Masyr, Executive Vice President and Chief Financial Officer.

Thank you, Mr. Masyr.

You may begin.

Thank you, and -- welcome, and thank you, all of you for joining us today for Salem Media Group's First Quarter 2017 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.

With me today are Edward Atsinger, Chief Executive Officer; and David Evans, President of Interactive and Publishing.

David Santrella, President of Broadcast Media, is not in the room with us, but is on the call as well.

We'll 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 forecast of future performance, the potential for growth of existing markets, the opening of new markets or the potential growth from future acquisitions.

More information on risks and uncertainties that may affect our business and financial results are included in our annual report on Form 10-K and other public filings we have made with the Securities and Exchange Commission.

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 salemmedia.com.

With that, I will now turn the conference call over to Edward Atsinger.

Thank you, Evan.

Thanks to all of you for joining us for today's conference call.

As usual, my prepared remarks will cover the financial results during the first quarter of 2017, some recent acquisition activity and conclude with a brief update on leverage, dividends and free cash flow.

I'll then turn the call back to Evan to provide additional detail on first quarter performance before he discusses guidance for the second quarter of 2017.

For the first quarter, total revenue increased 0.6%.

Expenses were up 0.9%, resulting in a 0.9% decrease in adjusted EBITDA.

At first glance, these numbers may appear to be soft, but we actually are quite pleased with the numbers, given some timing issues that tend to distort Q1 performance.

Most of you know that political years are big -- make big difference for a broadcast companies like ours.

We do very well in presidential years relative to other years in terms of election-related spending.

We do quite well in midterm elections.

Nonelection years, though, we're not -- are also not equal.

The elect -- the nonelection year prior to the presidential election year always does better than the election year prior to the midterm.

And that's simply because the presidential election cycle starts early, and a lot of that money flows back to the year prior.

In fact, if you'll recall, in the first quarter of 2016, there were still quite a number of candidates vying for the Republican nomination, and a good bit of political spending took place that we were the beneficiary of.

The nonelection year prior to a midterm, of course, is the one that is most disadvantaged vis-à-vis election spending.

So we'd like to look at the underlying strength of the quarter.

And when we do, we normally try to factor out timing issues like political spend.

And so when you look at the numbers in that context, they look better to us.

As you'll recall, as I said, we had a strong first quarter 2016, with a good bit of spending.

We recorded $1.2 million in political revenue last year, Q1, as compared to $100,000 in the first quarter of this year.

So that puts it in further perspective.

Additionally, Easter was in the second quarter in 2017 but was in the first quarter 2016.

Easter does impact our Christian commerce business, a significant impact.

So if you exclude these 2 timing issues, total revenue would have been up 3% and adjusted EBITDA would have increased 10%.

So as I say, we're pleased with the performance.

We think the underlying strength was demonstrated.

Let me break down these results by division.

Broadcast revenue declined 1.9%, again impacted by a meaningful amount of political revenue in the first quarter of last year.

If you exclude political revenue from both the first quarter of 2016 and the first quarter of 2017, broadcast revenue was actually up 0.2%.

Additionally, we were slightly ahead of the Miller Kaplan numbers in the markets in which we compete where that firm does its survey, despite the lack of political, our network finally performed quite well, with revenue actually increasing 2%.

Miscellaneous nontraditional revenue, which includes things like advanced and sales directly to listeners, continues to show strength with a 16.4% increase over the prior year.

As we continue to try to diversify our billing away from overreliance on spot advertising revenue.

And as a company, we have far less reliance than our public peers simply because of our block programming.

But nevertheless, we increasingly like to diversify our revenue sources.

As usual, we remain focused on controlling expenses, and broadcast expenses were down 0.9%.

Our revenue in our digital division was down 2.9% in the first quarter as compared to the prior year.

This decline was due to the same 2 reasons: political and timing of Easter, which is significant to our Church e-commerce business, as I mentioned, and also to our conservative political opinion websites.

Again, excluding these items, digital revenue was actually up 1.5%, the strongest performance reported of our digital businesses, our Christian ad-sponsored website, which were up 4.9%.

I might add, these businesses are not impacted by either political or by Easter.

This is driven by traffic on our mobile apps, which is more than tripled, and by page view growth of 32.9% on these websites.

Similar to the Broadcast division, digital expenses were managed nicely with expenses down 3.6%.

Now there were some impressive growth in our third business segment, book publishing.

Revenue was up 34.6% compared to the quarter in the prior year and was due to a couple of factors.

First, Regnery Publishing increased 48.9%, driven by the success of David Limbaugh's The True Jesus: Uncovering the Divinity of Christ in the Gospels.

While the book was officially released on April 10, many of the physical books were sold and shipped in March.

The book has been on the New York Times Best Seller list over the last 2 weeks.

Additionally, our Author Services division was up 35.2%, again principally due to the acquisition of Mill City Press in the middle of last year.

Mill City Press, by the way, is performing consistent with our ROI expectations.

You might notice the corporate expenses appear high with a 21.6% increase.

Again, there's an issue here.

However, it's important that we should point out that the increase is due entirely to expensing annual bonuses paid in the form of restricted stock that was granted in the first quarter.

Excluding this, corporate expenses were up only 0.9%.

We continue to remain focused on debt paydown and delevering the company's balance sheet with less emphasis on acquisitions than in the past.

During the quarter, we spent a total of only $363,000 for translators and a small digital asset.

This facilitated and allowed us to further reduce our debt, paying down $5 million on our Term Loan B during the quarter.

As a result, our leverage is currently at 4.98.

I might add it's only 2 basis points where it was at the end of 12/31/16, and this remains -- that's the lowest point in 4 years.

So we're pleased with the progress.

With respect to dividends.

We paid $1.7 million of quarterly dividends or $0.065 per share on March 31.

At $0.26 per share annually, this represents a 3.5% dividend yield based upon our current stock price.

Finally, adjusted free cash flow was down slightly at 1.1%.

However, if you exclude the timing issues I addressed earlier, adjusted free cash flow would have increased 29%, highlighting again a fundamental strength of the quarter's performance.

For the last 12 months, adjusted free cash flow increased 4.5% to $27.5 million or $1.06 per share.

That puts our adjusted free cash flow yield at a 14.4% yield.

Now before I turn the call back to Evan, I want to reiterate that our top priority remains growing our free cash flow and using that free cash flow to reduce debt and make our balance sheet a little more attractive.

We will continue to be highly selective on acquisitions until we're able to get our leverage ratio below 4.5.

I look forward to giving further updates as we make progress in this area.

With that, let me turn the call back to Evan for additional details on the quarter.

Thank you, Ed.

For the first quarter, total revenue increased 0.6% to $65 million.

Operating expenses on a recurring basis increased 0.9% to $54.6 million, and adjusted EBITDA decreased 0.9% to $10.3 million.

Net broadcast revenue decreased 1.9% to $47.8 million, and broadcast operating expenses decreased 0.9% to $35.8 million, leading to a 5.0% decline in station operating income to $12 million.

On a same-station basis, net broadcast revenue decreased 1.6% to $47.6 million, and SOI decreased 3.8% to $12.1 million.

These same-station results include broadcast revenue from 112 of our 115 radio stations in our network operations and represents 99% of our net broadcast revenue.

For those interested, let’s take a quick look at revenue by format.

40 of our radio stations are programmed in our foundational Christian teaching and talk format.

These stations contributed 43% of total broadcast revenue and decreased 2% for the quarter.

Our 32 news talk stations had an increase of 1% in revenue for the quarter.

Overall, these stations contributed 18% of total broadcast revenue.

Revenue from our 13 contemporary Christian music stations contributed 20% of total broadcast revenue and decreased 2% for the quarter.

The 8 stations that we have programmed in Spanish-language Christian teaching and talk decreased by 8%, and this format comprises 2% of total broadcast revenue.

Finally, we have 13 stations in a business talk format, and this format contributed 3% of broadcast revenue and decreased 5% for the quarter.

Our network revenue increased 2% for the quarter and represents 9% of total broadcast revenue.

Publishing revenue increased 34.6% to $6.5 million and represents 10% of our total revenue.

Finally, revenue from our digital media businesses decreased 2.9% to $10.7 million and represents 16% of our total revenue.

During the quarter, we repaid $5 million on our Term Loan B. At March 31, we had $258 million due on the term loan and had $1.2 million drawn on the revolver.

Our leverage ratio increased from 4.96 last quarter to 4.98 at the end of March compared to our covenant of 5.75.

And for the second quarter of 2017, we are projecting total revenue to decline between 1% and 3% from second quarter 2016 total revenue of $67.8 million.

This decline is due to the lack of political revenue, the elimination of 4 loss-making magazines during the quarter, and the fact that we released Hillary's America by Dinesh D'Souza late in the second quarter last year, which hit #1 on the New York Times Best Sellers list.

We do not have a comparable book release scheduled for the second quarter of 2017.

Excluding the impact of these items, we would be projecting revenue growth of 0.5% to 2.5%.

We're also projecting operating expenses before gains or losses on the sale or disposal of assets, stock-based compensation expense, changes in the estimated fair value of contingent earn-out consideration impairments, depreciation expense and amortization expense to be between a decrease of 1% and an increase of 2% compared to the second quarter of 2016 non-GAAP operating expenses of $54.9 million.

This now concludes our prepared remarks, and we would like to answer any questions that anyone has.

Operator?

(Operator Instructions) Our first question comes from Lisa Springer with Singular Research.

Did I hear correctly that you tripled traffic year-over-year for Christian mobile apps?

Yes.

We acquired a number of mobile apps over the last 18 months or so.

So some of that is acquisition-related.

But yes, mobile app traffic has tripled in the last year.

Okay.

Are you thinking you're going to be able to sustain that kind of momentum into the next quarter?

Yes.

We anniversaried the final one of those acquisitions during the second quarter, so that rate of growth will slow in the second quarter and beyond.

Okay, great.

And could you comment on the performance of the financial publication business during the quarter?

Yes, the financial publication business compared to a year ago, its revenue grew about 15%.

So we made some good progress in that area.

However, it's important to remember that last year was a very challenging year for the investment newsletter business.

That business always struggles in political years because of uncertainty related to the election.

So the 15% revenue growth is a bounce-back from some soft numbers.

Okay.

And then in the author services businesses, M&A kind of drove the 35% increase.

Are there more opportunities for M&A in that space?

Not at this point in time.

The acquisition of Mill City moved this into the general market area for the first time.

So at this point in time, we're focused on making sure we get the benefits of that combination and that integration.

So looking for organic growth to be the driver at this point in time.

Our next question comes from Barry Lucas with Gabelli & Company.

First thing, just kind of housekeeping.

Could you just tell us what the political revenues were in 2Q '16?

Yes.

Political revenues last year in the second quarter were right around $0.5 million.

Okay.

And any update you can provide on block programming renewals, where you stand in that cycle, new ministries?

Any color there would be helpful.

It remains pretty predictable, pretty stable, but a little bit of churn, but nothing extraordinary.

Still a very strong demand for block programming time.

The big problem is to accommodate it because there are preferred times.

Most of the organizations that buy that time prefer drive times, particularly morning drive.

And those times are always in high demand, and there are -- the strong demand, if some of those would open up, there's demand for the other parts of the daypart, but less demand.

But it's pretty stable.

Nothing extraordinary that will impact our financial results.

Okay.

Last one maybe for David.

And maybe a little bit of a discussion on monetizing the increase in web traffic where CTMs are.

And how do you move the needle there?

We're seeing pretty good translation of visits and page views into revenue.

Desktop continues to outperform mobile.

But we are seeing improvement in the mobile area.

So I feel pretty good about where we're going.

If there's a threat out there, it's the threat related to ad blockers, which we know is hurting us.

And we're looking at how to address.

But generally, monetization is in pretty good shape.

There are no further questions at this time.

I would like to turn the call back over to Mr. Edward Atsinger for closing remarks.

Well, thanks again to all of you for joining the call.

I will look forward to visiting with you again in a few months when we report on Q2 earnings.

Thank you, operator.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation, and have a wonderful day.