Salem Media Group Inc (SALM) 2019 Q4 法說會逐字稿

Greetings, and welcome to the Salem Media Group Fourth Quarter 2019 Earnings Call.

(Operator Instructions) Please note this conference is being recorded.

I will now turn the conference over to our host, Evan Masyr, Executive Vice President and Chief Financial Officer.

Thank you.

You may begin.

Thank you, and thank you all for joining us today for Salem Media Group's Fourth Quarter 2019 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 in the room today is Edward Atsinger, Chief Executive Officer.

Both David Santrella, President of Broadcast Media; and David Evans, President of Interactive and Publishing, are remote but 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 forecasts of future performance, the potential for future 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 the company's website at salemmedia.com.

I'll now turn the call over to Edward Atsinger.

Ed?

Thank you, Evan, and thanks to all of you for taking the time to join us for this quarterly update.

Let me begin my prepared remarks with an overview of Salem's fourth quarter financial performance, and then I'll provide you an update on recent M&A activity, and we'll conclude with a brief comment on our quarterly cash distribution.

I'll then give the call back to Evan, who will provide more detailed information on fourth quarter performance and provide guidance for the first quarter of 2020.

For the fourth quarter 2019, revenue declined 3.8%.

Expenses were down 2.2%, resulting in an adjusted EBITDA decline of 11.6%.

Let's look at the numbers by division to get a better understanding of the specific performances.

For the quarter, broadcast revenue declined 1.2% or $600,000.

Considering the fact that we disposed the 16 radio stations in 2019, it makes sense to look at the -- at revenue on the same-station basis.

Excluding the impact of recently sold stations, broadcast revenue was up 1.2%.

And that's before taking into account political revenue, which was $1.7 million in the fourth quarter of 2018 as compared to only $400,000 in the fourth quarter of 2019.

So if we exclude the impact on revenue from the station sales and the impact of political revenue, our core broadcast businesses -- core Broadcast revenue was up 4% in the fourth quarter.

We're encouraged by that growth.

A leading factor in the fourth quarter growth was the continued expansion of our local digital businesses, which was up 57% to $4.7 million, clearly driven by our investment in Salem Surround, which we commented on over several of the last quarterly reports.

This growth has been consistent throughout the year and doesn't appear to be slowing down.

For the entire year, local digital revenue increased 57.4%.

Additionally, our national business, which includes network and national spot revenue, increased 6.8% on a same-station basis due to the continued productivity and strength of our national syndicated lineup and recently completed listener trip to Israel.

Local spot revenue was down 8.8%, but again, much of that decline was due to the lack of political revenue in Q4 of 2019 compared to Q4 of 2018.

Broadcast expenses declined 1.3%, resulting in a 0.8% decline in station operating income.

Both page views and programmatic revenue in our national digital division were up.

However, the continued competition, particularly from the programmatic digital competition from Facebook, Google and now Amazon, for our direct advertising dollars continues to impact our national digital performance.

The result was a revenue decline of 15% in the fourth quarter of 2019.

We were able to reduce expenses by 8.1%, partially offsetting the revenue decline.

Finally, at our publishing division, it was down 5.1% driven largely by a 15.3% decline in our self-publishing business.

A major problem over the last several quarters impacting the self-publishing business has been the difficulty finding and retaining quality sellers in a very tight employment market.

However, we have been making good progress in this area, and we're now fully staffed.

Our larger publishing business, the traditional book publisher, Regnery, was up 4.6% based on a stronger book release schedule in the fourth quarter of 2019 compared to 2018.

During the quarter, we released Guilty By Reason of Insanity: Why The Democrats Must Not Win by David Limbaugh and another installment of Marlon Bundo's series, Marlon Bundo's Best Christmas Ever by Charlotte and Karen Pence.

As we transition to the 2020 presidential election year, we expect to have a solid year of publishing books with a political and public policy perspective.

In the first quarter, we've already released Grace Canceled: How Outrage is Destroying Lives, Ending Debate, and Endangering Democracy by Dana Loesch; also Crisis on the Border: An Eyewitness Account of Illegal Aliens, Violent Crime, and Cartels by Matt Pinsker; and The Manipulators: Facebook, Google, Twitter, and Big Tech's War on Conservatives by Peter Hasson.

A number of good titles will be released as we get closer to the latter part of the election cycle.

We're particularly enthused about the upcoming release from Diamond and Silk, the duo that's taking the country by storm.

Turn our attention to M&A, I don't have a lot of new information to report.

We did close on the sale of 9 radio stations for $8.7 million on November 14, along with the sale of 4 stations that closed on September 26.

We sold 13 radio stations to Relevant Radio for $17 million.

We used the proceeds of those sales to pay down our debt, both on the revolver and the bonds.

During the quarter, we used $10.6 million of the proceeds to buy $12.1 million of bonds in the open market.

This resulted in a reduction of our leverage ratio from 6.57 at the end of the third quarter to 6.18 at the end of this year.

Let me conclude with a discussion of our cash distribution.

Given the level of debt and the elevated leverage ratio, the Board of Directors concluded in December the cash distribution of $0.065 per quarter or $0.26 per year was too high.

The Board voted to reduce the payout rate by 62% to $0.025 per quarter or $0.10 per year.

This will result in increased cash available to continue reducing debt.

And we announced earlier this week that the Board approved another $0.025 per share cash distribution payable to be made on March 31.

Even at this reduced level, this represents a 9.2% dividend yield based upon the current stock price.

And with that, Evan, I'll turn the call back to you for additional details on the quarter's performance and to provide guidance for Q1 2020.

Thank you, Ed.

For the fourth quarter, total revenue decreased 3.8% to $64.6 million.

Operating expenses on a recurring basis decreased 2.2% to $54.4 million, which resulted in an 11.6% decrease in adjusted EBITDA to $10.2 million.

Net broadcast revenue decreased 1.2% to $50.5 million and broadcast operating expenses decreased 1.3% to $38 million, resulting in station operating income of $12.5 million, a decline of 0.8%.

On a same-station basis, net broadcast revenue increased 1.2% to $49.4 million, and SOI decreased 0.5% to $12.8 million.

These same-station results include broadcast revenue of our -- from 95 of our 100 radio stations in our network operations and represents 97.8% of net broadcasting revenue.

I'll briefly review revenue performance of our strategic formats.

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

These stations contributed 38% of total broadcast revenue and decreased 6.5% for the quarter.

Our 32 news talk stations had a decrease of 3.0% in revenue for the quarter, and some of this decrease was due to the lack of political revenue, as Ed had already talked about.

Overall, these stations contributed 20% of total broadcast revenue.

Revenue from our 12 contemporary Christian music stations contributed 19% of total broadcast revenue and decreased 4.1% for the quarter.

Our network revenue increased 7.6% for the quarter and represents 10% of total broadcast revenue.

Revenue from our digital media businesses decreased 15.0% to $9.8 million and represents 15% of total revenue.

Our publishing revenue decreased 5.1% to $4.3 million and represents 7% of total revenue.

As of December 31, we had $219.8 million outstanding on our bonds and $12.4 million outstanding under the revolver.

Our leverage ratio was 6.18.

And for the first quarter of 2020, we are projecting total revenue to be between flat and a decrease of 2% compared to first quarter 2019 total revenue of $60.5 million.

Excluding the impact of recent acquisitions and dispositions, we are projecting total revenue to be between flat and an increase of 2%.

We're also projecting operating expenses before gains or losses on disposition 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 flat and an increase of 3% compared to the first quarter of 2019 non-GAAP operating expenses of $53.0 million.

With that, that concludes our prepared remarks, and we'd now like to answer any questions.

Operator?

(Operator Instructions) And our first question comes from Michael Kupinski with NOBLE Capital Markets.

A couple of questions here.

Regarding your guidance in the first quarter, can you give us a sense of how much political you may have received in the quarter?

For some radio broadcasters, they were giving some thoughts on the political.

And I was wondering, embedded into your guidance, if you can just talk a little bit about if there is a certain level of political in those numbers.

Yes.

I don't expect a significant amount of political in the first quarter.

If you think about where majority of the political spending has been, thus far, certainly, on the presidential side, it's been on the Democrats side, and we have not seen much.

But I would expect, probably, for the quarter, it will be a couple hundred thousand dollars.

And in terms of the full year, have you guys given some thought about what you might -- what we might anticipate in terms of political?

Any internal thoughts there?

The only thing -- political, as you know, is difficult to predict.

I guess if you look at what we've done in the last 2 election cycles have been north of $4 million.

Don't know where the key races are going to be relative to where our stations are, but to get something in that range seems to make sense to us.

And then can you give us a sense on the publishing side, I'm just -- how many titles that maybe you -- you're anticipating this year versus your -- the past election cycles, if that's the way to look at it?

I know that this is a kind of -- always a hit-miss type of -- with popular books and things like that, that you never really have a good way of knowing but maybe looking at it in terms of the number of titles.

So we will publish a similar number of titles in 2020 compared to 2019.

In total, it's going to be about 55 titles between political, Christian and history titles.

We think we've got a pretty good lineup.

We're obviously very excited about Diamond and Silk.

Election years are typically a little better than nonelection years.

So we're expecting a little bit of growth in 2019, and it will be dependent upon the big 2 or 3 titles.

And in -- on terms of the self-publishing segment, you indicated some staffing issues there.

I was just wondering if you can kind of explain a little bit better how that impacted the business, whether or not you're seeing competitiveness in that business and how things are just bearing overall.

Just kind of give us a sense of -- outside of some issues that you may have had in the last quarter, whether or not these are ongoing issues.

Or should we actually see things now back on a better growth trajectory?

Well, the self-publishing business has been -- it's certainly a mature business.

We did have difficulty retaining a full sales staff during 2019, and the sales staff is critical in terms of acquiring authors.

When an author decides to self-publish, there is a process we have to go through to convince them that you're the right publisher to work with.

And that sales team is critical.

We lost some key members, and it took some time to replace them.

We are fully staffed again, and we think 2020 will be better than 2019.

And in terms of the business, just overall in the broadcast segment, I was just wondering -- obviously, you have some very positive momentum in the fourth quarter.

I mean the broadcast business overachieved expectations and -- based on my estimates.

And in fact, like you mentioned, you did sell some stations.

So for that to outperform as well as it did, it's a little surprising.

Can you give us a little sense on 2 things: one, on your block programming, what type of rate increases that you're passing through in January?

And then secondly, just kind of give us a sense of what the pacing of that business looks like in the first quarter.

Yes.

The block programming was up 2% to 3% in terms of rate increases.

We have very favorable renewals with -- in fact, I don't know, Michael, that I can think of any cancellations that we took coming into the new year that we are competing against a few ministries that exited last year in Q1.

But we have great renewals this year and fair rate increases, so we're really pleased with that and that's going well.

And then, of course, the other driver, of course, as Ed mentioned -- or as Evan mentioned, was Salem Surround.

So what we're doing local -- on the local digital front is a revenue driver right now.

Got you.

One last question, I promise.

Going back to the digital business, I know there's some secular headwinds there.

But traditionally, in the past, you got a lift, a nice little lift up through the traffic, given -- in the election year.

I was just wondering, if we looked in the past cycles, do we anticipate that there's going to be a lift this year?

Or do you think that's going to be muted just because of the competitive issues?

I think there will be a surge in website traffic in September, October and the first week of November.

But the third isn't going to be as big in -- as prior years because there's been so much interest in -- from the last couple of years, with the Supreme Court nominations, with the impeachment fight.

Page views have been kind of on fire for the last year or 2. So yes, I'm sure there will be a surge close to the election, but it's not going to be as big a percentage growth as in prior cycles.

I'll now turn the call back to Edward Atsinger for closing remarks.

Again, thanks to all of you for joining the call.

We look forward to visiting with you again when we report on Q1 2020 results.

Thank you.

This concludes today's call.

All parties may disconnect.

Have a good evening.