Salem Media Group, Inc. Announces First Quarter 2019 Total Revenue of $60.5 Million

CAMARILLO, Calif.–(BUSINESS WIRE)–Salem Media Group, Inc. (Nasdaq: SALM) released its results for the
three months ended March 31, 2019.

First Quarter 2019 Results

For the quarter ended March 31, 2019 compared to the quarter ended March
31, 2018:

Consolidated

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• Total revenue decreased 5.2% to $60.5 million from $63.8 million;
• Total operating expenses increased 5.7% to $61.5 million from $58.1
  million;
• Operating expenses, excluding gains or losses on the disposition of
  assets, stock-based compensation expense, depreciation expense and
  amortization expense (1) decreased 1.0% to $53.0 million from $53.6
  million;
• Operating income decreased to a $1.0 million operating loss from $5.7
  million operating income;
• Net income decreased 61.1% to $0.3 million, or $0.01 net income per
  diluted share from $0.8 million, or $0.03 net income per diluted share;
• EBITDA (1) decreased 64.1% to $3.7 million from $10.2 million;
• Adjusted EBITDA (1) decreased 25.4% to $7.6 million from $10.2
  million; and
• Net cash provided by operating activities decreased 30.3% to $9.0
  million from $12.9 million.

Broadcast

• Net broadcast revenue decreased 4.1% to $46.1 million from $48.1
  million;
• Station Operating Income (“SOI”) (1) decreased 21.6% to $9.6 million
  from $12.3 million;
• Same Station (1) net broadcast revenue decreased 2.9% to $45.5 million
  from $46.8 million; and
• Same Station SOI (1) decreased 22.7% to $9.9 million from $12.8
  million.

Digital Media

• Digital media revenue decreased 1.5% to $10.2 million from $10.4
  million; and
• Digital Media Operating Income (1) increased 8.0% to $2.2 million from
  $2.0 million.

Publishing

• Publishing revenue decreased 22.7% to $4.1 million from $5.4 million;
  and
• Publishing Operating Loss (1) increased to $0.7 million from $0.2
  million.

Included in the results for the quarter ended March 31, 2019 are:

• A $4.0 million ($2.4 million, net of tax, or $0.09 per share) net loss
  on the disposition of assets including a $3.8 million estimated
  pre-tax loss for the sale of WSPZ-AM in Washington, D.C., a $0.2
  million pre-tax loss on the sale of Mike Turner’s line of investment
  products and a $0.2 million pre-tax loss on the sale of
  HumanEvents.com offset by a $0.1 million pre-tax gain on the sale of
  Newport Natural Health;
• A $0.4 million gain ($0.3 million, net of tax, or $0.01 per diluted
  share) on early redemption of long-term debt due to the repurchase of
  the company’s 6.75% senior secured notes due 2024;
• A $0.2 million one-time expense associated with the adoption of ASC
  842 ($0.1 million, net of tax) and
• A $176,000 non-cash compensation charge ($106,000, net of tax) related
  to the expensing of stock options and restricted stock consisting of:
  • $107,000 non-cash compensation charge included in corporate
    expenses;
  • $39,000 non-cash compensation charge included in broadcast
    operating expenses;
  • $26,000 non-cash compensation charge included in digital media
    operating expenses; and
  • the remaining $4,000 non-cash compensation charge included in
    publishing operating expenses.

Included in the results for the quarter ended March 31, 2018 are:

• A $46,000 non-cash compensation charge ($28,000, net of tax) related
  to the expensing of stock options and restricted stock consisting of:
  • $24,000 non-cash compensation charge included in corporate
    expenses;
  • $13,000 non-cash compensation charge included in broadcast
    operating expenses;
  • $5,000 non-cash compensation charge included in digital media
    operating expenses; and
  • the remaining $4,000 non-cash compensation charge included in
    publishing operating expenses.

Per share numbers are calculated based on 26,193,307 diluted weighted
average shares for the quarter ended March 31, 2019, and 26,304,891
diluted weighted average shares for the quarter ended March 31, 2018.

Balance Sheet

As of March 31, 2019, the company had $231.9 million outstanding on the
6.75% senior secured notes due 2024 and $16.0 million outstanding under
the Asset Based Revolving Credit Facility (“ABL Facility”) as of March
31, 2019.

Acquisitions and Divestitures

The following transactions were completed since January 1, 2019:

• On March 21, 2019, the company sold Newport Natural Health, an
  e-commerce website operated by Eagle Wellness for $0.9 million in
  cash. The company recognized a pre-tax gain of $0.1 million associated
  with the sale reflecting the sales price as compared to the carrying
  value of the assets and the closing costs.
• On March 18, 2019, the company acquired the pjmedia.com website for
  $0.1 million in cash.
• On February 28, 2019, the company sold Mike Turner’s line of
  investment products, including TurnerTrends.com and other domain names
  and related assets. The company received no cash from the buyer who
  assumed all deferred subscription liabilities for Mike Turner’s
  investment products. The company recognized a pre-tax loss of
  approximately $0.2 million associated with the sale reflecting the
  sales price as compared to the carrying value of the assets and the
  closing costs.
• On February 27, 2019, the company sold HumanEvents.com, a conservative
  opinion website, for $0.3 million in cash. The company recognized a
  pre-tax loss of approximately $0.2 million associated with the sale
  reflecting the sales price as compared to the carrying value of the
  assets and the closing costs.

Pending transactions:

• On April 29, 2019 the company entered into an agreement to exchange FM
  Translator W276CR, in Bradenton, Florida with FM Translator W262CP in
  Bayonet Point, Florida. No cash will be exchanged for the assets.
• On March 19, 2019, the company entered into an agreement to sell radio
  station WSPZ-AM (previously WWRC-AM) in Washington D.C. for $0.8
  million. The company recorded an estimated pre-tax loss of assets of
  $3.8 million as of March 31, 2019, which reflected the sales price as
  compared to the carrying value of the assets and the estimated costs
  of the sale. The sale is expected to close in the second quarter of
  2019. On April 3, 2019, the company entered into a Time Brokerage
  Agreement (“TBA”) effective April 12, 2019, under which radio station
  WSPZ-AM, is operated by the buyer pending the sale of the station.
• In December 2018, Word Broadcasting notified the company of their
  intent to purchase its Louisville radio stations. They began operating
  the stations under a Time Brokerage Agreement beginning on January 3,
  2017 that will continue until the purchase agreement is executed and
  the transaction closes.
• On April 26, 2018, the company entered an agreement to exchange radio
  station KKOL-AM, in Seattle, Washington for KPAM-AM in Portland,
  Oregon. The transaction is expected to close in the first half of 2019.

Conference Call Information

Salem will host a teleconference to discuss its results on May 10, 2019
at 12:00 p.m. Pacific Time. To access the teleconference, please dial
(877) 524-8416, and then ask to be joined into the Salem Media Group
First Quarter 2019 call or listen via the investor relations portion of
the company’s website, located at investor.salemmedia.com.
A replay of the teleconference will be available through May 24, 2019
and can be heard by dialing (877) 660-6853, passcode 13688917 or on the
investor relations portion of the company’s website, located at investor.salemmedia.com.

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Second Quarter 2019 Outlook

For the second quarter of 2019, the company is projecting total revenue
to be between a decrease of 1% and an increase of 1% from second quarter
2018 total revenue of $66.3 million. Excluding the impact of political
revenue and recent acquisitions and dispositions, the company is
projecting total revenue to increase between 1% and 3%. The company is
also projecting operating expenses before gains or losses on the
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 second quarter of 2018 non-GAAP operating
expenses of $55.1 million.

A reconciliation of non-GAAP operating expenses, excluding gains or
losses on the 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 the most directly comparable GAAP measure is not available
without unreasonable efforts on a forward-looking basis due to the
potential high variability, complexity and low visibility with respect
to the charges excluded from this non-GAAP financial measure, in
particular, the change in the estimated fair value of earn-out
consideration, impairments and gains or losses from the sale or disposal
of fixed assets. The company expects the variability of the above
charges may have a significant, and potentially unpredictable, impact on
its future GAAP financial results.

About Salem Media Group, Inc.

Salem Media Group is America’s leading multimedia company specializing
in Christian and conservative content, with media properties comprising
radio, digital media and book and newsletter publishing. Each day Salem
serves a loyal and dedicated audience of listeners and readers numbering
in the millions nationally. With its unique programming focus, Salem
provides compelling content, fresh commentary and relevant information
from some of the most respected figures across the Christian and
conservative media landscape. Learn more about Salem Media Group, Inc.,
at www.salemmediagroup.com,
Facebook and Twitter (@SalemMediaGrp).

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Forward-Looking Statements

Statements used in this press release 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. Actual results may differ materially from those anticipated as
a result of certain risks and uncertainties, including but not limited
to the ability of Salem to close and integrate announced transactions,
market acceptance of Salem’s radio station formats, competition from new
technologies, adverse economic conditions, and other risks and
uncertainties detailed from time to time in Salem’s reports on Forms
10-K, 10-Q, 8-K and other filings filed with or furnished to the
Securities and Exchange Commission. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as
of the date hereof. Salem undertakes no obligation to update or revise
any forward-looking statements to reflect new information, changed
circumstances or unanticipated events.

(1) Regulation G

Management uses certain non-GAAP financial measures defined below in
communications with investors, analysts, rating agencies, banks and
others to assist such parties in understanding the impact of various
items on its financial statements. The company uses these
non-GAAP financial measures to evaluate financial results, develop
budgets, manage expenditures and as a measure of performance under
compensation programs.

The company’s presentation of these non-GAAP financial measures
should not be considered as a substitute for or superior to the most
directly comparable financial measures as reported in accordance with
GAAP.

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Regulation G defines and prescribes the conditions under which
certain non-GAAP financial information may be presented in this earnings
release. The company closely monitors EBITDA, Adjusted EBITDA,
Station Operating Income (“SOI”), Same Station net broadcast revenue,
Same Station broadcast operating expenses, Same Station Operating
Income, Digital Media Operating Income, Publishing Operating Income
(Loss), and operating expenses excluding gains or losses on the
disposition of assets, stock-based compensation, changes in the
estimated fair value of contingent earn-out consideration, impairments,
depreciation and amortization, all of which are non-GAAP financial
measures. The company believes that these non-GAAP financial
measures provide useful information about its core operating results,
and thus, are appropriate to enhance the overall understanding of its
financial performance. These non-GAAP financial measures are
intended to provide management and investors a more complete
understanding of its underlying operational results, trends and
performance.

The company defines Station Operating Income (“SOI”) as net broadcast
revenue minus broadcast operating expenses. The company defines Digital
Media Operating Income as net Digital Media Revenue minus Digital Media
Operating Expenses. The company defines Publishing Operating
Income (Loss) as net Publishing Revenue minus Publishing Operating
Expenses. The company defines EBITDA as net income before
interest, taxes, depreciation, and amortization. The company
defines Adjusted EBITDA as EBITDA before gains or losses on the
disposition of assets, before changes in the estimated fair value of
contingent earn-out consideration, before changes in the fair value of
interest rate swap, before impairments, before net miscellaneous income
and expenses, before gain on bargain purchase, before (gain) loss on
early retirement of long-term debt and before non-cash compensation
expense. SOI, Digital Media Operating Income, Publishing
Operating Loss, EBITDA and Adjusted EBITDA are commonly used by the
broadcast and media industry as important measures of performance and
are used by investors and analysts who report on the industry to provide
meaningful comparisons between broadcasters. SOI, Digital Media
Operating Income, Publishing Operating Loss, EBITDA and Adjusted EBITDA
are not measures of liquidity or of performance in accordance with GAAP
and should be viewed as a supplement to and not a substitute for or
superior to its results of operations and financial condition presented
in accordance with GAAP. The company’s definitions of SOI,
Digital Media Operating Income, Publishing Operating Loss, EBITDA and
Adjusted EBITDA are not necessarily comparable to similarly titled
measures reported by other companies.

The company defines Adjusted Free Cash Flow as Adjusted EBITDA less
cash paid for capital expenditures, less cash paid for income taxes, and
less cash paid for interest. The company considers Adjusted Free
Cash Flow to be a liquidity measure that provides useful information to
management and investors about the amount of cash generated by its
operations after cash paid for capital expenditures, cash paid for
income taxes and cash paid for interest. A limitation of Adjusted
Free Cash Flow as a measure of liquidity is that it does not represent
the total increase or decrease in its cash balance for the period. The
company uses Adjusted Free Cash Flow, a non-GAAP liquidity measure, both
in presenting its results to stockholders and the investment community,
and in its internal evaluation and management of the business. The
company’s presentation of Adjusted Free Cash Flow is not intended to be
considered in isolation or as a substitute for the financial information
prepared and presented in accordance with GAAP. The company’s
definition of Adjusted Free Cash Flow is not necessarily comparable to
similarly titled measures reported by other companies.

The company defines Same Station net broadcast revenue as broadcast
revenue from its radio stations and networks that the company owns or
operates in the same format on the first and last day of each quarter,
as well as the corresponding quarter of the prior year. The
company defines Same Station broadcast operating expenses as broadcast
operating expenses from its radio stations and networks that the company
owns or operates in the same format on the first and last day of each
quarter, as well as the corresponding quarter of the prior year. The
company defines Same Station SOI as Same Station net broadcast revenue
less Same Station broadcast operating expenses. Same Station
operating results include those stations that the company owns or
operates in the same format on the first and last day of each quarter,
as well as the corresponding quarter of the prior year. Same
Station operating results for a full calendar year are calculated as the
sum of the Same Station-results for each of the four quarters of that
year. The company uses Same Station operating results, a non-GAAP
financial measure, both in presenting its results to stockholders and
the investment community, and in its internal evaluations and management
of the business. The company believes that Same Station operating
results provide a meaningful comparison of period over period
performance of its core broadcast operations as this measure excludes
the impact of new stations, the impact of stations the company no longer
owns or operates, and the impact of stations operating under a new
programming format. The company’s presentation of Same Station
operating results are not intended to be considered in isolation or as a
substitute for the financial information prepared and presented in
accordance with GAAP. The company’s definition of Same Station
operating results is not necessarily comparable to similarly titled
measures reported by other companies.

For all non-GAAP financial measures, investors should consider the
limitations associated with these metrics, including the potential lack
of comparability of these measures from one company to another.

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The Supplemental Information tables that follow the condensed
consolidated financial statements provide reconciliations of the
non-GAAP financial measures that the company uses in this earnings
release to the most directly comparable measures calculated in
accordance with GAAP. The company uses non-GAAP financial
measures to evaluate financial performance, develop budgets, manage
expenditures, and determine employee compensation. The company’s
presentation of this additional information is not to be considered as a
substitute for or superior to the directly comparable measures as
reported in accordance with GAAP.

SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share and per share data)
			Class A								Class B
			Common Stock								Common Stock								Additional
																			Paid-In				Retained					Treasury
			Shares				Amount				Shares				Amount				Capital				Earnings					Stock					Total
Stockholders’ equity, December 31, 2018 Advertisement				22,950,066			$	227				5,553,696			$	56			$	245,220			$	10,372				$ (34,006		)			$	221,869
Stock-based compensation				—				—				—				—				176				—				—						176
Cash distributions				—				—				—				—				—				(1,702	)			—						(1,702	)
Net income				—				—				—				—				—				322				—						322
Stockholders’ equity, March 31, 2019				22,950,066			$	227				5,553,696			$	56			$	245,396			$	8,992				$ (34,006		)			$	220,665
Distributions per share			$	0.065							$	0.065
			Class A								Class B
			Common Stock								Common Stock								Additional
																			Paid-In				Retained					Treasury
			Shares				Amount				Shares				Amount				Capital				Earnings					Stock					Total
Stockholders’ equity, December 31, 2017				22,932,451			$	227				5,553,696			$	56			$	244,634			$	20,370				$ (34,006		)			$	231,281
Stock-based compensation Advertisement				—				—				—				—				46				—				—						46
Options exercised				8,125				—				—				—				19				—				—						19
Cash distributions				—				—				—				—				—				(1,701	)			—						(1,701	)
Net income				—				—				—				—				—				828				—						828
Stockholders’ equity, March 31, 2018				22,940,576			$	227				5,553,696			$	56			$	244,699			$	19,497				$ (34,006		)			$	230,473
Distributions per share			$	0.065							$	0.065

SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
			Three Months Ended
			March 31, Advertisement
			2018					2019
OPERATING ACTIVITIES
Net income			$	828				$	322
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash stock-based compensation				46					176
Depreciation and amortization				4,487					4,229
Amortization of deferred financing costs				270					258
Non-cash lease expense				—					2,267
Accretion of acquisition-related deferred payments and contingent consideration				16					1
Provision for bad debts				146					320
Deferred income taxes				382					(5,304	)
Gain on early retirement of long-term debt				—					(426	)
Net (gain) loss on the disposition of assets				5					4,024
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue				1,176					1,758
Inventories				(78	)				(256	)
Prepaid expenses and other current assets				(69	)				1,387
Accounts payable and accrued expenses				6,629					3,449
Deferred rent expense				(119	)				—
Operating lease liabilities				—					(3,458	)
Contract liabilities				(938	)				133
Deferred rent income				(23	)				(43	)
Income taxes payable				115					130
Net cash provided by operating activities				12,873					8,967
INVESTING ACTIVITIES
Cash paid for capital expenditures net of tenant improvement allowances				(2,472	)				(2,404	)
Capital expenditures reimbursable under tenant improvement allowances and trade agreements				(4	)				—
Escrow deposits paid related to acquisitions				(240	)				—
Escrow deposits received related to radio station sale				500					—
Purchases of digital media businesses and assets				—					(100	)
Proceeds from sale of assets				1					1,255
Other				(170	)				(139	)
Net cash used in investing activities				(2,385	)				(1,388	)
FINANCING ACTIVITIES
Payments to repurchase 6.75% Senior Secured Notes				—					(6,123	)
Proceeds from borrowings under ABL Facility				10,334					22,189
Payments on ABL Facility				(19,334	)				(25,849	)
Refund (payments) of debt issuance costs				41					(13	)
Proceeds from the exercise of stock options				19					—
Payments on financing lease liabilities				(31	)				(21	)
Payment of cash distribution on common stock				(1,701	)				(1,702	)
Book overdraft				187					3,827
Net cash used in financing activities				(10,485	)				(7,692	)
Net increase (decrease) in cash and cash equivalents				3					(113	)
Cash and cash equivalents at beginning of year				3					117
Cash and cash equivalents at end of period			$	6				$	4

Contacts

Evan D. Masyr
Executive Vice President & Chief Financial Officer
(805)
384-4512
evan@SalemMedia.com

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