Salem Media Group, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Segment Data

Segment Data

9 Months Ended

Sep. 30, 2019

NOTE 21. SEGMENT DATA

FASB ASC Topic 280, Segment Reporting, requires companies to provide certain information about their operating segments. We have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which also qualify as reportable segments. Our operating segments reflect how our chief operating decision makers, which we define as a collective group of senior executives, assesses the performance of each operating segment and determines the appropriate allocations of resources to each segment. We continually review our operating segment classifications to align with operational changes in our business and may make changes as necessary.

We measure and evaluate our operating segments based on operating income and operating expenses that do not include allocations of costs related to corporate functions, such as accounting and finance, human resources, legal, tax and treasury, which are reported as unallocated corporate expenses in our condensed consolidated statements of operations included in this quarterly report on Form 10-Q. We also exclude costs such as amortization, depreciation, taxes and interest expense.

Segment performance, as defined by Salem, is not necessarily comparable to other similarly titled captions of other companies.

Broadcasting

Our foundational business is radio broadcasting, which includes the ownership and operation of radio stations in large metropolitan markets. Our broadcasting segment includes our national networks and national sales firms. National companies often prefer to advertise across the United States as an efficient and cost effective way to reach their target audiences. Our national platform under which we offer radio airtime, digital campaigns and print advertisements can benefit national companies by reaching audiences throughout the United States.

Salem Radio Network^TM (“SRN^TM”), based in Dallas, Texas, develops, produces and syndicates a broad range of programming specifically targeted to Christian and family-themed talk stations, music stations and News Talk stations. SRN^TM delivers programming via satellite to approximately 3,200 affiliated radio stations throughout the United States, including several of our Salem-owned stations. SRN^TM operates five divisions, SRN^TM Talk, SRN^TM News, SRN^TM Websites, SRN^TM Satellite Services and Salem Music Network that includes Today’s Christian Music (“TCM”) and Singing News^® Radio.

Salem Media Representatives (“SMR”) is our national advertising sales firm with offices in 13 U.S. cities. SMR specializes in placing national advertising on Christian and talk formatted radio stations as well as other commercial radio station formats. SMR sells commercial airtime to national advertisers on our radio stations and through our networks, as well as for independent radio station affiliates. SMR also contracts with independent radio stations to create custom advertising campaigns for national advertisers to reach multiple markets.

During 2018, we launched Salem Surround, a national multimedia advertising agency with locations in 35 markets across the United States. Salem Surround offers a comprehensive suite of digital marketing services to develop and execute audience-based marketing strategies for clients on both the national and local level. Salem Surround specializes in digital marketing services for each of our radio stations and websites as well as provides a full-service digital marketing strategy for each of our clients.

Digital Media

Our digital media based businesses provide Christian, conservative, investing and health-themed content, e-commerce, audio and video streaming, and other resources digitally through the web. SWN websites include Christian content websites; BibleStudyTools.com, Crosswalk.com^®, GodVine.com, iBelieve.com, GodTube^®.com, OnePlace™.com, Christianity.com, GodUpdates.com, CrossCards™.com, ChristianHeadlines.com, LightSource.com, AllCreated.com, ChristianRadio.com, CCMmagazine.com, SingingNews^®.com and SouthernGospel.com and our conservative opinion websites; collectively known as Townhall Media, include Townhall.com^®, HotAir™.com, Twitchy^®.com, RedState^®.com, BearingArms.com, and ConservativeRadio.com. We also publish digital newsletters through Eagle Financial Publications, which provide market analysis and non-individualized investment strategies from financial commentators on a subscription basis.

Our church e-commerce websites, including SermonSearch™.com, ChurchStaffing.com, WorshipHouseMedia.com, SermonSpice™.com, WorshipHouseKids.com, Preaching.com, ChristianJobs.com and Youthworker.com, offer a variety of digital resources including videos, song tracks, sermon archives and job listings to pastors and Church leaders. E-commerce also included Newport Natural Health, a seller of nutritional supplements through the date of sale on March 21, 2019.

Our web content is accessible through all of our radio station websites that feature content of interest to local audiences throughout the United States.

Publishing

Our publishing operating segment includes three businesses: (1) Regnery^® Publishing, a traditional book publisher that has published dozens of bestselling books by leading conservative authors and personalities, including Ann Coulter, Newt Gingrich, David Limbaugh, Ed Klein, Mark Steyn and Dinesh D’Souza; (2) Salem Author Services, a self-publishing service for authors through Xulon Press and Mill City Press; and (3) Singing News^®, which produces and distributes a print magazine.

The table below presents financial information for each operating segment as of September 30, 2019 and 2018 based on the composition of our operating segments:

	Broadcast			Digital Media			Publishing			Unallocated Corporate Expenses			Consolidated
	(Dollars in thousands)
Three Months Ended September 30, 2019
Net revenue	$	47,679		$	9,149		$	7,288		$	—		$	64,116
Operating expenses		37,310			7,282			6,517			4,183			55,292
Net operating income (loss) before depreciation, amortization, change in the estimated fair value of contingent earn-out consideration, impairments and net (gain) loss on the disposition of assets	$	10,369		$	1,867		$	771		$	(4,183	)	$	8,824
Depreciation		1,720			764			80			180			2,744
Amortization		8			929			210			—			1,147
Change in the estimated fair value of contingent earn-out consideration		—			(40	)		—			—			(40	)
Impairment of indefinite-lived long-term assets other than goodwill		1,915			—			—			—			1,915
Net (gain) loss on the disposition of assets		17,539			6			—			—			17,545
Net operating income (loss)	$	(10,813	)	$	208		$	481		$	(4,363	)	$	(14,487	)

Three Months Ended September 30, 2018
Net revenue	$	48,812		$	10,397		$	6,319		$	—		$	65,528
Operating expenses		37,158			8,021			6,210			3,987			55,376
Net operating income (loss) before depreciation, amortization and net (gain) loss on the disposition of assets	$	11,654		$	2,376		$	109		$	(3,987	)	$	10,152
Depreciation		1,923			777			128			204			3,032
Amortization		9			1,370			225			—			1,604
Net (gain) loss on the disposition of assets		(759	)		—			—			—			(759	)
Net operating income (loss)	$	10,481		$	229		$	(244	)	$	(4,191	)	$	6,275
	Broadcast			Digital Media			Publishing			Unallocated Corporate Expenses			Consolidated
	(Dollars in thousands)
Nine Months Ended September 30, 2019
Net revenue	$	142,854		$	29,349		$	17,062		$	—		$	189,265
Operating expenses		111,466			22,988			17,112			12,386			163,952
Net operating income (loss) before depreciation, amortization, change in the estimated fair value of contingent earn-out consideration, impairments and net (gain) loss on the disposition of assets	$	31,388		$	6,361		$	(50	)	$	(12,386	)	$	25,313
Depreciation		5,399			2,302			289			539			8,529
Amortization		26			2,907			633			1			3,567
Change in the estimated fair value of contingent earn-out consideration		—			(40	)		—			—			(40	)
Impairment of indefinite-lived long-term assets other than goodwill		1,915			—			—			—			1,915
Net (gain) loss on the disposition of assets		20,951			260			1			—			21,212
Net operating income (loss)	$	3,097		$	932		$	(973	)	$	(12,926	)	$	(9,870	)

Nine Months Ended September 30, 2018
Net revenue	$	147,425		$	31,051		$	17,119		$	—		$	195,595
Operating expenses		110,151			24,792			17,319			11,938			164,200
Net operating income (loss) before depreciation, amortization, change in the estimated fair value of contingent earn-out consideration and net (gain) loss on the disposition of assets	$	37,274		$	6,259		$	(200	)	$	(11,938	)	$	31,395
Depreciation		5,692			2,346			388			650			9,076
Amortization		29			3,818			710			1			4,558
Change in the estimated fair value of contingent earn-out consideration		—			72			—			—			72
Net (gain) loss on the disposition of assets		4,400			—			—			—			4,400
Net operating income (loss)	$	27,153		$	23		$	(1,298	)	$	(12,589	)	$	13,289

	Broadcast		Digital Media		Publishing		Unallocated Corporate		Consolidated
	(Dollars in thousands)
As of September 30, 2019
Inventories, net	$	—	$	—	$	649	$	—	$	649
Property and equipment, net		73,383		6,301		817		7,816		88,317
Broadcast licenses		340,354		—		—		—		340,354
Goodwill		2,930		21,599		1,888		8		26,425
Other indefinite-lived intangible assets		—		—		277		—		277
Amortizable intangible assets, net		277		6,503		1,388		2		8,170

As of December 31, 2018
Inventories, net	$	—	$	290	$	387	$	—	$	677
Property and equipment, net		81,269		6,184		933		7,958		96,344
Broadcast licenses		376,316		—		—		—		376,316
Goodwill		2,960		21,933		1,888		8		26,789
Other indefinite-lived intangible assets		—		—		277		—		277
Amortizable intangible assets, net		303		8,937		2,021		3		11,264