Salem Media Group, Inc. Announces Fourth Quarter 2017 Total Revenue of $67.2 Million

CAMARILLO, Calif.--(BUSINESS WIRE)-- Salem Media Group, Inc. (Nasdaq: SALM) released its results for the three and twelve months ended December 31, 2017.

Fourth Quarter 2017 Results

For the quarter ended December 31, 2017 compared to the quarter ended December 31, 2016:

Consolidated

• Total revenue decreased 4.9% to $67.2 million from $70.7 million;
• Total operating expenses decreased 6.8% to $62.7 million from $67.2 million;
• Operating expenses, excluding 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 (1) decreased 2.8% to $53.9 million from $55.5 million;
• Operating income increased 31.0% to $4.5 million from $3.5 million;
• Net income increased to $22.4 million, or $0.85 net income per diluted share from $3.0 million, or $0.11 net income per diluted share;
• EBITDA (1) decreased 8.8% to $8.9 million from $9.8 million;
• Adjusted EBITDA (1) decreased 12.6% to $13.3 million from $15.2 million; and
• Net cash provided by operating activities decreased 82.5% to $2.2 million from $12.4 million.

Broadcast

• Net broadcast revenue decreased 2.9% to $50.7 million from $52.2 million;
• Station Operating Income (“SOI”) (1) decreased 9.0% to $14.0 million from $15.4 million;
• Same Station (1) net broadcast revenue decreased 2.4% to $50.6 million from $51.9 million; and
• Same Station SOI (1) decreased 9.0% to $14.1 million from $15.5 million.

Digital Media

• Digital media revenue decreased 12.8% to $11.1 million from $12.7 million; and
• Digital Media Operating Income (1) decreased 17.9% to $2.7 million from $3.2 million.

Publishing

• Publishing revenue decreased 5.8% to $5.4 million from $5.7 million; and
• Publishing Operating Loss (1) decreased 29.5% to $0.4 million from $0.5 million.

Included in the results for the quarter ended December 31, 2017 are:

• A $4.3 million ($2.6 million, net of tax, or $0.10 per share) net loss on the sale or disposal of assets, including a $4.7 million estimated loss for the sale of WQVN-AM (formerly WKAT-AM) in Miami, Florida offset by a $0.4 million gain on the sale of the WSPZ-AM tower site; and
• A $23.0 million ($0.87 per share) income tax benefit was recorded in the fourth quarter of 2017 as a result of the Tax Cuts and Jobs Act of 2017.

Included in the results for the quarter ended December 31, 2016 are:

• A $6.5 million ($3.9 million, net of tax, or $0.15 per share) impairment of indefinite-lived long-term assets related to the company’s broadcast licenses in the Cleveland, Detroit, Dallas and Portland markets;
• A $0.5 million ($0.3 million, net of tax, or $0.01 per share) impairment of indefinite-lived long-term assets related to the company’s mastheads within Salem Publishing;
• A $0.2 million ($0.1 million, net of tax, or $0.01 per share) net decrease in the estimated fair value of the contingent earn-out consideration associated with the Eagle, Bryan Perry Newsletters, Daily Devotional and Turner Investment acquisitions;
• A $0.1 million gain on bargain purchase of KXFN-AM in St. Louis, Missouri; and
• A $0.1 million non-cash compensation charge related to the expensing of stock options primarily consisting of corporate expenses.

Per share numbers are calculated based on 26,378,260 diluted weighted average shares for the quarter ended December 31, 2017, and 26,101,172 diluted weighted average shares for the quarter ended December 31, 2016.

Year to Date 2017 Results

For the twelve months ended December 31, 2017 compared to the twelve months ended December 31, 2016:

Consolidated

• Total revenue decreased 3.9% to $263.7 million from $274.3 million;
• Total operating expenses decreased 2.2% to $240.8 million from $246.2 million;
• Operating expenses, excluding 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 (1) decreased 2.2% to $218.2 million from $223.2 million;
• Operating income decreased 18.2% to $23.0 million from $28.1 million;
• Net income increased to $24.6 million, or $0.94 net income per diluted share from $8.9 million, or $0.34 per diluted share;
• EBITDA (1) decreased 18.0% to $37.4 million from $45.7 million;
• Adjusted EBITDA (1) decreased 10.9% to $45.6 million from $51.1 million; and
• Net cash provided by operating activities decreased 29.7% to $27.3 million from $38.9 million.

Broadcast

• Net broadcast revenue decreased 2.9% to $196.2 million from $202.0 million;
• SOI (1) decreased 9.0% to $50.7 million from $55.7 million;
• Same Station (1) net broadcast revenue decreased 2.5% to $195.5 million from $200.4 million; and
• Same Station SOI (1) decreased 8.8% to $50.9 million from $55.8 million.

Digital Media

• Digital media revenue decreased 7.9% to $43.1 million from $46.8 million; and
• Digital Media Operating Income (1) decreased 10.2% to $9.4 million from $10.5 million.

Publishing

• Publishing revenue decreased 4.3% to $24.4 million from $25.5 million; and
• Publishing Operating Loss (1) decreased 95.3% to $32,000 from $0.7 million.

Included in the results for the twelve months ended December 31, 2017 are:

• A $3.9 million ($2.3 million, net of tax, or $0.09 per share) net loss on the sale or disposal of assets, including a $4.7 million estimated loss for the sale of WQVN-AM (formerly WKAT-AM) in Miami, Florida that was offset by a $0.5 million gain from the sale of a former transmitter site in our Dallas, Texas market and a $0.4 million gain on the sale of the WSPZ-AM tower site;
• A $2.8 million loss ($1.7 million, net of tax, or $0.06 per share) on the early redemption of long-term debt due to the repayment and termination of the senior credit facilities consisting of a term loan (“Term Loan B”) and Revolver;
• A $23.0 million ($0.87 per share) income tax benefit was recorded in the fourth quarter of 2017 as a result of the Tax Cuts and Jobs Act of 2017; and
• A $1.7 million non-cash compensation charge ($1.0 million, net of tax, or $0.04 per share) related to the expensing of stock options and restricted stock consisting of:
  • $1.2 million non-cash compensation charge included in corporate expenses;
  • $0.3 million non-cash compensation charge included in broadcast operating expenses;
  • $0.1 million non-cash compensation charge included in digital media operating expenses; and
  • $0.1 million non-cash compensation charge included in publishing operating expenses.

Included in the results for the twelve months ended December 31, 2016 are:

• A $6.5 million ($3.9 million, net of tax, or $0.15 per share) impairment of indefinite-lived long-term assets related to the company’s broadcast licenses in the Cleveland, Dallas, Detroit and Portland markets;

• A $0.5 million ($0.3 million, net of tax, or $0.01 per share) impairment of indefinite-lived long-term assets related to the company’s mastheads within Salem Publishing;
• A $0.7 million impairment loss ($0.4 million, net of tax, or $0.02 per share) on land held for sale in Covina, California;
• A $1.9 million ($1.1 million, net of tax, or $0.04 per diluted share) net gain on the sale or disposal of assets primarily associated with the $1.9 million gain on the sale of the Miami tower site and a $0.7 million gain from a land easement in South Carolina offset by a $0.4 million charge for leasehold improvements incurred upon the relocation of the offices in the Washington D.C. market and a net loss of $0.3 million related to various fixed asset disposals;
• A $1.6 million (or $0.06 per share) increase in the deferred tax valuation allowance;
• A $0.7 million ($0.4 million, net of tax, or $0.02 per share) net decrease in the estimated fair value of the contingent earn-out consideration associated with the Eagle entities, Bryan Perry Newsletters, Daily Devotional and Turner Investment acquisitions;
• A $0.5 million ($0.3 million, net of tax, or $0.01 per share) reserve for a litigation matter;
• A $0.1 million gain on bargain purchase of KXFN-AM in St. Louis, Missouri; and
• A $0.6 million non-cash compensation charge ($0.3 million, net of tax, or $0.01 per share) related to the expensing of stock options consisting of:
  • $0.4 million non-cash compensation included in corporate expenses;
  • $0.1 million non-cash compensation included in broadcast operating expenses; and
  • $0.1 million non-cash compensation included in Digital media operating expenses.

Per share numbers are calculated based on 26,435,757 diluted weighted average shares for the twelve months ended December 31, 2017, and 26,034,990 diluted weighted average shares for the twelve months ended December 31, 2016.

Balance Sheet

As of December 31, 2017, the company had $255.0 million outstanding on the 6.75% senior secured notes due 2024 (the “Notes”) and $9.0 million outstanding under the Asset Based Revolving Credit Facility (“ABL Facility”).

Acquisitions and Divestitures

The following transactions were completed since October 1, 2017:

• On December 28, 2017, the company sold real property, including the land, tower and broadcasting facilities, of radio station WSPZ-AM (now WWRC-AM) in Bethesda, Maryland for $1.9 million in cash.

• On November 22, 2017, the company closed on the acquisition of radio station WSPZ-AM (now WWRC-AM) in Bethesda, Maryland for $0.6 million in cash from a related party.

The following transactions are currently pending:

• On December 1, 2017, the company entered into an agreement to sell radio station WQVN-AM (formerly WKAT-AM) in Miami, Florida for $3.5 million in cash. The buyer began operating the radio station under a Local Marketing Agreement (“LMA”) as of the same date. The sale is expected to close during the first quarter of 2018. The company recorded an estimated loss on the sale of assets of $4.7 million as of December 31, 2017, based on the probability of the sale, which reflected the sales price as compared to the carrying value of the assets and the estimated costs of the sale.
• On December 29, 2017, the company entered into two LMAs to program radio stations KPAM-AM and KKOV-AM in Portland, Oregon. The company began operating the radio stations on January 2, 2018. The LMA’s have a 12-month term.
• On January 3, 2018, the company entered into an agreement to sell radio station WBIX-AM in Boston, Massachusetts for $0.7 million in cash. The sale is expected to close later in 2018.
• On March 1, 2018, the company entered into an Asset Purchase Agreement to acquire radio station KZTS-FM in Little Rock, Arkansas for $1.1 million in cash. The company will begin programming the radio station under a LMA on April 1, 2018.

Conference Call Information

Salem will host a teleconference to discuss its results on March 15, 2018 at 2:00 p.m. Pacific Time. To access the teleconference, please dial (877) 524-8416, and then ask to be joined into the Salem Media Group Fourth Quarter 2017 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 March 29, 2018 and can be heard by dialing (877) 660-6853, passcode 13675938 or on the investor relations portion of the company’s website, located at investor.salemmedia.com.

First Quarter 2018 Outlook

For the first quarter of 2018, the company is projecting total revenue to decline between 1% and 3% over first quarter 2017 total revenue of $65.0 million. The company is also projecting operating expenses, excluding 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 1% decline and a 2% increase compared to the first quarter of 2017 operating expenses, excluding 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, depreciation expense and amortization expense of $54.6 million.

A reconciliation of non-GAAP operating expenses, excluding 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 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.

Follow us on Twitter @SalemMediaGrp.

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.

The company is the largest commercial U.S. radio broadcasting company providing Christian and conservative programming. Salem owns and/or operates 119 radio stations, with 74 stations in the top 25 media markets. Salem Radio Network (“SRN”) is a full-service national radio network, with nationally syndicated programs comprising Christian teaching and talk, conservative talk, news, and music. SRN is home to many industry-leading hosts including: Hugh Hewitt, Mike Gallagher, Dennis Prager, Michael Medved, Larry Elder, Joe Walsh and Eric Metaxas.

Salem’s digital media is a leading source of Christian and conservative themed news, analysis, and commentary. Salem’s Christian sites include: BibleStudyTools.com, Crosswalk.com, GodVine.com, ibelieve.com, GodTube.com, OnePlace.com, Christianity.com®, churchstaffing.com and WorshipHouseMedia.com. Salem’s conservative sites include Townhall.com®, HotAir.com, Twitchy.com, RedState.com, and BearingArms.com.

Salem’s Regnery Publishing unit, with a history dating back to 1948, is the nation’s leading independent publisher of conservative books. Having published many of the seminal works of the early conservative movement, Regnery today continues as a major publisher in the conservative space, with leading authors including: Ann Coulter, Newt Gingrich, David Limbaugh, Ed Klein, Mark Steyn and Dinesh D’Souza. Salem’s book publishing business also includes Salem Author Services, composed of Xulon Press™, Mill City Press and Bookprinting.com, which offer print-on-demand self-publishing services for authors.

Salem's Eagle Financial Publications provides general market analysis and non-individualized investment strategies from financial commentators Mark Skousen, Bob Carlson, Jim Woods, and Bryan Perry, as well as a stock screening website for dividend investors (DividendInvestor.com). The business unit's other investing websites include StockInvestor.com and RetirementWatch.com.

Eagle Wellness, through its website newportnaturalhealth.com, provides insightful health advice and is a trusted source of high quality nutritional supplements from leading health expert, Leigh Erin Connealy MD. Dr. Connealy is the medical director of one of the largest medical practices in the country where she practices integrative medicine.

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.

The company defines EBITDA (1) as net income before interest, taxes, depreciation, and amortization. The table below presents a reconciliation of EBITDA (1) to Net Income, the most directly comparable GAAP measure. EBITDA (1) is a non-GAAP financial performance measure that is not to be considered a substitute for or superior to the directly comparable measures reported in accordance with GAAP.

The company defines Adjusted EBITDA (1) as EBITDA (1) before gains or losses on the sale or disposal 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) loss on early retirement of long-term debt and before non-cash compensation expense. The table below presents a reconciliation of Adjusted EBITDA (1) to Net Income, the most directly comparable GAAP measure. Adjusted EBITDA (1) is a non-GAAP financial performance measure that is not to be considered a substitute for or superior to the directly comparable measures reported in accordance with GAAP.

The company defines Credit Agreement Adjusted EBITDA (1) as Adjusted EBITDA (1) plus adjustments permitted under the terms of the company’s senior credit facility. The table below presents a reconciliation of Credit Agreement Adjusted EBITDA (1) to Net Income, the most directly comparable GAAP measure. Credit Agreement Adjusted EBITDA (1) is a non-GAAP financial performance measure that is not to be considered a substitute for or superior to the directly comparable measures reported in accordance with GAAP.

The company defines Adjusted Free Cash Flow (1) as Adjusted EBITDA (1) 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 table below presents a reconciliation of Adjusted Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure. Adjusted Free Cash Flow is a non-GAAP liquidity measure that is not to be considered a substitute for or superior to the directly comparable measures reported in accordance with GAAP.

View source version on businesswire.com: http://www.businesswire.com/news/home/20180315006262/en/

Salem Media Group, Inc.
Evan D. Masyr
Executive Vice President & Chief Financial Officer
(805) 384-4512
Evan@SalemMedia.com

Source: Salem Media Group, Inc.

Released March 15, 2018