Table of Contents
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER
000-26497
 
 
SALEM MEDIA GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
LOGO
 
 
 
DELAWARE
 
77-0121400
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
 
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
   
6400 NORTH BELT LINE ROAD
IRVING, TEXAS
 
75063
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
(ZIP CODE)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (469)
586-0080
 
 
 
Title of each Class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Class A Common Stock, $0.01 par value per share
 
SALM
 
NASDAQ Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer  
       
Non-accelerated filer      Smaller Reporting Company  
       
         Emerging Growth Company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class A
 
Outstanding at November 2, 2021
Common Stock, $0.01 par value per share   21,431,824 shares
 
Class B
 
Outstanding at November 2, 2021
Common Stock, $0.01 par value per share   5,553,696 shares
 
 
 

Table of Contents
SALEM MEDIA GROUP, INC.
INDEX
 
     PAGE NO.  
  
     2  
     3  
  
     4  
     34  
     61  
     62  
  
     62  
     62  
     62  
     62  
     62  
     62  
     62  
     63  
     64  
 
2

Table of Contents
CERTAIN DEFINITIONS
Unless the context requires otherwise, all references in this report to “Salem” or the “company,” including references to Salem by “we” “us” “our” and “its” refer to Salem Media Group, Inc. and our subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Salem makes “forward-looking statements” from time to time in both written reports (including this annual report) and oral statements, within the meaning of federal and state securities laws. Disclosures that use words such as the company “believes,” “anticipates,” “estimates,” “expects,” “intends,” “will,” “may,” “intends,” “could,” “would,” “should,” “seeks,” “predicts,” or “plans” and similar expressions are intended to identify forward-looking statements, as defined under the Private Securities Litigation Reform Act of 1995.
You should not place undue reliance on these forward-looking statements, which reflect our expectations based upon data available to the company as of the date of this annual report. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. Except as required by law, the company undertakes no obligation to update or revise any forward-looking statements made in this annual report. Any such forward-looking statements, whether made in this annual report or elsewhere, should be considered in context with the various disclosures made by Salem about its business. These projections and other forward-looking statements fall under the safe harbors of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
 
3

Table of Contents
PART I – FINANCIAL INFORMATION
SALEM MEDIA GROUP, INC.
 
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
4

Table of Contents
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
 
 
     December 31, 2020
(Note 1)
   
September 30, 2021

(Unaudited)
 
ASSETS
                
Current assets:
                
Cash and cash equivalents
   $ 6,325    
$
23,781
 
Trade accounts receivable (net of allowances of $14,069 in 2020 and $11,680 in 2021)
     24,469    
 
24,429
 
Unbilled revenue
     3,192    
 
3,300
 
Other receivables (net of allowances of $124 in 2020 and $455 in 2021)
     1,122    
 
1,589
 
Inventories
     495    
 
907
 
Prepaid expenses
     6,847    
 
7,970
 
Assets held for sale
     3,346    
 
1,875
 
    
 
 
   
 
 
 
Total current assets
     45,796    
 
63,851
 
    
 
 
   
 
 
 
Notes receivable (net of allowance of $461 in 2020 and $996 in 2021)
     721    
 
364
 
Property and equipment (net of accumulated depreciation of $180,336 in 2020 and $185,127 in 2021)
     79,122    
 
78,425
 
Operating lease
right-of-use
assets
     48,203    
 
44,100
 
Financing lease
right-of-use
assets
     152    
 
121
 
Broadcast licenses
     319,773    
 
320,008
 
Goodwill
     23,757    
 
23,986
 
Amortizable intangible assets (net of accumulated amortization of $58,897 in 2020 and $57,769 in 2021)
     4,017    
 
2,785
 
Deferred financing costs
     213    
 
895
 
Other assets
     2,817    
 
3,678
 
    
 
 
   
 
 
 
Total assets
   $ 524,571    
$
538,213
 
    
 
 
   
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Accounts payable
   $ 2,006    
$
2,180
 
Accrued expenses
     11,002    
 
11,740
 
Accrued compensation and related expenses
     10,242    
 
10,752
 
Accrued interest
     1,225    
 
2,750
 
Contract liabilities
     11,652    
 
11,561
 
Deferred rent income
     147    
 
114
 
Income taxes payable
     563    
 
626
 
Current portion of operating lease liabilities
     8,963    
 
8,604
 
Current portion of financing lease liabilities
     60    
 
59
 
Current portion of long-term debt
     5,000    
 
  
 
    
 
 
   
 
 
 
Total current liabilities
     50,860    
 
48,386
 
    
 
 
   
 
 
 
Long-term debt, less current portion
     213,764    
 
208,559
 
Operating lease liabilities, less current portion
     47,740    
 
43,180
 
Financing (capital) lease liabilities, less current portion
     107    
 
79
 
Deferred income taxes
     68,883    
 
69,287
 
Contract liabilities, long-term
     1,869    
 
2,081
 
Deferred rent income, less current portion
     3,864    
 
3,795
 
Other long-term liabilities
     2,205    
 
2,248
 
    
 
 
   
 
 
 
Total liabilities
     389,292    
 
377,615
 
    
 
 
   
 
 
 
Commitments and contingencies (Note 14)
           
Stockholders’ Equity:
 
Class A common stock, $0.01 par value; authorized 80,000,000 shares; 23,447,317 and 23,639,824 issued and 21,129,667 and 21,322,174 outstanding at December 31, 2020 and September 30, 2021, respectively
     227    
 
229
 
Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding at December 31, 2020 and September 30, 2021, respectively
     56    
 
56
 
Additional
paid-in
capital
     247,025    
 
247,668
 
Accumulated deficit
     (78,023  
 
(53,349
Treasury stock, at cost (2,317,650 shares at December 31, 2020 and September 30, 2021)
     (34,006  
 
(34,006
    
 
 
   
 
 
 
Total stockholders’ equity
     135,279    
 
160,598
 
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 524,571    
$
538,213
 
    
 
 
   
 
 
 
See accompanying notes
 
5

Table of Contents
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)
(Unaudited)
 
    
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
     2020    
2021
    2020    
2021
 
Net broadcast revenue
   $ 45,391    
$
49,591
 
  $ 130,041    
$
140,422
 
Net digital media revenue
     9,808    
 
10,645
 
    28,355    
 
30,603
 
Net publishing revenue
     5,442    
 
5,747
 
    13,366    
 
18,093
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Total net revenue
     60,641    
 
65,983
 
    171,762    
 
189,118
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Operating expenses:
                                
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $447 and $480 for the three months ended September 30, 2020 and 2021, respectively, and $1,313 and $1,369 for the nine months ended September 30, 2020 and 2021, respectively, paid to related parties)
     34,283    
 
37,463
 
    104,704    
 
106,968
 
Digital media operating expenses, exclusive of depreciation and amortization shown below
     7,144    
 
8,269
 
    23,123    
 
25,280
 
Publishing operating expenses, exclusive of depreciation and amortization shown below
     5,814    
 
5,213
 
    16,443    
 
16,844
 
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $18 and $0 for the three months ended September 30, 2020 and 2021, respectively, and $198 and $5 for the nine months ended September 30, 2020 and 2021, respectively, paid to related parties)
     3,849    
 
4,284
 
    11,909    
 
12,764
 
Debt modification costs
     —      
 
2,347
 
    —      
 
2,347
 
Depreciation
     2,677    
 
2,788
 
    8,108    
 
8,118
 
Amortization
     751    
 
427
 
    2,578    
 
1,553
 
Change in the estimated fair value of contingent
earn-out
consideration
     (10  
 
—  
 
    (12  
 
—  
 
Impairment of indefinite-lived long-term assets other than goodwill
     —      
 
—  
 
    17,254    
 
—  
 
Impairment of goodwill
     —      
 
—  
 
    307    
 
—  
 
Net (gain) loss on the disposition of assets
     1,381    
 
(10,607
    1,494    
 
(10,552
    
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     55,889    
 
50,184
 
    185,908    
 
163,322
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Operating income (loss)
     4,752    
 
15,799
 
    (14,146  
 
25,796
 
Other income (expense):
                                
Interest income
     1    
 
—  
 
    1    
 
1
 
Interest expense
     (4,024  
 
(4,026
    (12,069  
 
(11,887
Gain on the forgiveness of PPP loans
     —      
 
11,212
 
    —      
 
11,212
 
Gain (loss) on the early retirement of long-term debt
     —      
 
(56
    49    
 
(56
Net miscellaneous income and (expenses)
     1    
 
2
 
    (45  
 
87
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss) before income taxes
     730    
 
22,931
 
    (26,210  
 
25,153
 
Provision for income taxes
     401    
 
837
 
    31,180    
 
479
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss)
   $ 329    
$
22,094
 
  $ (57,390  
$
24,674
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Basic income (loss) per share data:
                                
Basic income (loss) per share
   $ 0.01    
$
0.82
 
  $ (2.15  
$
0.92
 
Diluted income (loss) per share data:
                                
Diluted income (loss) per share
   $ 0.01    
$
0.81
 
  $ (2.15  
$
0.91
 
Basic weighted average shares outstanding
     26,683,363    
 
26,870,664
 
    26,683,363    
 
26,825,483
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Diluted weighted average shares outstanding
     27,791,353    
 
27,280,949
 
    26,683,363    
 
27,217,382
 
    
 
 
   
 
 
   
 
 
   
 
 
 
 
See accompanying notes
 
 
6

Table of Contents
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
    
Accumulated
   
Treasury
       
    
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Deficit
   
Stock
   
Total
 
Stockholders’ equity, December 31, 2019
     23,447,317      $ 227        5,553,696      $ 56      $ 246,680      $ (23,294   $ (34,006   $ 189,663  
Stock-based compensation
     —          —          —          —          103        —         —         103  
Cash distributions
     —          —          —          —          —          (667     —         (667
Net loss
     —          —          —          —          —          (55,204     —         (55,204
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stockholders’ equity, March 31, 2020
     23,447,317      $ 227        5,553,696      $ 56      $ 246,783      $ (79,165   $ (34,006   $ 133,895  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Distributions per share
   $ 0.025               $ 0.025                                             
    
 
 
             
 
 
                                            
Stock-based compensation
     —          —          —          —          96        —         —         96  
Net loss
     —          —          —          —          —          (2,515     —         (2,515
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stockholders’ equity, June 30, 2020
     23,447,317      $ 227        5,553,696      $ 56      $ 246,879      $ (81,680   $ (34,006   $ 131,476  
Stock-based compensation
     —          —          —          —          74        —         —         74  
Net income
     —          —          —          —          —          329       —         329  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stockholders’ equity, September 30, 2020
  
 
23,447,317
 
  
$
227
 
  
 
5,553,696
 
  
$
56
 
  
$
246,953
 
  
$
(81,351
 
$
(34,006
 
$
131,879
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
 
    
Class A
    
Class B
                           
    
Common Stock
    
Common Stock
    
Additional
                    
                                
Paid-In
    
Accumulated
   
Treasury
       
    
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Deficit
   
Stock
   
Total
 
Stockholders’ equity, December 31, 2020
     23,447,317      $ 227        5,553,696      $ 56      $ 247,025      $ (78,023   $ (34,006   $ 135,279   
Stock-based compensation
     —          —          —          —          78        —         —         78  
Options exercised
     185,782        2        —          —          390        —         —         392  
Net income
     —          —          —          —          —          323       —         323  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stockholders’ equity, March 31, 2021
     23,633,099      $ 229        5,553,696      $ 56      $ 247,493      $ (77,700   $ (34,006   $ 136,072  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stock-based compensation
     —          —          —          —          84        —         —         84  
Net income
     —          —          —          —          —          2,257       —         2,257  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stockholders’ equity, June 30, 2021
     23,633,099      $ 229        5,553,696      $ 56      $ 247,577      $ (75,443   $ (34,006   $ 138,413  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stock-based compensation
     —          —          —          —          78        —         —         78  
Options exercised
     6,725        —          —          —          13        —         —         13  
Net income
     —          —          —          —          —          22,094       —         22,094  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stockholders’ equity, September 30, 2021
  
 
23,639,824
 
  
$
229
 
  
 
5,553,696
 
  
$
56
 
  
$
247,668
 
  
$
(53,349
 
$
(34,006
 
$
160,598
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
See accompanying notes
 
7

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SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
    
Nine Months Ended

September 30,
 
    
2020
   
2021
 
OPERATING ACTIVITIES
                
Net income (loss)
   $ (57,390  
$
24,674
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                
Non-cash
stock-based compensation
     273    
 
240
 
Depreciation and amortization
     10,686    
 
9,671
 
Amortization of deferred financing costs
     675    
 
690
 
Non-cash
lease expense
     6,745    
 
6,527
 
Provision for bad debts
     4,122    
 
(248
Deferred income taxes
     30,954    
 
404
 
Change in the estimated fair value of contingent
earn-out
consideration
     (12  
 
—  
 
Impairment of indefinite-lived long-term assets other than goodwill
     17,254    
 
—  
 
Impairment of goodwill
     307    
 
—  
 
Gain on the forgiveness of PPP loans
     —      
 
(11,212
Gain (loss) on the early retirement of long-term debt
     (49  
 
56
 
Net (gain) loss on the disposition of assets
     1,494    
 
(10,552
Changes in operating assets and liabilities:
                
Accounts receivable and unbilled revenue
     2,565    
 
(67
Inventories
     99    
 
(412
Prepaid expenses and other current assets
     (1,343  
 
(1,218
Accounts payable and accrued expenses
     5,871    
 
2,596
 
Operating lease liabilities
     (6,396  
 
(7,317
Contract liabilities
     5,274    
 
782
 
Deferred rent income
     (268  
 
28
 
Other liabilities
     2,254    
 
41
 
Income taxes payable
     30    
 
63
 
    
 
 
   
 
 
 
Net cash provided by operating activities
     23,145    
 
14,746
 
    
 
 
   
 
 
 
INVESTING ACTIVITIES
                
Cash paid for capital expenditures net of tenant improvement allowances
     (3,565  
 
(6,952
Capital expenditures reimbursable under tenant improvement allowances and trade agreements
     (140  
 
(138
Deposit on broadcast assets and radio station acquisitions
     —      
 
(100
Purchases of broadcast assets and radio stations
     —      
 
(600
Purchases of digital media businesses and assets
     (400  
 
(3,980
Proceeds from sale of long-lived assets
     188    
 
15,771
 
Proceeds from the cash surrender value of life insurance policies
     2,363    
 
—  
 
Other
     (353  
 
(1,227
    
 
 
   
 
 
 
Net cash provided by (used in) investing activities
     (1,907  
 
2,774
 
    
 
 
   
 
 
 
FINANCING ACTIVITIES
                
Proceeds from 2028 Notes
     —      
 
114,731
 
Payments to repurchase or exchange 2024 Notes
     (3,392  
 
(119,443
Proceeds from borrowings under ABL Facility
     38,626    
 
16
 
Payments on ABL Facility
     (34,452  
 
(5,016
Proceeds from borrowings under PPP Loans
     —      
 
11,195
 
Payments under PPP loans
     —      
 
17
 
Payments of debt issuance costs
     (124  
 
(1,921
Proceeds from the exercise of stock options
     —      
 
405
 
Payments on financing lease liabilities
     (52  
 
(48
Payment of cash distribution on common stock
     (667  
 
—  
 
Book overdraft
     (1,885  
 
—  
 
    
 
 
   
 
 
 
Net cash used in financing activities
     (1,946  
 
(64
    
 
 
   
 
 
 
Net increase in cash and cash equivalents
     19,292    
 
17,456
 
Cash and cash equivalents at beginning of year
     6    
 
6,325
 
    
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $ 19,298    
$
23,781
 
    
 
 
   
 
 
 
   
 
See accompanying notes
 
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SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
(Unaudited)
 
    
Nine Months Ended

September 30,
 
    
2020
    
2021
 
Supplemental disclosures of cash flow information:
                 
Cash paid during the period for:
                 
Cash paid for interest, net of capitalized interest
   $   7,731     
$
  9,628
 
Cash paid for interest on finance lease liabilities
   $ 6     
$
6
 
Net cash paid for (received from) income taxes
   $ 196     
$
13
 
Other supplemental disclosures of cash flow information:
                 
Barter revenue
   $ 2,152     
$
1,647
 
Barter expense
   $ 1,971     
$
1,699
 
Non-cash
investing and financing activities:
                 
Capital expenditures reimbursable under tenant improvement allowances
   $ 140     
$
138
 
Deferred payments on acquisitions
   $ 708     
 
  
 
Right-of-use
assets acquired through operating leases
   $ 2,715     
$
3,466
 
Right-of-use
assets acquired through financing leases
   $ —       
$
17
 
Non-cash
capital expenditures for property & equipment acquired under trade agreements
   $ 4     
$
27
 
Net assets and liabilities assumed in a
non-cash
acquisition
   $ —       
$
311
 
Estimated present value of contingent-earn out consideration
   $ —       
$
11
 
 
See accompanying notes
 
 
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SALEM MEDIA GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
Business
Salem Media Group, Inc. (“Salem,” “we,” “us,” “our” or the “company”) is a domestic multimedia company specializing in Christian and conservative content. Our media properties include radio broadcasting, digital media, and publishing entities. We have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which are discussed in Note 17 – Segment Data.
Impact of the
COVID-19
Pandemic
The
COVID-19
global pandemic that began in March 2020 materially impacted our business. We experienced a rapid decline in revenue from advertising, programming, events and book sales. Several advertisers reduced or ceased advertising spending due to the outbreak and
stay-at-home
orders that effectively shut many businesses down. The revenue decline impacted our broadcast segment, which derives substantial revenue from local advertisers who were particularly hard hit due to social distancing and government interventions, and our publishing segment, which derives revenue from book sales through retail stores and live events.
While we see progress being made in revenue returning to
pre-pandemic
levels, the
COVID-19
pandemic continues to create significant uncertainty and disruption in the economy. These uncertainties could materially impact significant accounting estimates related to, but not limited to, allowances for doubtful accounts, impairments and
right-of-use assets.
As a result, many estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. These estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
During 2020 we implemented several measures to reduce costs and conserve cash to ensure that we had adequate cash to meet our debt servicing requirements, including:
 
   
limiting capital expenditures;
 
   
reducing discretionary spending, including travel and entertainment;
 
   
eliminating open positions and freezing new hires;
 
   
reducing staffing levels;
 
   
implementing temporary company-wide pay cuts of 5%, 7.5% or 10% depending on salary level;
 
   
furloughing certain employees;
 
   
temporarily suspending the company 401(k) match;
 
   
requesting rent concessions from landlords;
 
   
requesting discounts from vendors;
 
   
offering early payment discounts to certain customers in exchange for advance cash payments; and
 
   
suspending the payment of distributions on our common stock indefinitely.
As the economy continues to show signs of recovery, many of these cost reduction initiatives were reversed during 2021. We continue to operate with lower staffing levels, we have not reinstated the company 401(k) match and we have not paid equity distributions on our common stock.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act provided emergency economic assistance for individuals and businesses impacted by the
COVID-19
pandemic, including opportunities for additional liquidity, loan guarantees, and other government programs. On December 27, 2020, Congress passed the Consolidated Appropriations Act (“CAA”) that included a second relief package, which, among other things, provides for an extension of the Payroll Support Program established by the CARES Act. We utilized certain benefits of the CARES Act and the CAA, including:
 
   
we deferred $3.3 million of employer FICA taxes from April 2020 through December 2020, with 50% payable in December 2021 recorded in accrued compensation and related expenses and 50% payable in December 2022 recorded in other long-term liabilities;
 
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relaxation of interest expense deduction limitation for income tax purposes;
 
   
we received Paycheck Protection Program (“PPP”) loans of $11.2 million in total during the first quarter of 2021 through the Small Business Association (“SBA”) based on the eligibility as determined on a
per-location
basis; and
 
   
In July 2021, the SBA forgave all but $20,000 of the PPP loans, with the remaining PPP loan repaid in July 2021.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements of Salem include the company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
Information with respect to the three and nine months ended September 30, 2021 and 2020 is unaudited. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form
10-Q
and Article 10 of Regulation
S-X.
Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position, results of operations and cash flows of the company. The unaudited interim financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report for Salem filed on Form
10-K
for the year ended December 31, 2020. Our results are subject to seasonal fluctuations and therefore, the results of operations for the interim periods presented are not necessarily indicative of the results of operations for a full year.
The balance sheet at December 31, 2020 included in this report has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP. Certain reclassifications have been made to the prior year financial statements to conform to the presentation in the current year, which had no impact on the previously reported financial statements.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results can be materially different from these estimates and assumptions.
Significant areas for which management uses estimates include:
 
   
revenue recognition;
 
   
asset impairments, including broadcasting licenses, goodwill and other indefinite-lived intangible assets;
 
   
probabilities associated with the potential for contingent
earn-out
consideration;
 
   
fair value measurements;
 
   
contingency reserves;
 
   
allowance for doubtful accounts;
 
   
sales returns and allowances;
 
   
barter transactions;
 
   
inventory obsolescence;
 
   
reserves for royalty advances;
 
   
fair value of equity awards;
 
   
self-insurance reserves;
 
   
estimated lives for tangible and intangible assets;
 
   
assessment of contract-based factors, asset-based factors, entity-based factors and market-based factors to determine the lease term impacting
Right-Of-Use
(“ROU”) assets and lease liabilities;
 
   
determining the Incremental Borrowing Rate (“IBR”) for calculating ROU assets and lease liabilities,
 
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income tax valuation allowances;
 
   
uncertain tax positions; and
 
   
estimates used in going concern analysis.
These estimates require the use of judgment as future events and the effect of these events cannot be predicted with certainty. The estimates will change as new events occur, as more experience is acquired and as more information is obtained. We evaluate and update our assumptions and estimates on an ongoing basis and we may consult outside experts to assist as considered necessary.
The
COVID-19
pandemic continues to create significant uncertainty and disruption in the global economy and financial markets. It is reasonably possible that these uncertainties could materially impact our estimates related to, but not limited to, revenue recognition, broadcast licenses, goodwill and income taxes. As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. Our estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in our consolidated financial statements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no changes to our significant accounting policies described in Note 2 to our Annual Report on Form
10-K
for the year ended December 31, 2020, filed with the SEC on March 4, 2021, that have had a material impact on our Condensed Consolidated Financial Statements and related notes.
Recent Accounting Pronouncements
All new accounting pronouncements that are in effect that may impact our financial statements have been implemented. We do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position, results of operations or cash flows
.
NOTE 3. RECENT TRANSACTIONS
During the nine-month period ended September 30, 2021, we completed or entered into the following transactions:
Debt Transactions
On September 24, 2021, we repurchased $4.7 million of the 6.75% Senior Secured Notes due 2024 (“2024 Notes”) for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs.
On September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of newly issued 7.125% Senior Secured Notes due 2028 (“2028 Notes.”) Contemporaneously with the refinancing, we obtained commitments from the holders of the 2028 Notes to purchase up to $50 million in additional 2028 Notes (“Delayed Draw 2028 Notes,”) contingent upon satisfying certain performance benchmarks, the proceeds of which are to be used exclusively to repurchase or repay the remaining balance outstanding of the 2024 Notes. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 470, “
Debt
.” We incurred debt issuance costs of $4.2 million, of which $2.3 million of third-party debt modification costs are reflected in operating expenses for the current period, $0.8 million is deferred with the Delayed Draw 2028 Notes, and $1.1 million, along with $3.0 million from the exchanged 2024 Notes, is being amortized as part of the effective yield on the 2028 Notes.
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. The PPP loans were accounted for as debt in accordance with FASB ASC Topic 470. The loan balances and accrued interest were forgivable provided that the proceeds were used for eligible purposes, including payroll, benefits, rent and utilities within the covered period. We used the PPP loan proceeds according to the terms and filed timely applications for forgiveness. During July 2021, the SBA forgave all but $20,000 of the PPP loans resulting in a
pre-tax
gain on the forgiveness of $11.2 million. The remaining PPP loan was repaid in July 2021.
Shelf Registration Statement and
At-the-Market
Facility
In April 2021, we filed a prospectus supplement to our shelf registration statement on Form
S-3
with the SEC covering the offering, issuance and sale of up to $15.0 million of our Class A Common Stock pursuant to an
at-the-market
facility, with B. Riley Securities, Inc. acting as sales agent. No Common Stock transactions have taken place under the facility.
 
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Acquisitions
The operating results of our business acquisitions and asset purchases are included in our consolidated results of operations from their respective closing date or the date that we began operating them under a Local Marketing Agreement (“LMA”) or Time Brokerage Agreement (“TBA.”)
On July 2, 2021, we acquired the SeniorResource.com domain for $0.1 million in cash.
On July 1, 2021, we acquired the ShiftWorship.com domain and digital assets for $2.6 million in cash. The digital content library is operated within Salem Web Network’s church products division. We recognized goodwill of $0.2 million attributable to the expected synergies to be realized when combining the operations of this entity into our existing operations.
On June 1, 2021, we acquired radio stations
KDIA-AM
and
KDYA-AM
in San Francisco, California for $0.6 million in cash. The radio stations were acquired in formats that we operate and resulted in $4,000 of goodwill attributable to the additional audience reach obtained and the expected synergies to be realized from combining the operations of these stations into our existing market cluster.
On April 28, 2021, we acquired the Centerline New Media domain and digital assets for $1.3 million in cash. The digital content library is operated within Salem Web Network’s church products division. We recognized goodwill of $24,000 attributable to the expected synergies to be realized when combining the operations of this entity into our existing operations.
On March 8, 2021, we acquired the Triple Threat Trader newsletter. We paid no cash at the time of closing and assumed deferred subscription liabilities of $0.1 million. As part of the purchase agreement, we may pay up to an additional $11,000 in contingent
earn-out
consideration over the next two years based on the achievement of certain revenue benchmarks.
A summary of our business acquisitions and asset purchases during the nine-month period ending September 30, 2021, none of which were individually or in the aggregate material to our consolidated financial position as of the respective date of acquisition, is as follows:
 
Acquisition Date
  
Description
  
Total Consideration
 
         
(Dollars in thousands)
 
July 2, 2021
   SeniorResource.com (asset acquisition)   
$
80
 
July 1, 2021
   ShiftWorship.com (business acquisition)   
 
2,600
 
June 1, 2021
  
KDIA-AM
and
KDYA-AM
San Francisco, California (business acquisition)
  
 
600
 
April 28, 2021
   Centerline New Media (business acquisition)   
 
1,300
 
March 8, 2021
   Triple Threat Trader (asset acquisition)   
 
127
 
         
 
 
 
         
$
4,707
 
         
 
 
 
Under the acquisition method of accounting as specified in FASB ASC Topic 805, “
Business Combinations
,” the total acquisition consideration of a business is allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the date of the transaction. Transactions that do not meet the definition of a business in ASU
2017-01
Business Combinations (Topic 805) Clarifying the Definition of a Business”
are recorded as asset purchases. Asset purchases are recognized based on their cost to acquire, including transaction costs. The cost to acquire an asset group is allocated to the individual assets acquired based on their relative fair value with no goodwill recognized.
The total acquisition consideration is equal to the sum of all cash payments, the fair value of any deferred payments and promissory notes, and the present value of any estimated contingent
earn-out
consideration. We estimate the fair value of any contingent
earn-out
consideration using a probability-weighted discounted cash flow model. The fair value measurement is based on significant inputs that are not observable in the market
and
thus represent a Level 3 measurement as defined in Note 12, Fair Value Measurements and Disclosures.
The total purchase price consideration for our business acquisitions and asset purchases the nine-month period ending September 30, 2021, is as follows:
 
Description
  
Total Consideration
 
 
  
(Dollars in thousands)
 
Cash payments made upon closing
  
$
4,580
 
Deferred payments
  
 
116
 
Present value of estimated fair value of contingent
earn-out

consideration
  
 
11
 
    
 
 
 
Total purchase price consideration
  
$
4,707
 
    
 
 
 
 
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The allocations presented in the table below are based upon estimates of the fair values using valuation techniques including income, cost and market approaches. The following preliminary purchase price allocations are based upon the valuation of assets and these estimates and assumptions are subject to change as we obtain additional information during the measurement period, which may be up to one year from the acquisition date. Differences between the preliminary and final valuation could be substantially different from the initial estimate.
 
         
Net Broadcast
Assets Acquired
    
Net Digital
Assets Acquired
    
Total
Net Assets
 
                           
         
(Dollars in thousands)
 
Assets
                               
     Property and equipment    $ 361      $ 3,221      $ 3,582  
     Broadcast licenses      235                  235  
     Goodwill      4        225        229  
     Customer lists and contracts                789        789  
     Domain and brand names                66        66  
         
 
 
    
 
 
    
 
 
 
         
$
600
 
  
$
4,301
 
  
$
4,901
 
         
 
 
    
 
 
    
 
 
 
Liabilities
                               
     Contract liabilities, short-term                (194      (194
         
 
 
    
 
 
    
 
 
 
         
$
600
 
  
$
4,107
 
  
$
4,707
 
         
 
 
    
 
 
    
 
 
 
Divestitures
The operating results of business and asset divestitures are excluded from our consolidated results of operations from their respective closing date or the date that a third-party began operating them under an LMA or TBA.
On July 27, 2021, we sold the Hilary Kramer Financial Newsletter and related assets for $0.2 million to be collected in quarterly installments over the
two-year
period ending September 30, 2023. We recognized a
pre-tax
gain on the sale of $0.1 million.
On July 23, 2021, we sold approximately 34 acres of land in Lewisville, Texas, for $12.1 million in cash. The land was being used for as the transmitter site for company owned radio station
KSKY-AM.
We retained a portion of the land in the southwest corner of the site to continue operating the radio station. We recognized a
pre-tax
gain on the sale of $10.5 million.
On May 25, 2021, we sold Singing News Magazine and Singing News Radio for $0.1 million in cash. In addition to the assets sold, the buyer assumed deferred subscription liabilities of $0.4 million resulting in a
pre-tax
gain on the sale of $0.5 million.
On March 18, 2021, we sold radio station
WKAT-AM
and an FM translator in Miami, Florida for $3.5 million. We collected $3.2 million in cash upon closing and received a promissory note for $0.3 million due one year from the closing date. The buyer began operating the station under an LMA in November 2020. We recognized an estimated
pre-tax
loss of $1.4 million during the three-month period ended September 30, 2020, the date we entered into an Asset Purchase Agreement (“APA”) with the buyer, which reflected the sale price as compared to the carrying value of the assets to be sold, estimated closing costs, and the
write-off
of the remaining Miami assets as a result of exiting this market. We adjusted the
pre-tax
loss by $0.4 million to $1.8 million upon closing based on the actual closing costs incurred and a reconciliation of total station assets to the assets included in the sale.
Pending Transactions
On August 31, 2021, we entered an agreement to sell 9.3 acres of land in the Denver area for $8.2 million.
We expect to close this sale early in 2022 and plan to continue broadcasting both
KRKS-AM
and
KBJD-AM
from this site.
On August 23, 2021, we entered an agreement to sell approximately 77 acres of land in Tampa, Florida for $13.5 million. We will move the transmitter for
WTBN-AM
and diplex it at our owned and operated
WGUL-AM
facility. We expect to close on this transaction by the end of the year.
On June 2, 2021, we entered into an APA to acquire radio station
KKOL-AM
in Seattle, Washington for $0.5 million. We paid $0.1 million in cash into an escrow account and we began operating the station under an LMA on June 7, 2021.
On February 5, 2020, we entered into an APA with Word Broadcasting to sell radio stations
WFIA-AM,
WFIA-FM
and
WGTK-AM
in Louisville, Kentucky for $4.0 million with credits applied from amounts previously paid, including a portion of the monthly fees paid under a TBA. Due to changes in debt markets, the transaction was not funded, and it is uncertain when, or if, the transaction will close. Word Broadcasting continues to program the stations under a TBA that began in January 2017.
 
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NOTE 4. REVENUE RECOGNITION
We recognize revenue in accordance with FASB ASC Topic 606, “
Revenue from Contracts with Customers,”
a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods or services are transferred to customers at an amount that reflects the consideration expected to be received. The application of FASB ASC Topic 606 requires us to use significant judgment and estimates when applying a five-step model applicable to all revenue streams.
The following table presents our revenues disaggregated by revenue source for each of our operating segments:
 
    
Nine Months Ended September 30, 2021
 
    
Broadcast
    
Digital Media
    
Publishing
    
Consolidated
 
                             
    
(Dollars in thousands)
 
By Source of Revenue:
                                   
Block Programming – National
   $ 35,824      $ —        $ —        $ 35,824  
Block Programming – Local
     18,072        —          —          18,072  
Spot Advertising – National
     10,565        —          —          10,565  
Spot Advertising – Local
     30,123        —          —          30,123  
Infomercials
     682        —          —          682  
Network
     14,729        —          —          14,729  
Digital Advertising
     18,415        13,859        132        32,406  
Digital Streaming
     3,559        2,579        —          6,138  
Digital Downloads and eBooks
     509        4,637        1,294        6,440  
Subscriptions
     828        9,227        262        10,317  
Book Sales and
e-commerce,
net of estimated sales returns and allowances
     289        163        10,851        11,303  
Self-Publishing Fees
     —          —          4,730        4,730  
Print Advertising
     2        —          123        125  
Other Revenues
     6,825        138        701        7,664  
    
 
 
    
 
 
    
 
 
    
 
 
 
    
$
 140,422
 
  
$
 30,603
 
  
$
 18,093
 
  
$
 189,118
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Timing of Revenue Recognition
                                   
Point in Time
   $  138,540      $  30,603      $  18,093      $  187,236  
Rental Income (1)
     1,882        —          —          1,882  
    
 
 
    
 
 
    
 
 
    
 
 
 
    
$
140,422
 
  
$
30,603
 
  
$
18,093
 
  
$
189,118
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
    
Nine Months Ended September 30, 2020
 
    
Broadcast
    
Digital Media
    
Publishing
    
Consolidated
 
                             
    
(Dollars in thousands)
 
By Source of Revenue:
                                   
Block Programming – National
   $ 35,536      $ —        $ —        $ 35,536  
Block Programming – Local
     18,211        —          —          18,211  
Spot Advertising – National
     10,179        —          —          10,179  
Spot Advertising – Local
     28,630        —          —          28,630  
Infomercials
     750        —          —          750  
Network
     13,505        —          —          13,505  
Digital Advertising
     10,676        14,473        216        25,365  
Digital Streaming
     1,981        2,611        —          4,592  
Digital Downloads and eBooks
     3,049        4,291        960        8,300  
Subscriptions
     868        6,679        519        8,066  
Book Sales and
e-commerce,
net of estimated sales returns and allowances
     1,128        108        6,849        8,085  
Self-Publishing Fees
     —          —          3,860        3,860  
Print Advertising
     1        —          278        279  
Other Revenues
     5,527        193        684        6,404  
    
 
 
    
 
 
    
 
 
    
 
 
 
    
$
 130,041
 
  
$
 28,355
 
  
$
 13,366
 
  
$
 171,762
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Timing of Revenue Recognition
                                   
Point in Time
   $  128,157      $  28,319      $  13,366      $  169,842  
Rental Income (1)
     1,884        36        —          1,920  
    
 
 
    
 
 
    
 
 
    
 
 
 
    
$
130,041
 
  
$
28,355
 
  
$
13,366
 
  
$
171,762
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
(1)
Rental income is not applicable to FASB ASC Topic 606, but shown for the purpose of identifying each revenue source presented in total revenue on our Condensed Consolidated Financial Statements within this report on Form
10-Q.
 
15

Table of Contents
A summary of our principal sources of revenue is as follows:
Block Programming
.
We recognize revenue from the sale of blocks of airtime to program producers that typically range from 12
1
/
2
, 25 or
50-minutes
of time. We separate block program revenue into
three
categories, National, Local and Infomercial revenue. Our stations are classified by format, including our three main formats Christian Teaching and Talk, News Talk, and Contemporary Christian Music. National and local programming content is complementary to our station format while infomercials are closely associated with long-form advertisements. Block programming revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Programming revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency. Block Programming revenue may also include variable consideration for charities and programmers that purchase blocks of airtime to generate donations and contributions from our audience.
Spot Advertising
. We recognize revenue from the sale of airtime to local and national advertisers who purchase spot commercials of varying lengths. Spot Advertising may include variable consideration for charities and programmers that purchase spots to generate donations and contributions from our audience. Advertising revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case, revenue is reported net of the commission retained by the agency.
Network Revenue
.
Network revenue includes the sale of advertising time on our national network and fees earned from the syndication of programming on our national network. Network revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Network revenue is recorded on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Digital Advertising.
We recognize revenue from the sale of advertising on our owned and operated websites, the sale of advertisements on our own and operated mobile applications, the sale of advertisements in digital newsletters that we produce, the sale of advertising in streaming and podcasts, and the sale of custom digital advertising solutions, such as web pages and social media campaigns that we offer to our customers. Digital advertising revenue is recognized at the time that the advertisement is delivered, or when the number of impressions delivered meets the previously agreed-upon performance criteria, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Digital advertising revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Salem Surround, our multimedia advertising agency, 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. In our role as a digital agency, our sales team provides our customers with integrated digital advertising solutions that optimize the performance of their campaign, which we view as one performance obligation. Our advertising campaigns are designed to be “white label” agreements between Salem and our advertiser, meaning we provide special care and attention to the details of the campaign. We provide custom digital product offerings, including tools for metasearch, retargeting, website design, reputation management, online listing services, and social media marketing. Digital advertising solutions may include third-party websites, such as Google or Facebook, which can be included in a digital advertising social media campaign. We manage all aspects of the digital campaign, including social media placements, review and approval of target audiences, and the monitoring of actual results to make modifications as needed. We may contract directly with a third-party, however, we are responsible for delivering the campaign results to our customer with or without the third-party. We are responsible for any payments due to the third-party regardless of the campaign results and without regard to the status of payment from our customer. We have discretion in setting the price to our customer without input or approval from the third-party. Accordingly, revenue is reported gross, as principal, as the performance obligation is delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation.
 
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Table of Contents
Digital Streaming
. We recognize revenue from the sale of advertisements and from the placement of ministry content that is streamed on our owned and operated websites and on our owned and operated mobile applications. Each of our radio stations, our digital media entities and certain publishing entities have custom websites and mobile applications that generate streaming revenue. Digital streaming revenue is recognized at the time that the content is delivered, or when the number of impressions delivered meets the previously agreed-upon performance criteria. Delivery of the content represents the point in time that control is transferred to the customer thereby completing our performance obligation. Streaming revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Digital Downloads and
e-books
. We recognize revenue from sale of downloaded materials, including videos, song tracks, sermons, content archives and
e-books.
Payments for downloaded materials are due in advance of the download, however, the download is often instant upon confirmation of payment. Digital download revenue is recognized at the time of download, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is recorded at the gross amount due from the customer. All sales are final with no allowances made for returns.
Subscriptions
. We recognize revenue from the sale of subscriptions for financial publication digital newsletters, digital magazines, podcast subscriptions for
on-air
content, and subscriptions to our print magazine. Subscription terms typically range from
three months
to
two years
, with a money-back guarantee for the first 30 days. Refunds after the first
30-day
period are considered on a
pro-rata
basis based on the number of publications issued and delivered. Payments are due in advance of delivery and can be made in full upon subscribing or in quarterly installments. Cash received in advance of the subscription term, including amounts that are refundable, is recorded in contract labilities. Revenue is recognized ratably over the subscription term at the point in time that each publication is transmitted or shipped, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is reported net of estimated cancellations, which are based on our experience and historical cancellation rates during the cancellable period.
Book Sales
. We recognize revenue from the sale of books upon shipment, which represents the point in time that control is transferred to the customer thereby completing the performance obligation. Revenue is recorded at the gross amount due from the customer, net of estimated sales returns and allowances based on our historical experience. Major new title releases represent a significant portion of the revenue in the current period. Print-based consumer books are sold on a fully returnable basis. We do not record assets or inventory for the value of returned books as they are considered used regardless of the condition returned. Our experience with unsold or returned books is that their resale value is insignificant and they are often destroyed or disposed of.
e-Commerce
. We recognize revenue from the sale of products sold through our digital platform. Payments for products are due in advance shipping. We record a contract liability when we receive customer payments in advance of shipment. The time frame from receipt of payment to shipment is typically one business day based on the time that an order is placed as compared to fulfillment.
E-Commerce
revenue is recognized at the time of shipment, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is reported net of estimated returns, which are based on our experience and historical return rates. Returned products are recorded in inventory if they are unopened and
re-saleable
with a corresponding reduction in the cost of goods sold.
Self-Publishing Fees
. We recognize revenue from self-publishing services through Salem Author Services (“SAS”), including book publishing and support services to independent authors. Services include book cover design, interior layout, printing, distribution, marketing services and editing for print books and
e-Books.
As each book and related support services are unique to each author, authors must make payments in advance of the performance. Payments are typically made in installments over the expected production timeline for each publication. We record contract liabilities equal to the amount of payments received, including those amounts that are fully or partially refundable. Contract liabilities were historically recorded under the caption “deferred revenue” and are reported as current liabilities or long-term liabilities on our consolidated financial statements based on the time to fulfill the performance obligations under terms of the contract. Refunds are limited based on the percentage completion of each publishing project.
Revenue is recognized upon completion of each performance obligation, which represents the point in time that control of the product is transferred to the author, thereby completing our performance obligation. Revenue is recorded at the net amount due from the author, including discounts based on the service package.
Advertising – Print
. We recognized revenue from the sale of print magazine advertisements. Revenue was recognized upon delivery of the print magazine which represents the point in time that control is transferred to the customer thereby completing the performance obligation. Revenue was reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
 
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Table of Contents
Other Revenues
.
Other revenues include various sources, such as event revenue, listener purchase programs, talent fees for
on-air
hosts, rental income for studios and towers, production services, and shipping and handling fees. We recognize event revenue, including fees earned for ticket sales and sponsorships, when the event occurs, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue for all other products and services is recorded as the products or services are delivered or performed, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Other revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Trade and Barter Transactions
In broadcasting, trade or barter agreements are commonly used to reduce cash expenses by exchanging advertising time for goods or services. We may enter barter agreements to exchange airtime or digital advertising for goods or services that can be used in our business or that can be sold to our audience under Listener Purchase Programs. The terms of these barter agreements permit us to preempt the barter airtime or digital campaign in favor of customers who purchase the airtime or digital campaign for cash. The value of these
non-cash
exchanges is included in revenue in an amount equal to the fair value of the goods or services we receive. Each transaction must be reviewed to determine that the products, supplies and/or services we receive have economic substance, or value to us. We record barter operating expenses upon receipt and usage of the products, supplies and services, as applicable. We record barter revenue as advertising spots or digital campaigns are delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Barter revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency
.
Trade and barter revenues and expenses were as follows:
    
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
 
               
     2020     
2021
     2020     
2021
 
                             
    
(Dollars in thousands)
 
Net broadcast barter revenue
   $ 444     
$
582
 
   $ 2,118     
$
1,647
 
Net digital media barter revenue
     —       
 
—  
 
     —       
 
—  
 
Net publishing barter revenue
     3     
 
—  
 
     34     
 
—  
 
Net broadcast barter expense
   $ 413     
$
619
 
   $ 1,971     
$
1,704
 
Net digital media barter expense
     —       
 
—  
 
     —       
 
—  
 
Net publishing barter expense
     —       
 
(2
     —       
 
(5
Contract Assets
Contract Assets – Costs to Obtain a Contract:
We capitalize commissions paid to sales personnel in our self-publishing business when customer contracts are signed and advance payment is received. These capitalized costs are recorded as prepaid commission expense in our Consolidated Balance Sheets. The amount capitalized is incremental to the contract and would not have been incurred absent the execution of the customer contract. Commissions paid upon the initial acquisition of a contract are expensed at the point in time that related revenue is recognized. Prepaid commissions are periodically reviewed for impairment. At September 30, 2021, our prepaid commissions were $0.7 million.
Contract Liabilities
Contract liabilities consist of customer advance payments and billings in excess of revenue recognized. We may receive payments from our customers in advance of completing our performance obligations. Additionally, new customers, existing customers without approved credit terms and authors purchasing specific self-publishing services, are required to make payments in advance of the delivery of the products or performance of the services. We record contract liabilities equal to the amount of payments received in excess of revenue recognized, including payments that are refundable if the customer cancels the contract according to the contract terms. Contract liabilities were historically recorded under the caption “deferred revenue” and are reported as current liabilities on our consolidated financial statements when the time to fulfill the performance obligations under terms of our contracts is less than one year. Long-term contract liabilities represent the amount of payments received in excess of revenue earned, including those that are refundable, when the time to fulfill the performance obligation is greater than one year. Our long-term liabilities consist of subscriptions with a term of
two-years
for which some customers have purchased and paid for multiple years.
 
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Table of Contents
Significant changes in our contract liabilities balances during the period are as follows:
 
 
  
Short-Term
 
  
Long-Term
 
 
  
 
 
  
 
 
 
  
(Dollars in thousands)
 
Balance, beginning of period January 1, 2021
  
$
11,652
 
   $ 1,869  
Revenue recognized during the period that was included in the beginning balance
of contract liabilities
  
 
(7,770
     —    
Additional amounts recognized during the period
  
 
19,742
 
     883  
Revenue recognized during the period that was recorded during the period
  
 
(12,734
     —    
Transfers
  
 
671
 
     (671
    
 
 
    
 
 
 
Balance, end of period September 30, 2021
  
$
11,561
 
  
$
2,081  
    
 
 
    
 
 
 
Amount refundable at beginning of period
  
$
11,607
 
   $ 1,869  
Amount refundable at end of period
  
$
11,549
 
   $ 2,081  
We expect to satisfy these performance obligations as follows:
 
    
Amount
 
For the Twelve Months Ended September 30,
  
(Dollars in thousands)
 
2022
   $ 11,561  
2023
     979  
2024
     787  
2025
     238  
2026
     77  
Thereafter
         
    
 
 
 
     $ 13,642  
    
 
 
 
Significant Financing Component
Our sales agreements are typically less than 12 months; however, we may sell subscriptions with a
two-year
term. The balance of our long-term contract liabilities represents the unsatisfied performance obligations for subscriptions with a remaining term in excess of one year. We review long-term contract liabilities that are expected to be completed in excess of one year to assess whether the contract contains a significant financing component. The balance includes subscriptions that will be satisfied at various dates between October 1, 2021, and September 30, 2026. The difference between the promised consideration and the cash selling price of the publications is not significant and therefore, we concluded that subscriptions do not contain a significant financing component under FASB ASC Topic 606.
Our self-publishing contracts may exceed a
one-year
term due to the length of time for an author to submit and approve a manuscript for publication. The author may pay for publishing services in installments over the production timeline with payments due in advance of performance. The timing of the transfer of goods and services under self-publishing arrangements are at the discretion of the author and based on future events that are not substantially within our control. We require advance payments to provide us with protection from incurring costs for products that are unique and only sellable to the author. Based on these considerations, we have concluded that our self-publishing contracts do not contain a significant financing component under FASB ASC Topic 606.
NOTE 5. INVENTORIES
Inventories consist of finished books from Regnery
®
Publishing. All inventories are valued at the lower of cost or net realizable value as determined on a weighted average cost method.
NOTE 6. PROPERTY AND EQUIPMENT
We account for property and equipment in accordance with FASB ASC Topic
360-10,
Property, Plant and Equipment
.”
 
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Table of Contents
The following is a summary of the categories of our property and equipment:
 
 
  
December 31, 2020
 
  
September 30, 2021
 
 
  
 
 
  
 
 
 
  
(Dollars in thousands)
 
Buildings
  
$
28,922
 
  
$
28,567
 
Office furnishings and equipment
  
 
36,875
 
  
 
36,592
 
Antennae, towers and transmitting equipment
  
 
78,057
 
  
 
77,543
 
Studio, production, and mobile equipment
  
 
29,023
 
  
 
29,333
 
Computer software and website development costs
  
 
33,928
 
  
 
38,272
 
Record and tape libraries
  
 
17
 
  
 
—  
 
Automobiles
  
 
1,514
 
  
 
1,492
 
Leasehold improvements
     18,187     
 
18,703
 
    
 
 
    
 
 
 
     $ 226,523     
$
230,502
 
Less accumulated depreciation
     (180,336   
 
(185,127
    
 
 
    
 
 
 
       46,187     
 
45,375
 
Land
   $ 30,254     
$
27,040
 
Construction-in-progress
     2,681     
 
6,010
 
    
 
 
    
 
 
 
     $ 79,122     
$
78,425
 
    
 
 
    
 
 
 
Depreciation expense was approximately $2.7 million for the three-month periods ended September 30, 2021 and 2020, and $8.1 million for the nine-month periods ended September 30, 2021 and 2020. We periodically review long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. This review requires us to estimate the fair value of the assets using significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fair value, including assumptions about risk. If actual future results are less favorable than the assumptions and estimates we used, we are subject to future impairment charges, the amount of which may be material. There were no indications of impairment during the three- and nine-month period ended September 30, 2021
.
NOTE 7. OPERATING AND FINANCE LEASE
RIGHT-OF-USE
ASSETS
Leases
We account for leases in accordance with FASB ASC Topic 842, “
Leases
” that requires lessees to recognize Right of Use (“ROU”) assets and lease liabilities calculated based on the present value of lease payments for all lease agreements with terms that are greater than twelve months. FASB ASC Topic 842 distinguishes leases as either a finance lease or an operating lease that affects how the leases are measured and presented in the statement of operations and statement of cash flows.
Leasing Transactions
Our leased assets include offices and studios, transmitter locations, antenna sites, tower and tower sites, and land. Our lease portfolio has terms remaining from less than
one-year
to up to twenty years. Many of these leases contain options under which we can extend the term from five to twenty years. Renewal options are excluded from our calculation of lease liabilities unless we are reasonably assured to exercise the renewal option. Our lease agreements do not contain residual value guarantees or material restrictive covenants. We lease certain properties from our principal stockholders or from trusts and partnerships created for the benefit of the principal stockholders and their families. These leases are designated as Related Party leases in the details provided.
Operating leases are reflected on our balance sheet within operating lease ROU assets and the related current and
non-current
operating lease liabilities. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from lease agreement. Operating lease ROU assets and liabilities are recognized at the commencement date, or the date on which the lessor makes the underlying asset available for use, based upon the present value of the lease payments over the respective lease term. Lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectation regarding the lease terms. Variable lease costs, such as common area maintenance, property taxes and insurance, are expensed as incurred.
 
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Table of Contents
Balance Sheet
Supplemental balance sheet information related to leases is as follows:
 
 
  
September 30, 2021
 
 
  
(Dollars in thousands)
 
 
  
 
 
Operating Leases
  
Related Party
 
  
Other
 
  
Total
 
Operating leases ROU assets
   $  6,303      $  37,797      $  44,100  
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating lease liabilities (current)
  
$
1,004     
$
7,600     
$
8,604  
Operating lease liabilities
(non-current)
  
 
5,479
 
  
 
37,701
 
  
 
43,180
 
    
 
 
    
 
 
    
 
 
 
Total operating lease liabilities
  
$
6,483
 
  
$
45,301
 
  
$
51,784
 
    
 
 
    
 
 
    
 
 
 
 
Weighted Average Remaining Lease Term
        
Operating leases
  
 
7.8 years
 
Finance leases
  
 
2.9 years
 
Weighted Average Discount Rate
        
Operating leases
  
 
7.98
Finance leases
  
 
5.74
Lease Expense
The components of lease expense were as follows:
 
    
Nine Months Ended

September 30, 2021
 
    
(Dollars in thousands)
 
Amortization of finance lease ROU Assets
   $ 48  
Interest on finance lease liabilities
     6  
    
 
 
 
Finance lease expense
     54  
Operating lease expense
     9,656  
Variable lease expense
     430  
Short-term lease expense
     444  
    
 
 
 
Total lease expense
   $  10,584  
    
 
 
 
Supplemental Cash Flow
Supplemental cash flow information related to leases was
as
follows:
 
    
Nine Months Ended

September 30, 2021
 
    
(Dollars in thousands)
 
Cash paid for amounts included in the measurement of lease liabilities:
        
Operating cash flows from operating leases
   $ 10,403  
Operating cash flows from finance leases
     4  
Financing cash flows from finance leases
     48  
Leased assets obtained in exchange for new operating lease liabilities
   $ 3,466  
Leased assets obtained in exchange for new finance lease liabilities
     17  
 
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Maturities
Future minimum lease payments under leases that had initial or remaining
non-cancelable
lease terms in excess of one year as of September 30, 2021, are as follows:
 
     Operating Leases              
                    
     Related Party     Other     Total     Finance Leases     Total  
                                
    
(Dollars in thousands)
 
2021
(Oct-Dec)
   $ 1,505     $ 10,789     $ 12,294     $ 66     $ 12,360  
2022
     1,370       10,908       12,278       47       12,325  
2023
     1,070       8,533       9,603       24       9,627  
2024
     1,021       6,890       7,911       10       7,921  
2025
     1,089       5,640       6,729       1       6,730  
Thereafter
     3,293       22,222       25,515       —         25,515  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Undiscounted Cash Flows
   $ 9,348     $ 64,982     $ 74,330     $ 148     $ 74,478  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Less: imputed interest
     (2,865     (19,681     (22,546     (10     (22,556
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  
$
6,483
 
 
$
45,301
 
 
$
51,784
 
 
$
138
 
 
$
51,922
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Reconciliation to lease liabilities:
                                        
Lease liabilities – current
   $ 1,004     $ 7,600     $ 8,604     $ 59     $ 8,663  
Lease liabilities – long-term
     5,479       37,701       43,180       79       43,259  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Lease Liabilities
  
$
6,483
 
 
$
45,301
 
 
$
51,784
 
 
$
138
 
 
$
51,922
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
NOTE 8. BROADCAST LICENSES
We account for broadcast licenses in accordance with FASB ASC Topic 350 “
Intangibles—Goodwill and Other
.” We do not amortize broadcast licenses, but rather test for impairment annually or more frequently if events or circumstances indicate that the value may be impaired. In the case of our broadcast radio stations, we would not be able to operate the properties without the related broadcast license for each property. Broadcast licenses are renewed with the FCC every eight years for a nominal fee that is expensed as incurred. We continually monitor our stations’ compliance with the
various
regulatory requirements that are necessary for the FCC renewal and all of our broadcast licenses have been renewed at the end of their respective periods. We expect all of our broadcast licenses to be renewed in the future and therefore, we consider our broadcast licenses to be indefinite-lived intangible assets. We are not aware of any legal, competitive, economic or other factors that materially limit the useful life of our broadcast licenses. There were no indications of impairment during the three- and nine-month period ended September 30, 2021.
The following table presents the changes in broadcasting licenses including acquisitions and divestitures of radio stations and
FM
translators.
 

Broadcast Licenses
   Twelve Months Ended
December 31, 2020
    
Nine Months Ended

September 30, 2021
 
               
    
(Dollars in thousands)
 
Balance before cumulative loss on impairment,
beginning of period
   $ 435,300     
$
434,209
 
Accumulated loss on impairment, beginning of
period
     (97,442   
 
(114,436
    
 
 
    
 
 
 
Balance after cumulative loss on impairment, beginning
of period
     337,858     
 
319,773
 
    
 
 
    
 
 
 
Acquisitions of radio stations
     —       
 
235
 
Dispositions of radio stations
     (1,091   
 
—  
 
Impairments based on the estimated fair value of
broadcast licenses
     (16,994   
 
—  
 
    
 
 
    
 
 
 
Balance, end of period after cumulative loss on
impairment
   $ 319,773     
$
320,008
 
    
 
 
    
 
 
 
Balance, end of period before cumulative loss on
impairment
   $ 434,209     
$
434,444
 
Accumulated loss on impairment, end of period
     (114,436   
 
(114,436
    
 
 
    
 
 
 
Balance, end of period after cumulative loss on
impairment
   $ 319,773     
$
320,008
 
    
 
 
    
 
 
 
 
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NOTE 9. GOODWILL
We account for goodwill in accordance with FASB ASC Topic 350 “
Intangibles—Goodwill and Other
.” We do not amortize goodwill, but rather test for impairment annually or more frequently if events or circumstances indicate that an asset may be impaired. We perform our annual impairment testing during the fourth quarter of each year, which coincides with our budget and planning process for the upcoming year. There were no indications of impairment during the three- and nine-month period ended September 30, 2021.
The following table presents the changes in goodwill including business acquisitions and dispositions as discussed in Note 3 of our Condensed Consolidated Financial Statements.
 
Goodwill
   Twelve Months Ended
December 31, 2020
    
Nine Months Ended
September 30, 2021
 
               
    
(Dollars in thousands)
 
Balance, beginning of period before cumulative loss
on
 
impairment,
   $ 28,454     
$
28,520
 
Accumulated loss on impairment
     (4,456   
 
(4,763
    
 
 
    
 
 
 
Balance, beginning of period after cumulative loss on
impairment
     23,998     
 
23,757
 
    
 
 
    
 
 
 
Acquisitions of radio stations
     66     
 
4
 
Acquisitions of digital media entities
     —       
 
225
 
Impairments based on the estimated fair value
goodwill
     (307   
 
—  
 
    
 
 
    
 
 
 
Ending period balance
   $ 23,757     
$
23,986
 
    
 
 
    
 
 
 
Balance, end of period before cumulative loss on
impairment
     28,520     
 
28,749
 
Accumulated loss on impairment
     (4,763   
 
(4,763
    
 
 
    
 
 
 
Ending period balance
   $ 23,757     
$
23,986
 
    
 
 
    
 
 
 
NOTE 10. AMORTIZABLE INTANGIBLE ASSETS
The following tables provide a summary of our significant classes of amortizable intangible assets:
 
    
September 30, 2021
 
            Accumulated         
     Cost      Amortization      Net  
                      
    
(Dollars in thousands)
 
Customer lists and contracts
  
$
23,700
 
  
$
(21,987
  
$
1,713
 
Domain and brand names
  
 
19,875
 
  
 
(19,340
  
 
535
 
Favorable and assigned leases
  
 
2,188
 
  
 
(1,955
  
 
233
 
Subscriber base and lists
  
 
8,647
 
  
 
(8,343
  
 
304
 
Author relationships
  
 
2,771
 
  
 
(2,771
  
 
—  
 
Non-compete
agreements
  
 
2,041
 
  
 
(2,041
  
 
—  
 
Other amortizable intangible assets
  
 
1,332
 
  
 
(1,332
  
 
—  
 
    
 
 
    
 
 
    
 
 
 
    
$
60,554
 
  
$
(57,769
  
$
2,785
 
    
 
 
    
 
 
    
 
 
 
 
    
December 31,
2020
 
        
            Accumulated         
    
Cost
     Amortization      Net  
                      
    
(Dollars in thousands)
 
Customer lists and contracts
   $ 24,012      $ (22,533    $ 1,479  
Domain and brand names
     20,350        (19,127      1,223  
Favorable and assigned leases
     2,188        (1,943      245  
Subscriber base and lists
     9,886        (8,974      912  
Author relationships
     2,771        (2,765      6  
Non-compete
agreements
     2,041        (1,954      87  
Other amortizable intangible assets
     1,666        (1,601      65  
    
 
 
    
 
 
    
 
 
 
     $ 62,914      $ (58,897    $ 4,017  
    
 
 
    
 
 
    
 
 
 
 
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Amortization expense was approximately $0.4 million and $0.8 million for the three-month periods ended September 30, 2021 and 2020, respectively and $1.5 million and $2.6 million for the nine-month periods ended September 30, 2021 and 2020, respectively. Based on the amortizable intangible assets as of September 30, 2021, we estimate amortization expense for the next five years to be as follows:
 

Year Ended December 31,
  
Amortization Expense
 
    
(Dollars in thousands)
 
2021 (Oct – Dec)
   $ 341  
2022
     1,219  
2023
     796  
2024
     205  
2025
     21  
Thereafter
     203  
    
 
 
 
Total
   $ 2,785  
    
 
 
 
NOTE 11. LONG-TERM DEBT
Long-term debt consists of the following:
 
 
  
December 31, 2020
 
  
September 30, 2021
 
 
  
 
 
  
 
 
 
  
(Dollars in thousands)
 
7.125% Senior Secured Notes
   $ —       
$
114,731
 
Less unamortized discount and debt issuance costs based on imputed interest rate of 7.64%
     —       
 
(4,048
    
 
 
    
 
 
 
7.125% Senior Secured Notes net carrying value
     —       
 
110,683
 
    
 
 
    
 
 
 
6.75% Senior Secured Notes
     216,341     
 
98,815
 
Less unamortized debt issuance costs based on imputed interest rate of 7.10%
     (2,577   
 
(939
    
 
 
    
 
 
 
6.75% Senior Secured Notes net carrying value
     213,764     
 
97,876
 
    
 
 
    
 
 
 
Asset-Based Revolving Credit Facility principal
outstanding (1)
     5,000     
 
—  
 
SBA Paycheck Protection Program loans
     —       
 
 
    
 
 
    
 
 
 
Long-term debt less unamortized discount and debt issuance costs
   $ 218,764     
$
208,559
 
    
 
 
    
 
 
 
Less current portion
     (5,000   
 
—  
 
    
 
 
    
 
 
 
Long-term debt less unamortized discount and debt issuance costs, net of current portion
   $ 213,764     
$
208,559
 
    
 
 
    
 
 
 
 
(1)
As of September 30, 2021, the Asset-Based Revolving Credit Facility (“ABL”), had a borrowing base of $24.6 million, no outstanding borrowings and $0.3 million of outstanding letters of credit, resulting in a $24.3 million borrowing base availability.
Our weighted average interest rate was 6.65% and 6.94% at December 31, 2020 and September 30, 2021, respectively
.
In addition to the outstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of September 30, 2021:
 
   
$114.7 million aggregate principal amount of 2028 Notes with semi-annual interest payments at an annual rate of 7.125%;
 
   
$98.8 million aggregate principal amount of 2024 Notes with semi-annual interest payments at an annual rate of 6.75%; and
 
   
Commitment fee of 0.25% to 0.375% per annum on the unused portion of the ABL Facility.
7.125% Senior Secured Notes
On September 10, 2021, we refinanced $112.8 million of the 2024 Notes by exchanging $112.8 million of 2024 Notes into $114.7 million (reflecting a call premium of 1.688%) of newly issued 7.125% Senior Secured Notes due 2028 (“2028 Notes.”) Contemporaneously with the refinancing, we obtained commitments from the holders of the 2028 Notes to purchase up to $50 million in additional 2028 Notes (“Delayed Draw 2028 Notes”), contingent upon satisfying certain performance benchmarks, the proceeds of which are to be used exclusively to repurchase or repay the remaining balance outstanding of the 2024 Notes.
 
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The 2028 Notes and the related guarantees were exchanged and sold to certain holders of the 2024 Notes, whom we believe to be qualified institutional buyers, in a private placement. The 2028 Notes and the related guarantees have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or any state securities laws. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with FASB ASC Topic 470.
The 2028 Notes are guaranteed on a senior secured basis. We may redeem the 7.125% Notes, in whole or in part, at any time prior to June 1, 2024 at a price equal to 100% of the principal amount of the 2028 Notes plus a “make-whole” premium as of, and accrued and unpaid interest, if any, to, but not including, the redemption date. At any time on or after June 1, 2024, we may redeem some or all of the 2028 Notes at the redemption prices (expressed as percentages of the principal amount to be redeemed) set forth in the 2028 Notes Indenture, plus accrued and unpaid interest, if any, to, but not including the redemption date. In addition, we may redeem up to 35% of the aggregate principal amount of the 2028 Notes before June 1, 2024 with the net cash proceeds from certain equity offerings at a redemption price of 107.125% of the principal amount plus accrued and unpaid interest, if any, to, but not including the redemption date. We may also redeem up to 10% of the aggregate original principal amount of the 2028 Notes per twelve-month period, in connection with up to two redemptions in such twelve-month period, at a redemption price of 101% of the principal amount plus accrued and unpaid interest to, but not including, the redemption date.
The 2028 Notes mature on June 1, 2028, unless earlier redeemed or repurchased. Interest accrues on the 2028 Notes from September 10, 2021 and is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year, commencing December 1, 2021. Based on the balance of the 2028 Notes outstanding, we are required to pay $8.2 million per year in interest. As of September 30, 2021, accrued interest on the 2028 Notes was $0.5 million.
The indenture to the 2028 Notes (“2028 Indenture”) contains covenants that, among other things and subject in each case to certain specified exceptions, limit the ability to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets. At September 30, 2021, we were, and we remain, in compliance with all of the covenants under the 7.125% Indenture.
We incurred debt issuance costs of $4.2 million, of which $2.3 million of third-party debt modification costs are reflected in operating expenses for the current period, $0.8 million is deferred with the Delayed Draw 2028 Notes, and $1.1 million, along with $3.0 million from the exchanged 2024 Notes, is being amortized as part of the effective yield on the 2028 Notes.
SBA PPP Loans
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. The PPP loans were accounted for as debt in accordance with FASB ASC Topic 470. The loan balances and accrued interest were forgivable provided that the proceeds were used for eligible purposes, including payroll, benefits, rent and utilities within the covered period. We used the PPP loan proceeds according to the terms and filed timely applications for forgiveness. During July 2021, the SBA forgave all but $20,000 of the PPP loans resulting in a
pre-tax
gain on the forgiveness of $11.2 million. The remaining PPP loan was repaid in July 2021.
6.75% Senior Secured Notes
On May 19, 2017, we issued 6.75% Senior Secured Notes (“2024 Notes”) in a private placement. The 2024 Notes are guaranteed on a senior secured basis by our existing subsidiaries (the “Subsidiary Guarantors”). The 2024 Notes bear interest at a rate of 6.75% per year and mature on June 1, 2024, unless they are earlier redeemed or repurchased. Interest is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year.
The 2024 Notes are secured by a first-priority lien on substantially all assets of ours and the Subsidiary Guarantors other than the ABL Facility Priority Collateral (as described below) (the “2024 Notes Priority Collateral”). There is no direct lien on our FCC licenses to the extent prohibited by law or regulation (other than the economic value and proceeds thereof).
The indenture relating to the 2024 Notes (the “2024 Indenture”) contains covenants that, among other things and subject in each case to certain specified exceptions, limit our ability and the ability of our restricted subsidiaries to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets. At September 30, 2021, we were, and we remain, in compliance with all of the covenants under the Indenture.
 
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Table of Contents
We may from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to repurchase the 2024 Notes in open market transactions, privately negotiated transactions, by tender offer or otherwise, as market conditions warrant.
As described above, on September 10, 2021, we exchanges of $112.8 million of the 2024 Notes for $114.7 million of newly issued 2028 Notes, reflecting a call premium of 1.688%. Bond issuance costs of $1.1 million associated with the $112.8 million of the 2024 Notes are being amortized as part of the effective yield on the 2028 Notes.
On September 24, 2021, we repurchased $4.7 million of the 2024 Notes for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs.
Based on the balance of the 2024 Notes outstanding of $98.8 million, we are required to pay $6.6 million per year in interest on the 2024 Notes. As of September 30, 2021, accrued interest on the 2024 Notes was $2.3 million.
We incurred debt issuance costs of $6.3 million that were recorded as a reduction of the debt proceeds that are being amortized to
non-cash
interest expense over the life of the Notes using the effective interest method. During the three and nine-month periods ended September 30, 2021, $0.2 million and $0.5 million, respectively, of debt issuance costs associated with the Notes was amortized to interest expense. During the three and nine-month periods ended September 30, 2020, $0.2 million and $0.6 million, respectively, of debt issuance costs associated with the Notes was amortized to interest expense.
Asset-Based Revolving Credit Facility
On May 19, 2017, we entered into the ABL Facility pursuant to a Credit Agreement (the “Credit Agreement”) by and among us and our subsidiaries party thereto as borrowers, Wells Fargo Bank, National Association, as administrative agent and lead arranger, and the lenders that are parties thereto. The ABL Facility is a five-year $30.0 million revolving credit facility due March 1, 2024, which includes a $5.0 million subfacility for standby letters of credit and a $7.5 million subfacility for swingline loans. All borrowings under the ABL Facility accrue interest at a rate equal to a base rate or LIBOR plus a spread. The spread, which is based on an availability-based measure, ranges from 0.50% to 1.00% for base rate borrowings and 1.50% to 2.00% for LIBOR borrowings. If an event of default occurs, the interest rate may increase by 2.00% per annum. Amounts outstanding under the ABL Facility may be paid and then reborrowed at our discretion without penalty or premium. Additionally, we pay a commitment fee on the unused balance from 0.25% to 0.375% per year based on the level of borrowings.
Availability under the ABL Facility is subject to a borrowing base consisting of (a) 90% of the eligible accounts receivable plus (b) a calculated amount based on the value of certain real property. As of September 30, 2021, the amount available under the ABL Facility was $25.0 million of which none was outstanding. The ABL Facility has a first-priority lien on our and the Subsidiary Guarantors’ accounts receivable, inventory, deposit and securities accounts, certain real estate and related assets (the “ABL Facility Priority Collateral”) and by a second-priority lien on the Notes Priority Collateral. There is no direct lien on our FCC licenses to the extent prohibited by law or regulation (other than the economic value and proceeds thereof). At September 30, 2021, we were, and we remain, in compliance with all of the covenants under Credit Agreement.
On September 10, 2021, we entered into the fifth amendment to the ABL Facility to designate the incurrence of the 2028 Notes, and any further refinancing of 2024 Notes through the issuance of additional 2028 Notes, as permitted indebtedness thereunder and to effect related arrangements for the interests in the ABL Priority Collateral and the Notes Priority Collateral. We incurred debt issue costs of $0.9 million that were recorded as an asset and are being amortized to
non-cash
interest expense over the term of the ABL Facility using the effective interest method. During the three and nine-month periods ended September 30, 2021, $27,000 and $0.1 million, respectively, of debt issuance costs associated with the ABL was amortized to interest expense. During the three and nine-month periods ended September 30, 2020, $30,000 and $0.1 million, respectively, of debt issue costs associated with the ABL was amortized to interest expense.
We report outstanding balances on the ABL Facility as short-term regardless of the maturity date based on use of the ABL Facility to fund ordinary and customary operating cash needs with frequent repayments. We believe that our borrowing capacity under the ABL Facility allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the next twelve months.
 
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Maturities of Long-Term Debt
Principal repayment requirements under all long-term debt agreements outstanding at September 30, 2021 for each of the next five years and thereafter are as follows:
 
    
Amount
 
For the Year Ended September 30,
  
(Dollars in thousands)
 
2022
   $     
2023
         
2024
     98,815  
2025
         
2026
         
Thereafter
     114,731  
    
 
 
 
     $ 213,546  
    
 
 
 
NOTE 12. FAIR VALUE MEASUREMENTS
As of September 30, 2021, the carrying value of cash and cash equivalents, trade accounts receivables, accounts payable, accrued expenses and accrued interest approximates fair value due to the short-term nature of such instruments. The carrying amount of the Notes at September 30, 2021 was $213.5 million compared to the estimated fair value of $213.3 million, based on the prevailing interest rates and trading activity of our Notes.
We have certain assets that are measured at fair value on a
non-recurring
basis that are adjusted to fair value only when the carrying values exceed the fair values. The categorization of the framework used to price the assets is considered Level 3 due to the subjective nature of the unobservable inputs used when estimating the fair value.
The following table summarizes the fair value of our financial assets and liabilities that are measured at fair value:
 
    
September 30, 2021
 
        
     Carrying Value on
Balance Sheet
     Fair Value Measurement Category  
     Level 1      Level 2      Level 3  
                             
    
(Dollars in thousands)
 
Liabilities:
                                   
Estimated fair value of contingent
earn-out
consideration included in
accrued expenses
   $ 11        —          —        $ 11  
Long-term debt less unamortized discount and debt issuance costs
     208,559        —          208,314        —    
NOTE 13. INCOME TAXES
We recognize deferred tax assets and liabilities for future tax consequences attributable to differences between our consolidated financial statement carrying amount of assets and liabilities and their respective tax bases. We measure these deferred tax assets and liabilities using enacted tax rates expected to apply in the years in which these temporary differences are expected to reverse. We recognize the effect on deferred tax assets and liabilities resulting from a change in tax rates in income in the period that includes the date of the change.
The adoption of ASU
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”
(“ASU
2019-12”)
in the current year did not have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.
At December 31, 2020, we had net operating loss carryforwards for federal income tax purposes of approximately $135.3 million that expire in years 2021 through 2038 and for state income tax purposes of approximately $610.8 million that expire in years 2021 through 2040. As a result of our adjusted cumulative three-year
pre-tax
book loss as of December 31, 2020, we performed an assessment of positive and negative evidence with respect to the realization of our net deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, the availability of carryforwards and estimates of projected future taxable income. The economic uncertainty from the
COVID-19
pandemic provided additional negative evidence that outweighed positive evidence resulting in our conclusion that additional deferred tax assets of $35.1 million related to federal and state net operating loss carryforwards are more likely than not to be not realized. As such, an additional valuation allowance of $35.1 million was recorded, for a total valuation allowance of $48.1 million as of the year ended December 31, 2020.
 
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Table of Contents
During the interim period ended September 30, 2021, we computed the income tax provision using the estimated effective annual rate applicable for the full year. We updated our forecast to project income for the 2021 calendar year. In accordance with the guidance under FASB ASC Topic
740-270-25-4,
we measured the estimated utilization of the operating loss carryforwards and the release of the valuation allowance for both federal and state jurisdictions.
The effective tax rate differs from our statutory rate as a result of the forecasted change in the valuation allowance against expected operating income, permanently disallowed expenses, PPP loan forgiveness, state tax and changes to the deferred tax liability for amortization of indefinite-lived intangible assets.
Given that we have a valuation allowance placed on our net operating losses, and as part of our annual effective tax rate exercise, we estimate annual taxable income for purposes of determining the utilization of the operating loss carryforwards resulting in a tax benefit recognized in the overall annual effective tax rate. We recognized a favorable tax adjustment attributable to the GAAP income recognition of the PPP loan forgiveness within the quarter as a discrete adjustment for both federal and state jurisdictions where applicable given its unusual and infrequent nature.
During the quarter ended September 30, 2021, we refinanced $112.8 million of the 2024 Notes by exchanging $112.8 million of the 2024 Notes into $114.7 million of newly issued 2028 Notes, incurring third-party debt modification costs during the quarter. For tax purposes, we considered these debt modification costs in our operating loss utilization analysis.
The amortization of our indefinite-lived intangible assets for tax purposes, but not for book purposes, creates deferred tax liabilities. A reversal of deferred tax liabilities may occur when indefinite-lived intangibles: (1) become impaired; or (2) are sold, which would typically only occur in connection with the sale of the assets of a station or groups of stations or the entire company in a taxable transaction. Due to the amortization for tax purposes and not book purposes of our indefinite-lived intangible assets, we expect to continue to generate deferred tax liabilities in future periods exclusive of any impairment losses in future periods. These deferred tax liabilities and net operating loss carryforwards result in differences between our provision for income tax and cash paid for taxes.
We review and reevaluate uncertain tax positions on a quarterly basis. Changes in assumptions may result in the recognition of a tax benefit or an additional charge to the tax provision.
Valuation Allowance (Deferred Taxes)
For financial reporting purposes, we recorded a valuation allowance of $28.4 million as of December 31, 2020 to offset $28.4 million of the deferred tax assets related to the federal net operating loss carryforwards, and $19.7 million of the deferred tax assets related to state net operating loss carryforwards of $15.7 million and other financial statement accrual assets of $4.0 million, for a total valuation allowance of $48.1 million for the year ended December 31, 2020.
NOTE 14. COMMITMENTS AND CONTINGENCIES
We enter into various agreements in the normal course of business that contain minimum guarantees. Minimum guarantees are typically tied to future events, such as future revenue earned in excess of the contractual level. Accordingly, the fair value of these arrangements is zero.
We may record contingent
earn-out
consideration representing the estimated fair value of future liabilities associated with acquisitions that may have additional payments due upon the achievement of certain performance targets. The fair value of the contingent
earn-out
consideration is estimated as of the acquisition date as the present value of the expected contingent payments as determined using weighted probabilities of the expected payment amounts. We review the probabilities of possible future payments to estimate the fair value of any contingent
earn-out
consideration on a quarterly basis over the
earn-out
period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results of the acquired business increase or decrease as compared to our estimates and assumptions, the estimated fair value of the contingent
earn-out
consideration liability will increase or decrease, up to the contracted limit, as applicable. Changes in the estimated fair value of the contingent
earn-out
consideration are reflected in our results of operations in the period in which they are identified. Changes in the estimated fair value of the contingent
earn-out
consideration may materially impact and cause volatility in our operating results.
We and our subsidiaries, incident to our business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance. We evaluate claims based on what we believe to be both probable and reasonably estimable. We maintain insurance that may provide coverage for such matters. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. We believe, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect upon our condensed consolidated financial position, results of operations or cash flows.
 
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NOTE 15. STOCK INCENTIVE PLAN
Our Amended and Restated 1999 Stock Incentive Plan (the “Plan”) provides for grants of equity-based awards to employees,
non-employee
directors and officers, and advisors (“Eligible Persons”). A maximum of 8,000,000 shares are authorized under the Plan. Insiders may participate in plans established pursuant to Rule
10b5-1
under the Exchange Act that allow them to exercise awards subject to
pre-established
criteria.
We recognize
non-cash
stock-based compensation expense based on the estimated fair value of awards in accordance with FASB ASC Topic 718 “
Compensation—Stock Compensation
.” Stock-based compensation expense fluctuates over time as a result of the vesting periods for outstanding awards and the number of awards that actually vest. The following table reflects the components of stock-based compensation expense recognized in the Condensed Consolidated Statements of Operations for the three- and
six-
month periods ended September 30, 2021 and 2020:
 
    
Three Months Ended

September 30,
    
Nine Months Ended

September 30,
 
               
    
2020
    
2021
    
2020
    
2021
 
                             
    
(Dollars in thousands)
    
(Dollars in thousands)
 
Stock option compensation expense included in unallocated corporate
expenses
   $ 30     
$
23
 
   $ 122     
$
75
 
Stock option compensation expense included in broadcast operating
expenses
     32     
 
31
 
     106     
 
92
 
Stock option compensation expense included in digital media operating
expenses
     12     
 
24
 
     44     
 
73
 
Stock option compensation expense included in publishing operating
expenses
     —       
 
—  
 
     1     
 
—  
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total stock-based compensation expense,
pre-tax
   $ 74     
$
78
 
   $ 273     
$
240
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Tax expense for stock-based compensation expense
     (19   
 
(20
     (71   
 
(62
    
 
 
    
 
 
    
 
 
    
 
 
 
Total stock-based compensation expense, net of tax
   $ 55     
$
58
 
   $ 202     
$
178
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Stock Option and Restricted Stock Grants
Eligible employees may receive incentive and
non-qualified
stock option awards that allow the recipient to purchase shares of our common stock at a set price, not to be less than the closing market price on the date of award, for no consideration payable by the recipient. The related number of shares underlying the stock option is fixed at the time of the grant. Options generally vest over a four-year period with a maximum term of five years from the vesting date.
The Plan also allows for awards of restricted stock that contain transfer restrictions under which they cannot be sold, pledged, transferred or assigned until the period specified in the award, generally from one to five years. Restricted stock awards are independent of option grants and are granted at no cost to the recipient other than applicable taxes owed by the recipient. The awards are considered issued and outstanding from the date of grant.
The fair value of each award is estimated as of the date of the grant using the Black-Scholes valuation model. The expected volatility reflects the consideration of the historical volatility of our common stock as determined by the closing price over a six to
ten-year
term commensurate with the expected term of the award. Expected dividends reflect the amount of quarterly distributions authorized and declared on our Class A and Class B common stock as of the grant date. The expected term of the awards is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rates for periods within the expected term of the award are based on the U.S. Treasury yield curve in effect during the period the options were granted. We have used historical data to estimate future forfeiture rates to apply against the gross amount of compensation expense determined using the valuation model. These estimates have approximated our actual forfeiture rates.
The weighted-average assumptions used to estimate the fair value of the stock options using the Black-Scholes valuation model were as follows for the three- and nine-month periods ended September 30, 2021 and 2020:
 
    
Three Months Ended
    
Nine Months Ended
   
Three Months Ended
   
Nine Months Ended
 
    
September 30, 2020
    
September 30, 2020
   
September 30, 2021
   
September 30, 2021
 
Expected volatility
     n/a        53.96     79.99     75.98
Expected dividends
     n/a        7.30     0.00     0.00
Expected term (in years)
     n/a        7.6       8.0       7.8  
Risk-free interest rate
     n/a        1.14     1.27       1.03
 
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Activity with respect to the company’s option awards during the nine-month period ended September 30, 2021 is as follows:
 
Options
   Shares     Weighted
Average
Exercise Price
     Weighted Average
Grant Date
Fair Value
     Weighted Average
Remaining
Contractual Term
     Aggregate
Intrinsic
Value
 
                                   
    
(Dollars in thousands, except weighted average exercise price and weighted average grant date fair value)
 
Outstanding at January 1, 2021
     2,291,020     $  3.23      $  1.52        4.3 years      $ —    
Granted
     270,000       2.14        1.55                 —    
Exercised
     (192,507     2.11        0.97                 200  
Forfeited or expired
     (157,446     6.73        4.74                 —    
    
 
 
                                    
Outstanding at September 30, 2021
  
 
2,211,067
 
 
$
2.95
 
  
$
1.34
 
  
 
4.4 years
 
  
$
 2,484
 
    
 
 
                                    
Exercisable at September 30, 2021
  
 
1,209,942
 
 
$
3.84
 
  
$
1.75
 
  
 
2.6 years
 
  
$
640
 
    
 
 
                                    
Expected to Vest
  
 
950,568
 
 
$
2.97
 
  
$
1.35
 
  
 
4.3 years
 
  
$
2,391
 
    
 
 
                                    
Activity with respect to the company’s restricted stock awards during the nine-month period ended September 30, 2021 is as follows:
 
Restricted Stock Awards
   Shares      Weighted Average
Grant Date
Fair Value
     Weighted Average
Remaining Contractual Term
     Aggregate
Intrinsic Value
 
                             
    
(Dollars in thousands, except weighted average exercise price and weighted average
grant date fair value)
 
Outstanding at January 1, 2021
     107,990      $ 1.85        1.67 years      $  112  
Granted
     —          —          —          —    
Lapsed
     (41,323      2.42        —          100  
Forfeited
     —          —          —          —    
    
 
 
                            
Outstanding at September 30, 2021
  
 
66,667
 
  
$
1.50
 
  
 
0.02 years
 
  
$
247
 
    
 
 
                            
The aggregate intrinsic value represents the difference between the company’s closing stock price on September 30, 2021 of $3.71 and the option exercise price of the shares for stock options that were in the money, multiplied by the number of shares underlying such options. The total fair value of options vested during the periods ended September 30, 2021 and 2020 was $0.3 million and $0.4 million, respectively.
As of September 30, 2021, there was $22,000 of total unrecognized compensation cost related to
non-vested
stock option awards. This cost is expected to be recognized over a weighted-average period of 2.3 years.
NOTE 16. EQUITY TRANSACTIONS
In April 2021, we filed a prospectus supplement to our shelf registration statement on Form
S-3
with the SEC covering the offering, issuance and sale of up to $15.0 million of our Class A Common Stock pursuant to an
at-the-market
facility, with B. Riley Securities, Inc. acting as sales agent. No Common Stock transactions have taken place under the facility.
We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “
Compensation-Stock Compensation
.” As a result, $0.1 million and $0.2 million of
non-cash
stock-based compensation expense has been recorded to additional
paid-in
capital for the three- and nine-month periods ended September 30, 2021, respectively, in comparison to $0.1 million and $0.3 million of
non-cash
stock-based compensation expense having been recorded to additional
paid-in
capital for the three- and nine-month periods ended September 30, 2020, respectively.
Our dividend policy is based upon our Board of Directors’ current assessment of our business and the environment in which we operate. The declaration of any future distributions and the establishment of the per share amount, record dates, and payment dates are subject to final determination by our Board of Directors and dependent upon future earnings, cash flows, financial and legal requirements, and other factors. On May 6, 2020, our Board of Directors voted to discontinue equity distributions until further notice due to the adverse economic impact of the
COVID-19
pandemic on our financial position, results of operations, and cash flows.
NOTE 17. 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.
 
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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 3,100 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”).
Salem Media Representatives (“SMR”) is our national advertising sales firm with offices in 12 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.
Salem Surround, our multimedia advertising agency with locations in 33 markets across the United States, 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 content,
e-commerce,
audio and video streaming, and other resources digitally through the web. Salem Web Network (“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, ConservativeRadio.com and pjmedia.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, Youthworker.com, JourneyBoxMedia.com, Playblackmedia.com, and HyperPixelsMedia.com, offer a variety of digital resources including videos, song tracks, sermon archives and job listings to pastors and Church leaders.
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 and Salem Books, traditional book publishers that have published dozens of bestselling books by leading conservative and Christian authors and personalities and (2) Salem Author Services, a self-publishing service for authors through Xulon Press and Mill City Press.
 
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The table below presents financial information for each operating segment as of September 30, 2021 and 2020 based on the composition of our operating segments:
 
    
Broadcast
   
Digital
Media
   
Publishing
   
Unallocated
Corporate
Expenses
   
Consolidated
 
                                
    
(Dollars in thousands)
 
Three Months Ended September 30, 2021
                                        
Net revenue
  
$
49,591
 
 
$
10,645
 
 
$
5,747
 
 
$
—  
 
 
$
65,983
 
Operating expenses
  
 
37,463
 
 
 
8,269
 
 
 
5,213
 
 
 
4,284
 
 
 
55,229
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net operating income (loss) before depreciation, amortization, and net (gain) loss
on the disposition of assets
  
$
12,128
 
 
$
2,376
 
 
$
534
 
 
$
(4,284
 
$
10,754
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Debt modification costs
  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
2,347
 
 
 
2,347
 
Depreciation
  
 
1,539
 
 
 
965
 
 
 
43
 
 
 
241
 
 
 
2,788
 
Amortization
  
 
4
 
 
 
375
 
 
 
48
 
 
 
—  
 
 
 
427
 
Net (gain) loss on the disposition of assets
  
 
(10,505
 
 
(148
 
 
22
 
 
 
24
 
 
 
(10,607
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net operating income (loss)
  
$
21,090
 
 
$
1,184
 
 
$
421
 
 
$
(6,896
 
$
15,799
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Three Months Ended September 30, 2020
                                        
Net revenue
   $ 45,391     $ 9,808     $ 5,442     $ —       $ 60,641  
Operating expenses
     34,283       7,144       5,814       3,849       51,090  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
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
   $ 11,108     $ 2,664     $ (372   $ (3,849   $ 9,551  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Depreciation
     1,626       746       70       235       2,677  
Amortization
     4       537       210       —         751  
Change in the estimated fair value of contingent
earn-out
consideration
     —         (10     —         —         (10
Net (gain) loss on the disposition of assets
     1,380       —         1       —         1,381  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net operating income (loss)
   $ 8,098     $ 1,391     $ (653   $ (4,084   $ 4,752  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
    
Broadcast
   
Digital
Media
   
Publishing
   
Unallocated
Corporate
Expenses
   
Consolidated
 
                                
    
(Dollars in thousands)
 
Nine Months Ended September 30, 2021
                                        
Net revenue
  
$
140,422
 
 
$
30,603
 
 
$
18,093
 
 
$
—  
 
 
$
189,118
 
Operating expenses
  
 
106,968
 
 
 
25,280
 
 
 
16,844
 
 
 
12,764
 
 
 
161,856
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
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
  
$
33,454
 
 
$
5,323
 
 
$
1,249
 
 
$
(12,764
 
$
27,262
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Debt modification costs
  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
2,347
 
 
 
2,347
 
Depreciation
  
 
4,667
 
 
 
2,606
 
 
 
134
 
 
 
711
 
 
 
8,118
 
Amortization
  
 
12
 
 
 
1,204
 
 
 
337
 
 
 
—  
 
 
 
1,553
 
Net (gain) loss on the disposition of assets
  
 
(10,187
 
 
(83
 
 
(306
 
 
24
 
 
 
(10,552
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net operating income (loss)
  
$
38,962
 
 
$
1,596
 
 
$
1,084
 
 
$
(15,846
 
$
25,796
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Nine Months Ended September 30, 2020
                                        
Net revenue
   $ 130,041     $ 28,355     $ 13,366     $ —       $ 171,762  
Operating expenses
     104,704       23,123       16,443       11,909       156,179  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
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
   $ 25,337     $ 5,232     $ (3,077   $ (11,909   $ 15,583  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Depreciation
     4,912       2,284       212       700       8,108  
Amortization
     18       1,928       631       1       2,578  
Change in the estimated fair value of contingent
earn-out
consideration
     —         (12     —         —         (12
Impairment of indefinite-lived long-term assets other than goodwill
     16,994       —         260       —         17,254  
Impairment of goodwill
     184       10       105       8       307  
Net (gain) loss on the disposition of assets
     1,489       —         1       4       1,494  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net operating income (loss)
   $ 1,740     $ 1,022     $ (4,286   $ (12,622   $ (14,146
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
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Broadcast
    
Digital
Media
    
Publishing
    
Unallocated
Corporate
    
Consolidated
 
                                    
    
(Dollars in thousands)
 
As of September 30, 2021
                                            
Inventories, net
  
$
—  
 
  
$
—  
 
  
$
907
 
  
$
—  
 
  
$
907
 
Property and equipment, net
  
 
60,502
 
  
 
8,619
 
  
 
723
 
  
 
8,581
 
  
 
78,425
 
Broadcast licenses
  
 
320,008
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
320,008
 
Goodwill
  
 
2,750
 
  
 
19,790
 
  
 
1,446
 
  
 
—  
 
  
 
23,986
 
Amortizable intangible assets, net
  
 
233
 
  
 
2,552
 
  
 
—  
 
  
 
—  
 
  
 
2,785
 
As of December 31, 2020
                                            
Inventories, net
   $ —        $ —        $ 495      $ —        $ 495  
Property and equipment, net
     64,231        6,221        741        7,929        79,122  
Broadcast licenses
     319,773        —          —          —          319,773  
Goodwill
     2,746        19,565        1,446        —          23,757  
Amortizable intangible assets, net
     246        3,434        337        —          4,017  
NOTE 18. SUBSEQUENT EVENTS
The following additional repurchases of the 2024 Notes were made after September 30, 2021:
 
Date
 
Principal
Repurchased
 
  
  Cash  
Paid
 
 
 % of Face 
Value
 
 
 Bond Issue 
Costs
 
 
    Net Loss    
 
 
 
(Dollars in thousands)
 
October 25, 2021
 
$
 2,000
 
  
$
 2,020
 
 
 
101.00
 
$
 19
 
 
$
 39
 
October 12, 2021
 
 
250
 
  
 
251
 
 
 
100.38
 
 
2
 
 
 
3
 
October 5, 2021
 
 
763
 
  
 
766
 
 
 
100.38
 
 
7
 
 
 
10
 
October 4, 2021
 
 
628
 
  
 
629
 
 
 
100.13
 
 
6
 
 
 
7
 
 
 
 
 
 
  
 
 
 
 
     
 
 
 
 
 
 
 
 
 
 
$
3,641
 
  
$
3,666
 
 
     
 
$
34
 
 
 
59
 
 
 
 
 
 
  
 
 
 
 
     
 
 
 
 
 
 
 
 
Subsequent events reflect all applicable transactions through the date of the filing.
 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
General
Salem Media Group, Inc. is a domestic multimedia company specializing in Christian and conservative content, with media properties comprising radio broadcasting, digital media, and publishing. Our content is intended for audiences interested in Christian and family-themed programming and conservative news talk. We maintain a website at www.salemmedia.com. Our annual reports on Form
10-K,
quarterly reports on Form
10-Q,
current reports on Form
8-K,
and any amendments to these reports are available free of charge through our website as soon as reasonably practicable after those reports are electronically filed with or furnished to the SEC.
The information on our website is not a part of or incorporated by reference into this or any other report of the company filed with, or furnished to, the SEC.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and related notes included elsewhere in this report on Form
10-Q
and our audited Consolidated Financial Statements in our Annual Report on Form
10-K
for the year ended December 31, 2020. Our Condensed Consolidated Financial Statements are not directly comparable from period to period due to acquisitions and dispositions. Refer to Note 3 of our Condensed Consolidated Financial Statements on Form
10-Q
for details of each of these transactions.
Historical operating results are not necessarily indicative of future operating results. Actual future results may differ from those contained in or implied by the forward-looking statements as a result of various factors. These factors include, but are not limited to:
 
   
the coronavirus
(“COVID-19”)
is adversely impacting our business,
 
   
risks and uncertainties relating to the need for additional funds to service our debt,
 
   
risks and uncertainties relating to the need for additional funds to execute our business strategy,
 
   
our ability to access borrowings under our ABL Facility,
 
   
reductions in revenue forecasts,
 
   
our ability to renew our broadcast licenses,
 
   
changes in interest rates,
 
   
the timing of our ability to complete any acquisitions or dispositions,
 
   
costs and synergies resulting from the integration of any completed acquisitions,
 
   
our ability to effectively manage costs,
 
   
our ability to drive and manage growth,
 
   
the popularity of radio as a broadcasting and advertising medium,
 
   
changes in consumer tastes,
 
   
the impact of general economic conditions in the United States or in specific markets in which we do business,
 
   
industry conditions, including existing competition and future competitive technologies and cancellation,
 
   
disruptions or postponements of advertising schedules and programming in response to national or world events,
 
   
our ability to generate revenues from new sources, including local commerce and technology-based initiatives,
 
   
the impact of regulatory rules or proceedings that may affect our business from time to time, and the future write off of any material portion of the fair value of our FCC broadcast licenses and goodwill.
Because these factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any of these forward-looking statements. In addition, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which the statement is made, to reflect the occurrence of unanticipated events or otherwise, except as required by law.
 
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Overview
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, assess the performance of each operating segment and determine 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 exclude costs related to corporate functions, such as accounting and finance, human resources, legal, tax and treasury. We also exclude costs such as amortization, depreciation, taxes and interest expense when evaluating the performance of our operating segments.
Our principal sources of broadcast revenue include:
 
   
the sale of block program time to national and local program producers;
 
   
the sale of advertising time on our radio stations to national and local advertisers;
 
   
the sale of banner advertisements on our station websites or on our mobile applications;
 
   
the sale of digital streaming advertisements on our station websites or on our mobile applications;
 
   
the sale of advertisements included in digital newsletters;
 
   
fees earned for the creation of custom web pages and custom digital media campaigns for our advertisers through Salem Surround;
 
   
the sale of advertising time on our national network;
 
   
the syndication of programming on our national network;
 
   
the sale of advertising time through podcasts and
video-on-demand
services;
 
   
product sales and royalties for
on-air
host materials, including podcasts and programs; and
 
   
other revenue such as events, including ticket sales and sponsorships, listener purchase programs, where revenue is generated from special discounts and incentives offered to our listeners from our advertisers; talent fees for voice-overs or custom endorsements from our
on-air
personalities and production services, and rental income for studios, towers or office space.
Our principal sources of digital media revenue include:
 
   
the sale of digital banner advertisements on our websites and mobile applications;
 
   
the sale of digital streaming advertisements on websites and mobile applications;
 
   
the support and promotion to stream third-party content on our websites;
 
   
the sale of advertisements included in digital newsletters;
 
   
the digital delivery of newsletters to subscribers; and
 
   
the sale of video and graphic downloads.
Our principal sources of publishing revenue include:
 
   
the sale of books and
e-books;
 
   
publishing fees from authors;
 
   
the sale of digital advertising on our magazine websites and digital newsletters;
 
   
subscription fees for our print magazine; and
 
   
the sale of print magazine advertising.
 
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In each of our operating segments, the rates we are able to charge for airtime, advertising and other products and services are dependent upon several factors, including:
 
   
audience share;
 
   
how well our programs and advertisements perform for our clients;
 
   
the size of the market and audience reached;
 
   
the number of impressions delivered;
 
   
the number of advertisements and programs streamed;
 
   
the number of page views achieved;
 
   
the number of downloads completed;
 
   
the number of events held, the number of event sponsorships sold and the attendance at each event;
 
   
demand for books and publications;
 
   
general economic conditions; and
 
   
supply and demand for airtime on a local and national level.
Broadcasting
Our foundational business is radio broadcasting, which includes the ownership and operation of radio stations in large metropolitan markets, our national networks and our national sales firms including Salem Surround. Revenues generated from our radio stations, networks and sales firms are reported as broadcast media revenue in our Condensed Consolidated Financial Statements included in Part 1 of this quarterly report on Form
10-Q.
Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case, revenue is reported net of the commission retained by the agency.
Broadcast revenues are impacted by the rates radio stations can charge for programming and advertising time, the level of airtime sold to programmers and advertisers, the number of impressions delivered or downloads made, and the number of events held, including the size of the event and the number of attendees. Block programming rates are based upon our stations’ ability to attract audiences that will support the program producers through contributions and purchases of their products. Advertising rates are based upon the demand for advertising time, which in turn is based on our stations and networks’ ability to produce results for their advertisers. We market ourselves to advertisers based on the responsiveness of our audiences. We do not subscribe to traditional audience measuring services for most of our radio stations. In select markets, we subscribe to Nielsen Audio, which develops monthly reports measuring a radio station’s audience share in the demographic groups targeted by advertisers. Each of our radio stations and our networks has a
pre-determined
level of time available for block programming and/or advertising, which may vary at different times of the day.
Nielsen Audio uses the Portable People Meter
TM
(“PPM
) technology to collect data for its ratings service. PPM is a small device that is capable of automatically measuring radio, television, Internet, satellite radio and satellite television signals encoded by the broadcaster. The PPM offers a number of advantages over traditional diary ratings collection systems, including ease of use, more reliable ratings data, shorter time periods between when advertising runs and actual listening data, and little manipulation of data by users. A disadvantage of the PPM includes data fluctuations from changes to the “panel” (a group of individuals holding PPM devices). This makes all stations susceptible to some inconsistencies in ratings that may or may not accurately reflect the actual number of listeners at any given time. We subscribe to Nielsen Audio for ratings services in 7 of our broadcast markets.
Our results are subject to seasonal fluctuations. As is typical in the broadcasting industry, our second and fourth quarter advertising revenue typically exceeds our first and third quarter advertising revenue. Seasonal fluctuations in advertising revenue correspond with quarterly fluctuations in the retail industry. Additionally, we experience increased demand for political advertising during election, or even numbered years, over
non-election
or odd numbered years. Political advertising revenue varies based on the number and type of candidates as well as the number and type of debated issues.
Our cash flows from broadcasting are affected by transitional periods experienced by radio stations when, based on the nature of the radio station, our plans for the market and other circumstances, we find it beneficial to change the station format. During this transitional period, when we develop a radio station’s listener and customer base, the station may generate negative or insignificant cash flow.
 
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In broadcasting, trade or barter agreements are commonly used to reduce cash expenses by exchanging advertising time for goods or services. We may enter barter agreements to exchange airtime or digital advertising for goods or services that can be used in our business or that can be sold to our audience under Listener Purchase Programs. The terms of these barter agreements permit us to preempt the barter airtime or digital campaign in favor of customers who purchase the airtime or digital campaign for cash. The value of these
non-cash
exchanges is included in revenue in an amount equal to the fair value of the goods or services we receive. Each transaction is reviewed to determine that the products, supplies and/or services we receive have economic substance, or value to us. We record barter operating expenses upon receipt and usage of the products, supplies and services, as applicable. We record barter revenue as advertising spots or digital campaigns are delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Barter revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency. During the nine months ended September 30, 2021 and 2020, 99% and 98%, respectively of our broadcast revenue was sold for cash.
Broadcast operating expenses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as lease cost and utilities, (iii) marketing and promotional expenses, (iv) production and programming expenses, and (v) music license fees. In addition to these expenses, our network incurs programming costs and lease expenses for satellite communication facilities.
Digital Media
Our digital media based businesses provide Christian, conservative, investing,
e-commerce,
audio and video streaming, and other resources digitally through the web. Refer to Item 1. Business of our annual report on Form
10-K
for the year ended December 31, 2020 for a description of each of our digital media websites and operations. Revenue generated from this segment is reported as digital media revenue in our Condensed Consolidated Financial Statements included in Part 1 of this quarterly report on Form
10-Q.
Digital media revenue is impacted by the rates our sites can charge for advertising time, the level of advertisements sold, the number of impressions delivered or the number of products sold and the number of digital subscriptions sold. Like our broadcasting segment, our second and fourth quarter advertising revenue generally exceeds our first and third quarter advertising revenue. This seasonal fluctuation in advertising revenue corresponds with quarterly fluctuations in the retail advertising industry. We also experience fluctuations in quarter-over-quarter comparisons based on the date on which Easter is observed, as this holiday generates a higher volume of product downloads from our church product websites. Additionally, we experience increased demand for advertising time and placement during election years for political advertisements.
The primary operating expenses incurred by our digital media businesses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as lease expense and utilities, (iii) marketing and promotional expenses, (iv) royalties, (v) streaming costs, and (vi) cost of goods sold associated with
e-commerce
sites.
Publishing
Our publishing operations include book publishing through Regnery
®
Publishing, a print magazine and our self-publishing services. Revenues generated from this segment are reported as publishing revenue in our Condensed Consolidated Financial Statements included in Part 1 of this quarterly report on Form
10-Q.
Publishing revenue is impacted by the number and the retail price of books and
e-books
sold, the number and rate of print magazine subscriptions sold, the rate and number of pages of advertisements sold in each print magazine, and the number and rate at which self-published books are published. Regnery
®
Publishing revenue is impacted by elections as it generates higher levels of interest and demand for publications containing conservative and political based opinions.
Publishing operating expenses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as lease costs and utilities, (iii) marketing and promotional expenses; and (iv) cost of goods sold that includes printing and production costs, fulfillment costs, author royalties and inventory obsolescence charges.
Known Trends and Uncertainties
The
COVID-19
global pandemic that began in March 2020 materially impacted our business. We experienced a rapid decline in revenue from advertising, programming, events and book sales. Several advertisers reduced or ceased advertising spending due to the outbreak and
stay-at-home
orders that effectively shut many businesses down. The revenue decline impacted our broadcast segment, which derives substantial revenue from local advertisers who were particularly hard hit due to social distancing and government interventions, and our publishing segment, which derives revenue from book sales through retail stores and live events.
 
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While we see progress being made in revenue returning to
pre-pandemic
levels, the
COVID-19
pandemic continues to create significant uncertainty and disruption in the economy. These uncertainties could materially impact significant accounting estimates related to, but not limited to, allowances for doubtful accounts, impairments and
right-of-use assets.
As a result, many estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. These estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
The growth of broadcast revenue associated with the sale of airtime remains challenged. We believe this is due to increased competition from other forms of content distribution and the length of time spent listening to audio streaming services, podcasts and satellite radio. Increases in competition and the mix in listening time may lead advertisers to conclude that the effectiveness of radio has diminished. To reduce the impact of these factors, we continue to enhance our digital assets to complement our broadcast content. The increased use of voice activated platforms, or smart speakers, that provide audiences with the ability to access AM and FM radio stations show increased potential for broadcasters to reach audiences.
Our broadcast spot advertising revenue is particularly dependent on advertising from our Los Angeles and Dallas markets, which generated 13.8% and 21.8%, respectively, of our total net broadcast spot advertising revenue during the nine-month period ended September 30, 2021 compared to 14.3% and 22.1%, respectively, of our total net broadcast spot advertising revenue during the same period of the prior year.
Digital revenue is impacted by the nature and delivery of page views and the number of advertisements per page. We have experienced a shift in the number of page views from desktop devices to mobile devices. While mobile page views have increased dramatically, they carry a lower number of advertisements per page and are generally sold at lower rates. A shift from desktop page views to mobile device views negatively impacts revenue as mobile devices carry lower rates and less advertisement per page. Decreases in digital revenue could adversely affect our operating results, financial condition and results of operations. To minimize the impact that any one of these areas could have, we continue to explore opportunities to cross-promote our brands and our content, and to strategically monitor costs.
Key Financial Performance Indicators – Same-Station Definition
In the discussion of our results of operations below, we compare our broadcast operating results between periods on an
as-reported
basis, which includes the operating results of all radio stations and networks owned or operated at any time during either period and on a Same Station basis. Same Station is a
Non-GAAP
financial measure used both in presenting our results to stockholders and the investment community as well as in our internal evaluations and management of the business. We believe that Same Station Operating Income provides a meaningful comparison of period over period performance of our core broadcast operations as this measure excludes the impact of new stations, the impact of stations we no longer own or operate, and the impact of stations operating under a new programming format. Our presentation of Same Station Operating Income is not intended to be considered in isolation or as a substitute for the most directly comparable financial measures reported in accordance with GAAP. Our definition of Same Station Operating Income is not necessarily comparable to similarly titled measures reported by other companies. Refer to
“NON-GAAP
FINANCIAL MEASURES” below for a reconciliation of these
non-GAAP
performance measures to the most comparable GAAP measures.
We define Same Station net broadcast revenue as net broadcast revenue from our radio stations and networks that we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. We define Same Station broadcast operating expenses as broadcast operating expenses from our radio stations and networks that we own or operate 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 Income includes those stations we own or operate 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 Income for a full calendar year is calculated as the sum of the Same Station results for each of the four quarters of that year.
Non-GAAP
Financial Measures
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 our financial statements. We use these
non-GAAP
financial measures to evaluate financial results, develop budgets, manage expenditures and as a measure of performance under compensation programs.
Our 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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Table of Contents
Item 10€ of Regulation
S-K
defines and prescribes the conditions under which certain
non-GAAP
financial information may be presented in this report. We closely monitor 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, and Publishing Operating Income (Loss), all of which are
non-GAAP
financial measures. We believe that these
non-GAAP
financial measures provide useful information about our core operating results, and thus, are appropriate to enhance the overall understanding of our financial performance. These
non-GAAP
financial measures are intended to provide management and investors a more complete understanding of our underlying operational results, trends and performance.
The performance of a radio broadcasting company is customarily measured by the ability of its stations to generate SOI. We define SOI as net broadcast revenue less broadcast operating expenses. Accordingly, changes in net broadcast revenue and broadcast operating expenses, as explained above, have a direct impact on changes in SOI. SOI is not a measure of performance calculated in accordance with GAAP. SOI should be viewed as a supplement to and not a substitute for our results of operations presented on the basis of GAAP. We believe that SOI is a useful
non-GAAP
financial measure to investors when considered in conjunction with operating income (the most directly comparable GAAP financial measures to SOI), because it is generally recognized by the radio broadcasting industry as a tool in measuring performance and in applying valuation methodologies for companies in the media, entertainment and communications industries. SOI is commonly used by investors and analysts who report on the industry to provide comparisons between broadcasting groups. We use SOI as one of the key measures of operating efficiency and profitability, including our internal reviews associated with impairment analysis of our indefinite-lived intangible assets. SOI does not purport to represent cash provided by operating activities. Our statement of cash flows presents our cash activity in accordance with GAAP and our income statement presents our financial performance prepared in accordance with GAAP. Our definition of SOI is not necessarily comparable to similarly titled measures reported by other companies.
We define Same Station net broadcast revenue as net broadcast revenue from our radio stations and networks that we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. We define Same Station broadcast operating expenses as broadcast operating expenses from our radio stations and networks that we own or operate 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 Income includes those stations we own or operate 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 Income for a full calendar year is calculated as the sum of the Same Station-results for each of the four quarters of that year. We use Same Station Operating Income, a
non-GAAP
financial measure, both in presenting our results to stockholders and the investment community, and in our internal evaluations and management of the business. We believe that Same Station Operating Income provides a meaningful comparison of period over period performance of our core broadcast operations as this measure excludes the impact of new stations, the impact of stations we no longer own or operate, and the impact of stations operating under a new programming format. Our presentation of Same Station Operating Income is not intended to be considered in isolation or as a substitute for the most directly comparable financial measures reported in accordance with GAAP. Our definition of Same Station net broadcast revenue, Same Station broadcast operating expenses and Same Station Operating Income is not necessarily comparable to similarly titled measures reported by other companies.
We apply a similar methodology to our digital media and publishing group. Digital Media Operating Income is defined as net digital media revenue less digital media operating expenses. Publishing Operating Income (Loss) is defined as net publishing revenue less publishing operating expenses. Digital Media Operating Income and Publishing Operating Income (Loss) are not measures of performance in accordance with GAAP. Our presentations of these
non-GAAP
financial performance measures are not to be considered a substitute for or superior to our operating results reported in accordance with GAAP. We believe that Digital Media Operating Income and Publishing Operating Income (Loss) are useful
non-GAAP
financial measures to investors, when considered in conjunction with operating income (the most directly comparable GAAP financial measure), because they are comparable to those used to measure performance of our broadcasting entities. We use this analysis as one of the key measures of operating efficiency, profitability and in our internal review. This measurement does not purport to represent cash provided by operating activities. Our statement of cash flows presents our cash activity in accordance with GAAP and our income statement presents our financial performance in accordance with GAAP. Our definitions of Digital Media Operating Income and Publishing Operating Income (Loss) are not necessarily comparable to similarly titled measures reported by other companies.
We define EBITDA as net income before interest, taxes, depreciation, and amortization. We define Adjusted EBITDA as EBITDA before gains or losses on the sale or disposition of assets, before changes in the estimated fair value of contingent
earn-out
consideration, before gains on bargain purchases, before the change in fair value of interest rate swaps, before impairments, before net miscellaneous income and expenses, before (gain) loss on early retirement of debt, before (gain) loss from discontinued operations and before
non-cash
compensation expense. 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. 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 our results of operations and financial condition presented in accordance with GAAP. Our definitions of EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures reported by other companies.
 
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Table of Contents
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.
We use
non-GAAP
financial measures to evaluate financial performance, develop budgets, manage expenditures, and determine employee compensation. Our presentation of this additional information is not to be considered as a substitute for or superior to the most directly comparable measures reported in accordance with GAAP.
Reconciliation of
Non-GAAP
Financial Measures:
In the tables below, we present a reconciliation of net broadcast revenue, the most comparable GAAP measure, to Same Station net broadcast revenue, and broadcast operating expenses, the most comparable GAAP measure to Same Station broadcast operating expense. We show our calculation of Station Operating Income and Same Station Operating Income, which is reconciled from net income, the most comparable GAAP measure in the table following our calculation of Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of these
non-GAAP
measures are not to be considered a substitute for or superior to the most directly comparable measures reported in accordance with GAAP.
 
    
Three Months Ended

September 30,
    
Nine Months Ended

September 30,
 
    
2020
    
2021
    
2020
    
2021
 
                             
    
(Dollars in thousands)
 
Reconciliation of Net Broadcast Revenue to Same Station Net Broadcast Revenue
 
Net broadcast revenue
   $ 45,391     
$
49,591
 
   $ 130,041     
$
140,422
 
Net broadcast revenue – acquisitions
     —       
 
(264
     —       
 
(343
Net broadcast revenue – dispositions
     (192   
 
2
 
     (635   
 
(36
Net broadcast revenue – format change
     (104   
 
(216
     (384   
 
(561
  
 
 
    
 
 
    
 
 
    
 
 
 
Same Station net broadcast revenue
   $ 45,095     
$
49,113
 
   $ 129,022     
$
139,482
 
  
 
 
    
 
 
    
 
 
    
 
 
 
Reconciliation of Broadcast Operating Expenses To Same Station Broadcast Operating Expenses
 
Broadcast operating expenses
   $ 34,283     
$
37,463
 
   $ 104,704     
$
106,968
 
Broadcast operating expenses – acquisitions
     —       
 
(168
     —       
 
(206
Broadcast operating expenses – dispositions
     (344   
 
(14
     (1,225   
 
(199
Broadcast operating expenses – format change
     (252   
 
(209
     (771   
 
(593
  
 
 
    
 
 
    
 
 
    
 
 
 
Same Station broadcast operating expenses
   $ 33,687     
$
37,072
 
   $ 102,708     
$
105,970
 
  
 
 
    
 
 
    
 
 
    
 
 
 
Reconciliation of Operating Income to Same Station Operating Income
 
Station Operating Income
   $ 11,108     
$
12,128
 
   $ 25,337     
$
33,454
 
Station operating (income) loss –acquisitions
     —       
 
(96
     —       
 
(137
Station operating loss – dispositions
     152     
 
16
 
     590     
 
163
 
Station operating (income) loss – format change
     148     
 
(7
     387     
 
32
 
  
 
 
    
 
 
    
 
 
    
 
 
 
Same Station – Station Operating Income
   $ 11,408     
$
12,041
 
   $ 26,314     
$
33,512
 
  
 
 
    
 
 
    
 
 
    
 
 
 
In the table below, we present our calculations of Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of these
non-GAAP
performance indicators are not to be considered a substitute for or superior to the directly comparable measures reported in accordance with GAAP.
 
    
Three Months Ended
    
Nine Months Ended
 
    
September 30,
    
September 30,
 
    
2020
    
2021
    
2020
    
2021
 
                             
    
(Dollars in thousands)
 
Calculation of Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)
 
     
Net broadcast revenue
   $ 45,391     
$
49,591
 
   $ 130,041     
$
140,422
 
Less broadcast operating expenses
     (34,283   
 
(37,463
     (104,704   
 
(106,968
  
 
 
    
 
 
    
 
 
    
 
 
 
Station Operating Income
   $ 11,108     
$
12,128
 
   $ 25,337     
$
33,454
 
  
 
 
    
 
 
    
 
 
    
 
 
 
Net digital media revenue
   $ 9,808     
$
10,645
 
   $ 28,355     
$
30,603
 
Less digital media operating expenses
     (7,144   
 
(8,269
     (23,123   
 
(25,280
  
 
 
    
 
 
    
 
 
    
 
 
 
Digital Media Operating Income
   $ 2,664     
$
2,376
 
   $ 5,232     
$
5,323
 
  
 
 
    
 
 
    
 
 
    
 
 
 
Net publishing revenue
   $ 5,442     
$
5,747
 
   $ 13,366     
$
18,093
 
Less publishing operating expenses
     (5,814   
 
(5,213
     (16,443   
 
(16,844
  
 
 
    
 
 
    
 
 
    
 
 
 
Publishing Operating Income (Loss)
   $ (372   
$
534
 
   $ (3,077   
$
1,249
 
  
 
 
    
 
 
    
 
 
    
 
 
 
 
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Table of Contents
In the table below, we present a reconciliation of net income (loss), the most directly comparable GAAP measure to Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of these
non-GAAP
performance indicators are not to be considered a substitute for or superior to the most directly comparable measures reported in accordance with GAAP.
 
                                                               
    
Three Months Ended
    
Nine Months Ended
 
    
September 30,
    
September 30,
 
    
2020
    
2021
    
2020
    
2021
 
                             
    
(Dollars in thousands)
 
Reconciliation of Net Income (Loss) to Operating Income and Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)
 
Net income (loss)
  
$
329
 
  
$
22,094
 
  
$
(57,390
  
$
24,674
 
Plus provision for income taxes
  
 
401
 
  
 
837
 
  
 
31,180
 
  
 
479
 
Plus net miscellaneous income and (expenses)
  
 
(1
  
 
(2
)
 
  
 
45
 
  
 
(87
)
 
Plus gain on the forgiveness of PPP loans
  
 
—  
 
  
 
(11,212
)
 
  
 
—  
 
  
 
(11,212
)
 
Plus (gain) loss on early retirement of long-term debt
  
 
—  
 
  
 
56
 
  
 
(49
  
 
56
 
Plus interest expense, net of capitalized interest
  
 
4,024
 
  
 
4,026
 
  
 
12,069
 
  
 
11,887
 
Less interest income
  
 
(1
  
 
  
 
  
 
(1
  
 
(1
)
 
  
 
 
    
 
 
    
 
 
    
 
 
 
Net operating income (loss)
  
$
4,752
 
  
$
15,799
 
  
$
(14,146
  
$
25,796
 
  
 
 
    
 
 
    
 
 
    
 
 
 
Plus net (gain) loss on the disposition of assets
  
 
1,381
 
  
 
(10,607
)
 
  
 
1,494
 
  
 
(10,552
Plus change in the estimated fair value of contingent
earn-out
consideration
  
 
(10
  
 
—  
 
  
 
(12
  
 
—  
 
Plus debt modification costs
  
 
—  
 
  
 
2,347
 
  
 
—  
 
  
 
2,347
 
Plus impairment of indefinite-lived long-term assets other than goodwill
  
 
—  
 
  
 
—  
 
  
 
17,254
 
  
 
—  
 
Plus impairment of goodwill
  
 
—  
 
  
 
—  
 
  
 
307
 
  
 
—  
 
Plus depreciation and amortization
  
 
3,428
 
  
 
3,215
 
  
 
10,686
 
  
 
9,671
 
Plus unallocated corporate expenses
  
 
3,849
 
  
 
4,284
 
  
 
11,909
 
  
 
12,764
 
  
 
 
    
 
 
    
 
 
    
 
 
 
Combined Station Operating Income, Digital Media Operating Income and Publishing Operating Loss
  
$
13,400
 
  
$
15,038
 
  
$
27,492
 
  
$
40,026
 
  
 
 
    
 
 
    
 
 
    
 
 
 
Station Operating Income
  
$
11,108
 
  
$
12,128
 
  
$
25,337
 
  
$
33,454
 
Digital Media Operating Income
  
 
2,664
 
  
 
2,376
 
  
 
5,232
 
  
 
5,323
 
Publishing Operating Income (Loss)
  
 
(372
  
 
534
 
  
 
(3,077
  
 
1,249
 
  
 
 
    
 
 
    
 
 
    
 
 
 
  
$
13,400
 
  
$
15,038
 
  
$
27,492
 
  
$
40,026
 
  
 
 
    
 
 
    
 
 
    
 
 
 
In the table below, we present a reconciliation of Adjusted EBITDA to EBITDA to Net Income (Loss), the most directly comparable GAAP measure. EBITDA and Adjusted EBITDA are
non-GAAP
financial performance measures that are not to be considered a substitute for or superior to the most directly comparable measures reported in accordance with GAAP.
 
    
Three Months Ended
    
Nine Months Ended
 
    
September 30,
    
September 30,
 
    
2020
    
2021
    
2020
    
2021
 
                             
    
(Dollars in thousands)
 
Reconciliation of Adjusted EBITDA to EBITDA to Net Income (Loss)
 
Net income (loss)
   $ 329     
$
22,094
 
   $ (57,390   
$
24,674
 
Plus interest expense, net of capitalized interest
     4,024     
 
4,026
 
     12,069     
 
11,887
 
Plus provision for income taxes
     401     
 
837
 
     31,180     
 
479
 
Plus depreciation and amortization
     3,428     
 
3,215
 
     10,686     
 
9,671
 
Less interest income
     (1      —          (1   
 
(1
  
 
 
    
 
 
    
 
 
    
 
 
 
EBITDA
   $ 8,181     
$
30,172
 
   $ (3,456   
$
46,710
 
  
 
 
    
 
 
    
 
 
    
 
 
 
Plus net (gain) loss on the disposition of assets
     1,381     
 
(10,607
     1,494     
 
(10,552
Plus change in the estimated fair value of contingent
earn-out
consideration
     (10      —          (12      —    
Plus debt modification costs
     —       
 
2,347
 
     —       
 
2,347
 
Plus impairment of indefinite-lived long-term assets other than goodwill
     —          —          17,254        —    
Plus impairment of goodwill
     —          —          307        —    
Plus net miscellaneous (income) and expenses
     (1   
 
(2
     45     
 
(87
Plus (gain) loss on early retirement of long-term debt
     —       
 
56
 
     (49   
 
56
 
Plus gain on the forgiveness of PPP loans
     —       
 
(11,212
     —       
 
(11,212
Plus
non-cash
stock-based compensation
     74     
 
78
 
     273     
 
240
 
  
 
 
    
 
 
    
 
 
    
 
 
 
Adjusted EBITDA
   $ 9,625     
$
10,832
 
   $ 15,856     
$
27,502
 
  
 
 
    
 
 
    
 
 
    
 
 
 
 
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RESULTS OF OPERATIONS
The following factors affected our results of operations and cash flows:
Acquisitions and Divestitures
The operating results of our business acquisitions and asset purchases are included in our consolidated results of operations from their respective closing date or the date that we began operating them under an LMA or TBA. The operating results of business and asset divestitures are excluded from our consolidated results of operations from their respective closing date or the date that a third-party began operating them under an LMA or TBA.
 
   
On July 27, 2021, we sold the Hilary Kramer Financial Newsletter and related assets for $0.2 million to be collected in quarterly installments over the
two-year
period ending September 30, 2023. We recognized a
pre-tax
gain on the sale of $0.1 million.
 
   
On July 23, 2021, we sold approximately 34 acres of land in Lewisville, Texas, for $12.1 million in cash. The land was being used for as the transmitter site for company owned radio station
KSKY-AM.
We retained a portion of the land in the southwest corner of the site to continue operating the radio station. We recognized a
pre-tax
gain on the sale of $10.5 million.
 
   
On July 2, 2021, we acquired the SeniorResource.com domain for $0.1 million in cash.
 
   
On July 1, 2021, we acquired the ShiftWorship.com domain and digital assets for $2.6 million in cash. The digital content library is operated within Salem Web Network’s church products division.
 
   
On June 1, 2021, we acquired radio stations
KDIA-AM
and
KDYA-AM
in San Francisco, California for $0.6 million in cash.
 
   
On May 25, 2021, we sold Singing News Magazine and Singing News Radio for $0.1 million in cash.
 
   
On April 28, 2021, we acquired the Centerline New Media domain and digital assets for $1.3 million in cash. The digital content library is operated within Salem Web Network’s church products division.
 
   
On March 8, 2021, we acquired the Triple Threat Trader newsletter. We paid no cash at the time of closing and assumed deferred subscription liabilities of $0.1 million.
 
   
On March 18, 2021, we sold radio station
WKAT-AM
and an FM translator in Miami, Florida for $3.5 million. The buyer began operating the station under a LMA in November 2020.
 
   
On September 15, 2020, we acquired the Hyper Pixels Media website and related assets for $1.1 million in cash. We paid $0.4 million in cash upon closing with deferred payments of $0.4 million due January 31, 2021 and $0.3 million due September 15, 2021.
 
   
On April 6, 2020, we sold radio station
WBZW-AM
and an FM translator construction permit in Orlando, Florida, for $0.2 million in cash.
Debt Transactions
 
   
On September 24, 2021, we repurchased $4.7 million of the 6.75% Senior Secured Notes due 2024 (“2024 Notes”) for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs.
 
   
On September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of newly issued 2028 Notes.
 
   
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis.
 
   
In July 2021, the SBA forgave all but $20,000 of the PPP loans. The remaining PPP loan was repaid in July 2021.
 
   
During the nine-months ended September 30, 2020, we completed repurchases of $3.5 million of the Notes for $3.4 million in cash, recognizing a net gain of $49,000 after adjusting for bond issuance costs.
Equity Transactions
 
   
No distributions were declared or paid during nine-month period ended September 30, 2021, compared to distributions of $0.7 million ($0.025 per share) declared and paid during the nine-month period ended September 30, 2020 based upon our Board’s then current assessment of our business as detailed in Note 16 – Equity Transactions.
 
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Three months ended September 30, 2021 compared to the three months ended September 30, 2020
Net Broadcast Revenue
 
    
Three Months Ended September 30,
 
     2020     
2021
     Change $      Change %     2020    
2021
 
                                         
    
(Dollars in thousands)
           % of Total Net Revenue  
Net Broadcast Revenue
   $ 45,391     
$
49,591
 
   $ 4,200        9.3     74.9  
 
75.2
Same Station Net Broadcast Revenue
   $ 45,095     
$
49,113
 
   $ 4,018        8.9    
The following table shows the dollar amount and percentage of net broadcast revenue for each broadcast revenue source.
 
    
Three Months Ended September 30,
 
     2020    
2021
 
                            
    
(Dollars in thousands)
 
Block Programming:
          
National
   $ 11,732        25.8  
$
12,502
 
  
 
25.2
Local
     5,771        12.7    
 
6,299
 
  
 
12.7
  
 
 
    
 
 
   
 
 
    
 
 
 
     17,503        38.5    
 
18,801
 
  
 
37.9
Broadcast Advertising:
          
National
     3,635        8.0    
 
3,447
 
  
 
7.0
Local
     9,485        20.9    
 
10,682
 
  
 
21.5
  
 
 
    
 
 
   
 
 
    
 
 
 
     13,120        28.9    
 
14,129
 
  
 
28.5
Broadcast Digital (local)
     7,754        17.1    
 
8,805
 
  
 
17.8
Infomercials
     214        0.5    
 
220
 
  
 
0.4
Network
     4,891        10.8    
 
4,908
 
  
 
9.9
Other Revenue
     1,909        4.2    
 
2,728
 
  
 
5.5
  
 
 
    
 
 
   
 
 
    
 
 
 
Net Broadcast Revenue
   $ 45,391        100.0  
$
49,591
 
  
 
100.0
  
 
 
    
 
 
   
 
 
    
 
 
 
Block programming revenue increased by $1.3 million including a $0.8 million increase in national programming and a $0.5 million increase in local programming. Our Christian Teaching and Talk format radio stations generated a $0.5 million increase in national programming revenue and a $0.4 million increase in local programming revenue while our News Talk format radio stations generated a $0.2 million increase in national programming and a $0.2 million increase in local programming. These increases include the impact of the $0.2 million in early-payment discounts offered during the prior year and an increase in the number of programmers
on-air.
Advertising revenue, net of agency commissions, increased by $1.0 million, including a $1.2 million increase in local advertising that was offset with a $0.2 million decline in national advertising. Excluding political advertising, advertising revenue increased by $1.4 million, all in local advertising. The increase includes $0.6 million from our Contemporary Christian Music format radio stations, primarily in our Los Angeles, Atlanta and Nashville markets, $0.3 million from our News Talk format radio stations, $0.2 million from our Christian Teaching and Talk format radio stations, and $0.5 million from other radio station formats, that were offset by a $0.1 million decline from our Spanish Christian Teaching and Talk format radio stations. The increases reflect the higher demand for airtime associated with improving economic conditions as pandemic restrictions continue to ease that can in turn result in higher spot rates for premium airtime spots. The decline from Spanish Christian Teaching and Talk format radio stations is due to the sale of radio station
WKAT-AM
in Miami, Florida, and the reformatting of our remaining Spanish Christian Teaching and Talk format radio stations.
Broadcast digital revenue, net of agency commissions, or net digital revenue generated from our broadcast markets and networks, increased by $1.1 million due to growth in digital product offerings and the launch of the Salem Podcast Network in January 2021. Salem Podcast Network is a highly specialized platform for conservative, political, news, family-oriented podcasts with talk show hosts including Dinesh D’Souza, Todd Starnes and Charlie Kirk. Salem Podcast Network joins Salem Surround, our multimedia digital advertising agency providing digital marketing services to our customers, and SalemNow, our transactional video
on-demand
streaming platform launched in the fourth quarter of 2020, along with our owned and operated station branded websites to offer an expanding line of digital products and services. Increases in broadcast digital revenue include a $1.2 million increase in digital marketing services through Salem Surround, a $1.8 million increase from Salem Podcast Network and a $0.2 million increase in streaming revenue that was partially offset by a $2.1 million decline in revenue from SalemNow due to the impact of two successful titles released during the prior year. There were no significant changes in digital rates as compared to the prior year.
 
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There were no significant changes in the number of infomercials aired and no significant changes in rates. The placement of infomercials can vary significantly from one period to another due to the number of time slots available and the degree to which the infomercial content is considered to be of interest to our audience.
Network revenue, exclusive of amounts reported within digital, increased by $17,000 compared to the same period of the prior year due to a $0.7 million increase in revenue from our nationally syndicated host programs that was partially offset by a $0.7 million decline in political advertising.
Other revenue increased by $0.8 million due to a $0.6 million increase in event revenue due to the
re-opening
of live events, a $0.1 million increase in TBA fees associated with radio station
KBJD-AM,
Denver, Colorado and a $0.1 million increase in talent fees. Event revenue varies from period to period based on the nature and timing of events, audience demand, and in some cases, the weather which can affect attendance.
On a Same Station basis, net broadcast revenue increased $4.0 million, which reflects these items net of the impact of stations acquired, disposed of, or with format changes.
Net Digital Media Revenue
 
    
Three Months Ended September 30,
 
     2020     
2021
     Change $      Change %     2020    
2021
 
                                         
    
(Dollars in thousands)
    
 
    % of Total Net Revenue  
Net Digital Media Revenue
   $ 9,808     
$
10,645
 
   $ 837        8.5     16.2  
 
16.1
The following table shows the dollar amount and percentage of net digital media revenue for each digital media revenue source.
 
    
Three Months Ended September 30,
 
     2020    
2021
 
                            
    
(Dollars in thousands)
        
Digital Advertising, net
   $ 5,213        53.2  
$
5,053
 
  
 
47.5
Digital Streaming
     843        8.6    
 
873
 
  
 
8.2
 
Digital Subscriptions
     2,387        24.3    
 
3,155
 
  
 
29.6
 
Digital Downloads
     1,244        12.7    
 
1,464
 
  
 
13.8
 
e-commerce
     53        0.5    
 
65
 
  
 
0.6
 
Other Revenues
     68        0.7    
 
35
 
  
 
0.3
 
  
 
 
    
 
 
   
 
 
    
 
 
 
Net Digital Media Revenue
   $ 9,808        100.0  
$
10,645
 
  
 
100.0
  
 
 
    
 
 
   
 
 
    
 
 
 
National digital revenue, net of agency commissions, or net revenue generated from our owned and operated Christian and conservative opinion websites, declined by $0.2 million due to a lower number of advertisements on our conservative opinion websites within Townhall Media. Our conservative opinion websites experience lower demand and lower page views during
non-election
years. We also experience lower demand from advertisers who move advertising spending to digital programmatic advertisers, such as Facebook and Google, and we may lose advertisers who decide to reduce or eliminate advertising on political-content websites such as ours. We continue to acquire, develop and promote the use of mobile applications to reduce our dependency on page views from digital programmatic advertisers. Because mobile page views carry fewer advertisements and tend to have shorter site visits as compared to desktop, our growth in mobile page views exceeds our growth in revenue from the mobile applications.
Digital streaming revenue was consistent with that of the same period of the prior year with no significant changes in sales volume or rates.
Digital subscription revenue increased by $0.8 million including a $0.4 million increase from Christianjobs.com and Churchstaffing.com within SWN due to an increase in job postings, a $0.2 million increase from Eagle Financial Publications due to an increase in the number of subscribers from increased marketing efforts, and a $0.2 million increase from Townhall Media’s launch of Townhall VIP, a subscription service. There were no significant changes in rates over the prior period.
Digital download revenue increased by $0.2 million due to increases in the number of downloads purchased from our church product websites and form the acquisitions of Centerline New Media in April 2021 and ShiftWorship in July 2021. There were no significant changes in rates.
 
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E-commerce
revenue includes
in-app
purchases that increased in volume with no significant changes in rates.
Other revenue includes revenue sharing arrangements for mobile applications and mail list rentals which declined slightly in volume with no significant changes in rates.
Net Publishing Revenue
 
    
Three Months Ended September 30,
 
     2020     
2021
     Change $      Change %     2020    
2021
 
                                         
    
(Dollars in thousands)
           % of Total Net Revenue  
Net Publishing Revenue
   $ 5,442     
$
5,747
 
   $ 305        5.6     9.0  
 
8.7
The following table shows the dollar amount and percentage of net publishing revenue for each publishing revenue source.
 
    
Three Months Ended September 30,
 
     2020    
2021
 
                            
    
(Dollars in thousands)
 
Book Sales
   $ 4,310        79.2  
$
4,561
 
  
 
79.4
Estimated Sales Returns & Allowances
     (1,322      (24.3    
(1,212
)
 
    
(21.1
)
 
  
 
 
    
 
 
   
 
 
    
 
 
 
Net Book Sales
     2,988        54.9    
 
3,349
 
  
 
58.3
 
E-Book
Sales
     456        8.4    
 
502
 
  
 
8.7
 
Self-Publishing Fees
     1,407        25.8    
 
1,556
 
  
 
27.1
 
Print Magazine Subscriptions
     168        3.1       —          —    
Print Magazine Advertisements
     85        1.6       —          —    
Digital Advertising
     65        1.2       —          —    
Other Revenue
     273        5.0    
 
340
 
  
 
5.9
 
  
 
 
    
 
 
   
 
 
    
 
 
 
Net Publishing Revenue
   $ 5,442        100.0  
$
5,747
 
  
 
100.0
  
 
 
    
 
 
   
 
 
    
 
 
 
Net book sales increased by $0.3 million including a $0.2 million increase from Salem Author Services and a $0.1 million increase from Regnery
®
Publishing. Book sales through Regnery
®
Publishing reflect a 10% decrease in volume with a 11% decrease in the average price per unit sold offset with a reduction in sales returns and allowances resulting from lower print sales. Revenue is directly attributable to the number of titles released each period and the composite mix of titles available that can vary significantly from period to period based on the book release date and the number of titles that achieve placement on bestseller lists, which can increase awareness and demand for the book. The decrease of $0.1 million in estimated sales returns and allowances is based on a flat volume of print books sold through Regnery
®
Publishing. The $0.2 million increase in Salem Author Services book sales was due to an increase in the number of books sold as trade shows and events resumed with no significant changes in sale prices.
Regnery
®
Publishing
e-book
sales increased by $46,000 with a 6% increase in the average price per unit sold from sales incentives and a 19% increase in sales volume.
E-book
sales can also vary based on the composite mix of titles released and available in each period. Revenues can vary significantly based on the book release date and the number of titles that achieve placement on bestseller lists, which can increase awareness and demand for the book.
Self-publishing fees increased $0.1 million due an increase in the number of authors publishing books with no change in fees charged to authors.
Declines in print magazine subscription revenues and advertising revenues reflect the sale of Singing News Magazine on May 25, 2021.
Declines in digital advertising revenues reflect the sale of Singing News Magazine on May 25, 2021.
Other revenue includes change fees, video trailers, and subright revenue for foreign translation and audio books for original published titles from Regnery
®
Publishing. Subright revenue increased $0.1 million due to higher demand.
There were no changes in volume or rates.
 
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Table of Contents
Broadcast Operating Expenses
 
    
Three Months Ended September 30,
 
     2020     
2021
     Change $      Change %     2020    
2021
 
                                         
    
(Dollars in thousands)
           % of Total Net Revenue  
Broadcast Operating Expenses
   $ 34,283     
$
37,463
 
   $ 3,180        9.3     56.5  
 
56.8
Same Station Broadcast Operating Expenses
   $ 33,687     
$
37,072
 
   $ 3,385        10.0    
Broadcast operating expenses increased by $3.2 million, including a $1.9 million increase from expenses associated with Salem Surround and Salem Podcast Network, a $1.0 million increase in payroll costs including the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020, a $0.5 million increase in health insurance costs, a $0.3 million increase in advertising and event costs, a $0.2 million increase in production and programming costs, a $0.2 million increase in travel and entertainment costs, and a $0.2 million increase in professional services. These costs were partially offset with a $0.9 million decline in cost of sales from SalemNow consistent with the decline in revenue as compared to the prior year when SalemNow released two successful titles, a $0.3 million decline in bad debt expense due to the impact of the
COVID-19
pandemic on prior year reserves, and a $0.1 million decrease in rent and facilities related expenses.
On a same-station basis, broadcast operating expenses increased by $3.4 million reflecting these items net of the impact of station dispositions and format changes.
Digital Media Operating Expenses
 
    
Three Months Ended September 30,
 
     2020     
2021
     Change $      Change %     2020    
2021
 
                                         
    
(Dollars in thousands)
           % of Total Net Revenue  
Digital Media Operating Expenses
   $ 7,144       
$
8,269  
 
   $ 1,125        15.7     11.8  
 
12.5
Digital media operating expenses increased by $1.1 million including a $0.5 million increase payroll and employee benefits expense, a $0.4 million increase in advertising and promotional expenses, a $0.2 million increase in sales-based commissions and bonuses and a $0.1 million increase in professional services, offset by a $0.1 million decrease in bad debt expense. Increases in advertising and promotional expenses are driven by a new video initiative for Eagle Financial Publications that management believes to be beneficial for the business and overall gradual increase in adverting spending as the economy begins to return to
pre-pandemic
levels. The increase in payroll expenses reflects the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020.
Publishing Operating Expenses
 
    
Three Months Ended September 30,
 
     2020     
2021
     Change $     Change %     2020    
2021
 
                                        
    
(Dollars in thousands)
          % of Total Net Revenue  
Publishing Operating Expenses
   $ 5,814       
$
5,213  
 
   $ (601     (10.3 )%        9.6  
 
  7.9
Publishing operating expenses decreased by $0.6 million, including a $0.3 million decrease in royalty expense reflecting a decrease in the reserve for royalty advances based on flat book sales for Regnery
®
Publishing, a $0.2 million decrease in professional services, a $0.1 million decrease in costs of sales and a $0.1 million decrease in facility-related expenses that was offset by a $0.1 million increase in payroll expenses from the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020. Cost of goods sold decreased $0.1 million including a $0.1 million from Regnery
®
Publishing due to flat book sales and $0.1 million decline from Salem Publishing due to the sale of Singing News Magazine offset by a $0.1 million increase from Salem Author Services due to a higher volume of book sales. The gross profit margin for Regnery
®
Publishing improved to 52% from 42% as sales volume remained flat while material costs decreased. Regnery
®
Publishing margins vary based on the volume of
e-book
sales, which have higher margins due to the nature of delivery and no reserve for sales returns and allowances. The gross profit margin for Salem Author Services remained flat at 74% due to higher book sales offset by higher paper costs for print book sales.
Unallocated Corporate Expenses
 
            
            
            
            
            
            
    
Three Months Ended September 30,
 
    
2020
    
2021
    
Change $
    
Change %
   
2020
   
2021
 
                                         
    
(Dollars in thousands)
          
% of Total Net Revenue
 
Unallocated Corporate Expenses
  
$
3,849
 
  
$
4,284
 
  
$
435
 
  
 
11.3
 
 
6.3
 
 
6.5
 
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Unallocated corporate expenses include shared services, such as accounting and finance, human resources, legal, tax and treasury, that are not directly attributable to any one of our operating segments. The net increase of $0.4 million includes a $0.6 million increase in payroll expense due to the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020 that was offset a $0.2 million decline in professional service fees.
Debt Modification Costs
 
            
            
            
            
            
            
    
Three Months Ended September 30,
 
    
2020
    
2021
    
Change $
    
Change %
   
2020
   
2021
 
                                         
    
(Dollars in thousands)
          
% of Total Net Revenue
 
Debt Modification Costs
  
$
—  
 
  
$
2,347
 
  
$
2,347
 
  
 
100.0
 
 
—  
 
 
3.6
On September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of 2028 Notes. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with FASB ASC Topic 470 with $2.3 million of fees paid to third parties included in operating expenses for the period.
Depreciation Expense
 
    
Three Months Ended September 30,
 
     2020     
2021
     Change $      Change %     2020    
2021
 
                                         
    
(Dollars in thousands)
           % of Total Net Revenue  
Depreciation Expense
   $ 2,677     
$
2,788
 
   $ 111        4.1     4.4  
 
4.2
Depreciation increase was consistent with that of the prior year. There were no changes in our depreciation methods or in the estimated useful lives of our asset groups.
Amortization Expense    
 
            
            
            
            
            
            
    
Three Months Ended September 30,
 
    
2020
    
2021
    
Change $
   
Change %
   
2020
   
2021
 
                                        
    
(Dollars in thousands)
         
% of Total Net Revenue
 
Amortization Expense
  
$
751
 
  
$
427
 
  
$
(324
 
 
(43.1
)% 
 
 
1.2
 
 
0.6
The decrease in amortization expense reflects the impact of fully amortized domain names, customer lists and contracts, and subscriber base lists that had estimated useful lives of three to five years. These items were fully amortized at or near the beginning of 2021 resulting in lower amortization expense. There were no changes in our amortization methods or the estimated useful lives of our intangible asset groups.
Net (Gain) Loss on the Disposition of Assets
 
              
              
              
              
              
              
    
Three Months Ended September 30,
 
    
2020
    
2021
   
Change $
   
Change %
   
2020
   
2021
 
                                       
    
(Dollars in thousands)
         
% of Total Net Revenue
 
Net (Gain) Loss on the Disposition of assets
  
$
1,381
 
  
$
(10,607
 
$
(11,988
 
 
(868.1
)% 
 
 
2.3
 
 
(16.1
)% 
The net gain on the disposition of assets of $10.6 million for the three-month period ending September 30, 2021 includes a $10.5 million
pre-tax
gain on the sale of land in Lewisville, Texas, and a $0.1 million
pre-tax
gain on the sale of the Hilary Kramer Financial Newsletter and related assets as well as various other fixed asset disposals.
The net loss on the disposition of assets of $1.4 million for the three months ended September 30, 2020 reflects the estimated
pre-tax
loss associated with the exit of the Miami broadcast market with the then pending sale of radio station
WKAT-AM.
 
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Other Income (Expense)
 
                                                                                   
    
Three Months Ended September 30,
 
    
2020
   
2021
   
Change $
   
Change %
   
2020
   
2021
 
                                      
    
(Dollars in thousands)
         
% of Total Net Revenue
 
                                      
Interest Income
  
$
1
 
 
$
—  
 
 
 
(1
 
 
(100.0
)% 
 
 
—  
 
 
 
—  
Interest Expense
  
 
(4,024
 
 
(4,026
 
 
2
 
 
 
—  
 
 
(6.6
)% 
 
 
(6.1
)% 
Gain on the Forgiveness of PPP loans
  
 
—  
 
 
 
11,212
 
 
 
11,212
 
 
 
100.0
 
 
—  
 
 
 
17.0
Gain (Loss) on Early Retirement of Long-Term Debt
  
 
—  
 
 
 
(56
 
 
(56
 
 
(100.0
)% 
 
 
—  
 
 
(0.1
)% 
Net Miscellaneous Income and (Expenses)
  
 
1
 
 
 
2
 
 
 
1
 
 
 
—  
 
 
—  
 
 
—  
Interest expense includes interest due on outstanding debt balances and
non-cash
accretion associated with deferred installments.
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. We used the PPP loan proceeds according to the terms and filed timely applications for forgiveness. During July 2021, the SBA forgave all but $20,000 of the PPP loans resulting in a
pre-tax
gain on the forgiveness of $11.2 million.
The loss on the early retirement of long-term debt reflects $4.7 million of repurchases of the 2024 Notes for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs.
Net miscellaneous income and expenses includes
non-operating
receipts such as usage fees and other expenses.
Provision for Income Taxes
 
                                                                                                           
    
Three Months Ended September 30,
 
    
2020
    
2021
    
Change $
    
Change %
   
2020
   
2021
 
                                         
    
(Dollars in thousands)
          
% of Total Net Revenue
 
Provision for Income Taxes
  
$
401
 
  
$
837
 
  
$
436
 
  
 
108.7
 
 
0.7
 
 
1.3
Our expense from income taxes increased $0.4 million to a $0.8 million provision for the three months ended September 30, 2021 compared to $0.4 million for the same period of the prior year. The provision for income taxes as a percentage of income before income taxes, or the effective tax rate was 3.7% for the three months ended September 30, 2021 compared to 54.9% for the same period of the prior year. The change in the effective tax between the comparative three-month quarters is attributable to the current year forecasted income and related operating loss utilization coupled with the PPP loan forgiveness favorable tax adjustment relative to
pre-tax
book income for the period. The effective tax rate for each period differs from the federal statutory income rate of 21.0% due to state income taxes, certain expenses that are not deductible for tax purposes, and changes in the valuation allowance. The effective tax rate of 3.7% is driven by certain expenses that are nondeductible for income tax purposes relative to
pre-tax
book loss, tax expense attributable to deductible amortization on indefinite lived assets for fully valued state jurisdictions and projected utilization of operating loss carryforwards.
Net Income (Loss)
 
                                                                                   
    
Three Months Ended September 30,
 
    
2020
    
2021
    
Change $
    
Change %
   
2020
   
2021
 
                                         
    
(Dollars in thousands)
          
% of Total Net Revenue
 
Net Income (Loss)
  
$
329
 
  
$
22,094
 
  
$
21,765
 
  
 
6,615.5
 
 
0.5
 
 
33.5
Net income increased by $21.8 million to $22.1 million for the three months ended September 30, 3021 compared $0.3 million during the same period of the prior year as described above.
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
Net Broadcast Revenue
 
                                                                                   
    
Nine Months Ended September 30,
 
    
2020
    
2021
    
Change $
    
Change %
   
2020
   
2021
 
                                         
    
(Dollars in thousands)
          
% of Total Net Revenue
 
Net Broadcast Revenue
  
$
130,041
 
  
$
140,422
 
  
$
10,381
 
  
 
8.0
 
 
75.7
 
 
74.3
Same Station Net Broadcast Revenue
  
$
129,022
 
  
$
139,482
 
  
$
10,460
 
  
 
8.1
   
 
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The following table shows the dollar amount and percentage of net broadcast revenue for each broadcast revenue source.
 
    
Nine Months Ended September 30,
 
     2020    
2021
 
                            
    
(Dollars in thousands)
 
Block Programming:
          
National
   $ 35,536        27.3  
$
35,824
 
     25.5
Local
     18,211        14.0    
 
18,072
 
     12.9
  
 
 
    
 
 
   
 
 
    
 
 
 
     53,747        41.3    
 
53,896
 
     38.4
Broadcast Advertising:
          
National
     10,179        7.8    
 
10,565
 
     7.5
Local
     28,630        22.0    
 
30,123
 
     21.5
  
 
 
    
 
 
   
 
 
    
 
 
 
     38,809        29.8    
 
40,688
 
     29.0
Broadcast Digital (local)
     17,702        13.6    
 
23,602
 
     16.8
Infomercials
     750        0.6    
 
682
 
     0.5
Network
     13,505        10.4    
 
14,729
 
     10.4
Other Revenue
     5,528        4.3    
 
6,825
 
     4.9
  
 
 
    
 
 
   
 
 
    
 
 
 
Net Broadcast Revenue
   $ 130,041        100.0  
$
140,422
 
  
 
100.0
  
 
 
    
 
 
   
 
 
    
 
 
 
Block programming revenue increased by $0.1 million, including a $0.3 million increase in national programming revenue offset by a $0.1 million decline in local programming revenue. Our Christian Teaching and Talk format radio station increased $0.4 million, while our News Talk format radio stations increased $0.1 million and our Contemporary Christian Music format radio stations increased $0.1 million. These increases include the impact of the $0.3 million in early-payment discounts offered during the prior year and an increase in the number of programmers
on-air
that were offset by a decrease of $0.5 million from our Spanish Christian Teaching and Talk format radio stations primarily from the sale of radio station
WKAT-AM
in Miami, Florida.
Advertising revenue, net of agency commissions, increased by $1.9 million, $2.4 million net of political, due to a $1.8 million increase net of political in local advertising revenue and a $0.6 million increase net of political in national advertising. Net of political, the increase includes $2.4 million from our Contemporary Christian Music format radio stations, primarily in our Atlanta, Dallas and Los Angeles markets and $0.7 million from other format radio stations, that was offset with a $0.4 million decline from our Spanish Christian Teaching and Talk format radio stations, a $0.1 million decline from our News Talk format radio stations, and a $0.1 million decline from our Christian Teaching and Talk format radio stations. The increases in Atlanta, Dallas and Los Angeles reflect an increase in demand for advertising as pandemic restrictions ease that in turn creates higher spot rates for premium airtime spots. The decline from our Christian Teaching and Talk format radio stations reflects the sale of
WKAT-AM
in Miami, Florida and the reformatting of our remaining Spanish Christian Teaching and Talk format radio stations.
Broadcast digital revenue, net of agency commissions, or net digital revenue generated from our broadcast markets and networks, increased by $5.9 million due to growth in digital product offerings and the launch of the Salem Podcast Network in January 2021. Salem Podcast Network is a highly specialized platform for conservative, political, news, family-oriented podcasts with talk show hosts including Dinesh D’Souza, Todd Starnes and Charlie Kirk. Salem Podcast Network joins Salem Surround, our multimedia digital advertising agency providing digital marketing services to our customers, and SalemNow, our
on-demand
pay-per-view
video streaming platform launched in the fourth quarter of 2020, along with our owned and operated station branded websites to offer new digital products and services. Increases in digital revenue include a $4.7 million increase from Salem Podcast Network, a $2.6 million increase in digital marketing services through Salem Surround, a $0.9 million increase in streaming revenue and a $0.9 million increase in digital advertising revenue from our station websites and an increase of $0.2 million from our networks that were offset by a $3.4 million decline in revenue from SalemNow that released two successful titles during the prior year. There were no significant changes in digital rates as compared to the prior year.
Declines in infomercial revenue were due to a reduction in the number of infomercials aired with no significant changes in rates as compared to the prior year. The placement of infomercials can vary significantly from one period to another due to the number of time slots available and the degree to which the infomercial content is considered to be of interest to our audience.
Network revenue, net of amounts reported as digital, increased by $1.2 million due to a $2.0 million increase in revenue from our nationally syndicated host programs that was partially offset by a $0.8 million decline in political advertising.
 
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Other revenue increased by $1.3 million due to a $0.6 million increase in event revenue due to the
re-opening
of live events, a $0.2 million increase in listener purchase program revenue from higher listener participation and half price tuition tickets sold as schools and businesses started to
re-open,
a $0.2 million increase in TBA fees associated with radio station
KBJD-AM,
Denver, Colorado , a $0.1 million increase in LMA fees associated with radio station
KGU-AM,
Honolulu, Hawaii and a $0.1 million increase in talent fees. Event revenue varies from period to period based on the nature and timing of events, audience demand, and in some cases, the weather which can affect attendance.
On a Same Station basis, net broadcast revenue increased $10.5 million, which reflects the above described items net of the impact of stations with acquisitions, dispositions and format changes.
Net Digital Media Revenue
 
    
Nine Months Ended September 30,
 
     2020     
2021
     Change $      Change %     2020    
2021
 
                                         
    
(Dollars in thousands)
           % of Total Net Revenue  
Net Digital Media Revenue
   $ 28,355     
$
30,603
 
   $ 2,248        7.9     16.5  
 
16.2
The following table shows the dollar amount and percentage of net digital media revenue for each digital media revenue source.
 
    
Nine Months Ended September 30,
 
     2020    
2021
 
                            
    
(Dollars in thousands)
 
Digital Advertising, net
   $ 14,473        51.0  
$
13,859
 
  
 
45.3
Digital Streaming
     2,611        9.2    
 
2,579
 
  
 
8.4
 
Digital Subscriptions
     6,679        23.6    
 
9,227
 
  
 
30.2
 
Digital Downloads
     4,291        15.1    
 
4,637
 
  
 
15.1
 
e-commerce
     108        0.4    
 
163
 
  
 
0.5
 
Other Revenues
     193        0.7    
 
138
 
  
 
0.5
 
  
 
 
    
 
 
   
 
 
    
 
 
 
Net Digital Media Revenue
   $ 28,355        100.0  
$
30,603
 
  
 
100.0
  
 
 
    
 
 
   
 
 
    
 
 
 
National digital revenue, net of agency commissions, or net revenue generated from our owned and operated Christian and conservative opinion websites declined by $0.9 million due to a lower volume of advertisements on our conservative opinion websites within Townhall Media. Revenues increased $0.1 million from Salem Web Network and $0.2 million from Eagle Financial Publications. Our conservative opinion websites experience lower demand and lower page views during
non-election
years. We also experience lower demand from advertisers who move advertising spending to digital programmatic advertisers, such as Facebook and Google, and we may lose advertisers who decide to reduce or eliminate advertising on political-content websites such as ours. We continue to acquire, develop and promote the use of mobile applications to reduce our dependency on page views from digital programmatic advertisers. Because mobile page views carry fewer advertisements and tend to have shorter site visits as compared to desktop, our growth in mobile page views exceeds our growth in revenue from the mobile applications.
Digital streaming revenue decreased compared to the prior year based on a slightly lower demand for content available from our Christian websites. There were no significant changes in rates as compared to the prior year.
Digital subscription revenue increased $2.5 million on a consolidated basis reflecting a $0.9 million increase in revenues from Eagle Financial Publications, a $0.9 million increase from Christianjobs.com and Churchstaffing.com within Salem Web Network due to increases in job postings as job markets start to
re-open,
and a $0.7 million increase in revenues from Townhall Media’s launch of Townhall VIP, a subscription service. Eagle Financial Publications saw an increase in the number of subscribers due to an increased investment in marketing with no significant changes in rates over the same period of the prior year.
Digital download revenue increased by $0.3 million from our church product websites, WorshipHouseMedia.com and SermonSpice
TM
.com and the acquisitions of Centerline New Media in April 2021 and ShiftWorship in July 2021. There were no significant changes in rates as compared to the prior year.
E-commerce
revenue includes
in-app
purchases through Salem Web Network that increased in volume with no significant changes in rates over the prior year.
Other revenue includes revenue sharing arrangements for mobile applications and mail list rentals which remained consistent with no changes in volume or rates.
 
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Net Publishing Revenue
 
    
Nine Months Ended September 30,
 
     2020     
2021
     Change $      Change %     2020    
2021
 
                                         
    
(Dollars in thousands)
           % of Total Net Revenue  
Net Publishing Revenue
   $ 13,366     
$
18,093
 
   $ 4,727        35.4     7.8  
 
9.6
The following table shows the dollar amount and percentage of net publishing revenue for each publishing revenue source.
 
    
Nine Months Ended September 30,
 
     2020    
2021
 
                            
    
(Dollars in thousands)
 
Book Sales
   $ 9,701        72.5  
$
15,074
 
  
 
83.3
Estimated Sales Returns & Allowances
     (2,852      (21.3  
 
(4,223
  
 
(23.3
  
 
 
    
 
 
   
 
 
    
 
 
 
Net Book Sales
     6,849        51.2    
 
10,851
 
  
 
60.0
 
E-Book
Sales
     960        7.2    
 
1,294
 
  
 
7.2
 
Self-Publishing Fees
     3,860        28.9    
 
4,730
 
  
 
26.1
 
Print Magazine Subscriptions
     519        3.9    
 
262
 
  
 
1.4
 
Print Magazine Advertisements
     278        2.1    
 
123
 
  
 
0.7
 
Digital Advertising
     216        1.6    
 
132
 
  
 
0.7
 
Other Revenue
     684        5.1    
 
701
 
  
 
3.9
 
  
 
 
    
 
 
   
 
 
    
 
 
 
Net Publishing Revenue
   $ 13,366        100.0  
$
18,093
 
  
 
100.0
  
 
 
    
 
 
   
 
 
    
 
 
 
Net book sales increased by $4.0 million which includes a $3.7 million increase in Regnery
®
Publishing as book sales reflect a 76% increase in volume largely attributable to the reopening of bookstores and retail locations, offset by a 7% decrease in the average price unit sold and a $0.3 million increase in Salem Author Services. The increase in the number of print books sold through Regnery
®
Publishing resulted in a $1.4 million increase to the estimated sales returns and allowances. The increase in book sales from Salem Author Services of $0.3 million was due to books sold at tradeshows with events resuming in limited capacity as pandemic restrictions are lifted. There were no significant changes in sale prices for Salem Author Services as compared to the prior year.
Regnery
®
Publishing
e-book
sales increased $0.3 million with a 6% increase in the average price per unit sold from sales incentives and a 27% increase in sales volume.
E-book
sales can also vary based on the composite mix of titles released and available in each period. Revenues can vary significantly based on the book release date and the number of titles that achieve placement on bestseller lists, which can increase awareness and demand for the book.
Self-publishing fees increased $0.9 million due an increase in the number of authors and services provided with no change in fees charged to authors.
Declines in print magazine subscription revenues and advertising revenues reflect the sale of Singing News Magazine on May 25, 2021, and ongoing lower consumer demand and distribution levels prior to the sale.
Digital advertising revenue decreased $0.1 million due to the sale of Singing News Magazine on May 25, 2021 and Regnery
®
Publishing websites declined due to a lower demand due to the
COVID-19
pandemic and the ongoing closure of bookstores with rates comparable to the same period of the prior year.
Other revenue includes change fees, video trailers, and subright revenue for foreign translation and audio books for original published titles from Regnery
®
Publishing which remained consistent to the prior year.
Broadcast Operating Expenses
 
    
Nine Months Ended September 30,
 
     2020     
2021
     Change $      Change %     2020    
2021
 
                                         
    
(Dollars in thousands)
           % of Total Net Revenue  
Broadcast Operating Expenses
   $ 104,704     
$
106,968
 
   $ 2,264        2.2     61.0  
 
56.6
Same Station Broadcast Operating Expenses
   $ 102,708     
$
105,970
 
   $ 3,262        3.2    
 
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Broadcast operating expenses increased by $2.3 million, including a $4.2 million increase from expenses associated with Salem Surround and Salem Podcast Network, a $1.8 million increase in payroll costs including the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020, a $0.4 million increase in health insurance costs, a $0.4 million increase in advertising and event costs, a $0.4 million increase in production and programming costs, and a $0.4 million increase in professional services. These costs were partially offset with a $1.5 million decline in cost of sales from SalemNow consistent with the decline in revenue as compared to the prior year when they released two successful titles, a $3.2 million decline in bad debt expense due to the impact of the
COVID-19
pandemic on prior year reserves, a $0.4 million decline in employee benefits attributable to the suspension of the 401(k) match and a $0.2 million decrease in rent and facilities related expenses.
On a same-station basis, broadcast operating expenses increased by $3.3 million. The increase on a same station basis reflects these items net of the impact of
start-up
costs associated with acquisitions, station dispositions and format changes.
Digital Media Operating Expenses
 
    
Nine Months Ended September 30,
 
     2020     
2021
     Change $      Change %     2020    
2021
 
                                         
    
(Dollars in thousands)
           % of Total Net Revenue  
Digital Media Operating Expenses
   $ 23,123     
$
25,280
 
   $ 2,157        9.3     13.5  
 
13.4
Digital media operating expenses increased by $2.2 million, including a $1.2 million increase in advertising and promotional expenses, a $0.7 million increase in sales-based commissions and incentives, a $0.7 million increase in payroll costs and a $0.2 million increase in professional services that were offset by a $0.3 million decrease in bad debt expense, a $0.2 million decrease in costs of sales, a $0.1 million decrease in employee benefit costs due to the suspension of the 401(k) match, and $0.1 million decrease in royalties. Increases in advertising and promotional expenses are driven by a new video initiative for Eagle Financial Publications that management believes to be beneficial for the business and overall gradual increase in adverting spending as the economy begins to return to
pre-pandemic
levels. The increase in payroll related expenses reflects the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020.
Publishing Operating Expenses
 
    
Nine Months Ended September 30,
 
     2020     
2021
     Change $      Change %     2020    
2021
 
                                         
    
(Dollars in thousands)
           % of Total Net Revenue  
Publishing Operating Expenses
   $ 16,443     
$
16,844
 
   $ 401        2.4     9.6  
 
8.9
Publishing operating expenses increased by $0.4 million, including a $0.9 million increase in costs of sales, a $0.4 million increase in payroll costs due to the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020, a $0.2 million increase in royalty expense based on higher sales, and a $0.1 million increase in advertising and promotional costs that were offset by a $0.8 million decrease in bad debt expense, a $0.4 million decrease in facility related expenses due to the termination of a lease in Washington D.C., and a $0.1 million decrease in employee benefit costs due to the suspension of the 401(k) match. Cost of goods sold increased $0.9 million including a $0.9 million increase from print books sold by Regnery
®
Publishing and $0.2 million increase from Salem Author Services due to higher volume of book sales offset by a $0.2 million decline Salem Publishing due to the sale of Singing News Magazine. The gross profit margin for Regnery
®
Publishing improved to 54% from 41% as sales volume increased while material costs increased only slightly. Regnery
®
Publishing margins vary based on the volume of
e-book
sales, which have higher margins due to the nature of delivery and no reserve for sales returns and allowances. The gross profit margin for Salem Author Services improved to 75% from 72% due to higher sales volume while paper costs for print book sales increased only slightly.
Unallocated Corporate Expenses
 
                                                                                                           
    
Nine Months Ended September 30,
 
    
2020
    
2021
    
Change $
    
Change %
   
2020
   
2021
 
                                         
    
(Dollars in thousands)
          
% of Total Net Revenue
 
Unallocated Corporate Expenses
  
$
11,909
 
  
$
12,764
 
  
$
855
 
  
 
7.2
 
 
6.9
 
 
6.7
 
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Unallocated corporate expenses include shared services, such as accounting and finance, human resources, legal, tax and treasury, that are not directly attributable to any one of our operating segments. The increase of $0.9 million includes a $1.3 million increase in payroll costs due to the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020 that were offset by a $0.2 million decrease in travel and entertainment-related expenses due to the events that took place prior to the pandemic restrictions in early 2020, a $0.2 million decrease in professional services and a $0.1 million decrease in employee-related benefits associated with the cash surrender value of split dollar life insurance.
Debt Modification Costs
 
                                                                                                                       
    
Nine Months Ended September 30,
 
    
2020
    
2021
    
Change $
    
Change %
   
2020
   
2021
 
                                         
    
(Dollars in thousands)
          
% of Total Net Revenue
 
Debt Modification Costs
  
$
—  
 
  
$
2,347
 
  
$
2,347
 
  
 
100.0
 
 
—  
 
 
1.2
On September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of 2028 Notes. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with FASB ASC Topic 470 with $2.3 million of fees paid to third parties included in operating expenses for the period.
Depreciation Expense
 
                                                                       
    
Nine Months Ended September 30,
 
    
2020
    
2021
    
Change $
    
Change %
   
2020
   
2021
 
                                         
    
(Dollars in thousands)
          
% of Total Net Revenue
 
Depreciation Expense
  
$
8,108
 
  
$
8,118
 
  
$
10
 
  
 
0.1
 
 
4.7
 
 
4.3
Depreciation expense reflects the impact of prior year capital expenditures for data processing equipment and computer software that had shorter estimated useful lives as compared to towers or other assets and were fully depreciated during the current year. There were no changes in our depreciation methods or in the estimated useful lives of our asset groups.
Amortization Expense    
 
                                                                                   
    
Nine Months Ended September 30,
 
    
2020
    
2021
    
Change $
   
Change %
   
2020
   
2021
 
                                        
    
(Dollars in thousands)
         
% of Total Net Revenue
 
Amortization Expense
  
$
2,578
 
  
$
1,553
 
  
$
(1,025
 
 
(39.8
)% 
 
 
1.5
 
 
0.8
The decrease in amortization expense reflects the impact of fully amortized domain names, customer lists and contracts, and subscriber base lists that had estimated useful lives of three to five years. These items were fully amortized at or near the beginning of the 2021 calendar year resulting in lower amortization expense for this year. There were no changes in our amortization methods or the estimated useful lives of our intangible asset groups.
Impairment of Indefinite-Lived Long-Term Assets Other Than Goodwill
 
                                                                                   
    
Nine Months Ended September 30,
 
    
2020
    
2021
    
Change $
   
Change %
   
2020
   
2021
 
                                        
    
(Dollars
in thousands)
         
% of Total Net Revenue
 
Impairment of Indefinite-Lived Long-Term Assets Other Than Goodwill
  
$
17,254
 
  
$
—  
 
  
$
(17,254
 
 
(100.0
)% 
 
 
10.0
 
 
—  
We performed an interim review of broadcast licenses for certain markets during the first quarter of 2020 due to the
COVID-19
pandemic and the resulting
stay-at-home
orders that began to adversely impact revenues. We engaged an independent third-party appraisal and valuation firm to assist us with determining the fair value of our broadcast licenses. Based on our interim review and analysis, we recorded an impairment charge of $17.0 million to the value of broadcast licenses in Chicago, Cleveland, Louisville, Philadelphia, Portland, Sacramento and Tampa. We also recorded an impairment charge of $0.3 million to the value of mastheads. These impairments were driven by decreases in projected revenues due to the current estimated impact of
COVID-19
and an increase in the WACC. We believe that these factors are indicative of trends in the industry as a whole and not unique to our company or operations. There were no indications of impairment as of our interim review during the third quarter of 2021.
 
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Impairment of Goodwill
 
                                                                                                           
    
Nine Months Ended September 30,
 
    
2020
    
2021
    
Change $
   
Change %
   
2020
   
2021
 
                                        
    
(Dollars
in thousands)
         
% of Total Net Revenue
 
Impairment of Goodwill
  
$
307
 
  
$
—  
 
  
$
(307
 
 
(100.0
)% 
 
 
0.2
 
 
—  
We performed an interim review of goodwill for impairment during the first quarter of 2020 due to the
COVID-19
pandemic and the resulting
stay-at-home
orders that began to adversely impact revenues. We engaged an independent third-party appraisal and valuation firm to assist us with determining the enterprise value for certain entities. Based on our interim review and analysis in the first quarter of 2020, we recorded an impairment charge of $0.3 million. These impairments were driven by decreases in projected revenues due to the current estimated impact of
COVID-19
and an increase in the WACC. We believe that these factors are indicative of trends in the industry as a whole and not unique to our company or operations. There were no indications of impairment as of our interim review during the third quarter of 2021.
Net (Gain) Loss on the Disposition of Assets
 
                                                                                   
    
Nine Months Ended September 30,
 
    
2020
    
2021
   
Change $
   
Change %
   
2020
   
2021
 
                                       
    
(Dollars in thousands)
         
% of Total Net Revenue
 
Net (Gain) Loss on the Disposition of assets
  
$
1,494
 
  
$
(10,552
 
$
(12,046
 
 
(806.3
)% 
 
 
0.9
 
 
(5.6
)% 
The net gain on the disposition of assets of $10.6 million for the nine-month period ended September 30, 2021 reflects a $10.5 million
pre-tax
gain on the sale of approximately 34 acres of land in Lewisville, Texas, a $0.5 million
pre-tax
gain on the sale of Singing News Magazine and Singing News Radio, and a $0.1 million
pre-tax
gain on the sale of the Hilary Kramer Financial Newsletter and related assets, offset by a $0.4 million additional loss recorded at closing on the sale of radio station
WKAT-AM
and FM translator in Miami, Florida and various other fixed asset disposals.
The net loss on the disposition of assets of $1.5 million for the nine-month period ended September 30, 2020 includes a $1.4 million estimated
pre-tax
loss for associated with the plans to exit the Miami broadcast market with the then pending sale of radio station
WKAT-AM
and various other fixed asset disposals.
Other Income (Expense)
 
                                                                                   
    
Nine Months Ended September 30,
 
    
2020
   
2021
   
Change $
   
Change %
   
2020
   
2021
 
                                      
    
(Dollars in thousands)
         
% of Total Net Revenue
 
Interest Income
  
$
1
 
 
$
1
 
 
$
—  
 
 
 
—  
 
 
—  
 
 
—  
Interest Expense
  
 
(12,069
 
 
(11,887
 
 
(182
 
 
(1.5
)% 
 
 
(7.0
)% 
 
 
(6.3
)% 
Gain on the Forgiveness of PPP Loans
  
 
—  
 
 
 
11,212
 
 
 
11,212
 
 
 
100.0
 
 
—  
 
 
 
5.9
Gain (Loss) on Early Retirement of Long-Term Debt
  
 
49
 
 
 
(56
 
 
(105
 
 
(214.3
)% 
 
 
—  
 
 
—  
Net Miscellaneous Income and (Expenses)
  
 
(45
 
 
87
 
 
 
132
 
 
 
(2,93.3
)% 
 
 
—  
 
 
—  
Interest income represents earnings on excess cash and interest due under promissory notes.
Interest expense includes interest due on outstanding debt balances and
non-cash
accretion associated with deferred installments. The decrease of $0.2 million reflects the lower outstanding balance of the Notes, the lower outstanding balance of the ABL Facility, and finance lease obligations outstanding during the nine-months ended September 30, 2021.
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. We used the PPP loan proceeds according to the terms and filed timely applications for forgiveness. During July 2021, the SBA forgave all but $20,000 of the PPP loans resulting in a
pre-tax
gain on the forgiveness of $11.2 million.
The loss on the early retirement of long-term debt reflects $4.7 million of repurchases of the 2024 Notes for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs. The gain on the early retirement of long-term debt reflects $3.5 million of repurchases of the 2024 Notes at prices below face value resulting in a
pre-tax
gain of $49,000 for the nine-month period ended September 30, 2020.
Net miscellaneous income and expenses includes
non-operating
receipts such as usage fees and other miscellaneous expenses.
 
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Provision for Income Taxes
 
    
Nine Months Ended September 30,
 
     2020     
2021
     Change $     Change %     2020    
2021
 
                                        
    
(Dollars in thousands)
          % of Total Net Revenue  
Provision for Income Taxes
   $ 31,180     
$
479
 
   $ (30,701     (98.5 )%      18.2  
 
0.3
Our provision for income taxes decreased $30.7 million to $0.5 million for the nine months ended September 30, 2021 compared to $31.2 million for the same period of the prior year. The provision for income taxes as a percentage of income before income taxes, or the effective tax rate was 1.9% for the nine months ended September 30, 2021 compared to (119.0)% for the same period of the prior year. The change between the comparative nine-month quarters is attributable to the recognition of a valuation allowance against the net operating loss deferred tax assets for the period ended September 30, 2021 coupled with a change in forecasted income for 2021 impacting the utilization of operating losses along with favorable tax adjustment around the PPP forgiveness. The effective tax rate for each period differs from the federal statutory income rate of 21.0% due to state income taxes, certain expenses that are not deductible for tax purposes, and changes in the valuation allowance. The effective tax rate of 1.9% is driven by certain expenses that are nondeductible for income tax purposes relative to
pre-tax
book loss, tax expense attributable to deductible amortization on indefinite lived assets for fully valued state jurisdictions and projected utilization of operating loss carryforwards.
Net Income (Loss)
 
    
Nine Months Ended September 30,
 
     2020    
2021
     Change $      Change %     2020    
2021
 
                                        
    
(Dollars in thousands)
           % of Total Net Revenue  
Net Income (Loss)
   $ (57,390  
$
24,674
 
   $ 82,064        (143.0 )%      (33.4 )%   
 
13.0
Net income increased by $82.1 million to $24.7 million for the nine months ended September 30, 2021 compared to a net loss of $57.4 million during the same period of the prior year as described above.
CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results can be materially different from these estimates and assumptions. There have been no significant and material changes in our critical accounting policies as compared to those disclosed in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our most recent Annual Report on Form
10-K,
as filed with the SEC on March 4, 2021.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of funds are operating cash flows, borrowings under credit facilities and proceeds from the sale of selected assets or businesses. We have historically funded, and will continue to fund, expenditures for operations, administrative expenses, and capital expenditures from these sources. We have historically financed acquisitions through borrowings, including borrowings under credit facilities and, to a lesser extent, from operating cash flow and from proceeds on selected asset dispositions. We expect to fund future acquisitions from cash on hand, borrowings under our credit facilities, operating cash flow and possibly through the sale of income-producing assets or proceeds from debt and equity offerings.
The
COVID-19
global pandemic that began in March 2020 materially impacted our business. We experienced a rapid decline in revenue from advertising, programming, events and book sales. Several advertisers reduced or ceased advertising spending due to the outbreak and
stay-at-home
orders that effectively shut many businesses down. The revenue decline impacted our broadcast segment, which derives substantial revenue from local advertisers who were particularly hard hit due to social distancing and government interventions, and our publishing segment, which derives revenue from book sales through retail stores and live events.
 
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While we see progress being made in revenue returning to
pre-pandemic
levels, the
COVID-19
pandemic continues to create significant uncertainty and disruption in the economy. These uncertainties could materially impact significant accounting estimates related to, but not limited to, allowances for doubtful accounts, impairments and
right-of-use assets.
As a result, many estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. These estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
During 2020 we implemented several measures to reduce costs and conserve cash to ensure that we had adequate cash to meet our debt servicing requirements, including:
 
   
limiting capital expenditures;
 
   
reducing discretionary spending, including travel and entertainment;
 
   
eliminating open positions and freezing new hires;
 
   
reducing staffing levels;
 
   
implementing temporary company-wide pay cuts of 5%, 7.5% or 10% depending on salary level;
 
   
furloughing certain employees;
 
   
temporarily suspending the company 401(k) match;
 
   
requesting rent concessions from landlords;
 
   
requesting discounts from vendors;
 
   
offering early payment discounts to certain customers in exchange for advance cash payments; and
 
   
suspending the payment of distributions on our common stock indefinitely.
As the economy continues to show signs of recovery, many of these cost reduction initiatives were reversed during 2021. We continue to operate with lower staffing levels, we have not reinstated the company 401(k) match and we have not paid equity distributions on our common stock.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act provided emergency economic assistance for individuals and businesses impacted by the
COVID-19
pandemic, including opportunities for additional liquidity, loan guarantees, and other government programs. On December 27, 2020, Congress passed the Consolidated Appropriations Act (“CAA”) that included a second relief package, which, among other things, provides for an extension of the Payroll Support Program established by the CARES Act. We utilized certain benefits of the CARES Act and the CAA, including:
 
   
we deferred $3.3 million of employer FICA taxes from April 2020 through December 2020, with 50% payable in December 2021 recorded in accrued compensation and related expenses and 50% payable in December 2022 recorded in other long-term liabilities;
 
   
relaxation of interest expense deduction limitation for income tax purposes;
 
   
we received Paycheck Protection Program (“PPP”) loans of $11.2 million in total through the SBA during the first quarter of 2021 based on the eligibility as determined on a
per-location
basis; and
 
   
In July 2021, the SBA forgave all but $20,000 of these loans with the remaining PPP loan repaid in July 2021.
Operating Cash Flows
Our largest source of operating cash inflows are receipts from customers in exchange for advertising and programming. Other sources of operating cash inflows include receipts from customers for digital downloads and streaming, book sales, subscriptions, self-publishing fees, ticket sales, sponsorships, and vendor promotions. The adverse economic impact of the
COVID-19
pandemic negatively impacted our revenue and cash receipts from customers. Advertising revenue continues to improve over the lowest levels that were experienced during April and May of 2020 but remains significantly below prior years. The exact timing and pace of the economic recovery has not been determinable due to varying degrees of restrictions and resurgences. A majority of our operating cash outflows consist of payments to employees, such as salaries and benefits, and vendor payments under facility and tower leases, talent agreements, inventory purchases and recurring services such as utilities and music license fees. Our operating cash flows are subject to factors such as fluctuations in preferred advertising media and changes in demand caused by shifts in population, station listenership, demographics, and audience tastes. In addition, our operating cash flows may be affected if our customers are unable to pay, delay payment of amounts owed to us, or if we experience reductions in revenue, or increases in costs and expenses.
 
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Net cash provided by operating activities during the nine-month period ended September 30, 2021, decreased by $8.4 million to $14.7 million compared to $23.1 million during the same period of the prior year. Cash provided by operating activities includes the impact of the following items:
 
   
The favorable impact of
non-cash
items on the prior year, including a $17.3 million impairment of indefinite-lived assets and a $31.0 million deferred income tax charge combined with;
 
   
Total net revenue increased by $17.4 million;
 
   
Operating expenses decreased by $22.6 million;
 
   
Trade accounts receivables, net of allowances, did not change significantly compared to a decrease of $6.6 million for the same period of the prior year;
 
   
Unbilled revenue increased $0.1 million;
 
   
Our Day’s Sales Outstanding, or the average number of days to collect cash from the date of sale, decreased to 53 days at September 30, 2021, from 59 days in the same period of the prior year;
 
   
Deferred income tax liabilities increased by $0.4 million compared to an increase of $31.0 million during the same period of the prior year; and
 
   
Net accounts payable and accrued expenses increased $1.4 million to $24.7 million from $21.9 million as of the prior year.
Investing Cash Flows
Our primary source of investing cash inflows includes proceeds from the sale of assets or businesses. Investing cash outflows include cash payments made to acquire businesses, to acquire property and equipment and to acquire intangible assets such as domain names. While our focus continues to be on deleveraging the company, we remain committed to explore and pursue strategic acquisitions.
We undertake projects from time to time to upgrade our radio station technical facilities and/or FCC broadcast licenses, expand our digital and
web-based
offerings, improve our facilities and upgrade our computer infrastructures. The nature and timing of these upgrades and expenditures can be delayed or scaled back at the discretion of management. Based on our original 2021 budget, we expect to incur additional capital expenditures of approximately $1.6 million during the remainder of 2021.
We plan to fund any future purchases and any future acquisitions from cash on hand, operating cash flow or our credit facilities.
Net cash provided by investing activities increased $4.7 million to $2.8 million during the nine-month period ended September 30, 2021, from net cash used of $1.9 million during the same period of the prior year. The increase in cash provided by investing activities was the result of:
 
   
Receipts from asset sales provided $15.8 million of cash during the nine months ended September 30, 2021, compared to $0.2 million during the same period of the prior year;
 
   
We paid $4.6 million in cash for acquisitions during the nine months ended September 30, 2021, compared to $0.4 million during the same period of the prior year;
 
   
Cash paid for capital expenditures increased $3.4 million to $6.9 million from $3.5 million; and
 
   
We collected $2.4 million in cash from the surrender of split dollar life insurance policies in 2020.
Financing Cash Flows
Financing cash inflows include borrowings under our credit facilities and any proceeds from the exercise of stock options issued under our stock incentive plan. Financing cash outflows include repayments of our credit facilities, the payment of any equity distributions and any payments due under deferred installments and contingency
earn-out
consideration associated with acquisition activity.
In April 2021, we filed a prospectus supplement to our shelf registration statement on Form
S-3
with the SEC covering the offering, issuance and sale of up to $15.0 million of our Class A Common Stock pursuant to an
at-the-market
facility, with B. Riley Securities, Inc. acting as sales agent. No Common Stock transactions have taken place under the facility.
 
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During the nine-month period ended September 30, 2021, the principal balances outstanding under the 2024 Notes, 2028 Notes and the ABL Facility ranged from $216.3 million to $218.2 million. Additionally, during the first quarter of 2021 we received $11.2 million in aggregate principal amount of PPP loans through the SBA available to our radio stations and networks by location under the CAA. The SBA forgave all but $20,000 of the PPP loans during July 2021 resulting in a
pre-tax
gain on the forgiveness of $11.2 million. The remaining $20,000 PPP loan was repaid in July 2021. The outstanding balances were ordinary and customary based on our operating and investing cash needs during this time
Our sole source of cash available for making any future equity distributions is our operating cash flow, subject to our credit facilities and Notes, which contain covenants that restrict the payment of dividends and equity distributions unless certain specified conditions are satisfied. On May 6, 2020, our Board of Directors voted to discontinue equity distributions until further notice due to the adverse economic impact of the
COVID-19
pandemic on our financial position, results of operations, and cash flows.
Net cash used in financing activities decreased $1.8 million to $0.1 million during the nine-month period ended September 30, 2021, compared to $1.9 million during the same period of the prior year. The decrease in cash used in financing activities includes:
 
   
A $1.9 million increase in the book overdraft from the prior year;
 
   
We exchanged $112.8 million of our Senior Secured Notes due 2024 (the “2024 Notes”) for $114.7 million (reflecting a call premium of 1.688%) of newly issued 7.125% Senior Secured Notes due 2028 (the “2028 Notes”);
 
   
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. During July 2021, the SBA forgave all but $20,000 of the PPP loans with the remaining PPP loan repaid in July 2021;
 
   
We used $4.7 million in cash to repurchase $4.7 million in face value of the 2024 Notes compared to $3.4 million in cash to repurchase $3.5 million in face value of 2024 Notes during the same period of the prior year; and
 
   
Net repayments on our ABL Facility were $5.0 million during the nine-months ended September 30, 2021, compared to net borrowings of $4.2 million during the same period of the prior year.
Long-term debt consists of the following:
 
     December 31, 2020     
September 30, 2021
 
               
    
(Dollars in thousands)
 
7.125% Senior Secured Notes
   $ —       
$
114,731
 
Less unamortized discount and debt issuance costs based on imputed interest rate of 7.64%
     —       
 
(4,048
  
 
 
    
 
 
 
7.125% Senior Secured Notes net carrying value
     —       
 
110,683
 
  
 
 
    
 
 
 
6.75% Senior Secured Notes
     216,341     
 
98,815
 
Less unamortized debt issuance costs based on imputed interest rate of 7.10%
     (2,577   
 
(939
  
 
 
    
 
 
 
6.75% Senior Secured Notes net carrying value
     213,764     
 
97,876
 
  
 
 
    
 
 
 
Asset-Based Revolving Credit Facility principal outstanding (1)
     5,000     
 
—  
 
SBA Paycheck Protection Program loans
     —       
 
—  
 
  
 
 
    
 
 
 
Long-term debt less unamortized discount and debt issuance costs
   $ 218,764     
$
208,559
 
  
 
 
    
 
 
 
Less current portion
     (5,000   
 
—  
 
  
 
 
    
 
 
 
Long-term debt less unamortized discount and debt issuance costs, net of current portion
   $ 213,764     
$
208,559
 
  
 
 
    
 
 
 
 
(1)
As of September 30, 2021, the Asset-Based Revolving Credit Facility (“ABL”), had a borrowing base of $24.6 million, no outstanding borrowings and $0.3 million of outstanding letters of credit, resulting in a $24.3 million borrowing base availability.
Our weighted average interest rate was 6.65% and 6.94% at December 31, 2020 and September 30, 2021, respectively.
 
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In addition to the outstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of September 30, 2021:
 
   
$114.7 million aggregate principal amount of 2028 Notes with semi-annual interest payments at an annual rate of 7.125%;
 
   
$98.8 million aggregate principal amount of 2024 Notes with semi-annual interest payments at an annual rate of 6.75%; and
 
   
Commitment fee of 0.25% to 0.375% per annum on the unused portion of the ABL Facility.
7.125% Senior Secured Notes
On September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of newly issued 7.125% Senior Secured Notes due 2028 (“2028 Notes.”) Contemporaneously with the refinancing, we obtained commitments from the holders of the 2028 Notes to purchase up to $50 million in additional 2028 Notes (“Delayed Draw 2028 Notes”), contingent upon satisfying certain performance benchmarks, the proceeds of which are to be used exclusively to repurchase or repay the remaining balance outstanding of the 2024 Notes.
The 2028 Notes and the related guarantees were exchanged and sold to certain holders of the 2024 Notes, whom we believe to be qualified institutional buyers, in a private placement. The 2028 Notes and the related guarantees have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or any state securities laws. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with FASB ASC Topic 470.
The 2028 Notes are guaranteed on a senior secured basis. We may redeem the 7.125% Notes, in whole or in part, at any time prior to June 1, 2024 at a price equal to 100% of the principal amount of the 2028 Notes plus a “make-whole” premium as of, and accrued and unpaid interest, if any, to, but not including, the redemption date. At any time on or after June 1, 2024, we may redeem some or all of the 2028 Notes at the redemption prices (expressed as percentages of the principal amount to be redeemed) set forth in the 2028 Notes Indenture, plus accrued and unpaid interest, if any, to, but not including the redemption date. In addition, we may redeem up to 35% of the aggregate principal amount of the 2028 Notes before June 1, 2024 with the net cash proceeds from certain equity offerings at a redemption price of 107.125% of the principal amount plus accrued and unpaid interest, if any, to, but not including the redemption date. We may also redeem up to 10% of the aggregate original principal amount of the 2028 Notes per twelve-month period, in connection with up to two redemptions in such twelve-month period, at a redemption price of 101% of the principal amount plus accrued and unpaid interest to, but not including, the redemption date
The 2028 Notes mature on June 1, 2028, unless earlier redeemed or repurchased. Interest accrues on the 2028 Notes from September 10, 2021 and is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year, commencing December 1, 2021. Based on the balance of the 2028 Notes outstanding, we are required to pay $8.2 million per year in interest. As of September 30, 2021, accrued interest on the 2028 Notes was $0.5 million.
The indenture to the 2028 Notes (“2028 Indenture”) contains covenants that, among other things and subject in each case to certain specified exceptions, limit the ability to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets. At September 30, 2021, we were, and we remain, in compliance with all of the covenants under the 7.125% Indenture.
We incurred debt issuance costs of $4.2 million, of which $2.3 million of third-party debt modification costs are reflected in operating expenses for the current period, $0.8 million is deferred with the Delayed Draw 2028 Notes, and $1.1 million, along with $3.0 million from the exchanged 2024 Notes, is being amortized as part of the effective yield on the 2028 Notes.
SBA PPP Loans
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. The PPP loans and accrued interest were forgivable provided that the proceeds were used for eligible purposes, including payroll, benefits, rent and utilities within the covered period. We used the PPP loan proceeds according to the terms and filed timely applications for forgiveness. During July 2021, the SBA forgave all but $20,000 of the PPP loans resulting in a
pre-tax
gain on the forgiveness of $11.2 million. The remaining PPP loan was repaid in July 2021.
 
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6.75% Senior Secured Notes
On May 19, 2017, we issued 6.75% Senior Secured Notes (“2024 Notes”) in a private placement. The 2024 Notes are guaranteed on a senior secured basis by our existing subsidiaries (the “Subsidiary Guarantors”). The 2024 Notes bear interest at a rate of 6.75% per year and mature on June 1, 2024, unless they are earlier redeemed or repurchased. Interest is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year.
The 2024 Notes are secured by a first-priority lien on substantially all assets of ours and the Subsidiary Guarantors other than the ABL Facility Priority Collateral (as described below) (the “2024 Notes Priority Collateral”). There is no direct lien on our FCC licenses to the extent prohibited by law or regulation (other than the economic value and proceeds thereof).
The indenture relating to the 2024 Notes (the “2024 Indenture”) contains covenants that, among other things and subject in each case to certain specified exceptions, limit our ability and the ability of our restricted subsidiaries to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets. At September 30, 2021, we were, and we remain, in compliance with all of the covenants under the Indenture.
We may from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to repurchase the 2024 Notes in open market transactions, privately negotiated transactions, by tender offer or otherwise, as market conditions warrant.
As described above, on September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million of newly issued 2028 Notes, reflecting a call premium of 1.688%. Bond issuance costs of $1.1 million associated with the $112.8 million of the 2024 Notes are being amortized as part of the effective yield on the 2028 Notes.
On September 24, 2021, we repurchased $4.7 million of the 2024 Notes for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs.
Based on the balance of the 2024 Notes outstanding of $98.8 million, we are required to pay $6.6 million per year in interest on the 2024 Notes. As of September 30, 2021, accrued interest on the 2024 Notes was $2.3 million.
We incurred debt issuance costs of $4.2 million, of which $2.3 million of third-party debt modification costs are reflected in operating expenses for the current period, $0.8 million is deferred with the Delayed Draw 2028 Notes, and $1.1 million, along with $3.0 million from the exchanged 2024 Notes, is being amortized as part of the effective yield on the 2028 Notes.
Asset-Based Revolving Credit Facility
On May 19, 2017, we entered into the ABL Facility pursuant to a Credit Agreement (the “Credit Agreement”) by and among us and our subsidiaries party thereto as borrowers, Wells Fargo Bank, National Association, as administrative agent and lead arranger, and the lenders that are parties thereto. The ABL Facility is a five-year $30.0 million revolving credit facility due March 1, 2024, which includes a $5.0 million subfacility for standby letters of credit and a $7.5 million subfacility for swingline loans. All borrowings under the ABL Facility accrue interest at a rate equal to a base rate or LIBOR plus a spread. The spread, which is based on an availability-based measure, ranges from 0.50% to 1.00% for base rate borrowings and 1.50% to 2.00% for LIBOR borrowings. If an event of default occurs, the interest rate may increase by 2.00% per annum. Amounts outstanding under the ABL Facility may be paid and then reborrowed at our discretion without penalty or premium. Additionally, we pay a commitment fee on the unused balance from 0.25% to 0.375% per year based on the level of borrowings.
Availability under the ABL Facility is subject to a borrowing base consisting of (a) 90% of the eligible accounts receivable plus (b) a calculated amount based on the value of certain real property. As of September 30, 2021, the amount available under the ABL Facility was $25.0 million of which none was outstanding. The ABL Facility has a first-priority lien on our and the Subsidiary Guarantors’ accounts receivable, inventory, deposit and securities accounts, certain real estate and related assets (the “ABL Facility Priority Collateral”) and by a second-priority lien on the Notes Priority Collateral. There is no direct lien on our FCC licenses to the extent prohibited by law or regulation (other than the economic value and proceeds thereof). At September 30, 2021, we were, and we remain, in compliance with all of the covenants under Credit Agreement.
 
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On September 10, 2021, we entered into the fifth amendment to the ABL Facility to designate the incurrence of the 2028 Notes, and any further refinancing of 2024 Notes through the issuance of additional 2028 Notes, as permitted indebtedness thereunder and to effect related arrangements for the interests in the ABL Priority Collateral and the Notes Priority Collateral. We incurred debt issue costs of $0.9 million that were recorded as an asset and are being amortized to
non-cash
interest expense over the term of the ABL Facility using the effective interest method. During the three and nine-month periods ended September 30, 2021, $27,000 and $0.1 million, respectively, of debt issuance costs associated with the ABL was amortized to interest expense. During the three and nine-month periods ended September 30, 2020, $30,000 and $0.1 million, respectively, of debt issue costs associated with the ABL was amortized to interest expense.
We report outstanding balances on the ABL Facility as short-term regardless of the maturity date based on use of the ABL Facility to fund ordinary and customary operating cash needs with frequent repayments. We believe that our borrowing capacity under the ABL Facility allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the next twelve months.
Maturities of Long-Term Debt
Principal repayment requirements under all long-term debt agreements outstanding at September 30, 2021 for each of the next five years and thereafter are as follows:
 
    
Amount
 
For the Year Ended September 30,
  
(Dollars in
thousands)
 
2022
   $ —    
2023
     —    
2024
     98,815  
2025
     —    
2026
     —    
Thereafter
     114,731  
  
 
 
 
   $ 213,546  
  
 
 
 
Impairment Losses on Goodwill and Indefinite-Lived Intangible Assets
We have incurred significant impairment losses with regards to our indefinite-lived intangible assets. We believe that the impairments are indicative of trends in the industry as a whole and are not unique to our company or operations. While impairment charges are
non-cash
in nature and do not violate the covenants on our debt agreements, the potential for future impairment charges can be viewed as a negative factor with regard to forecasted future performance and cash flows.
The valuation of intangible assets is subjective and based on estimates rather than precise calculations. The fair value measurements of our indefinite-lived intangible assets use significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fair value including assumptions about risk. If actual future results are less favorable than the assumptions and estimates we used, we are subject to future impairment charges, the amount of which may be material. Given the current economic environment and uncertainties that can negatively impact our business, there can be no assurance that our estimates and assumptions made for the purpose of our indefinite-lived intangible fair value estimates will prove to be accurate.
OFF-BALANCE
SHEET ARRANGEMENTS
At September 30, 2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating
off-balance
sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for smaller reporting companies
 
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ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
Our management, including our principal executive and financial officers, have conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined under Rules
13a-15(e)
and
15d-15(e)
of the Exchange Act, to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and financial officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule
13a-15(d)
and
15d-15(d)
of the Exchange Act that occurred during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We and our subsidiaries, incident to our business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance. We maintain insurance that may provide coverage for such matters. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. We believe, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect upon our annual consolidated financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS.
Not required for smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
See “Exhibit Index” below.
 
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EXHIBIT INDEX
 
Exhibit
Number
  
Exhibit Description
  
Form
  
File No.
  
Date of First Filing
  
Exhibit
Number
  
Filed
Herewith
31.1    Certification of Edward G. Atsinger III Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.    -    -    -    -    X
31.2    Certification of Evan D. Masyr Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.    -    -    -    -    X
32.1    Certification of Edward G. Atsinger III Pursuant to 18 U.S.C. Section 1350.    -    -    -    -    X
32.2    Certification of Evan D. Masyr Pursuant to 18 U.S.C. Section 1350.    -    -    -    -    X
101    The following financial information from the Quarterly Report on Form 10Q for the three and nine months ended September 30, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Balance Sheets (ii) Condensed Consolidated Statements of Operations (iii) the Condensed Consolidated Statements of Cash Flows (iv) the Notes to the Condensed Consolidated Financial Statements.    -    -    -    -    X
104    The cover page of this Quarterly Report on Form
10-Q,
formatted in inline XBRL.
   -    -    -    -    X
 
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Salem Media Group, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
    SALEM MEDIA GROUP, INC.
November 4, 2021      
    By:  
/s/ EDWARD G. ATSINGER III
      Edward G. Atsinger III
      Chief Executive Officer
      (Principal Executive Officer)
November 4, 2021      
    By:  
/s/ EVAN D. MASYR
      Evan D. Masyr
      Executive Vice President and Chief Financial Officer
      (Principal Financial Officer)
 
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