10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company

Emerging Growth Company

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 MARCH 31, 2023

☐	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)


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.

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 May 2, 2023
Common Stock, $0.01 par value per share		21,663,091 shares


Class B		Outstanding at May 2, 2023
Common Stock, $0.01 par value per share		5,553,696 shares

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)


	December 31, 2022 (Note 1)			March 31, 2023 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	3
Accounts receivable (net of allowances of $7,939 in 2022 and $8,328 in 2023)		30,756			28,468
Unbilled revenue		2,890			2,845
Income tax receivable		195			233
Other receivables (net of allowances of $586 in 2022 and $585 in 2023)		1,817			1,820
Inventories		1,513			1,708
Prepaid expenses		7,619			8,606
Assets held for sale		267			267

Total current assets		45,057			43,950

Notes receivable (net of allowance of $571 in 2022 and $551 in 2023)		922			932
Property and equipment (net of accumulated depreciation of $191,638 in 2022 and $194,407 in 2023)		81,296			83,689
Operating lease right-of-use assets		43,671			44,276
Financing lease right-of-use assets		63			52
Broadcast licenses		303,774			305,192
Goodwill		24,085			25,346
Amortizable intangible assets (net of accumulated amortization of $59,383 in 2022 and $59,926 in 2023)		2,149			5,694
Deferred financing costs		681			56
Other assets		3,424			4,086

Total assets	$	505,122		$	513,273

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,539		$	6,957
Accrued expenses		17,495			16,475
Accrued compensation and related expenses		10,298			9,383
Accrued interest		949			2,817
Contract liabilities		11,901			13,596
Deferred rent income		122			116
Current portion of operating lease liabilities		8,305			8,438
Current portion of financing lease liabilities		43			37
Current portion of long-term debt		8,958			18,184

Total current liabilities		64,610			76,003

Long-term debt, less current portion		150,367			152,041
Operating lease liabilities, less current portion		42,406			42,509
Financing (capital) lease liabilities, less current portion		39			31
Deferred income taxes		66,732			64,489
Contract liabilities, long-term		1,886			4,226
Deferred rent income, less current portion		3,659			3,636
Other long-term liabilities		66			60

Total liabilities		329,765			342,995

Commitments and contingencies (Note 14)
Stockholders’ Equity:
Class A common stock, $0.01 par value; authorized 80,000,000 shares; 23,980,741 issued and 21,663,091 outstanding at December 31, 2022 and March 31, 2023		232			232
Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding at December 31, 2022 and March 31, 2023, respectively		56			56
Additional paid-in capital		248,820			248,895
Accumulated deficit		(39,745	)		(44,899	)
Treasury stock, at cost (2,317,650 shares at December 31, 2022 and March 31, 2023)		(34,006	)		(34,006	)

Total stockholders’ equity		175,357			170,278

Total liabilities and stockholders’ equity	$	505,122		$	513,273

See accompanying notes

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SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Three Months Ended March 31,
	2022			2023
OPERATING ACTIVITIES
Net income (loss)	$	1,739		$	(5,154	)
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash stock-based compensation		106			75
Depreciation and amortization		3,276			3,393
Amortization of deferred financing costs		247			480
Non-cash lease expense		2,202			2,253
Accretion of acquisition-related deferred payments and contingent earn-out consideration		—			5
Provision for bad debts		(209	)		(612	)
Deferred income taxes		(5	)		(2,243	)
Change in the estimated fair value of contingent earn-out consideration		(5	)		(2	)
Impairment of indefinite-lived long-term assets other than goodwill		—			2,124
(Gain) loss on early retirement of long-term debt		53			60
Net (gain) loss on the disposition of assets		(1,735	)		(21	)
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue		(2,229	)		2,860
Income tax receivable		—			(38	)
Inventories		(411	)		(195	)
Prepaid expenses and other current assets		(748	)		(987	)
Accounts payable and accrued expenses		4,024			1,039
Operating lease liabilities		(1,852	)		(2,596	)
Contract liabilities		136			(985	)
Deferred rent income		(58	)		(20	)
Other liabilities		—			(6	)
Income taxes payable		(218	)		—

Net cash provided by (used in) operating activities		4,313			(570	)

INVESTING ACTIVITIES
Cash paid for capital expenditures net of tenant improvement allowances		(3,439	)		(2,614	)
Capital expenditures reimbursable under tenant improvement allowances and trade agreements		(40	)		(18	)
Purchases of broadcast assets and radio stations		(540	)		(5,535	)
Purchases of digital media businesses and assets		—			(25	)
Equity investment in limited liability corporations		(2,000	)		(1,500	)
Proceeds from sale of long-lived assets		2,001			—
Other		(858	)		190

Net cash used in investing activities		(4,876	)		(9,502	)

FINANCING ACTIVITIES
Proceeds from 2028 Notes		—			44,685
Payments to repurchase 2024 Notes		(2,531	)		(38,966	)
Proceeds from borrowings under ABL Facility		6,257			61,593
Payments on ABL Facility		(6,257	)		(52,367	)
Payments of debt issuance costs		—			(3,957	)
Payments of acquisition-related contingent earn-out consideration		—			(1	)
Proceeds from the exercise of stock options		94			—
Payments on financing lease liabilities		(16	)		(15	)
Book overdraft		1,231			(897	)

Net cash provided by (used in) financing activities		(1,222	)		10,075

Net increase (decrease) in cash and cash equivalents		(1,785	)		3
Cash and cash equivalents at beginning of year		1,785			—

Cash and cash equivalents at end of period	$	—		$	3

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.

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 months ended March 31, 2023 and 2022 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, 2022. 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, 2022 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

Our condensed consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates require the use of judgment as future events, and the effect of these events cannot be predicted with certainty.

Our estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in our consolidated financial statements. We evaluate and update our assumptions and estimates on an ongoing basis and we may consult outside experts to assist as considered necessary.

Significant areas for which management uses estimates include:

•

revenue recognition;

•

asset impairments, including broadcasting licenses and goodwill;

•

contingency reserves;

•

allowance for doubtful accounts;

•

barter transactions;

•

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,

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, 2022 filed with the SEC on March 10, 2023, that have had a material impact on our Condensed Consolidated Financial Statements and related notes.

We may make strategic investments in entities that share similar interests in Christian and conservative content. The accounting for these investments depends on the degree to which we influence the investee. The determination of the degree to which we can influence the investee requires extensive analysis depending on the terms and nature of each investment.

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For material investments that we directly or indirectly hold a controlling financial interest, we apply the guidance within Accounting Standards Codification (“ASC”) 810, Consolidation. For material investments that we do not hold a controlling interest, but for which we have significant influence, we apply the equity method of accounting under ASC

323-30,

Investments – Equity Method and Joint Ventures. For investments in which we do not have significant influence, we apply the accounting guidance in ASC 321 – Investments Equity Securities.

We monitor equity method investments for impairment and record a reduction in the carrying value if the carrying value exceeds the estimated fair value. An impairment charge is recorded when such impairment is deemed to be other than temporary. To determine whether an impairment is other than temporary, we consider our ability and intent to hold the investment until the carrying amount is fully recovered. Circumstances that indicate an impairment may have occurred include factors such as decreases in quoted market prices or declines in the operations of the investee. The evaluation of the investment for potential impairment requires us to exercise significant judgment and to make certain assumptions. The use of different judgments and assumptions could result in different conclusions. There were no indications of impairment at March 31, 2023.

Recent Accounting Pronouncements

Changes to accounting principles are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Update (“ASUs”) to the FASB’s Codification. We consider the applicability and impact of all ASUs on our financial position, results of operations, cash flows, or presentation thereof. Described below are ASUs that may be applicable to our financial position, results of operations, cash flows, or presentation thereof. ASUs not listed below were assessed and determined to not be applicable to our financial position, results of operations, cash flows, or presentation thereof.

Accounting Standards Adopted in 2023

In September 2022, the FASB issued ASU

2022-04

, Liabilities – Supplier Finance Programs (Subtopic

405-50):

Disclosure of Supplier Finance Program Obligations

, to enhance the transparency about the use of supplier finance programs. The ASU was effective January 1, 2023, and is to be applied retrospectively with early adoption permitted. We do not currently utilize Supplier Finance programs, therefore, the adoption of ASU

No. 2022-04

did not have a material impact on our condensed consolidated financial position, results of operations, cash flows, or presentation thereof.

In March 2022, the FASB issued ASU

2022-02,

Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures

(Topic 326):

Financial Instruments – Credit Losses

. This amended guidance will eliminate the accounting designation of a loan modification as a TDR, including eliminating the measurement guidance for TDRs. The amendments also enhance existing disclosure requirements and introduce new requirements related to modifications of receivables made to borrowers experiencing financial difficulty. Additionally, this guidance requires entities to disclose gross write-offs by year of origination for financing receivables, such as loans and interest receivable. The ASU was effective January 1, 2023, and is required to be applied prospectively, except for the recognition and measurement of TDRs which can be applied on a modified retrospective basis. The adoption of ASU

No. 2022-02

did not have a material impact on our condensed consolidated financial position, results of operations, cash flows, or presentation thereof.

October 2021,

the FASB issued ASU

2021

08,

Business Combinations (Topic

805

): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

, which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic

606

) rather than adjust them to fair value at the acquisition date. The ASU was effective January 1, 2023, with early adoption permitted. The adoption of ASU

No. 2021-08

did not have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.

Recent Accounting Standards or Updates Not Yet Effective

In June 2022, the FASB issued ASU

2022-03,

Fair Valu

Measurement (Topic 820) Fair Value Measurement of Equity Securities Subject to Contractual Sales Restrictions

. This amended guidance clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective January 1, 2024, and is to be applied prospectively with early adoption permitted. We do not expect the adoption of this ASU to have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.

NOTE 3. RECENT TRANSACTIONS

During the three-month period ended March 31, 2023, we completed or entered into the following transactions:

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Debt Transactions

On March 20, 2023, we issued $44.7 million in new 7.125% Senior Secured Notes due 2028 (“2028 Notes”) at a discount of $41.9 million resulting in an effective yield of 8.625%. We used a portion of the proceeds of this borrowing to redeem the remaining $36.5 million of 6.75% Senior Secured Notes due 2024 (“2024 Notes”). The redemption of the 2024 Notes closed on March 27, 2023.

On January 19, 2023, we repurchased $2.5 million of the 2024 Notes at 97.25% of face value recognizing a gain of $39,000 after adjusting for debt issue costs.

Acquisitions

We invested in a limited liability company that will own, distribute, and market a motion picture. The

investment of $1.5 million at March 31, 2023 is reflected at cost in other assets.

On March 24, 2023, we closed on the acquisition of Digital Felt Productions and the digital content library through its www.digitalfelt.com domain and website for $25,000

in cash

On February 1, 2023, we closed the acquisition of the George Gilder Report and other digital newsletters and related website assets. We assumed the deferred subscription liabilities paying no cash at the time of closing. We will pay the seller 25% of net revenue generated from sales of most Eagle Financial products during the next year to subscribers who are on George Gilder subscriber lists that are not already on Eagle Financial lists. We recorded goodwill of approximately $1.2 million associated with the expected synergies to be realized upon combining the operations into our digital media platform within Eagle Financial Publications. The accompanying Condensed Consolidated Statement of Operations reflects the operating results of this entity as of the closing date within our digital media segment.

On January 10, 2023, we closed the acquisition of radio stations

WWFE-AM,

WRHC-AM,

two FM translators and six office condominiums in Miami, Florida for $3.0 million

in cash

On January 6, 2023, we closed on the acquisition of radio station

WMYM-AM

and an FM translator in Miami, Florida for $3.2 million

in cash

The total purchase price consideration for our business acquisitions and asset purchases during the three-month period ending March 31, 2023, is as follows:


Description	Total Consideration
	(Dollars in thousands)

Cash payments made upon closing	$	5,568
Escrow deposits paid in prior years		750
Fair value of contingent earn-out consideration		263

Total purchase price consideration	$	6,581

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 Media Assets Acquired			Total Net Assets
Assets
	Property and equipment	$	2,671	$	39		$	2,710
	Broadcast licenses		3,542		—			3,542
	Goodwill		80		1,181			1,261
	Domain and brand names		—		718			718
	Subscriber base and lists		—		1,769			1,769
	Non-Compete agreement		—		1,601			1,601

Liabilities
	Contract liabilities		—		(5,020	)		(5,020	)

		$	6,293	$	288		$	6,581

Pending Transactions

In June 2022 we entered into agreements to sell radio stations

KLFE-AM

and

KNTS-AM

in Seattle, Washington for $0.7 million subject to approval of the Federal Communications Commission (“FCC.”) Radio station

KLFE-AM

is being programmed under a Time Brokerage Agreement (“TBA”) as of August 1, 2022.

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NOTE 4. REVENUE RECOGNITION

The following table presents our revenues disaggregated by revenue source for each of our operating segments:


	Three Months Ended March 31, 2023
	Broadcast		Digital Media		Publishing			Consolidated

	(Dollars in thousands)
By Source of Revenue:
Block Programming – National	$	13,526	$	—	$	—		$	13,526
Block Programming – Local		6,017		—		—			6,017

Broadcast Programming Revenue		19,543		—		—			19,543

Spot Advertising – National		2,889		—		—			2,889
Spot Advertising – Local		9,427		—		—			9,427
Network Advertising		5,114		—		—			5,114

Broadcast Advertising Revenue		17,430		—		—			17,430

Infomercials		183		—		—			183
Other Revenue		1,995		—		—			1,995

Other Broadcast Revenue		2,178		—		—			2,178

Digital Advertising		7,284		3,903		—			11,187
Digital Streaming		1,519		861		—			2,380
Digital Downloads		25		1,741		—			1,766
Digital Subscriptions		213		3,983		—			4,196
Other Digital Revenue		148		22		—			170

Digital Revenue		9,189		10,510		—			19,699

Book Sales		—		—		2,864			2,864
Estimated Sales Returns & Allowances		—		—		(489	)		(489	)

Net Book Sales		—		—		2,375			2,375

E-Book Sales		—		—		269			269
Self-Publishing Fees		—		—		1,846			1,846
Other Publishing Revenue		—		—		149			149

Publishing Revenue		—		—		4,639			4,639

	$	48,340	$	10,510	$	4,639		$	63,489

Timing of Revenue Recognition
Point in Time	$	47,885	$	10,510	$	4,639		$	63,034
Rental Income (1)		455		—		—			455

	$	48,340	$	10,510	$	4,639		$	63,489


	Three Months Ended March 31, 2022
	Broadcast		Digital Media		Publishing		Consolidated

	(Dollars in thousands)
By Source of Revenue:
Block Programming – National	$	13,059	$	—	$	—	$	13,059
Block Programming – Local		6,173		—		—		6,173

Broadcast Programming Revenue		19,232		—		—		19,232

Spot Advertising – National		3,641		—		—		3,641
Spot Advertising – Local		10,283		—		—		10,283
Network Advertising		4,831		—		—		4,831

Broadcast Advertising Revenue		18,755		—		—		18,755

Infomercials		191		—		—		191
Other Revenue		2,048		—		—		2,048

Other Broadcast Revenue		2,239		—		—		2,239

Digital Advertising		6,636		4,539		—		11,175
Digital Streaming		1,190		901		—		2,091
Digital Downloads		43		1,664		—		1,707
Digital Subscriptions		257		3,152		—		3,409
Other Digital Revenue		80		44		—		124

Digital Revenue		8,206		10,300		—		18,506

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Book Sales		—		—		2,561			2,561
Estimated Sales Returns & Allowances		—		—		(835	)		(835	)

Net Book Sales		—		—		1,726			1,726

E-Book Sales		—		—		287			287
Self-Publishing Fees		—		—		1,727			1,727
Other Publishing Revenue		—		—		137			137

Publishing Revenue		—		—		3,877			3,877

	$	48,432	$	10,300	$	3,877		$	62,609

Timing of Revenue Recognition
Point in Time	$	47,827	$	10,300	$	3,877		$	62,004
Rental Income (1)		605		—		—			605

	$	48,432	$	10,300	$	3,877		$	62,609

(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.

A summary of each of our revenue streams under ASC 606 is as follows:

Block Programming

We recognize revenue from the sale of airtime to program producers in blocks that typically range from 12

, 25 or

50-minutes

time. We separate block programming revenue into three categories, National, Local, and Infomercial revenue. Our stations are classified by format, including 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 may include variable consideration for charities and programmers that purchase blocks of airtime to generate donations and contributions from our audience. 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.

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 banner advertising 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 of our publishing entities have custom websites and mobile applications that generate digital advertising revenue. Digital advertising revenue is recognized at the time that the banner display is delivered, or 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.

Broadcast digital advertising revenue consists of local digital advertising, such as the sale of banner advertisements on our owned and operated websites, the sale of advertisements on our owned and operated mobile applications, and advertisements in digital newsletters that we produce, as well as national digital advertising, or the sale of custom digital advertising solutions, such as web pages and social media campaigns that we offer to our customers. 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.

Salem Surround, our national 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 and provides a full-service multimedia marketing strategy for each of our clients. In our role as a multimedia advertising 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. 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

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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 a 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 our 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.

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 the 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, and podcast subscriptions for

on-air

content. 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.

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 eBooks. 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.

Other Revenue

Other revenue includes 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.

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Principal versus Agent Considerations

When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in FASB ASC Topic 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent.

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 the Condensed 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 commission expenses are periodically reviewed for impairment. At March 31, 2023, our prepaid commission expense was $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.

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, 2023	$	11,901		$	1,886
Revenue recognized during the period that was included in the beginning balance of contract liabilities		(4,308	)		—
Additional amounts recognized during the period		8,600			3,060
Revenue recognized during the period that was recorded during the period		(3,317	)		—
Transfers		720			(720	)

Balance, end of period March 31, 2023	$	13,596		$	4,226

Amount refundable at beginning of period	$	11,901		$	1,886
Amount refundable at end of period	$	13,596		$	4,226

We expect to satisfy these performance obligations as follows:


	Amount
For the Year Ended March 31,	(Dollars in thousands)
2024	$	13,596
2025		2,364
2026		1,044
2027		343
2028		87
Thereafter		388

	$	17,822

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Significant Financing Component

The length of our typical sales agreement is 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 April 1, 2023, and March 31, 2028. The difference between the promised consideration and the cash selling price of the publications is not significant. Therefore, we have 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.

Variable Consideration

We make significant estimates related to variable consideration at the point of sale, including estimates for refunds and product returns. Under FASB ASC Topic 606, estimates of variable consideration are to be recognized before contingencies are resolved in certain circumstances, including when it is probable that a significant reversal in the amount of any estimated cumulative revenue will not occur.

We enter into agreements under which the amount of revenue we earn is contingent upon the amount of money raised by our customer over the contract term. Our customer is typically a charity or programmer that purchases blocks of programming time or spots to generate revenue from our audience members. Contract terms can range from a few weeks to a few months, depending on the charity or programmer. If the campaign does not generate a

pre-determined

level of donations or revenue to our customer, the consideration that we expect to be entitled to may vary above a minimum base level per the contract. Historically, under FASB ASC Topic 605, we reported variable consideration as revenue when the amount was fixed and determinable. Under FASB ASC Topic 606, variable consideration is to be estimated using the expected value or the most likely amount to the extent it is probable that a significant reversal will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Based on the constraints for using estimates of variable consideration within FASB ASC Topic 606, and our historical experience with these campaigns, we will continue to recognize revenue at the base amount of the campaign with variable consideration recognized when the uncertainty of each campaign is resolved. These constraints include: (1) the amount of consideration received is highly susceptible to factors outside of our influence, specifically the extent to which our audience donates or contributes to our customer or programmer, (2) the length of time in which the uncertainty about the amount of consideration expected is to be resolved, and (3) our experience has shown these contracts have a large number and broad range of possible outcomes.

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 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 advertising campaign in favor of customers who purchase the advertising campaign for cash. The value of these

non-cash

exchanges are included in revenue at 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 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 March 31,

	2022		2023
Net broadcast barter revenue	$	846	$	736
Net broadcast barter expense	$	759	$	792

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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

The following is a summary of the categories of our property and equipment:


	As of

	December 31, 2022			March 31, 2023

	(Dollars in thousands)
Buildings	$	28,523		$	28,566
Office furnishings and equipment		37,162			37,567
Antennae, towers and transmitting equipment		76,950			77,755
Studio, production, and mobile equipment		30,267			30,673
Computer software and website development costs		42,304			42,562
Automobiles		1,633			1,615
Leasehold improvements		19,131			19,393

	$	235,970		$	238,131
Less accumulated depreciation		(191,638	)		(194,407	)

		44,332		$	43,724

Land	$	27,070			27,070
Construction-in-progress		9,894			12,895

Property and Equipment, net	$	81,296		$	83,689

Depreciation expense was approximately $2.9 million for the three-month periods ended March 31, 2023 and 2022. We 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 months ended March 31, 2023.

NOTE 7. OPERATING AND FINANCE LEASE

RIGHT-OF-USE

ASSETS

Leasing Transactions

Our leased assets include offices and studios, transmitter locations, antenna sites, towers, tower sites, and land. Our lease portfolio has remaining terms ranging from less than

one-year

up to

twenty-six

years. Many of these leases contain options to extend the term from five to twenty years, the exercise of which is at our sole discretion. 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 our principal stockholders and their families. These leases are designated as Related Party leases in the details provided. We are obligated to pay taxes, insurance, and common area maintenance charges under a majority of our lease agreements.

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 the 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.

Due to the adverse economic impact of the

COVID-19

pandemic, we negotiated with our landlords in early 2020 to obtain rent concessions to improve our short-term liquidity. In accordance with the FASB’s recent Staff Q&A regarding rent concessions related to the effects of the

COVID-19

pandemic, we did not apply the lease modification guidance under FASB ASC Topic 842 to rent concessions that resulted in total payments required under the modified contract were substantially the same as or less than total payments required by the original contract. For qualifying rent abatement concessions, we recorded negative lease expense for abatement during the period of relief. At December 31, 2022, $0.2 million of the deferred cash payments remained with $26,000 payable in 2023 and the remainder payable in 2024.

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Balance Sheet

Supplemental balance sheet information related to leases is as follows:


	March 31, 2023
	(Dollars in thousands)
Operating Leases	Related Party		Other		Total
Operating leases ROU assets	$	8,409	$	35,867	$	44,276
Operating lease liabilities (current)	$	996	$	7,442	$	8,438
Operating lease liabilities (non-current)		7,549		34,960		42,509

Total operating lease liabilities	$	8,545	$	42,402	$	50,947


Weighted Average Remaining Lease Term
Operating leases			7.4 years
Finance leases			2.5 years
Weighted Average Discount Rate
Operating leases			8.43%
Finance leases			6.97%

Lease Expense

The components of lease expense were as follows:


	Three Months Ended March 31, 2023
	(Dollars in thousands)
Amortization of finance lease ROU Assets	$	11
Interest on finance lease liabilities		1

Finance lease expense		12
Operating lease expense		3,285
Variable lease expense		398
Short-term lease expense		136

Total lease expense	$	3,831

Supplemental Cash Flow


	PAGE NO.
COVER PAGE

INDEX

FORWARD LOOKING STATEMENTS		2

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.		3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		29

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		48

Item 4. Controls and Procedures.		48

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.		49

Item 1A. Risk Factors.		49

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		49

Item 3. Defaults Upon Senior Securities.		49

Item 4. Mine Safety Disclosures.		49

Item 5. Other Information.		49

Item 6. Exhibits.		49

EXHIBIT INDEX		50

SIGNATURES		51


	Three Months Ended March 31,
	2022			2023
Net broadcast revenue	$	48,432		$	48,340
Net digital media revenue		10,300			10,510
Net publishing revenue		3,877			4,639

Total net revenue		62,609			63,489

Operating expenses:
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $447 and $482 for the three months ended March 31, 2022 and 2023, respectively, paid to related parties)		38,121			42,809
Digital media operating expenses, exclusive of depreciation and amortization shown below		8,473			8,994
Publishing operating expenses, exclusive of depreciation and amortization shown below		4,467			5,376
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $9 for the three months ended March 31, 2022 and 2023, paid to related parties)		4,810			4,996
Debt modification costs		228			—
Depreciation		2,942			2,850
Amortization		334			543
Change in the estimated fair value of contingent earn-out consideration		(5	)		(2	)
Impairment of indefinite-lived long-term assets other than goodwill		—			2,124
Net (gain) loss on the disposition of assets		(1,735	)		(21	)

Total operating expenses		57,635			67,669

Operating income (loss)		4,974			(4,180	)

Other income (expense):
Interest income		—			13
Interest expense		(3,394	)		(3,431	)
Gain (loss) on early retirement of long-term debt		(53	)		(60	)
Earnings from equity method investment		—			8
Net miscellaneous income and expenses		1			220

Net income (loss) before income taxes		1,528			(7,430	)
Benefit from income taxes		(211	)		(2,276	)

Net income (loss)	$	1,739		$	(5,154	)

Basic earnings (loss) per share data:
Basic earnings (loss) per share Class A and Class B common stock	$	0.06		$	(0.19	)
Diluted earnings (loss) per share data:
Diluted earnings (loss) per share Class A and Class B common stock	$	0.06		$	(0.19	)
Basic weighted average Class A and Class B shares outstanding		27,177,375			27,216,787

Diluted weighted average Class A and Class B shares outstanding		27,610,407			27,216,787


	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, 2021		23,922,974	$	232		5,553,696	$	56	$	248,438	$	(36,509)		$	(34,006	)	$	178,211
Stock-based compensation		—		—		—		—		106		—			—			106
Options exercised		40,913		—		—		—		94		—			—			94
Lapse of restricted shares		14,854		—		—		—		—		—			—			—
Net income		—		—		—		—		—		1,739			—			1,739

Stockholders’ equity, March 31, 2022		23,978,741	$	232		5,553,696	$	56	$	248,638	$	(34,770)		$	(34,006	)	$	180,150


	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, 2022		23,980,741	$	232		5,553,696	$	56	$	248,820	$	(39,745	)	$	(34,006	)	$	175,357
Stock-based compensation		—		—		—		—		75		—			—			75
Net loss		—		—		—		—		—		(5,154	)		—			(5,154	)

Stockholders’ equity, March 31, 2023		23,980,741	$	232		5,553,696	$	56	$	248,895	$	(44,899	)	$	(34,006	)	$	170,278