Table of Contents
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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, 2023
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)
 
 
 
 
 
 
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 6, 2023
Common Stock, $0.01 par value per share   21,663,091 shares
Class B
 
Outstanding at November 6, 2023
Common Stock, $0.01 par value per share   5,553,696 shares
 
 
 
 


Table of Contents

SALEM MEDIA GROUP, INC.

INDEX

 

         PAGE NO.  

COVER PAGE

  

INDEX

  

FORWARD LOOKING STATEMENTS

     2  

PART I - FINANCIAL INFORMATION

     3  

Item 1.

  Condensed Consolidated Financial Statements      3  

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      30  

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      55  

Item 4.

  Controls and Procedures      56  

PART II - OTHER INFORMATION

  

Item 1.

  Legal Proceedings      56  

Item 1A.

  Risk Factors      56  

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      56  

Item 3.

  Defaults Upon Senior Securities      56  

Item 4.

  Mine Safety Disclosures      56  

Item 5.

  Other Information      56  

Item 6.

  Exhibits      56  

EXHIBIT INDEX

     57  

SIGNATURES

     58  

 

1


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,” “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 (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”).

 

2


Table of Contents
P1YP1YP1YP1YP1YP1Y
PART I – FINANCIAL INFORMATION
SALEM MEDIA GROUP, INC.
 
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
3

Table of Contents
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
 
 
  
December 31, 2022
(Note 1)
 
 
September 30, 2023

(Unaudited)
 
ASSETS
  
 
Current assets:
  
 
Cash and cash equivalents
  
$
 
 
$
 
 
 
Accounts receivable (net of allowances of $
7,939
in 2022 and $
8,480
in 2023)
  
 
30,756
 
 
 
29,558
 
Unbilled revenue
  
 
2,890
 
 
 
2,360
 
Income tax receivable
  
 
195
 
 
 
343
 
Other receivables (net of allowances of $
586
in 2022 and $
640
in 2023)
  
 
1,817
 
 
 
1,621
 
Inventories
  
 
1,513
 
 
 
1,383
 
Prepaid expenses
  
 
7,619
 
 
 
10,186
 
Assets held for sale
  
 
267
 
 
 
8,344
 
    
 
 
   
 
 
 
Total current assets
  
 
45,057
 
 
 
53,795
 
    
 
 
   
 
 
 
Notes receivable (net of allowance of $
571
in 2022 and $
466
in 2023)
  
 
922
 
 
 
952
 
Property and equipment (net of accumulated depreciation of $
191,638
in 2022 and $
192,540
in 2023)
  
 
81,296
 
 
 
80,077
 
Operating lease
right-of-use
assets
  
 
43,671
 
 
 
45,106
 
Financing lease
right-of-use
assets
  
 
63
 
 
 
73
 
Broadcast licenses
  
 
303,774
 
 
 
260,193
 
Goodwill
  
 
24,085
 
 
 
22,766
 
Amortizable intangible assets (net of accumulated amortization of $
59,383
in 2022 and $
60,636
in 2023)
  
 
2,149
 
 
 
4,275
 
Deferred financing costs
  
 
681
 
 
 
77
 
Other assets
  
 
3,424
 
 
 
3,986
 
    
 
 
   
 
 
 
Total assets
  
$
505,122
 
 
$
471,300
 
    
 
 
   
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
  
 
 
 
 
 
 
 
Current liabilities:
  
 
 
 
 
 
 
 
Accounts payable
  
$
6,539
 
 
$
9,484
 
Accrued expenses
  
 
17,495
 
 
 
16,666
 
Accrued compensation and related expenses
  
 
10,298
 
 
 
9,125
 
Accrued interest
  
 
949
 
 
 
3,861
 
Contract liabilities
  
 
11,901
 
 
 
12,725
 
Deferred rent income
  
 
122
 
 
 
109
 
Current portion of operating lease liabilities
  
 
8,305
 
 
 
8,900
 
Current portion of financing lease liabilities
  
 
43
 
 
 
36
 
Current portion of long-term debt
  
 
8,958
 
 
 
20,524
 
    
 
 
   
 
 
 
Total current liabilities
  
 
64,610
 
 
 
81,430
 
    
 
 
   
 
 
 
Long-term debt, less current portion
  
 
150,367
 
 
 
152,611
 
Operating lease liabilities, less current portion
  
 
42,406
 
 
 
42,808
 
Financing (capital) lease liabilities, less current portion
  
 
39
 
 
 
38
 
Deferred income taxes
  
 
66,732
 
 
 
55,077
 
Contract liabilities, long-term
  
 
1,886
 
 
 
3,534
 
Deferred rent income, less current portion
  
 
3,659
 
 
 
3,590
 
Other long-term liabilities
  
 
66
 
 
 
60
 
    
 
 
   
 
 
 
Total liabilities
  
 
329,765
 
 
 
339,148
 
    
 
 
   
 
 
 
Commitments and contingencies (Note 13)
  
 
 
 
 
 
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 September 30, 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 September 30, 2023, respectively
  
 
56
 
 
 
56
 
Additional
paid-in
capital
  
 
248,820
 
 
 
249,160
 
Accumulated deficit
  
 
(39,745
 
 
(83,290
)
 
Treasury stock, at cost (
2,317,650
shares at December 31, 2022 and September 30, 2023)
  
 
(34,006
 
 
(34,006
    
 
 
   
 
 
 
Total stockholders’ equity
  
 
175,357
 
 
 
132,152
 
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity
  
$
505,122
 
 
$
471,300
 
    
 
 
   
 
 
 
See accompanying notes
 
4

Table of Contents
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)
 
 
  
Three Months Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
  
2022
 
 
2023
 
 
2022
 
 
2023
 
Net broadcast revenue
   $ 51,136    
$
48,966
 
  $ 152,020    
$
146,986
 
Net digital media revenue
     10,189    
 
9,965
 
    31,293    
 
31,335
 
Net publishing revenue
     5,537    
 
4,566
 
    14,840    
 
14,439
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Total net revenue
     66,862    
 
63,497
 
    198,153    
 
192,760
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Operating expenses:
                                
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $449 and $557 for the three months ended September 30, 2022 and 2023, respectively, and $1,350 and $1,626 for the nine months ended September 30, 2022 and 2023, respectively, paid to related parties)
     41,178    
 
42,171
 
    120,837    
 
128,498
 
Legal settlement
     3,825             4,776        
Digital media operating expenses, exclusive of depreciation and amortization shown below
     8,333    
 
8,496
 
    25,079    
 
26,516
 
Publishing operating expenses, exclusive of depreciation and amortization shown below
     6,542    
 
5,939
 
    16,441    
 
17,341
 
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $82 and $0 for the three months ended September 30, 2022 and 2023, respectively, and $250 and $17 for the nine months ended September 30, 2022 and 2023, respectively, paid to related parties)
     4,840    
 
4,514
 
    14,431    
 
14,165
 
Debt modification costs
     2             250        
Depreciation
     2,737    
 
2,816
 
    8,537    
 
8,540
 
Amortization
     297    
 
561
 
    963    
 
1,751
 
Change in the estimated fair value of contingent
earn-out
consideration
        
 
(100
    (5  
 
(102
Impairment of indefinite-lived long-term assets other than goodwill
     7,725    
 
35,113
 
    11,660    
 
38,376
 
Impairment of goodwill
        
 
733
 
    127    
 
2,580
 
Net (gain) loss on the disposition of assets
     167    
 
(456
    (8,461  
 
(334
    
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     75,646    
 
99,787
 
    194,635    
 
237,331
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Operating income (loss)
     (8,784  
 
(36,290
    3,518    
 
(44,571
Other income (expense):
                                
Interest income
     17    
 
14
 
    166    
 
40
 
Interest expense
     (3,142  
 
(3,626
    (9,925  
 
(10,596
Gain (loss) on early retirement of long-term debt
                 (18  
 
(60
Earnings (loss) from equity method investment
     102    
 
7
 
    4,015    
 
(4
Net miscellaneous income and (expenses)
     (19  
 
(184
    (19  
 
27
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Net loss before income taxes
     (11,826  
 
(40,079
    (2,263  
 
(55,164
Provision for (benefit from) income taxes
     59    
 
(8,782
)
 
    (1,234  
 
(11,619
)
 
    
 
 
   
 
 
 
 
 
 
   
 
 
 
Net loss
   $ (11,885  
$
(31,297
)
 
  $ (1,029  
$
(43,545
)
 
    
 
 
   
 
 
 
 
 
 
   
 
 
 
Basic loss per share data:
              
 
             
 
Basic income per share
   $ (0.44  
$
(1.15
)
 
  $ (0.04  
$
(1.60
)
 
Diluted loss per share data:
              
 
             
 
Diluted income per share
   $ (0.44  
$
(1.15
)
 
  $ (0.04  
$
(1.60
)
 
Basic weighted average shares outstanding
     27,216,787    
 
27,216,787
 
    27,202,983    
 
27,216,787
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Diluted weighted average shares outstanding
     27,216,787    
 
27,216,787
 
    27,202,983    
 
27,216,787
 
    
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes
 
5

Table of Contents
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share and per share data
)
 
 
  
Class A
Common Stock
 
  
Class B
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
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stock-based compensation
     —         —         —         —         68        —        —        68  
Net income
     —         —         —         —         —         9,117       —     
 
9,117
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stockholders’ equity, June 30, 2022
  
 
23,978,741
 
  
$
232
 
  
 
5,553,696
 
  
$
56
 
  
$
248,706
 
  
$
(25,653
 
$
(34,006
 
$
189,335
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stock-based compensation
     —         —         —         —         54        —        —        54  
Options exercised
     2,000        —         —         —         4        —        —        4  
Net loss
     —         —         —         —         —         (11,885     —        (11,885
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stockholders’ equity, September 30, 2022
  
 
23,980,741
 
  
$
232
 
  
 
5,553,696
 
  
$
56
 
  
$
248,764
 
  
$
(37,538
 
$
(34,006
 
$
177,508
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
 
 
  
Class A
Common Stock
 
  
Class B
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
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stock-based compensation
     —         —         —         —      
 
136
 
     —        —     
 
136
 
Net loss
     —         —         —         —         —      
 
(7,094
    —     
 
(7,094
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stockholders’ equity, June 30, 2023
  
 
23,980,741
 
  
$
232
 
  
 
5,553,696
 
  
$
56
 
  
$
249,031
 
  
$
(51,993
 
$
(34,006
 
$
163,320
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stock-based compensation
     —         —         —         —      
 
129
 
     —        —     
 
129
 
Net loss
     —         —         —         —         —      
 
(31,297
)
 
    —     
 
(31,297
)
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stockholders’ equity, September 30, 2023
  
 
23,980,741
 
  
$
232
 
  
 
5,553,696
 
  
$
56
 
  
$
249,160
 
  
$
(83,290
)
 
 
$
(34,006
 
$
132,152
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
See accompanying notes
 
6

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

September 30,
 
 
  
2022
 
 
2023
 
OPERATING ACTIVITIES
              
 
Net loss
   $ (1,029  
$
(43,545
)
 
Adjustments to reconcile net loss to net cash provided by operating activities:
              
 
Non-cash
stock-based compensation
     228    
 
340
 
Depreciation and amortization
     9,500    
 
10,291
 
Amortization of deferred financing costs
     732    
 
1,277
 
Non-cash
lease expense
     6,631    
 
6,889
 
Accretion of acquisition-related deferred payments and contingent
earn-out
consideration
        
 
14
 
Provision for bad debts
     (437  
 
(1,654
Deferred income taxes
     (1,260  
 
(11,655
)
 
Change in the estimated fair value of contingent
earn-out
consideration
     (5  
 
(102
Impairment of indefinite-lived long-term assets other than goodwill
     11,660    
 
38,376
 
Impairment of goodwill
     127    
 
2,580
 
(Gain) loss on early retirement of long-term debt
     18    
 
60
 
Net (gain) loss on the disposition of assets
     (8,461  
 
(334
Changes in operating assets and liabilities:
              
 
Accounts receivable and unbilled revenue
     (5,806  
 
3,622
 
Income tax receivable
        
 
(148
Inventories
     (497  
 
130
 
Prepaid expenses and other current assets
     (1,664  
 
(2,567
Accounts payable and accrued expenses
     9,742    
 
4,845
 
Operating lease liabilities
     (6,626  
 
(7,298
Contract liabilities
     (803  
 
(2,548
Deferred rent income
     (116  
 
(47
Other liabilities
     (518  
 
(6
Income taxes payable
     (1,404  
 
 
    
 
 
   
 
 
 
Net cash provided by (used in) operating activities
     10,012    
 
(1,480
    
 
 
   
 
 
 
INVESTING ACTIVITIES
              
 
Cash paid for capital expenditures net of tenant improvement allowances
     (9,241  
 
(7,483
Capital expenditures reimbursable under tenant improvement allowances and trade agreements
     (58  
 
(95
Deposits paid
on broadcast assets and radio station acquisitions
     (750  
 
 
Purchases of broadcast assets and radio stations
     (548  
 
(5,535
Purchases of digital media businesses and assets
     (190  
 
(25
Return of equity investment in limited liability corporations
     4,500    
 
 
Equity investment in limited liability corporations
     (3,500  
 
(1,500
Proceeds from sale of assets
     14,151    
 
4,271
 
Other
     62    
 
143
 
    
 
 
   
 
 
 
Net cash provided by (used in) investing activities
     4,426    
 
(10,224
    
 
 
   
 
 
 
FINANCING ACTIVITIES
              
 
Proceeds from the issuance of 2028 Notes
        
 
44,685
 
Payments to repurchase 2024 Notes
     (15,394  
 
(38,966
Proceeds from borrowings under ABL Facility
     26,231    
 
162,428
 
Payments on ABL Facility
     (26,231  
 
(150,862
Payments of debt issuance costs
     (38  
 
(4,205
Payments of acquisition-related contingent
earn-out
consideration
     (4  
 
(106
Proceeds from the exercise of stock options
     98    
 
 
Payments on financing lease liabilities
     (47  
 
(43
Book overdraft
        
 
(1,227
    
 
 
   
 
 
 
Net cash provided by (used in) financing activities
     (15,385  
 
11,704
 
    
 
 
   
 
 
 
Net increase in cash and cash equivalents
     (947  
 
 
Cash and cash equivalents at beginning of year
     1,785    
 
 
    
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $ 838    
$
 
    
 
 
   
 
 
 
See accompanying notes
 
7

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

September 30,
 
 
  
2022
 
  
2023
 
Supplemental disclosures of cash flow information:
                 
Cash paid during the period for:
                 
Cash paid for interest, net of capitalized interest
   $ 6,209     
$
6,337
 
Cash paid for interest on finance lease liabilities
   $ 5     
$
4
 
Net cash paid for (received from) income taxes
   $ 1,429     
$
185
 
Other supplemental disclosures of cash flow information:
                 
Barter revenue
   $ 2,118     
$
2,394
 
Barter expense
   $ 2,104     
$
2,299
 
Non-cash
investing and financing activities:
                 
Capital expenditures reimbursable under tenant improvement allowances
   $ 58     
$
95
 
Right-of-use
assets acquired through operating leases
   $ 7,522     
$
8,965
 
Right-of-use
assets acquired through financing leases
   $ 20     
$
41
 
Net assets and liabilities assumed in a
non-cash
acquisition
   $     
$
5,020
 
Estimated present value of contingent-earn out consideration
   $ 2     
$
358
 
See accompanying notes
 
8

Table of Contents
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 15 – 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 and nine months ended September 30, 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.
Equity Method Investment
We invested in OneParty America LLC (“OPA”), an entity formed for the purpose of developing, producing, and distributing a documentary motion picture. We analyzed our investment to determine the degree to which we influenced OPA. The determination of the degree to which we can influence an investee requires extensive analysis depending on the terms and nature of each investment.
We reviewed OPA in accordance with the guidance within Accounting Standards Codification (“ASC”) 810
, Consolidation
. Based on our analysis using the variable interest model, we determined that OPA was a Variable Interest Entity (“VIE”), but because we did not have a controlling financial interest, we were not the primary beneficiary of OPA. Accordingly, we accounted for our investment in OPA in accordance with ASC
323-30
, Investments – Equity Method and Joint Ventures
.
We recorded our equity method investment at cost with subsequent adjustments to the carrying value for our share of the earnings or losses of OPA. Distributions received from the equity method investment were recorded as reductions in the carrying value of such investment and are classified on the unaudited condensed consolidated interim statements of cash flows pursuant to the cumulative earnings approach. Under the cumulative earnings approach, distributions received are accounted for as a return on investment in cash inflows from operating activities unless the cumulative distributions received exceed the cumulative equity in earnings recognized from the investment. When such an excess occurs, the current period distributions up to this excess are considered returns of investment and are classified as cash inflows from investing activities.
The documentary motion picture,
2000 Mules
, was released in May 2022. We recorded $3.9 million of earnings from our equity investment in OPA. At June 30, 2022, we recorded a net receivable of $1.3 million from OPA that is included in other receivables in our Condensed Consolidated Balance sheet representing our share of profit from the documentary motion picture. The balance of that receivable was paid in full at the end of September 30, 2023.
We monitor equity method investments for impairment and records a reduction in the carrying value if the carrying 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 September 30, 2023.
 
9

Table of Contents
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; and
 
 
 
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.

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.
In 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 March 2023, the FASB issued ASU
2023-01,
Leases (Topic 842) – Common Control Arrangements
. The ASU amends the accounting for leasehold improvements in common control arrangements by requiring a lessee in a common control lease arrangement to amortize leasehold improvements that it owns over the improvements’ useful life to the common control group, regardless of the lease term, if the lessee continues to control the use of the underlying asset through a lease. Further, a lessee that no longer controls the use of the underlying asset will derecognize the remaining carrying amount of the improvements through an adjustment to equity, reflecting the transfer of the asset to the lessor under common control. This ASU is
effective for fiscal years beginning after December 15, 2023 (fiscal 2024), including interim periods within those fiscal years. Early adoption is p
ermitted in any annual or interim period as of the beginning of the related fiscal year. We are evaluating the effect of adopting this new accounting
guidance
.
 
10

In June 2022, the FASB issued ASU
2022-03,
Fair Value 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 nine-month period ended September 30, 2023, we completed or entered into the following transactions:
Related Party Transaction
On May 25, 2023, we sold to a related party the economic interests in the leases at our Greenville, South Carolina radio transmitter site for $3.5 million resulting in a
pre-tax
gain of $3.3 million.
Debt Transactions
Because the availability of our ABL Facility was less than $4.5 million during the quarter, we were required to test against the fixed charge coverage ratio covenant. The fixed charge coverage ratio was below the required 1.0 to
1.0
level during the quarter and therefore, we were not in compliance with that covenant. During the quarter, we signed multiple monthly forbearance agreements for which the recent forbearance agreement was dated November 2, 2023, whereby the bank agreed not to exercise remedies on the default. Additionally, the notional amount of the revolver was reduced from $30.0 million to $25.0 million with a minimum availability of $1.0 million. Finally, the interest rate on the ABL Facility was increased to Secured Overnight Financing Rate (“SOFR”) plus 4% or base rate plus 3.0% effective July 1, 2023.
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
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 on 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 on 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 nine-month period ending September 30, 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
 
    
 
 
 
 
11

Table of Contents
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