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, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM

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, 2022
Common Stock, $0.01 par value per share		21,661,091 shares

Class B		Outstanding at May 2, 2022
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
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.		46
Item 4. Controls and Procedures.		46
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.		47
Item 1A. Risk Factors.		47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		47
Item 3. Defaults Upon Senior Securities.		47
Item 4. Mine Safety Disclosures.		47
Item 5. Other Information.		47
Item 6. Exhibits.		47
EXHIBIT INDEX		47
SIGNATURES		49

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”).

Table of Contents

PART I – FINANCIAL INFORMATION

SALEM MEDIA GROUP, INC.

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Table of Contents

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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


	December 31, 2021 (Note 1)			March 31, 2022 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,785		$	—
Accounts receivable (net of allowances of $13,022 in 2021 and $7,856 in 2022)		25,663			28,000
Unbilled revenue		3,406			3,003
Other receivables (net of allowances of $455 in 2021 and 2022)		1,377			2,034
Inventories		960			1,371
Prepaid expenses		6,772			7,520
Assets held for sale		1,551			1,402

Total current assets		41,514			43,330

Notes receivable (net of allowance of $938 in 2021 and $882 in 2022)		274			205
Property and equipment (net of accumulated depreciation of $186,053 in 2021 and $188,960 in 2022)		79,339			80,262
Operating lease right-of-use assets		43,560			45,883
Financing lease right-of-use assets		105			102
Broadcast licenses		320,008			320,198
Goodwill		23,986			23,986
Amortizable intangible assets (net of accumulated amortization of $58,110 in 2021 and $58,444 in 2022)		2,444			2,110
Deferred financing costs		843			793
Other assets		4,039			6,789

Total assets	$	516,112		$	523,658

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,661		$	3,545
Accrued expenses		12,006			15,835
Accrued compensation and related expenses		13,054			10,699
Accrued interest		1,030			4,033
Contract liabilities		12,294			12,592
Deferred rent income		157			127
Income taxes payable		1,544			1,326
Current portion of operating lease liabilities		8,651			8,815
Current portion of financing lease liabilities		58			59
Current portion of long-term debt		—			—

Total current liabilities		51,455			57,031

Long-term debt, less current portion		170,581			168,300
Operating lease liabilities, less current portion		42,208			44,715
Financing (capital) lease liabilities, less current portion		65			62
Deferred income taxes		67,012			67,007
Contract liabilities, long-term		2,222			2,060
Deferred rent income, less current portion		3,772			3,749
Other long-term liabilities		586			584

Total liabilities		337,901			343,508

Commitments and contingencies (Note 14)
Stockholders’ Equity:
Class A common stock, $0.01 par value; authorized 80,000,000 shares; 23,922,974 and 23,978,741 issued and 21,605,324 and 21,661,091 outstanding at December 31, 2021 and March 31, 2022, respectively		232			232
Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding at December 31, 2021 and March 31, 2022, respectively		56			56
Additional paid-in capital		248,438			248,638
Accumulated deficit		(36,509	)		(34,770	)
Treasury stock, at cost (2,317,650 shares at December 31, 2021 and March 31, 2022)		(34,006	)		(34,006	)

Total stockholders’ equity		178,211			180,150

Total liabilities and stockholders’ equity	$	516,112		$	523,658

See accompanying notes

Table of Contents

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Three Months Ended March 31,
	2021			2022
OPERATING ACTIVITIES
Net income	$	323		$	1,739
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash stock-based compensation		78			106
Depreciation and amortization		3,170			3,276
Amortization of deferred financing costs		213			247
Non-cash lease expense		2,161			2,202
Provision for bad debts		(295	)		(209	)
Deferred income taxes		188			(5	)
Change in the estimated fair value of contingent earn-out consideration		—			(5	)
Loss on early retirement of long-term debt		—			53
Net (gain) loss on the disposition of assets		318			(1,735	)
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue		2,549			(2,229	)
Inventories		(93	)		(411	)
Prepaid expenses and other current assets		(750	)		(748	)
Accounts payable and accrued expenses		2,490			4,024
Operating lease liabilities		(2,497	)		(1,852	)
Contract liabilities		1,122			136
Deferred rent income		170			(58	)
Other liabilities		29			—
Income taxes payable		21			(218	)

Net cash provided by operating activities		9,197			4,313

INVESTING ACTIVITIES
Cash paid for capital expenditures net of tenant improvement allowances		(1,859	)		(3,439	)
Capital expenditures reimbursable under tenant improvement allowances and trade agreements		—			(40	)
Deposit on broadcast assets and radio station acquisitions		(100	)		—
Purchases of broadcast assets and radio stations		—			(540	)
Investment in LLC		—			(2,000	)
Proceeds from sale of long-lived assets		3,501			2,001
Other		(238	)		(858	)

Net cash provided by (used in) investing activities		1,304			(4,876	)

FINANCING ACTIVITIES
Payments to repurchase 2024 Notes		—			(2,531	)
Proceeds from borrowings under ABL Facility		16			6,257
Payments on ABL Facility		(5,016	)		(6,257	)
Proceeds from borrowings under PPP Loans		11,195			—
Payments of debt issuance costs		(3	)		—
Proceeds from the exercise of stock options		392			94
Payments on financing lease liabilities		(16	)		(16	)
Book overdraft		—			1,231

Net cash provided by (used in) financing activities		6,568			(1,222	)

Net increase (decrease) in cash and cash equivalents		17,069			(1,785	)
Cash and cash equivalents at beginning of year		6,325			1,785

Cash and cash equivalents at end of period	$	23,394		$	—

See accompanying notes

Table of Contents

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Dollars in thousands)

(Unaudited)


	Three Months Ended March 31,
	2021			2022
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Cash paid for interest, net of capitalized interest	$	51		$	63
Cash paid for interest on finance lease liabilities	$	2		$	2
Net cash paid for (received from) income taxes	$	(79	)	$	12
Other supplemental disclosures of cash flow information:
Barter revenue	$	391		$	846
Barter expense	$	373		$	759
Non-cash investing and financing activities:
Capital expenditures reimbursable under tenant improvement allowances	$	—		$	40
Right-of-use assets acquired through operating leases	$	553		$	5,011
Right-of-use assets acquired through financing leases	$	2		$	14
Non-cash capital expenditures for property & equipment acquired under trade agreements	$	6		$	—
Net assets and liabilities assumed in a non-cash acquisition	$	127		$	—
Estimated present value of contingent-earn out consideration	$	11		$	6

See accompanying notes

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 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, 2022 and 2021 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, 2021. 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, 2021 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.

Impact of the

COVID-19

Pandemic

The

COVID-19

global pandemic materially impacted our business. We experienced a rapid decline in revenue from advertising, programming, events, and book sales that began in March 2020. Several advertisers reduced or ceased advertising spending due to the outbreak and

stay-at-home

orders that effectively shut down many businesses. The revenue decline impacted our broadcast segment, which derives substantial revenue from local advertisers who were particularly hard hit due to social distancing and government interventions, and our publishing segment, which derives revenue from book sales through retail stores and live events.

While we see progress being made in revenue returning to

pre-pandemic

levels, the

COVID-19

pandemic continues to create significant uncertainty and disruption in the economy. These uncertainties could materially impact significant accounting estimates related to, but not limited to, allowances for doubtful accounts, impairments, and

right-of-use assets.

As a result, many estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. These estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.

During 2020 we implemented several measures to reduce costs and conserve cash to ensure that we had adequate liquidity to meet our debt servicing requirements. As the economy began to show signs of recovery, we reversed several of these cost reduction initiatives during 2021. We continue to operate with lower staffing levels where appropriate, we have not declared or paid equity distributions on our common stock, and the company 401(k) match was not reinstated until January 2022.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act provided emergency economic assistance for individuals and businesses impacted by the

COVID-19

pandemic, including opportunities for additional liquidity, loan guarantees, and other government programs. On December 27, 2020, Congress passed the Consolidated Appropriations Act (“CAA”) that included a second relief package, which, among other things, provides for an extension of the Payroll Support Program established by the CARES Act. We utilized certain benefits of the CARES Act and the CAA, including:

•

We deferred $3.3 million of employer FICA taxes from April 2020 through December 2020, of which 50% was paid in December 2021 and the remaining 50% is payable in December 2022;

•

A relaxation of interest expense deduction limitation for income tax purposes;

•

We received Paycheck Protection Program (“PPP”) loans of $11.2 million in total during the first quarter of 2021 through the Small Business Association (“SBA”) based on the eligibility as determined on a

per-location

basis; and

•

In July 2021, the SBA forgave all but $20,000 of the PPP loans, with the remaining PPP loan repaid in July 2021.

Table of Contents

Use of Estimates

Our 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. The

COVID-19

pandemic created significant uncertainty and disruption in the global economy and financial markets. It is reasonably possible that these uncertainties could materially impact our estimates related to, but not limited to, revenue recognition, broadcast licenses, goodwill, and income taxes. As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility.

Our estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in our consolidated financial statements. 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, goodwill and other indefinite-lived intangible assets;

•

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

Except for our accounting policies for investments, 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, 2021 filed with the SEC on March 4, 2022, 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. 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.

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 2022

In November 2021, the FASB issued ASU

No. 2021-10,

Disclosures by Business Entities about Government Assistance

. The ASU codifies new requirements to disclose information about the nature of certain government assistance received, the accounting policy used to account for the transactions, the location in the financial statements where such transactions were recorded, and significant terms and conditions associated with such transactions. The guidance was effective for annual periods beginning on January 1, 2022. The adoption of ASU

No. 2021-10

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 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 is 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. 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.

Table of Contents

October 2021,

the FASB issued ASU

2021

08,

siness Combinations (Topic

805): Accounting for Contract

Asset

s 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 is effective January 1, 2023, with early adoption permitted. The impact that this pronouncement will have will depend on the nature of business acquisitions that may take place in the future.

NOTE 3. RECENT TRANSACTIONS

During the three-month period ended March 31, 2022, we completed or entered into the following transactions:

Debt Transactions

On January 12, 2022, we repurchased $2.5 million of the 6.75% Senior Secured Notes due 2024 (“2024 Notes”) at 101.25% of face value recognizing a loss of $53,000.

Acquisitions

We invested in a Limited Liability Company “LLC” that will own, distribute, and market a motion picture. The investment of $3.0 million at March 31, 2022 is reflected at cost in other assets. We invested an additional $1.5 million in April 2022 for a total investment to date of $4.5 million.

On February 15, 2022, we closed on the acquisition of radio station

WLCC-AM

and an FM translator in the Tampa, Florida market for $0.6 million of cash. The WLCC transmitter site will be used to broadcast radio station

WTBN-AM

due to the sale of land housing the

WTBN-AM

transmitter.

The total purchase price consideration for our business acquisitions and asset purchases during the three-month period ending March 31, 2022, is as follows:


Description	Total Consideration
	(Dollars in thousands)
Cash payments made upon closing	$	548
Escrow deposits paid in prior years		60

Total purchase price consideration	$	608

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
Assets
Property and equipment	$	418
Broadcast licenses		190

	$	608

Divestitures

On January 10, 2022, we closed on the sale of 4.5 acres of land in Phoenix, Arizona for $2.0 million in cash. We recorded a

pre-tax

gain of $1.8 million on the sale and have access to the land for

90-days

to relocate our transmitter equipment for

KXXT-AM.

Pending Transactions

On August 31, 2021, we entered into an agreement to sell 9.3 acres of land in the Denver area for $8.2 million. We expect to close this sale in the second quarter of 2022 and plan to continue broadcasting both

KRKS-AM

and

KBJD-AM

from this site.

On June 2, 2021, we entered into an Asset Purchase Agreement (“APA”) to acquire radio station

KKOL-AM

in Seattle, Washington for $0.5 million. We paid $0.1 million in cash into an escrow account and we began operating the station under an Local Marketing Agreement (“LMA”) on June 7, 2021. We expect this transaction to close in the latter half of 2022.

On February 5, 2020, we entered into an APA with Word Broadcasting to sell radio stations

WFIA-AM,

WFIA-FM

and

WGTK-AM

in Louisville, Kentucky for $4.0 million with credits applied from amounts previously paid, including a portion of the monthly fees paid under a Time Brokerage Agreement (“TBA”). Due to changes in debt markets, the transaction was not funded, and it is uncertain when, or if, the transaction will close. Word Broadcasting continues to program the stations under a TBA that began in January 2017.

Table of Contents

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, 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

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		$	62,003
Rental Income(1)		605		—		—			605

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

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


	Three Months Ended March 31, 2021
	Broadcast		Digital Media		Publishing		Consolidated
	(Dollars in thousands)
By Source of Revenue:
Block Programming – National	$	11,461	$	—	$	—	$	11,461
Block Programming – Local		5,956		—		—		5,956

Broadcast Programming Revenue		17,417		—		—		17,417

Spot Advertising – National		3,660		—		—		3,660
Spot Advertising – Local		8,895		—		—		8,895
Network Advertising		4,871		—		—		4,871

Broadcast Advertising Revenue		17,426		—		—		17,426

Infomercials		237		—		—		237
Other Revenue		1,899		—		—		1,899

Other Broadcast Revenue		2,136		—		—		2,136

Digital Advertising		5,781		4,413		62		10,256
Digital Streaming		853		844		—		1,697
Digital Downloads		60		1,510		—		1,570
Digital Subscriptions		286		2,773		—		3,059
Other Digital Revenue		89		79		—		168

Digital Revenue		7,069		9,619		62		16,750

Book Sales		—		—		4,301		4,301

Table of Contents


Estimated Sales Returns & Allowances		—		—		(1,093	)		(1,093	)

Net Book Sales		—		—		3,208			3,208

E-Book Sales		—		—		339			339
Self-Publishing Fees		—		—		1,624			1,624
Publishing Magazine Subscriptions		—		—		158			158
Other Publishing Revenue		—		—		295			295

Publishing Revenue		—		—		5,624			5,624

	$	44,048	$	9,619	$	5,686		$	59,353

Timing of Revenue Recognition
Point in Time	$	43,425	$	9,619	$	5,686		$	58,730
Rental Income(1)		623		—		—			623

	$	44,048	$	9,619	$	5,686		$	59,353

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

Block Programming

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

, 25 or

50-minutes

of time. We separate block program revenue into three

categories, National, Local, and Infomercial revenue. Our stations are classified by format, including 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 own 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 as well as provides a full-service digital marketing strategy for each of our clients. In our role as a digital agency, our sales team provides our customers with integrated digital advertising solutions that optimize the performance of their campaign, which we view as one performance obligation. Our advertising campaigns are designed to be “white label” agreements between Salem and our advertiser, meaning we provide special care and attention to the details of the campaign. We provide custom digital product offerings, including tools for metasearch, retargeting, website design, reputation management, online listing services, and social media marketing. Digital advertising solutions may include third-party websites, such as Google or Facebook, which can be included in a digital advertising social media campaign. We manage all aspects of the digital campaign, including social media placements, review and approval of target audiences, and the monitoring of actual results to make modifications as needed. We may contract directly with a third-party, however, we are responsible for delivering the campaign results to our customer with or without the third-party. We are responsible for any payments

Table of Contents

due to the third-party regardless of the campaign results and without regard to the status of payment from our customer. We have discretion in setting the price to our customer without input or approval from the third-party. Accordingly, revenue is reported gross, as principal, as the performance obligation is delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation.

Digital Streaming

. We recognize revenue from the sale of advertisements and from the placement of ministry content that is streamed on our owned and operated websites and on our owned and operated mobile applications. Each of our radio stations, our digital media entities and certain publishing entities have custom websites and mobile applications that generate streaming revenue. Digital streaming revenue is recognized at the time that the content is delivered, or when the number of impressions delivered meets the previously agreed-upon performance criteria. Delivery of the content represents the point in time that control is transferred to the customer thereby completing our performance obligation. Streaming revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.

Digital Downloads and

e-books

. We recognize revenue from sale of downloaded materials, including videos, song tracks, sermons, content archives, and

e-books.

Payments for downloaded materials are due in advance of the download, however, the download is often instant upon confirmation of payment. Digital download revenue is recognized at the time of download, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is recorded at the gross amount due from the customer. All sales are final with no allowances made for returns.

Subscriptions

. We recognize revenue from the sale of subscriptions for financial publication digital newsletters, digital magazines, 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.

Table of Contents

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 ASC 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, 2022, 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, 2022	$	12,294		$	2,222
Revenue recognized during the period that was included in the beginning balance of contract liabilities		(4,085	)		—
Additional amounts recognized during the period		6,315			315
Revenue recognized during the period that was recorded during the period		(2,409	)		—
Transfers		477			(477	)

Balance, end of period March 31, 2022	$	12,592		$	2,060

Amount refundable at beginning of period	$	12,282		$	2,222
Amount refundable at end of period	$	12,580		$	2,060

We expect to satisfy these performance obligations as follows:


	Amount
For the Year Ended March 31,	(Dollars in thousands)
2023	$	12,592
2024		1,507
2025		351
2026		115
2027		87
Thereafter		—

	$	14,652

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, 2022, and March 31, 2027. 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 ASC 606.

Table of Contents

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 ASC 606.

Variable Consideration

We make significant estimates related to variable consideration at the point of sale, including estimates for refunds and product returns. Under ASC 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 ASC Topic 605, we reported variable consideration as revenue when the amount was fixed and determinable. Under ASC 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 ASC 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 exchange airtime or digital advertising for goods or services that can be used in our business or that can be sold to our audience under Listener Purchase Programs. The terms of these barter agreements permit us to preempt the barter airtime or digital campaign in favor of customers who purchase the airtime or digital campaign for cash. The value of these

non-cash

exchanges is included in revenue in an amount equal to the fair value of the goods or services we receive. Each transaction must be reviewed to determine that the products, supplies, and/or services we receive have economic substance, or value to us. We record barter operating expenses upon receipt and usage of the products, supplies and services, as applicable. We record barter revenue as advertising spots or digital campaigns are delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Barter revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency.

Trade and barter revenues and expenses were as follows:


	Three Months Ended March 31,
	2021		2022
Net broadcast barter revenue	$	391	$	846
Net digital media barter revenue		—		—
Net publishing barter revenue		—		—
Net broadcast barter expense	$	373	$	759
Net digital media barter expense		—		—
Net publishing barter expense		—		—

NOTE 5. INVENTORIES

Inventories consist of finished books from Salem 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

Table of Contents

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


	As of
	December 31, 2021			March 31, 2022
	(Dollars in thousands)
Buildings	$	28,593		$	28,600
Office furnishings and equipment		36,598			36,955
Antennae, towers and transmitting equipment		77,813			78,219
Studio, production, and mobile equipment		29,498			29,693
Computer software and website development costs		38,271			38,471
Automobiles		1,515			1,515
Leasehold improvements		18,104			18,213

	$	230,392		$	231,666
Less accumulated depreciation		(186,053	)		(188,960	)

		44,339		$	42,706

Land	$	26,896			27,037
Construction-in-progress		8,104			10,519

Property and Equipment, net	$	79,339		$	80,262

Depreciation expense was approximately $2.9 million and $2.6 million for the three-month periods ended March 31, 2022 and 2021, respectively. 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, 2022.

NOTE 7. OPERATING AND FINANCE LEASE

RIGHT-OF-USE

ASSETS

Leases

We account for leases in accordance with ASC 842, “

Leases

” that requires lessees to recognize Right of Use (“ROU”) assets and lease liabilities calculated based on the present value of lease payments for all lease agreements with terms that are greater than twelve months. ASC 842 distinguishes leases as either a finance lease or an operating lease that affects how the leases are measured and presented in the statement of operations and statement of cash flows.

Leasing Transactions

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

one-year

to up to twenty years. Many of these leases contain options under which we can extend the term from five to twenty years. Renewal options are excluded from our calculation of lease liabilities unless we are reasonably assured to exercise the renewal option. Our lease agreements do not contain residual value guarantees or material restrictive covenants. We lease certain properties from our principal stockholders or from trusts and partnerships created for the benefit of the principal stockholders and their families. These leases are designated as Related Party leases in the details provided.

Operating leases are reflected on our balance sheet within operating lease ROU assets and the related current and

non-current

operating lease liabilities. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from lease agreement. Operating lease ROU assets and liabilities are recognized at the commencement date, or the date on which the lessor makes the underlying asset available for use, based upon the present value of the lease payments over the respective lease term. As the implicit rate for operating leases is not readily determinable, the future minimum lease payments were discounted using an incremental borrowing rate. 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.

Balance Sheet

Supplemental balance sheet information related to leases is as follows:


	March 31, 2022
	(Dollars in thousands)
Operating Leases	Related Party		Other		Total
Operating leases ROU assets	$	7,142	$	38,741	$	45,883
Operating lease liabilities (current)	$	976	$	7,839	$	8,815
Operating lease liabilities (non-current)		6,266		38,449		44,715

Total operating lease liabilities	$	7,242	$	46,288	$	53,530

Table of Contents


Weighted Average Remaining Lease Term
Operating leases	7.7 years
Finance leases	2.8 years
Weighted Average Discount Rate
Operating leases	8.09	%
Finance leases	6.11	%

Lease Expense

The components of lease expense were as follows:


	Three Months Ended March 31, 2022
	(Dollars in thousands)
Amortization of finance lease ROU Assets	$	15
Interest on finance lease liabilities		2

Finance lease expense		17
Operating lease expense		3,224
Variable lease expense		268
Short-term lease expense		158

Total lease expense	$	3,667


	Three Months Ended March 31,
	2021			2022
Net broadcast revenue	$	44,048		$	48,432
Net digital media revenue		9,619			10,300
Net publishing revenue		5,686			3,877

Total net revenue		59,353			62,609

Operating expenses:
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $443 and $447 for the three months ended March 31, 2021 and 2022, respectively, paid to related parties)		33,343			38,121
Digital media operating expenses, exclusive of depreciation and amortization shown below		8,673			8,473
Publishing operating expenses, exclusive of depreciation and amortization shown below		5,205			4,467
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $3 and $9 for the three months ended March 31, 2021 and 2022, respectively, paid to related parties)		4,288			4,810
Debt modification costs		—			228
Depreciation		2,589			2,942
Amortization		581			334
Change in the estimated fair value of contingent earn-out consideration		—			(5	)
Net (gain) loss on the disposition of assets		318			(1,735	)

Total operating expenses		54,997			57,635

Operating income		4,356			4,974
Other income (expense):
Interest income		1			—
Interest expense		(3,926	)		(3,394	)
Loss on early retirement of long-term debt		—			(53	)
Net miscellaneous income and expenses		22			1

Net income before income taxes		453			1,528
Provision for (benefit from) income taxes		130			(211	)

Net income	$	323		$	1,739

Basic earnings per share data:
Basic earnings per share Class A and Class B common stock	$	0.01		$	0.06
Diluted earnings per share data:
Diluted earnings per share Class A and Class B common stock	$	0.01		$	0.06
Basic weighted average Class A and Class B shares outstanding		26,736,639			27,177,375

Diluted weighted average Class A and Class B shares outstanding		27,138,773			27,610,407


	Class A Common Stock				Class B Common Stock				Additional Paid-In Capital		Accumulated Deficit			Treasury Stock			Total
	Shares		Amount		Shares		Amount		Additional Paid-In Capital		Accumulated Deficit			Treasury Stock			Total
Stockholders’ equity, December 31, 2020		23,447,317	$	227		5,553,696	$	56	$	247,025	$	(78,023	)	$	(34,006	)	$	135,279
Stock-based compensation		—		—		—		—		78		—			—			78
Options exercised		185,782		2		—		—		390		—			—			392
Net income		—		—		—		—		—		323			—			323

Stockholders’ equity, March 31, 2021		23,633,099	$	229		5,553,696	$	56	$	247,493	$	(77,700	)	$	(34,006	)	$	136,072


	Class A Common Stock				Class B Common Stock				Additional Paid-In Capital		Accumulated Deficit			Treasury Stock			Total
	Shares		Amount		Shares		Amount		Additional Paid-In Capital		Accumulated Deficit			Treasury 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