QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |
(I.R.S. EMPLOYER IDENTIFICATION NUMBER) | |
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) |
(ZIP CODE) |
Title of each Class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
☒ | Smaller Reporting Company | |||||
Emerging Growth Company |
Class A |
Outstanding at May 2, 2023 | |
Common Stock, $0.01 par value per share |
Class B |
Outstanding at May 2, 2023 | |
Common Stock, $0.01 par value per share |
SALEM MEDIA GROUP, INC.
INDEX
PAGE NO. | ||||
COVER PAGE |
||||
INDEX |
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2 | ||||
3 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
29 | |||
Item 3. Quantitative and Qualitative Disclosures About Market Risk. |
48 | |||
48 | ||||
49 | ||||
49 | ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. |
49 | |||
49 | ||||
49 | ||||
49 | ||||
49 | ||||
50 | ||||
51 |
1
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
PART I – FINANCIAL INFORMATION
SALEM MEDIA GROUP, INC.
ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
3
December 31, 2022 (Note 1) |
March 31, 2023 (Unaudited) |
|||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | $ |
||||||
Accounts receivable (net of allowances of $ |
||||||||
Unbilled revenue |
||||||||
Income tax receivable |
||||||||
Other receivables (net of allowances of $ |
||||||||
Inventories |
||||||||
Prepaid expenses |
||||||||
Assets held for sale |
||||||||
Total current assets |
||||||||
Notes receivable (net of allowance of $ |
||||||||
Property and equipment (net of accumulated depreciation of $ |
||||||||
Operating lease right-of-use |
||||||||
Financing lease right-of-use |
||||||||
Broadcast licenses |
||||||||
Goodwill |
||||||||
Amortizable intangible assets (net of accumulated amortization of $ |
||||||||
Deferred financing costs |
||||||||
Other assets |
||||||||
Total assets |
$ | $ |
||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | $ |
||||||
Accrued expenses |
||||||||
Accrued compensation and related expenses |
||||||||
Accrued interest |
||||||||
Contract liabilities |
||||||||
Deferred rent income |
||||||||
Current portion of operating lease liabilities |
||||||||
Current portion of financing lease liabilities |
||||||||
Current portion of long-term debt |
||||||||
Total current liabilities |
||||||||
Long-term debt, less current portion |
||||||||
Operating lease liabilities, less current portion |
||||||||
Financing (capital) lease liabilities, less current portion |
||||||||
Deferred income taxes |
||||||||
Contract liabilities, long-term |
||||||||
Deferred rent income, less current portion |
||||||||
Other long-term liabilities |
||||||||
Total liabilities |
||||||||
Commitments and contingencies (Note 14) |
||||||||
Stockholders’ Equity: |
||||||||
Class A common stock, $ |
||||||||
Class B common stock, $ |
||||||||
Additional paid-in capital |
||||||||
Accumulated deficit |
( |
) | ( |
) | ||||
Treasury stock, at cost ( |
( |
) | ( |
) | ||||
Total stockholders’ equity |
||||||||
Total liabilities and stockholders’ equity |
$ | $ |
||||||
Three Months Ended March 31, |
||||||||
2022 |
2023 |
|||||||
Net broadcast revenue |
$ | $ |
||||||
Net digital media revenue |
||||||||
Net publishing revenue |
||||||||
|
|
|
|
|||||
Total net revenue |
||||||||
|
|
|
|
|||||
Operating expenses: |
||||||||
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $ |
||||||||
Digital media operating expenses, exclusive of depreciation and amortization shown below |
||||||||
Publishing operating expenses, exclusive of depreciation and amortization shown below |
||||||||
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $ |
||||||||
Debt modification costs |
||||||||
Depreciation |
||||||||
Amortization |
||||||||
Change in the estimated fair value of contingent earn-out consideration |
( |
) | ( |
) | ||||
Impairment of indefinite-lived long-term assets other than goodwill |
||||||||
Net (gain) loss on the disposition of assets |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Total operating expenses |
||||||||
|
|
|
|
|||||
Operating income (loss) |
( |
) | ||||||
|
|
|
|
|||||
Other income (expense): |
||||||||
Interest income |
||||||||
Interest expense |
( |
) | ( |
) | ||||
Gain (loss) on early retirement of long-term debt |
( |
) | ( |
) | ||||
Earnings from equity method investment |
||||||||
Net miscellaneous income and expenses |
||||||||
|
|
|
|
|||||
Net income (loss) before income taxes |
( |
) | ||||||
Benefit from income taxes |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Net income (loss) |
$ | $ |
( |
) | ||||
|
|
|
|
|||||
Basic earnings (loss) per share data: |
||||||||
Basic earnings (loss) per share Class A and Class B common stock |
$ | $ |
( |
) | ||||
Diluted earnings (loss) per share data: |
||||||||
Diluted earnings (loss) per share Class A and Class B common stock |
$ | $ |
( |
) | ||||
Basic weighted average Class A and Class B shares outstanding |
||||||||
|
|
|
|
|||||
Diluted weighted average Class A and Class B shares outstanding |
||||||||
|
|
|
|
Class A |
Class B |
|||||||||||||||||||||||||||||||
Common Stock |
Common Stock |
Additional |
||||||||||||||||||||||||||||||
Paid-In |
Accumulated |
Treasury |
||||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Stock |
Total |
|||||||||||||||||||||||||
Stockholders’ equity, December 31, 2021 |
$ | |
$ | |
$ | |
$ | ( |
$ | ( |
) | $ | |
|||||||||||||||||||
Stock-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Options exercised |
— | — | — | — | — | |||||||||||||||||||||||||||
Lapse of restricted shares |
— | — | — | — | — | — | — | |||||||||||||||||||||||||
Net income |
— | — | — | — | — | — | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Stockholders’ equity, March 31, 2022 |
$ | $ | $ | $ | ( |
$ | ( |
) | $ | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Class A |
Class B |
|||||||||||||||||||||||||||||||
Common Stock |
Common Stock |
Additional |
||||||||||||||||||||||||||||||
Paid-In |
Accumulated |
Treasury |
||||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Stock |
Total |
|||||||||||||||||||||||||
Stockholders’ equity, December 31, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||||||
Stock-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Net loss |
— | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Stockholders’ equity, March 31, 2023 |
$ |
$ |
$ |
$ |
( |
) | $ |
( |
) |
$ |
||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
||||||||
2022 |
2023 |
|||||||
OPERATING ACTIVITIES |
||||||||
Net income (loss) |
$ | $ |
( |
) | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Non-cash stock-based compensation |
||||||||
Depreciation and amortization |
||||||||
Amortization of deferred financing costs |
||||||||
Non-cash lease expense |
||||||||
Accretion of acquisition-related deferred payments and contingent earn-out consideration |
||||||||
Provision for bad debts |
( |
) | ( |
) | ||||
Deferred income taxes |
( |
) | ( |
) | ||||
Change in the estimated fair value of contingent earn-out consideration |
( |
) | ( |
) | ||||
Impairment of indefinite-lived long-term assets other than goodwill |
||||||||
(Gain) loss on early retirement of long-term debt |
||||||||
Net (gain) loss on the disposition of assets |
( |
) | ( |
) | ||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable and unbilled revenue |
( |
) | ||||||
Income tax receivable |
( |
) | ||||||
Inventories |
( |
) | ( |
) | ||||
Prepaid expenses and other current assets |
( |
) | ( |
) | ||||
Accounts payable and accrued expenses |
||||||||
Operating lease liabilities |
( |
) | ( |
) | ||||
Contract liabilities |
( |
) | ||||||
Deferred rent income |
( |
) | ( |
) | ||||
Other liabilities |
( |
) | ||||||
Income taxes payable |
( |
) | ||||||
Net cash provided by (used in) operating activities |
( |
) | ||||||
INVESTING ACTIVITIES |
||||||||
Cash paid for capital expenditures net of tenant improvement allowances |
( |
) | ( |
) | ||||
Capital expenditures reimbursable under tenant improvement allowances and trade agreements |
( |
) | ( |
) | ||||
Purchases of broadcast assets and radio stations |
( |
) | ( |
) | ||||
Purchases of digital media businesses and assets |
( |
) | ||||||
Equity investment in limited liability corporations |
( |
) | ( |
) | ||||
Proceeds from sale of long-lived assets |
||||||||
Other |
( |
) | ||||||
Net cash used in investing activities |
( |
) | ( |
) | ||||
FINANCING ACTIVITIES |
||||||||
Proceeds from 2028 Notes |
||||||||
Payments to repurchase 2024 Notes |
( |
) | ( |
) | ||||
Proceeds from borrowings under ABL Facility |
||||||||
Payments on ABL Facility |
( |
) | ( |
) | ||||
Payments of debt issuance costs |
( |
) | ||||||
Payments of acquisition-related contingent earn-out consideration |
( |
) | ||||||
Proceeds from the exercise of stock options |
||||||||
Payments on financing lease liabilities |
( |
) | ( |
) | ||||
Book overdraft |
( |
) | ||||||
Net cash provided by (used in) financing activities |
( |
) | ||||||
Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||
Cash and cash equivalents at beginning of year |
||||||||
Cash and cash equivalents at end of period |
$ | $ |
||||||
Three Months Ended March 31, |
||||||||
2022 |
2023 |
|||||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the period for: |
||||||||
Cash paid for interest, net of capitalized interest |
$ | $ |
||||||
Cash paid for interest on finance lease liabilities |
$ | $ |
||||||
Net cash paid for (received from) income taxes |
$ | $ |
||||||
Other supplemental disclosures of cash flow information: |
||||||||
Barter revenue |
$ | $ |
||||||
Barter expense |
$ | $ |
||||||
Non-cash investing and financing activities: |
||||||||
Capital expenditures reimbursable under tenant improvement allowances |
$ | $ |
||||||
Right-of-use |
$ | $ |
||||||
Right-of-use |
$ | $ |
||||||
Net assets and liabilities assumed in a non-cash acquisition |
$ | $ |
||||||
Estimated present value of contingent-earn out consideration |
$ | $ |
||||||
See accompanying notes |
• | 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 |
• | determining the Incremental Borrowing Rate (“IBR”) for calculating ROU assets and lease liabilities, |
Description |
Total Consideration |
|||
(Dollars in thousands) |
||||
Cash payments made upon closing |
$ |
|||
Escrow deposits paid in prior years |
||||
Fair value of contingent earn-out consideration |
||||
|
|
|||
Total purchase price consideration |
$ |
|||
|
|
Net Broadcast Assets Acquired |
Net Digital Media Assets Acquired |
Total Net Assets |
||||||||||||
Assets |
||||||||||||||
Property and equipment |
$ |
$ |
$ |
|||||||||||
Broadcast licenses |
||||||||||||||
Goodwill |
||||||||||||||
Domain and brand names |
||||||||||||||
Subscriber base and lists |
||||||||||||||
Non-Compete agreement |
||||||||||||||
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||
Contract liabilities |
( |
) |
( |
) | ||||||||||
|
|
|
|
|
|
|||||||||
$ |
$ |
$ |
||||||||||||
|
|
|
|
|
|
Three Months Ended March 31, 2023 |
||||||||||||||||
Broadcast |
Digital Media |
Publishing |
Consolidated |
|||||||||||||
(Dollars in thousands) |
||||||||||||||||
By Source of Revenue: |
||||||||||||||||
Block Programming – National |
$ | $ | — | $ | — | $ | ||||||||||
Block Programming – Local |
— | — | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Broadcast Programming Revenue |
— |
— |
||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Spot Advertising – National |
— | — | ||||||||||||||
Spot Advertising – Local |
— | — | ||||||||||||||
Network Advertising |
— | — | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Broadcast Advertising Revenue |
— |
— |
||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Infomercials |
— | — | ||||||||||||||
Other Revenue |
— | — | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other Broadcast Revenue |
— |
— |
||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Digital Advertising |
||||||||||||||||
Digital Streaming |
||||||||||||||||
Digital Downloads |
||||||||||||||||
Digital Subscriptions |
||||||||||||||||
Other Digital Revenue |
||||||||||||||||
|
|
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|
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|
|
|
|||||||||
Digital Revenue |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Book Sales |
— | — | ||||||||||||||
Estimated Sales Returns & Allowances |
— | ( |
) | ( |
) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Book Sales |
— | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
E-Book Sales |
— | |||||||||||||||
Self-Publishing Fees |
— | — | ||||||||||||||
Other Publishing Revenue |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Publishing Revenue |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ |
$ |
$ |
$ |
|||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Timing of Revenue Recognition |
||||||||||||||||
Point in Time |
$ | $ | $ | $ | ||||||||||||
Rental Income (1) |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ |
$ |
$ |
$ |
|||||||||||||
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2022 |
||||||||||||||||
Broadcast |
Digital Media |
Publishing |
Consolidated |
|||||||||||||
(Dollars in thousands) |
||||||||||||||||
By Source of Revenue: |
||||||||||||||||
Block Programming – National |
$ | $ | — | $ | — | $ | ||||||||||
Block Programming – Local |
— | — | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Broadcast Programming Revenue |
— |
— |
||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Spot Advertising – National |
— | — | ||||||||||||||
Spot Advertising – Local |
— | — | ||||||||||||||
Network Advertising |
— | — | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Broadcast Advertising Revenue |
— |
— |
||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Infomercials |
— | — | ||||||||||||||
Other Revenue |
— | — | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other Broadcast Revenue |
— |
— |
||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Digital Advertising |
||||||||||||||||
Digital Streaming |
— | |||||||||||||||
Digital Downloads |
— | |||||||||||||||
Digital Subscriptions |
— | |||||||||||||||
Other Digital Revenue |
— | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Digital Revenue |
||||||||||||||||
|
|
|
|
|
|
|
|
Book Sales |
— | — | ||||||||||||||
Estimated Sales Returns & Allowances |
— | — | ( |
) | ( |
) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Book Sales |
— | — | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
E-Book Sales |
— | — | ||||||||||||||
Self-Publishing Fees |
— | — | ||||||||||||||
Other Publishing Revenue |
— | — | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Publishing Revenue |
— | — | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ |
$ |
$ |
$ |
|||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Timing of Revenue Recognition |
||||||||||||||||
Point in Time |
$ | $ | $ | $ | ||||||||||||
Rental Income (1) |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ |
$ |
$ |
$ |
|||||||||||||
|
|
|
|
|
|
|
|
(1) | Rental income is not applicable to FASB ASC Topic 606, but shown for the purpose of identifying each revenue source presented in total revenue on our Condensed Consolidated Financial Statements within this report on Form 10-Q. |
Short Term | Long-Term |
|||||||
(Dollars in thousands) |
||||||||
Balance, beginning of period January 1, 2023 |
$ | $ | ||||||
Revenue recognized during the period that was included in the beginning balance of contract liabilities |
( |
) | ||||||
Additional amounts recognized during the period |
||||||||
Revenue recognized during the period that was recorded during the period |
( |
) | ||||||
Transfers |
( |
) | ||||||
Balance, end of period March 31, 2023 |
$ | $ | ||||||
Amount refundable at beginning of period |
$ | $ | ||||||
Amount refundable at end of period |
$ | $ |
Amount |
||||
For the Year Ended March 31, |
(Dollars in thousands) |
|||
$ | ||||
$ | ||||
Three Months Ended March 31, |
||||||||
2022 | 2023 |
|||||||
Net broadcast barter revenue |
$ | $ | ||||||
Net broadcast barter expense |
$ | $ |
As of |
||||||||
December 31, 2022 | March 31, 2023 |
|||||||
(Dollars in thousands) |
||||||||
Buildings |
$ | $ | ||||||
Office furnishings and equipment |
||||||||
Antennae, towers and transmitting equipment |
||||||||
Studio, production, and mobile equipment |
||||||||
Computer software and website development costs |
||||||||
Automobiles |
||||||||
Leasehold improvements |
||||||||
$ | $ | |||||||
Less accumulated depreciation |
( |
) | ( |
) | ||||
$ | ||||||||
Land |
$ | |||||||
Construction-in-progress |
||||||||
Property and Equipment, net |
$ | $ | ||||||
March 31, 2023 |
||||||||||||
(Dollars in thousands) |
||||||||||||
Operating Leases |
Related Party | Other | Total | |||||||||
Operating leases ROU assets |
$ | $ | $ | |||||||||
Operating lease liabilities (current) |
$ | $ | $ | |||||||||
Operating lease liabilities (non-current) |
||||||||||||
Total operating lease liabilities |
$ | $ | $ | |||||||||
Weighted Average Remaining Lease Term |
||||
Operating leases |
||||
Finance leases |
||||
Weighted Average Discount Rate |
||||
Operating leases |
||||
Finance leases |
Three Months Ended March 31, 2023 |
||||
(Dollars in thousands) |
||||
Amortization of finance lease ROU Assets |
$ | |||
Interest on finance lease liabilities |
||||
Finance lease expense |
||||
Operating lease expense |
||||
Variable lease expense |
||||
Short-term lease expense |
||||
Total lease expense |
$ | |||