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SM

SALEM MEDIA GROUP, INC. /DE/ (SALM)·Q2 2023 Earnings Summary

Executive Summary

  • Q2 2023 revenue declined 4.2% to $65.8M; adjusted EBITDA fell 77.2% to $2.7M amid weaker spot advertising and higher operating costs; operating loss was $4.1M and diluted EPS was $(0.26) .
  • Management announced additional austerity actions (~$10M annualized savings) including eliminating the 401(k) match, banning nonessential travel, restructuring sales/GM roles, and senior management pay cuts; expense benefits begin in Q3 with partial impact in July .
  • Liquidity tightened: non-compliance with fixed charge coverage ratio led to a Wells Fargo forbearance in August, revolver notional reduced to $25M, and revolver rate +200 bps; total debt was ~$182.0M at quarter-end (notes $159.4M, ABL $22.6M) .
  • Q3 2023 outlook: revenue down 3–5% YoY (1–3% ex-2022 political); recurring OpEx down 1% to up 2% YoY; political advertising expected to pick up late Q3/Q4, supporting H2 pacing .
  • Consensus estimates from S&P Global were unavailable; comparison to Street revenue/EPS could not be performed (will revisit when accessible).

What Went Well and What Went Wrong

  • What Went Well

    • Digital remains a strategic pillar: combined Salem digital revenue was $20.8M (31.6% of total) and grew 0.5% YoY; broadcast digital revenue rose 0.6% and national block programming increased 0.8% .
    • Broadcast expense growth moderated (up 4.8% vs +12.3% in Q1) as initial cost controls took hold; adjusted EBITDA improved sequentially to $2.7M from $1.4M .
    • Asset optimization continues: closed sales of KLFE-AM ($0.5M) and KNTS-AM ($0.225M), signed agreement to sell KSAC-FM ($1.0M) in Q4; booked $3.3M gain from Greenville transmitter rent assignment .

  • What Went Wrong

    • Spot advertising weakness intensified: national spot down 29.5% and local spot down 10.1% YoY; political revenue fell to ~$0.3M from $1.5M, pressuring broadcast revenue and SOI .
    • Operating cost pressures persisted: recurring OpEx up 5.2% YoY; impairments recorded on goodwill ($1.8M) and broadcast licenses ($1.1M), contributing to a $(7.1)M net loss .
    • Liquidity/covenant stress: revolver availability fell below $4.5M triggering FCCR testing; covenant non-compliance required a bank forbearance and tighter revolver terms .

Financial Results

MetricQ4 2022Q1 2023Q2 2023
Total Revenue ($USD Millions)$68.813 $63.489 $65.774
Net Income ($USD Millions)$(2.207) $(5.154) $(7.094)
Diluted EPS ($USD)$(0.08) $(0.19) $(0.26)
EBITDA ($USD Millions)$4.876 $(0.619) $(0.608)
Adjusted EBITDA ($USD Millions)$7.266 $1.397 $2.666
Segment Metric ($USD Millions)Q4 2022Q1 2023Q2 2023
Net Broadcast Revenue$53.295 $48.340 $49.680
Net Digital Media Revenue$10.368 $10.510 $10.860
Net Publishing Revenue$5.150 $4.639 $5.234
Station Operating Income (SOI)$10.140 $5.531 $6.162
Digital Media Operating Income$1.697 $1.516 $1.834
Publishing Operating Income (Loss)$(0.551) $(0.737) $(0.792)
Operating KPIs ($USD Millions)Q4 2022Q1 2023Q2 2023
Same Station Net Broadcast Revenue$53.279 $48.138 $49.360
Same Station SOI$10.328 $6.013 $6.787
Recurring Operating Expenses$61.597 $62.100 $63.089
Debt & LiquidityQ4 2022Q1 2023Q2 2023
Senior Secured Notes due 2028 Outstanding ($MM)$114.7 $159.4 $159.4
Asset-Based Revolving Credit Facility Outstanding ($MM)$39.0 (2024 Notes), $9.0 ABL at YE 2022 $18.2 ABL $22.6 ABL; total debt ~$182.0

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/OutcomeChange
Total Revenue YoYQ2 2023Decline 5–7% vs Q2’22 ($68.7M) Decline 4.2% (to $65.8M) Beat (smaller decline than guided)
Recurring Operating Expenses YoYQ2 2023+3–6% vs Q2’22 ($60.0M) +5.2% Within guidance
Total Revenue YoYQ3 2023N/ADecline 3–5% vs $66.9M; 1–3% ex-2022 political New
Recurring Operating Expenses YoYQ3 2023N/A-1% to +2% vs $60.8M New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2022 and Q1 2023)Current Period (Q2 2023)Trend
Cost-cutting/AusterityLaid off 44 positions (~$5M annual savings); investing in digital despite headwinds .Expanded cuts (~$10M annual savings): eliminate 401(k) match, ban nonessential travel, restructure GM/sales, senior mgmt pay cuts; partial Q3 impact .Escalating austerity to stabilize EBITDA/FCF.
Digital initiativesDigital near 30% of revenue; broadcast digital +14%; National digital -10.3% on Facebook algorithm and third-party cookie demise . Q1: overall digital +6.4%; broadcast digital +12%; National digital +2% with persistent headwinds .Digital revenue $20.8M, 31.6% of total; growth +0.5%; ongoing investments in Salem Surround, Podcast Network, Salem News Channel .Growth slowing; mix shifting; continued strategic focus.
Political advertisingQ4’22 political $2.1M; full year $5.9M . Q1: political expected in Q3/Q4 .Q2’23 political ~$0.3M; expect pick-up late Q3/Q4; 2024 likely larger than 2022 ($6.6M) .Rising tailwind into H2 and 2024 cycle.
Advertising macro (spot)Local softness, national/network stronger; economy/interest rates cited . Q1: national spot +20.7%, local -8.3% .National spot -29.5%, local -10.1%; advertiser pullback continues .Weaker demand; cautious pacing in Q3.
Debt & liquidityIssued 2028 notes to take out 2024s; YE debt $162.7M . Q1: $44.7M issuance; total debt $177.6M; working on new revolver .FCCR non-compliance; Wells Fargo forbearance; revolver reduced to $25M with +200 bps rate; total debt ~$182.0M .Tightening liquidity; de-lever via asset sales and cost controls.
Publishing pipelineExpect 2023 improvement with titles from Hawley, Gilder, Babylon Bee, Gabbard, Cruz . Q1: Q2 lighter slate; Q4 heavier .Q3 titles (Ever-Loving Truth; Babylon Bee Guide to Gender); raised inventory obsolescence reserve; 2024 plan 75–80 titles .Heavier Q4 skew; 2024 robust slate.

Management Commentary

  • “These cuts amount to approximately $10 million in annual savings. We continue to look for additional efficiencies as we navigate a challenging economy.” — CEO David Santrella .
  • “Total Salem digital revenue was $20.8 million in the second quarter. This represents 31.6% of our total revenue.” — CEO David Santrella .
  • “We were not in compliance with [the] fixed charge coverage ratio covenant… we signed a forbearance with Wells Fargo… revolver reduced from $30 million to $25 million… interest rate increased by 2 percentage points.” — CFO Evan Masyr .
  • “Broadcast expenses in the second quarter increased 4.8%… the reduced pace in expenses reflects the various cost-cutting measures that we’ve taken.” — CEO David Santrella .

Q&A Highlights

  • Expense mix and digital investments: Adding in-house digital expertise to reduce third-party marketing costs; increased costs tied to direct marketing services with lower margin profile .
  • Publishing expense dynamics: Inventory obsolescence reserve raised in Q2, driving higher Publishing OpEx despite flat revenue; biggest titles expected in Q4 .
  • Political trajectory: ~$0.3M recognized YTD; spending to pick up late Q3/Q4; 2022 political revenue was ~$6.6M, with expectation to grow in 2024 .
  • Asset sales: Multiple transactions in process; management expects further closings within the fiscal year to aid deleveraging .
  • Timing of savings: Majority of ~$10M annualized cuts visible in Q3 (partial impact), continuing into Q4 .

Estimates Context

  • S&P Global consensus estimates for Q2 2023 revenue and EPS were unavailable at time of analysis due to data access limits; as a result, comparison versus Street estimates could not be performed. We will update when S&P Global data becomes accessible.
  • Company’s Q2 actuals trended better than prior guidance on revenue decline (4.2% vs guided 5–7%), while recurring OpEx increase fell within guidance (5.2% vs +3–6%) .

Key Takeaways for Investors

  • Q2 softness was driven by spot advertising weakness and lower political spend; expect political tailwinds to emerge late Q3 into Q4, which should support revenue stabilization into H2’23 and 2024 .
  • The expanded austerity program (~$10M annualized) and moderated expense growth in Q2 should improve operating leverage; watch Q3 for partial benefits and Q4 for fuller run-rate .
  • Liquidity remains a risk factor given covenant issues and tightened revolver terms; asset sales and cost actions are critical to deleveraging and maintaining flexibility .
  • Digital scale (31.6% of revenue) is strategic, but growth has slowed; mix shift and platform headwinds (Facebook, cookie changes) cap near-term upside—assess ROIs on in-house capabilities and contribution margins .
  • Broadcasting resiliency via block programming and network helps diversify demand; however, spot weakness implies cautious pacing—monitor political cycles and category recovery .
  • Publishing likely skews to Q4 with notable authors; Q2 reserve build pressured margins—track Q4 performance and 2024 slate execution .
  • Without accessible Street estimates, trading set-ups hinge on guidance adherence, cost realization, covenant developments, and asset sale execution; catalysts include any revolver amendment, asset sale announcements, and political revenue inflections .