Market Overview

Salem Media Group, Inc. Announces Second Quarter 2018 Total Revenue of $66.3 Million

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Salem Media Group, Inc. (NASDAQ:SALM) released its results for the
three and six months ended June 30, 2018.

Second Quarter 2018 Results

For the quarter ended June 30, 2018 compared to the quarter ended June
30, 2017:

Consolidated

  • Total revenue increased 0.2% to $66.3 million from $66.1 million;
  • Total operating expenses increased 12.9% to $64.9 million from $57.5
    million;
  • Operating expenses, excluding gains or losses on the disposition of
    assets, stock-based compensation expense, changes in the estimated
    fair value of contingent earn-out consideration, depreciation expense
    and amortization expense (1) increased 2.4% to $55.1 million from
    $53.8 million;
  • Operating income decreased 84.4% to $1.3 million from $8.6 million;
  • The company had a net loss of $2.2 million, or $0.08 net loss per
    share compared to net income of $1.3 million, or $0.05 net income per
    diluted share;
  • EBITDA (1) decreased 40.8% to $6.0 million from $10.1 million;
  • Adjusted EBITDA (1) decreased 9.4% to $11.2 million from $12.4
    million; and
  • Net cash used by operating activities was $2.8 million compared to net
    cash provided by operating activities of $7.5 million.

Broadcast

  • Net broadcast revenue increased 2.7% to $50.6 million from $49.3
    million;
  • Station Operating Income ("SOI") (1) remained consistent at $13.3
    million;
  • Same Station (1) net broadcast revenue increased 3.0% to $49.8 million
    from $48.4 million; and
  • Same Station SOI (1) increased 1.3% to $13.7 million from $13.5
    million.

Digital Media

  • Digital media revenue decreased 5.6% to $10.3 million from $10.9
    million; and
  • Digital Media Operating Income (1) decreased 25.4% to $1.9 million
    from $2.5 million.

Publishing

  • Publishing revenue decreased 9.1% to $5.4 million from $6.0 million;
    and
  • Publishing Operating Income (Loss) (1) decreased to a loss of $0.1
    million from income of $0.3 million.

Included in the results for the quarter ended June 30, 2018 are:

  • A $5.2 million ($3.8 million, net of tax, or $0.15 per share) net loss
    on the disposition of assets includes a $4.8 million estimated pre-tax
    loss on the sale of radio stations in Omaha, Nebraska, a $0.3 million
    pre-tax loss on the sale of land in Muth Valley, California and a $0.2
    million pre-tax loss on the sale of land in Covina, California offset
    by a $0.2 million pre-tax gain on the sale of WBIX-AM in Boston,
    Massachusetts;
  • A $0.2 million gain ($0.2 million, net of tax, or $0.01 per diluted
    share) on early redemption of long-term debt due to the repurchase of
    the company's 6.75% senior secured notes due 2024; and
  • A $0.1 million non-cash compensation charge ($0.1 million, net of tax)
    related to the expensing of stock options consisting of:
    • $76,000 non-cash compensation charge included in corporate
      expenses;
    • $29,000 non-cash compensation charge included in broadcast
      operating expenses;
    • $18,000 non-cash compensation charge included in digital media
      operating expenses; and
    • the remaining $3,000 non-cash compensation charge included in
      publishing operating expenses.

Included in the results for the quarter ended June 30, 2017 are:

  • A $0.5 million ($0.3 million, net of tax, or $0.01 per share) net gain
    on the disposition of assets including the sale of a former
    transmitter site in the Dallas, Texas market and the sale of two
    magazines that were partially offset by other insignificant fixed
    asset disposals; and
  • A $2.7 million loss ($1.6 million, net of tax, or $0.06 per share) on
    the early redemption of long-term debt due to the repayment and
    termination of the senior credit facilities consisting of a term loan
    ("Term Loan B") and Revolver.

Per share numbers are calculated based on 26,177,247 diluted weighted
average shares for the quarter ended June 30, 2018, and 26,593,366
diluted weighted average shares for the quarter ended June 30, 2017.

Year to Date 2018 Results

For the six months ended June 30, 2018 compared to the six months ended
June 30, 2017:

Consolidated

  • Total revenue decreased 0.8% to $130.1 million from $131.1 million;
  • Total operating expenses increased 4.6% to $123.1 million from $117.7
    million;
  • Operating expenses, excluding gains or losses on the disposition of
    assets, stock-based compensation expense, changes in the estimated
    fair value of contingent earn-out consideration, impairment losses,
    depreciation expense and amortization expense (1) increased 0.2% to
    $108.7 million from $108.4 million;
  • Operating income decreased 47.8% to $7.0 million from $13.4 million;
  • The company has a net loss of $1.3 million, or $0.05 net loss per
    share compared to net income of $2.3 million, or $0.09 net income per
    diluted share;
  • EBITDA (1) decreased 16.3% to $16.2 million from $19.4 million;
  • Adjusted EBITDA (1) decreased 5.7% to $21.4 million from $22.7
    million; and
  • Net cash provided by operating activities decreased to $10.1 million
    from $16.6 million.

Broadcast

  • Net broadcast revenue increased 1.6% to $98.6 million from $97.1
    million;
  • SOI (1) increased 1.3% to $25.6 million from $25.3 million;
  • Same station (1) net broadcast revenue increased 1.7% to $97.1 million
    from $95.5 million; and
  • Same station SOI (1) increased 3.0% to $26.4 million from $25.6
    million.

Digital media

  • Digital media revenue decreased 4.2% to $20.7 million from $21.6
    million; and
  • Digital media operating income (1) decreased 13.3% to $3.9 million
    from $4.5 million.

Publishing

  • Publishing revenue decreased 13.5% to $10.8 million from $12.5
    million; and
  • Publishing Operating Income (Loss) (1) decreased to a loss of $0.3
    million from income of $0.5 million.

Included in the results for the six months ended June 30, 2018 are:

  • A $5.2 million ($3.8 million, net of tax, or $0.15 per share) net loss
    on the disposition of assets includes a $4.8 million estimated pre-tax
    loss on the sale of radio stations in Omaha, Nebraska, a $0.3 million
    pre-tax loss on the sale of land in Muth Valley, California and a $0.2
    million pre-tax loss on the sale of land in Covina, California offset
    by a $0.2 million pre-tax gain on the sale of WBIX-AM in Boston,
    Massachusetts;
  • A $0.2 million gain ($0.2 million, net of tax, or $0.01 per diluted
    share) on early redemption of long-term debt due to the repurchase of
    the company's 6.75% senior secured notes due 2024; and
  • A $0.2 million non-cash compensation charge ($0.1 million, net of tax)
    related to the expensing of stock options consisting of:
    • $100,000 non-cash compensation charge included in corporate
      expenses;
    • $42,000 non-cash compensation charge included in broadcast
      operating expenses;
    • $23,000 non-cash compensation charge included in digital media
      operating expenses; and
    • the remaining $7,000 non-cash compensation charge included in
      publishing operating expenses.

Included in the results for the six months ended June 30, 2017 are:

  • A $0.5 million ($0.3 million, net of tax, or $0.01 per share) net gain
    on the disposition of assets including the sale of a former
    transmitter site in the Dallas, Texas market and the sale of two
    magazines that were partially offset by other insignificant fixed
    asset disposals;
  • A $2.8 million loss ($1.7 million, net of tax, or $0.06 per share) on
    the early redemption of long-term debt due to the repayment and
    termination of the senior credit facilities consisting of a term loan
    ("Term Loan B") and Revolver; and
  • A $1.4 million non-cash compensation charge ($0.9 million, net of tax,
    or $0.03 per share) related to the expensing of stock options and
    restricted stock consisting of:
    • $1.0 million non-cash compensation charge included in corporate
      expenses;
    • $0.3 million non-cash compensation charge included in broadcast
      operating expenses;
    • $0.1 million non-cash compensation charge included in digital
      media operating expenses; and
    • the remaining $0.1 million non-cash compensation charge included
      in publishing operating expenses.

Per share numbers are calculated based on 26,174,393 diluted weighted
average shares for the six months ended June 30, 2018, and 26,442,146
diluted weighted average shares for the six months ended June 30, 2017.

Balance Sheet

As of June 30, 2018, the company had $245.0 million outstanding on the
6.75% senior secured notes due 2024 (the "Notes") and $11.9 million
outstanding on the Asset Based Revolving Credit Facility ("ABL
Facility") as of June 30, 2018.

Acquisitions and Divestitures

The following transactions were completed since April 1, 2018:

  • On August 7, 2018, we acquired Just1Word for $300,000 in cash with up
    to an additional $100,000 of contingent earn-out consideration to be
    paid over the next two years based on the achievement of certain
    revenue benchmarks. Just1Word is a Bible Reader with fully formatted
    text with multiple versions and languages available.
  • On August 6, 2018, the company sold radio station KGBI-FM in Omaha,
    Nebraska for $3.2 million. The company recorded an estimated loss on
    the sale of $3.2 million as of June 30, 2018, which reflects the sales
    price as compared to the carrying value of the assets and the
    estimated cost to sell. The assets of radio station KGBI-FM are
    reflected in Assets Held for Sale as of June 30, 2018.
  • On July 25, 2018, the company acquired radio station KZTS-AM (formerly
    KDXE-AM) and an FM Translator in Little Rock, Arkansas for $0.2
    million in cash.
  • On July 24, 2018, the company acquired the
    Childrens-Minsitry-Deals.com website for $3.7 million in cash. The
    company paid $3.5 million in cash upon closing and $0.2 million in
    cash plus interest at an annual rate of 5% twelve months from closing
    provided that the seller meet certain post-closing requirements with
    regard to intellectual property.
  • On June 25, 2018, the company closed on the acquisition of radio
    station KDXE-FM (formerly KZTS-FM) in Little Rock, Arkansas for $1.1
    million in cash. The company began programming the station under a
    Local Marketing Agreement ("LMA") that began on April 1, 2018.
  • On June 20, 2018, the company closed on the sale of radio station
    WBIX-AM in Boston, Massachusetts for $0.7 million in cash. The buyer
    had been operating the station under an LMA agreement as of January 8,
    2018.
  • On May 24, 2018, the company closed on the sale of land in Covina,
    California for $0.8 million.
  • On April 19, 2018, the company acquired the HearItFirst.com domain
    name and related social media assets for $70,000 in cash.
  • The company programmed radio station KHTE-FM, in Little Rock,
    Arkansas, under a Time Brokerage Agreement ("TBA") that began on April
    1, 2015. The company had the option to acquire the station for $1.2
    million in cash during the TBA period. The company ceased operating
    the station on April 30, 2018 and did not exercise its purchase
    option. The company paid the licensee a $0.1 million fee for not
    exercising its option right to purchase the station.
  • On December 29, 2017, the company entered into two LMAs to program
    radio stations KPAM-AM and KKOV-AM in Portland, Oregon. The company
    began operating the radio stations on January 2, 2018. The LMAs had an
    original term of up to 12 months. The LMA for KKOV-AM and the LMA for
    KPAM-AM were both terminated on March 30, 2018 when the stations were
    sold to another party. The company entered a new LMA to continue
    operating KPAM-AM.

Pending transactions:

  • On December 1, 2017, the company entered into an agreement to sell
    radio station WQVN-AM (formerly WKAT-AM) in Miami, Florida for $3.5
    million in cash. The buyer began operating the radio station under an
    LMA as of the same date. The sale is expected to close during the
    third quarter of 2018. The company recorded an estimated loss on the
    sale of assets of $4.7 million as of December 31, 2017, based on the
    probability of the sale, which reflected the sales price as compared
    to the carrying value of the assets and the estimated costs of the
    sale.
  • On April 26, 2018, the company entered an agreement to exchange radio
    station KKOL-AM, in Seattle, Washington for KPAM-AM in Portland,
    Oregon. The transaction is expected to close in the third quarter of
    2018.
  • On July 10, 2018, the company entered into an agreement to acquire
    radio station KTRB-AM in San Francisco, California for $5.1 million
    dollars in cash from a related party. The company has been operating
    the radio station under an LMA from June 24, 2016. The transaction is
    subject to the approval of the FCC and is expected to close in the
    third quarter of 2018.
  • On July 17, 2018, the company entered into an agreement to acquire the
    Hilary Kramer Financial Newsletter assets for $400,000 in cash. The
    transaction is expected to close in the third quarter of 2018.
  • On July 23, 2018, the company entered into an agreement to sell
    KCRO-AM and KOTK-AM in Omaha, Nebraska for $1.4 million in cash. The
    company previously recorded these assets as held for sale and recorded
    a loss of $1.6 million as of June 30, 2018. The buyer will begin
    programming the stations under an LMA on August 8, 2018. The
    transaction is expected to close in the second half of 2018.

Conference Call Information

Salem will host a teleconference to discuss its results on August 8,
2018 at 2:00 p.m. Pacific Time. To access the teleconference, please
dial (877) 524-8416, and then ask to be joined into the Salem Media
Group Second Quarter 2018 call or listen via the investor relations
portion of the company's website, located at investor.salemmedia.com.
A replay of the teleconference will be available through August 22, 2018
and can be heard by dialing (877) 660-6853, passcode 13680536 or on the
investor relations portion of the company's website, located at investor.salemmedia.com.

Follow us on Twitter @SalemMediaGrp.

Third Quarter 2018 Outlook

For the third quarter of 2018, the company is projecting total revenue
to be between flat and an increase of 2% from third quarter 2017 total
revenue of $65.4 million. The company is also projecting operating
expenses before gains or losses on the disposition of assets,
stock-based compensation expense, changes in the estimated fair value of
contingent earn-out consideration, impairments, depreciation expense and
amortization expense to be between a decline of 2% and an increase of 1%
compared to the third quarter of 2017 non-GAAP operating expenses of
$55.9 million.

A reconciliation of non-GAAP operating expenses, excluding gains or
losses on the disposition of assets, stock-based compensation expense,
changes in the estimated fair value of contingent earn-out
consideration, impairments, depreciation expense and amortization
expense to the most directly comparable GAAP measure is not available
without unreasonable efforts on a forward-looking basis due to the
potential high variability, complexity and low visibility with respect
to the charges excluded from this non-GAAP financial measure, in
particular, the change in the estimated fair value of earn-out
consideration, impairments and gains or losses from the disposition of
fixed assets. The company expects the variability of the above charges
may have a significant, and potentially unpredictable, impact on its
future GAAP financial results.

About Salem Media Group, Inc.

Salem Media Group is America's leading multimedia company specializing
in Christian and conservative content, with media properties comprising
radio, digital media and book and newsletter publishing. Each day Salem
serves a loyal and dedicated audience of listeners and readers numbering
in the millions nationally. With its unique programming focus, Salem
provides compelling content, fresh commentary and relevant information
from some of the most respected figures across the Christian and
conservative media landscape.

The company is the largest commercial U.S. radio broadcasting company
providing Christian and conservative programming. Salem owns and/or
operates 118 radio stations, with 73 stations in the top 25 media
markets. Salem Radio Network ("SRN") is a full-service national radio
network, with nationally syndicated programs comprising Christian
teaching and talk, conservative talk, news, and music. SRN is home to
many industry-leading hosts including: Hugh Hewitt, Mike Gallagher,
Dennis Prager, Michael Medved, Larry Elder, Joe Walsh and Eric Metaxas.

Salem's digital media is a leading source of Christian and conservative
themed news, analysis, and commentary. Salem's Christian sites include:
BibleStudyTools.com, Crosswalk.com, GodVine.com, ibelieve.com,
GodTube.com, OnePlace.com™, Christianity.com™, churchstaffing.com™, and
WorshipHouseMedia.com. Salem's conservative sites include Townhall.com®,
HotAir.com, Twitchy.com, RedState.com and BearingArms.com.

Salem's Regnery Publishing unit, with a history dating back to 1947, is
the nation's leading independent publisher of conservative books. Having
published many of the seminal works of the early conservative movement,
Regnery today continues as a major publisher in the conservative space,
with leading authors including: David Limbaugh, Sebastian Gorka, Ed
Klein, Mark Steyn, and Second Lady Karen Pence. Salem's book publishing
business also includes Salem Author Services, a self-publishing service
for authors through Xulon Press™, Mill City Press and Bookprinting.com.

Salem's Eagle Financial Publications provides general market analysis
and non-individualized investment strategies from financial commentators
Mark Skousen, Bob Carlson, Jim Woods, Bryan Perry, Mike Turner and
Hilary Kramer, as well as a stock screening website for dividend
investors (DividendInvestor.com). The business unit's other investing
websites include StockInvestor.com, TradersCrux.com and
RetirementWatch.com.

Eagle Wellness, through its website newportnaturalhealth.com, provides
insightful health advice and is a trusted source of high quality
nutritional supplements.

Forward-Looking Statements

Statements used in this press release that relate to future plans,
events, financial results, prospects or performance are forward-looking
statements as defined under the Private Securities Litigation Reform Act
of 1995. Actual results may differ materially from those anticipated as
a result of certain risks and uncertainties, including but not limited
to the ability of Salem to close and integrate announced transactions,
market acceptance of Salem's radio station formats, competition from new
technologies, adverse economic conditions, and other risks and
uncertainties detailed from time to time in Salem's reports on Forms
10-K, 10-Q, 8-K and other filings filed with or furnished to the
Securities and Exchange Commission. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as
of the date hereof. Salem undertakes no obligation to update or revise
any forward-looking statements to reflect new information, changed
circumstances or unanticipated events.

(1) Regulation G

Management uses certain non-GAAP financial measures defined below in
communications with investors, analysts, rating agencies, banks and
others to assist such parties in understanding the impact of various
items on its financial statements.
The company uses these
non-GAAP financial measures to evaluate financial results, develop
budgets, manage expenditures and as a measure of performance under
compensation programs.

The company's presentation of these non-GAAP financial measures
should not be considered as a substitute for or superior to the most
directly comparable financial measures as reported in accordance with
GAAP.

Regulation G defines and prescribes the conditions under which
certain non-GAAP financial information may be presented in this earnings
release.
The company closely monitors EBITDA, Adjusted EBITDA,
Station Operating Income ("SOI"), Same Station net broadcast revenue,
Same Station broadcast operating expenses, Same Station Operating
Income, Digital Media Operating Income, Publishing Operating Income
(Loss), and operating expenses excluding gains or losses on the
disposition of assets, stock-based compensation, changes in the
estimated fair value of contingent earn-out consideration, impairments,
depreciation and amortization, all of which are non-GAAP financial
measures.
The company believes that these non-GAAP financial
measures provide useful information about its core operating results,
and thus, are appropriate to enhance the overall understanding of its
financial performance.
These non-GAAP financial measures are
intended to provide management and investors a more complete
understanding of its underlying operational results, trends and
performance.

The company defines Station Operating Income ("SOI") as net broadcast
revenue minus broadcast operating expenses. The company defines Digital
Media Operating Income as net Digital Media Revenue minus Digital Media
Operating Expenses.
The company defines Publishing Operating
Income (Loss) as net Publishing Revenue minus Publishing Operating
Expenses.
The company defines EBITDA as net income before
interest, taxes, depreciation, and amortization.
The company
defines Adjusted EBITDA as EBITDA before gains or losses on the
disposition of assets, before changes in the estimated fair value of
contingent earn-out consideration, before changes in the fair value of
interest rate swap, before impairments, before net miscellaneous income
and expenses, before gain on bargain purchase, before (gain) loss on
early retirement of long-term debt and before non-cash compensation
expense.
SOI, Digital Media Operating Income, Publishing
Operating Income (Loss), EBITDA and Adjusted EBITDA are commonly used by
the broadcast and media industry as important measures of performance
and are used by investors and analysts who report on the industry to
provide meaningful comparisons between broadcasters.
SOI, Digital
Media Operating Income, Publishing Operating Income (Loss), EBITDA and
Adjusted EBITDA are not measures of liquidity or of performance in
accordance with GAAP and should be viewed as a supplement to and not a
substitute for or superior to its results of operations and financial
condition presented in accordance with GAAP.
The company's
definitions of SOI, Digital Media Operating Income, Publishing Operating
Income (Loss), EBITDA and Adjusted EBITDA are not necessarily comparable
to similarly titled measures reported by other companies.

The company defines Adjusted Free Cash Flow as Adjusted EBITDA less
cash paid for capital expenditures, less cash paid for income taxes, and
less cash paid for interest.
The company considers Adjusted Free
Cash Flow to be a liquidity measure that provides useful information to
management and investors about the amount of cash generated by its
operations after cash paid for capital expenditures, cash paid for
income taxes and cash paid for interest.
A limitation of Adjusted
Free Cash Flow as a measure of liquidity is that it does not represent
the total increase or decrease in its cash balance for the period.
The
company uses Adjusted Free Cash Flow, a non-GAAP liquidity measure, both
in presenting its results to stockholders and the investment community,
and in its internal evaluation and management of the business.
The
company's presentation of Adjusted Free Cash Flow is not intended to be
considered in isolation or as a substitute for the financial information
prepared and presented in accordance with GAAP.
The company's
definition of Adjusted Free Cash Flow is not necessarily comparable to
similarly titled measures reported by other companies.

The company defines Same Station net broadcast revenue as broadcast
revenue from its radio stations and networks that the company owns or
operates in the same format on the first and last day of each quarter,
as well as the corresponding quarter of the prior year.
The
company defines Same Station broadcast operating expenses as broadcast
operating expenses from its radio stations and networks that the company
owns or operates in the same format on the first and last day of each
quarter, as well as the corresponding quarter of the prior year.
The
company defines Same Station SOI as Same Station net broadcast revenue
less Same Station broadcast operating expenses.
Same Station
operating results include those stations that the company owns or
operates in the same format on the first and last day of each quarter,
as well as the corresponding quarter of the prior year.
Same
Station operating results for a full calendar year are calculated as the
sum of the Same Station-results for each of the four quarters of that
year.
The company uses Same Station operating results, a non-GAAP
financial measure, both in presenting its results to stockholders and
the investment community, and in its internal evaluations and management
of the business.
The company believes that Same Station operating
results provide a meaningful comparison of period over period
performance of its core broadcast operations as this measure excludes
the impact of new stations, the impact of stations the company no longer
owns or operates, and the impact of stations operating under a new
programming format.
The company's presentation of Same Station
operating results are not intended to be considered in isolation or as a
substitute for the financial information prepared and presented in
accordance with GAAP.
The company's definition of Same Station
operating results is not necessarily comparable to similarly titled
measures reported by other companies.

For all non-GAAP financial measures, investors should consider the
limitations associated with these metrics, including the potential lack
of comparability of these measures from one company to another.

The Supplemental Information tables that follow the condensed
consolidated financial statements provide reconciliations of the
non-GAAP financial measures that the company uses in this earnings
release to the most directly comparable measures calculated in
accordance with GAAP.
The company uses non-GAAP financial
measures to evaluate financial performance, develop budgets, manage
expenditures, and determine employee compensation.
The company's
presentation of this additional information is not to be considered as a
substitute for or superior to the directly comparable measures as
reported in accordance with GAAP.

Salem Media Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
             
Three Months Ended Six Months Ended
June 30, June 30,
2017       2018 2017       2018
(Unaudited)
Net broadcast revenue $ 49,251 $ 50,563 $ 97,055 $ 98,613
Net digital media revenue 10,866 10,260 21,552 20,654
Net publishing revenue   5,995     5,449     12,485     10,800  
Total revenue   66,112     66,272     131,092     130,067  
Operating expenses:
Broadcast operating expenses 35,931 37,243 71,767 72,993
Digital media operating expenses 8,370 8,397 17,072 16,771
Publishing operating expenses 5,668 5,522 12,019 11,109
Unallocated corporate expenses 3,825 4,030 8,950 7,951
Change in the estimated fair value of contingent earn-out
consideration
(43 ) 72 (42 ) 72
Impairment of indefinite-lived long-term assets other than goodwill 19
Depreciation and amortization 4,252 4,511 8,374 8,998
(Gain) loss on the disposition of assets   (510 )   5,154     (505 )   5,159  
Total operating expenses   57,493     64,929     117,654     123,053  
Operating income 8,619 1,343 13,438 7,014
Other income (expense):
Interest income 1 2 2
Interest expense (3,924 ) (4,754 ) (7,354 ) (9,272 )
Change in the fair value of interest rate swap 357
Gain (loss) on early retirement of long-term debt (2,734 ) 234 (2,775 ) 234
Net miscellaneous income and expenses       (88 )       (13 )
Net income (loss) before income taxes 1,962 (3,265 ) 3,668 (2,035 )
Provision for (benefit from) income taxes   690     (1,098 )   1,336     (696 )
Net income (loss) $ 1,272   $ (2,167 ) $ 2,332   $ (1,339 )
 
Basic earnings (loss) per share Class A and Class B common stock $ 0.05 $ (0.08 ) $ 0.09 $ (0.05 )
Diluted earnings (loss) per share Class A and Class B common stock $ 0.05 $ (0.08 ) $ 0.09 $ (0.05 )
 
Distributions per share Class A and Class B common stock $ 0.07 $ 0.07 $ 0.13 $ 0.13
 
Basic weighted average Class A and Class B common stock shares
outstanding
  26,062,403     26,177,247     25,982,102     26,174,393  
Diluted weighted average Class A and Class B common stock shares
outstanding
  26,593,366     26,177,247     26,442,146     26,174,393  
 
Salem Media Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
           
December 31, 2017 June 30, 2018
(Unaudited)
Assets
Cash $ 3 $ 9
Trade accounts receivable, net 32,545 32,577
Other current assets 14,172 20,018
Property and equipment, net 99,480 96,423
Intangible assets, net 420,755 410,258
Deferred financing costs 550 418
Deferred income taxes – non-current 1,070 1,070
Other assets   4,244   3,803
Total assets $ 572,819 $ 564,576
 
Liabilities and Stockholders' Equity
Current liabilities $ 42,149 $ 49,344
Long-term debt and capital lease obligations 249,579 240,260
Deferred income taxes 34,151 33,339
Other liabilities 15,659 14,900
Stockholders' Equity   231,281   226,733
Total liabilities and stockholders' equity $ 572,819 $ 564,576
 
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
      Six Months Ended June 30,
2017       2018
OPERATING ACTIVITIES
Net income (loss) $ 2,332 $ (1,339 )
Adjustments to reconcile net income to net cash provided by
operating activities:
Non-cash stock-based compensation 1,425 172
Depreciation and amortization 8,374 8,998
Amortization of deferred financing costs 357 587
Accretion of financing items 74
Accretion of acquisition-related deferred payments and contingent
consideration
24 18
Provision for bad debts 796 796
Deferred income taxes 1,272 (812 )
Change in the fair value of interest rate swap (357 )
Change in the estimated fair value of contingent earn-out
consideration
(42 ) 72
Impairment of indefinite-lived long-term assets other than goodwill 19
(Gain) loss on early retirement of long-term debt 2,775 (234 )
(Gain) loss on the disposition of assets (505 ) 5,159
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue 2,669 (1,099 )
Inventories (197 ) (223 )
Prepaid expenses and other current assets (804 ) (383 )
Accounts payable and accrued expenses (1,105 ) 488
Deferred rent expense 56 (166 )
Contract liabilities (405 ) (1,970 )
Other liabilities (15 ) (13 )
Income taxes payable   (164 )   20  
Net cash provided by operating activities   16,579     10,071  
INVESTING ACTIVITIES
Cash paid for capital expenditures net of tenant improvement
allowances
(4,768 ) (4,680 )
Capital expenditures reimbursable under tenant improvement
allowances and trade agreements
(52 ) (7 )
Escrow deposits paid related to acquisitions (42 ) (185 )
Escrow deposits received related to radio station sale 2,045
Purchases of broadcast assets and radio stations (130 ) (1,100 )
Purchases of digital media businesses and assets (310 ) (70 )
Proceeds from sale of assets 600 1,791
Other   (289 )   (399 )
Net cash used in investing activities   (4,991 )   (2,605 )
FINANCING ACTIVITIES
Payments under Term Loan B (263,000 )
Payments to redeem 6.75% Senior Secured Notes (9,550 )
Proceeds from borrowings under Revolver and ABL Facility 34,107 69,277
Payments on Revolver and ABL Facility (24,583 ) (66,374 )
Payment of interest rate swap (783 )
Proceeds from bond offering 255,000
Refund (payment) of debt issuance costs (6,368 ) 21
Payments of acquisition-related contingent earn-out consideration (14 ) (15 )
Payments of deferred installments due from acquisition activity (225 )
Proceeds from the exercise of stock options 455 21
Payments of capital lease obligations (62 ) (59 )
Payment of cash distribution on common stock (3,388 ) (3,402 )
Book overdraft   (2,838 )   2,621  
Net cash used in financing activities   (11,699 )   (7,460 )
Net increase in cash and cash equivalents (111 ) 6
Cash and cash equivalents at beginning of year   130     3  
Cash and cash equivalents at end of period $ 19   $ 9  
 
Salem Media Group, Inc.
Supplemental Information
(in thousands)
           
Three Months Ended Six Months Ended
June 30, June 30,
2017       2018 2017       2018
(Unaudited)
Reconciliation of Total Operating Expenses to Operating Expenses
excluding Gains or Losses on the Disposition of Assets, Stock-based
Compensation Expense, Changes in the Estimated Fair Value of
Contingent Earn-out Consideration, Impairments and Depreciation and
Amortization Expense (Recurring Operating Expenses)
Operating Expenses $ 57,493 $ 64,929 $ 117,654 $ 123,053
Less depreciation and amortization expense (4,252 ) (4,511 ) (8,374 ) (8,998 )
Less change in estimated fair value of contingent earn-out

consideration

43 (72 ) 42 (72 )
Less impairment of indefinite-lived long-term assets other than
goodwill
(19 )
Less gain (loss) on the disposition of assets 510 (5,154 ) 505 (5,159 )
Less stock-based compensation expense   (44 )   (126 )   (1,425 )   (172 )
Total Recurring Operating Expenses $ 53,750   $ 55,066   $ 108,383   $ 108,652  
 
Reconciliation of Net Broadcast Revenue to Same Station Net
Broadcast Revenue
Net broadcast revenue $ 49,251 $ 50,563 $ 97,055 $ 98,613
Net broadcast revenue – acquisitions (231 ) (430 )
Net broadcast revenue – dispositions (175 ) (64 ) (294 ) (231 )
Net broadcast revenue – format change   (681 )   (441 )   (1,311 )   (862 )
Same Station net broadcast revenue $ 48,395   $ 49,827   $ 95,450   $ 97,090  
 
Reconciliation of Broadcast Operating Expenses to Same Station
Broadcast Operating Expenses
Broadcast operating expenses $ 35,931 $ 37,243 $ 71,767 $ 72,993
Broadcast operating expenses – acquisitions (395 ) (725 )
Broadcast operating expenses – dispositions (364 ) (79 ) (569 ) (232 )
Broadcast operating expenses – format change   (705 )   (656 )   (1,377 )   (1,342 )
Same Station broadcast operating expenses $ 34,862   $ 36,113   $ 69,821   $ 70,694  
 
Reconciliation of SOI to Same Station SOI
Station Operating Income $ 13,320 $ 13,320 $ 25,288 $ 25,620
Station operating loss – acquisitions 164 295
Station operating loss – dispositions 189 15 275 1
Station operating loss – format change   24     215     66     480  
Same Station - Station Operating Income $ 13,533   $ 13,714   $ 25,629   $ 26,396  
 
Salem Media Group, Inc.
Supplemental Information
(in thousands)
           
Three Months Ended Six Months Ended
June 30, June 30,
2017       2018 2017       2018
(Unaudited)
Calculation of Station Operating Income, Digital Media Operating
Income and Publishing Operating Income (Loss)
Net broadcast revenue $ 49,251 $ 50,563 $ 97,055 $ 98,613
Less broadcast operating expenses   (35,931 )   (37,243 )   (71,767 )   (72,993 )
Station Operating Income $ 13,320   $ 13,320   $ 25,288   $ 25,620  
 
Net digital media revenue $ 10,866 $ 10,260 $ 21,552 $ 20,654
Less digital media operating expenses   (8,370 )   (8,397 )   (17,072 )   (16,771 )
Digital Media Operating Income $ 2,496   $ 1,863   $ 4,480   $ 3,883  
 
Net publishing revenue $ 5,995 $ 5,449 $ 12,485 $ 10,800
Less publishing operating expenses   (5,668 )   (5,522 )   (12,019 )   (11,109 )
Publishing Operating Income (Loss) $ 327   $ (73 ) $ 466   $ (309 )
 

The company defines EBITDA (1) as net income before interest, taxes,
depreciation, and amortization. The table below presents a
reconciliation of EBITDA (1) to Net Income, the most directly comparable
GAAP measure. EBITDA (1) is a non-GAAP financial performance measure
that is not to be considered a substitute for or superior to the
directly comparable measures reported in accordance with GAAP.

Salem Media Group, Inc.
Supplemental Information
(in thousands)
           
Three Months Ended Six Months Ended
June 30, June 30,
2017       2018 2017       2018
(Unaudited)
Net income (loss) $ 1,272 $ (2,167 ) $ 2,332 $ (1,339 )
Plus interest expense, net of capitalized

interest

3,924 4,754 7,354 9,272
Plus provision for (benefit from)

income taxes

690 (1,098 ) 1,336 (696 )
Plus depreciation and amortization 4,252 4,511 8,374 8,998
Less interest income   (1 )       (2 )   (2 )
EBITDA $ 10,137   $ 6,000   $ 19,394   $ 16,233  
 

The company defines Adjusted EBITDA (1) as EBITDA (1) before gains or
losses on the disposition of assets, before changes in the estimated
fair value of contingent earn-out consideration, before changes in the
fair value of interest rate swap, before impairments, before net
miscellaneous income and expenses, before (gain) loss on early
retirement of long-term debt and before non-cash compensation expense.
The table below presents a reconciliation of Adjusted EBITDA (1) to Net
Income, the most directly comparable GAAP measure. Adjusted EBITDA (1)
is a non-GAAP financial performance measure that is not to be considered
a substitute for or superior to the directly comparable measures
reported in accordance with GAAP.

Salem Media Group, Inc.
Supplemental Information
(in thousands)
                     
Three Months Ended Six Months Ended
June 30, June 30,
2017 2018 2017 2018
(Unaudited)
Net income (loss) $ 1,272 $ (2,167 ) $ 2,332     $ (1,339 )
Plus interest expense, net of capitalized interest 3,924 4,754 7,354 9,272
Plus provision for (benefit from) income taxes 690 (1,098 ) 1,336 (696 )
Plus depreciation and amortization 4,252 4,511 8,374 8,998
Less interest income   (1 )       (2 )   (2 )
EBITDA $ 10,137   $ 6,000   $ 19,394   $ 16,233  
Less (gain) loss on the disposition of assets (510 ) 5,154 (505 ) 5,159
Less change in the estimated fair value of contingent

earn-out consideration

(43 ) 72 (42 ) 72
Plus impairment of indefinite-lived

long-term assets other than goodwill

19
Plus change in the fair value of interest rate swap (357 )
Plus (gain) loss on early retirement of long- term

debt

2,734 (234 ) 2,775 (234 )
Plus net miscellaneous income and expenses 88 13
Plus non-cash stock-based compensation   44     126     1,425     172  
Adjusted EBITDA $ 12,362   $ 11,206   $ 22,709   $ 21,415  
 

The company defines Adjusted Free Cash Flow (1) as Adjusted EBITDA (1)
less cash paid for capital expenditures, less cash paid for income
taxes, and less cash paid for interest. The company considers Adjusted
Free Cash Flow to be a liquidity measure that provides useful
information to management and investors about the amount of cash
generated by its operations after cash paid for capital expenditures,
cash paid for income taxes and cash paid for interest. A limitation of
Adjusted Free Cash Flow as a measure of liquidity is that it does not
represent the total increase or decrease in its cash balance for the
period. The company uses Adjusted Free Cash Flow, a non-GAAP liquidity
measure, both in presenting its results to stockholders and the
investment community, and in its internal evaluation and management of
the business. The company's presentation of Adjusted Free Cash Flow is
not intended to be considered in isolation or as a substitute for the
financial information prepared and presented in accordance with GAAP.
The company's definition of Adjusted Free Cash Flow is not necessarily
comparable to similarly titled measures reported by other companies.

The table below presents a reconciliation of Adjusted Free Cash Flow to
net cash provided by operating activities, the most directly comparable
GAAP measure. Adjusted Free Cash Flow is a non-GAAP liquidity measure
that is not to be considered a substitute for or superior to the
directly comparable measures reported in accordance with GAAP.

Salem Media Group, Inc.
Supplemental Information
(in thousands)
           
Three Months Ended Six Months Ended
June 30, June 30,
2017       2018 2017       2018
(Unaudited)
Net cash provided (used) by operating activities $ 7,542 $ (2,802 ) $ 16,579 $ 10,071
Non-cash stock-based compensation (44 ) (126 ) (1,425 ) (172 )
Depreciation and amortization (4,252 ) (4,511 ) (8,374 ) (8,998 )
Amortization of deferred financing costs (208 ) (317 ) (357 ) (587 )
Accretion of financing items (26 ) (74 )
Accretion of acquisition-related deferred payments and

contingent earn-out consideration

(12 ) (2 ) (24 ) (18 )
Provision for bad debts (408 ) (650 ) (796 ) (796 )
Deferred income taxes (648 ) 1,194 (1,272 ) 812
Change in the fair value of interest rate swap 357
Change in the estimated fair value of contingent earn-out

consideration

43 (72 ) 42 (72 )
Impairment of indefinite-lived long-term assets other than

goodwill

(19 )
Gain (loss) on the disposition of assets 510 (5,154 ) 505 (5,159 )
Gain (loss) on early retirement of debt (2,734 ) 234 (2,775 ) 234
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue 135 2,275 (2,669 ) 1,099
Inventories 26 145 197 223
Prepaid expenses and other current assets 947 314 804 383
Accounts payable and accrued expenses (198 ) 6,141 1,105 (488 )
Contract liabilities 418 1,032 405 1,970
Deferred rent expense (30 ) 24 (56 ) 166
Other liabilities 13 13 15 13
Income taxes payable   198     95     164     (20 )
Net income (loss) $ 1,272   $ (2,167 ) $ 2,332   $ (1,339 )
Plus interest expense, net of capitalized interest 3,924 4,754 7,354 9,272
Plus provision for (benefit from) income taxes 690 (1,098 ) 1,336 (696 )
Plus depreciation and amortization 4,252 4,511 8,374 8,998
Less interest income   (1 )       (2 )   (2 )
EBITDA $ 10,137   $ 6,000   $ 19,394   $ 16,233  
Plus (gain) loss on the disposition of assets (510 ) 5,154 (505 ) 5,159
Plus change in the estimated fair value of contingent earn-out

consideration

(43 ) 72 (42 ) 72
Plus impairment of indefinite-lived long-term assets other than

goodwill

19
Plus change in the fair value of interest rate swap (357 )
Plus (gain) loss on the early retirement of long-term debt 2,734 (234 ) 2,775 (234 )
Plus net miscellaneous income and expenses 88 13
Plus non-cash stock-based compensation   44     126     1,425     172  
Adjusted EBITDA $ 12,362   $ 11,206   $ 22,709   $ 21,415  
Less net cash paid for capital expenditures (1) (2,182 ) (2,208 ) (4,768 ) (4,680 )
Plus cash received for taxes (241 ) (190 ) (211 ) (95 )
Less cash paid for interest, net of capitalized interest   (1,605 )   (8,600 )   (4,849 )   (8,650 )
Adjusted Free Cash Flow $ 8,334   $ 208   $ 12,881   $ 7,990  
 
(1) Net cash paid for capital expenditures reflects actual cash
payments net of cash reimbursements under tenant improvement
allowances and net of property and equipment acquired in trade
transactions.
 
Selected Debt Data       Outstanding at      

Applicable
Interest Rate

June 30, 2018
Senior Secured Notes due 2024 (1) $ 245,000,000 6.75 %
Asset-based revolving credit facility (2) 2,903,049 5.50 %
Asset-based revolving credit facility (2) 3,000,000 3.56 %
Asset-based revolving credit facility (2) 6,000,000 3.50 %
(1) $245.0 million notes with semi-annual interest payments at an
annual rate of 6.75%.
(2) Outstanding borrowings under the ABL Facility, with interest
payments due at LIBOR plus 1.5% to 2.0% per annum or prime rate plus
0.5% to 1.0% per annum.

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