Salem(SALM) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements for H1 2022 show net income surged to $10.9 million, driven by revenue growth, asset sales, and equity investment earnings, with stable assets and reduced liabilities Condensed Consolidated Balance Sheets Total assets slightly decreased to $515.3 million as of June 30, 2022, while total liabilities reduced to $325.9 million, increasing stockholders' equity to $189.3 million Balance Sheet Highlights (in thousands) | Balance Sheet Highlights (in thousands) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $47,667 | $41,514 | | Broadcast Licenses | $313,500 | $320,008 | | Total Assets | $515,269 | $516,112 | | Total Current Liabilities | $56,161 | $51,455 | | Long-term Debt, less current portion | $155,595 | $170,581 | | Total Liabilities | $325,934 | $337,901 | | Total Stockholders' Equity | $189,335 | $178,211 | Condensed Consolidated Statements of Operations Net income for Q2 2022 surged to $9.1 million on $68.7 million revenue, driven by asset gains and equity investment earnings, with H1 net income reaching $10.9 million Income Statement Highlights (in thousands) | Income Statement Highlights (in thousands) | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Net Revenue | $68,682 | $63,782 | $131,291 | $123,135 | | Operating Income | $7,328 | $5,641 | $12,302 | $9,997 | | Net (gain) loss on disposition of assets | $(6,893) | $(263) | $(8,628) | $55 | | Earnings from equity method investment | $3,913 | $— | $3,913 | $— | | Net Income | $9,117 | $2,257 | $10,856 | $2,580 | | Diluted EPS | $0.33 | $0.08 | $0.39 | $0.10 | Condensed Consolidated Statements of Cash Flows H1 2022 operating cash flow decreased to $7.8 million, while investing activities provided $8.3 million from asset sales, and financing used $15.4 million for debt repurchase Cash Flow Summary (in thousands) | Cash Flow Summary (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,800 | $10,197 | | Net cash provided by (used in) investing activities | $8,313 | $(3,200) | | Net cash provided by (used in) financing activities | $(15,358) | $6,536 | | Net increase in cash and cash equivalents | $755 | $13,533 | | Cash and cash equivalents at end of period | $2,540 | $19,858 | Notes to Condensed Consolidated Financial Statements Notes detail business segments, accounting policies, recent transactions, impairment charges on licenses and goodwill, and long-term debt structure - The company operates in three segments: Broadcast, Digital Media, and Publishing, specializing in Christian and conservative content[30] - The company invested in OneParty America LLC ("OPA"), which produced the documentary "2,000 Mules". This equity method investment generated $3.9 million in earnings for the company in Q2 2022[36][39] - During H1 2022, the company completed several transactions, including the sale of land in Denver for $8.2 million (pre-tax gain of $6.5 million) and the sale of radio stations in Louisville for $4.0 million (pre-tax gain of $0.5 million)[56][57] - Due to rising interest rates increasing the Weighted Average Cost of Capital (WACC), the company recorded a $3.9 million impairment charge on broadcast licenses and a $0.1 million charge on goodwill[101][106][114] - The company repurchased $15.5 million of its 2024 Notes for $15.4 million in cash during the first six months of 2022[261] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses H1 2022 financial performance, highlighting 6.6% revenue growth and a surge in net income to $10.9 million, driven by Broadcast segment strength, asset sales, and equity investment earnings Results of Operations H1 2022 total net revenue grew 6.6% to $131.3 million, with Broadcast revenue up 11.1%, driving net income to $10.9 million despite impairment charges Revenue by Segment (in thousands) | Revenue by Segment (in thousands) | H1 2022 | H1 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Broadcast Revenue | $100,884 | $90,831 | 11.1% | | Net Digital Media Revenue | $21,104 | $19,958 | 5.7% | | Net Publishing Revenue | $9,303 | $12,346 | (24.6)% | | Total Net Revenue | $131,291 | $123,135 | 6.6% | - Broadcast revenue growth was driven by increases in block programming (+$3.3 million), advertising (+$2.7 million), and digital revenue (+$3.3 million), reflecting higher demand as pandemic restrictions eased[264][265][266] - Publishing revenue declined primarily due to a $2.7 million (36.6%) decrease in net book sales from Regnery Publishing, reflecting lower volume and average price per unit compared to the prior year[278] - The company recorded impairment charges totaling $4.1 million in H1 2022 ($3.9 million for broadcast licenses, $0.1 million for goodwill) due to rising interest rates and changes in macroeconomic conditions[290][292] Liquidity and Capital Resources H1 2022 operating cash flow decreased to $7.8 million, offset by $14.2 million from asset sales, with $15.4 million used for debt repurchase, leaving $24.0 million ABL availability - Net cash from operating activities decreased by $2.4 million in H1 2022 compared to H1 2021, primarily due to a $10.2 million increase in operating expenses and a $3.6 million increase in accounts receivable[309] - The company is actively deleveraging, having repurchased $15.5 million principal of its 2024 Notes in H1 2022. Total long-term debt principal outstanding was $159.4 million at June 30, 2022[261][342] - As of June 30, 2022, the company had $24.0 million in borrowing availability under its Asset-Based Revolving Credit Facility (ABL)[317][337] - The company invested $3.5 million in and received a full return of its $4.5 million investment from OneParty America LLC ("OPA"), the entity behind the documentary "2,000 Mules"[310] Item 3. Quantitative and Qualitative Disclosures About Market Risk Disclosure regarding market risk is not provided as the company qualifies as a smaller reporting company - Disclosure about market risk is not required as Salem Media Group, Inc. qualifies as a smaller reporting company[348] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - The company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of the end of the reporting period[348] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[349] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, which management expects will not materially impact its financial position or operations - The company is involved in various legal proceedings in the normal course of business but does not expect them to have a material adverse effect on its financial condition[351] Item 1A. Risk Factors Disclosure of risk factors is not required as the company qualifies as a smaller reporting company - Disclosure of risk factors is not required as Salem Media Group, Inc. qualifies as a smaller reporting company[352] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - None reported[353] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported by the company during the period - None reported[354] Item 5. Other Information No other information required for disclosure under this item was reported by the company - None reported[356] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - The report includes certifications from the CEO and CFO as required by the Exchange Act and U.S.C. Section 1350, as well as XBRL financial data[358]