Transcripts
Salem Media Group, Inc. (SALM) Q1 2023 Earnings Call Transcript
Operator
Yes.
Michael Kupinski
Can you hear me?
Evan Masyr
Yes.
David Santrella
Yes. We can hear you.
Michael Kupinski
Yes. Okay. I have a couple of clarifications. First of all, you mentioned that national spot decreased. How much in local was down? How much in the quarter? Can you just repeat that for me, please?
David Santrella
Yes. Let me get back there. So national spot increased, Michael, 20.7%, whereas local spot decreased by 8.3%.
Michael Kupinski
Got you. Okay. A couple of questions here. So you’ve obviously been building up Miami, and that seems like a unique opportunity. Can you discuss how the market is performing? And if you can give us some thoughts. I know there’s a unique opportunity there in that market. And I was wondering if you think that those stations that you’ve acquired will swing profitable, more probably sooner than what you normally have as benchmarks for station acquisitions.
David Santrella
Yes. Well, you’re right, Michael. We do think it’s a great opportunity in Miami based on some other dynamics specific to that market that have taken place. And we’re pleased with the revenue growth we’ve seen already in that market. We’ve got a great leader in that market in Monica Rabassa, and we’re pleased with what she’s been doing. We’re also pleased with some other strategic moves we’ve made as of late there. In terms of the speed with which we’ll get to profitability, right now, I would say that we’re optimistic that we’ll become profitable more quickly than our pro formas we’re showing, but I would say that right now, that’s cautious optimism.
Michael Kupinski
Okay. And then can you just discuss the nature of the expense increases? And I know a lot of that has to do with Salem News. But can you kind of give us some thought process about how you’re investing the money at this point? When will you start cycling the expense for Salem News? And just kind of give us a thought about how expenses should look for the balance of the year?
David Santrella
Yes. And Evan and David can also chime in here. But overall, Michael, we made a decision that we would use 2023 as an investment year in our digital infrastructure and in some other aspects of what we’re doing in terms of digital advertising and digital revenue generation.
So for instance, we’ve hired a number of people with the specialty in social media marketing that are working with all of our network hosts and our podcast hosts on more effective social media marketing for them to build bigger audiences because bigger audiences mean more episode downloads on the podcast side, and that means more revenue for us. On the Salem News Channel, a number of positions that we needed to fill. And so some of them on the social media side, other and other audience building aspects of the video business, particular in over — in an OTT world as well as just other technical positions that we needed to hire for. So all of that, we believe, is building a better future but comes with pain in the current year.
David Evans
And in terms of cycling through those additional expenses, those additional investments, I’d tell you looking at Q1 of next year.
Michael Kupinski
Okay. And then if you could just talk a little bit about the revenues that declined to 5% to 7%. Is there any one piece of that, that maybe — I know that typically you don’t break out the segments, but and how each are performing. But I was just wondering if you can kind of just parse out for us what might be driving the nature of the expense decline or the revenue decline in the quarter? And then just give us a little added color, if you can.
David Evans
I think it’s the area of weakness, it’s no surprise local spot and the weakest advertising category, again, no surprise is mortgages.
David Santrella
Right.
Michael Kupinski
Yes. And then is there anything in particular in terms of the nature of the environment right now? I mean, can you kind of give us the tone of the advertising environment in general?
David Santrella
Well, I think we need to be smarter than ever when it comes to prospecting for business. It’s coming right now from a lot of new business generation, and you’ve got to be really smart because even — when business gets a little tough, even radio stations that have been traditionally more reliant on agency-based business start going more aggressively after direct business. So the competition heats up in the direct business. And so it creates a need to be smarter than ever in terms of how we prospect for that business and what our presentations look like and a lot of focus there.
David Evans
Advertisers, they’re concerned about the economy. They’re concerned about the government’s response to the state of the economy, the Fed’s response to the state of the economy. So advertisers are spending cautiously, delaying decisions. So it’s a tough environment.
David Santrella
Yes, Michael, it is probably interesting that one of the advertising categories that grew in Q1 was auto parts. And that’s typically not a huge category for us, but people are hanging on to their cars. There’s not really deals to be found on new cars right now. People are less confident about spending their money. And so they’re fixing their cars, which means auto parts are going up, some interesting piece of information.
Michael Kupinski
Yes. And then you mentioned about $5 million annual savings from some cost cuts that you initiated in the first quarter. Would that be evenly split? Are you saying for full year 2023 or on an annualized basis? And if you could just tell us how do you think that will — how much of the cost savings are in your guidance for Q2? And then — or when do you think most of that will fall in terms of the expense savings?
David Evans
Yes. I would say that’s an annual number. So figure — we took most of that action in late March, very late March, you will see that kind of split evenly over the next 4 quarters. So that’s what’s in our guidance for the first quarter.
David Santrella
Michael, you might be the only question we could get on the phone. Do we have another — do we have another question, Evan, can we get on…
Operator
Our next question comes from the line of Edward Reily from EF Hutton.
Edward Reily
Can you hear me?
David Santrella
We can.
Edward Reily
Just wondering if you’ve been getting any inquiries for political advertising for next year yet? And maybe if we should anticipate any at the back half of this year?
David Santrella
I would say inquiries is probably too strong word. There’s a lot of kind of spade work being done politically right now, both by us as well as by the campaigns and the PAC’s, so we’re not at the point yet where we’re getting an RFP, or request for proposal, but a lot of questions going back and forth and some conversations taking place.
David Evans
And we do expect political revenue coming in Q3 and Q4. I think the Republican debates kick off in August, and there’ll be a series of debates from August through the end of the year. So presumably, there’ll be a bunch of candidates running, and they’ll want to mark it to our audience.
Edward Reily
Okay. Great. And wondering if you can maybe break down second quarter outlook by business segment in a little bit more granular fashion, if you could.
David Santrella
Yes, we don’t usually break that down by segment when we give guidance. We just give overall. I can tell you one of the drivers to the decline is publishing has a lighter schedule in Q2 of ’23 than Q2 of ’22. And so that is a bigger decline there than we’re seeing in other areas of the business.
David Evans
The strongest area continues to be digital.
Operator
Our next question comes from the line of David Marsh from Singular Research.
David Marsh
Can you hear me?
David Santrella
Not the first issue I’ve had with Chorus this earnings season, maybe I should buy some AT&T common stock.
David Marsh
I was wondering if you can provide us with a liquidity update, Evan. And just with regard to the balance of the year, it looks like it’s going to be kind of a tough free cash flow year this year, but you feel like you have adequate liquidity to get through the year until the political stuff starts kicking in.
Evan Masyr
Yes. Dave, we’re certainly looking at liquidity. We do have the asset base line, which will provide liquidity for the rest of the year. We also are looking at some asset sales where it makes sense. We’ve been pretty opportunistic on some sales in the last few years, and we’re looking at what else we might be able to monetize, in particular with respect to real estate as we’ve done in the past.
David Marsh
That actually dovetails nicely into my follow-on question, which was going to be around what assets you may be considering selling? With regard to real estate, in particular, are you still seeing pretty decent bids for assets in the real estate space in terms of relative to what you own? And then would you look at perhaps divesting anything else? And if so, what would be kind of the pecking order in terms of types of things that you might look to divest?
Evan Masyr
Well, I think the math is whether it’s real estate or a business is still kind of the same. It’s how much value can we get versus what are we giving up in the way of free cash flow. So whether it be one of our radio station or whether it be real estate, where maybe we even do a sale leaseback and have to pay a rent, it’s kind of that same math that we’re looking at. So we’re looking at what’s the most attractive for us, giving up the least amount of free cash flow. And when we have something more concrete, we’ll certainly provide an update.
David Marsh
And the last question I have, I just was curious, I picked up in the press release on the bullet about the $1.5 million invested in the LLC for the motion picture. Could you give us a little bit more color around that and what the timing — expected timing of that production might be and so on?
David Evans
So if you recall, last year, we invested in a movie with Dinesh D’Souza, 2,000 Mules. We were the executive producer and the sole financier of that movie. It was a tremendous success for us. So we agreed with Dinesh that we would, again, take that role for his next movie tentatively scheduled for early 2024, more news to come on the precise topic. But we’re very excited to be partnered with Dinesh again. Last movie was a great success, and we’re looking forward to another great success with him.
Operator
I would now like to turn the call over to David Santrella for closing remarks.
David Santrella
Okay. Well, I guess my closing remarks, so sorry the call was such a technical trial today, and thanks for being here. We’ll talk to you again next quarter. And hopefully, we’ll have a better conference call experience. Bye.
Operator
Thank you, ladies and gentlemen. This does conclude today’s call. Thank you for your participation. You may now disconnect.