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SALEM MEDIA GROUP, INC. /DE/ - Quarter Report: 2022 March (Form 10-Q)

Table of Contents
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
                    
TO
                    
COMMISSION FILE NUMBER
000-26497
SALEM MEDIA GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
 
 
LOGO
 
DELAWARE
 
77-0121400
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
 
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
   
6400 NORTH BELT LINE ROAD
IRVING, TEXAS
 
75063
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
(ZIP CODE)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (469)
586-0080
 
Title of each Class
 
Trading Symbol(s)
 
Name of each exchange
on which registered
Class A Common Stock, $0.01 par value per share
 
SALM
 
NASDAQ Global Market
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer  
       
Non-accelerated
filer
     Smaller Reporting Company  
       
         Emerging Growth Company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class A
  
Outstanding at May 2, 2022
Common Stock, $0.01 par value per share    21,661,091 shares
   
Class B
  
Outstanding at May 2, 2022
Common Stock, $0.01 par value per share    5,553,696 shares
 
 
 

Table of Contents
SALEM MEDIA GROUP, INC.
INDEX
 
     PAGE NO.  
COVER PAGE
        
INDEX
        
     2  
PART I - FINANCIAL INFORMATION
        
     3  
     29  
     46  
     46  
PART II - OTHER INFORMATION
        
     47  
     47  
     47  
     47  
     47  
     47  
     47  
     47  
     49  
 
1

Table of Contents
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

Table of Contents
PART I – FINANCIAL INFORMATION
SALEM MEDIA GROUP, INC.
 
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
3

Table of Contents
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)

                 
     December 31, 2021
(Note 1)
   
March 31, 2022

(Unaudited)
 
ASSETS
                
Current assets:
                
Cash and cash equivalents
   $ 1,785    
$
—  
 
Accounts receivable (net of allowances of $13,022 in 2021 and $7,856 in 2022)
     25,663    
 
28,000
 
Unbilled revenue
     3,406    
 
3,003
 
Other receivables (net of allowances of $455 in 2021 and 2022)
     1,377    
 
2,034
 
Inventories
     960    
 
1,371
 
Prepaid expenses
     6,772    
 
7,520
 
Assets held for sale
     1,551    
 
1,402
 
    
 
 
   
 
 
 
Total current assets
     41,514    
 
43,330
 
    
 
 
   
 
 
 
Notes receivable (net of allowance of $938 in 2021 and $882 in 2022)
     274    
 
205
 
Property and equipment (net of accumulated depreciation of $186,053 in 2021 and $188,960 in 2022)
     79,339    
 
80,262
 
Operating lease
right-of-use
assets
     43,560    
 
45,883
 
Financing lease
right-of-use
assets
     105    
 
102
 
Broadcast licenses
     320,008    
 
320,198
 
Goodwill
     23,986    
 
23,986
 
Amortizable intangible assets (net of accumulated amortization of $58,110 in 2021 and $58,444 in 2022)
     2,444    
 
2,110
 
Deferred financing costs
     843    
 
793
 
Other assets
     4,039    
 
6,789
 
    
 
 
   
 
 
 
Total assets
   $ 516,112    
$
523,658
 
    
 
 
   
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Accounts payable
   $ 2,661    
$
3,545
 
Accrued expenses
     12,006    
 
15,835
 
Accrued compensation and related expenses
     13,054    
 
10,699
 
Accrued interest
     1,030    
 
4,033
 
Contract liabilities
     12,294    
 
12,592
 
Deferred rent income
     157    
 
127
 
Income taxes payable
     1,544    
 
1,326
 
Current portion of operating lease liabilities
     8,651    
 
8,815
 
Current portion of financing lease liabilities
     58    
 
59
 
Current portion of long-term debt
     —      
 
—  
 
    
 
 
   
 
 
 
Total current liabilities
     51,455    
 
57,031
 
    
 
 
   
 
 
 
Long-term debt, less current portion
     170,581    
 
168,300
 
Operating lease liabilities, less current portion
     42,208    
 
44,715
 
Financing (capital) lease liabilities, less current portion
     65    
 
62
 
Deferred income taxes
     67,012    
 
67,007
 
Contract liabilities, long-term
     2,222    
 
2,060
 
Deferred rent income, less current portion
     3,772    
 
3,749
 
Other long-term liabilities
     586    
 
584
 
    
 
 
   
 
 
 
Total liabilities
     337,901    
 
343,508
 
    
 
 
   
 
 
 
Commitments and contingencies (Note 14)
                
Stockholders’ Equity:
                
Class A common stock, $0.01 par value; authorized 80,000,000 shares; 23,922,974 and 23,978,741 issued and 21,605,324 and 21,661,091 outstanding at December 31, 2021 and March 31, 2022, respectively
     232    
 
232
 
Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding at December 31, 2021 and March 31, 2022, respectively
     56    
 
56
 
Additional
paid-in
capital
     248,438    
 
248,638
 
Accumulated deficit
     (36,509  
 
(34,770
Treasury stock, at cost (2,317,650 shares at December 31, 2021 and March 31, 2022)
     (34,006  
 
(34,006
    
 
 
   
 
 
 
Total stockholders’ equity
     178,211    
 
180,150
 
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 516,112    
$
523,658
 
    
 
 
   
 
 
 
See accompanying notes
 
4

Table of Contents
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)
(Unaudited
)

                 
    
Three Months Ended
March 31,
 
    
2021
   
2022
 
Net broadcast revenue
   $ 44,048    
$
48,432
 
Net digital media revenue
     9,619    
 
10,300
 
Net publishing revenue
     5,686    
 
3,877
 
    
 
 
   
 
 
 
Total net revenue
     59,353    
 
62,609
 
    
 
 
   
 
 
 
Operating expenses:
                
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $443 and $447 for the three months ended March 31, 2021 and 2022, respectively, paid to related parties)
     33,343    
 
38,121
 
Digital media operating expenses, exclusive of depreciation and amortization shown below
     8,673    
 
8,473
 
Publishing operating expenses, exclusive of depreciation and amortization shown below
     5,205    
 
4,467
 
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $3 and $9 for the three months ended March 31, 2021 and 2022, respectively, paid to related parties)
     4,288    
 
4,810
 
Debt modification costs
     —      
 
228
 
Depreciation
     2,589    
 
2,942
 
Amortization
     581    
 
334
 
Change in the estimated fair value of contingent
earn-out
consideration
     —      
 
(5
Net (gain) loss on the disposition of assets
     318    
 
(1,735
    
 
 
   
 
 
 
Total operating expenses
     54,997    
 
57,635
 
    
 
 
   
 
 
 
Operating income
     4,356    
 
4,974
 
Other income (expense):
                
Interest income
     1    
 
—  
 
Interest expense
     (3,926  
 
(3,394
Loss on early retirement of long-term debt
     —      
 
(53
Net miscellaneous income and expenses
     22    
 
1
 
    
 
 
   
 
 
 
Net income before income taxes
     453    
 
1,528
 
Provision for (benefit from) income taxes
     130    
 
(211
    
 
 
   
 
 
 
Net income
   $ 323    
$
1,739
 
    
 
 
   
 
 
 
Basic earnings per share data:
                
Basic earnings per share Class A and Class B common stock
   $ 0.01    
$
0.06
 
Diluted earnings per share data:
                
Diluted earnings per share Class A and Class B common stock
   $ 0.01    
$
0.06
 
Basic weighted average Class A and Class B shares outstanding
     26,736,639    
 
27,177,375
 
    
 
 
   
 
 
 
Diluted weighted average Class A and Class B shares outstanding
     27,138,773    
 
27,610,407
 
    
 
 
   
 
 
 
See accompanying notes
 
5

SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share and per share data)

                                                                 
    
Class A
Common Stock
    
Class B Common
Stock
    
Additional

Paid-In

Capital
    
Accumulated
Deficit
   
Treasury
Stock
   
Total
 
    
Shares
    
Amount
    
Shares
    
Amount
 
Stockholders’ equity, December 31, 2020
     23,447,317      $ 227        5,553,696      $ 56      $ 247,025      $ (78,023   $ (34,006   $ 135,279  
Stock-based compensation
     —          —          —          —          78        —         —         78  
Options exercised
     185,782        2        —          —          390        —         —         392  
Net income
     —          —          —          —          —          323       —         323  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stockholders’ equity, March 31, 2021
     23,633,099      $ 229        5,553,696      $ 56      $ 247,493      $ (77,700   $ (34,006   $ 136,072  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
                                                                 
    
Class A
Common Stock
    
Class B
Common Stock
    
Additional

Paid-In

Capital
    
Accumulated
Deficit
   
Treasury
Stock
   
Total
 
    
Shares
    
Amount
    
Shares
    
Amount
 
Stockholders’ equity, December 31, 2021
  
 
23,922,974
 
  
$
232
 
  
 
5,553,696
 
  
$
56
 
  
$
248,438
 
  
$
(36,509
 
$
(34,006
 
$
178,211
 
Stock-based compensation
     —          —          —          —          106        —         —         106  
Options exercised
     40,913        —          —          —          94        —         —         94  
Lapse of restricted shares
     14,854        —          —          —          —          —         —         —    
Net income
     —          —          —          —          —          1,739       —         1,739  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stockholders’ equity, March 31, 2022
  
 
23,978,741
 
  
$
232
 
  
 
5,553,696
 
  
$
56
 
  
$
248,638
 
  
$
(34,770
 
$
(34,006
 
$
180,150
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
See accompanying notes
 
6

SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
                 
    
Three Months Ended

March 31,
 
    
2021
   
2022
 
OPERATING ACTIVITIES
                
Net income
   $ 323    
$
1,739
 
Adjustments to reconcile net income to net cash provided by operating activities:
                
Non-cash
stock-based compensation
     78    
 
106
 
Depreciation and amortization
     3,170    
 
3,276
 
Amortization of deferred financing costs
     213    
 
247
 
Non-cash
lease expense
     2,161    
 
2,202
 
Provision for bad debts
     (295  
 
(209
Deferred income taxes
     188    
 
(5
Change in the estimated fair value of contingent
earn-out
consideration
     —      
 
(5
Loss on early retirement of long-term debt
     —      
 
53
 
Net (gain) loss on the disposition of assets
     318    
 
(1,735
Changes in operating assets and liabilities:
                
Accounts receivable and unbilled revenue
     2,549    
 
(2,229
Inventories
     (93  
 
(411
Prepaid expenses and other current assets
     (750  
 
(748
Accounts payable and accrued expenses
     2,490    
 
4,024
 
Operating lease liabilities
     (2,497  
 
(1,852
Contract liabilities
     1,122    
 
136
 
Deferred rent income
     170    
 
(58
Other liabilities
     29    
 
—  
 
Income taxes payable
     21    
 
(218
    
 
 
   
 
 
 
Net cash provided by operating activities
     9,197    
 
4,313
 
    
 
 
   
 
 
 
INVESTING ACTIVITIES
                
Cash paid for capital expenditures net of tenant improvement allowances
     (1,859  
 
(3,439
Capital expenditures reimbursable under tenant improvement allowances and trade agreements
     —      
 
(40
Deposit on broadcast assets and radio station acquisitions
     (100  
 
—  
 
Purchases of broadcast assets and radio stations
     —      
 
(540
Investment in LLC
     —      
 
(2,000
Proceeds from sale of long-lived assets
     3,501    
 
2,001
 
Other
     (238  
 
(858
    
 
 
   
 
 
 
Net cash provided by (used in) investing activities
     1,304    
 
(4,876
    
 
 
   
 
 
 
FINANCING ACTIVITIES
                
Payments to repurchase 2024 Notes
     —      
 
(2,531
Proceeds from borrowings under ABL Facility
     16    
 
6,257
 
Payments on ABL Facility
     (5,016  
 
(6,257
Proceeds from borrowings under PPP Loans
     11,195    
 
—  
 
Payments of debt issuance costs
     (3  
 
—  
 
Proceeds from the exercise of stock options
     392    
 
94
 
Payments on financing lease liabilities
     (16  
 
(16
Book overdraft
     —      
 
1,231
 
    
 
 
   
 
 
 
Net cash provided by (used in) financing activities
     6,568    
 
(1,222
    
 
 
   
 
 
 
Net increase (decrease) in cash and cash equivalents
     17,069    
 
(1,785
Cash and cash equivalents at beginning of year
     6,325    
 
1,785
 
    
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $ 23,394    
$
—  
 
    
 
 
   
 
 
 
See accompanying notes
 
7

SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
(Unaudited)
                 
    
Three Months Ended

March 31,
 
    
    2021    
   
    2022    
 
Supplemental disclosures of cash flow information:
                
Cash paid during the period for:
                
Cash paid for interest, net of capitalized interest
   $ 51    
$
63
 
Cash paid for interest on finance lease liabilities
   $ 2    
$
2
 
Net cash paid for (received from) income taxes
   $ (79  
$
12
 
Other supplemental disclosures of cash flow information:
                
Barter revenue
   $ 391    
$
846
 
Barter expense
   $ 373    
$
759
 
Non-cash
investing and financing activities:
                
Capital expenditures reimbursable under tenant improvement allowances
   $ —      
$
40
 
Right-of-use
assets acquired through operating leases
   $ 553    
$
5,011
 
Right-of-use
assets acquired through financing leases
   $ 2    
$
14
 
Non-cash
capital expenditures for property & equipment acquired under trade agreements
   $ 6    
$
—  
 
Net assets and liabilities assumed in a
non-cash
acquisition
   $ 127    
$
—  
 
Estimated present value of contingent-earn out consideration
   $ 11    
$
6
 
See accompanying notes
 
8

SALEM MEDIA GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
Business
Salem Media Group, Inc. (“Salem,” “we,” “us,” “our” or the “company”) is a domestic multimedia company specializing in Christian and conservative content. Our media properties include radio broadcasting, digital media, and publishing entities. We have
three
operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which are discussed in Note 17 – Segment Data.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements of Salem include the company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
Information with respect to the three months ended March 31, 2022 and 2021 is unaudited. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form
10-Q
and Article 10 of Regulation
S-X.
Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position, results of operations and cash flows of the company. The unaudited interim financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report for Salem filed on Form
10-K
for the year ended December 31, 2021. Our results are subject to seasonal fluctuations and therefore, the results of operations for the interim periods presented are not necessarily indicative of the results of operations for a full year.
The balance sheet at December 31, 2021 included in this report has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP. Certain reclassifications have been made to the prior year financial statements to conform to the presentation in the current year, which had no impact on the previously reported financial statements.
Impact of the
COVID-19
Pandemic
The
COVID-19
global pandemic materially impacted our business. We experienced a rapid decline in revenue from advertising, programming, events, and book sales that began in March 2020. Several advertisers reduced or ceased advertising spending due to the outbreak and
stay-at-home
orders that effectively shut down many businesses. The revenue decline impacted our broadcast segment, which derives substantial revenue from local advertisers who were particularly hard hit due to social distancing and government interventions, and our publishing segment, which derives revenue from book sales through retail stores and live events.
While we see progress being made in revenue returning to
pre-pandemic
levels, the
COVID-19
pandemic continues to create significant uncertainty and disruption in the economy. These uncertainties could materially impact significant accounting estimates related to, but not limited to, allowances for doubtful accounts, impairments, and
right-of-use assets.
As a result, many estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. These estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
During 2020 we implemented several measures to reduce costs and conserve cash to ensure that we had adequate liquidity to meet our debt servicing requirements. As the economy began to show signs of recovery, we reversed several of these cost reduction initiatives during 2021. We continue to operate with lower staffing levels where appropriate, we have not declared or paid equity distributions on our common stock, and the company 401(k) match was not reinstated until January 2022.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act provided emergency economic assistance for individuals and businesses impacted by the
COVID-19
pandemic, including opportunities for additional liquidity, loan guarantees, and other government programs. On December 27, 2020, Congress passed the Consolidated Appropriations Act (“CAA”) that included a second relief package, which, among other things, provides for an extension of the Payroll Support Program established by the CARES Act. We utilized certain benefits of the CARES Act and the CAA, including:
 
   
We deferred $3.3 million of employer FICA taxes from April 2020 through December 2020, of which 50% was paid in December 2021 and the remaining 50% is payable in December 2022;
 
   
A relaxation of interest expense deduction limitation for income tax purposes;
 
   
We received Paycheck Protection Program (“PPP”) loans of $11.2 million in total during the first quarter of 2021 through the Small Business Association (“SBA”) based on the eligibility as determined on a
per-location
basis; and
 
   
In July 2021, the SBA forgave all but $20,000 of the PPP loans, with the remaining PPP loan repaid in July 2021.
 
9

Use of Estimates
Our consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates require the use of judgment as future events, and the effect of these events cannot be predicted with certainty. The
COVID-19
pandemic created significant uncertainty and disruption in the global economy and financial markets. It is reasonably possible that these uncertainties could materially impact our estimates related to, but not limited to, revenue recognition, broadcast licenses, goodwill, and income taxes. As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility.
Our estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in our consolidated financial statements. We evaluate and update our assumptions and estimates on an ongoing basis and we may consult outside experts to assist as considered necessary.
Significant areas for which management uses estimates include:
 
   
revenue recognition;
 
   
asset impairments, including broadcasting licenses, goodwill and other indefinite-lived intangible assets;
 
   
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
(“ROU”) assets and lease liabilities;
 
   
determining the Incremental Borrowing Rate (“IBR”) for calculating ROU assets and lease liabilities,
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Except for our accounting policies for investments, there have been no changes to our significant accounting policies described in Note 2 to our Annual Report on Form
10-K
for the year ended December 31, 2021 filed with the SEC on March 4, 2022, that have had a material impact on our Condensed Consolidated Financial Statements and related notes.
We may make strategic investments in entities that share similar interests in Christian and conservative content. The accounting for these investments depends on the degree to which we influence the investee. The determination of the degree to which we can influence the investee requires extensive analysis depending on the terms and nature of each investment. For material investments that we directly or indirectly hold a controlling financial interest, we apply the guidance within Accounting Standards Codification (“ASC”) 810, Consolidation. For material investments that we do not hold a controlling interest, but for which we have significant influence, we apply the equity method of accounting under ASC
323-30,
Investments – Equity Method and Joint Ventures. For investments in which we do not have significant influence, we apply the accounting guidance in ASC 321 – Investments Equity Securities.
Recent Accounting Pronouncements
Changes to accounting principles are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Update (“ASUs”) to the FASB’s Codification. We consider the applicability and impact of all ASUs on our financial position, results of operations, cash flows, or presentation thereof. Described below are ASUs that may be applicable to our financial position, results of operations, cash flows, or presentation thereof. ASUs not listed below were assessed and determined to not be applicable to our financial position, results of operations, cash flows, or presentation thereof.
Accounting Standards Adopted in 2022
In November 2021, the FASB issued ASU
No. 2021-10,
Disclosures by Business Entities about Government Assistance
. The ASU codifies new requirements to disclose information about the nature of certain government assistance received, the accounting policy used to account for the transactions, the location in the financial statements where such transactions were recorded, and significant terms and conditions associated with such transactions. The guidance was effective for annual periods beginning on January 1, 2022. The adoption of ASU
No. 2021-10
did not have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.
Recent Accounting Standards or Updates Not Yet Effective
In March 2022, the FASB issued ASU
2022-02,
 Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures
 (Topic 326):
 Financial Instruments – Credit Losses
. This amended guidance will eliminate the accounting designation of a loan modification as a TDR, including eliminating the measurement guidance for TDRs. The amendments also enhance existing disclosure requirements and introduce new requirements related to modifications of receivables made to borrowers experiencing financial difficulty. Additionally, this guidance requires entities to disclose gross write-offs by year of origination for financing receivables, such as loans and interest receivable. The ASU is effective January 1, 2023, and is required to be applied prospectively, except for the recognition and measurement of TDRs which can be applied on a modified retrospective basis. We do not expect the adoption of this ASU to have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.
 
10

In
 October 2021,
 the FASB issued ASU
 2021
-
08,
 
Bu
siness Combinations (Topic
 805): Accounting for Contract
Asset
s and Contract Liabilities from Contracts with Customers
, which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic
 606
) rather than adjust them to fair value at the acquisition date. The ASU is effective January 1, 2023, with early adoption permitted. The impact that this pronouncement will have will depend on the nature of business acquisitions that may take place in the future.

NOTE 3. RECENT TRANSACTIONS
During the three-month period ended March 31, 2022, we completed or entered into the following transactions:
Debt Transactions
On January 12, 2022, we repurchased $2.5 million of the 6.75% Senior Secured Notes due 2024 (“2024 Notes”) at 101.25% of face value recognizing a loss of $53,000.
Acquisitions
We invested in a Limited Liability Company “LLC” that will own, distribute, and market a motion picture. The investment of $3.0 million at March 31, 2022 is reflected at cost in other assets. We invested an additional $1.5 million in April 2022 for a total investment to date of $4.5 million.
On February 15, 2022, we closed on the acquisition of radio station
WLCC-AM
and an FM translator in the Tampa, Florida market for $0.6 million of cash. The WLCC transmitter site will be used to broadcast radio station
WTBN-AM
due to the sale of land housing the
WTBN-AM
transmitter.
The total purchase price consideration for our business acquisitions and asset purchases during the three-month period ending March 31, 2022, is as follows:
 
Description
  
Total Consideration
 
 
  
(Dollars in thousands)
 
Cash payments made upon closing
  
$
548
 
Escrow deposits paid in prior years
  
 
60
 
    
 
 
 
Total purchase price consideration
  
$
608
 
    
 
 
 
The allocations presented in the table below are based upon estimates of the fair values using valuation techniques including income, cost and market approaches. The following preliminary purchase price allocations are based upon the valuation of assets and these estimates and assumptions are subject to change as we obtain additional information during the measurement period, which may be up to one year from the acquisition date.
Differences between the preliminary and final valuation could be substantially different from the initial estimate.
         
    
Net Broadcast
Assets Acquired
 
Assets
        
Property and equipment
   $ 418  
Broadcast licenses
     190  
    
 
 
 
    
$
608
 
    
 
 
 
Divestitures
On January 10, 2022, we closed on the sale of 4.5 acres of land in Phoenix, Arizona for $2.0 million in cash. We recorded a
pre-tax
gain of $1.8 million on the sale and have access to the land for
90-days
to relocate our transmitter equipment for
KXXT-AM.
Pending Transactions
On August 31, 2021, we entered into an agreement to sell 9.3 acres of land in the Denver area for $8.2 million. We expect to close this sale in the second quarter of 2022 and plan to continue broadcasting both
KRKS-AM
and
KBJD-AM
from this site.
On June 2, 2021, we entered into an Asset Purchase Agreement (“APA”) to acquire radio station
KKOL-AM
in Seattle, Washington for $0.5 million. We paid $0.1 million in cash into an escrow account and we began operating the station under an Local Marketing Agreement (“LMA”) on June 7, 2021. We expect this transaction to close in the latter half of 2022.
On February 5, 2020, we entered into an APA with Word Broadcasting to sell radio stations
WFIA-AM,
WFIA-FM
and
WGTK-AM
in Louisville, Kentucky for $4.0 million with credits applied from amounts previously paid, including a portion of the monthly fees paid under a Time Brokerage Agreement (“TBA”). Due to changes in debt markets, the transaction was not funded, and it is uncertain when, or if, the transaction will close. Word Broadcasting continues to program the stations under a TBA that began in January 2017.
 
11

NOTE 4. REVENUE RECOGNITION
The following table presents our revenues disaggregated by revenue source for each of our operating segments:
                                 
    
Three Months Ended March 31, 2022
 
    
Broadcast
    
Digital Media
    
Publishing
   
Consolidated
 
    
(Dollars in thousands)
 
By Source of Revenue:
                                  
Block Programming – National
   $ 13,059      $ —        $ —       $ 13,059  
Block Programming – Local
     6,173        —          —         6,173  
    
 
 
    
 
 
    
 
 
   
 
 
 
Broadcast Programming Revenue
  
 
19,232
 
  
 
—  
 
  
 
—  
 
 
 
19,232
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Spot Advertising – National
     3,641        —          —         3,641  
Spot Advertising – Local
     10,283        —          —         10,283  
Network Advertising
     4,831        —          —         4,831  
    
 
 
    
 
 
    
 
 
   
 
 
 
Broadcast Advertising Revenue
  
 
18,755
 
  
 
—  
 
  
 
—  
 
 
 
18,755
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Infomercials
     191        —          —         191  
Other Revenue
     2,048        —          —         2,048  
    
 
 
    
 
 
    
 
 
   
 
 
 
Other Broadcast Revenue
     2,239        —          —      
 
2,239
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Digital Advertising
     6,636        4,539        —         11,175  
Digital Streaming
     1,190        901        —         2,091  
Digital Downloads
     43        1,664        —         1,707  
Digital Subscriptions
     257        3,152        —         3,409  
Other Digital Revenue
     80        44        —         124  
    
 
 
    
 
 
    
 
 
   
 
 
 
Digital Revenue
  
 
8,206
 
  
 
10,300
 
     —      
 
18,506
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Book Sales
     —          —          2,561       2,561  
Estimated Sales Returns & Allowances
     —          —          (835     (835
    
 
 
    
 
 
    
 
 
   
 
 
 
Net Book Sales
     —          —          1,726       1,726  
    
 
 
    
 
 
    
 
 
   
 
 
 
E-Book
Sales
     —          —          287       287  
Self-Publishing Fees
     —          —          1,727       1,727  
Other Publishing Revenue
     —          —          137       137  
    
 
 
    
 
 
    
 
 
   
 
 
 
Publishing Revenue
  
 
—  
 
  
 
—  
 
  
 
3,877
 
 
 
3,877
 
    
 
 
    
 
 
    
 
 
   
 
 
 
    
$
48,432
 
  
$
10,300
 
  
$
3,877
 
 
$
62,609
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Timing of Revenue Recognition
                                  
Point in Time
   $ 47,827      $ 10,300      $ 3,877     $ 62,003  
Rental Income(1)
     605        —          —         605  
    
 
 
    
 
 
    
 
 
   
 
 
 
    
$
48,432
 
  
$
10,300
 
  
$
3,877
 
 
$
62,609
 
    
 
 
    
 
 
    
 
 
   
 
 
 
The following table presents our revenues disaggregated by revenue source for each of our operating segments:
                                 
    
Three Months Ended March 31, 2021
 
    
Broadcast
    
Digital Media
    
Publishing
    
Consolidated
 
    
(Dollars in thousands)
 
By Source of Revenue:
                                   
Block Programming – National
   $ 11,461      $ —        $ —        $ 11,461  
Block Programming – Local
     5,956        —          —          5,956  
    
 
 
    
 
 
    
 
 
    
 
 
 
Broadcast Programming Revenue
    
17,417
    
 
—  
 
  
 
—  
 
    
17,417
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Spot Advertising – National
     3,660        —          —          3,660  
Spot Advertising – Local
     8,895        —          —          8,895  
Network Advertising
     4,871        —          —          4,871  
    
 
 
    
 
 
    
 
 
    
 
 
 
Broadcast Advertising Revenue
    
17,426
    
 
—  
 
  
 
—  
 
    
17,426
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Infomercials
     237        —          —          237  
Other Revenue
     1,899        —          —          1,899  
    
 
 
    
 
 
    
 
 
    
 
 
 
Other Broadcast Revenue
  
 
2,136
 
  
 
—  
 
  
 
—  
 
  
 
2,136
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Digital Advertising
     5,781        4,413        62        10,256  
Digital Streaming
     853        844        —          1,697  
Digital Downloads
     60        1,510        —          1,570  
Digital Subscriptions
     286        2,773        —          3,059  
Other Digital Revenue
    
89
       79        —          168  
    
 
 
    
 
 
    
 
 
    
 
 
 
Digital Revenue
  
 
7,069
 
  
 
9,619
 
  
 
62
 
  
 
16,750
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Book Sales
     —          —          4,301        4,301  
 
12
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Estimated Sales Returns & Allowances
     —          —          (1,093     (1,093
    
 
 
    
 
 
    
 
 
   
 
 
 
Net Book Sales
     —          —          3,208       3,208  
    
 
 
    
 
 
    
 
 
   
 
 
 
E-Book
Sales
     —          —          339       339  
Self-Publishing Fees
     —          —          1,624       1,624  
Publishing Magazine Subscriptions
     —          —          158       158  
Other Publishing Revenue
     —          —          295       295  
    
 
 
    
 
 
    
 
 
   
 
 
 
Publishing Revenue
  
 
—  
 
  
 
—  
 
  
 
5,624
 
 
 
5,624
 
    
 
 
    
 
 
    
 
 
   
 
 
 
    
$
44,048
 
  
$
9,619
 
  
$
5,686
 
 
$
59,353
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Timing of Revenue Recognition
                                  
Point in Time
   $ 43,425      $ 9,619      $ 5,686     $ 58,730  
Rental Income(1)
     623        —          —         623  
    
 
 
    
 
 
    
 
 
   
 
 
 
    
$
44,048
 
  
$
9,619
 
  
$
5,686
 
 
$
59,353
 
    
 
 
    
 
 
    
 
 
   
 
 
 
A summary of each of our revenue streams under ASC 606 is as follows:
Block Programming
.
We recognize revenue from the sale of blocks of airtime to program producers that typically range from 12
1
/
2
, 25 or
50-minutes
of time. We separate block program revenue into three
categories, National, Local, and Infomercial revenue. Our stations are classified by format, including Christian Teaching and Talk, News Talk, and Contemporary Christian Music. National and local programming content is complementary to our station format while infomercials are closely associated with long-form advertisements. Block Programming revenue may include variable consideration for charities and programmers that purchase blocks of airtime to generate donations and contributions from our audience. Block programming revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Programming revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency.
Spot Advertising
. We recognize revenue from the sale of airtime to local and national advertisers who purchase spot commercials of varying lengths. Spot Advertising may include variable consideration for charities and programmers that purchase spots to generate donations and contributions from our audience. Advertising revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case, revenue is reported net of the commission retained by the agency.
Network Revenue
.
Network revenue includes the sale of advertising time on our national network and fees earned from the syndication of programming on our national network. Network revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Network revenue is recorded on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Digital Advertising.
We recognize revenue from the sale of banner advertising on our owned and operated websites and on our owned and operated mobile applications. Each of our radio stations, our digital media entities and certain of our publishing entities have custom websites and mobile applications that generate digital advertising revenue. Digital advertising revenue is recognized at the time that the banner display is delivered, or the number of impressions delivered meets the previously agreed-upon performance criteria, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Digital advertising revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Broadcast digital advertising revenue consists of local digital advertising, such as the sale of banner advertisements on our owned and operated websites, the sale of advertisements on our own and operated mobile applications, and advertisements in digital newsletters that we produce, as well as national digital advertising, or the sale of custom digital advertising solutions, such as web pages and social media campaigns that we offer to our customers. Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case, revenue is reported net of the commission retained by the agency.
Salem Surround, our national multimedia advertising agency, offers a comprehensive suite of digital marketing services to develop and execute audience-based marketing strategies for clients on both the national and local level. Salem Surround specializes in digital marketing services for each of our radio stations and websites as well as provides a full-service digital marketing strategy for each of our clients. In our role as a digital agency, our sales team provides our customers with integrated digital advertising solutions that optimize the performance of their campaign, which we view as one performance obligation. Our advertising campaigns are designed to be “white label” agreements between Salem and our advertiser, meaning we provide special care and attention to the details of the campaign. We provide custom digital product offerings, including tools for metasearch, retargeting, website design, reputation management, online listing services, and social media marketing. Digital advertising solutions may include third-party websites, such as Google or Facebook, which can be included in a digital advertising social media campaign. We manage all aspects of the digital campaign, including social media placements, review and approval of target audiences, and the monitoring of actual results to make modifications as needed. We may contract directly with a third-party, however, we are responsible for delivering the campaign results to our customer with or without the third-party. We are responsible for any payments
 
13

due to the third-party regardless of the campaign results and without regard to the status of payment from our customer. We have discretion in setting the price to our customer without input or approval from the third-party. Accordingly, revenue is reported gross, as principal, as the performance obligation is delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation.
Digital Streaming
. We recognize revenue from the sale of advertisements and from the placement of ministry content that is streamed on our owned and operated websites and on our owned and operated mobile applications. Each of our radio stations, our digital media entities and certain publishing entities have custom websites and mobile applications that generate streaming revenue. Digital streaming revenue is recognized at the time that the content is delivered, or when the number of impressions delivered meets the previously agreed-upon performance criteria. Delivery of the content represents the point in time that control is transferred to the customer thereby completing our performance obligation. Streaming revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Digital Downloads and
e-books
. We recognize revenue from sale of downloaded materials, including videos, song tracks, sermons, content archives, and
e-books.
Payments for downloaded materials are due in advance of the download, however, the download is often instant upon confirmation of payment. Digital download revenue is recognized at the time of download, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is recorded at the gross amount due from the customer. All sales are final with no allowances made for returns.
Subscriptions
. We recognize revenue from the sale of subscriptions for financial publication digital newsletters, digital magazines, and podcast subscriptions for
on-air
content. Subscription terms typically range from three months to two years, with a money-back guarantee for the first 30 days. Refunds after the first
30-day
period are considered on a
pro-rata
basis based on the number of publications issued and delivered. Payments are due in advance of delivery and can be made in full upon subscribing or in quarterly installments. Cash received in advance of the subscription term, including amounts that are refundable, is recorded in contract labilities. Revenue is recognized ratably over the subscription term at the point in time that each publication is transmitted or shipped, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is reported net of estimated cancellations, which are based on our experience and historical cancellation rates during the cancellable period.
Book Sales
. We recognize revenue from the sale of books upon shipment, which represents the point in time that control is transferred to the customer thereby completing the performance obligation. Revenue is recorded at the gross amount due from the customer, net of estimated sales returns and allowances based on our historical experience. Major new title releases represent a significant portion of the revenue in the current period. Print-based consumer books are sold on a fully returnable basis. We do not record assets or inventory for the value of returned books as they are considered used regardless of the condition returned. Our experience with unsold or returned books is that their resale value is insignificant and they are often destroyed or disposed of.
Self-Publishing Fees
. We recognize revenue from self-publishing services through Salem Author Services (“SAS”), including book publishing and support services to independent authors. Services include book cover design, interior layout, printing, distribution, marketing services and editing for print books and eBooks. As each book and related support services are unique to each author, authors must make payments in advance of the performance. Payments are typically made in installments over the expected production timeline for each publication. We record contract liabilities equal to the amount of payments received, including those amounts that are fully or partially refundable. Contract liabilities were historically recorded under the caption “deferred revenue” and are reported as current liabilities or long-term liabilities on our consolidated financial statements based on the time to fulfill the performance obligations under terms of the contract. Refunds are limited based on the percentage completion of each publishing project.
Revenue is recognized upon completion of each performance obligation, which represents the point in time that control of the product is transferred to the author, thereby completing our performance obligation. Revenue is recorded at the net amount due from the author, including discounts based on the service package.
Other Revenue
.
Other revenue includes various sources, such as event revenue, listener purchase programs, talent fees for
on-air
hosts, rental income for studios and towers, production services, and shipping and handling fees. We recognize event revenue, including fees earned for ticket sales and sponsorships, when the event occurs, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue for all other products and services is recorded as the products or services are delivered or performed, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Other revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
 
14

Principal versus Agent Considerations
When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent.
Contract Assets
Contract Assets—Costs to Obtain a Contract:
We capitalize commissions paid to sales personnel in our self-publishing business when customer contracts are signed and advance payment is received. These capitalized costs are recorded as prepaid commission expense in the Condensed Consolidated Balance Sheets. The amount capitalized is incremental to the contract and would not have been incurred absent the execution of the customer contract. Commissions paid upon the initial acquisition of a contract are expensed at the point in time that related revenue is recognized. Prepaid commission expenses are periodically reviewed for impairment. At March 31, 2022, our prepaid commission expense was $0.7 million.
Contract Liabilities
Contract liabilities consist of customer advance payments and billings in excess of revenue recognized. We may receive payments from our customers in advance of completing our performance obligations. Additionally, new customers, existing customers without approved credit terms and authors purchasing specific self-publishing services, are required to make payments in advance of the delivery of the products or performance of the services. We record contract liabilities equal to the amount of payments received in excess of revenue recognized, including payments that are refundable if the customer cancels the contract according to the contract terms. Contract liabilities were historically recorded under the caption “deferred revenue” and are reported as current liabilities on our consolidated financial statements when the time to fulfill the performance obligations under terms of our contracts is less than one year. Long-term contract liabilities represent the amount of payments received in excess of revenue earned, including those that are refundable, when the time to fulfill the performance obligation is greater than one year. Our long-term liabilities consist of subscriptions with a term of
two-years
for which some customers have purchased and paid for multiple years.
Significant changes in our contract liabilities balances during the period are as follows:
                 
     Short Term     
Long-Term
 
    
(Dollars in thousands)
 
Balance, beginning of period January 1, 2022
   $ 12,294      $ 2,222  
Revenue recognized during the period that was included in the beginning balance of contract liabilities
     (4,085      —    
Additional amounts recognized during the period
     6,315        315  
Revenue recognized during the period that was recorded during the period
     (2,409      —    
Transfers
     477        (477
    
 
 
    
 
 
 
Balance, end of period March 31, 2022
   $ 12,592      $ 2,060  
    
 
 
    
 
 
 
Amount refundable at beginning of period
   $ 12,282      $ 2,222  
Amount refundable at end of period
   $ 12,580      $ 2,060  
We expect to satisfy these performance obligations as follows:
         
    
Amount
 
For the Year Ended March 31,
  
(Dollars in thousands)
 
2023
   $ 12,592  
2024
     1,507  
2025
     351  
2026
     115  
2027
     87  
Thereafter
     —    
    
 
 
 
     $ 14,652  
    
 
 
 
Significant Financing Component
The length of our typical sales agreement is less than 12 months; however, we may sell subscriptions with a
two-year
term. The balance of our long-term contract liabilities represents the unsatisfied performance obligations for subscriptions with a remaining term in excess of one year. We review long-term contract liabilities that are expected to be completed in excess of one year to assess whether the contract contains a significant financing component. The balance includes subscriptions that will be satisfied at various dates between April 1, 2022, and March 31, 2027. The difference between the promised consideration and the cash selling price of the publications is not significant. Therefore, we have concluded that subscriptions do not contain a significant financing component under ASC 606.
 
15

Our self-publishing contracts may exceed a
one-year
term due to the length of time for an author to submit and approve a manuscript for publication. The author may pay for publishing services in installments over the production timeline with payments due in advance of performance. The timing of the transfer of goods and services under self-publishing arrangements are at the discretion of the author and based on future events that are not substantially within our control. We require advance payments to provide us with protection from incurring costs for products that are unique and only sellable to the author. Based on these considerations, we have concluded that our self-publishing contracts do not contain a significant financing component under ASC 606.
Variable Consideration
We make significant estimates related to variable consideration at the point of sale, including estimates for refunds and product returns. Under ASC 606, estimates of variable consideration are to be recognized before contingencies are resolved in certain circumstances, including when it is probable that a significant reversal in the amount of any estimated cumulative revenue will not occur.
We enter into agreements under which the amount of revenue we earn is contingent upon the amount of money raised by our customer over the contract term. Our customer is typically a charity or programmer that purchases blocks of programming time or spots to generate revenue from our audience members. Contract terms can range from a few weeks to a few months, depending on the charity or programmer. If the campaign does not generate a
pre-determined
level of donations or revenue to our customer, the consideration that we expect to be entitled to may vary above a minimum base level per the contract. Historically, under ASC Topic 605, we reported variable consideration as revenue when the amount was fixed and determinable. Under ASC 606, variable consideration is to be estimated using the expected value or the most likely amount to the extent it is probable that a significant reversal will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Based on the constraints for using estimates of variable consideration within ASC 606, and our historical experience with these campaigns, we will continue to recognize revenue at the base amount of the campaign with variable consideration recognized when the uncertainty of each campaign is resolved. These constraints include: (1) the amount of consideration received is highly susceptible to factors outside of our influence, specifically the extent to which our audience donates or contributes to our customer or programmer, (2) the length of time in which the uncertainty about the amount of consideration expected is to be resolved, and (3) our experience has shown these contracts have a large number and broad range of possible outcomes.
Trade and Barter Transactions
In broadcasting, trade or barter agreements are commonly used to reduce cash expenses by exchanging advertising time for goods or services. We may enter barter agreements to exchange airtime or digital advertising for goods or services that can be used in our business or that can be sold to our audience under Listener Purchase Programs. The terms of these barter agreements permit us to preempt the barter airtime or digital campaign in favor of customers who purchase the airtime or digital campaign for cash. The value of these
non-cash
exchanges is included in revenue in an amount equal to the fair value of the goods or services we receive. Each transaction must be reviewed to determine that the products, supplies, and/or services we receive have economic substance, or value to us. We record barter operating expenses upon receipt and usage of the products, supplies and services, as applicable. We record barter revenue as advertising spots or digital campaigns are delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Barter revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency.
Trade and barter revenues and expenses were as follows:
                 
    
Three Months Ended
March 31,
 
         2021         
    2022    
 
Net broadcast barter revenue
   $ 391     
$
846
 
Net digital media barter revenue
     —       
 
—  
 
Net publishing barter revenue
     —       
 
—  
 
Net broadcast barter expense
   $ 373     
$
759
 
Net digital media barter expense
     —       
 
—  
 
Net publishing barter expense
     —       
 
—  
 
NOTE 5. INVENTORIES
Inventories consist of finished books from Salem Publishing. All inventories are valued at the lower of cost or net realizable value as determined on a weighted average cost method.
NOTE 6. PROPERTY AND EQUIPMENT
We account for property and equipment in accordance with FASB ASC Topic
360-10,
Property, Plant and Equipment
.
 
16

The following is a summary of the categories of our property and equipment:
                 
    
As of
 
     December 31, 2021     
March 31, 2022
 
    
(Dollars in thousands)
 
Buildings
   $ 28,593     
$
28,600
 
Office furnishings and equipment
     36,598     
 
36,955
 
Antennae, towers and transmitting equipment
     77,813     
 
78,219
 
Studio, production, and mobile equipment
     29,498     
 
29,693
 
Computer software and website development costs
     38,271     
 
38,471
 
Automobiles
     1,515     
 
1,515
 
Leasehold improvements
     18,104     
 
18,213
 
    
 
 
    
 
 
 
     $ 230,392     
$
231,666
 
Less accumulated depreciation
     (186,053   
 
(188,960
    
 
 
    
 
 
 
       44,339     
$
42,706
 
    
 
 
    
 
 
 
Land
   $ 26,896     
 
27,037
 
Construction-in-progress
     8,104     
 
10,519
 
    
 
 
    
 
 
 
Property and Equipment, net
   $ 79,339     
$
80,262
 
    
 
 
    
 
 
 
Depreciation expense was approximately $2.9 million and $2.6 million for the three-month periods ended March 31, 2022 and 2021, respectively. We review long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. This review requires us to estimate the fair value of the assets using significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fair value, including assumptions about risk. If actual future results are less favorable than the assumptions and estimates we used, we are subject to future impairment charges, the amount of which may be material. There were no indications of impairment during the three months ended March 31, 2022.
NOTE 7. OPERATING AND FINANCE LEASE
RIGHT-OF-USE
ASSETS
Leases
We account for leases in accordance with ASC 842, “
Leases
” that requires lessees to recognize Right of Use (“ROU”) assets and lease liabilities calculated based on the present value of lease payments for all lease agreements with terms that are greater than twelve months. ASC 842 distinguishes leases as either a finance lease or an operating lease that affects how the leases are measured and presented in the statement of operations and statement of cash flows.
Leasing Transactions
Our leased assets include offices and studios, transmitter locations, antenna sites, tower and tower sites, and land. Our lease portfolio has terms remaining from less than
one-year
to up to twenty years. Many of these leases contain options under which we can extend the term from five to twenty years. Renewal options are excluded from our calculation of lease liabilities unless we are reasonably assured to exercise the renewal option. Our lease agreements do not contain residual value guarantees or material restrictive covenants. We lease certain properties from our principal stockholders or from trusts and partnerships created for the benefit of the principal stockholders and their families. These leases are designated as Related Party leases in the details provided.
Operating leases are reflected on our balance sheet within operating lease ROU assets and the related current and
non-current
operating lease liabilities. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from lease agreement. Operating lease ROU assets and liabilities are recognized at the commencement date, or the date on which the lessor makes the underlying asset available for use, based upon the present value of the lease payments over the respective lease term. As the implicit rate for operating leases is not readily determinable, the future minimum lease payments were discounted using an incremental borrowing rate. Lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectation regarding the lease terms. Variable lease costs, such as common area maintenance, property taxes, and insurance, are expensed as incurred.
Balance Sheet
Supplemental balance sheet information related to leases is as follows:
                         
    
March 31, 2022
 
    
(Dollars in thousands)
 
Operating Leases
   Related Party      Other      Total  
Operating leases ROU assets
   $ 7,142      $ 38,741      $ 45,883  
Operating lease liabilities (current)
   $ 976      $ 7,839      $ 8,815  
Operating lease liabilities
(non-current)
     6,266        38,449        44,715  
    
 
 
    
 
 
    
 
 
 
Total operating lease liabilities
   $ 7,242      $ 46,288      $ 53,530  
    
 
 
    
 
 
    
 
 
 
 
17

         
Weighted Average Remaining Lease Term
        
Operating leases
     7.7 years  
Finance leases
     2.8 years  
Weighted Average Discount Rate
        
Operating leases
     8.09
Finance leases
     6.11
Lease Expense
The components of lease expense were as follows:
         
    
Three Months Ended
March 31, 2022
 
    
(Dollars in thousands)
 
Amortization of finance lease ROU Assets
   $ 15  
Interest on finance lease liabilities
     2  
    
 
 
 
Finance lease expense
     17  
Operating lease expense
     3,224  
Variable lease expense
     268  
Short-term lease expense
     158  
    
 
 
 
Total lease expense
   $ 3,667  
    
 
 
 
Supplemental Cash Flow
Supplemental cash flow information related to leases was as follows:
         
    
Three Months Ended
March 31, 2022
 
    
(Dollars in thousands)
 
Cash paid for amounts included in the measurement of lease liabilities:
        
Operating cash flows from operating leases
   $ 2,849  
Operating cash flows from finance leases
     1  
Financing cash flows from finance leases
     16  
Leased assets obtained in exchange for new operating lease liabilities
   $ 5,011  
Leased assets obtained in exchange for new finance lease liabilities
     14  
Maturities
Future minimum lease payments under leases that had initial or remaining
non-cancelable
lease terms in excess of one year as of March 31, 2022, are as follows:
                                         
Future minimum lease    Operating Leases              
     Related Party     Other     Total     Finance Leases     Total  
    
(Dollars in thousands)
 
2023
(Apr-Dec)
   $ 1,565     $ 11,378     $ 12,943     $ 64     $ 13,007  
2024
     1,305       10,658       11,963       36       11,999  
2025
     1,307       8,719       10,026       17       10,043  
2026
     1,341       7,526       8,867       10       8,877  
2027
     1,063       5,394       6,457       5       6,462  
Thereafter
     3,955       22,635       26,590       1       26,591  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Undiscounted Cash Flows
   $ 10,536     $ 66,310     $ 76,846     $ 133     $ 76,979  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Less: imputed interest
     (3,294     (20,022     (23,316     (12     (23,328
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  
$
7,242
 
 
$
46,288
 
 
$
53,530
 
 
$
121
 
 
$
53,651
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Reconciliation to lease liabilities:
                                        
Lease liabilities—current
   $ 976     $ 7,839     $ 8,815     $ 59     $ 8,874  
Lease liabilities—long-term
     6,266       38,449       44,715       62       44,777  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Lease Liabilities
  
$
7,242
 
 
$
46,288
 
 
$
53,530
 
 
$
121
 
 
$
53,651
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
NOTE 8. BROADCAST LICENSES
We account for broadcast licenses in accordance with FASB ASC Topic 350
Intangibles—Goodwill and Other
. We do not amortize broadcast licenses, but rather test for impairment annually or more frequently if events or circumstances indicate that the value may be impaired. In the case of our broadcast radio stations, we would not be able to operate the properties without the related broadcast license for each property. Broadcast licenses are renewed with the FCC every eight years
 for a nominal fee that is expensed as incurred. We continually monitor our stations’ compliance with the various regulatory requirements that are necessary for the FCC renewal and all of our broadcast licenses have been renewed at the end of their respective periods. We expect all of our broadcast licenses to be renewed in the future and therefore, we consider our broadcast licenses to be indefinite-lived intangible assets. We are not aware of any legal, competitive, economic, or other factors that materially limit the useful life of our broadcast licenses. There were
no indications of impairment during the three months ended March 31, 2022.
 
18

The following table presents the changes in broadcasting licenses that include acquisitions and divestitures of radio stations and FM translators.
                 
Broadcast Licenses
   Twelve Months Ended
December 31, 2021
    
Three Months Ended

March 31, 2022
 
    
(Dollars in thousands)
 
Balance before cumulative loss on impairment, beginning of period
   $ 434,209     
$
434,444
 
Accumulated loss on impairment, beginning of period
     (114,436   
 
(114,436
    
 
 
    
 
 
 
Balance after cumulative loss on impairment, beginning of period
     319,773     
 
320,008
 
    
 
 
    
 
 
 
Acquisitions of radio stations
     235     
 
190
 
    
 
 
    
 
 
 
Balance, end of period after cumulative loss on impairment
   $ 320,008     
$
320,198
 
    
 
 
    
 
 
 
Balance, end of period before cumulative loss on impairment
   $ 434,444     
$
434,634
 
Accumulated loss on impairment, end of period
     (114,436   
 
(114,436
    
 
 
    
 
 
 
Balance, end of period after cumulative loss on impairment
   $ 320,008     
$
320,198
 
    
 
 
    
 
 
 
NOTE 9. GOODWILL
We account for goodwill in accordance with FASB ASC Topic 350 “
Intangibles—Goodwill and Other
.” We do not amortize goodwill, but rather test for impairment annually or more frequently if events or circumstances indicate that an asset may be impaired. We perform our annual impairment testing during the fourth quarter of each year, which coincides with our budget and planning process for the upcoming year. There were no indications of impairment during the three months ended March 31, 2021.
The following table presents the changes in goodwill including business acquisitions and dispositions as discussed in Note 3 of our Condensed Consolidated Financial Statements.
                 
Goodwill
   Twelve Months Ended
December 31, 2021
    
Three Months Ended
March 31, 2022
 
    
(Dollars in thousands)
 
Balance, beginning of period before cumulative loss on impairment,
   $ 28,520     
$
28,749
 
Accumulated loss on impairment
     (4,763   
 
(4,763
    
 
 
    
 
 
 
Balance, beginning of period after cumulative loss on impairment
     23,757     
 
23,986
 
    
 
 
    
 
 
 
Acquisitions of radio stations
     4     
 
—  
 
Acquisitions of digital media entities
     225     
 
—  
 
    
 
 
    
 
 
 
Ending period balance
   $ 23,986     
$
23,986
 
    
 
 
    
 
 
 
Balance, end of period before cumulative loss on impairment
     28,749     
 
28,749
 
Accumulated loss on impairment
     (4,763   
 
(4,763
    
 
 
    
 
 
 
Ending period balance
   $ 23,986     
$
23,986
 
    
 
 
    
 
 
 
NOTE 10. AMORTIZABLE INTANGIBLE ASSETS
The following tables provide a summary of our significant classes of amortizable intangible assets:
                         
    
As of March 31, 2022
 
     Cost      Accumulated
Amortization
     Net  
    
(Dollars in thousands)
 
Customer lists and contracts
   $ 23,700     
$
(22,404
  
$
1,296
 
Domain and brand names
     19,875     
 
(19,502
  
 
373
 
Favorable and assigned leases
     2,188     
 
(1,964
  
 
224
 
Subscriber base and lists
     8,647     
 
(8,430
  
 
217
 
Author relationships
     2,771     
 
(2,771
     —    
Non-compete
agreements
     2,041     
 
(2,041
     —    
Other amortizable intangible assets
     1,332     
 
(1,332
     —    
    
 
 
    
 
 
    
 
 
 
     $ 60,554     
$
(58,444
  
$
2,110
 
    
 
 
    
 
 
    
 
 
 
                         
    
As of December 31, 2021
 
     Cost      Accumulated
Amortization
     Net  
    
(Dollars in thousands)
 
Customer lists and contracts
   $ 23,700      $ (22,198    $ 1,502  
Domain and brand names
     19,875        (19,421      454  
Favorable and assigned leases
     2,188        (1,960      228  
Subscriber base and lists
     8,647        (8,387      260  
Author relationships
     2,771        (2,771      —    
Non-compete
agreements
     2,041        (2,041      —    
Other amortizable intangible assets
     1,332        (1,332      —    
    
 
 
    
 
 
    
 
 
 
     $ 60,554      $ (58,110    $ 2,444  
    
 
 
    
 
 
    
 
 
 
 
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Amortization expense was approximately $0.3 million and $0.6 million for the three-month periods ended March 31, 2022 and 2021, respectively. Based on the amortizable intangible assets held at of March 31, 2022, we estimate amortization expense for the next five years to be as follows:
         
Year Ended December 31,
  
Amortization Expense
 
    
(Dollars in thousands)
 
2022 (Apr – Dec)
   $ 885  
2023
     796  
2024
     206  
2025
     21  
2026
     11  
Thereafter
     191  
    
 
 
 
Total
   $ 2,110  
    
 
 
 
NOTE 11. LONG-TERM DEBT
Salem Media Group, Inc. has no independent assets or operations, the subsidiary guarantees relating to certain debt are full and unconditional and joint and several, and any subsidiaries of Salem Media Group, Inc. other than the subsidiary guarantors are minor.
Long-term debt consists of the following:
                 
     December 31, 2021    
March 31, 2022
 
    
(Dollars in thousands)
 
2028 Notes
   $ 114,731    
$
114,731
 
Less unamortized discount and debt issuance costs based on imputed interest rate of 7.64%
     (3,844  
 
(3,697
    
 
 
   
 
 
 
2028 Notes, net carrying value
     110,887    
 
111,034
 
    
 
 
   
 
 
 
2024 Notes
     60,174    
 
57,674
 
Less unamortized debt issuance costs based on imputed interest rate of 7.10%
     (480    
(408
    
 
 
   
 
 
 
2024 Notes, net carrying value
     59,694    
 
57,266
 
    
 
 
   
 
 
 
Asset-Based Revolving Credit Facility principal outstanding(1)
     —         —    
    
 
 
   
 
 
 
Long-term debt less unamortized discount and debt issuance costs
   $ 170,581    
$
168,300
 
    
 
 
   
 
 
 
Less current portion
     —         —    
    
 
 
   
 
 
 
Long-term debt less unamortized discount and debt issuance costs, net of current portion
   $ 170,581    
$
168,300
 
    
 
 
   
 
 
 
 
(1)
As of March 31, 2022, the Asset-Based Revolving Credit Facility (“ABL”), had a borrowing base of $24.5 million, no outstanding borrowings, and $0.3 million of outstanding letters of credit, resulting in a $24.2 million borrowing base availability.
Our weighted average interest rate was 6.99% at December 31, 2021, and March 31, 2022.
In addition to the outstanding amounts listed above, we also have interest obligations related to our long-term debt as follows as of March 31, 2022:
 
   
$114.7 million aggregate principal amount of 2028 Notes with semi-annual interest payments at an annual rate of 7.125%;
 
   
$57.7 million aggregate principal amount of 2024 Notes with semi-annual interest payments at an annual rate of 6.75%; and
 
   
Commitment fee of 0.25% to 0.375% per annum on the unused portion of the ABL Facility.
2028 Notes
On September 10, 2021, we exchanged $112.8 million of the 6.75% Senior Secured Notes (“2024 Notes”) for $114.7 million (reflecting a call premium of 1.688%) of newly issued 7.125% Senior Secured Notes due 2028 (“2028 Notes.”) Contemporaneously with the refinancing, we obtained commitments from the holders of the 2028 Notes to purchase up to $50 million in additional 2028 Notes (“Delayed Draw 2028 Notes,”) contingent upon satisfying certain performance benchmarks, the proceeds of which are to be used exclusively to repurchase or repay the remaining balance outstanding of the 2024 Notes.
The 2028 Notes and the related guarantees were exchanged and sold to certain holders of the 2024 Notes, whom we believe to be qualified institutional buyers, in a private placement. The 2028 Notes and the related guarantees have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or any state securities laws. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with FASB ASC Topic 470.
The 2028 Notes are guaranteed on a senior secured basis. We may redeem the 2028 Notes, in whole or in part, at any time prior to June 1, 2024, at a price equal to 100%
of the principal amount of the 2028 Notes plus a “make-whole” premium as of, and accrued and unpaid interest, if any, up to, but not including, the redemption date. At any time on or after June 1, 2024, we may redeem some or
 
20

all of the 2028 Notes at the redemption prices (expressed as percentages of the principal amount to be redeemed) set forth in the 2028 Notes indenture, plus accrued and unpaid interest, if any,
up
to, but not including the redemption date. In addition, we may redeem up to 35% of the aggregate principal amount of the 2028 Notes before June 1, 2024, with the net cash proceeds from certain equity offerings at a redemption price of 107.125% of the principal amount plus accrued and unpaid interest, if any,
up
to, but not including the redemption date. We may also redeem up to 10% of the aggregate original principal amount of the 2028 Notes per twelve-month period, in connection with up to two redemptions in such twelve-month period, at a redemption price of 101% of the principal amount plus accrued and unpaid interest
 up
to, but not including, the redemption date.
The 2028 Notes mature on June 1, 2028, unless earlier redeemed or repurchased. Interest accrues on the 2028 Notes from September 10, 2021, and is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year, commencing December 1, 2021. Based on the balance of the 2028 Notes outstanding, we are required to pay $8.2 million per year in interest. At March 31, 2022, accrued interest on the 2028 Notes was $2.7 million.
The indenture to the 2028 Notes contains covenants that, among other things and subject in each case to certain specified exceptions, limit the ability to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets. At March 31, 2022, we were, and we remain, in compliance with all of the covenants under the indenture.
We recorded debt issuance costs of $4.7 million, of which $2.5 million of third-party debt modification costs w
ere
expensed during 2021 and $0.2 million w
ere
expensed during the three months ended March 31, 2022, $0.8 million was deferred with the Delayed Draw 2028 Notes, and $1.1 million, along with $3.0 million from the exchanged 2024 Notes, is being amortized as part of the effective yield on the 2028 Notes. During the three-months ended March 31, 2022, $0.2 million of debt issuance costs and delayed draw fees associated with the Notes were amortized to interest expense.
SBA PPP Loans
We received $11.2 
million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a per-location basis. The PPP loans were accounted for as debt in accordance with FASB ASC Topic 470. The loan balances and accrued interest were forgivable provided that the proceeds were used for eligible purposes, including payroll, benefits, rent, and utilities within the covered period. We used the PPP loan proceeds according to the terms and filed timely applications for forgiveness. During July 2021, the SBA forgave all but
$20,000 of the PPP loans resulting in a
pre-tax
gain on the forgiveness of $11.2 million. The remaining PPP loan was repaid in July 2021.
2024 Notes
On May 19, 2017, we issued 6.75% Senior Secured Notes (“2024 Notes”) in a private placement. The 2024 Notes are guaranteed on a senior secured basis by our existing subsidiaries (“Subsidiary Guarantors”). The 2024 Notes bear interest at a rate of 6.75% per year and mature on June 1, 2024, unless they are earlier redeemed or repurchased. Interest is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year.
The 2024 Notes are secured by a first-priority lien on substantially all assets of ours and the Subsidiary Guarantors other than the ABL Facility Priority Collateral as described below. There is no direct lien on our FCC licenses to the extent prohibited by law or regulation other than the economic value and proceeds thereof.
The indenture relating to the 2024 Notes contains covenants that, among other things and subject in each case to certain specified exceptions, limit our ability and the ability of our restricted subsidiaries to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets. At March 31, 2022, we were, and we remain, in compliance with all of the covenants under the indenture.
We recorded debt issuance costs of $6.3 
million as a reduction of the debt proceeds being amortized to non-cash interest expense over the life of the Notes using the effective interest method. During the three months ended March 31, 2021 and 2022, 
$0.1 million and $0.2 million, respectively, of debt issuance costs associated with the Notes was amortized to interest expense.
Based on the balance of the 2024 Notes outstanding of $57.7 million, we are required to pay $3.9 million per year in interest on the 2024 Notes. At March 31, 2022, accrued interest on the 2024 Notes was $1.3 million.
We may from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity, and other factors, seek to repurchase the 2024 Notes in open market transactions, privately negotiated transactions, by tender offer or otherwise, as market conditions warrant. On January 12, 2022, we repurchased $2.5 million of the 6.75% Senior Secured Notes due 2024 (“2024 Notes”) at 101.25% of face value recognizing a loss of $53,000.
 
21

As described above, on September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million of newly issued 2028 Notes, reflecting a call premium of 1.688%. Bond issuance costs of $1.1 million associated with the $112.8 million of the 2024 Notes are being amortized as part of the effective yield on the 2028 Notes.
Based on the then existing market conditions, we completed repurchases of our 2024 Notes as follows:
                                         
Date
  
Principal
Repurchased
    
Cash
Paid
    
% of Face
Value
   
Bond Issue
Costs
    
Net Gain
(Loss)
 
    
(Dollars in thousands)
 
January 12, 2022
   $ 2,500      $ 2,531        101.26   $ 22      $ (53
December 10, 2021
     35,000        35,591        101.69     321        (912
October 25, 2021
     2,000        2,020        101.00     19        (39
October 12, 2021
     250        251        100.38     2        (3
October 5, 2021
     763        766        100.38     7        (10
October 4, 2021
     628        629        100.13     6        (7
September 24, 2021
     4,700        4,712        100.25     44        (56
January 30, 2020
     2,250        2,194        97.50     34        22  
January 27, 2020
     1,245        1,198        96.25     20        27  
December 27, 2019
     3,090        2,874        93.00     48        167  
November 27, 2019
     5,183        4,548        87.75     82        553  
November 15, 2019
     3,791        3,206        84.58     61        524  
March 28, 2019
     2,000        1,830        91.50     37        134  
March 28, 2019
     2,300        2,125        92.38     42        133  
February 20, 2019
     125        114        91.25     2        9  
February 19, 2019
     350        319        91.25     7        24  
February 12, 2019
     1,325        1,209        91.25     25        91  
January 10, 2019
     570        526        92.25     9        35  
December 21, 2018
     2,000        1,835        91.75     38        127  
December 21, 2018
     1,850        1,702        92.00     35        113  
December 21, 2018
     1,080        999        92.50     21        60  
November 17, 2018
     1,500        1,357        90.50     29        114  
May 4, 2018
     4,000        3,770        94.25     86        144  
April 10, 2018
     4,000        3,850        96.25     87        63  
April 9, 2018
     2,000        1,930        96.50     43        27  
    
 
 
    
 
 
            
 
 
    
 
 
 
     $ 84,500      $ 82,086              $ 1,127      $ 1,287  
    
 
 
    
 
 
            
 
 
    
 
 
 
Asset-Based Revolving Credit Facility
On May 19, 2017, we entered into the ABL Facility pursuant to a Credit Agreement (“Credit Agreement”) by and among us and our subsidiaries party thereto as borrowers, Wells Fargo Bank, National Association, as administrative agent and lead arranger, and the lenders that are parties thereto. We used the proceeds of the ABL Facility, together with the net proceeds from the Notes offering, to repay outstanding borrowings under our previously existing senior credit facilities and related fees and expenses. Current proceeds from the ABL Facility are used to provide ongoing working capital and for other general corporate purposes, including permitted acquisitions.
The ABL Facility is a five-year $30.0 million revolving credit facility due March 1, 2024, which includes a $5.0 million subfacility for standby letters of credit and a $7.5 million subfacility for swingline loans. All borrowings under the ABL Facility accrue interest at a rate equal to a base rate or LIBOR plus a spread. The spread, which is based on an availability-based measure, ranges from 0.50% to 1.00% for base rate borrowings and 1.50% to 2.00% for LIBOR borrowings. If an event of default occurs, the interest rate may increase by 2.00% per annum. Amounts outstanding under the ABL Facility may be paid and then reborrowed at our discretion without penalty or premium. Additionally, we pay a commitment fee on the unused balance from 0.25% to 0.375% per year based on the level of borrowings.
On October 20, 2020, we entered into a fourth amendment to our ABL Facility that provides a
one-time
waiver with respect to the current covenant testing period allowing the covenant trigger event date be the first day after the availability on the ABL Facility had equaled or exceeded (1) 15% of the maximum revolver amount and (2) $4.5 million and a waiver permitting our July 2020 financial statements to be issued on or before September 30, 2020 due to delays that were caused by a ransomware attack.
On April 7, 2020, we entered into a third amendment to ABL Facility that increased the advance rate on eligible accounts receivable from 85% to 90% and extended the maturity date from May 19, 2022 to March 1, 2024. The April 7, 2020 amendment also allows for an alternative benchmark rate that may include SOFR due to LIBOR being scheduled to be discontinued at the end of calendar year 2021.
Availability under the ABL Facility is subject to a borrowing base consisting of (a) 90% of the eligible accounts receivable plus (b) a calculated amount based on the value of certain real property. As of March 31, 2022, the amount available under the ABL Facility
 
22

was $24.2 million of which none was outstanding. The ABL Facility has a first-priority lien on our and the Subsidiary Guarantors’ accounts receivable, inventory, deposit and securities accounts, certain real estate and related assets, and by a second-priority lien on the Notes Priority Collateral. There is no direct lien on our FCC licenses to the extent prohibited by law or regulation other than the economic value and proceeds thereof.
The Credit Agreement includes a springing fixed charge coverage ratio of 1.0 to 1.0, which is tested during the period commencing on the last day of the fiscal month most recently ended prior to the date on which Availability (as defined in the Credit Agreement) is less than the greater of 15% of the Maximum Revolver Amount (as defined in the Credit Agreement) and $4.5 million and continuing for a period of 60 consecutive days after the first day on which Availability exceeds such threshold amount. The Credit Agreement also includes other negative covenants that are customary for credit facilities of this type, including covenants that, subject to exceptions described in the Credit Agreement, restrict our ability and the ability of our subsidiaries (i) to incur additional indebtedness; (ii) to make investments; (iii) to make distributions, loans or transfers of assets; (iv) to enter into, create, incur, assume or suffer to exist any liens, (v) to sell assets; (vi) to enter into transactions with affiliates; (vii) to merge or consolidate with, or dispose of all assets to a third party, except as permitted thereby; (viii) to prepay indebtedness; and (ix) to pay dividends.
The Credit Agreement provides for the following events of default: (i) default for non-payment of any principal or letter of credit reimbursement when due or any interest, fees, or other amounts within five days of the due date; (ii) the failure by any borrower or any subsidiary to comply with any covenant or agreement contained in the Credit Agreement or any other loan document, in certain cases subject to applicable notice and lapse of time; (iii) any representation or warranty made pursuant to the Credit Agreement or any other loan document is incorrect in any material respect when made; (iv) certain defaults of other indebtedness of any borrower or any subsidiary of indebtedness of at least
$10 million; (v) certain events of bankruptcy or insolvency with respect to any borrower or any subsidiary; (vi) certain judgments for the payment of money of $10 million or more; (vii) a change of control; and (viii) certain defaults relating to the loss of FCC licenses, cessation of broadcasting and termination of material station contracts. If an event of default occurs and is continuing, the Administrative Agent and the Lenders may accelerate the amounts outstanding under the ABL Facility and may exercise remedies in respect of the collateral. At March 31, 2022, we were, and we remain, in compliance with all of the covenants under Credit Agreement.
We recorded debt issue costs of $0.9 million as an asset being amortized to
non-cash
interest expense over the term of the ABL Facility using the effective interest method. During the three months ended March 31, 2022 and 2021, $23,000 and $29,000, respectively, of debt issuance costs associated with the ABL Facility was amortized to interest expense. At March 31, 2022, the blended interest rate on amounts outstanding under the ABL Facility was 0.0%.
We report outstanding balances on the ABL Facility as short-term regardless of the maturity date based on use of the ABL Facility to fund ordinary and customary operating cash needs with frequent repayments. We believe that our borrowing capacity under the ABL Facility allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the next twelve months.
Maturities of Long-Term Debt
Principal repayment requirements under all long-term debt agreements outstanding at March 31, 2022 for each of the next five years and thereafter are as follows:
         
    
Amount
 
For the Year Ended March 31,
  
(Dollars in thousands)
 
2023
   $ —    
2024
     57,674  
2025
     —    
2026
     —    
2027
     —    
Thereafter
     114,731  
    
 
 
 
     $ 172,405  
    
 
 
 
NOTE 12. FAIR VALUE MEASUREMENTS
Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” FASB ASC Topic 820 “
Fair Value Measurements and Disclosures,”
(“ASC 820”) established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring fair value. This framework defines three levels of inputs to the fair value measurement process and requires that each fair value measurement be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety. The three broad levels of inputs defined by the ASC 820 hierarchy are as follows:
 
 
 
Level
 1 Inputs
—quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date,
 
 
 
Level
 2 Inputs
—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability, and
 
23

   
Level
 3 Inputs
—unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).
Under ASC 820, a fair value measurement of a nonfinancial asset considers a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. Therefore, fair value is a market-based measurement and not an entity-specific measurement. It is determined based on assumptions that market participants would use in pricing the asset or liability. The exit price objective of a fair value measurement applies regardless of the reporting entity’s intent and/or ability to sell the asset or transfer the liability at the measurement date.
As of March 31, 2022, the carrying value of cash and cash equivalents, accounts receivables, accounts payable, accrued expenses, and accrued interest approximates fair value due to the short-term nature of such instruments. The carrying amount of the Notes at March 31, 2022, was
$172.4 million compared to the estimated fair value of $179.3 million, based on the prevailing interest rates and trading activity of our Notes.
We have certain assets that are measured at fair value on a
non-recurring
basis that are adjusted to fair value only when the carrying values exceed the fair values. The categorization of the framework used to price the assets is considered Level 3 due to the subjective nature of the unobservable inputs used when estimating the fair value.
The following table summarizes the fair value of our financial assets and liabilities that are measured at fair value:
                                 
    
March 31, 2022
 
     Carrying Value on
Balance Sheet
     Fair Value Measurement Category  
       Level 1          Level 2          Level 3    
    
(Dollars in thousands)
 
Liabilities:
                                   
Estimated fair value of contingent
earn-out
consideration included in accrued expenses
  
$
6
 
     —          —        $ 6  
Long-term debt less unamortized debt issuance costs
  
 
172,405
 
     —          179,286        —    
NOTE 13. INCOME TAXES
We recognize deferred tax assets and liabilities for future tax consequences attributable to differences between our consolidated financial statement carrying amount of assets and liabilities and their respective tax bases. We measure these deferred tax assets and liabilities using enacted tax rates expected to apply in the years in which these temporary differences are expected to reverse. We recognize the effect on deferred tax assets and liabilities resulting from a change in tax rates in income in the period that includes the date of the change.
At December 31, 2021, we had net operating loss carryforwards for federal income tax purposes of approximately $98.4 million that expire in years 2024 through 2038 and for state income tax purposes of approximately $607.7 million that expire in years 2022 through 2041. As a result of our adjusted cumulative three-year
pre-tax
book loss as of December 31, 2020, we performed an assessment of positive and negative evidence with respect to the realization of our net deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, the availability of carryforwards and estimates of projected future taxable income which resulted in recognition of a $48.1 million valuation allowance for the year ended December 31, 2020. During year 2021, through operational activity of the company primarily through various land sales throughout the year, Salem utilized its operating loss carryforwards and adjusted the related valuation allowance by $9 million bringing the total valuation allowance to $39.1 million for the year ended December 31, 2021. During quarter ending March 31, 2022, as the economy comes out of the
COVID-19
pandemic and
stay-at-home
shelter orders, the Company continues to monitor its budget; however, at this time the Company has determined it is more likely than not that a reasonable forecast beyond the current year does not provide enough evidence to measure its realization of December 31, 2021 and March 31, 2022 deferred tax assets. There was no change to valuation allowance during the three-month period ended March 31. 2022.
During the interim period ended March 31, 2022, we computed the income tax provision using the estimated effective annual rate applicable for the full year. We updated our forecast to project income for the 2022 calendar year. In accordance with the guidance under FASB ASC Topic
740-270-25-4,
we measured the estimated utilization of the operating loss carryforwards and the release of the valuation allowance for both federal and state jurisdictions.
The amortization of our indefinite-lived intangible assets for tax purposes, but not for book purposes, creates deferred tax liabilities. A reversal of deferred tax liabilities may occur when indefinite-lived intangibles: (1) become impaired; or (2) are sold, which would typically only occur in connection with the sale of the assets of a station or groups of stations or the entire company in a taxable transaction. Due to the amortization for tax purposes and not book purposes of our indefinite-lived intangible assets, we expect to continue to generate deferred tax liabilities in future periods exclusive of any impairment losses in future periods. These deferred tax liabilities and net operating loss carryforwards result in differences between our provision for income tax and cash paid for taxes.
 
24

We review and reevaluate uncertain tax positions on a quarterly basis. Changes in assumptions may result in the recognition of a tax benefit or an additional charge to the tax provision.
NOTE 14. COMMITMENTS AND CONTINGENCIES
The company enters into various agreements in the normal course of business that contain minimum guarantees. Minimum guarantees are typically tied to future events, such as future revenue earned in excess of the contractual level. Accordingly, the fair value of these arrangements is zero.
The company also records contingent
earn-out
consideration representing the estimated fair value of future liabilities associated with acquisitions that may have additional payments due upon the achievement of certain performance targets. The fair value of the contingent
earn-out
consideration is estimated as of the acquisition date as the present value of the expected contingent payments as determined using weighted probabilities of the expected payment amounts. We review the probabilities of possible future payments to estimate the fair value of any contingent
earn-out
consideration on a quarterly basis over the
earn-out
period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results of the acquired business increase or decrease as compared to our estimates and assumptions, the estimated fair value of the contingent
earn-out
consideration liability will increase or decrease, up to the contracted limit, as applicable. Changes in the estimated fair value of the contingent
earn-out
consideration are reflected in our results of operations in the period in which they are identified. Changes in the estimated fair value of the contingent
earn-out
consideration may materially impact and cause volatility in our operating results.
The company and its subsidiaries, incident to its business activities, are parties to a number of legal proceedings, lawsuits, arbitrations, and other claims. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance. The company evaluates claims based on what we believe to be both probable and reasonably estimable. The company maintains insurance that may provide coverage for such matters. Consequently, the company is unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. The company believes, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect upon the company’s condensed consolidated financial position, results of operations or cash flows.
NOTE 15. STOCK INCENTIVE PLAN
Our Amended and Restated 1999 Stock Incentive Plan (the “Plan”) provides for grants of equity-based awards to employees,
non-employee
directors and officers, and advisors (“Eligible Persons”). A maximum of 8,000,000 shares are authorized under the Plan of which 2,450,811 were available for issuance at March 31, 2022. Insiders may participate in plans established pursuant to Rule
10b5-1
under the Exchange Act that allow them to exercise awards subject to
pre-established
criteria.
We recognize
non-cash
stock-based compensation expense based on the estimated fair value of awards in accordance with FASB ASC Topic 718 “
Compensation—Stock Compensation
.” Stock-based compensation expense fluctuates over time as a result of the vesting periods for outstanding awards and the number of awards that actually vest.
The following table reflects the components of stock-based compensation expense recognized in the Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2022 and 2021:
                 
    
Three Months Ended
March 31,
 
    
2021
    
2022
 
    
(Dollars in thousands)
 
Stock option compensation expense included in corporate expenses
   $ 28     
$
2
 
Restricted stock shares compensation expense included in corporate expenses
     —       
 
54
 
Stock option compensation expense included in broadcast operating expenses
     28     
 
30
 
Stock option compensation expense included in digital media operating expenses
     22     
 
20
 
    
 
 
    
 
 
 
Total stock-based compensation expense,
pre-tax
   $ 78     
$
106
 
    
 
 
    
 
 
 
Tax provision for stock-based compensation expense
     (20   
 
(28
    
 
 
    
 
 
 
Total stock-based compensation expense, net of tax
   $ 58     
$
78
 
    
 
 
    
 
 
 
Stock Option and Restricted Stock Grants
Eligible employees may receive stock option awards annually with the number of shares and type of instrument generally determined by the employee’s salary grade and performance level. Incentive and
non-qualified
stock option awards allow the recipient to purchase shares of our common stock at a set price, not to be less than the closing market price on the date of award, for no consideration payable by the recipient. The related number of shares underlying the stock option is fixed at the time of the grant. Options generally vest over a four-year period with a maximum term of five years from the vesting date. In addition, certain management and professional level employees may receive stock option awards upon the commencement of employment.
The Plan also allows for awards of restricted stock that contain transfer restrictions under which they cannot be sold, pledged, transferred, or assigned until the period specified in the award, generally from
one to five years. Restricted stock awards are independent of option grants and are granted at no cost to the recipient other than applicable taxes owed by the recipient. The awards are considered issued and outstanding from the date of grant.
 
25

The fair value of each award is estimated as of the date of the grant using the Black-Scholes valuation model. The expected volatility reflects the consideration of the historical volatility of our common stock as determined by the closing price over a six to
ten-year
term commensurate with the expected term of the award. Expected dividends reflect the amount of quarterly distributions authorized and declared on our Class A and Class B common stock as of the grant date. The expected term of the awards is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rates for periods within the expected term of the award are based on the U.S. Treasury yield curve in effect during the period the options were granted. We have used historical data to estimate future forfeiture rates to apply against the gross amount of compensation expense determined using the valuation model. These estimates have approximated our actual forfeiture rates.
The weighted-average assumptions used to estimate the fair value of the stock options using the Black-Scholes valuation model were as follows for the three-month periods ended March 31, 2022 and 2021:
                 
    
Three Months Ended
March 31, 2021
   
Three Months Ended
March 31, 2022
 
Expected volatility
     74.83     84.69
Expected dividends
     0.00     0.00
Expected term (in years)
     7.7       9.5  
Risk-free interest rate
     0.96     1.61
Activity with respect to the company’s option awards during the three-month period ended March 31, 2022 is as follows:
                                         
Options
   Shares     Weighted
Average
Exercise Price
     Weighted
Average Grant
Date
Fair Value
     Weighted Average
Remaining
Contractual Term
     Aggregate
Intrinsic
Value
 
    
(Dollars in thousands, except weighted average exercise price and weighted
average grant date fair value)
 
Outstanding at January 1, 2022
     1,900,417     $ 3.01      $ 1.37        4.4 years      $ 1,310  
Granted
     100,000       3.26        2.66                 —    
Exercised
     (40,913     2.31        1.16                 50  
Forfeited or expired
     (161,664     6.09        3.48                 —    
    
 
 
                                    
Outstanding at March 31, 2022
  
 
1,797,840
 
 
 
2.76
 
  
 
1.25
 
  
 
4.8 years
 
  
$
1,640
 
    
 
 
                                    
Exercisable at March 31, 2022
  
 
963,590
 
 
 
3.38
 
  
 
1.38
 
  
 
3.1 years
 
  
 
523
 
    
 
 
                                    
Expected to Vest
  
 
792,120
 
 
 
2.78
 
  
 
1.26
 
  
 
4.7 years
 
  
$
1,584
 
    
 
 
                                    
On March 1, 2022, we issued 8,170
restricted shares that vested immediately to our Chief Operating Officer under an election made pursuant to his employment agreement. The fair value of the restricted stock award was measured based on the grant date market price of our common shares. The restricted stock award contains transfer restrictions under which they cannot be sold, pledged, transferred, or assigned for two years. The restricted stock awards provide all the rights of absolute ownership of the restricted stock from the date of grant, including the right to vote the shares and to receive dividends. Restricted stock awards are independent of option grants and are granted at no cost to the recipient other than applicable taxes owed by the recipient. The awards are considered issued and outstanding from the date of grant.
On March 2, 2022, we issued 6,684
restricted shares that vested immediately to our Chief Executive Officer under an election made pursuant to his employment agreement. The fair value of the restricted stock award was measured based on the grant date market price of our common shares. The restricted stock award contains transfer restrictions under which they cannot be sold, pledged, transferred, or assigned for two years. The restricted stock awards provide all the rights of absolute ownership of the restricted stock from the date of grant, including the right to vote the shares and to receive dividends. Restricted stock awards are independent of option grants and are granted at no cost to the recipient other than applicable taxes owed by the recipient. The awards are considered issued and outstanding from the date of grant.
Activity with respect to the company’s restricted stock awards during the three-month period ended March 31, 2022 is as follows:
                                 
Restricted Stock Awards
   Shares      Weighted Average
Grant Date Fair Value
     Weighted Average
Remaining Contractual Term
     Aggregate
Intrinsic Value
 
    
(Dollars in thousands, except weighted average exercise price and weighted average
grant date fair value)
 
Outstanding at January 1, 2022
     —          —          —          —    
Granted
     14,854        3.66        —       
$
54
 
Lapsed
     —       
 
—  
 
     —          —    
Forfeited
     —       
 
—  
 
     —          —    
    
 
 
                            
Outstanding at March 31, 2022
  
 
14,854
 
  
 
3.66
 
  
 
1.9
 
  
$
50
 
    
 
 
                            
The aggregate intrinsic value represents the difference between the company’s closing stock price on March 31, 2022 of $3.39 and the option exercise price of the shares for stock options that were in the money, multiplied by the number of shares underlying such options. The total fair value of options vested during the periods ended March 31, 2022 and 2021
,
was $0.2 million and $0.1 million, respectively.
As of March 31, 2022, there was $0.1 million of total unrecognized compensation cost related to
non-vested
stock option awards. This cost is expected to be recognized over a weighted-average period of 3.2 years.
 
26

NOTE 16. EQUITY TRANSACTIONS
We account for stock-based compensation expense in accordance with FASB ASC Topic 718,
Compensation-Stock Compensation
. As a result, $0.1 million of
non-cash
stock-based compensation expense has been recorded to additional
paid-in
capital for each of the three-month periods ended March 31, 2022 and 2021.
NOTE 17. SEGMENT DATA
FASB ASC Topic 280, “
Segment Reporting
,” requires companies to provide certain information about their operating segments. We have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which also qualify as reportable segments. Our operating segments reflect how our chief operating decision makers, which we define as a collective group of senior executives, assesses the performance of each operating segment and determines the appropriate allocations of resources to each segment. We continually review our operating segment classifications to align with operational changes in our business and may make changes as necessary.
We measure and evaluate our operating segments based on operating income and operating expenses that do not include allocations of costs related to corporate functions, such as accounting and finance, human resources, legal, tax, and treasury, which are reported as unallocated corporate expenses in our condensed consolidated statements of operations included in this quarterly report on Form
10-Q.
We also exclude costs such as amortization, depreciation, taxes, and interest expense.
Segment performance, as defined by Salem, is not necessarily comparable to other similarly titled captions of other companies.
Broadcast
Our foundational business is radio broadcasting, which includes the ownership and operation of radio stations in large metropolitan markets. Our broadcasting segment includes our national networks and national sales firms. National companies often prefer to advertise across the United States as an efficient and cost-effective way to reach their target audiences. Our national platform under which we offer radio airtime, digital campaigns, and other advertisements can benefit national companies by reaching audiences throughout the United States.
Salem Radio Network
TM
(“SRN
TM
”), based in Dallas, Texas, develops, produces, and syndicates a broad range of programming specifically targeted to Christian and family-themed talk stations, music stations and News Talk stations. SRN
TM
delivers programming via satellite to approximately 3,200 affiliated radio stations throughout the United States, including several of our Salem-owned stations. SRN
TM
operates five divisions, SRN
TM
Talk, SRN
TM
News, SRN
TM
Websites, SRN
TM
Satellite Services and Salem Music Network that includes Today’s Christian Music (“TCM”) and Singing News
®
Radio.
Salem Media Representatives (“SMR”) is our national advertising sales firm with offices in 12 U.S. cities. SMR specializes in placing national advertising on Christian and talk formatted radio stations as well as other commercial radio station formats. SMR sells commercial airtime to national advertisers on our radio stations and through our networks, as well as for independent radio station affiliates. SMR also contracts with independent radio stations to create custom advertising campaigns for national advertisers to reach multiple markets.
Salem Surround, our national multimedia advertising agency with locations in 29 markets across the United States, offers a comprehensive suite of digital marketing services to develop and execute audience-based marketing strategies for clients on both the national and local level. Salem Surround specializes in digital marketing services for each of our radio stations and websites as well as provides a full-service digital marketing strategy for each of our clients.
Salem Podcast Network (“SPN”), launched in January 2021, is our platform for conservative, political, news, and family-oriented podcasts. SPN reaches over 11 million downloads per month, with one show already in the top 10 of all podcasts, and another in the top 10 in the News category according to the Apple Podcast Rankings.
Digital Media
Our digital media-based businesses provide Christian, conservative, investing content, audio and video streaming, and other resources digitally through the web. Salem Web Network (“SWN”) websites include Christian content websites; BibleStudyTools.com, Crosswalk.com
®
, Christianity.com, iBelieve.com, GodTube
®
.com, OnePlace
.com, GodUpdates.com, CrossCards
.com, ChristianHeadlines.com, and LightSource.com, and our conservative opinion websites; collectively known as Townhall Media, include Townhall.com
®
, HotAir
.com, Twitchy
®
.com, RedState
®
.com, BearingArms.com, ConservativeRadio.com and pjmedia.com. We also publish digital newsletters through Eagle Financial Publications, which provide market analysis and
non-individualized
investment strategies from financial commentators on a subscription basis.
Our church product websites, including SermonSearch
.com, ChurchStaffing.com, WorshipHouseMedia.com, SermonSpice
.com, WorshipHouseKids.com, Preaching.com, ChristianJobs.com, ShiftWorship.com, JourneyBoxMedia.com, Playbackmedia.com, and HyperPixelsMedia.com, offer a variety of digital resources including videos, song tracks, sermon archives and job listings to pastors and Church leaders.
 
27

Our web content is accessible through all of our radio station websites that feature content of interest to local audiences throughout the United States.
Publishing
Our publishing operating segment includes two businesses: (1) Regnery
®
Publishing and Salem Books, traditional book publishers that have published dozens of bestselling books by leading conservative and Christian authors and personalities and (2) Salem Author Services, a self-publishing service for authors through Xulon Press and Mill City Press.
The table below presents financial information for each operating segment as of March 31, 2022 and 2021 based on the composition of our operating segments:
                                         
    
Broadcast
   
Digital
Media
   
Publishing
   
Unallocated
Corporate
Expenses
   
Consolidated
 
    
(Dollars in thousands)
 
Three Months Ended March 31, 2022
                                        
Net revenue
  
$
48,432
 
 
$
10,300
 
 
$
3,877
 
 
$
—  
 
 
$
62,609
 
Operating expenses
  
 
38,121
 
 
 
8,473
 
 
 
4,467
 
 
 
4,810
 
 
 
55,871
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net operating income (loss) before debt modification costs, depreciation, amortization, change in the estimated fair value of contingent
earn-out
consideration and net (gain) loss on the disposition of assets
  
$
10,311
 
 
$
1,827
 
 
$
(590
 
$
(4,810
 
$
6,738
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Debt modification costs
  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
228
 
 
 
228
 
Depreciation
  
 
1,656
 
 
 
941
 
 
 
80
 
 
 
265
 
 
 
2,942
 
Amortization
  
 
4
 
 
 
330
 
 
 
—  
 
 
 
—  
 
 
 
334
 
Change in the estimated fair value of contingent
earn-out
consideration
  
 
—  
 
 
 
(5
 
 
—  
 
 
 
—  
 
 
 
(5
Net (gain) loss on the disposition of assets
  
 
(1,738
 
 
—  
 
 
 
—  
 
 
 
3
 
 
 
(1,735
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net operating income (loss)
  
$
10,389
 
 
$
561
 
 
$
(670
 
$
(5,306
 
$
4,974
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Three Months Ended March 31, 2021
                                        
Net revenue
   $ 44,048     $ 9,619     $ 5,686     $ —       $ 59,353  
Operating expenses
     33,343       8,673       5,205       4,288       51,509  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net operating income (loss) before depreciation, amortization, and net (gain) loss on the disposition of assets
   $ 10,705     $ 946     $ 481     $ (4,288   $ 7,844  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Depreciation
     1,525       781       47       236       2,589  
Amortization
     4       432       145       —         581  
Net (gain) loss on the disposition of assets
     318       —         —         —         318  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net operating income (loss)
   $ 8,858     $ (267   $ 289     $ (4,524   $ 4,356  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                                         
    
Broadcast
    
Digital
Media
    
Publishing
    
Unallocated
Corporate
    
Consolidated
 
    
(Dollars in thousands)
 
As of March 31, 2022
                                            
Inventories, net
   $ —        $ —       
$
1,371
 
  
$
—  
 
  
$
1,371
 
Property and equipment, net
  
 
62,916
 
  
 
8,270
 
  
 
706
 
  
 
8,370
 
  
 
80,262
 
Broadcast licenses
  
 
320,198
 
     —          —          —       
 
320,198
 
Goodwill
  
 
2,750
 
  
 
19,790
 
  
 
1,446
 
     —       
 
23,986
 
Amortizable intangible assets, net
  
 
225
 
  
 
1,885
 
     —          —       
 
2,110
 
As of December 31, 2021
                                            
Inventories, net
   $ —        $ —        $ 960      $ —        $ 960  
Property and equipment, net
     61,694        8,447        746        8,452        79,339  
Broadcast licenses
     320,008        —          —          —          320,008  
Goodwill
     2,750        19,790        1,446        —          23,986  
Amortizable intangible assets, net
     229        2,215        —          —          2,444  
NOTE 18. SUBSEQUENT EVENTS
On May 2, 2022, we acquired websites and related assets of Retirement Media for $0.2 million
in
cash.
Subsequent events reflect all applicable transactions through the date of the filing.
 
28

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
General
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and related notes included elsewhere in this report on Form
10-Q
and our audited Consolidated Financial Statements in our Annual Report on Form
10-K
for the year ended December 31, 2021. Our Condensed Consolidated Financial Statements are not directly comparable from period to period due to acquisitions and dispositions. Refer to Note 3 of our Condensed Consolidated Financial Statements on Form
10-Q
for details of each of these transactions.
Historical operating results are not necessarily indicative of future operating results. Actual future results may differ from those contained in or implied by the forward-looking statements as a result of various factors. These factors include, but are not limited to:
 
   
the coronavirus
COVID-19
pandemic
(“COVID-19”)
that adversely impacted our business,
 
   
risks and uncertainties relating to the need for additional funds to service our debt,
 
   
risks and uncertainties relating to the need for additional funds to execute our business strategy,
 
   
our ability to access borrowings under our ABL Facility,
 
   
reductions in revenue forecasts,
 
   
our ability to renew our broadcast licenses,
 
   
changes in interest rates,
 
   
the timing of our ability to complete any acquisitions or dispositions,
 
   
costs and synergies resulting from the integration of any completed acquisitions,
 
   
our ability to effectively manage costs,
 
   
our ability to drive and manage growth,
 
   
the popularity of radio as a broadcasting and advertising medium,
 
   
changes in consumer tastes,
 
   
the impact of general economic conditions in the United States or in specific markets in which we do business,
 
   
the impact of inflation increasing operating costs and changing consumer habits,
 
   
industry conditions, including existing competition and future competitive technologies,
 
   
disruptions or postponements of advertising schedules and programming in response to national or world events,
 
   
our ability to generate revenue from new sources, including local commerce and technology-based initiatives, and
 
   
the impact of regulatory rules or proceedings that may affect our business from time to time, and the future
write-off
of any material portion of the fair value of our FCC broadcast licenses and goodwill.
Because these factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any of these forward-looking statements. In addition, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which the statement is made, to reflect the occurrence of unanticipated events or otherwise, except as required by law.
Overview
Salem Media Group, Inc. (“Salem”) is a domestic multimedia company specializing in Christian and conservative content, with media properties comprising radio broadcasting, digital media, and publishing. Our content is intended for audiences interested in Christian and family-themed programming and conservative news talk. We maintain a website at www.salemmedia.com. Our annual reports on Form
10-K,
quarterly reports on Form
10-Q,
current reports on Form
8-K,
and any amendments to these reports are available free of charge through our website as soon as reasonably practicable after those reports are electronically filed with or furnished to the SEC.
The information on our website is not a part of or incorporated by reference into this or any other report of the company filed with, or furnished to, the SEC.
We have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which also qualify as reportable segments. Our operating segments reflect how our chief operating decision makers, which we define as a collective group of senior executives, assess the performance of each operating segment and determine the appropriate allocations of resources to each segment. We continually review our operating segment classifications to align with operational changes in our business and may make changes as necessary.
We measure and evaluate our operating segments based on operating income and operating expenses that exclude costs related to corporate functions, such as accounting and finance, human resources, legal, tax and treasury. We also exclude costs such as amortization, depreciation, taxes, and interest expense when evaluating the performance of our operating segments.
Our principal sources of broadcast revenue include:
 
   
the sale of block program time to national and local program producers;
 
   
the sale of advertising time on our radio stations to national and local advertisers;
 
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the sale of banner advertisements on our station websites or on our mobile applications;
 
   
the sale of digital streaming advertisements on our station websites or on our mobile applications;
 
   
fees earned for the creation of custom web pages and custom digital media campaigns for our advertisers through Salem Surround;
 
   
the sale of advertising time on our national network;
 
   
the syndication of programming on our national network;
 
   
the sale of advertising time through podcasts and
video-on-demand
services;
 
   
product sales and royalties for
on-air
host materials, including podcasts and programs; and
 
   
other revenue such as events, including ticket sales and sponsorships, listener purchase programs, where revenue is generated from special discounts and incentives offered to our listeners from our advertisers; talent fees for voice-overs or custom endorsements from our
on-air
personalities and production services, and rental income for studios, towers, or office space.
Our principal sources of digital media revenue include:
 
   
the sale of digital banner advertisements on our websites and mobile applications;
 
   
the sale of digital streaming advertisements on websites and mobile applications;
 
   
the support and promotion to stream third-party content on our websites;
 
   
the sale of advertisements included in digital newsletters;
 
   
the digital delivery of newsletters to subscribers; and
 
   
the sale of video and graphic downloads.
Our principal sources of publishing revenue include:
 
   
the sale of books and
e-books;
 
   
publishing fees from authors; and
 
   
the sale of digital advertising in digital newsletters;
In each of our operating segments, the rates we are able to charge for airtime, advertising and other products and services are dependent upon several factors, including:
 
   
audience share;
 
   
how well our programs and advertisements perform for our clients;
 
   
the size of the market and audience reached;
 
   
the number of impressions delivered;
 
   
the number of advertisements and programs streamed;
 
   
the number of page views achieved;
 
   
the number of downloads completed;
 
   
the number of events held, the number of event sponsorships sold and the attendance at each event;
 
   
demand for books and publications;
 
   
general economic conditions; and
 
   
supply and demand for airtime on a local and national level.
Broadcasting
Our foundational business is radio broadcasting, which includes the ownership and operation of radio stations in large metropolitan markets, our national networks and our national sales firms including Salem Surround. Revenues generated from our radio stations, networks and sales firms are reported as broadcast media revenue in our Condensed Consolidated Financial Statements included in Part 1 of this quarterly report on Form
10-Q.
Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case, revenue is reported net of the commission retained by the agency.
Broadcast revenues are impacted by the rates radio stations can charge for programming and advertising time, the level of airtime sold to programmers and advertisers, the number of impressions delivered or downloads made, and the number of events held, including the size of the event and the number of attendees. Block programming rates are based upon our stations’ ability to attract audiences that will support the program producers through contributions and purchases of their products. Advertising rates are based upon the demand for advertising time, which in turn is based on our stations and networks’ ability to produce results for their advertisers. We market ourselves to advertisers based on the responsiveness of our audiences. We do not subscribe to traditional audience measuring services for most of our radio stations. In select markets, we subscribe to Nielsen Audio, which develops monthly reports measuring a radio station’s audience share in the demographic groups targeted by advertisers. Each of our radio stations and our networks has a
pre-determined
level of time available for block programming and/or advertising, which may vary at different times of the day.
Nielsen Audio uses the Portable People Meter
TM
(“PPM
) technology to collect data for its ratings service. PPM is a small device that is capable of automatically measuring radio, television, Internet, satellite radio and satellite television signals encoded by the
 
30

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broadcaster. The PPM offers a number of advantages over traditional diary ratings collection systems, including ease of use, more reliable ratings data, shorter time periods between when advertising runs and actual listening data, and little manipulation of data by users. A disadvantage of the PPM includes data fluctuations from changes to the “panel” (a group of individuals holding PPM devices). This makes all stations susceptible to some inconsistencies in ratings that may or may not accurately reflect the actual number of listeners at any given time. We subscribe to Nielsen Audio for ratings services in 7 of our broadcast markets.
Our results are subject to seasonal fluctuations. As is typical in the broadcasting industry, our second and fourth quarter advertising revenue typically exceeds our first and third quarter advertising revenue. Seasonal fluctuations in advertising revenue correspond with quarterly fluctuations in the retail industry. Additionally, we experience increased demand for political advertising during election, or even numbered years, over
non-election
or odd numbered years. Political advertising revenue varies based on the number and type of candidates as well as the number and type of debated issues.
Our cash flows from broadcasting are affected by transitional periods experienced by radio stations when, based on the nature of the radio station, our plans for the market and other circumstances, we find it beneficial to change the station format. During this transitional period, when we develop a radio station’s listener and customer base, the station may generate negative or insignificant cash flow.
In broadcasting, trade or barter agreements are commonly used to reduce cash expenses by exchanging advertising time for goods or services. We may enter barter agreements to exchange airtime or digital advertising for goods or services that can be used in our business or that can be sold to our audience under Listener Purchase Programs. The terms of these barter agreements permit us to preempt the barter airtime or digital campaign in favor of customers who purchase the airtime or digital campaign for cash. The value of these
non-cash
exchanges is included in revenue in an amount equal to the fair value of the goods or services we receive. Each transaction is reviewed to determine that the products, supplies and/or services we receive have economic substance, or value to us. We record barter operating expenses upon receipt and usage of the products, supplies and services, as applicable. We record barter revenue as advertising spots or digital campaigns are delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Barter revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency. During the three months ended March 31, 2022 and 2021, 98% and 99%, respectively, of our broadcast revenue was sold for cash.
Broadcast operating expenses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as lease cost and utilities, (iii) marketing and promotional expenses, (iv) production and programming expenses, and (v) music license fees. In addition to these expenses, our network incurs programming costs and lease expenses for satellite communication facilities.
Digital Media
Our digital media based businesses provide Christian, conservative, investing, audio and video streaming, and other resources digitally through the web. Refer to Item 1. Business of our annual report on Form
10-K
for the year ended December 31, 2021 for a description of each of our digital media websites and operations. Revenue generated from this segment is reported as digital media revenue in our Condensed Consolidated Financial Statements included in Part 1 of this quarterly report on Form
10-Q.
Digital media revenue is impacted by the rates our sites can charge for advertising time, the level of advertisements sold, the number of impressions delivered, or the number of products sold, and the number of digital subscriptions sold. Like our broadcasting segment, our second and fourth quarter advertising revenue generally exceeds our first and third quarter advertising revenue. This seasonal fluctuation in advertising revenue corresponds with quarterly fluctuations in the retail advertising industry. We also experience fluctuations in quarter-over-quarter comparisons based on the date on which Easter is observed, as this holiday generates a higher volume of product downloads from our church product websites. Additionally, we experience increased demand for advertising time and placement during election years for political advertisements.
The primary operating expenses incurred by our digital media businesses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as lease expense and utilities, (iii) marketing and promotional expenses, (iv) royalties, (v) streaming costs, and (vi) cost of goods sold associated with certain products.
Publishing
Our publishing operations include book publishing through Regnery
®
Publishing, and self-publishing through Salem Author Services. Refer to Item 1. Business of our annual report on Form
10-K
for the year ended December 31, 2021 for a description of each of our publishing entities. Revenue generated from this segment is reported as publishing revenue in our Condensed Consolidated Financial Statements included in Part 1 of this quarterly report on Form
10-Q.
Publishing revenue is impacted by the number and the retail price of books and
e-books
sold and the number and rate at which self-published books are published. Regnery
®
Publishing revenue is impacted by elections as it generates higher levels of interest and demand for publications containing conservative and political based opinions.
Publishing operating expenses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as lease costs and utilities, (iii) marketing and promotional expenses; and (iv) cost of goods sold that includes printing and production costs, fulfillment costs, author royalties and inventory reserves.
 
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Known Trends and Uncertainties
The
COVID-19
global pandemic materially impacted our business. We experienced a rapid decline in revenue from advertising, programming, events, and book sales beginning in March 2020. Several advertisers reduced or ceased advertising spending due to the outbreak and
stay-at-home
orders that effectively shut down many businesses. The revenue decline impacted our broadcast segment, which derives substantial revenue from local advertisers who were particularly hard hit due to social distancing and government interventions, and our publishing segment, which derives revenue from book sales through retail stores and live events.
While we see progress being made in revenue returning to
pre-pandemic
levels, the pandemic continues to create significant uncertainty and disruption in the economy. These uncertainties could materially impact significant accounting estimates related to, but not limited to, allowances for doubtful accounts, impairments, and
right-of-use assets.
As a result, many estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. These estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in our consolidated financial statements.
Ongoing global supply chain disruptions from the pandemic have been further impacted with the military conflict in Ukraine. This supply chain disruption may have a material impact on our business if the disruptions interfere with our customers advertising and promotional spending.
We will experience an increase in lease expense as several of our leases have escalations that are tied to Consumer Price Index (“CPI.”) CPI increased 8.5% for the twelve months ended March 31, 2022, the largest
12-month
change since December 1981, driven in large part by the energy sector.
The growth of broadcast revenue associated with the sale of airtime remains challenged. We believe this is due to audiences spending less time commuting in cars, increased competition from other forms of content distribution, and decreases in the length of time spent listening to broadcast radio as compared to audio streaming services, podcasts, and satellite radio. These factors may lead advertisers to conclude that the effectiveness of radio has diminished. In response, we continue to enhance our digital assets to complement our broadcast content. The increased use of smart speakers, or voice activated platforms, that provide audiences with the ability to access AM and FM radio stations show increased potential for radio broadcasters to reach audiences.
Our broadcast advertising revenue is particularly dependent on advertising from our Los Angeles and Dallas markets, which generated 13.2% and 18.3%, respectively, of our total net broadcast advertising revenue during the three-month period ended March 31, 2022 compared to 13.3% and 21.9%, respectively, of our total net broadcast advertising revenue during the same period of the prior year.
Digital revenue is impacted by the nature and delivery of page views and the number of advertisements per page. We have experienced a shift in the number of page views from desktop devices to mobile devices. While mobile page views have increased dramatically, they carry a lower number of advertisements per page and are generally sold at lower rates. A shift from desktop page views to mobile device views negatively impacts revenue as mobile devices carry lower rates and less advertisement per page. Decreases in digital revenue could adversely affect our operating results, financial condition, and results of operations. To minimize the impact that any one of these areas could have, we continue to explore opportunities to cross-promote our brands and our content, and to strategically monitor costs.
Key Financial Performance Indicators—Same-Station Definition
In the discussion of our results of operations below, we compare our broadcast operating results between periods on an
as-reported
basis, which includes the operating results of all radio stations and networks owned or operated at any time during either period and on a Same Station basis. Same Station is a
Non-GAAP
financial measure used both in presenting our results to stockholders and the investment community as well as in our internal evaluations and management of the business. We believe that Same Station Operating Income provides a meaningful comparison of period over period performance of our core broadcast operations as this measure excludes the impact of new stations, the impact of stations we no longer own or operate, and the impact of stations operating under a new programming format. Our presentation of Same Station Operating Income is not intended to be considered in isolation or as a substitute for the most directly comparable financial measures reported in accordance with GAAP. Our definition of Same Station Operating Income is not necessarily comparable to similarly titled measures reported by other companies. Refer to
“NON-GAAP
FINANCIAL MEASURES” below for a reconciliation of these
non-GAAP
performance measures to the most comparable GAAP measures.
We define Same Station net broadcast revenue as net broadcast revenue from our radio stations and networks that we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. We define Same Station broadcast operating expenses as broadcast operating expenses from our radio stations and networks that we own or operate 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 Income includes those stations we own or operate 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 Income for a full calendar year is calculated as the sum of the Same Station results for each of the four quarters of that year.
 
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Non-GAAP
Financial Measures
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 our financial statements. We use these
non-GAAP
financial measures to evaluate financial results, develop budgets, manage expenditures and as a measure of performance under compensation programs.
Our 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.
Item 10(e) of Regulation
S-K
defines and prescribes the conditions under which certain
non-GAAP
financial information may be presented in this report. We closely monitor 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, and Publishing Operating Income (Loss), all of which are
non-GAAP
financial measures. We believe that these
non-GAAP
financial measures provide useful information about our core operating results, and thus, are appropriate to enhance the overall understanding of our financial performance. These
non-GAAP
financial measures are intended to provide management and investors a more complete understanding of our underlying operational results, trends, and performance.
The performance of a radio broadcasting company is customarily measured by the ability of its stations to generate SOI. We define SOI as net broadcast revenue less broadcast operating expenses. Accordingly, changes in net broadcast revenue and broadcast operating expenses, as explained above, have a direct impact on changes in SOI. SOI is not a measure of performance calculated in accordance with GAAP. SOI should be viewed as a supplement to, and not a substitute for, our results of operations presented on the basis of GAAP. We believe that SOI is a useful
non-GAAP
financial measure to investors when considered in conjunction with operating income (the most directly comparable GAAP financial measures to SOI), because it is generally recognized by the radio broadcasting industry as a tool in measuring performance and in applying valuation methodologies for companies in the media, entertainment, and communications industries. SOI is commonly used by investors and analysts who report on the industry to provide comparisons between broadcasting groups. We use SOI as one of the key measures of operating efficiency and profitability, including our internal reviews associated with impairment analysis of our indefinite-lived intangible assets. SOI does not purport to represent cash provided by operating activities. Our statement of cash flows presents our cash activity in accordance with GAAP and our income statement presents our financial performance prepared in accordance with GAAP. Our definition of SOI is not necessarily comparable to similarly titled measures reported by other companies.
We define Same Station net broadcast revenue as net broadcast revenue from our radio stations and networks that we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. We define Same Station broadcast operating expenses as broadcast operating expenses from our radio stations and networks that we own or operate 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 Income includes those stations we own or operate 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 Income for a full calendar year is calculated as the sum of the Same Station-results for each of the four quarters of that year. We use Same Station Operating Income, a
non-GAAP
financial measure, both in presenting our results to stockholders and the investment community, and in our internal evaluations and management of the business. We believe that Same Station Operating Income provides a meaningful comparison of period over period performance of our core broadcast operations as this measure excludes the impact of new stations, the impact of stations we no longer own or operate, and the impact of stations operating under a new programming format. Our presentation of Same Station Operating Income is not intended to be considered in isolation or as a substitute for the most directly comparable financial measures reported in accordance with GAAP. Our definition of Same Station net broadcast revenue, Same Station broadcast operating expenses and Same Station Operating Income is not necessarily comparable to similarly titled measures reported by other companies.
We apply a similar methodology to our digital media and publishing group. Digital Media Operating Income is defined as net digital media revenue less digital media operating expenses. Publishing Operating Income (Loss) is defined as net publishing revenue less publishing operating expenses. Digital Media Operating Income and Publishing Operating Income (Loss) are not measures of performance in accordance with GAAP. Our presentations of these
non-GAAP
financial performance measures are not to be considered a substitute for, or superior to, our operating results reported in accordance with GAAP. We believe that Digital Media Operating Income and Publishing Operating Income (Loss) are useful
non-GAAP
financial measures to investors, when considered in conjunction with operating income (the most directly comparable GAAP financial measure), because they are comparable to those used to measure performance of our broadcasting entities. We use this analysis as one of the key measures of operating efficiency, profitability, and in our internal review. This measurement does not purport to represent cash provided by operating activities. Our statement of cash flows presents our cash activity in accordance with GAAP and our income statement presents our financial performance in accordance with GAAP. Our definitions of Digital Media Operating Income and Publishing Operating Income (Loss) are not necessarily comparable to similarly titled measures reported by other companies.
We define EBITDA as net income before interest, taxes, depreciation, and amortization. We define Adjusted EBITDA as EBITDA before gains or losses on the sale or disposition of assets, before changes in the estimated fair value of contingent
earn-out
consideration, before gains on bargain purchases, before the change in fair value of interest rate swaps, before impairments, before net miscellaneous income and expenses, before (gain) loss on early retirement of debt, before (gain) loss from discontinued
 
33

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operations and before
non-cash
compensation expense. 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. 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, our results of operations and financial condition presented in accordance with GAAP. Our definitions of EBITDA and Adjusted EBITDA are 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.
We use
non-GAAP
financial measures to evaluate financial performance, develop budgets, manage expenditures, and determine employee compensation. Our presentation of this additional information is not to be considered as a substitute for, or superior to, the most directly comparable measures reported in accordance with GAAP.
Reconciliation of
Non-GAAP
Financial Measures:
In the tables below, we present a reconciliation of net broadcast revenue, the most comparable GAAP measure, to Same Station net broadcast revenue, and broadcast operating expenses, the most comparable GAAP measure to Same Station broadcast operating expense. We show our calculation of Station Operating Income and Same Station Operating Income, which is reconciled from net income, the most comparable GAAP measure in the table following our calculation of Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of these
non-GAAP
measures are not to be considered a substitute for, or superior to, the most directly comparable measures reported in accordance with GAAP.
 
    
Three Months Ended March 31,
 
    
    2021    
    
    2022    
 
    
(Dollars in thousands)
 
Reconciliation of Net Broadcast Revenue to Same Station Net Broadcast Revenue
 
Net broadcast revenue
   $ 44,048     
$
48,432
 
Net broadcast revenue—acquisitions
     —       
 
(233
Net broadcast revenue—dispositions
     (17   
 
7
 
Net broadcast revenue—format change
     (65   
 
(111
  
 
 
    
 
 
 
Same Station net broadcast revenue
   $ 43,966     
$
48,095
 
  
 
 
    
 
 
 
     
Reconciliation of Broadcast Operating Expenses to Same Station Broadcast Operating Expenses
 
Broadcast operating expenses
   $ 33,343     
$
38,121
 
Broadcast operating expenses—acquisitions
     (1   
 
(216
Broadcast operating expenses—dispositions
     (133   
 
(24
Broadcast operating expenses—format change
     (131   
 
(132
  
 
 
    
 
 
 
Same Station broadcast operating expenses
   $ 33,078     
$
37,749
 
  
 
 
    
 
 
 
     
Reconciliation of Operating Income (Loss) to Same Station Operating Income
 
Station Operating Income
   $ 10,705     
$
10,311
 
Station operating (income) loss—acquisitions
     1     
 
(17
Station operating loss—dispositions
     116     
 
31
 
Station operating loss—format change
     66     
 
21
 
  
 
 
    
 
 
 
Same Station—Station Operating Income
   $ 10,888     
$
10,346
 
  
 
 
    
 
 
 
In the table below, we present our calculations of Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of these
non-GAAP
performance indicators are not to be considered a substitute for, or superior to, the directly comparable measures reported in accordance with GAAP.
 
    
Three Months Ended
 
    
March 31,
 
    
2021
    
2022
 
    
(Dollars in thousands)
 
Calculation of Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)
 
Net broadcast revenue
   $ 44,048     
$
48,432
 
Less broadcast operating expenses
     (33,343   
 
(38,121
  
 
 
    
 
 
 
Station Operating Income
   $ 10,705     
$
10,311
 
  
 
 
    
 
 
 
Net digital media revenue
   $ 9,619     
$
10,300
 
Less digital media operating expenses
     (8,673   
 
(8,473
  
 
 
    
 
 
 
Digital Media Operating Income
   $ 946     
$
1,827
 
  
 
 
    
 
 
 
Net publishing revenue
   $ 5,686     
$
3,877
 
Less publishing operating expenses
     (5,205   
 
(4,467
  
 
 
    
 
 
 
Publishing Operating Income (Loss)
   $ 481     
$
(590
  
 
 
    
 
 
 
 
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Table of Contents
In the table below, we present a reconciliation of net income, the most directly comparable GAAP measure to Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of these
non-GAAP
performance indicators are not to be considered a substitute for, or superior to, the most directly comparable measures reported in accordance with GAAP.
 
    
Three Months Ended
 
    
March 31,
 
    
2021
   
2022
 
    
(Dollars in thousands)
 
Reconciliation of Net Income to Operating Income and Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)
 
Net income
   $ 323    
$
1,739
 
Plus provision for (benefit from) income taxes
     130       (211
Plus net miscellaneous income and (expenses)
     (22     (1
Plus loss on early retirement of long-term debt
     —         53  
Plus interest expense, net of capitalized interest
     3,926       3,394  
Less interest income
     (1     —    
  
 
 
   
 
 
 
Net operating income
   $ 4,356    
$
4,974
 
  
 
 
   
 
 
 
Plus net (gain) loss on the disposition of assets
     318       (1,735
Plus change in the estimated fair value of contingent
earn-out
consideration
     —         (5
Plus debt modification costs
     —         228  
Plus depreciation and amortization
     3,170       3,276  
Plus unallocated corporate expenses
     4,288       4,810  
  
 
 
   
 
 
 
Combined Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)
   $ 12,132    
$
11,548
 
  
 
 
   
 
 
 
Station Operating Income
   $ 10,705    
$
10,311
 
Digital Media Operating Income
     946    
 
1,827
 
Publishing Operating Income (Loss)
     481    
 
(590
  
 
 
   
 
 
 
   $ 12,132    
$
11,548
 
  
 
 
   
 
 
 
In the table below, we present a reconciliation of Adjusted EBITDA to EBITDA to Net Income, the most directly comparable GAAP measure. EBITDA and Adjusted EBITDA are
non-GAAP
financial performance measures that are not to be considered a substitute for, or superior to, the most directly comparable measures reported in accordance with GAAP.
 
    
Three Months Ended
 
    
March 31,
 
    
  2021  
    
  2022  
 
    
(Dollars in thousands)
 
Reconciliation of Adjusted EBITDA to EBITDA to Net Income
 
Net income
   $ 323     
$
1,739
 
Plus interest expense, net of capitalized interest
     3,926     
 
3,394
 
Plus provision for (benefit from) income taxes
     130     
 
(211
Plus depreciation and amortization
     3,170     
 
3,276
 
Less interest income
     (1      —    
  
 
 
    
 
 
 
EBITDA
   $ 7,548     
$
8,198
 
  
 
 
    
 
 
 
Plus net (gain) loss on the disposition of assets
     318     
 
(1,735
Plus change in the estimated fair value of contingent
earn-out
consideration
     —       
 
(5
Plus debt modification costs
     —       
 
228
 
Plus net miscellaneous (income) and expenses
     (22   
 
(1
Plus loss on early retirement of long-term debt
     —       
 
53
 
Plus
non-cash
stock-based compensation
     78     
 
106
 
  
 
 
    
 
 
 
Adjusted EBITDA
   $ 7,922     
$
6,844
 
  
 
 
    
 
 
 
 
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Table of Contents
RESULTS OF OPERATIONS
Three months ended March 31, 2022 compared to the three months ended March 31, 2021
The following factors affected our results of operations and cash flows for the three months ended March 31, 2022 as compared to the same period of the prior year:
Acquisitions and Divestitures
The operating results of our business acquisitions and asset purchases are included in our consolidated results of operations from their respective closing date or the date that we began operating them under an LMA or TBA. The operating results of business and asset divestitures are excluded from our consolidated results of operations from their respective closing date or the date that a third-party began operating them under an LMA or TBA.
 
   
On February 15, 2022, we closed on the acquisition of radio station
WLCC-AM
and an FM translator in the Tampa, Florida market for $0.6 million of cash.
 
   
On January 10, 2022, we closed on the sale of 4.5 acres of land in Phoenix, Arizona for $2.0 million in cash. We recorded a
pre-tax
gain of $1.8 million on the sale and have access to the land for
90-days
to relocate our transmitter equipment for
KXXT-AM.
Debt Transactions
 
   
During the three months ended March 31, 2022, we completed repurchases of $2.5 million of the 2024 Notes for $2.5 million in cash, recognizing a net loss of $53,000 after adjusting for bond issuance costs as detailed in Note 11 – Long-Term Debt.
Net Broadcast Revenue
 
    
Three Months Ended March 31,
 
     2021     
2022
     Change $      Change %     2021    
2022
 
    
(Dollars in thousands)
           % of Total Net Revenue  
Net Broadcast Revenue
   $ 44,048     
$
48,432
 
   $ 4,384        10.0     74.2  
 
77.4
Same Station Net Broadcast Revenue
   $ 43,966     
$
48,095
 
   $ 4,129        9.4    
The following table shows the dollar amount and percentage of net broadcast revenue for each broadcast revenue source.
 
    
Three Months Ended March 31,
 
     2021    
2022
 
    
(Dollars in thousands)
 
Block Programming:
          
National
   $ 11,461        26.0  
$
13,059
 
  
 
27.0
Local
     5,956        13.5  
 
6,173
 
  
 
12.7
  
 
 
    
 
 
   
 
 
    
 
 
 
     17,417        39.5  
 
19,232
 
  
 
39.7
Broadcast Advertising:
          
National
     3,660        8.3  
 
3,641
 
  
 
7.5
Local
     8,895        20.2  
 
10,283
 
  
 
21.2
  
 
 
    
 
 
   
 
 
    
 
 
 
     12,555        28.5  
 
13,924
 
  
 
28.7
Station Digital (local)
     7,069        16.0  
 
8,206
 
  
 
16.9
Infomercials
     237        0.5  
 
191
 
  
 
0.4
Network
     4,871        11.1  
 
4,831
 
  
 
10.0
Other Revenue
     1,899        4.3  
 
2,048
 
  
 
4.2
  
 
 
    
 
 
   
 
 
    
 
 
 
Net Broadcast Revenue
   $ 44,048        100.0  
$
48,432
 
  
 
100.0
  
 
 
    
 
 
   
 
 
    
 
 
 
Block programming revenue increased 10.4% to $19.2 million from $17.4 million, including a $1.6 million increase in national programming and a $0.2 million increase in local programming. Our 2022 annual renewals included an average rate increase of 2.6% in national programming that, along with an increase in demand from the expansion of existing programs and the launch of new programs, resulted in higher revenue. National programming from our Christian Teaching and Talk format radio stations increased $1.4 million while News Talk increased $0.2 million. Local programming increased $0.1 million from our Christian Teaching and Talk format radio stations and $0.1 million from our News Talk format radio stations.
Net advertising revenue increased 10.9%, or $1.4 million ($1.0 million net of political) to $13.9 million from $12.6 million, driven by an increase in local spots. National spot sales declined $0.2 million excluding political while local spot sales increased $1.3 million excluding political revenue. The largest increase was $0.6 million from our News Talk format stations followed by $0.4 million from other format radio stations and $0.2 million from Christian Teaching and Talk format ratio stations. The increase reflects a higher demand for advertising as pandemic restrictions ease but is still not back to its
pre-pandemic
levels. National spot advertising is down as many national advertisers are being cautious with their ad spending due to concerns about inflation and the state of the economy.
 
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Table of Contents
Broadcast digital revenue, net of agency commissions, or net digital revenue generated from our broadcast markets and networks increased by $1.1 million. Increases in broadcast digital revenue include a $1.3 million increase in digital marketing services through Salem Surround, a $0.2 million increase in streaming revenue, and a $0.2 million increase in digital advertising revenue from our station websites, that were offset by a $0.4 million decrease from our networks and $0.1 million decrease from Salem Podcast Network. There were no significant changes in digital rates as compared to the prior year.
Declines in infomercial revenue were due to a reduction in the number of infomercials aired with no significant changes in rates as compared to the prior year. The placement of infomercials can vary significantly from one period to another due to the number of time slots available and the degree to which the infomercial content is considered to be of interest to our audience.
Network revenue, net of amounts reported as digital, decreased by $40,000 due to a $0.1 million decline in political advertising partially offset from a slight increase in revenue from our nationally syndicated host programs.
Other revenue increased by $0.1 million due to event revenue that varies from period to period based on the nature and timing of events, audience demand, and in some cases, the weather which can affect attendance. We will continue to offer virtual events as conditions warrant.
On a Same Station basis, net broadcast revenue increased $4.1 million, which reflects these items net of the impact of stations acquisitions, dispositions, and format changes.
Net Digital Media Revenue
 
    
Three Months Ended March 31,
 
     2021     
2022
     Change $      Change %     2021    
2022
 
    
(Dollars in thousands)
           % of Total Net Revenue  
Net Digital Media Revenue
   $ 9,619     
$
10,300
 
   $ 681        7.1     16.2  
 
16.5
The following table shows the dollar amount and percentage of net digital media revenue for each digital media revenue source.
 
    
Three Months Ended March 31,
 
     2021    
2022
 
    
(Dollars in thousands)
        
Digital Advertising, net
   $ 4,413        45.9  
$
4,539
 
  
 
44.1
Digital Streaming
     844        8.8    
 
901
 
  
 
8.7
 
Digital Subscriptions
     2,773        28.8    
 
3,152
 
  
 
30.6
 
Digital Downloads
     1,510        15.7    
 
1,664
 
  
 
16.2
 
Other Revenues
     79        0.8    
 
44
 
  
 
0.4
 
  
 
 
    
 
 
   
 
 
    
 
 
 
Net Digital Media Revenue
   $ 9,619        100.0  
$
10,300
 
  
 
100.0
  
 
 
    
 
 
   
 
 
    
 
 
 
Digital advertising revenue net of agency commissions, or national net digital revenue, increased $0.1 million on a consolidated basis including a $0.2 million increase from Salem Web Network that was offset with a $0.1 decline from Eagle Financial Publications. There were no significant changes from Townhall Media.
Digital streaming revenue increased $0.1 million based on increased demand for content available from our Christian websites. There were no significant changes in sales volume or rates.
Digital subscription revenue increased $0.4 million on a consolidated basis reflecting a $0.3 million increase from Salem Web Network and a $0.2 million increase from Townhall VIP, that were offset with a $0.1 million decline from Eagle Financial Publications.
Digital download revenue increased by $0.2 million including a $0.1 million increase in volume from our church product websites with no significant changes in rates and a $0.1 million increase in the number of downloads from Eagle Financial Publications with no significant changes in rates.
Other revenue includes revenue sharing arrangements for mobile applications and mail list rentals which remained consistent as with no changes in volume or rates.
Net Publishing Revenue
 
    
Three Months Ended March 31,
 
     2021     
2022
     Change $     Change %     2021    
2022
 
    
(Dollars in thousands)
          % of Total Net Revenue  
Net Publishing Revenue
   $ 5,686     
$
3,877
 
   $ (1,809     (31.8 )%      9.6  
 
6.2
The following table shows the dollar amount and percentage of net publishing revenue for each publishing revenue source.
 
37

Table of Contents
    
Three Months Ended March 31,
 
     2021    
2022
 
    
(Dollars in thousands)
 
Book Sales
   $ 4,301        75.6  
$
2,561
 
  
 
66.1
Estimated Sales Returns & Allowances
     (1,093      (19.2  
 
(835
  
 
(21.5
  
 
 
    
 
 
   
 
 
    
 
 
 
Net Book Sales
     3,208        56.4    
 
1,726
 
  
 
44.6
 
E-Book
Sales
     339        6.0    
 
287
 
  
 
7.4
 
Self-Publishing Fees
     1,624        28.5    
 
1,727
 
  
 
44.5
 
Print Magazine Subscriptions
     158        2.8    
 
—  
 
  
 
—  
 
Print Magazine Advertisements
     68        1.2    
 
—  
 
  
 
—  
 
Digital Advertising
     62        1.1    
 
—  
 
  
 
—  
 
Other Revenue
     227        4.0    
 
137
 
  
 
3.5
 
  
 
 
    
 
 
   
 
 
    
 
 
 
Net Publishing Revenue
   $ 5,686        100.0  
$
3,877
 
  
 
100.0
  
 
 
    
 
 
   
 
 
    
 
 
 
Net book sales declined by $1.5 million, which includes a $1.4 million decline from Regnery Publishing, as book sales reflect a 3% decrease in the average price per unit sold, a 35% decrease in volume and a $0.1 million decline from Salem Author Services. Book sales through Regnery Publishing are directly attributable to the number and popularity of titles released each period and the composite mix of titles available. Revenues vary significantly from period to period based on the book release date and the number and popularity of titles. The decline of $0.3 million in estimated sales returns and allowances reflects a lower number of print books sold through Regnery Publishing. The decline in book sales from Salem Author Services was due to a reduction in the number of books sold with no significant changes in sale prices.
Regnery Publishing
e-book
sales declined by $52,000 with a 47% decrease in the average price per unit sold offset with a 60% increase in sales volume due to an increased use of discounted sales prices to increase volume.
E-book
sales can also vary based on the composite mix of titles released and available in each period. Revenues can vary significantly based on the book release date and the number of titles that achieve placement on bestseller lists, which can increase awareness and demand for the book.
Self-publishing fees increased $0.1 million due an increase in the number of authors with no material change in fees charged to authors.
There have been no sales of print magazine subscriptions and print advertising revenues following the sale of Singing News Magazine on May 25, 2021. Digital advertising was not significant to Publishing and is no longer sold.
Other revenue includes change fees, video trailers and website revenues. There were no changes in volume or rates.
Broadcast Operating Expenses
 
    
Three Months Ended March 31,
 
     2021     
2022
     Change $      Change %     2021    
2022
 
    
(Dollars in thousands)
           % of Total Net Revenue  
Broadcast Operating Expenses
   $ 33,343     
$
38,121
 
   $ 4,778        14.3     56.2  
 
60.9
Same Station Broadcast Operating Expenses
   $ 33,078     
$
37,749
 
   $ 4,671        14.1    
Broadcast operating expenses increased by $4.8 million, including a $3.0 million increase from broadcast stations, a $1.2 million increase from Salem Surround, and a $0.6 million increase from Salem Podcast Network. The increase in expenses associated with Salem Surround and Salem Podcast Network are consistent with the growth of these entities in expanding digital product offerings through our broadcast division. The increase of $3.0 million from our broadcast stations includes a $1.1 million increase in payroll costs primarily driven by an increase in commissions and the January 2022 reinstatement of the company 401(k) match, a $0.5 million increase in advertising and event costs, a $0.4 million increase in facility-related expenses, a $0.3 million increase in travel and entertainment, a $0.3 million increase in bad debt expense, a $0.2 million increase in health insurance costs and a $0.2 million increase in production and programming costs.
On a same-station basis, broadcast operating expenses increased by $4.7 million. The increase in broadcast operating expenses on a same station basis reflects these items net of the impact of station acquisitions, dispositions, and format changes.
Digital Media Operating Expenses
 
    
Three Months Ended March 31,
 
     2021     
2022
     Change $     Change %     2021    
2022
 
    
(Dollars in thousands)
          % of Total Net Revenue  
Digital Media Operating Expenses
   $ 8,673     
$
8,473
 
   $ (200     (2.3 )%      14.6  
 
13.5
Digital media operating expenses declined by $0.2 million including a $0.3 million decrease in royalties, a $0.1 million decrease in sales-based commissions and bonuses, a $0.1 million decrease in advertising and promotional expenses and a $0.1 million decrease in professional services, that were partially offset by a $0.4 million increase in employee related costs including $0.1 million associated with the reinstatement of the company 401(k) match effective January 1, 2022.
Publishing Operating Expenses
 
    
Three Months Ended March 31,
 
     2021     
2022
     Change $     Change %     2021    
2022
 
    
(Dollars in thousands)
          % of Total Net Revenue  
Publishing Operating Expenses
   $ 5,205     
$
4,467
 
   $ (738     (14.2 )%      7.1  
 
8.8
 
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Publishing operating expenses declined $0.7 million, including a $0.3 million decrease in the cost of sales and a $0.1 million decrease in royalty expense consistent with lower revenues and a $0.3 million decrease in payroll costs due to the sale of Singing News Magazine in May 2021. The decrease in cost of sales includes a $0.2 million reduction from the number of print books sold by Regnery
®
Publishing and a $0.1 million decline from the sale of Singing News Magazine. The gross profit margin for Regnery
®
Publishing declined to 45% from 63% as sales volume decreased. Regnery
®
Publishing margins vary based on the volume of
e-book
sales, which have higher margins due to the nature of delivery and no reserve for sales returns and allowances. The gross profit margin for Salem Author Services improved to 78% from 76%.
Unallocated Corporate Expenses
 
    
Three Months Ended March 31,
 
     2021     
2022
     Change $      Change %     2021    
2022
 
    
(Dollars in thousands)
           % of Total Net Revenue  
Unallocated Corporate Expenses
   $ 4,288     
$
4,810
 
   $ 522        12.2     7.2  
 
7.7
Unallocated corporate expenses include shared services, such as accounting and finance, human resources, legal, tax, and treasury, that are not directly attributable to any one of our operating segments. The increase of $0.5 million includes a $0.4 million increase in employee related costs associated with executive bonuses and the reinstatement of the company 401(k) match effective January 1, 2022, and a $0.1 million increase in professional services.
Debt Modification Costs
 
    
Year Ended December 31,
 
     2021     
2022
     Change $      Change %     2021    
2022
 
    
(Dollars in thousands)
           % of Total Net Revenue  
Debt Modification Costs
   $ —       
$
228
 
   $ 228        100.0     —    
 
0.4
We recorded additional debt modification costs of $0.2 million during the first quarter of 2022 associated with the exchange of $112.8 million of the 2024 Notes for $114.7 million of the 2028 Notes.
Depreciation Expense
 
    
Three Months Ended March 31,
 
     2021     
2022
     Change $      Change %     2021    
2022
 
    
(Dollars in thousands)
           % of Total Net Revenue  
Depreciation Expense
   $ 2,589     
$
2,942
 
   $ 353        13.6     4.4  
 
4.7
Depreciation expense increased due to recent acquisitions of property and equipment, including assets of Centerline New Media in April 2021 and ShiftWorship.com in July 2021, in addition to an increase in capital expenditures for data processing equipment and computer software that had shorter estimated useful lives as compared to towers or other assets. There were no changes in our depreciation methods or in the estimated useful lives of our asset groups.
Amortization Expense    
 
    
Three Months Ended March 31,
 
     2021     
2022
     Change $     Change %     2021    
2022
 
    
(Dollars in thousands)
          % of Total Net Revenue  
Amortization Expense
   $ 581     
$
334
 
   $ (247     (42.5 )%      1.0  
 
0.5
The decrease in amortization expense reflects the impact of fully amortized domain names, customer lists and contracts, and subscriber base lists that had estimated useful lives of three to five years. These items were fully amortized at, or near the beginning of 2021, resulting in lower amortization expense. There were no changes in our amortization methods or the estimated useful lives of our asset groups.
Net (Gain) Loss on the Disposition of Assets
 
    
Three Months Ended March 31,
 
     2021     
2022
    Change $     Change %     2021    
2022
 
    
(Dollars in thousands)
          % of Total Net Revenue  
Net (Gain) Loss on the Disposition of assets
   $ 318     
$
(1,735
  $ (2,053     (645.6 )%      0.5  
 
(2.8
)% 
The net gain on the disposition of assets of $1.7 million for the three-month period ending March 31, 2022, reflects the sale of land in Phoenix, Arizona offset with losses from various fixed asset disposals.
The net loss on the disposition of assets of $0.3 million for the three-month period ending March 31, 2021, relates to the additional loss recorded at closing on the sale of radio station
WKAT-AM
and FM translator in Miami, Florida.
 
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Other Income (Expense)
 
    
Three Months Ended March 31,
 
     2021    
2022
    Change $     Change %     2021    
2022
 
    
(Dollars in thousands)
          % of Total Net Revenue  
Interest Income
   $ 1    
$
—  
 
  $ (1     (100.0 )%   
 
—  
 
 
—  
Interest Expense
     (3,926  
 
(3,394
    (532     (13.6 )%   
 
(6.6
)% 
 
 
(5.4
)% 
Loss on Early Retirement of Long-Term Debt
     —      
 
(53
    (53     (100.0 )%   
 
—  
 
 
(0.1
)% 
Net Miscellaneous Income and (Expenses)
     22    
 
1
 
    (21     (95.5 )%   
 
—  
 
 
—  
Interest income represents earnings on excess cash and interest due under promissory notes.
Interest expense includes interest due on outstanding debt balances, and
non-cash
accretion associated with deferred installments and contingent
earn-out
consideration from certain acquisitions. The decrease of $0.5 million reflects the lower outstanding balance of the Notes, the lower outstanding balance of the ABL Facility, and finance lease obligations outstanding during the three-months ended March 31, 2022.
The loss on the early retirement of long-term debt for the three months ended March 31, 2022, reflects $2.5 million of repurchases of the Notes at prices below face value resulting in a
pre-tax
loss of $53,000.
Net miscellaneous income and expenses includes
non-operating
receipts such as usage fees and other expenses.
Provision for (Benefit from) Income Taxes
 
    
Three Months Ended March 31,
 
     2021     
2022
    Change $     Change %     2021    
2022
 
    
(Dollars in thousands)
          % of Total Net Revenue  
Provision for (Benefit from) Income Taxes
   $ 130     
$
(211
  $ (341     (262.3 )%      0.2  
 
(0.3
)% 
We recognized a tax benefit of $0.2 million for the three months ended March 31, 2022, as compared to a tax provision of $0.1 million for the same period of the prior year. The benefit from income taxes as a percentage of income before income taxes, or the effective tax rate, was (13.8)% for the three months ended March 31, 2022, compared to 28.7% for the same period of the prior year. The effective tax rate for each period differs from the federal statutory income rate of 21.0% due to the effect of the sale of business assets in various states, state income taxes, certain expenses that are not deductible for tax purposes, and changes in the valuation allowance. The effective tax rate of (13.8)% is primarily driven by projected utilization of operating loss carryforwards, along with certain expenses that are nondeductible for income tax purposes relative to
pre-tax
book income, and tax expense attributable to deductible amortization on indefinite lived assets for fully valued state jurisdictions for state jurisdictions in which a full valuation allowance has been recording against net operating loss carryforward.
Net Income
 
    
Three Months Ended March 31,
 
     2021     
2022
     Change $      Change %     2021    
2022
 
    
(Dollars in thousands)
           % of Total Net Revenue  
Net Income
   $ 323     
$
1,739
 
   $ 1,416        438.4     0.5  
 
2.8
Net income increased by $1.4 million to $1.7 million for the three months ended March 31, 2022, compared to $0.3 million during the same period of the prior year as described above.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates require the use of judgment as future events, and the effect of these events cannot be predicted with certainty. The
COVID-19
pandemic created significant uncertainty and disruption in the global economy and financial markets. It is reasonably possible that these uncertainties could materially impact our estimates related to, but not limited to, revenue recognition, broadcast licenses, goodwill, and income taxes. As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility.
Our estimates may change as new events occur and additional information emerges and such changes are recognized or disclosed in our consolidated financial statements. We evaluate and update our assumptions and estimates on an ongoing basis and we may consult outside experts to assist as considered necessary. There have been no significant and material changes in our critical accounting policies as compared to those disclosed in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations – Critical Accounting Policies and Significant Judgments and Estimates” in our most recent Annual Report on Form
10-K,
as filed with the SEC on March 4, 2022.
 
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LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of funds are operating cash flows, borrowings under credit facilities, and proceeds from the sale of selected assets or businesses. We have historically funded, and will continue to fund, expenditures for operations, administrative expenses, and capital expenditures from these sources. We have historically financed acquisitions through borrowings, including borrowings under credit facilities and, to a lesser extent, from operating cash flow and from proceeds on selected asset dispositions. We expect to fund future acquisitions from cash on hand, borrowings under our credit facilities, operating cash flow, and possibly through the sale of income-producing assets or proceeds from debt and equity offerings.
The
COVID-19
global pandemic materially impacted our business. We experienced a rapid decline in revenue from advertising, programming, events, and book sales that began in March 2020. Several advertisers reduced or ceased advertising spending due to the outbreak and
stay-at-home
orders that effectively shut down many businesses. The revenue decline has a more meaningful impact on our broadcast segment, which derives substantial revenue from local advertisers who were particularly hard hit due to social distancing and government interventions, and our publishing segment, which derives revenue from book sales through retail stores and live events.
While we see progress being made in revenue returning to
pre-pandemic
levels, the
COVID-19
pandemic continues to create significant uncertainty and disruption in the economy. These uncertainties could materially impact significant accounting estimates related to, but not limited to, allowances for doubtful accounts, impairments, and
right-of-use
assets. As a result, many estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. These estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
During 2020 we implemented several measures to reduce costs and conserve cash to ensure that we had adequate liquidity to meet our debt servicing requirements. As the economy began to show signs of recovery, we reversed several of these cost reduction initiatives during 2021. We continue to operate with lower staffing levels where appropriate, we have not declared or paid equity distributions on our common stock, and the company 401(k) match was not reinstated until January 2022.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act provided emergency economic assistance for individuals and businesses impacted by the
COVID-19
pandemic, including opportunities for additional liquidity, loan guarantees, and other government programs. On December 27, 2020, Congress passed the Consolidated Appropriations Act (“CAA”) that included a second relief package, which, among other things, provides for an extension of the Payroll Support Program established by the CARES Act. We utilized certain benefits of the CARES Act and the CAA, including:
 
   
We deferred $3.3 million of employer FICA taxes from April 2020 through December 2020, of which 50% was paid in December 2021 and the remaining 50% is payable in December 2022;
 
   
A relaxation of interest expense deduction limitation for income tax purposes;
 
   
We received Paycheck Protection Program (“PPP”) loans of $11.2 million in total during the first quarter of 2021 through the Small Business Association (“SBA”) based on the eligibility as determined on a
per-location
basis; and
 
   
In July 2021, the SBA forgave all but $20,000 of the PPP loans, with the remaining PPP loan repaid in July 2021.
During 2020 we began to keep higher balances of cash and cash equivalents
on-hand
to meet operating needs due to the adverse economic conditions of the
COVID-19
pandemic. Historically, we kept the balance of cash and cash equivalents
on-hand
low in order to reduce the balance of outstanding debt. Our ABL Facility automatically covers any shortfalls in operating cash flows such that we are not required to hold excess cash balances on hand. Our cash and cash equivalents decreased $23.4 million to nil at March 31, 2022 as compared to $23.4 million at March 31, 2021. Working capital decreased $22.5 million to $(13.7) million at March 31, 2022 compared to $8.8 million at March 31, 2021 due to the $23.4 million decrease in cash and cash equivalents.
Operating Cash Flows
Our largest source of operating cash inflows are receipts from customers in exchange for advertising and programming. Other sources of operating cash inflows include receipts from customers for digital downloads and streaming, book sales, subscriptions, self-publishing fees, ticket sales, sponsorships, and vendor promotions. The adverse economic impact of the
COVID-19
pandemic has negatively impacted our revenue and cash receipts from customers. A majority of our operating cash outflows consist of payments to employees, such as salaries and benefits, vendor payments under facility and tower leases, talent agreements, inventory purchases and recurring services such as utilities and music license fees. Our operating cash flows are subject to factors such as fluctuations in preferred advertising media and changes in demand caused by shifts in population, station listenership, demographics, and audience tastes. In addition, our operating cash flows may be affected if our customers are unable to pay, delay payment of amounts owed to us, or if we experience reductions in revenue or increases in costs and expenses.
 
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Net cash provided by operating activities during the three-month period ended March 31, 2022 decreased by $4.9 million to $4.3 million compared to $9.2 million during the same period of the prior year. The increase in cash provided by operating activities includes the impact of the following items:
 
   
Total net revenue increased by $3.3 million;
 
   
Operating expenses exclusive of depreciation, amortization, changes in the estimated fair value of contingent
earn-out
consideration, impairments and net gain (loss) on the disposition of assets, increased by $4.4 million;
 
   
Trade accounts receivables, net of allowances, increased by $2.3 million compared to a decrease of $1.5 million for the same period of the prior year;
 
   
Unbilled revenue decreased $0.4 million;
 
   
Our Day’s Sales Outstanding, or the average number of days to collect cash from the date of sale, decreased to 51 days at March 31, 2022 from 54 days in the same period of the prior year;
 
   
Net accounts payable and accrued expenses increased $2.4 million to $30.1 million from $27.7 million as of the prior year; and
 
   
Net inventories on hand increased $0.4 million to $1.4 million at March 31, 2022 compared to a $0.1 million decrease to $0.6 million for the same period of the prior year.
Investing Cash Flows
Our primary source of investing cash inflows includes proceeds from the sale of assets or businesses. Investing cash outflows include cash payments made to acquire businesses, to acquire property and equipment and to acquire intangible assets such as domain names. While our focus continues to be on deleveraging the company, we remain committed to exploration and pursuit of strategic acquisitions.
We undertake projects from time to time to upgrade our radio station technical facilities and/or FCC broadcast licenses, expand our digital and
web-based
offerings, improve our facilities, and upgrade our computer infrastructures. The nature and timing of these upgrades and expenditures can be delayed or scaled back at the discretion of management. Based on our original 2022 budget, we plan to incur additional capital expenditures of approximately $8.3 million during the remainder of 2022.
We plan to fund any future purchases and any future acquisitions from cash on hand, operating cash flow or our credit facilities.
Net cash used in investing activities increased $6.2 million to $4.9 million during the three-month period ended March 31, 2022 from net cash provided of $1.3 million during the same period of the prior year. The increase in cash used in investing activities was the result of:
 
   
Cash paid for capital expenditures increased $1.5 million to $3.4 million from $1.9 million;
 
   
Cash paid for investments was $3.0 million in the current year;
 
   
We received $2.0 million of cash from the sale of assets during the three months ended March 31, 2022 compared to $3.5 million of cash during same period of the prior year; and
 
   
Cash paid for acquisitions was $0.5 million for the three months ended March 31, 2022 compared to $0.1 million during the same period of the prior year.
Financing Cash Flows
Financing cash inflows include borrowings under our credit facilities and any proceeds from the exercise of stock options issued under our stock incentive plan. Financing cash outflows include repayments of our credit facilities, the payment of equity distributions and payments of amounts due under deferred installments, and contingency
earn-out
consideration associated with acquisition activity.
During the three-month period ended March 31, 2022, the principal balances outstanding under the Notes and ABL Facility ranged from $174.3 million to $213.5 million. These outstanding balances were ordinary and customary based on our operating and investing cash needs during this time.
Our sole source of cash available for making any future equity distributions is our operating cash flow, subject to our credit facilities and Notes, which contain covenants that restrict the payment of dividends and equity distributions unless certain specified conditions are satisfied. On May 6, 2020, our Board of Directors voted to discontinue equity distributions until further notice due to the adverse economic impact of the
COVID-19
pandemic on our financial position, results of operations, and cash flows.
Net cash used in financing activities decreased $7.8 million to $1.2 million during the three-month period ended March 31, 2022 from net cash provided of $6.6 million during the same period of the prior year. The decrease in cash provided from financing activities includes:
 
   
Proceeds of $11.2 million under PPP loans were received during the three-months ended March 31, 2021;
 
   
A $1.2 million increase in the book overdraft during the three-months ended March 31, 2022;
 
   
We used $2.5 million of cash to repurchase $2.5 million in face value of the 2024 Notes during the three-months ended March 31, 2022; and
 
   
Net repayments on our ABL Facility of $5.0 million during the three months ended March 31, 2021.
 
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Salem Media Group, Inc. has no independent assets or operations, the subsidiary guarantees relating to certain debt are full and unconditional and joint and several, and any subsidiaries of Salem Media Group, Inc. other than the subsidiary guarantors are minor.
Long-term debt consists of the following:
 
     December 31, 2021    
March 31, 2022
 
    
(Dollars in thousands)
 
2028 Notes
   $ 114,731    
$
114,731
 
Less unamortized discount and debt issuance costs based on imputed interest rate of 7.64%
     (3,844  
 
(3,697
  
 
 
   
 
 
 
2028 Notes, net carrying value
     110,887    
 
111,034
 
  
 
 
   
 
 
 
2024 Notes
     60,174    
 
57,674
 
Less unamortized debt issuance costs based on imputed interest rate of 7.10%
     (480  
 
(408
  
 
 
   
 
 
 
2024 Notes, net carrying value
     59,694    
 
57,266
 
  
 
 
   
 
 
 
Asset-Based Revolving Credit Facility principal outstanding(1)
     —      
 
—  
 
  
 
 
   
 
 
 
Long-term debt less unamortized discount and debt issuance costs
   $ 170,581    
$
168,300
 
  
 
 
   
 
 
 
Less current portion
     —      
 
—  
 
  
 
 
   
 
 
 
Long-term debt less unamortized discount and debt issuance costs, net of current portion
   $ 170,581    
$
168,300
 
  
 
 
   
 
 
 
 
(1)
As of March 31, 2022, the Asset-Based Revolving Credit Facility (“ABL”), had a borrowing base of $24.5 million, no outstanding borrowings, and $0.3 million of outstanding letters of credit, resulting in a $24.2 million borrowing base availability.
Our weighted average interest rate was 6.99% at December 31, 2021, and March 31, 2022.
In addition to the outstanding amounts listed above, we also have interest obligations related to our long-term debt as follows as of March 31, 2022:
 
   
$114.7 million aggregate principal amount of 2028 Notes with semi-annual interest payments at an annual rate of 7.125%;
 
   
$57.7 million aggregate principal amount of 2024 Notes with semi-annual interest payments at an annual rate of 6.75%; and
 
   
Commitment fee of 0.25% to 0.375% per annum on the unused portion of the ABL Facility.
2028 Notes
On September 10, 2021, we exchanged $112.8 million of the 6.75% Senior Secured Notes (“2024 Notes”) for $114.7 million (reflecting a call premium of 1.688%) of newly issued 7.125% Senior Secured Notes due 2028 (“2028 Notes.”) Contemporaneously with the refinancing, we obtained commitments from the holders of the 2028 Notes to purchase up to $50 million in additional 2028 Notes (“Delayed Draw 2028 Notes,”) contingent upon satisfying certain performance benchmarks, the proceeds of which are to be used exclusively to repurchase or repay the remaining balance outstanding of the 2024 Notes.
The 2028 Notes and the related guarantees were exchanged and sold to certain holders of the 2024 Notes, whom we believe to be qualified institutional buyers, in a private placement. The 2028 Notes and the related guarantees have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or any state securities laws. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with FASB ASC Topic 470.
The 2028 Notes are guaranteed on a senior secured basis. We may redeem the 2028 Notes, in whole or in part, at any time prior to June 1, 2024, at a price equal to 100% of the principal amount of the 2028 Notes plus a “make-whole” premium as of, and accrued and unpaid interest, if any, up to, but not including the redemption date. At any time on or after June 1, 2024, we may redeem some or all of the 2028 Notes at the redemption prices (expressed as percentages of the principal amount to be redeemed) set forth in the 2028 Notes indenture, plus accrued and unpaid interest, if any, up to, but not including the redemption date. In addition, we may redeem up to 35% of the aggregate principal amount of the 2028 Notes before June 1, 2024, with the net cash proceeds from certain equity offerings at a redemption price of 107.125% of the principal amount plus accrued and unpaid interest, if any, up to, but not including the redemption date. We may also redeem up to 10% of the aggregate original principal amount of the 2028 Notes per twelve-month period, in connection with up to two redemptions in such twelve-month period, at a redemption price of 101% of the principal amount plus accrued and unpaid interest up to, but not including the redemption date.
The 2028 Notes mature on June 1, 2028, unless earlier redeemed or repurchased. Interest accrues on the 2028 Notes from September 10, 2021, and is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year, commencing December 1, 2021. Based on the balance of the 2028 Notes outstanding, we are required to pay $8.2 million per year in interest. At March 31, 2022, accrued interest on the 2028 Notes was $2.7 million.
The indenture to the 2028 Notes contains covenants that, among other things and subject in each case to certain specified exceptions, limit the ability to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to
 
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stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets. At March 31, 2022, we were, and we remain, in compliance with all of the covenants under the indenture.
We recorded debt issuance costs of $4.7 million, of which $2.5 million of third-party debt modification costs were expensed during 2021, and $0.2 million were expensed during the three months ended March 31, 2022, $0.8 million was deferred with the Delayed Draw 2028 Notes, and $1.1 million, along with $3.0 million from the exchanged 2024 Notes, is being amortized as part of the effective yield on the 2028 Notes. During the three-months ended March 31, 2022, $0.2 million of debt issuance costs and delayed draw fees associated with the Notes were amortized to interest expense.
SBA PPP Loans
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. The PPP loans were accounted for as debt in accordance with FASB ASC Topic 470. The loan balances and accrued interest were forgivable provided that the proceeds were used for eligible purposes, including payroll, benefits, rent, and utilities within the covered period. We used the PPP loan proceeds according to the terms and filed timely applications for forgiveness. During July 2021, the SBA forgave all but $20,000 of the PPP loans resulting in a
pre-tax
gain on the forgiveness of $11.2 million. The remaining PPP loan was repaid in July 2021.
2024 Notes
On May 19, 2017, we issued 2024 Notes in a private placement. The 2024 Notes are guaranteed on a senior secured basis by our existing subsidiaries (“Subsidiary Guarantors”). The 2024 Notes bear interest at a rate of 6.75% per year and mature on June 1, 2024, unless they are earlier redeemed or repurchased. Interest is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year.
The 2024 Notes are secured by a first-priority lien on substantially all assets of ours and the Subsidiary Guarantors other than the ABL Facility Priority Collateral as described below. There is no direct lien on our FCC licenses to the extent prohibited by law or regulation other than the economic value and proceeds thereof.
The indenture relating to the 2024 Notes contains covenants that, among other things and subject in each case to certain specified exceptions, limit our ability and the ability of our restricted subsidiaries to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets. At March 31, 2022, we were, and we remain, in compliance with all of the covenants under the indenture.
We recorded debt issuance costs of $6.3 million as a reduction of the debt proceeds being amortized to
non-cash
interest expense over the life of the Notes using the effective interest method. During the three months ended March 31, 2021 and 2022, $0.1 million and $0.2 million, respectively, of debt issuance costs associated with the Notes was amortized to interest expense.
Based on the balance of the 2024 Notes outstanding of $57.7 million, we are required to pay $3.9 million per year in interest on the 2024 Notes. At March 31, 2022, accrued interest on the 2024 Notes was $1.3 million.
We may from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity, and other factors, seek to repurchase the 2024 Notes in open market transactions, privately negotiated transactions, by tender offer or otherwise, as market conditions warrant. On January 12, 2022, we repurchased $2.5 million of the 6.75% Senior Secured Notes due 2024 (“2024 Notes”) at 101.25% of face value recognizing a loss of $53,000. As described above, on September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million of newly issued 2028 Notes, reflecting a call premium of 1.688%. Bond issuance costs of $1.1 million associated with the $112.8 million of the 2024 Notes are being amortized as part of the effective yield on the 2028 Notes.
Based on the then existing market conditions, we completed repurchases of our 2024 Notes as follows:
 
Date
  
Principal
Repurchased
    
Cash
Paid
    
% of Face
Value
   
Bond Issue
Costs
    
Net Gain
(Loss)
 
    
(Dollars in thousands)
 
January 12, 2022
   $ 2,500      $ 2,531        101.26   $ 22      $ (53
December 10, 2021
     35,000        35,591        101.69     321        (912
October 25, 2021
     2,000        2,020        101.00     19        (39
October 12, 2021
     250        251        100.38     2        (3
October 5, 2021
     763        766        100.38     7        (10
October 4, 2021
     628        629        100.13     6        (7
September 24, 2021
     4,700        4,712        100.25     44        (56
January 30, 2020
     2,250        2,194        97.50     34        22  
January 27, 2020
     1,245        1,198        96.25     20        27  
 
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Date
  
Principal
Repurchased
    
Cash
Paid
    
% of Face
Value
   
Bond Issue
Costs
    
Net Gain
(Loss)
 
    
(Dollars in thousands)
 
December 27, 2019
     3,090        2,874        93.00     48        167  
November 27, 2019
     5,183        4,548        87.75     82        553  
November 15, 2019
     3,791        3,206        84.58     61        524  
March 28, 2019
     2,000        1,830        91.50     37        134  
March 28, 2019
     2,300        2,125        92.38     42        133  
February 20, 2019
     125        114        91.25     2        9  
February 19, 2019
     350        319        91.25     7        24  
February 12, 2019
     1,325        1,209        91.25     25        91  
January 10, 2019
     570        526        92.25     9        35  
December 21, 2018
     2,000        1,835        91.75     38        127  
December 21, 2018
     1,850        1,702        92.00     35        113  
December 21, 2018
     1,080        999        92.50     21        60  
November 17, 2018
     1,500        1,357        90.50     29        114  
May 4, 2018
     4,000        3,770        94.25     86        144  
April 10, 2018
     4,000        3,850        96.25     87        63  
April 9, 2018
     2,000        1,930        96.50     43        27  
  
 
 
    
 
 
      
 
 
    
 
 
 
   $ 84,500      $ 82,086        $ 1,127      $ 1,287  
  
 
 
    
 
 
      
 
 
    
 
 
 
Asset-Based Revolving Credit Facility
On May 19, 2017, we entered into the ABL Facility pursuant to a Credit Agreement (“Credit Agreement”) by and among us and our subsidiaries party thereto as borrowers, Wells Fargo Bank, National Association, as administrative agent and lead arranger, and the lenders that are parties thereto. We used the proceeds of the ABL Facility, together with the net proceeds from the Notes offering, to repay outstanding borrowings under our previously existing senior credit facilities and related fees and expenses. Current proceeds from the ABL Facility are used to provide ongoing working capital and for other general corporate purposes, including permitted acquisitions.
The ABL Facility is a five-year $30.0 million revolving credit facility due March 1, 2024, which includes a $5.0 million subfacility for standby letters of credit and a $7.5 million subfacility for swingline loans. All borrowings under the ABL Facility accrue interest at a rate equal to a base rate or LIBOR plus a spread. The spread, which is based on an availability-based measure, ranges from 0.50% to 1.00% for base rate borrowings and 1.50% to 2.00% for LIBOR borrowings. If an event of default occurs, the interest rate may increase by 2.00% per annum. Amounts outstanding under the ABL Facility may be paid and then reborrowed at our discretion without penalty or premium. Additionally, we pay a commitment fee on the unused balance from 0.25% to 0.375% per year based on the level of borrowings.
On October 20, 2020, we entered into a fourth amendment to our ABL Facility that provides a
one-time
waiver with respect to the current covenant testing period allowing the covenant trigger event date be the first day after the availability on the ABL Facility had equaled or exceeded (1) 15% of the maximum revolver amount and (2) $4.5 million and a waiver permitting our July 2020 financial statements to be issued on or before September 30, 2020 due to delays that were caused by a ransomware attack.
On April 7, 2020, we entered into a third amendment to ABL Facility that increased the advance rate on eligible accounts receivable from 85% to 90% and extended the maturity date from May 19, 2022, to March 1, 2024. The April 7, 2020 amendment also allows for an alternative benchmark rate that may include SOFR due to LIBOR being scheduled to be discontinued at the end of calendar year 2021.
Availability under the ABL Facility is subject to a borrowing base consisting of (a) 90% of the eligible accounts receivable plus (b) a calculated amount based on the value of certain real property. As of March 31, 2022, the amount available under the ABL Facility was $24.2 million of which none was outstanding. The ABL Facility has a first-priority lien on our and the Subsidiary Guarantors’ accounts receivable, inventory, deposit and securities accounts, certain real estate and related assets, and by a second-priority lien on the Notes Priority Collateral. There is no direct lien on our FCC licenses to the extent prohibited by law or regulation other than the economic value and proceeds thereof.
The Credit Agreement includes a springing fixed charge coverage ratio of 1.0 to 1.0, which is tested during the period commencing on the last day of the fiscal month most recently ended prior to the date on which Availability (as defined in the Credit Agreement) is less than the greater of 15% of the Maximum Revolver Amount (as defined in the Credit Agreement) and $4.5 million and continuing for a period of 60 consecutive days after the first day on which Availability exceeds such threshold amount. The Credit Agreement also includes other negative covenants that are customary for credit facilities of this type, including covenants that, subject to exceptions described in the Credit Agreement, restrict our ability and the ability of our subsidiaries (i) to incur additional indebtedness; (ii) to make investments; (iii) to make distributions, loans or transfers of assets; (iv) to enter into, create, incur, assume or suffer to exist any liens, (v) to sell assets; (vi) to enter into transactions with affiliates; (vii) to merge or consolidate with, or dispose of all assets to a third party, except as permitted thereby; (viii) to prepay indebtedness; and (ix) to pay dividends.
The Credit Agreement provides for the following events of default: (i) default for
non-payment
of any principal or letter of credit reimbursement when due or any interest, fees or other amounts within five days of the due date; (ii) the failure by any borrower or any subsidiary to comply with any covenant or agreement contained in the Credit Agreement or any other loan document, in certain
 
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cases subject to applicable notice and lapse of time; (iii) any representation or warranty made pursuant to the Credit Agreement or any other loan document is incorrect in any material respect when made; (iv) certain defaults of other indebtedness of any borrower or any subsidiary of indebtedness of at least $10 million; (v) certain events of bankruptcy or insolvency with respect to any borrower or any subsidiary; (vi) certain judgments for the payment of money of $10 million or more; (vii) a change of control; and (viii) certain defaults relating to the loss of FCC licenses, cessation of broadcasting and termination of material station contracts. If an event of default occurs and is continuing, the Administrative Agent and the Lenders may accelerate the amounts outstanding under the ABL Facility and may exercise remedies in respect of the collateral. At March 31, 2022, we were, and we remain, in compliance with all of the covenants under Credit Agreement.
We recorded debt issue costs of $0.9 million as an asset being amortized to
non-cash
interest expense over the term of the ABL Facility using the effective interest method. During the three months ended March 31, 2022 and 2021, $23,000 and $29,000, respectively, of debt issuance costs associated with the ABL Facility was amortized to interest expense. At March 31, 2022, the blended interest rate on amounts outstanding under the ABL Facility was 0.0%.
We report outstanding balances on the ABL Facility as short-term regardless of the maturity date based on use of the ABL Facility to fund ordinary and customary operating cash needs with frequent repayments. We believe that our borrowing capacity under the ABL Facility allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the next twelve months.
Maturities of Long-Term Debt
Principal repayment requirements under all long-term debt agreements outstanding at March 31, 2022 for each of the next five years and thereafter are as follows:
 
    
Amount
 
For the Year Ended March 31,
  
(Dollars in thousands)
 
2023
   $ —    
2024
     57,674  
2025
     —    
2026
     —    
2027
     —    
Thereafter
     114,731  
  
 
 
 
   $ 172,405  
  
 
 
 
Impairment Losses on Goodwill and Indefinite-Lived Intangible Assets
We have incurred significant impairment losses with regards to our indefinite-lived intangible assets. We believe that the impairments are indicative of trends in the industry as a whole and are not unique to our company or operations. While impairment charges are
non-cash
in nature and do not violate the covenants on our debt agreements, the potential for future impairment charges can be viewed as a negative factor with regard to forecasted future performance and cash flows.
The valuation of intangible assets is subjective and based on estimates rather than precise calculations. The fair value measurements of our indefinite-lived intangible assets use significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fair value including assumptions about risk. If actual future results are less favorable than the assumptions and estimates we used, we are subject to future impairment charges, the amount of which may be material. Given the current economic environment and uncertainties that can negatively impact our business, there can be no assurance that our estimates and assumptions made for the purpose of our indefinite-lived intangible fair value estimates will prove to be accurate.
OFF-BALANCE
SHEET ARRANGEMENTS
At March 31, 2022, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating
off-balance
sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in such relationships.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for smaller reporting companies
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
Our management, including our principal executive and financial officers, have conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined under Rules
13a-15(e)
and
15d-15(e)
of the Exchange Act, to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and financial officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
 
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule
13a-15(d)
and
15d-15(d)
of the Exchange Act that occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We and our subsidiaries, incident to our business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance. We maintain insurance that may provide coverage for such matters. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. We believe, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect upon our annual consolidated financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS.
Not required for smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
See “Exhibit Index” below.
EXHIBIT INDEX
 
Exhibit

Number
  
Exhibit Description
  
Form
  
File No.
  
Date of First Filing
  
Exhibit
Number
  
Filed
Herewith
  10.1    Amended and Restated Memorandum of Terms of Employment between Salem Communications Holding Corporation and David Santrella, effective as of January 2, 2022.   
8-K
  
000-26497
   04/01/2022    10.1    —  
  10.2    Amended and Restated Memorandum of Terms of Employment between Salem Communications Holding Corporation and David Evans, effective as of January 2, 2022.   
8-K
  
000-26497
   04/01/2022    10.2    —  
  31.1    Certification of David P. Santrella Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.    —      —      —      —      X
  31.2    Certification of Evan D. Masyr Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.    —      —      —      —      X
 
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Exhibit

Number
  
Exhibit Description
  
Form
  
File No.
  
Date of First Filing
  
Exhibit
Number
  
Filed
Herewith
  32.1    Certification of David P. Santrella Pursuant to 18 U.S.C. Section 1350.    —      —      —      —      X
  32.2    Certification of Evan D. Masyr Pursuant to 18 U.S.C. Section 1350.    —      —      —      —      X
101    The following financial information from the Quarterly Report on Form 10-Q for the three months ended March 31, 2022, formatted in Inline XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Balance Sheets (ii) Condensed Consolidated Statements of Operations (iii) the Condensed Consolidated Statements of Cash Flows (iv) the Notes to the Condensed Consolidated Financial Statements.    —      —      —      —      X
104    The cover page of this Quarterly Report on Form
10-Q,
formatted in Inline XBRL
   —      —      —      —      X
 
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Salem Media Group, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
    SALEM MEDIA GROUP, INC.
May 10, 2022              
 
  By: /s/ DAVID P. SANTRELLA
    David P. Santrella
    Chief Executive Officer
    (Principal Executive Officer)
May 10, 2022  
 
  By: /s/ EVAN D. MASYR
    Evan D. Masyr
    Executive Vice President and Chief Financial Officer
    (Principal Financial Officer)
 
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