Greetings, and welcome to the Salem Media Group Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to your host Evan Masyr, Executive Vice President and Chief Financial Officer. Thank you. You may begin.

Welcome everyone, and thank you for joining us today for Salem Media Group's second quarter 2021 earnings call. As a reminder if you get disconnected at any time, you can dial back in or listen from our website at www.salemmedia.com. Joining me on the call today are Edward Atsinger, Chief Executive Officer; David Santrella, President of Broadcast Media; and David Evans, President of Interactive and Publishing. We'll begin in just a moment with our prepared remarks and once we are done, the conference call operator will come back on the line to instruct you on how to submit questions. Please be advised that statements made on this call that relate to future plans, events, financial results, prospects, or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on currently available information. Actual results may differ materially from those anticipated and reported results should not be considered an indication of future performance. We do not intend and undertake no obligation to update our forward-looking statements including forecasts of future performance, the potential for growth of existing markets, the opening of new markets, or the potential growth from future acquisitions. This conference call also contains non-GAAP financial measures within the meaning of Regulation G, specifically station operating income, or SOI, EBITDA, adjusted EBITDA, and adjusted free cash flow. In conformity with Regulation G, information required to accompany the disclosure of non-GAAP financial measures is available on the Investor Relations portion of our website at www.salemmedia.com. With that, I will now turn the conference call over to Edward Atsinger. Ed?

Thank you Evan. And thanks to all of you for being with us on today's call. In my prepared remarks, I'll focus on our Q2 financial results. I'll continue to into digital and provide an update on M&A and on our leverage. I'll then turn the call back to Evan who will provide more detail on Q2 and we'll also give guidance for Q3. So with that let's talk about the second quarter. From second quarter 2021, total revenue increased 20.6%. Expenses increased 9.9%, resulting in a 212.1% increase in adjusted EBITDA. While the increase in revenue and adjusted EBITDA are significant, obviously, we're comparing Q2 2020, which bore the biggest brunt of the COVID lockdown. So that distorts it a bit. It's therefore also important to compare performance to 2019 though the economy is still not fully recovered in 2021 as it was in 2019, but it's a better comparison. Comparing to 2019 total revenue decreased 1.4% expenses increased 0.9% and adjusted EBITDA decreased 13.9%. On the last couple of calls, I've been highlighting we combined digital revenue for Salem, both the digital revenue in the broadcast division and the digital revenue and pure-play digital division. In the second quarter combined digital revenue was up 19.7% to $18.1 million and represents now 28.3% of Salem's total revenue. Let's take a look at results by division to provide a little more perspective. For the second quarter of 2021, broadcast revenue increased 18.5% when compared to the second quarter of 2020. While the overall economy continues to improve and open more much of the second quarter saw continuing restrictions in many of the markets in which we operate. When comparing second quarter 2021 revenue to second quarter 2019 when the economy was fully open, total broadcast revenue was down 4.7%. With respect to the growth compared to last year, we continue to see meaningful growth in broadcast digital revenue, which was up 36.7% compared to last year and up 110.5% when compared to the second quarter of 2019, so good progress there. Much of this growth is due to our recent digital initiatives Salem Surround, SalemNOW and Salem Podcast Network; in addition to growth in streaming revenue. The newest of these initiatives is the Salem Podcast Network, which was launched at the beginning of this year. Both revenue and the number of podcasts continue to grow. We recently added Trish Regan in mid-June. And we do expect revenue growth in the future to continue as we add more high-profile talent. We certainly will provide updates as we do. Traditional spot revenue, advertising revenue was up 35% with local advertising up 35.4% and national advertising up 33.7%. We're still not back to 2019 levels due to the economy. But if we compare it to 2019 we're making progress. Total spot revenue was down 20.9% in the quarter, but it's moving in the right direction. Our national network had another strong quarter with a 17.1% increase in revenue. This growth is driven by an increase in affiliates, particularly from the Charlie Kirk Show. Comparing to 2019 national network revenue was essentially flat down only 0.1%. National Block Programming was up 0.8% in the second quarter, compared to the second quarter of last year while local block programming was up 3.3%. In total, Block Programming was up 1.6% compared to last year and declined 9.3% compared to the second quarter of 2019. Expenses in the Broadcast division were up 9.3%, due primarily to increased revenue with station, operating income improving 66.6%. When compared to 2019, expenses were down 4.1% due to cost-containment initiatives that we've discussed in some of the previous calls and SOI was down 6.6%. At our national digital division, revenue increased 9.5% compared to the second quarter of 2020 and increased 3.8% when compared with the second quarter of 2019. While Salem Web Network, our Christian websites; and Townhall Media had slight increases, a significant growth driver in the second quarter was Eagle Financial Publications, which was up 26.7% compared to 2020. The increase was from the Retirement Watch newsletter as a result of increased investment in marketing. Additionally, revenue of Salem Church products was up 11.1% in the second quarter, primarily due to increased jobs postings at churchstaffing.com. Expenses in the national digital division increased 9%. Again due in large part to the increased marketing cost of Eagle Financial Publications, partially offset by cost saving initiatives, operating income improved 11.8%. Finally, our publishing division had a revenue increase of 68.3% compared to the second quarter of 2020. Revenue was up 18.1% compared to the second quarter of 2019. Both segments of this division had solid growth in the quarter compared to last year. Revenue at Salem Office Services increased 42.9% from growing the sales force and some increased marketing. Additionally, we had a small benefit from COVID with people being stuck at home as some decided to take the time to write books, which always helps business. Our traditional book publisher Regnery Publishing had a 100.2% increase in revenue compared to last year. We had a couple of titles that performed very well for us including: Speechless by Michael Knowles, Irreversible Damage by Abigail Shrier, Fault Lines by Voddie Baucham and The Unanswered Letter by Faris Cassell, which was a National Jewish Book award winner. Publishing expenses were up 15.4% due to the costs associated with increased book sales and we posted a $234,000 profit in the division. On the M&A front. We closed on a couple of previously announced transactions. On June 1, we acquired two AM radio stations in San Francisco for $600,000. We also acquired Centerline New Media for $1.3 million on April 28. Additionally, on May 25, we closed on the sale of Singing News Magazine and Singing News Radio for approximately $100,000 in cash, plus the buyer assumed the subscription liability of approximately $400,000. Finally as far as transactions that were mentioned in our last earnings call. On June 23, we closed on the sale of approximately 34 acres of land in Lewisville, Texas, just outside of Dallas for $12.1 million. We retained nine acres of the parcel and we'll broadcast from there with virtually no loss in coverage and therefore no loss in revenue. With respect to previously unannounced transactions. On July 1, we closed on the acquisition of ShiftWorship for $2.6 million. We will roll this business under the Salem Church Products division. Finally, I'd like to conclude my prepared remarks with a brief discussion about debt and leverage. If you recall, a year ago our leverage ratio was 8.96, which was badly distorted by the impact of COVID, but has improved substantially since then. As of June 30, 2021, we had $216.3 million in bonds outstanding and nothing drawn on our revolver. Additionally, we have PPP loans of $11.2 million recorded as debt on the balance sheet as of June 30. Last month we were informed that the SBA has forgiven all but $20,000 of those loans. We also had $19.9 million in cash on June 30. Our leverage ratio was 6.06, as defined by our credit agreements. If however, we net the cash we have on hand and reflect the forgiveness of the PPP loans our leverage ratio would have been 5.23, a substantial improvement for which we are very grateful. Additionally, if you factor in the $12.1 million of cash we received in July from the Dallas land sale, leverage would be below 5. So with that, I'll turn the call back to Evan for additional details on the quarter's performance and guidance for Q3. Kevin?

Thank you, Ed. For the second quarter, total revenue increased 20.6% to $63.8 million. Operating expenses on a recurring basis increased 9.9% to $55.0 million, which resulted in a 212.1% increase in adjusted EBITDA to $8.7 million. Net broadcast revenue increased 18.5% to $46.8 million and broadcast operating expenses increased 9.3% to $36.2 million, resulting in station operating income of $10.6 million, an increase of 66.6%. On a same-station basis, net broadcast revenue increased 18.7% to $46.5 million and SOI increased 58.7% to $10.6 million. These same-station results include broadcast revenue from 94 of our 100 radio stations in our network operations and represents 99.3% of net broadcast revenue. I'll now briefly review revenue performance of our strategic formats. 38 of our radio stations are programmed in our foundational Christian teaching and talk format. These stations contributed 38% of total broadcast revenue and increased 5.0% for the quarter. Our 31 news talk stations had an increase of 13.2% in revenue for the quarter. Overall, these stations contributed 17% of total broadcast revenue. Revenue from our 12 contemporary Christian music stations contributed 17% of total broadcast revenue and increased 57.3% for the quarter. Our network revenue increased 17.1% for the quarter and represents 11% of total broadcast revenue. Revenue from our national digital media division increased 9.5% to $10.3 million and represents 16% of total revenue. In publishing, revenue increased 68.3% to $6.7 million and represents 10% of our total revenue. And for the third quarter, we're projecting total revenue to increase between 2% and 4% from third quarter 2020, total revenue of $60.6 million. Compared to the third quarter of 2019, we're projecting revenue to decline between 2% and 4%. Now in the third quarter of 2020 we had approximately $3.5 million of revenue from political and the "Uncle Tom" film on SalemNOW. So if we exclude that revenue, revenue is projected to increase between 9% and 11% from the third quarter of 2020. We're also projecting operating expenses before gains or losses on the sale or disposal of assets, stock-based compensation expense, changes in the estimated fair value of contingent earn-out considerations, impairments, depreciation expense and amortization expense to increase between 7% and 10% compared to the third quarter of 2020 non-GAAP operating expenses of $51 million. Compared to the third quarter of 2019 we're projecting expenses to be between a decline of 1% and an increase of 2%. This concludes our prepared remarks and we would now like to answer any questions. Operator?

Thank you. And at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Michael Kupinski with Noble Capital Markets. Please state your question.

Thank you, and congratulations on your quarter. A couple of questions. Ed, you were talking about the leverage of the company being 5 times. And I can recall that that's historically pretty much the average where Salem has been, I think, in terms of the leverage ratio, if I recall. And I was just wondering what might be the allocation of capital kind of going forward here? Because historically you have maintained a relatively higher amount of leverage, given the fact that you had such stable businesses, including the block programming and so forth. What -- from here, what -- are you looking at continuing to pare down debt? What are the options that you might be considering here?

So we're still focusing on reducing debt and continuing to work on leverage. I mean for a long time our goal has been to get below four or get to four or below and below five now, just barely as of today with the additional adjustments that Evan mentioned. So we're on our way we feel pretty good about it. The sale of the Dallas land of course helped. And the forgiveness of the PPP loans that'll help to get us there a lot quicker. But we're making solid progress and that's going to be our focus. To the extent that we engage in acquisitions, we're looking at them very, very carefully. And they're going to be delivering, if we – if we enter into them unless there's some extraordinary circumstance which I don't envision at this point. So I think that we stay the course. We're still not out of this effect of COVID. We still have a lot of cost-cutting measures in place to make sure that if this thing doesn't open up that we can survive it and continue to be productive.

And just talking about the expenses there, can you talk a little bit about the expense guidance for Q3 and the contributing factors to the growth expected there? I know the expense growth seems a little outsized relative to the revenue growth in this quarter year-over-year. I know you were making comparisons to 2019. But are there timing elements to the expenses or a particular division that is accounting for the majority of the expenses, or can you give us a little color on what's going on there?

Yes. If you recall last year in the second and third quarter and even through the remainder of the year, we were really tight on expenses. And some of those expenses have – we've loosened up a little bit. And we talked about in our previous call some of the pay cuts that we put in place we've restored. So you're seeing some of that. But I would just draw your attention really to 2019. If you look at the expenses there, which I think is a better comparison the expenses we're saying are going to be anywhere between down 1% and up 2%. And I think that gives you a better sense on what expenses are really doing rather than comparing to a quarter in 2020 where we were trying to tighten the belt everywhere we could.

Got you. And has the company cycled through all of the discounts that were given for the block programming last year? And can you give us a sense of where rates are going for block programming at this point?

Yes. Let me just talk about cycling through and then Dave may want to give some comment on rates. We have cycled through all of the discounts that were given to the ministries. They were given discounts on airtime from May of 2020 through December of 2020. So they are back to paying full rates.

Yes, and in terms of going forward, as we renew for 2022, I think you'll see our rate increases back to kind of what they've traditionally been, Michael. And you'll see that somewhere in the 3% to 4% range.

Great. And in terms of the publishing business then obviously, you're getting a little benefit from the pickup in personal publishing I guess is what you would call it. Can you talk a little bit about the titles things that are coming up in the second half of this year as you kind of prepare going into a political year next year, where I think you tend to sell more books and have more titles? Can you kind of give us a sense on how the book publishing division is faring for the second half?

So the second half of 2021 is going to be relatively quiet, compared to last year. Obviously, last year was an election year. It's also going to be quiet compared to the first half of this year. We had a very strong first half of this year. There isn't really a breakout title in the second half of this year. So we're more focused towards 2022, again an even-numbered year. We have midterm elections, we've got titles in 2022, we're anticipating from David Limbaugh, for example; from Dennis Prager. So the publishing schedule is coming together very nicely for 2022, but second half of 2021 is going to be a little leaner.

And the digital operations are obviously, growing really well – SalemNOW, Salem Surround. Can you kind of give us a sense of what type of revenue growth that you might be looking for in terms of your digital businesses in the second half? I know obviously you had a very strong second quarter. But I'm just trying to get some framework around all the initiatives you might have there in terms of what the opportunity might be and how you anticipate the business to grow in the second half?

Well let me start with the pure-play digital component. And then Dave Santrella will kind of complement that with radio digital. For the pure-play digital division revenue will probably be down compared to last year but that's solely due to one item. It's our conservative websites that had massive page views kind of leading up to the presidential election. They had very significant political revenues. So that's a very challenging comp. So that's why the pure-play digital division will be down so solely because of the conservative political websites. Other than that the rest of the business would be up kind of low to mid-single digits.

Yes and on the broadcast side Michael, we expect that we'll see in some areas some growth and then we'll have one particular challenge. So Salem Surround and sales of our owned and operated digital assets on the broadcast side that's been strong all year. That will remain I think strong; the pacing is good. And so you've seen that as an example in Q2 at 36.7%. I think you can expect to see your strong growth, similar growth in the quarters going forward. Salem Podcast Network continues to grow. That will be strong. The challenge will be SalemNOW. SalemNOW in Q3 had a blockbuster movie with "Uncle Tom." And so it will really depend on what kind of titles we have for Q3 with SalemNOW. And to be frank many times those titles come up rather quickly. An opportunity will present itself to us and suddenly that movie's available and we're putting it on. So if there's an opportunity for us to see a decline, it would only be in that in the SalemNOW aspects of broadcast digital.

Great. I’ll let others to ask questions. Thanks so much, guys.

Thanks, Michael.

Our next question comes from Lisa Springer with Singular Research. Please go ahead.

Thank you. Regarding the podcast business, I'm wondering what strategies are you using to drive traffic to the podcasts? And what have you seen in terms of people actually viewing the podcasts terms of that growth?

Yes, that's always the benefit of our business is that we already have a built-in marketing machine with 100-plus radio stations and a lot of our own digital assets with which to drive people to the podcasts. And so we're using our own free marketing to be able to drive podcast listens. And we're seeing steady growth of those podcasts. Number of downloads to, for instance, the Charlie Kirk podcast is in the 0.5 million downloads a week to his show alone. And we're seeing very strong revenues there.

Great. Thank you.

Thank you. [Operator Instructions] Our next question comes from Steven Pfeiffer with Wells Capital Management. Please state your question.

Hello, and thank you very much for taking the questions. A couple of quick easy ones on here. The call actually had a slight problem. I don't know it's my phone or whatnot there. But the revenue guidance and the expense guidance for the third quarter/fourth quarter came out tangled. So I'm not sure if I have the correct numbers. Can you please tell us what -- are you only operating numbers for third quarter or do you have it for the full year? And can you please repeat what those numbers were?

We are only offering guidance for just the third quarter. And so really briefly we said, revenue would be up 2% to 4% compared to third quarter of 2020. Compared to 2019 that revenue is down between 2% and 4%. I also mentioned as David just even alluded to the, Uncle Tom, film and also with political -- that was about $3.5 million of revenue in the third quarter of 2020. So if I factor those out revenue is going to be up between 9% and 11% compared to third quarter of 2020.

And the expense number is one that was interesting…

Yes. Do you need me repeat those as well?

Yes, please.

So we're saying expenses will be up between 7% and 10%. But when you compare those to the third quarter of 2019 they're going to be between a decline of 1% and an increase of 2%.

From down 1% to up 2%. Okay.

That's correct.

Thank you. Okay. And next question I have for you -- your total debt right now is $227.5 million. Roughly $11.1 million of it is that the special loan out there. It said on there that it should possibly could hopefully be forgiven in the fourth quarter. Is that still the time frame we're looking at when that could possibly be done?

Actually I've got good news to report which I know Ed had mentioned in July. So actually on July 31 we got the last piece of good news, but all of those loans have been completely forgiven with the exception of $20,000. So we did have to repay $20,000 of the $11.2 million. So that will be reflected in the third quarter financial statements.

And does that count as a gain or a taxable gain we have to pay taxes on that as a gain on your business, or how exactly does that work?

I don't believe it is a taxable gain. But I know it shows up as -- on our financials, it will be below the line as other income. I know there was a lot of discussion when PPP came out that businesses were getting the benefit of these PPP loans then getting it forgiven; only to have to repay a bunch of it in taxes. So my anticipation is that we will not have to be paying taxes on that.

And so now that it has been forgiven -- and if I remember correctly in the previous quarter you talked about the possible primary use of -- repaying debt off of there? Have you gone through with an official word on how that would happen or is that going to happen? Because I remember correctly a year or so ago, when you bought back bonds in the market you guys paid a much higher price than what everyone else was paying. So I'm trying to figure out what exactly the strategy is for this time?

Yes. Look as Ed mentioned when he's asked about use of capital certainly retiring debt is something that is high on our radar and something that we want to continue to do. So ultimately we want to get our leverage lower than what it is and that would involve taking down debt.

Do you have full covenant compliance where it's available to be used of a certain loan there? Are there any covenant issues from buying it in the open market, or do you have to repay using the call schedule?

There are no covenants that will prevent us from tapping into the open market.

The last time when you did this you actually ended up paying a higher price than on spot before and after you did your transaction off of there. Is there a possibility that you could maybe do like an open market bid or something along that side, or is there any different strategy or is there something still up in the air?

I would say, we haven't decided exactly what we're going to do or how we're going to do it but we're going to look to do whatever we can to get the most bang for our buck in retiring debt.

That -- sounds like a great plan off there. Yes. I'm looking at the market this market can sometimes be liquid and sometimes it's not. It can be exciting trying to -- so I'm going to figure out what the plan is. Because it's -- yes paying up five points off of the bond is never the most effective route, but sometimes that's what seems to happen. So anyway thank you very much for answering the questions. And good luck on the next step.

Right. Thank you.

Thank you. Our next question comes from Michael Kupinski with NOBLE Capital Markets. Please state your question.

Yes. Hi. I just had one quick follow-up. In terms of the allocation of capital again does any of your debt covenants prohibit you from buying back stock? I know that you focused on debt reduction which is your priority. But from time to time, it would seem like maybe buying that stock might be interesting as well. What are your thoughts -- that? And are there any debt covenants that might prohibit you from doing that?

Yes. Buying back stock is a restricted payment under the indenture. So we do have some ability to do it but there are limitations as far as how much we could use to buy back stock if we were so inclined to do so.

Got you. Okay. That’s all I have. Thank you.

Thank you. There are no further questions at this time. I'll now turn the call back to Edward Atsinger, CEO for closing remarks. Thank you.

Thank you, operator and again, thanks to all of you for joining us on the call. We look forward to visiting with you when we refer on Q3.

Thank you. This concludes today's conference. All parties may disconnect. Have a great evening.