10-Q

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller Reporting Company

Emerging Growth Company

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

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM

COMMISSION FILE NUMBER

000-26497

SALEM MEDIA GROUP, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


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.

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

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SALEM MEDIA GROUP, INC.

INDEX


	PAGE NO.
COVER PAGE
INDEX
FORWARD LOOKING STATEMENTS		2
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		29
Item 3. Quantitative and Qualitative Disclosures About Market Risk.		46
Item 4. Controls and Procedures.		46
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.		47
Item 1A. Risk Factors.		47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		47
Item 3. Defaults Upon Senior Securities.		47
Item 4. Mine Safety Disclosures.		47
Item 5. Other Information.		47
Item 6. Exhibits.		47
EXHIBIT INDEX		47
SIGNATURES		49

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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”).

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PART I – FINANCIAL INFORMATION

SALEM MEDIA GROUP, INC.

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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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

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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

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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

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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.

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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.

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October 2021,

the FASB issued ASU

2021

08,

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.

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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

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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

, 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

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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.

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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.

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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

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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

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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.

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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

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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,

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,

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

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.

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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.

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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

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•

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
	Carrying Value on Balance Sheet		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.

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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.

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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.

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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

(“SRN

”), 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

delivers programming via satellite to approximately 3,200 affiliated radio stations throughout the United States, including several of our Salem-owned stations. SRN

operates five divisions, SRN

Talk, SRN

News, SRN

Websites, SRN

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.

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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

cash.

Subsequent events reflect all applicable transactions through the date of the filing.

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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;

•

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

(“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

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.

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.

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

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.

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.

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

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	)

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

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.

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.


	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	%

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.

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

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.

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

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

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.

COVID-19

•

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;

•

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.

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.

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

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.

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.

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.

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


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 October 20, 2020, we entered into a fourth amendment to our ABL Facility that provides a

one-time

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 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

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.


	Class A Common Stock				Class B Common Stock				Additional Paid-In Capital		Accumulated Deficit			Treasury Stock			Total
	Shares		Amount		Shares		Amount		Additional Paid-In Capital		Accumulated Deficit			Treasury Stock			Total
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		Additional Paid-In Capital		Accumulated Deficit			Treasury Stock			Total
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


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


		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)