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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, everyone, and welcome to the Salem Media Group Third Quarter 2023 Earnings Call. Today's call is being recorded.
It is now my pleasure to turn the call over to Evan Masyr, Chief Financial Officer. Please go ahead.
Welcome, and thank you for joining us today for Salem Media Group's Third Quarter 2023 Earnings Call. As a reminder, if you get disconnected at any time, you can dial back in or listen from our website at www.salemmedia.com. With me today are David Santrella, Chief Executive Officer; and David Evans, Chief Operating Officer. We will begin in just a moment with our prepared remarks. Once we are done, the conference call operator will come back on the line to instruct you on how to submit questions.
Please be advised that statements made on this call that relate to future plans, events, financial results, prospects or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on currently available information. Actual results may differ materially from those anticipated, and reported results should not be considered an indication of future performance. We do not intend and undertake no obligation to update our forward-looking statements, including forecasts of future performance, the potential for growth of existing markets, the opening of new markets or the potential growth from future acquisitions.
This conference call also contains non-GAAP financial measures within the meaning of Regulation G, specifically station operating income or SOI, EBITDA and adjusted EBITDA. In conformity with Regulation G, information required to accompany the disclosure of non-GAAP financial measures is available on the Investor Relations portion of our website at salemmedia.com.
I will now like to turn the call over to David Santrella. David?
Thanks, Evan, and good afternoon to everyone on the call and on the webcast. My prepared remarks will focus on a review of Salem's financial performance in the third quarter and an update on asset sales. After that, I'll turn the call back to Evan to provide some additional details on the performance in the third quarter, talk about Salem's debt and give guidance for the fourth quarter. As you've heard from many of our peers, our industry continues to face challenges with the economy and elevated interest rates. In fact, S&P has said that we are in a persistent ad recession, and we're feeling it as well. For the third quarter, total revenue declined 5.0% though only 3.9%, excluding political. Expenses increased just 0.2% and adjusted EBITDA improved 9.3% due to last year's legal settlement accrual of $3.8 million. With the cost cuts we've outlined in our last 2 calls, free cash flow is improving, and we remain focused on operating efficiencies.
I'll now break down Salem's performance for each division. In the Broadcast division, revenue declined 4.2% in the quarter, largely due to political comps and the impact of the ad recession. In the third quarter of 2022, we recorded $1.5 million in political revenue as compared to only $700,000 for the third quarter of this year. Spot advertising revenue continues to be the biggest reason for the overall decline in broadcast revenue National spot was down 17.9% and local spot was down 6.6%. Overall, total spot advertising revenue was down 9.6% or $1.3 million.
Network revenue was down 10.1%. Digital revenue growth within the Broadcast division has stalled out to the advertising recession with revenue down 4.5% in the quarter after only a slight increase of 0.6% in Q2. However, we expect a return to double-digit growth in all digital, including the National Digital division in Q4.
As a reminder, total digital revenue, both digital revenue in the Broadcast division and national digital division represent 29.5% of our total revenue. Block programming revenue was essentially flat, down 0.1% in the third quarter. As you know, this is an important category for Salem and unique to our business model. Block programming makes up 40% of our broadcast revenue and 31% of our total revenue.
Broadcast operating expenses increased 2.4% and were up due to severance expense and investments in the Salem News Channel and the Miami market, which was acquired at the beginning of 2023. In the national digital division, revenue declined 2.2% in the third quarter. This is due to the Facebook algorithm change that took place in Q3 2022 and the recent nonrenewal of the Bible Gateway representation agreement partially offset by increased revenue from George Gilder investment newsletters acquisition. Digital expenses were up 2% due to severance costs and costs associated with the George Gilder newsletter acquisition.
Revenue from our book publishing decreased 17.5% in the third quarter due to a light publishing schedule. Additionally, the softness in the overall economy has caused some declines in our self-publishing business. Expenses in the Publishing business were down 92% due primarily to variable costs.
I want to now update you on the asset sales activity. We've been very busy and have a lot to report. On our last call, I mentioned that we entered into an agreement to sell KSAC-FM in Sacramento for $1.0 million. We've received initial consent from the FCC and expect to close on that sale next month. Just last week, on November 6, we closed on the sale of 3 FM radio stations in Greenville, South Carolina for $6.8 million. In that market, we still own 2 translators, the tower site and the studio office building, all of which are listed for sale.
On September 29, we entered into an agreement to sell Salem Church Products for $30 million of which $22.5 million will be paid at closing. The remaining $7.5 million will be paid in 3 equal installments beginning on the first anniversary of the closing. Additionally, upon closing, we will enter into a separate $10 million multiyear advertising for equity agreement, whereby Salem will advertise for the buyer, Glu LLC. The equity agreement includes a put option that guarantees that Salem will receive a minimum price of $10 million for the equity. We are working on closing this transaction as soon as possible.
On September 1, we entered into an agreement to sell radio station WTWD-AM and a translator in Tampa, Florida for $0.7 million. We expect this to close by the end of next month. On October 17, we entered into an agreement to sell land in Sarasota, Florida for $9.5 million. The closing is conditional upon getting the property rezoned and we expect to close the sale in late 2024.
We'll use the proceeds from these asset sales to fully pay off the revolver. The current revolver expires on February 1 of next year. We are currently working on a new revolver and expect to have it in place by the end of the year.
With that, I'll turn the call back to Evan for more details on the quarter's performance and guidance for the last quarter of 2023.
Thank you, Dave. For the third quarter, total revenue decreased 5.0% to $63.5 million, largely due to political comps. Operating expenses on a recurring basis increased 0.2% to $61.0 million and adjusted EBITDA increased to $2.5 million. Compared to last year, net brought revenue decreased 4.2% to $49 million, and Broadcast operating expenses increased 2.4% to $42.2 million, resulting in station operating income of $6.8 million, a decrease of 31.8%.
On a same-station basis, net broadcast revenue decreased 4.9% to $48.6 million, and SOI decreased 28.2% to $7.3 million. These same-station results include broadcast revenue from 97 of our 100 radio stations and network operations and represents 99.2% of our net broadcast revenue.
As of September 30, 2023, total debt was $179.9 million, composed of $159.4 million of 7.125% 2028 notes and $20.5 million outstanding on the asset-based loan facility. As I discussed on the call last quarter, we are in default on our ABL. We have been working with our lender, Wells Fargo and have now signed 4 different forbearance agreements on August 7, August 30, September 28 and most recently on November 2. Through these amendments, the notional amount of the revolver has been decreased from $30 million to $25 million. The required minimum excess availability is now $2 million. The interest rate has been increased and the maturity has been moved up from March 1 next year to February 1.
The company and the bank are continuing to work jointly through this default. As Dave mentioned, we're currently working with a new lender on a new ABL revolver and should have that in place by the end of the year. The leverage ratio at September 30 was 11.0%, clearly too high. You heard Dave mention all of the asset sales for which we have entered into agreements. We are continuing to evaluate our portfolio to identify other assets where monetization via asset sale makes sense. We'll be aggressively paying down debt with any proceeds we get.
Additionally, the losses from 2 start-up businesses, Salem News Channel and our cluster in Miami have negatively impacted our financial results and therefore, leverage. We expect these to provide improved performance over the next couple of years.
Looking forward, for the fourth quarter of 2023, Salem is projecting total revenue to decline between 6% and 8% from fourth quarter '22 total revenue of $68.8 million. Now this guidance assumes the closing of the pending sale of Salem Church Products in the fourth quarter. Excluding the impact of the 2022 political revenue and the financial results from the pending asset sale, we would be projecting total revenue to decline between 2% and 4%. Salem is also projecting operating expenses before gains or losses on the sale or disposal of assets, stock-based compensation expense, legal settlement, changes in the settlement in the estimated fair value of contingent earn-out consideration. Impairments, depreciation expense and amortization expense to be between flat and a decrease of 3% compared to the fourth quarter 2022 non-GAAP operating expenses of $61.6 million. Excluding the impact of the pending asset sales, expenses are projected to be between an increase of 1% and a decrease of 2%.
And this now concludes our prepared remarks, and we would like to answer any questions. I'll turn it back over to Lisa to help us with that. Lisa?
[Operator Instructions] We'll take our first question from David Marsh with Singular Research.
I guess I would say congrats on all of these pending sales, but I have quite a few questions on them. I guess, at the outset, the first and probably the biggest question is, are you guys able to quantify the revenue and EBITDA contribution collectively of all of the assets you agreed to sell?
So the good news is that first off, with the land sales, there really is not a revenue contribution to them. Salem Church Products, David can address that. David Evans?
Yes, Yes. I don't have those. I'm actually in London right now, so I don't have those numbers handy. Evan may be able to combine the impact of the Greenville sale with the impact of the Salem Church product sale?
Yes. I say, David, if I were to look at all of these transactions that you're looking somewhere between $2 million to $3 million of EBITDA that would go away.
Okay. Okay. That's it. And then just on the land sale in particular because that -- as you mentioned, there's probably no revenue at all associated with that effect. It's probably just expense for real estate taxes. Could you talk about that zoning process? And what does that look like the rezoning? And how confident are you in a favorable resolution of that? And what's the timing there?
Yes. We're working with, particularly in Florida. We're working -- I wish -- we might be able to get back to you after the call with our GC, who is intimately more aware of all of the details of this. But what I can tell you is we are working with some experts in Florida on land sales that are helping us with that rezoning process. And we wouldn't have put this on in the earnings call if we were -- didn't have some degree of confidence in our ability to close on that deal.
The buyer owns an adjacent parcel. And so we feel very confident that the rezoning will take place. And like Dave mentioned in the prepared remarks, we expect that to close kind of late next year. So it is a time-consuming process. So it's not like something that will happen between now and the end of this year, but we do feel confident about getting that rezoned.
Got it. Got it. And in terms of the recent more recent acquisitions, in Miami, I believe you guys acquired some land as well. Is that a parcel that you guys are taking a look at as well as long as valuers are still hanging in there on the real estate side? And do you had any indications of interest around that parcel?
Yes, I would say we're looking at print all parcels that we own if they're a -- if there's an opportunity to sell the land for a reasonable value and either move somewhere or diplex at another location that we have. So Certainly, we're looking at the properties in Miami that we recently acquired, along with the rest of our portfolio.
Sure. Makes sense. And then just lastly, Evan, just if we could just tie up on the current facility. So you guys have signed a number of agreements, I mean you're -- so still forbearing at this point to the still in default. What -- I mean it sounds like you guys are moving pretty briskly towards a refinancing of the facility. Could you just kind of give us a little bit more detail around the forbearance and what that means? And if at all there's an impact on a potential problem with the equity trading?
Yes. So as far as the forbearance, I mean, I think we've worked pretty well with Wells Fargo, trying to navigate through this. They have been accommodating with some of the issues that we have. They're looking forward to us getting this refinanced with another lender here soon. And the forbearance, really, they're just temporarily waiving their rights under the default. And every month, we're just kind of reevaluating where we are really with 2 things: the timing of asset sales and where we are on getting the new credit facility in place. So the current forbearance goes through Monday, November 27. So my expectation is either on that day or before that date, we will put in place another forbearance or another agreement of some sort. Dave, our General Counsel, Chris Henderson, just came in. He can give a little bit more detail on that land and the rezoning. So I'll hand it to Chris for a moment.
Yes. On the Sarasota land, we have pre-approval from the county. We had a call early on before we signed a purchase and sale agreement with the buyer and walk through with the county, what we were proposing. It's going to move to residential from its current zoning. And they have effectively signed off on it. So we're highly confident that we'll be able to get it rezoned and we're not doing the rezoning the buyer is. And so we've signed the contract. Buyer will do the rezoning in addition to closing. We anticipate that it will close. As was mentioned in December of next year.
[Operator Instructions] And there are no further questions at time. I'd like to turn the call back over to David Santrella for any additional or closing remarks.
Okay. Well, thanks, everybody, for being on the call. We'll talk to you again. Thank you. Bye.
Thank you. That does conclude today's presentation. Thank you for your participation, and you may now disconnect.