Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-Q

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

FOR THE QUARTERLY PERIOD ENDED ~~MARCH 31,~~SEPTEMBER 30, 2021

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

FOR THE TRANSITION PERIOD FROM __________________ TO __________________

COMMISSION FILE NUMBER

000-26497

SALEM MEDIA GROUP, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


DELAWARE		77-0121400
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)		(I.R.S. EMPLOYER IDENTIFICATION NUMBER)

6400 NORTH BELT LINE ROAD IRVING, TEXAS		75063
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)		(ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (469)

586-0080


Title of each Class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share	SALM	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation

S-T (§

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule

12b-2

of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller Reporting Company	☒


		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class A		Outstanding at ~~May 1,~~November 2, 2021
Common Stock, $0.01 par value per share		~~21,315,449~~21,431,824 shares


Class B		Outstanding at ~~May 1,~~November 2, 2021
Common Stock, $0.01 par value per share		5,553,696 shares

Table of Contents

SALEM MEDIA GROUP, INC.

INDEX


	PAGE NO.
COVER PAGE

INDEX		2

FORWARD LOOKING STATEMENTS		3

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.		34

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		3034

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		5661

Item 4. Controls and Procedures.		5662

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.		5762

Item 1A. Risk Factors.		5762

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		5762

Item 3. Defaults Upon Senior Securities.		5762

Item 4. Mine Safety Disclosures.		5762

Item 5. Other Information.		5762

Item 6. Exhibits.		5762

EXHIBIT INDEX		5763

SIGNATURES		5964

Table of Contents

CERTAIN DEFINITIONS

Unless the context requires otherwise, all references in this report to “Salem” or the “company,” including references to Salem by “we” “us” “our” and “its” refer to Salem Media Group, Inc. and our subsidiaries.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Salem makes “forward-looking statements” from time to time in both written reports (including this annual report) and oral statements, within the meaning of federal and state securities laws. Disclosures that use words such as the company “believes,” “anticipates,” “estimates,” “expects,” “intends,” “will,” “may,” “intends,” “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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Table of Contents

PART I – FINANCIAL INFORMATION

SALEM MEDIA GROUP, INC.

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Table of Contents

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)

   December 31, 2020
(Note 1) March 31, 2021
(Unaudited)
ASSETS
Current assets:

Cash and cash equivalents
   $ 6,325 $ 23,394
Trade accounts receivable (net of allowances of $14,069 in 2020 and $13,225 in 2021)
   24,469 22,974
Unbilled revenue
   3,192 2,548
Other receivables (net of allowances of $124 in 2020 and $424 in 2021)
   1,122 1,006
Inventories (net of reserves of $1,499 in 2020 and $1,439 in 2021)
   495 588
Prepaid expenses
   6,847 7,597
Assets held for sale
   3,346 —


Total current assets
   45,796 58,107


Notes receivable (net of allowance of $461 in 2020 and $831 in 2021)
   721 696
Property and equipment (net of accumulated depreciation of $180,336 in 2020 and $183,136 in 2021)
   79,122 78,598
Operating lease right-of-use assets
   48,203 46,508
Financing lease right-of-use assets
   152 138
Broadcast licenses
   319,773 319,773
Goodwill
   23,757 23,757
Amortizable intangible assets (net of accumulated amortization of $58,897 in 2020 and $59,478 in 2021)
   4,017 3,563
Deferred financing costs
   213 187
Other assets
   2,817 2,627


Total assets
   $ 524,571 $ 533,954


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Accounts payable
   $ 2,006 $ 1,312
Accrued expenses
   11,002 9,932
Accrued compensation and related expenses
   10,242 11,153
Accrued interest
   1,225 4,875
Contract liabilities
   11,652 12,600
Deferred rent income
   147 149
Income taxes payable
   563 584
Current portion of operating lease liabilities
   8,963 8,615
Current portion of financing lease liabilities
   60 60
Current portion of long-term debt
   5,000 —


Total current liabilities
   50,860 49,280


Long-term debt, less current portion
   213,764 225,143
Operating lease liabilities, less current portion
   47,740 46,058
Financing (capital) lease liabilities, less current portion
   107 94
Deferred income taxes
   68,883 69,071
Contract liabilities, long-term
   1,869 2,159
Deferred rent income, less current portion
   3,864 3,841
Other long-term liabilities
   2,205 2,236


Total liabilities
   389,292 397,882


Commitments and contingencies (Note 16)

Stockholders’ Equity:

Class A common stock, $0.01 par value; authorized 80,000,000 shares; 23,447,317 and 23,633,099 issued and 21,129,667 and 21,315,449 outstanding at December 31, 2020 and March 31, 2021, respectively
   227 229
Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding at December 31, 2020 and March 31, 2021, respectively
   56 56
Additional paid-in capital
   247,025 247,493
Accumulated deficit
   (78,023 ) (77,700 )
Treasury stock, at cost (2,317,650 shares at December 31, 2020 and March 31, 2021)
   (34,006 ) (34,006 )


Total stockholders’ equity
   135,279 136,072


Total liabilities and stockholders’ equity
   $ 524,571 $ 533,954

~~See accompanying notes~~


		December 31, 2020 (Note 1)				September 30, 2021 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	6,325			$	23,781
Trade accounts receivable (net of allowances of $14,069 in 2020 and $11,680 in 2021)			24,469				24,429
Unbilled revenue			3,192				3,300
Other receivables (net of allowances of $124 in 2020 and $455 in 2021)			1,122				1,589
Inventories			495				907
Prepaid expenses			6,847				7,970
Assets held for sale			3,346				1,875

Total current assets			45,796				63,851

Notes receivable (net of allowance of $461 in 2020 and $996 in 2021)			721				364
Property and equipment (net of accumulated depreciation of $180,336 in 2020 and $185,127 in 2021)			79,122				78,425
Operating lease right-of-use assets			48,203				44,100
Financing lease right-of-use assets			152				121
Broadcast licenses			319,773				320,008
Goodwill			23,757				23,986
Amortizable intangible assets (net of accumulated amortization of $58,897 in 2020 and $57,769 in 2021)			4,017				2,785
Deferred financing costs			213				895
Other assets			2,817				3,678

Total assets		$	524,571			$	538,213

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	2,006			$	2,180
Accrued expenses			11,002				11,740
Accrued compensation and related expenses			10,242				10,752
Accrued interest			1,225				2,750
Contract liabilities			11,652				11,561
Deferred rent income			147				114
Income taxes payable			563				626
Current portion of operating lease liabilities			8,963				8,604
Current portion of financing lease liabilities			60				59
Current portion of long-term debt			5,000				0

Total current liabilities			50,860				48,386

Long-term debt, less current portion			213,764				208,559
Operating lease liabilities, less current portion			47,740				43,180
Financing (capital) lease liabilities, less current portion			107				79
Deferred income taxes			68,883				69,287
Contract liabilities, long-term			1,869				2,081
Deferred rent income, less current portion			3,864				3,795
Other long-term liabilities			2,205				2,248

Total liabilities			389,292				377,615

Commitments and contingencies (Note 14)	0				0
Stockholders’ Equity:
Class A common stock, $0.01 par value; authorized 80,000,000 shares; 23,447,317 and 23,639,824 issued and 21,129,667 and 21,322,174 outstanding at December 31, 2020 and September 30, 2021, respectively			227				229
Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding at December 31, 2020 and September 30, 2021, respectively			56				56
Additional paid-in capital			247,025				247,668
Accumulated deficit			(78,023	)			(53,349	)
Treasury stock, at cost (2,317,650 shares at December 31, 2020 and September 30, 2021)			(34,006	)			(34,006	)

Total stockholders’ equity			135,279				160,598

Total liabilities and stockholders’ equity		$	524,571			$	538,213

See accompanying notes

Table of Contents

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share and per share data)

(Unaudited)

   Three Months Ended
   March 31,
   2020 2021
Net broadcast revenue
   $ 45,180 $ 44,048
Net digital media revenue
   9,104 9,619
Net publishing revenue
   3,966 5,686


Total net revenue
   58,250 59,353


Operating expenses:

Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $431 and $443 for the three months ended March 31, 2020 and 2021, respectively, paid to related parties)
   37,327 33,343
Digital media operating expenses, exclusive of depreciation and amortization shown below
   8,326 8,673
Publishing operating expenses, exclusive of depreciation and amortization shown below
   5,062 5,205
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $180 and $3 for the three months ended March 31, 2020 and 2021, respectively, paid to related parties)
   4,210 4,288
Depreciation
   2,713 2,589
Amortization
   987 581
Change in the estimated fair value of contingent earn-out consideration
   (5 ) —
Impairment of indefinite-lived long-term assets other than goodwill
   17,254 —
Impairment of goodwill
   307 —
Net (gain) loss on the disposition of assets
   79 318


Total operating expenses
   76,260 54,997


Operating income (loss)
   (18,010 ) 4,356
Other income (expense):

Interest income
   —   1
Interest expense
   (4,032 ) (3,926 )
Gain on early retirement of long-term debt
   49 —
Net miscellaneous income and expenses
   (52 ) 22


Net income (loss) before income taxes
   (22,045 ) 453
Provision for income taxes
   33,159 130


Net income (loss)
   $ (55,204 ) $ 323


Basic earnings (loss) per share data:

Basic earnings (loss) per share Class A and Class B common stock
   $ (2.07 ) $ 0.01
Diluted earnings (loss) per share data:

Diluted earnings (loss) per share Class A and Class B common stock
   $ (2.07 ) $ 0.01
Basic weighted average Class A and Class B shares outstanding
   26,683,363 26,736,639


Diluted weighted average Class A and Class B shares outstanding
   26,683,363 27,138,773

~~See accompanying notes~~


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2021			2020			2021
Net broadcast revenue	$	45,391		$	49,591		$	130,041		$	140,422
Net digital media revenue		9,808			10,645			28,355			30,603
Net publishing revenue		5,442			5,747			13,366			18,093

Total net revenue		60,641			65,983			171,762			189,118

Operating expenses:
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $447 and $480 for the three months ended September 30, 2020 and 2021, respectively, and $1,313 and $1,369 for the nine months ended September 30, 2020 and 2021, respectively, paid to related parties)		34,283			37,463			104,704			106,968
Digital media operating expenses, exclusive of depreciation and amortization shown below		7,144			8,269			23,123			25,280
Publishing operating expenses, exclusive of depreciation and amortization shown below		5,814			5,213			16,443			16,844
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $18 and $0 for the three months ended September 30, 2020 and 2021, respectively, and $198 and $5 for the nine months ended September 30, 2020 and 2021, respectively, paid to related parties)		3,849			4,284			11,909			12,764
Debt modification costs		—			2,347			—			2,347
Depreciation		2,677			2,788			8,108			8,118
Amortization		751			427			2,578			1,553
Change in the estimated fair value of contingent earn-out consideration		(10	)		—			(12	)		—
Impairment of indefinite-lived long-term assets other than goodwill		—			—			17,254			—
Impairment of goodwill		—			—			307			—
Net (gain) loss on the disposition of assets		1,381			(10,607	)		1,494			(10,552	)

Total operating expenses		55,889			50,184			185,908			163,322

Operating income (loss)		4,752			15,799			(14,146	)		25,796
Other income (expense):
Interest income		1			—			1			1
Interest expense		(4,024	)		(4,026	)		(12,069	)		(11,887	)
Gain on the forgiveness of PPP loans		—			11,212			—			11,212
Gain (loss) on the early retirement of long-term debt		—			(56	)		49			(56	)
Net miscellaneous income and (expenses)		1			2			(45	)		87

Net income (loss) before income taxes		730			22,931			(26,210	)		25,153
Provision for income taxes		401			837			31,180			479

Net income (loss)	$	329		$	22,094		$	(57,390	)	$	24,674

Basic income (loss) per share data:
Basic income (loss) per share	$	0.01		$	0.82		$	(2.15	)	$	0.92
Diluted income (loss) per share data:
Diluted income (loss) per share	$	0.01		$	0.81		$	(2.15	)	$	0.91
Basic weighted average shares outstanding		26,683,363			26,870,664			26,683,363			26,825,483

Diluted weighted average shares outstanding		27,791,353			27,280,949			26,683,363			27,217,382


See accompanying notes

Table of Contents

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands, except share and per share ~~data)~~

   Class A    Class B
   Common Stock    Common Stock    Additional
               Paid-In    Accumulated Treasury
   Shares    Amount    Shares    Amount    Capital    Deficit Stock Total
Stockholders’ equity, December 31, 2019
   23,447,317    $ 227    5,553,696    $ 56    $ 246,680    $ (23,294 ) $ (34,006 ) $ 189,663
Stock-based compensation
   —      —      —      —      103    —   —   103
Cash distributions
   —      —      —      —      —      (667 ) —   (667 )
Net loss
   —      —      —      —      —      (55,204 ) —   (55,204 )












Stockholders’ equity, March 31, 2020
   23,447,317    $ 227    5,553,696    $ 56    $ 246,783    $ (79,165 ) $ (34,006 ) $ 133,895












Distributions per share
   $ 0.025       $ 0.025

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

data

)

Class A

Class B


Common Stock

Common Stock

Additional


Paid-In

Accumulated

Treasury


Shares

Amount

Shares

Amount

Capital

Deficit

Stock

Total

Stockholders’ equity, December 31, 2019
   23,447,317    $ 227    5,553,696    $ 56    $ 246,680    $ (23,294 ) $ (34,006 ) $ 189,663
Stock-based compensation    —      —      —      —      103    —   —   103
Cash distributions    —      —      —      —      —      (667 ) —   (667 )
Net loss    —      —      —      —      —      (55,204 ) —   (55,204 )

Stockholders’ equity, March 31, 2020
   23,447,317    $ 227    5,553,696    $ 56    $ 246,783    $ (79,165 ) $ (34,006 ) $ 133,895

Distributions per share
   $ 0.025       $ 0.025

Stock-based compensation    —      —      —      —      96    —   —   96
Net loss    —      —      —      —      —      (2,515 ) —   (2,515 )

Stockholders’ equity, June 30, 2020
   23,447,317    $ 227    5,553,696    $ 56    $ 246,879    $ (81,680 ) $ (34,006 ) $ 131,476
Stock-based compensation    —      —      —      —      74    —   —   74
Net income    —      —      —      —      —      329 —   329

Stockholders’ equity, September 30, 2020


23,447,317


$
227



5,553,696


$
56


$
246,953


$
(81,351
)

$
(34,006
)

$
131,879



Class A

Class B


Common Stock

Common Stock

Additional


Paid-In

Accumulated

Treasury


Shares

Amount

Shares

Amount

Capital

Deficit

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

Stock-based compensation    —      —      —      —      84    —   —   84
Net income    —      —      —      —      —      2,257 —   2,257

Stockholders’ equity, June 30, 2021
   23,633,099    $ 229    5,553,696    $ 56    $ 247,577    $ (75,443 ) $ (34,006 ) $ 138,413

Stock-based compensation    —      —      —      —      78    —   —   78
Options exercised    6,725    —      —      —      13    —   —   13
Net income    —      —      —      —      —      22,094 —   22,094

Stockholders’ equity, September 30, 2021


23,639,824


$
229



5,553,696


$
56


$
247,668


$
(53,349
)

$
(34,006
)

$
160,598

See accompanying notes

Table of Contents

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

   Three Months Ended
March 31,
   2020 2021
OPERATING ACTIVITIES

Net income (loss)
   $ (55,204 ) $ 323
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Non-cash stock-based compensation
   103 78
Depreciation and amortization
   3,700 3,170
Amortization of deferred financing costs
   227 213
Non-cash lease expense
   2,252 2,161
Provision for bad debts
   1,900 (295 )
Deferred income taxes
   33,084 188
Change in the estimated fair value of contingent earn-out consideration
   (5 ) —
Impairment of indefinite-lived long-term assets other than goodwill
   17,254 —
Impairment of goodwill
   307 —
Gain on early retirement of long-term debt
   (49 ) —
Net (gain) loss on the disposition of assets
   79 318
Changes in operating assets and liabilities:

Accounts receivable and unbilled revenue
   2,419 2,549
Inventories
   70 (93 )
Prepaid expenses and other current assets
   (587 ) (750 )
Accounts payable and accrued expenses
   4,478 2,490
Operating lease liabilities
   (2,407 ) (2,497 )
Contract liabilities
   133 1,122
Deferred rent income
   (84 ) 170
Other liabilities
   6 29
Income taxes payable
   57 21


Net cash provided by operating activities
   7,733 9,197


INVESTING ACTIVITIES

Cash paid for capital expenditures net of tenant improvement allowances
   (1,587 ) (1,859 )
Capital expenditures reimbursable under tenant improvement allowances and trade agreements
   (84 ) —
Deposit on broadcast assets and radio station acquisitions
   —   (100 )
Proceeds from sale of assets
   2 3,501
Other
   (428 ) (238 )


Net cash provided by (used in) investing activities
   (2,097 ) 1,304


FINANCING ACTIVITIES

Payments to repurchase 6.75% Senior Secured Notes
   (3,392 ) —
Proceeds from borrowings under ABL Facility
   33,319 16
Payments on ABL Facility
   (31,745 ) (5,016 )
Proceeds from borrowings under PPP Loans
   —   11,195
Payments of debt issuance costs
   (1 ) (3 )
Proceeds from the exercise of stock options
   —   392
Payments on financing lease liabilities
   (18 ) (16 )
Payment of cash distribution on common stock
   (667 ) —
Book overdraft
   (1,885 ) —


Net cash provided by (used in) financing activities
   (4,389 ) 6,568


Net increase in cash and cash equivalents
   1,247 17,069
Cash and cash equivalents at beginning of year
   6 6,325


Cash and cash equivalents at end of period
   $ 1,253 $ 23,394

Nine Months Ended

September 30,


2020

2021

OPERATING ACTIVITIES

Net income (loss)    $ (57,390 )
$
24,674

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Non-cash
stock-based compensation
   273

240

Depreciation and amortization    10,686

9,671

Amortization of deferred financing costs    675

690

Non-cash
lease expense
   6,745

6,527

Provision for bad debts    4,122

(248
)
Deferred income taxes    30,954

404

Change in the estimated fair value of contingent
earn-out
consideration
   (12 )

—

Impairment of indefinite-lived long-term assets other than goodwill    17,254

—

Impairment of goodwill    307

—

Gain on the forgiveness of PPP loans    —

(11,212
)
Gain (loss) on the early retirement of long-term debt    (49 )

56

Net (gain) loss on the disposition of assets    1,494

(10,552
)
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue    2,565

(67
)
Inventories    99

(412
)
Prepaid expenses and other current assets    (1,343 )

(1,218
)
Accounts payable and accrued expenses    5,871

2,596

Operating lease liabilities    (6,396 )

(7,317
)
Contract liabilities    5,274

782

Deferred rent income    (268 )

28

Other liabilities    2,254

41

Income taxes payable    30

63


Net cash provided by operating activities    23,145

14,746


INVESTING ACTIVITIES

Cash paid for capital expenditures net of tenant improvement allowances    (3,565 )

(6,952
)
Capital expenditures reimbursable under tenant improvement allowances and trade agreements    (140 )

(138
)
Deposit on broadcast assets and radio station acquisitions    —

(100
)
Purchases of broadcast assets and radio stations    —

(600
)
Purchases of digital media businesses and assets    (400 )

(3,980
)
Proceeds from sale of long-lived assets    188

15,771

Proceeds from the cash surrender value of life insurance policies    2,363

—

Other    (353 )

(1,227
)

Net cash provided by (used in) investing activities    (1,907 )

2,774


FINANCING ACTIVITIES

Proceeds from 2028 Notes    —

114,731

Payments to repurchase or exchange 2024 Notes    (3,392 )

(119,443
)
Proceeds from borrowings under ABL Facility    38,626

16

Payments on ABL Facility    (34,452 )

(5,016
)
Proceeds from borrowings under PPP Loans    —

11,195

Payments under PPP loans    —

17

Payments of debt issuance costs    (124 )

(1,921
)
Proceeds from the exercise of stock options    —

405

Payments on financing lease liabilities    (52 )

(48
)
Payment of cash distribution on common stock    (667 )

—

Book overdraft    (1,885 )

—


Net cash used in financing activities    (1,946 )

(64
)

Net increase in cash and cash equivalents    19,292

17,456

Cash and cash equivalents at beginning of year    6

6,325


Cash and cash equivalents at end of period    $ 19,298
$
23,781

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,
   2020    2021
Supplemental disclosures of cash flow information:

Cash paid during the period for:

Cash paid for interest, net of capitalized interest
   $ 163    $ 51
Cash paid for interest on finance lease liabilities
   $ 2    $ 2
Net cash paid for (received from) income taxes
   $ 18    $ (79 )
Other supplemental disclosures of cash flow information:

Barter revenue
   $ 1,192    $ 391
Barter expense
   $ 1,034    $ 373
Non-cash investing and financing activities:

Capital expenditures reimbursable under tenant improvement allowances
   $ 84    $ —
Right-of-use assets acquired through operating leases
   $ 575    $ 553
Right-of-use assets acquired through financing leases
   $ —      $ 2
Non-cash capital expenditures for property & equipment acquired under trade agreements
   $ 4    $ 6
Net assets and liabilities assumed in a non-cash acquisition
   $ —      127
Estimated present value of contingent-earn out consideration
   $ —      $ 11

~~See accompanying notes~~

	Nine Months Ended September 30,
	2020		2021
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Cash paid for interest, net of capitalized interest	$	7,731	$	9,628
Cash paid for interest on finance lease liabilities	$	6	$	6
Net cash paid for (received from) income taxes	$	196	$	13
Other supplemental disclosures of cash flow information:
Barter revenue	$	2,152	$	1,647
Barter expense	$	1,971	$	1,699
Non-cash investing and financing activities:
Capital expenditures reimbursable under tenant improvement allowances	$	140	$	138
Deferred payments on acquisitions	$	708		0
Right-of-use assets acquired through operating leases	$	2,715	$	3,466
Right-of-use assets acquired through financing leases	$	—	$	17
Non-cash capital expenditures for property & equipment acquired under trade agreements	$	4	$	27
Net assets and liabilities assumed in a non-cash acquisition	$	—	$	311
Estimated present value of contingent-earn out consideration	$	—	$	11

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~~3 operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which are discussed in Note 17 – Segment Data.

Impact of the
COVID-19
Pandemic

The

COVID-19

global pandemic that began in March 2020 ~~continues to impact~~materially impacted our business. ~~Measures taken by federal, state and local governments to prevent the spread of~~ ~~COVID-19~~ ~~have adversely affected workforces, certain economies, and financial markets resulting in a significant economic downturn.~~ We experienced a rapid decline in revenue from advertising, programming, events and book sales. Several advertisers reduced or ceased advertising spending due to the outbreak and

stay-at-home

orders that effectively shut many businesses down. The revenue decline impacted our broadcast segment, which derives substantial revenue from local advertisers who ~~have been~~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 ~~disruption is expected to be temporary, there remains to be considerable uncertainty around the duration. Advertising revenue~~

COVID-19

pandemic continues to ~~improve over~~create significant uncertainty and disruption in the ~~lowest levels that were experienced during April~~economy. These uncertainties could materially impact significant accounting estimates related to, but not limited to, allowances for doubtful accounts, impairments and ~~May~~

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 but remain significantly below prior years. The exact timing and pace of the economic recovery has not been determinable as certain markets have reopened, some of which have since experienced a resurgence of ~~COVID-19~~ ~~cases, resulting in varying degrees of reinstated~~ ~~stay-at-home~~ ~~orders. Due to continuing uncertainties regarding the ultimate scope and trajectory of~~ ~~COVID-19’s~~ spread and evolution, it is impossible to predict the total impact that the pandemic will have on our business. If public and private entities continue to enforce restrictive measures, the material adverse effect on our business, results of operations, financial condition and cash flows could persist. Our businesses could also continue to be impacted by the disruptions from ~~COVID-19~~ ~~and resulting adverse changes in advertising and consumer behavior.~~

Lower revenue and longer days to collect receivables negatively impacts future availability under our credit facility. Availability under our Asset Based Loan (“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. The maximum amount available under our ABL Facility was $26.1 million at March 31, 2021 compared to $24.8 million at December 31, 2020, of which none was outstanding at March 31, 2021 compared to $5.0 million outstanding at December 31, 2020.

Wewe implemented several measures ~~during 2020~~ to reduce costs and conserve cash to ensure that we ~~have~~had adequate cash to meet our debt servicing requirements, including:

limiting capital expenditures;

reducing discretionary spending, including travel and entertainment;

eliminating open positions and freezing new hires;

reducing staffing levels;

implementing temporary company-wide pay cuts of 5%, 7.5% or 10% depending on salary level;

furloughing certain employees;

temporarily suspending the company 401(k) match;

requesting rent concessions from landlords;

requesting discounts from vendors;

offering early payment discounts to certain customers in exchange for advance cash payments; and

suspending the payment of distributions on our common stock indefinitely.

As the economy ~~begins~~continues to show signs of recovery, many of these cost reduction initiatives ~~have or will be~~were reversed during 2021. We continue to operate with lower staffing levels, we have not reinstated the company 401(k) match and we have not paid equity distributions on our common stock.

~~On March 27, 2020, the~~

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into ~~law.~~law on March 27, 2020. The CARES Act ~~provides~~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 to support companies affected by the~~ ~~COVID-19~~ ~~pandemic and their employees.~~programs. On December 27, 2020, Congress passed the Consolidated Appropriations Act (“CAA”) that ~~includes~~included a second relief package, which, among other things, provides for an extension of the Payroll Support Program established by the CARES Act. We ~~have~~ utilized certain benefits of the CARES Act and ~~we may be entitled to benefits under~~ the CAA, ~~based on our individual locations,~~ including:

we deferred $3.3 million of employer FICA taxes from April 2020 through December 2020, , with 50% payable in December 2021 recorded in accrued compensation and related expenses and 50% payable in December ~~2022;~~

2022 recorded in other long-term liabilities;

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relaxation of interest expense deduction limitation for income tax purposes; ~~and~~

we received Paycheck Protection ~~Plan~~Program (“PPP”) loans ~~available~~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 of $11.2 million on a consolidated basis.~~

~~We believe that our customers have benefited from~~basis; and

In July 2021, the enhanced benefits provided by the CARES Act, and that they will also benefit from the CAA. The CAA provides for another round of direct payments, enhanced unemployment benefits, education funding, and aid to sectors still reeling from the economic falloutSBA forgave all but $20,000 of the ~~pandemic. While these measures may benefit many of our customers, we cannot assure you that~~PPP loans, with the ~~implementation of these measures will offset the negative impact of~~ ~~COVID-19~~ ~~on our customers. If the CAA or any additional stimulus measures are not sufficient to remediate the financial stress on our customers as a result of the pandemic, we may experience ongoing challenges~~remaining PPP loan repaid in ~~growing and maintaining revenue and we may experience an increase in delinquencies that could materially and adversely impact our results of operations and financial condition in future periods.~~

We continue to review and consider any available potential benefit under the CARES Act and the CAA for which we qualify. We cannot predict the manner in which such benefits or any of the other benefits described herein will be allocated or administered and we cannot assure you that we will be able to access such benefits in a timely manner or at all. If the U.S. government or any other governmental authority agrees to provide such aid under the CARES Act, the CAA, or any other crisis relief assistance it may impose certain requirements on the recipients of the aid, including restrictions on executive officer compensation, dividends, prepayment of debt, limitations on debt and other similar restrictions that may apply for a period of time after the aid is repaid or redeemed in full.

July 2021.

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 and nine months ended ~~March 31,~~September 30, 2021 and 2020 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, 2020. Our results are subject to seasonal ~~fluctuations. Therefore,~~fluctuations and therefore, the results of operations for the interim periods presented are not necessarily indicative of the results of operations for ~~the~~a full year.

The balance sheet at December 31, 2020 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.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results can be materially different from these estimates and assumptions.

Significant areas for which management uses estimates include:

revenue recognition;

asset impairments, including broadcasting licenses, goodwill and other indefinite-lived intangible assets;

probabilities associated with the potential for contingent

earn-out

consideration;

fair value measurements;

contingency reserves;

allowance for doubtful accounts;

sales returns and allowances;

barter transactions;

inventory ~~reserves;~~

obsolescence;

reserves for royalty advances;

fair value of equity awards;

self-insurance reserves;

estimated lives for tangible and intangible assets;

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,

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income tax valuation allowances;

uncertain tax positions; and

estimates used in going concern analysis.

These estimates require the use of judgment as future events and the effect of these events cannot be predicted with certainty. The estimates will change as new events occur, as more experience is acquired and as more information is obtained. We evaluate and update our assumptions and estimates on an ongoing basis and we may consult outside experts to assist as considered necessary.

The

COVID-19

pandemic continues to create 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.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, 2020, filed with the SEC on March 4, 2021, that have had a material impact on our Condensed Consolidated Financial Statements and related notes.

Recent Accounting Pronouncements

~~Changes to~~

All new accounting ~~principles~~pronouncements that are ~~established by the FASB~~ in ~~the form of ASUs to the FASB’s Codification.~~effect that may impact our financial statements have been implemented. We ~~consider the applicability and~~do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact ~~of all ASUs~~ on our financial position, results of operations or 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.

~~In January 2021, the FASB issued ASU~~ ~~2021-01,~~~~Reference Rate Reform (Topic 848): Scope~~~~, which refines the scope of ASC 848,~~ ~~Reference Rate Reform~~, and clarifies guidance as part of the FASB’s ongoing monitoring of global reference rate reform activities. The ASU permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and calculating price alignment interest in connection with reference rate reform activities under way in global financial markets. The ASU is effective upon issuance and did not have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.

~~In June 2016, the FASB issued ASU~~ ~~2016-13,~~~~Financial Instruments-Credit Losses,~~ ~~which changes the impairment model for most financial assets and certain other instruments. For trade and other receivables,~~ ~~held-to-maturity~~ debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model and generally will result in the earlier recognition of allowances for losses. For ~~available-for-sale~~ debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. Subsequent to issuing ASU ~~2016-13,~~ ~~the FASB issued ASU~~ ~~2018-19,~~~~Codification Improvements to Topic 326, Financial Instruments—Credit Losses~~~~, for the purpose of clarifying certain aspects of ASU~~ ~~2016-13.~~ ~~ASU~~ ~~2018-19~~ ~~has the same effective date and transition requirements as ASU~~ ~~2016-13.~~ ~~In April 2019, the FASB issued ASU~~ ~~2019-04,~~~~Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments~~~~, which is effective with the adoption of ASU~~ ~~2016-13.~~ ~~In May 2019, the FASB issued ASU~~ ~~2019-05,~~~~Financial Instruments – Credit Losses (Topic 326)~~~~, which is also effective with the adoption of ASU~~ ~~2016-13.~~ In October 2019, the FASB voted to delay the implementation date for certain companies, including those, such as Salem, that qualify as a smaller reporting company under SEC rules, until January 1, 2023. We will adopt this ASU on its effective date of January 1, 2023. 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.

NOTE 3. RECENT TRANSACTIONS

During the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2021, we completed or entered into the following transactions:

Debt Transactions

On September 24, 2021, we repurchased $4.7 million of the 6.75% Senior Secured Notes due 2024 (“2024 Notes”) for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs.

On September 10, 2021, we exchanged $112.8 million of the 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 transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 470, “

Debt

.” We ~~applied~~incurred debt issuance costs of $4.2 million, of which $2.3 million of third-party debt modification costs are reflected in operating expenses for the current period, $0.8 million is 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.

We received $11.2 million in aggregate principal amount of PPP loans through the ~~Small Business Administration (“SBA”) that were available to~~SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks ~~under the CAA.~~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 ~~are~~were forgivable provided that the proceeds ~~are~~were used for eligible purposes, including payroll, benefits, rent and utilities within the covered ~~period of up to 24 weeks from funding of the loans. The amount of PPP loan and accrued interest that is forgiven can be reduced if we reduce payroll or eliminate positions during the covered~~ period. We ~~are using, and intend to continue to use,~~used the PPP loan proceeds according to the terms and ~~will file~~filed timely applications for forgiveness. ~~The~~During July 2021, the SBA forgave all but $20,000 of the PPP loans ~~accrue interest at 1% annually~~resulting in a

pre-tax

gain on the forgiveness of $11.2 million. The remaining PPP loan was repaid in July 2021.

Shelf Registration Statement and ~~mature~~

At-the-Market

Facility

In April 2021, we filed a prospectus supplement to our shelf registration statement on Form

S-3

with the SEC covering the offering, issuance and sale of up to $15.0 million of our Class A Common Stock pursuant to an

at-the-market

facility, with B. Riley Securities, Inc. acting as sales agent. No Common Stock transactions have taken place under the facility.

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Acquisitions

The operating results of our business acquisitions and asset purchases are included in ~~five years~~our consolidated results of operations from their respective closing date or the date that we began operating them under a Local Marketing Agreement (“LMA”) or Time Brokerage Agreement (“TBA.”)

On July 2, 2021, we acquired the SeniorResource.com domain for ~~any amount~~$0.1 million in cash.

On July 1, 2021, we acquired the ShiftWorship.com domain and digital assets for $2.6 million in cash. The digital content library is operated within Salem Web Network’s church products division. We recognized goodwill of $0.2 million attributable to the expected synergies to be realized when combining the operations of this entity into our existing operations.

On June 1, 2021, we acquired radio stations

KDIA-AM

and

KDYA-AM

in San Francisco, California for $0.6 million in cash. The radio stations were acquired in formats that we operate and resulted in $4,000 of goodwill attributable to the additional audience reach obtained and the expected synergies to be realized from combining the operations of these stations into our existing market cluster.

On April 28, 2021, we acquired the Centerline New Media domain and digital assets for $1.3 million in cash. The digital content library is ~~not forgiven. The PPP loans are reflected in long-term debt in~~operated within Salem Web Network’s church products division. We recognized goodwill of $24,000 attributable to the ~~accompanying condensed consolidated financial statements in accordance with FASB ASC Topic 470,~~ ~~Debt~~~~, until~~expected synergies to be realized when combining the ~~loans are repaid or legally discharged.~~

operations of this entity into our existing operations.

~~Acquisitions~~

On March 8, 2021, we acquired the Triple Threat Trader newsletter. We paid no cash at the time of closing and assumed deferred subscription liabilities of $0.1 million. As part of the purchase agreement, we may pay up to an additional $11,000 in contingent

earn-out

consideration over the next two years based on the achievement of certain revenue benchmarks.

A summary of our business acquisitions and asset purchases during the nine-month period ending September 30, 2021, none of which were individually or in the aggregate material to our consolidated financial position as of the respective date of acquisition, is as follows:

Acquisition Date	Description	Total Consideration
		(Dollars in thousands)
July 2, 2021	SeniorResource.com (asset acquisition)	$	80
July 1, 2021	ShiftWorship.com (business acquisition)		2,600
June 1, 2021	KDIA-AM and KDYA-AM San Francisco, California (business acquisition)		600
April 28, 2021	Centerline New Media (business acquisition)		1,300
March 8, 2021	Triple Threat Trader (asset acquisition)		127

		$	4,707

Under the acquisition method of accounting as specified in FASB ASC Topic 805, “

Business Combinations

,” the total acquisition consideration of a business is allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the date of the transaction. Transactions that do not meet the definition of a business in ASU

2017-01

“

Business Combinations (Topic 805) Clarifying the Definition of a Business”

are recorded as asset purchases. Asset purchases are recognized based on their cost to acquire, including transaction costs. The cost to acquire an asset group is allocated to the individual assets acquired based on their relative fair value with no goodwill recognized.

The total acquisition consideration is equal to the sum of all cash payments, the fair value of any deferred payments and promissory notes, and the present value of any estimated contingent

earn-out

consideration. We estimate the fair value of any contingent

earn-out

consideration using a probability-weighted discounted cash flow model. The fair value measurement is based on significant inputs that are not observable in the market

and

thus represent a Level 3 measurement as defined in Note 12, Fair Value Measurements and Disclosures.

The total purchase price consideration for our business acquisitions and asset purchases the nine-month period ending September 30, 2021, is as follows:


Description	Total Consideration
	(Dollars in thousands)
Cash payments made upon closing	$	4,580
Deferred payments		116
Present value of estimated fair value of contingent earn-out consideration		11

Total purchase price consideration	$	4,707

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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		Net Digital Assets Acquired			Total Net Assets

		(Dollars in thousands)
Assets
	Property and equipment	$	361	$	3,221		$	3,582
	Broadcast licenses		235		0			235
	Goodwill		4		225			229
	Customer lists and contracts		0		789			789
	Domain and brand names		0		66			66

		$	600	$	4,301		$	4,901

Liabilities
	Contract liabilities, short-term		0		(194	)		(194	)

		$	600	$	4,107		$	4,707

Divestitures

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 July 27, 2021, we sold the Hilary Kramer Financial Newsletter and related assets for $0.2 million to be collected in quarterly installments over the

two-year

period ending September 30, 2023. We recognized a

pre-tax

gain on the sale of $0.1 million.

On July 23, 2021, we sold approximately 34 acres of land in Lewisville, Texas, for $12.1 million in cash. The land was being used for as the transmitter site for company owned radio station

KSKY-AM.

We retained a portion of the land in the southwest corner of the site to continue operating the radio station. We recognized a

pre-tax

gain on the sale of $10.5 million.

On May 25, 2021, we sold Singing News Magazine and Singing News Radio for $0.1 million in cash. In addition to the assets sold, the buyer assumed deferred subscription liabilities of $0.4 million resulting in a

pre-tax

gain on the sale of $0.5 million.

On March 18, 2021, we sold radio station

WKAT-AM

and an FM translator in Miami, Florida for $3.5 million. We collected $3.2 million in cash upon closing and ~~entered~~received a promissory note for $0.3 million ~~in cash~~ due one year from the closing date. The buyer began operating the station under ~~a Local Marketing Agreement (“LMA”)~~an LMA in November 2020. We recognized an estimated

pre-tax

loss of $1.4 million during the three-month period ended September 30, 2020, the date we entered ~~the~~into an Asset Purchase Agreement (“APA”) with the buyer, which reflected the sale price as compared to the carrying value of the assets to be sold, estimated closing costs, and the

write-off

of the remaining Miami assets as a result of exiting this market. We adjusted the

pre-tax

loss by ~~$0.3~~$0.4 million to ~~$1.7~~$1.8 million upon closing based on the actual closing costs incurred and a reconciliation of total station assets to the assets included in the sale.

Pending Transactions

On ~~February 4,~~August 31, 2021, we entered an agreement to sell 9.3 acres of land in the Denver area for $8.2 million.

We expect to close this sale early in 2022 and plan to continue broadcasting both

KRKS-AM

and

KBJD-AM

from this site.

On August 23, 2021, we entered an agreement to sell approximately 77 acres of land in Tampa, Florida for $13.5 million. We will move the transmitter for

WTBN-AM

and diplex it at our owned and operated

WGUL-AM

facility. We expect to close on this transaction by the end of the year.

On June 2, 2021, we entered into an APA to acquire ~~KDIA-AM~~ ~~and~~ ~~KDYA-AM~~radio station

KKOL-AM

in ~~San Francisco, California~~Seattle, Washington for ~~$0.6 million in cash.~~$0.5 million. We paid $0.1 million in cash tointo an escrow account ~~with $0.5 million of cash due upon closing. The purchase is subject to~~and we began operating the ~~approval of the FCC and is expected to close in the first half of~~station under an LMA on June 7, 2021.

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”).~~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

We recognize revenue in accordance with FASB ASC Topic 606, “

Revenue from Contracts with ~~Customers”~~ ~~(“ASC 606,~~Customers,”)

a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods or services are transferred to customers at an amount that reflects the consideration expected to be received. The application of FASB ASC Topic 606 requires us to use significant judgment and estimates when applying a five-step model applicable to all revenue streams.

~~Principal versus Agent Considerations~~

~~When another party is involved in providing goods or services to~~

The following table presents 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 reportrevenues disaggregated by 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 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 reviewedsource for ~~impairment. At March 31, 2021, 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 termseach of our ~~contracts is less than one year. Long-term contract liabilities represent the amount~~operating segments:

	Nine Months Ended September 30, 2021
	Broadcast		Digital Media		Publishing		Consolidated

	(Dollars in thousands)
By Source of Revenue:
Block Programming – National	$	35,824	$	0—	$	0—	$	35,824
Block Programming – Local		18,072		0—		0—		18,072
Spot Advertising – National		10,565		0—		0—		10,565
Spot Advertising – Local		30,123		0—		0—		30,123
Infomercials		682		0—		0—		682
Network		14,729		0—		0—		14,729
Digital Advertising		18,415		13,859		132		32,406
Digital Streaming		3,559		2,579		0—		6,138
Digital Downloads and eBooks		509		4,637		1,294		6,440
Subscriptions		828		9,227		262		10,317
Book Sales and e-commerce, net of estimated sales returns and allowances		289		163		10,851		11,303
Self-Publishing Fees		0—		0—		4,730		4,730
Print Advertising		2		0—		123		125
Other Revenues		6,825		138		701		7,664

	$	140,422	$	30,603	$	18,093	$	189,118

Timing of Revenue Recognition
Point in Time	$	138,540	$	30,603	$	18,093	$	187,236
Rental Income (1)		1,882		0—		0—		1,882

	$	140,422	$	30,603	$	18,093	$	189,118

	Nine Months Ended September 30, 2020
	Broadcast		Digital Media		Publishing		Consolidated

	(Dollars in thousands)
By Source of Revenue:
Block Programming – National	$	35,536	$	—	$	—	$	35,536
Block Programming – Local		18,211		—		—		18,211
Spot Advertising – National		10,179		—		—		10,179
Spot Advertising – Local		28,630		—		—		28,630
Infomercials		750		—		—		750
Network		13,505		—		—		13,505
Digital Advertising		10,676		14,473		216		25,365
Digital Streaming		1,981		2,611		—		4,592
Digital Downloads and eBooks		3,049		4,291		960		8,300
Subscriptions		868		6,679		519		8,066
Book Sales and e-commerce, net of estimated sales returns and allowances		1,128		108		6,849		8,085
Self-Publishing Fees		—		—		3,860		3,860
Print Advertising		1		—		278		279
Other Revenues		5,527		193		684		6,404

	$	130,041	$	28,355	$	13,366	$	171,762

Timing of Revenue Recognition
Point in Time	$	128,157	$	28,319	$	13,366	$	169,842
Rental Income (1)		1,884		36		—		1,920

	$	130,041	$	28,355	$	13,366	$	171,762

(1)	Rental income is not applicable to FASB ASC Topic 606, but shown for the purpose of identifying each revenue source presented in total revenue on our Condensed Consolidated Financial Statements within this report on Form 10-Q.

Table 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.~~

Contents

~~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, 2021
   $ 11,652    $ 1,869
Revenue recognized during the period that was included in the beginning balance of contract liabilities
   (3,814 )    —
Additional amounts recognized during the period
   7,087    524
Revenue recognized during the period that was recorded during the period
   (2,559 )    —
Transfers
   234    (234 )




Balance, end of period March 31, 2021
   $ 12,600    2,159




Amount refundable at beginning of period
   $ 11,607    1,869
Amount refundable at end of period
   $ 12,588    2,159

~~We expect to satisfy these performance obligations as follows:~~

   Amount
For the Twelve Months Ended March 31,    (Dollars in thousands)
2022
   $ 12,600
2023
   1,365
2024
   472
2025
   184
2026
   55
Thereafter
   83


   $ 14,759

~~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, 2021 and March 31, 2026. 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.

~~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~~

Like former revenue recognition guidance, we continue to 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 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.

~~Practical Expedients and Exemptions~~

~~We elected certain practical expedients and policy elections as follows:~~

We do not adjust the promised amount of consideration for the effects of a significant financing component if the period between transfer of product and customer payment is expected to be less than one year at the time of contract inception;

~~We do not assess promised goods or services as performance obligations if they are immaterial in the context of the contract with the customer;~~

~~We exclude sales and similar taxes from the transaction price;~~

~~We treat shipping and handling costs that occur after control transfers as fulfillment activities instead of assessing such activities as separate performance obligations; and~~

~~We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.~~

A summary of our principal sources of revenue is as follows:

Block Programming

We recognize revenue from the sale of blocks of airtime to program producers that typically range from 12^{1
/_{2
, 25 or50-minutes
of time. We separate block program revenue into three 3
categories, National, Local and Infomercial revenue. Our stations are classified by format, including our three main formats Christian Teaching and Talk, News Talk, and Contemporary Christian Music, Spanish Language Christian Teaching and Talk and Business.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.
Block Programming revenue may also include variable consideration for charities and programmers that purchase blocks of airtime to generate donations and contributions from our audience.}}

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~~the sale of advertisements on our own and operated mobile ~~applications. Each~~applications, the sale of ~~our radio stations, our~~advertisements in digital ~~media entities~~newsletters that we produce, the sale of advertising in streaming and ~~certain publishing entities have~~podcasts, and the sale of custom ~~websites and mobile applications that generate~~ digital advertising ~~revenue.~~solutions, such as web pages and social media campaigns that we offer to our customers. Digital advertising revenue is recognized at the time that the ~~banner display~~advertisement is delivered, or when 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 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.

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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, podcast subscriptions for

on-air

content, and subscriptions to our print magazine. Subscription terms typically range from

three months

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.

e-Commerce

. We recognize revenue from the sale of products sold through our digital platform. Payments for products are due in advance shipping. We record a contract liability when we receive customer payments in advance of shipment. The time frame from receipt of payment to shipment is typically one business day based on the time that an order is placed as compared to fulfillment.

E-Commerce

revenue is recognized at the time of shipment, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is reported net of estimated returns, which are based on our experience and historical return rates. Returned products are recorded in inventory if they are unopened and

re-saleable

with a corresponding reduction in the cost of goods sold.

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

e-Books.

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.

~~Advertising—~~

Advertising – Print

. We ~~recognize~~recognized revenue from the sale of print magazine advertisements. Revenue iswas recognized upon delivery of the print magazine which represents the point in time that control is transferred to the customer thereby completing the performance obligation. Revenue iswas 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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Other Revenues

Other revenues include 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.

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.~~
agency
.

Trade and barter revenues and expenses were as follows:

   Three Months Ended
   March 31,
   2020    2021
Net broadcast barter revenue
   $ 1,166    $ 391
Net digital media barter revenue
   —      —
Net publishing barter revenue
   26    —
Net broadcast barter expense
   $ 1,034    $ 373
Net digital media barter expense
   —      —
Net publishing barter expense
   —      —

Three Months Ended
September 30,

Nine Months Ended
September 30,


   2020
2021
   2020
2021



(Dollars in thousands)

Net broadcast barter revenue    $ 444
$
582

   $ 2,118
$
1,647

Net digital media barter revenue    —

—

   —

—

Net publishing barter revenue    3

—

   34

—

Net broadcast barter expense    $ 413
$
619

   $ 1,971
$
1,704

Net digital media barter expense    —

0—

   —

0—

Net publishing barter expense    —

(2
)
   —

(5
)
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 our Consolidated Balance Sheets. The ~~following table presents~~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 commissions are periodically reviewed for impairment. At September 30, 2021, our ~~revenues disaggregated by~~prepaid commissions were $0.7 million.
Contract Liabilities
Contract liabilities consist of customer advance payments and billings in excess of revenue ~~source for each~~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 ~~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
Spot Advertising—National
   3,660    —      —      3,660
Spot Advertising—Local
   8,895    —      —      8,895
Infomercials
   237    —      —      237
Network
   4,871    —      —      4,871
Digital Advertising
   5,781    4,413    62    10,256
Digital Streaming
   853    844    —      1,697
Digital Downloads and eBooks
   60    1,479    339    1,878
Subscriptions
   286    2,773    158    3,217
Book Sales and e-commerce, net of estimated sales returns and allowances
   89    31    3,208    3,328
Self-Publishing Fees
   —      —      1,624    1,624
Print Advertising
   —      —      68    68
Other Revenues
   1,899    79    227    2,205








   $ 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








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.

   Three Months Ended March 31, 2020
   Broadcast    Digital Media    Publishing    Consolidated
   (dollars in thousands)
By Source of Revenue:
Block Programming—National
   $ 12,034    $ —      $ —      $ 12,034
Block Programming—Local
   6,808    —      —      6,808
Spot Advertising—National
   3,957    —      —      3,957
Spot Advertising—Local
   11,357    —      —      11,357
Infomercials
   308    —      —      308
Network
   4,388    —      —      4,388
Digital Advertising
   3,326    4,713    99    8,138
Digital Streaming
   608    915    —      1,523
Digital Downloads and eBooks
   —      1,245    254    1,499
Subscriptions
   282    2,135    177    2,594
Book Sales and e-commerce, net of estimated sales returns and allowances
   76    28    1,723    1,827
Self-Publishing Fees
   —      —      1,402    1,402
Print Advertising
   1    —      102    103
Other Revenues
   2,035    68    209    2,312








   $ 45,180    $ 9,104    $ 3,966    $ 58,250








Timing of Revenue Recognition
Point in Time
   $ 44,563    $ 9,104    $ 3,966    $ 57,633
Rental Income (1)
   617    —      —      617








   $ 45,180    $ 9,104    $ 3,966    $ 58,250








~~(1)~~
Rental income is not applicable to ASC Topic 606, but shown for the purpose of identifying each revenue source presented in total revenue on our Condensed Consolidated Financial Statements within this report on Form ~~10-Q.~~
18
Table of Contents
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, 2021    $ 11,652

   $ 1,869
Revenue recognized during the period that was included in the beginning balance
of contract liabilities

(7,770 )    0—
Additional amounts recognized during the period

19,742    883
Revenue recognized during the period that was recorded during the period

(12,734 )    0—
Transfers

671    (671 )

Balance, end of period September 30, 2021
$
11,561

   $ 2,081

Amount refundable at beginning of period    $ 11,607

   $ 1,869
Amount refundable at end of period    $ 11,549

   $ 2,081
We expect to satisfy these performance obligations as follows:

Amount

For the Twelve Months Ended September 30,

(Dollars in thousands)

2022
   $ 11,561
2023
   979
2024
   787
2025
   238
2026
   77
Thereafter
   0

   $ 13,642

Significant Financing Component
Our sales agreements are typically 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 October 1, 2021, and September 30, 2026. The difference between the promised consideration and the cash selling price of the publications is not significant and therefore, we concluded that subscriptions do not contain a significant financing component under FASB ASC Topic 606.
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 FASB ASC Topic 606.
NOTE 5. INVENTORIES
Inventories consist of finished books from Regnery^{®
Publishing. All inventories are valued at the lower of cost or net realizable value as determined on a First-In First-Outweighted average cost method net of estimated reserves for obsolescence.
The following table provides details of inventory on hand:
   December 31, 2020    March 31, 2021
   (Dollars in thousands)
Book inventories    $ 1,994    $ 2,027
Reserve for obsolescence    (1,499 )    (1,439 )

Inventory, net—    $ 495    $ 588
      method.}
NOTE 6. PROPERTY AND EQUIPMENT
We account for property and equipment in accordance with FASB ASC Topic
360-10,
“
Property, Plant and Equipment
.
”
19
Table of Contents
The following is a summary of the categories of our property and equipment:

   As of December 31, 2020    As of March 31, 2021
   (Dollars in thousands)
Land
   $ 30,254    $ 30,254
Buildings
   28,922    28,993
Office furnishings and equipment
   36,875    37,289
Antennae, towers and transmitting equipment
   78,057    78,152
Studio, production and mobile equipment
   29,023    29,389
Computer software and website development costs
   33,928    34,085
Record and tape libraries
   17    17
Automobiles
   1,514    1,514
Leasehold improvements
   18,187    18,208
Construction-in-progress
   2,681    3,833




   $ 259,458    $ 261,734
Less accumulated depreciation
   (180,336 )    (183,136 )




   $ 79,122    $ 78,598




   December 31, 2020
September 30, 2021



(Dollars in thousands)

Buildings    $ 28,922


$
28,567

Office furnishings and equipment

36,875



36,592

Antennae, towers and transmitting equipment

78,057



77,543

Studio, production, and mobile equipment

29,023



29,333

Computer software and website development costs

33,928



38,272

Record and tape libraries

17



—

Automobiles

1,514



1,492

Leasehold improvements    18,187

18,703


   $ 226,523
$
230,502

Less accumulated depreciation    (180,336 )

(185,127
)

   46,187

45,375

Land    $ 30,254
$
27,040

Construction-in-progress
   2,681

6,010


   $ 79,122
$
78,425


Depreciation expense was approximately ~~$2.6 million and~~ $2.7 million for the three-month periods ended ~~March 31,~~September 30, 2021 and 2020, ~~respectively.~~and $8.1 million for the nine-month periods ended September 30, 2021 and 2020. We periodically 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~~three- and nine-month period ended ~~March 31, 2021.~~

September 30, 2021

NOTE 7. OPERATING AND FINANCE LEASE
RIGHT-OF-USE
ASSETS

Leases

We account for leases in accordance with FASB ASC Topic 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. FASB ASC Topic 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. 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.

Table of Contents
Balance Sheet
Supplemental balance sheet information related to leases is as follows:

   March 31, 2021
   (Dollars in thousands)
   Related Party    Other    Total
Operating Leases

Operating leases ROU assets
   $ 6,642    $ 39,866    $ 46,508
Operating lease liabilities (current)
   $ 938    $ 7,677    $ 8,615
Operating lease liabilities (non-current)
   5,860    40,198    46,058






Total operating lease liabilities
   $ 6,798    $ 47,875    $ 54,673







September 30, 2021


(Dollars in thousands)


Operating Leases
   Related Party    Other    Total
Operating leases ROU assets    $ 6,303    $ 37,797    $ 44,100

Operating lease liabilities (current)    $ 1,004    $ 7,600    $ 8,604
Operating lease liabilities
(non-current)
   5,479    37,701    43,180

Total operating lease liabilities    $ 6,483    $ 45,301    $ 51,784

Weighted Average Remaining Lease Term
~~Operating leases~~
   ~~8.2 years~~
Operating leases
7.8 years
Finance leases
2.9 years
Weighted Average Discount Rate
   ~~3.0 years~~
~~Weighted Average Discount Rate~~
Operating leases
7.98
%
~~Operating~~Finance leases

~~7.95~~
5.74
%
~~Finance leases~~
~~5.39~~ %
Lease Expense
The components of lease expense were as follows:

   Three Months Ended
March 31, 2021
   (Dollars in thousands)
Amortization of finance lease ROU Assets
   $ 16
Interest on finance lease liabilities
   2


Finance lease expense
   18
Operating lease expense
   3,214
Variable lease expense
   190
Short-term lease expense
   157


Total lease expense
   $ 3,579

Nine Months Ended

September 30, 2021


(Dollars in thousands)

Amortization of finance lease ROU Assets    $ 48
Interest on finance lease liabilities    6

Finance lease expense    54
Operating lease expense    9,656
Variable lease expense    430
Short-term lease expense    444

Total lease expense    $ 10,584

Supplemental Cash Flow
Supplemental cash flow information related to leases was
as
follows:

   Three Months Ended
March 31, 2021
   (Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases
   $ 3,569
Operating cash flows from finance leases
   1
Financing cash flows from finance leases
   16
Leased assets obtained in exchange for new operating lease liabilities
   $ 553
Leased assets obtained in exchange for new finance lease liabilities
   2

Nine Months Ended

September 30, 2021


(Dollars in thousands)

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases    $ 10,403
Operating cash flows from finance leases    4
Financing cash flows from finance leases    48
Leased assets obtained in exchange for new operating lease liabilities    $ 3,466
Leased assets obtained in exchange for new finance lease liabilities    17
21
Table of Contents
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,~~September 30, 2021, are as follows:

Future minimum lease    Operating Leases
   Related Party Other Total Finance Leases Total
   (Dollars in thousands)
2021 (Apr-Dec)
   $ 1,466 $ 11,042 $ 12,508 $ 65 $ 12,573
2022
   1,620 10,744 12,364 57 12,421
2023
   1,018 9,209 10,227 31 10,258
2024
   1,014 7,030 8,044 12 8,056
2025
   1,043 5,928 6,971 4 6,975
Thereafter
   3,797 24,763 28,560 —   28,560


Undiscounted Cash Flows
   $ 9,958 $ 68,716 $ 78,674 $ 169 $ 78,843


Less: imputed interest
   (3,160 ) (20,841 ) (24,001 ) (15 ) (24,016 )


Total
   $ 6,798 $ 47,875 $ 54,673 $ 154 $ 54,827


Reconciliation to lease liabilities:

Lease liabilities—current
   $ 938 $ 7,677 $ 8,615 $ 60 $ 8,675
Lease liabilities—long-term
   5,860 40,198 46,058 94 46,152


Total Lease Liabilities
   $ 6,798 $ 47,875 $ 54,673 $ 154 $ 54,827


   Operating Leases

   Related Party Other Total Finance Leases Total


(Dollars in thousands)

2021
(Oct-Dec)
   $ 1,505 $ 10,789 $ 12,294 $ 66 $ 12,360
2022    1,370 10,908 12,278 47 12,325
2023    1,070 8,533 9,603 24 9,627
2024    1,021 6,890 7,911 10 7,921
2025    1,089 5,640 6,729 1 6,730
Thereafter    3,293 22,222 25,515 —   25,515

Undiscounted Cash Flows    $ 9,348 $ 64,982 $ 74,330 $ 148 $ 74,478

Less: imputed interest    (2,865 ) (19,681 ) (22,546 ) (10 ) (22,556 )

Total
$
6,483

$
45,301

$
51,784

$
138

$
51,922


Reconciliation to lease liabilities:
Lease liabilities – current    $ 1,004 $ 7,600 $ 8,604 $ 59 $ 8,663
Lease liabilities – long-term    5,479 37,701 43,180 79 43,259

Total Lease Liabilities
$
6,483

$
45,301

$
51,784

$
138

$
51,922


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 no0 indications of impairment during the ~~three months~~three- and nine-month period ended ~~March 31,~~September 30, 2021.
The following table presents the changes in broadcasting licenses ~~that include~~including acquisitions and divestitures of radio stations and
FM
translators.

Broadcast Licenses
   Twelve Months Ended
December 31, 2020    Three Months Ended
March 31, 2021
   (Dollars in thousands)
Balance before cumulative loss on impairment, beginning of period
   $ 441,143    $ 440,052
Accumulated loss on impairment, beginning of period
   (103,285 )    (120,279 )




Balance after cumulative loss on impairment, beginning of period
   337,858    319,773




Dispositions of radio stations
   (1,091 )    —
Impairments based on the estimated fair value of broadcast licenses
   (16,994 )    —




Balance, end of period after cumulative loss on impairment
   $ 319,773    $ 319,773




Balance, end of period before cumulative loss on impairment
   $ 440,052    $ 440,052
Accumulated loss on impairment, end of period
   (120,279 )    (120,279 )




Balance, end of period after cumulative loss on impairment
   $ 319,773    $ 319,773

Broadcast Licenses    Twelve Months Ended
December 31, 2020
Nine Months Ended

September 30, 2021



(Dollars in thousands)

Balance before cumulative loss on impairment,
beginning of period    $ 435,300
$
434,209

Accumulated loss on impairment, beginning of
period    (97,442 )

(114,436
)

Balance after cumulative loss on impairment, beginning
of period    337,858

319,773


Acquisitions of radio stations    —

235

Dispositions of radio stations    (1,091 )

—

Impairments based on the estimated fair value of
broadcast licenses    (16,994 )

—


Balance, end of period after cumulative loss on
impairment    $ 319,773
$
320,008


Balance, end of period before cumulative loss on
impairment    $ 434,209
$
434,444

Accumulated loss on impairment, end of period    (114,436 )

(114,436
)

Balance, end of period after cumulative loss on
impairment    $ 319,773
$
320,008


22
Table of Contents
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 no0 indications of impairment during the ~~three months~~three- and nine-month period ended ~~March 31,~~September 30, 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, 2020    Three Months Ended
March 31, 2021
   (Dollars in thousands)
Balance, beginning of period before cumulative loss on impairment,
   $ 28,454    $ 28,520
Accumulated loss on impairment
   (4,456 )    (4,763 )




Balance, beginning of period after cumulative loss on impairment
   23,998    23,757




Acquisitions of radio stations
   66    —
Impairments based on the estimated fair value goodwill
   (307 )    —




Ending period balance
   $ 23,757    $ 23,757




Balance, end of period before cumulative loss on impairment
   28,520    28,520
Accumulated loss on impairment
   (4,763 )    (4,763 )




Ending period balance
   $ 23,757    $ 23,757




Goodwill    Twelve Months Ended
December 31, 2020
Nine Months Ended
September 30, 2021



(Dollars in thousands)

Balance, beginning of period before cumulative loss
on

impairment,
   $ 28,454
$
28,520

Accumulated loss on impairment    (4,456 )

(4,763
)

Balance, beginning of period after cumulative loss on
impairment    23,998

23,757


Acquisitions of radio stations    66

4

Acquisitions of digital media entities    —

225

Impairments based on the estimated fair value
goodwill    (307 )

—


Ending period balance    $ 23,757
$
23,986


Balance, end of period before cumulative loss on
impairment    28,520

28,749

Accumulated loss on impairment    (4,763 )

(4,763
)

Ending period balance    $ 23,757
$
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, 2021
      Accumulated
   Cost    Amortization    Net
   (Dollars in thousands)
Customer lists and contracts
   $ 24,139    $ (22,690 )    $ 1,449
Domain and brand names
   20,350    (19,367 )    983
Favorable and assigned leases
   2,188    (1,947 )    241
Subscriber base and lists
   9,886    (9,087 )    799
Author relationships
   2,771    (2,767 )    4
Non-compete agreements
   2,041    (1,991 )    50
Other amortizable intangible assets
   1,666    (1,629 )    37






   $ 63,041    $ (59,478 )    $ 3,563






   As of December 31, 2020
      Accumulated
   Cost    Amortization    Net
   (Dollars in thousands)
Customer lists and contracts
   $ 24,012    $ (22,533 )    $ 1,479
Domain and brand names
   20,350    (19,127 )    1,223
Favorable and assigned leases
   2,188    (1,943 )    245
Subscriber base and lists
   9,886    (8,974 )    912
Author relationships
   2,771    (2,765 )    6
Non-compete agreements
   2,041    (1,954 )    87
Other amortizable intangible assets
   1,666    (1,601 )    65






   $62,914    $(58,897)    $4,017







September 30, 2021

      Accumulated
   Cost    Amortization    Net


(Dollars in thousands)

Customer lists and contracts
$
23,700


$
(21,987
)

$
1,713

Domain and brand names

19,875



(19,340
)


535

Favorable and assigned leases

2,188



(1,955
)


233

Subscriber base and lists

8,647



(8,343
)


304

Author relationships

2,771



(2,771
)


—

Non-compete
agreements


2,041



(2,041
)


—

Other amortizable intangible assets

1,332



(1,332
)


—



$
60,554


$
(57,769
)

$
2,785



December 31,
2020


      Accumulated
   Cost    Amortization    Net


(Dollars in thousands)

Customer lists and contracts    $ 24,012    $ (22,533 )    $ 1,479
Domain and brand names    20,350    (19,127 )    1,223
Favorable and assigned leases    2,188    (1,943 )    245
Subscriber base and lists    9,886    (8,974 )    912
Author relationships    2,771    (2,765 )    6
Non-compete
agreements
   2,041    (1,954 )    87
Other amortizable intangible assets    1,666    (1,601 )    65

   $ 62,914    $ (58,897 )    $ 4,017

23
Table of Contents
Amortization expense was approximately ~~$0.6~~$0.4 million and ~~$1.0~~$0.8 million for the three-month periods ended ~~March 31,~~September 30, 2021 and 2020, respectively and $1.5 million and $2.6 million for the nine-month periods ended September 30, 2021 and 2020, respectively. Based on the amortizable intangible assets as of ~~March 31,~~September 30, 2021, we estimate amortization expense for the next five years to be as follows:

Year Ended December 31,
   Amortization Expense
   (Dollars in thousands)
2021 (Apr – Dec)
   $ 1,297
2022
   1,252
2023
   717
2024
   92
2025
   8
Thereafter
   197


Total
   $ 3,563

Year Ended December 31,

Amortization Expense


(Dollars in thousands)

2021 (Oct – Dec)    $ 341
2022    1,219
2023    796
2024    205
2025    21
Thereafter    203

Total    $ 2,785

NOTE 11. LONG-TERM DEBT
~~Salem Media Group, Inc. has no independent assets or operations,~~
Long-term debt consists of the ~~subsidiary guarantees relating~~following:
   December 31, 2020
September 30, 2021



(Dollars in thousands)

7.125% Senior Secured Notes    $ —
$
114,731

Less unamortized discount and debt issuance costs based on imputed interest rate of 7.64%    —

(4,048
)


7.125% Senior Secured Notes net carrying value    —

110,683


6.75% Senior Secured Notes    216,341

98,815

Less unamortized debt issuance costs based on imputed interest rate of 7.10%    (2,577 )

(939
)


6.75% Senior Secured Notes net carrying value    213,764

97,876


Asset-Based Revolving Credit Facility principal
outstanding (1)    5,000

—

SBA Paycheck Protection Program loans    —

0—


Long-term debt less unamortized discount and debt issuance costs    $ 218,764
$
208,559


Less current portion    (5,000 )

—


Long-term debt less unamortized discount and debt issuance costs, net of current portion    $ 213,764
$
208,559


(1) As of September 30, 2021, the Asset-Based Revolving Credit Facility (“ABL”), had a borrowing base of $24.6 million, 0 outstanding borrowings and $0.3 million of outstanding letters of credit, resulting in a $24.3 million borrowing base availability.
Our weighted average interest rate was 6.65% and 6.94% at December 31, 2020 and September 30, 2021, respectively
.
In addition to ~~certain~~the outstanding amounts listed above, we also have interest payments related to our long-term debt ~~are full and unconditional and joint and several, and any subsidiaries~~as follows as of ~~Salem Media Group, Inc. other than the subsidiary guarantors are minor.~~
~~SBA PPP Loans~~
~~We received $11.2~~September 30, 2021:
$114.7 million in aggregate principal amount of ~~PPP loans through~~2028 Notes with semi-annual interest payments at an annual rate of 7.125%;
$98.8 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 ~~SBA that~~unused portion of the ABL Facility.
7.125% Senior Secured Notes
On September 10, 2021, we refinanced $112.8 million of the 2024 Notes by exchanging $112.8 million of 2024 Notes into $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.
24
Table of Contents
The 2028 Notes and the related guarantees were ~~available~~exchanged and sold to ~~our radio stations~~certain holders of the 2024 Notes, whom we believe to be qualified institutional buyers, in a private placement. The 2028 Notes and ~~networks~~the related guarantees have not been and will not be registered under the ~~CAA. The PPP loans~~Securities Act or the securities laws of any other jurisdiction and ~~accrued interest are forgivable provided that~~may not be offered or sold in the ~~proceeds are used for eligible purposes, including payroll, benefits, rent and utilities within~~United States or to U.S. persons absent registration or an applicable exemption from, or in a transaction not subject to, the ~~covered period of up to 24 weeks from funding~~registration requirements of the ~~loans.~~Securities Act or any state securities laws. The ~~amount of PPP loan~~transaction was assessed on a lender-specific level and accrued interest that is forgiven can be reduced if we reduce payroll or eliminate positions during the covered period. We are using, and intend to continue to use, the PPP loan proceeds according to the terms and will file timely applicationswas accounted for ~~forgiveness. The PPP loans accrue interest at 1% annually and mature in five years for any amount that is not forgiven. The PPP loans are reflected in long-term~~as a debt ~~in the accompanying condensed consolidated financial statements~~modification in accordance with FASB ASC Topic ~~470,~~ ~~Debt~~~~, until the loans are repaid or legally discharged.~~
~~6.75% Senior Secured Notes~~
~~On May 19, 2017, we issued the Notes in a private placement.~~ 470.
The 2028 Notes are guaranteed on a senior secured ~~basis by our existing subsidiaries (the “Subsidiary Guarantors”). The~~basis. We may redeem the 7.125% 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 initially accrued on the Notes from May 19, 2017 and is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year, commencing December 1, 2017.
The 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) (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 Notes were redeemable,~~ in whole or in part, at any time ~~on or before~~prior to June 1, ~~2020~~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, to, but not including, the redemption date. At any time on or after June 1, ~~2020,~~2024, we may redeem some or all of the 2028 Notes ~~are redeemable~~ 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. As of September 30, 2021, accrued interest on the 2028 Notes was $0.5 million.
The indenture to the 2028 Notes (“2028 Indenture”) 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 September 30, 2021, we were, and we remain, in compliance with all of the covenants under the 7.125% Indenture.
We incurred debt issuance costs of $4.2 million, of which $2.3 million of third-party debt modification costs are reflected in operating expenses for the current period, $0.8 million is 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.
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.
6.75% Senior Secured 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 (the “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) (the “2024 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 indenture relating to the 2024 Notes (the ~~“Indenture”~~“2024 Indenture”) 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.
The Indenture provides for the following events of default (each, an “Event of Default”): (i) default in payment of principal or premium on the Notes at maturity, upon repurchase, acceleration, optional redemption or otherwise; (ii) default for At September 30, days in payment of interest on the Notes; (iii) the failure by us or certain restricted subsidiaries to comply with other agreements in the Indenture or the Notes, in certain cases subject to notice and lapse of time; (iv) the failure of any guarantee by certain significant Subsidiary Guarantors to be in full force and effect and enforceable in accordance with its terms, subject to notice and lapse of time; (v) certain accelerations (including failure to pay within any grace period) of other indebtedness of ours or any restricted subsidiary if the amount accelerated (or so unpaid) is at least $15 million; (vi) certain judgments for the payment of money in excess of $15 million; (vii) certain events of bankruptcy or insolvency with respect to us or any significant subsidiary; and (viii) certain defaults with respect to any collateral having a fair market value in excess of $15 million. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the outstanding Notes may declare the principal of the Notes and any accrued interest on the Notes to be due and payable immediately, subject to remedy or cure in certain cases. Certain events of bankruptcy or insolvency are Events of Default which will result in the Notes being due and payable immediately upon the occurrence of such Events of Default. At March 31, 2021, we were, and we remain, in compliance with all of the covenants under the Indenture.
~~Based on the balance~~
25
Table of ~~the Notes currently outstanding, we are required to pay $14.6 million per year in interest on the Notes. As of March 31, 2021, accrued interest on the Notes was $4.9 million.~~
~~We incurred debt issuance costs of $6.3 million that were recorded as a reduction of the debt proceeds that are being amortized to~~ ~~non-cash~~ interest expense over the life of the Notes using the effective interest method. During the three-month periods ended March 31, 2021 and 2020, $0.2 million of debt issuance costs associated with the Notes was amortized to interest expense.
Contents
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.

As described above, on September 10, 2021, we exchanges of $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.

On September 24, 2021, we repurchased $4.7 million of the 2024 Notes for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs.

Based on the ~~then existing market conditions,~~balance of the 2024 Notes outstanding of $98.8 million, we ~~completed repurchases~~are required to pay $6.6 million per year in interest on the 2024 Notes. As of ~~our 6.75% Senior Secured~~September 30, 2021, accrued interest on the 2024 Notes ~~at amounts less than face value~~was $2.3 million.

We incurred debt issuance costs of $6.3 million that were recorded as ~~follows:~~

Date
   Principal Repurchased    Cash Paid    % of Face Value Bond Issue Costs    Net Gain
   (Dollars in thousands)
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








   $ 38,659    $ 35,586    $ 706    $ 2,367








a reduction of the debt proceeds that are being amortized to
non-cash
interest expense over the life of the Notes using the effective interest method. During the three and nine-month periods ended September 30, 2021, $0.2 million and $0.5 million, respectively, of debt issuance costs associated with the Notes was amortized to interest expense. During the three and nine-month periods ended September 30, 2020, $0.2 million and $0.6 million, respectively, of debt issuance costs associated with the Notes was amortized to interest expense.

Asset-Based Revolving Credit Facility

On May 19, 2017, we entered into the ABL Facility pursuant to a Credit Agreement (the “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.

~~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,~~September 30, 2021, we were, and we remain, in compliance with all of the covenants under Credit Agreement.

On September 10, 2021, we entered into the fifth amendment to the ABL Facility to designate the incurrence of the 2028 Notes, and any further refinancing of 2024 Notes through the issuance of additional 2028 Notes, as permitted indebtedness thereunder and to effect related arrangements for the interests in the ABL Priority Collateral and the Notes Priority Collateral. We incurred debt issue costs of $0.9 million that were recorded as an asset and are being amortized to
non-cash
interest expense over the term of the ABL Facility using the effective interest method. During the ~~three-month~~three and nine-month periods ended ~~March 31,~~September 30, 2021, $27,000 and ~~2020, $29,000 and $41,000,~~$0.1 million, respectively, of debt issuance costs associated with the ABL was amortized to interest expense.
During the three and nine-month periods ended September 30, 2020, $30,000 and $0.1 million, respectively, of debt issue costs associated with the ABL was amortized to interest expense.

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.
~~Summary~~

Table of ~~long-term debt obligations~~
~~Long-term debt consisted of the following:~~

   As of
December 31, 2020    As of
March 31, 2021
   (Dollars in thousands)
6.75% Senior Secured Notes
   $ 216,341    $ 216,341
Less unamortized debt issuance costs based on imputed interest rate of 7.08%
   (2,577 )    (2,393 )




6.75% Senior Secured Notes net carrying value
   213,764    213,948
Asset-Based Revolving Credit Facility principal outstanding
   5,000    —
SBA Paycheck Protection Plan loans
   —      11,195




Long-term debt less unamortized debt issuance costs
   $ 218,764    $ 225,143




Less current portion
   (5,000 )    —




Long-term debt less unamortized debt issuance costs, net of current portion
   $ 213,764    $ 225,143




~~In addition to the outstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of March 31, 2021:~~
Contents
~~$216.3 million aggregate principal amount of 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.~~
Maturities of Long-Term Debt
Principal repayment requirements under all long-term debt agreements outstanding at ~~March 31,~~September 30, 2021 for each of the next five years and thereafter are as follows:
~~For the Year Ended March 31,~~

   Amount
   (Dollars in thousands)
2022
   $ —
2023
   —
2024
   216,341
2025
   —
2026
   11,195
Thereafter
   —


   $ 227,536



Amount

For the Year Ended September 30,

(Dollars in thousands)

2022    $ 0
2023    0
2024    98,815
2025    0
2026    0
Thereafter    114,731

   $ 213,546

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

•

~~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,~~September 30, 2021, the carrying value of cash and cash equivalents, trade accounts receivables, accounts payable, accrued expenses and accrued interest approximates fair value due to the short-term nature of such instruments. The carrying amount ~~and~~of the Notes at September 30, 2021 was $213.5 million compared to the estimated fair value of ~~the Notes at March 31, 2021 was $216.3~~$213.3 million, ~~respectively,~~ 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, 2021
   Carrying Value on
Balance Sheet    Fair Value Measurement Category
   Level 1    Level 2    Level 3
   (Dollars in thousands)
Liabilities:

Estimated fair value of contingent earn-out consideration included in accrued expenses
   $ 11    —      —      $ 11
Long-term debt less unamortized debt issuance costs
   225,143    —      213,948    —

September 30, 2021


   Carrying Value on
Balance Sheet    Fair Value Measurement Category
   Level 1    Level 2    Level 3


(Dollars in thousands)

Liabilities:
Estimated fair value of contingent
earn-out
consideration included in
accrued expenses
   $ 11    —      —      $ 11
Long-term debt less unamortized discount and debt issuance costs    208,559    —      208,314    —
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.
The adoption of ASU
2019-12,
“
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”
(“ASU
2019-12”)
in the current year did not have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.
At December 31, 2020, we had net operating loss carryforwards for federal income tax purposes of approximately $135.3 million that expire in years 2021 through 2038 and for state income tax purposes of approximately $610.8 million that expire in years 2021 through 2040. 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. The economic uncertainty from the
COVID-19
pandemic provided additional negative evidence that outweighed positive evidence resulting in our conclusion that additional deferred tax assets of $35.1 million related to federal and state net operating loss carryforwards are more likely than not to be not realized. As such, an additional valuation allowance of $35.1 million was recorded, for a total valuation allowance of $48.1 million as of the year ended December 31, 2020. ~~There was no~~
27
Table of Contents
During the interim period ended September 30, 2021, 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 2021 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 effective tax rate differs from our statutory rate as a result of the forecasted change in the valuation allowance against expected operating income, permanently disallowed expenses, PPP loan forgiveness, state tax and changes to the deferred tax liability for amortization of indefinite-lived intangible assets.
Given that we have a valuation allowance placed on our net operating losses, and as part of our annual effective tax rate exercise, we estimate annual taxable income for purposes of determining the utilization of the operating loss carryforwards resulting in a tax benefit recognized in the overall annual effective tax rate. We recognized a favorable tax adjustment attributable to the GAAP income recognition of the PPP loan forgiveness within the quarter as a discrete adjustment for both federal and state jurisdictions where applicable given its unusual and infrequent nature.
During the quarter ended September 30, 2021, we refinanced $112.8 million of the 2024 Notes by exchanging $112.8 million of the 2024 Notes into $114.7 million of newly issued 2028 Notes, incurring third-party debt modification costs during the ~~three-month period ended March 31, 2021.~~
quarter. For tax purposes, we considered these debt modification costs in our operating loss utilization analysis.
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.

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.

Valuation Allowance (Deferred Taxes)

For financial reporting purposes, we recorded a valuation allowance of $28.4 million as of December 31, 2020 to offset $28.4 million of the deferred tax assets related to the federal net operating loss carryforwards, and $19.7 million of the deferred tax assets related to state net operating loss carryforwards of $15.7 million and other financial statement accrual assets of $4.0 million, for a total valuation allowance of $48.1 million for the year ended December 31, 2020.

NOTE 14. COMMITMENTS AND CONTINGENCIES
~~The company enters~~

We enter 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~~

We may record 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~~

We and ~~its~~our subsidiaries, incident to ~~its~~our business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance. ~~The company evaluates~~We evaluate claims based on what we believe to be both probable and reasonably estimable. ~~The company maintains~~We maintain insurance that may provide coverage for such matters. Consequently, ~~the company is~~we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. ~~The company believes,~~We believe, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect upon ~~the company’s~~our condensed consolidated financial position, results of operations or cash flows.

Table of Contents
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 ~~of the company~~ (“Eligible Persons”). ~~The Plan is designed to promote the interests of the company using equity investment interests to attract, motivate, and retain individuals.~~
A maximum of 8,000,000 shares are authorized under the Plan. All awards have restriction periods tied primarily to employment and/or service. The Plan allows for accelerated or continued vesting in certain circumstances as defined in the Plan including death, disability, a change in control, and termination or retirement. The Board of Directors, or a committee appointed by the Board, has discretion subject to limits defined in the Plan, to modify the terms of any outstanding award. Awards granted to ~~non-employee~~ ~~directors are made in exchange for their services to the company as directors and therefore, the guidance in FASB ASC Topic~~ ~~505-50~~~~Equity Based Payments to~~ ~~Non-Employees~~ ~~is not applicable.~~
~~Under the Plan, the Board, or a committee appointed by the Board, may impose restrictions on the exercise of awards during~~ ~~pre-defined~~ ~~blackout periods.~~ 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~~three- and
six-
month periods ended ~~March 31,~~September 30, 2021 and 2020:

   Three Months Ended March 31,
   2020    2021
   (Dollars in thousands)
Stock option compensation expense included in corporate expenses
   $ 50    $ 28
Stock option compensation expense included in broadcast operating expenses
   37    28
Stock option compensation expense included in digital media operating expenses
   15    22
Stock option compensation expense included in publishing operating expenses
   1    —




Total stock-based compensation expense, pre-tax
   $ 103    $ 78




Tax benefit (expense) for stock-based compensation expense
   (27 )    20




Total stock-based compensation expense, net of tax
   $ 76    $ 58

Three Months Ended

September 30,

Nine Months Ended

September 30,



2020

2021

2020

2021



(Dollars in thousands)

(Dollars in thousands)

Stock option compensation expense included in unallocated corporate
expenses    $ 30
$
23

   $ 122
$
75

Stock option compensation expense included in broadcast operating
expenses    32

31

   106

92

Stock option compensation expense included in digital media operating
expenses    12

24

   44

73

Stock option compensation expense included in publishing operating
expenses    —

—

   1

—


Total stock-based compensation expense,
pre-tax
   $ 74
$
78

   $ 273
$
240


Tax expense for stock-based compensation expense    (19 )

(20
)
   (71 )

(62
)

Total stock-based compensation expense, net of tax    $ 55
$
58

   $ 202
$
178


Stock Option and Restricted Stock Grants
Eligible employees may receive incentive and
non-qualified
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~~that 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.
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~~three- and nine-month periods ended ~~March 31,~~September 30, 2021 and 2020:

   Three Months Ended Three Months Ended
   March 31, 2020 March 31, 2021
Expected volatility
   53.96 % 74.83 %
Expected dividends
   7.30 % 0.00 %
Expected term (in years)
   7.6 7.7
Risk-free interest rate
   1.14 % 0.96 %

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended


September 30, 2020

September 30, 2020

September 30, 2021

September 30, 2021

Expected volatility    n/a    53.96 % 79.99 % 75.98 %
Expected dividends    n/a    7.30 % 0.00 % 0.00 %
Expected term (in years)    n/a    7.6 8.0 7.8
Risk-free interest rate    n/a    1.14 % 1.27 1.03 %
29
Table of Contents
Activity with respect to the company’s option awards during the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2021 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, 2021
   2,291,020 $ 3.23    $ 1.52    4.3 years    $ —
Granted
   210,000 2.01    1.44       —
Exercised
   (185,782 ) 2.11    0.97       188
Forfeited or expired
   (151,946 ) 6.77    4.82       —



Outstanding at March 31, 2021
   2,163,292 $ 2.96    $ 1.33    4.8 years    $ 1,360



Exercisable at March 31, 2021
   1,086,417 $ 3.92    $ 1.76    2.8 years    $ 248



Expected to Vest
   1,022,493 $ 2.98    $ 1.34    4.7 years    $ 1,056



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, 2021    2,291,020 $ 3.23    $ 1.52    4.3 years    $ —
Granted    270,000 2.14    1.55       —
Exercised    (192,507 ) 2.11    0.97       200
Forfeited or expired    (157,446 ) 6.73    4.74       —

Outstanding at September 30, 2021


2,211,067

$
2.95


$
1.34



4.4 years


$
2,484


Exercisable at September 30, 2021


1,209,942

$
3.84


$
1.75



2.6 years


$
640


Expected to Vest


950,568

$
2.97


$
1.35



4.3 years


$
2,391


Activity with respect to the company’s restricted stock awards during the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2021 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, 2021
   107,990    $ 1.85    1.67 years    $ 112
Granted
   —      —      —      —
Lapsed
   —      —      —      —
Forfeited
   —      —      —      —



Outstanding at March 31, 2021
   107,990    $ 1.85    0.4 years    $ 317



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, 2021    107,990    $ 1.85    1.67 years    $ 112
Granted    —      —      —      —
Lapsed    (41,323 )    2.42    —      100
Forfeited    —      —      —      —

Outstanding at September 30, 2021

66,667


$
1.50



0.02 years


$
247


The aggregate intrinsic value represents the difference between the company’s closing stock price on ~~March 31,~~September 30, 2021 of ~~$2.94~~$3.71 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,~~September 30, 2021 and 2020 was ~~$0.1~~$0.3 million and ~~$0.2~~$0.4 million, respectively.
As of ~~March 31,~~September 30, 2021, there was ~~$18,000~~$22,000 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 2.3 years.

NOTE 16. EQUITY TRANSACTIONS

In April 2021, we filed a prospectus supplement to our shelf registration statement on Form
S-3
with the SEC covering the offering, issuance and sale of up to $15.0 million of our Class A Common Stock pursuant to an
at-the-market
facility, with B. Riley Securities, Inc. acting as sales agent. No Common Stock transactions have taken place under the facility.

We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “
Compensation-Stock Compensation
.” As a result, $0.1 million and $0.2 million of
non-cash
stock-based compensation expense has been recorded to additional
paid-in
capital for the ~~three-month period~~three- and nine-month periods ended ~~March 31,~~September 30, 2021, respectively, in comparison to $0.1 million and $0.3 million of
non-cash
stock-based compensation expense having been recorded to additional
paid-in
capital for the three- and nine-month periods ended September 30, 2020, respectively.

Our dividend policy is based upon our Board of Directors’ current assessment of our business and the environment in which we operate. The declaration of any future distributions and the establishment of the per share amount, record dates, and payment dates are subject to final determination by our Board of Directors and dependent upon future earnings, cash flows, financial and legal requirements, and other factors. 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.

NOTE 17. SEGMENT DATA

FASB ASC Topic 280, “
Segment Reporting
,” requires companies to provide certain information about their operating segments. We have ~~three~~3 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.

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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.
Broadcasting
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 print advertisements can benefit national companies by reaching audiences throughout the United States.
Salem Radio Network^{TM (“
(“SRN^{TM
”), based in Dallas, Texas, develops, produces and syndicates a broad range of programming specifically targeted to Christian and family-themed talk stations, music stations and News Talk stations. SRN^{TM
delivers programming via satellite to approximately 3,2003,100 affiliated radio stations throughout the United States, including several of our Salem-owned stations. SRN^{TM
operates five divisions, SRN^{TM
Talk, SRN^{TM
News, SRN^{TM
Websites, SRN^{TM
Satellite Services and Salem Music Network that includes Today’s Christian Music (“TCM”) and Singing News^® Radio.
.}}}}}}}}
Salem Media Representatives (“SMR”) is our national advertising sales firm with offices in 12 U.S. cities. SMR specializes in placing national advertising on Christian and talk formatted radio stations as well as other commercial radio station formats. SMR sells commercial airtime to national advertisers on our radio stations and through our networks, as well as for independent radio station affiliates. SMR also contracts with independent radio stations to create custom advertising campaigns for national advertisers to reach multiple markets.
Salem Surround, our ~~national~~ multimedia advertising agency with locations in 33 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.
Digital Media
Our digital media-based businesses provide Christian, conservative, investing content,
e-commerce,
audio and video streaming, and other resources digitally through the web. Salem Web Network (“SWN”) websites include Christian content websites; BibleStudyTools.com, Crosswalk.com^{®
, GodVine.com, iBelieve.com, GodTube^{®
.com, OnePlace^{™
.com, Christianity.com, GodUpdates.com, CrossCards^{™
.com, ChristianHeadlines.com, LightSource.com, AllCreated.com, ChristianRadio.com, CCMmagazine.com, SingingNews^{®
.com and SouthernGospel.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 andnon-individualized
investment strategies from financial commentators on a subscription basis.}}}}}}}}}
Our church
e-commerce
websites, including SermonSearch^{™
.com, ChurchStaffing.com, WorshipHouseMedia.com, SermonSpice^{™
.com, WorshipHouseKids.com, Preaching.com, ChristianJobs.com, Youthworker.com, JourneyBoxMedia.com, Playblackmedia.com, and HyperPixelsMedia.com, offer a variety of digital resources including videos, song tracks, sermon archives and job listings to pastors and Church leaders.}}

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 three 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;personalities and (2) Salem Author Services, a self-publishing service for authors through Xulon Press and Mill City Press; and (3) Singing News^®, which produces and distributes a print magazine.
Press.}

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The table below presents financial information for each operating segment as of ~~March 31,~~September 30, 2021 and 2020 based on the composition of our operating segments:

   Broadcast Digital Media Publishing Unallocated
Corporate
Expenses Consolidated
   (Dollars in thousands)
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


Three Months Ended March 31, 2020

Net revenue
   $ 45,180 $ 9,104 $ 3,966 $ —   $ 58,250
Operating expenses
   37,327 8,326 5,062 4,210 54,925


Net operating income (loss) before depreciation, amortization, change in the estimated fair value of contingent earn-out consideration, impairments and net (gain) loss on the disposition of assets
   $ 7,853 $ 778 $ (1,096 ) $ (4,210 ) $ 3,325


Depreciation
   1,645 771 69 228 2,713
Amortization
   9 768 210 —   987
Change in the estimated fair value of contingent earn-out consideration
   —   (5 ) —   —   (5 )
Impairment of indefinite-lived long-term assets other than goodwill
   16,994 —   260 —   17,254
Impairment of goodwill
   184 10 105 8 307
Net (gain) loss on the disposition of assets
   79 —   —   —   79


Net operating income (loss)
   $ (11,058 ) $ (766 ) $ (1,740 ) $ (4,446 ) $ (18,010 )


   Broadcast    Digital Media    Publishing    Unallocated
Corporate    Consolidated
   (Dollars in thousands)
As of March 31, 2021

Inventories, net
   $ —      $ —      $ 588    $ —      $ 588
Property and equipment, net
   63,671    5,977    732    8,218    78,598
Broadcast licenses
   319,773    —      —      —      319,773
Goodwill
   2,746    19,565    1,446    —      23,757
Amortizable intangible assets, net
   242    3,129    192    —      3,563
As of December 31, 2020

Inventories, net
   $ —      $ —      $ 495    $ —      $ 495
Property and equipment, net
   64,231    6,221    741    7,929    79,122
Broadcast licenses
   319,773    —      —      —      319,773
Goodwill
   2,746    19,565    1,446    —      23,757
Amortizable intangible assets, net
   246    3,434    337    —      4,017

Broadcast

Digital
Media

Publishing

Unallocated
Corporate
Expenses

Consolidated



(Dollars in thousands)

Three Months Ended September 30, 2021

Net revenue
$
49,591

$
10,645

$
5,747

$
—

$
65,983

Operating expenses

37,463

8,269

5,213

4,284

55,229


Net operating income (loss) before depreciation, amortization, and net (gain) loss
on the disposition of assets
$
12,128

$
2,376

$
534

$
(4,284
)

$
10,754


Debt modification costs

—

—

—

2,347

2,347

Depreciation

1,539

965

43

241

2,788

Amortization

4

375

48

—

427

Net (gain) loss on the disposition of assets

(10,505
)

(148
)

22

24

(10,607
)

Net operating income (loss)
$
21,090

$
1,184

$
421

$
(6,896
)

$
15,799


Three Months Ended September 30, 2020

Net revenue    $ 45,391 $ 9,808 $ 5,442 $ —   $ 60,641
Operating expenses    34,283 7,144 5,814 3,849 51,090

Net operating income (loss) before depreciation, amortization, change in the
estimated fair value of contingent
earn-out
consideration, impairments, and net
(gain) loss on the disposition of assets
   $ 11,108 $ 2,664 $ (372 ) $ (3,849 ) $ 9,551

Depreciation    1,626 746 70 235 2,677
Amortization    4 537 210 —   751
Change in the estimated fair value of contingent
earn-out
consideration
   —   (10 ) —   —   (10 )
Net (gain) loss on the disposition of assets    1,380 —   1 —   1,381

Net operating income (loss)    $ 8,098 $ 1,391 $ (653 ) $ (4,084 ) $ 4,752


Broadcast

Digital
Media

Publishing

Unallocated
Corporate
Expenses

Consolidated



(Dollars in thousands)

Nine Months Ended September 30, 2021

Net revenue
$
140,422

$
30,603

$
18,093

$
—

$
189,118

Operating expenses

106,968

25,280

16,844

12,764

161,856


Net operating income (loss) before depreciation, amortization, change in the
estimated fair value of contingent
earn-out
consideration, impairments, and net
(gain) loss on the disposition of assets

$
33,454

$
5,323

$
1,249

$
(12,764
)

$
27,262


Debt modification costs

—

—

—

��
2,347

2,347

Depreciation

4,667

2,606

134

711

8,118

Amortization

12

1,204

337

—

1,553

Net (gain) loss on the disposition of assets

(10,187
)

(83
)

(306
)

24

(10,552
)

Net operating income (loss)
$
38,962

$
1,596

$
1,084

$
(15,846
)

$
25,796


Nine Months Ended September 30, 2020

Net revenue    $ 130,041 $ 28,355 $ 13,366 $ —   $ 171,762
Operating expenses    104,704 23,123 16,443 11,909 156,179

Net operating income (loss) before depreciation, amortization, change in the
estimated fair value of contingent
earn-out
consideration, impairments, and net
(gain) loss on the disposition of assets
   $ 25,337 $ 5,232 $ (3,077 ) $ (11,909 ) $ 15,583

Depreciation    4,912 2,284 212 700 8,108
Amortization    18 1,928 631 1 2,578
Change in the estimated fair value of contingent
earn-out
consideration
   —   (12 ) —   —   (12 )
Impairment of indefinite-lived long-term assets other than goodwill    16,994 —   260 —   17,254
Impairment of goodwill    184 10 105 8 307
Net (gain) loss on the disposition of assets    1,489 —   1 4 1,494

Net operating income (loss)    $ 1,740 $ 1,022 $ (4,286 ) $ (12,622 ) $ (14,146 )

32
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Broadcast

Digital
Media

Publishing

Unallocated
Corporate

Consolidated



(Dollars in thousands)

As of September 30, 2021

Inventories, net
$
—


$
—


$
907


$
—


$
907

Property and equipment, net

60,502



8,619



723



8,581



78,425

Broadcast licenses

320,008



—



—



—



320,008

Goodwill

2,750



19,790



1,446



—



23,986

Amortizable intangible assets, net

233



2,552



—



—



2,785

As of December 31, 2020

Inventories, net    $ —      $ —      $ 495    $ —      $ 495
Property and equipment, net    64,231    6,221    741    7,929    79,122
Broadcast licenses    319,773    —      —      —      319,773
Goodwill    2,746    19,565    1,446    —      23,757
Amortizable intangible assets, net    246    3,434    337    —      4,017
NOTE 18. SUBSEQUENT EVENTS
~~On April 28, 2021, we closed on the acquisition~~
The following additional repurchases of the ~~Centerline New Media domain and digital assets for $1.3 million of cash. The digital content library will be operated within Salem Web Network’s church products division.~~
2024 Notes were made after September 30, 2021:

On April 20, 2021 we entered into an APA to sell Singing News Magazine and Singing News Radio (formerly Solid Gospel Network) for $0.1 million in cash. The buyer will assume the deferred subscription liability of $0.4 million. The sale is expected to close in the second quarter of 2021.

~~On April 10, 2021, we entered into an agreement to sell approximately 34 acres of land in Lewisville, Texas, currently being used as the transmitter site for company owned radio station~~ ~~KSKY-AM,~~ for $12.1 million in cash. We will retain enough of the property in the southwest corner of the site to operate the station. Following a due diligence period and satisfaction of several contingencies, we expect to close on this transaction in the third quarter of 2021.

~~Shelf Registration Statement and~~ ~~At-the-Market~~ ~~Facility~~

~~In April 2021, we filed a prospectus supplement to our shelf registration statement on Form~~ ~~S-3~~ ~~with the SEC covering the offering, issuance and sale of up to $15.0 million of the company’s Class A Common Stock pursuant to an~~ ~~at-the-market~~ ~~facility, with B. Riley Securities, Inc. acting as sales agent.~~

Date

Principal
Repurchased

  Cash
Paid

% of Face
Value

Bond Issue
Costs

    Net Loss

(Dollars in thousands)

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



$ 3,641    $ 3,666 $ 34 59



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

~~ITEM 2. MANAGEMENT’S~~

~~DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
General
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.
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, 2020. 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”)
is adversely impacting 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,
industry conditions, including existing competition and future competitive technologies and cancellation,
disruptions or postponements of advertising schedules and programming in response to national or world events,
our ability to generate revenues from new sources, including local commerce and technology-based initiatives,
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.
34
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Overview
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;

the sale of advertisements included in digital newsletters;

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;

the sale of digital advertising on our magazine websites and digital newsletters;

subscription fees for our print magazine; and

the sale of print magazine advertising.

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In each of our operating segments, the rates we are able to charge for airtime, advertising and other products and services are dependent upon several factors, including:
audience share;
how well our programs and advertisements perform for our clients;
the size of the market and audience reached;
the number of impressions delivered;
the number of advertisements and programs streamed;
the number of page views achieved;
the number of downloads completed;
the number of events held, the number of event sponsorships sold and the attendance at each event;
demand for books and publications;
general economic conditions; and
supply and demand for airtime on a local and national level.
Broadcasting
Our foundational business is radio broadcasting, which includes the ownership and operation of radio stations in large metropolitan markets, our national networks and our national sales firms including Salem Surround. Revenues generated from our radio stations, networks and sales firms are reported as broadcast media revenue in our Condensed Consolidated Financial Statements included in Part 1 of this quarterly report on Form
10-Q.
Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case, revenue is reported net of the commission retained by the agency.
Broadcast revenues are impacted by the rates radio stations can charge for programming and advertising time, the level of airtime sold to programmers and advertisers, the number of impressions delivered or downloads made, and the number of events held, including the size of the event and the number of attendees. Block programming rates are based upon our stations’ ability to attract audiences that will support the program producers through contributions and purchases of their products. Advertising rates are based upon the demand for advertising time, which in turn is based on our stations and networks’ ability to produce results for their advertisers. We market ourselves to advertisers based on the responsiveness of our audiences. We do not subscribe to traditional audience measuring services for most of our radio stations. In select markets, we subscribe to Nielsen Audio, which develops monthly reports measuring a radio station’s audience share in the demographic groups targeted by advertisers. Each of our radio stations and our networks has a
pre-determined
level of time available for block programming and/or advertising, which may vary at different times of the day.

Nielsen Audio uses the Portable People Meter^{TM
(“PPM^{”
) technology to collect data for its ratings service. PPM is a small device that is capable of automatically measuring radio, television, Internet, satellite radio and satellite television signals encoded by the 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.

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In broadcasting, trade or barter agreements are commonly used to reduce cash expenses by exchanging advertising time for goods or services. We may enter barter agreements to exchange airtime or digital advertising for goods or services that can be used in our business or that can be sold to our audience under Listener Purchase Programs. The terms of these barter agreements permit us to preempt the barter airtime or digital campaign in favor of customers who purchase the airtime or digital campaign for cash. The value of these
non-cash
exchanges is included in revenue in an amount equal to the fair value of the goods or services we receive. Each transaction is reviewed to determine that the products, supplies and/or services we receive have economic substance, or value to us. We record barter operating expenses upon receipt and usage of the products, supplies and services, as applicable. We record barter revenue as advertising spots or digital campaigns are delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Barter revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency. During the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, 99% and ~~97%~~98%, 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,
e-commerce,
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, 2020 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
e-commerce
sites.
Publishing
Our publishing operations include book publishing through Regnery^{®
Publishing, a print magazine and our self-publishing services. Revenues generated from this segment are reported as publishing revenue in our Condensed Consolidated Financial Statements included in Part 1 of this quarterly report on Form10-Q.}
Publishing revenue is impacted by the number and the retail price of books and
e-books
sold, the number and rate of print magazine subscriptions sold, the rate and number of pages of advertisements sold in each print magazine, 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.~~
obsolescence charges.

Known Trends and Uncertainties

The
COVID-19
global pandemic that began in March 2020 ~~continues to impact~~materially impacted our business. ~~Measures taken by federal, state and local governments to prevent the spread of~~ ~~COVID-19~~ ~~have adversely affected workforces, certain economies, and financial markets resulting in a significant economic downturn.~~ We experienced a rapid decline in revenue from advertising, programming, events and book sales. Several advertisers reduced or ceased advertising spending due to the outbreak and
stay-at-home
orders that effectively shut many businesses down. The revenue decline impacted our broadcast segment, which derives substantial revenue from local advertisers who ~~have been~~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.

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While we see progress being made in revenue returning to
pre-pandemic
levels, the ~~disruption is expected to be temporary, there remains to be considerable uncertainty around the duration. Advertising revenue~~
COVID-19
pandemic continues to ~~improve over~~create significant uncertainty and disruption in the ~~lowest levels that were experienced during April~~economy. These uncertainties could materially impact significant accounting estimates related to, but not limited to, allowances for doubtful accounts, impairments and ~~May~~
right-of-use assets.
As a result, many estimates and assumptions require increased judgment and carry a higher degree of ~~2020, but remain significantly below prior years. The exact timing~~variability and ~~pace of the economic recovery has not been determinable~~volatility. These estimates may change as ~~certain markets have reopened, some of which have since experienced a resurgence of~~ ~~COVID-19~~ ~~cases, resulting~~new events occur and additional information emerges, and such changes are recognized or disclosed in ~~varying degrees of reinstated~~ ~~stay-at-home~~ ~~orders. Due to continuing uncertainties regarding the ultimate scope and trajectory of~~ ~~COVID-19’s~~ spread and evolution, it is impossible to predict the total impact that the pandemic will have on our business. If public and private entities continue to enforce restrictive measures, the material adverse effect on our business, results of operations,its consolidated financial ~~condition and cash flows could persist. Our businesses could also continue to be impacted by the disruptions from~~ ~~COVID-19~~ ~~and resulting adverse changes in advertising and consumer behavior.~~
Lower revenue and longer days to collect receivables negatively impacts future availability under our credit facility. Availability under our Asset Based Loan (“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. The maximum amount available under our ABL Facility was $26.1 million at March 31, 2021 compared to $24.8 million at December 31, 2020, of which none was outstanding at March 31, 2021 compared to $5.0 million outstanding at December 31, 2020.
statements.
The growth of broadcast revenue associated with the sale of airtime remains challenged. We believe this is due to increased competition from other forms of content distribution and the length of time spent listening to audio streaming services, podcasts and satellite radio. Increases in competition and the mix in listening time may lead advertisers to conclude that the effectiveness of radio has diminished. To ~~minimize~~reduce the impact of these factors, we continue to enhance our digital assets to complement our broadcast content. The ~~increase~~increased use of voice activated platforms, or smart speakers, that provide audiences with the ability to access AM and FM radio stations show increased potential for broadcasters to reach audiences.
Our broadcast spot advertising revenue is particularly dependent on advertising from our Los Angeles and Dallas markets, which generated ~~13.3%~~13.8% and ~~21.9%~~21.8%, respectively, of our total net broadcast spot advertising revenue during the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2021 compared to ~~15.4%~~14.3% and ~~20.9%~~22.1%, respectively, of our total net broadcast spot advertising revenue during the same period of the prior year.
Revenue from print magazines, including advertising revenue and subscription revenue, is challenged due to lower demand from the audiences that increasingly use other mediums that deliver comparable information. Book sales are contingent upon overall economic conditions and our ability to attract and retain authors. Decreases in digital revenue could adversely affect our operating results, financial condition and results of operations.
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.

Table of Contents
Item ~~10(e)~~10€ 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.

Table of Contents
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,
   2020    2021
   (Dollars in thousands)
Reconciliation of Net Broadcast Revenue to Same Station Net Broadcast Revenue

Net broadcast revenue
   $ 45,180    $ 44,048
Net broadcast revenue – acquisitions
   —      —
Net broadcast revenue – dispositions
   (223 )    4
Net broadcast revenue – format change
   (176 )    (140 )




Same Station net broadcast revenue
   $ 44,781    $ 43,912




Reconciliation of Broadcast Operating Expenses To Same Station Broadcast Operating Expenses

Broadcast operating expenses
   $ 37,327    $ 33,343
Broadcast operating expenses – acquisitions
   —      —
Broadcast operating expenses – dispositions
   (502 )    (106 )
Broadcast operating expenses – format change
   (260 )    (178 )




Same Station broadcast operating expenses
   $ 36,565    $ 33,059




Reconciliation of Operating Income (Loss) to Same Station Operating Income

Station Operating Income
   $ 7,853    $ 10,705
Station operating loss –acquisitions
   —      —
Station operating loss – dispositions
   279    110
Station operating loss – format change
   84    38




Same Station – Station Operating Income
   $ 8,216    $ 10,853





Three Months Ended

September 30,

Nine Months Ended

September 30,


2020

2021

2020

2021



(Dollars in thousands)

Reconciliation of Net Broadcast Revenue to Same Station Net Broadcast Revenue

Net broadcast revenue
   $ 45,391
$
49,591

   $ 130,041
$
140,422

Net broadcast revenue – acquisitions
   —

(264
)
   —

(343
)
Net broadcast revenue – dispositions
   (192 )

2

   (635 )

(36
)
Net broadcast revenue – format change
   (104 )

(216
)
   (384 )

(561
)








Same Station net broadcast revenue
   $ 45,095
$
49,113

   $ 129,022
$
139,482









Reconciliation of Broadcast Operating Expenses To Same Station Broadcast Operating Expenses

Broadcast operating expenses
   $ 34,283
$
37,463

   $ 104,704
$
106,968

Broadcast operating expenses – acquisitions
   —

(168
)
   —

(206
)
Broadcast operating expenses – dispositions
   (344 )

(14
)
   (1,225 )

(199
)
Broadcast operating expenses – format change
   (252 )

(209
)
   (771 )

(593
)








Same Station broadcast operating expenses
   $ 33,687
$
37,072

   $ 102,708
$
105,970









Reconciliation of Operating Income to Same Station Operating Income

Station Operating Income
   $ 11,108
$
12,128

   $ 25,337
$
33,454

Station operating (income) loss –acquisitions
   —

(96
)
   —

(137
)
Station operating loss – dispositions
   152

16

   590

163

Station operating (income) loss – format change
   148

(7
)
   387

32









Same Station – Station Operating Income
   $ 11,408
$
12,041

   $ 26,314
$
33,512









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,
   2020    2021
   (Dollars in thousands)
Calculation of Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)

Net broadcast revenue
   $ 45,180    $ 44,048
Less broadcast operating expenses
   (37,327 )    (33,343 )




Station Operating Income
   $ 7,853    $ 10,705




Net digital media revenue
   $ 9,104    $ 9,619
Less digital media operating expenses
   (8,326 )    (8,673 )




Digital Media Operating Income
   $ 778    $ 946




Net publishing revenue
   $ 3,966    $ 5,686
Less publishing operating expenses
   (5,062 )    (5,205 )




Publishing Operating Income (Loss)
   $ (1,096 )    $ 481

Three Months Ended

Nine Months Ended


September 30,

September 30,


2020

2021

2020

2021



(Dollars in thousands)

Calculation of Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)


Net broadcast revenue
   $ 45,391
$
49,591

   $ 130,041
$
140,422

Less broadcast operating expenses
   (34,283 )

(37,463
)
   (104,704 )

(106,968
)








Station Operating Income
   $ 11,108
$
12,128

   $ 25,337
$
33,454









Net digital media revenue
   $ 9,808
$
10,645

   $ 28,355
$
30,603

Less digital media operating expenses
   (7,144 )

(8,269
)
   (23,123 )

(25,280
)








Digital Media Operating Income
   $ 2,664
$
2,376

   $ 5,232
$
5,323









Net publishing revenue
   $ 5,442
$
5,747

   $ 13,366
$
18,093

Less publishing operating expenses
   (5,814 )

(5,213
)
   (16,443 )

(16,844
)








Publishing Operating Income (Loss)
   $ (372 )
$
534

   $ (3,077 )
$
1,249









40
Table of Contents
In the table below, we present a reconciliation of net income (loss), 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,
   2020    2021
   (Dollars in thousands)
Reconciliation of Net Income (Loss) to Operating Income and Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)

Net income (loss)
   $ (55,204 )    $ 323
Plus provision for income taxes
   33,159    130
Plus net miscellaneous income and (expenses)
   52    (22 )
Plus gain on early retirement of long-term debt
   (49 )    —
Plus interest expense, net of capitalized interest
   4,032    3,926
Less interest income
   —      (1 )




Net operating income (loss)
   $ (18,010 )    $ 4,356




Plus net (gain) loss on the disposition of assets
   79    318
Plus change in the estimated fair value of contingent earn-out consideration
   (5 )    —
Plus impairment of indefinite-lived long-term assets other than goodwill
   17,254    —
Plus impairment of goodwill
   307    —
Plus depreciation and amortization
   3,700    3,170
Plus unallocated corporate expenses
   4,210    4,288




Combined Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)
   $ 7,535    $ 12,132




Station Operating Income
   $ 7,853    $ 10,705
Digital Media Operating Income
   778    946
Publishing Operating Income (Loss)
   (1,096 )    481




   $ 7,535    $ 12,132






Three Months Ended

Nine Months Ended


September 30,

September 30,


2020

2021

2020

2021



(Dollars in thousands)

Reconciliation of Net Income (Loss) to Operating Income and Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)

Net income (loss)
   $ 329
$
22,094

   $ (57,390 )
$
24,674

Plus provision for income taxes
   401
837
   31,180
479

Plus net miscellaneous income and (expenses)
   (1 )
(2
)

   45
(87
)

Plus gain on the forgiveness of PPP loans
   —
(11,212
)

   —
(11,212
)

Plus (gain) loss on early retirement of long-term debt
   —
56
   (49 )
56

Plus interest expense, net of capitalized interest
   4,024
4,026
   12,069
11,887

Less interest income
   (1 )
—

   (1 )
(1
)









Net operating income (loss)
   $ 4,752
$
15,799

   $ (14,146 )
$
25,796









Plus net (gain) loss on the disposition of assets
   1,381
(10,607
)

   1,494

(10,552
)
Plus change in the estimated fair value of contingent
earn-out
consideration
   (10 )

—

   (12 )

—

Plus debt modification costs
   —

2,347

   —

2,347

Plus impairment of indefinite-lived long-term assets other than goodwill
   —

—

   17,254

—

Plus impairment of goodwill
   —

—

   307

—

Plus depreciation and amortization
   3,428

3,215

   10,686

9,671

Plus unallocated corporate expenses
   3,849

4,284

   11,909

12,764









Combined Station Operating Income, Digital Media Operating Income and Publishing Operating Loss
   $ 13,400
$
15,038

   $ 27,492
$
40,026









Station Operating Income
   $ 11,108
$
12,128

   $ 25,337
$
33,454

Digital Media Operating Income
   2,664

2,376

   5,232

5,323

Publishing Operating Income (Loss)
   (372 )

534

   (3,077 )

1,249









   $ 13,400
$
15,038

   $ 27,492
$
40,026









In the table below, we present a reconciliation of Adjusted EBITDA to EBITDA to Net Income (Loss), 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,
   2020    2021
   (Dollars in thousands)
Reconciliation of Adjusted EBITDA to EBITDA to Net Income (Loss)

Net income (loss)
   $ (55,204 )    $ 323
Plus interest expense, net of capitalized interest
   4,032    3,926
Plus provision for income taxes
   33,159    130
Plus depreciation and amortization
   3,700    3,170
Less interest income
   —      (1 )




EBITDA
   $ (14,313 )    $ 7,548




Plus net (gain) loss on the disposition of assets
   79    318
Plus change in the estimated fair value of contingent earn-out consideration
   (5 )    —
Plus impairment of indefinite-lived long-term assets other than goodwill
   17,254    —
Plus impairment of goodwill
   307    —
Plus net miscellaneous (income) and expenses
   52    (22 )
Plus gain on early retirement of long-term debt
   (49 )    —
Plus non-cash stock-based compensation
   103    78




Adjusted EBITDA
   $ 3,428    $ 7,922

Three Months Ended

Nine Months Ended


September 30,

September 30,


2020

2021

2020

2021



(Dollars in thousands)

Reconciliation of Adjusted EBITDA to EBITDA to Net Income (Loss)

Net income (loss)
   $ 329
$
22,094

   $ (57,390 )
$
24,674

Plus interest expense, net of capitalized interest
   4,024

4,026

   12,069

11,887

Plus provision for income taxes
   401

837

   31,180

479

Plus depreciation and amortization
   3,428

3,215

   10,686

9,671

Less interest income
   (1 )    —      (1 )

(1
)








EBITDA
   $ 8,181
$
30,172

   $ (3,456 )
$
46,710









Plus net (gain) loss on the disposition of assets
   1,381

(10,607
)
   1,494

(10,552
)
Plus change in the estimated fair value of contingent
earn-out
consideration
   (10 )    —      (12 )    —
Plus debt modification costs
   —

2,347

   —

2,347

Plus impairment of indefinite-lived long-term assets other than goodwill
   —      —      17,254    —
Plus impairment of goodwill
   —      —      307    —
Plus net miscellaneous (income) and expenses
   (1 )

(2
)
   45

(87
)
Plus (gain) loss on early retirement of long-term debt
   —

56

   (49 )

56

Plus gain on the forgiveness of PPP loans
   —

(11,212
)
   —

(11,212
)
Plus
non-cash
stock-based compensation
   74

78

   273

240









Adjusted EBITDA
   $ 9,625
$
10,832

   $ 15,856
$
27,502









41
Table of Contents
RESULTS OF OPERATIONS
~~Three months ended March 31, 2021 compared to the three months ended March 31, 2020~~
The following factors affected our results of operations and cash ~~flows for the three months ended March 31, 2021 as compared to the same period of the prior year:~~
flows:
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 July 27, 2021, we sold the Hilary Kramer Financial Newsletter and related assets for $0.2 million to be collected in quarterly installments over the
two-year
period ending September 30, 2023. We recognized a
pre-tax
gain on the sale of $0.1 million.
On July 23, 2021, we sold approximately 34 acres of land in Lewisville, Texas, for $12.1 million in cash. The land was being used for as the transmitter site for company owned radio station
KSKY-AM.
We retained a portion of the land in the southwest corner of the site to continue operating the radio station. We recognized a
pre-tax
gain on the sale of $10.5 million.
On July 2, 2021, we acquired the SeniorResource.com domain for $0.1 million in cash.
On July 1, 2021, we acquired the ShiftWorship.com domain and digital assets for $2.6 million in cash. The digital content library is operated within Salem Web Network’s church products division.
On June 1, 2021, we acquired radio stations
KDIA-AM
and
KDYA-AM
in San Francisco, California for $0.6 million in cash.
On May 25, 2021, we sold Singing News Magazine and Singing News Radio for $0.1 million in cash.
On April 28, 2021, we acquired the Centerline New Media domain and digital assets for $1.3 million in cash. The digital content library is operated within Salem Web Network’s church products division.
On March 8, 2021, we acquired the Triple Threat Trader newsletter. We paid no cash at the time of closing and assumed deferred subscription liabilities of $0.1 million.
On March 18, 2021, we sold radio station
WKAT-AM
and an FM translator in Miami, Florida for $3.5 million. The buyer began operating the station under a LMA in November 2020.
On September 15, 2020, we acquired the Hyper Pixels Media website and related assets for $1.1 million in cash. We paid $0.4 million in cash upon closing with deferred payments of $0.4 million due January 31, 2021 and $0.3 million due September 15, 2021.
On April 6, 2020, we sold radio station
WBZW-AM
and an FM translator construction permit in Orlando, Florida, for $0.2 million in cash.
Debt Transactions
On September 24, 2021, we repurchased $4.7 million of the 6.75% Senior Secured Notes due 2024 (“2024 Notes”) for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs.
On September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of newly issued 2028 Notes.
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.
In July 2021, the SBA forgave all but $20,000 of the PPP loans. The remaining PPP loan was repaid in July 2021.
During the ~~three months~~nine-months ended ~~March 31,~~September 30, 2020, we completed repurchases of $3.5 million of the Notes for $3.4 million in cash, recognizing a net gain of $49,000 after adjusting for bond issuance ~~costs as detailed in Note 11 – Long-Term Debt.~~
costs.
Equity Transactions
~~Distributions~~
No distributions were declared or paid during nine-month period ended September 30, 2021, compared to distributions of $0.7 million ($0.025 per share) ~~were~~ declared and paid during the ~~three months~~nine-month period ended ~~March 31,~~September 30, 2020 based upon ~~the Board of Directors’~~our Board’s then current assessment of our business as detailed in Note 16 – Equity Transactions.
42
Table of Contents
Three months ended September 30, 2021 compared to the three months ended September 30, 2020
Net Broadcast Revenue

   Three Months Ended March 31,
   2020    2021    Change $ Change % 2020 2021
   (Dollars in thousands)

% of Total Net Revenue
Net Broadcast Revenue
   $ 45,180    $ 44,048    $ (1,132 ) (2.5 )% 77.6 % 74.2 %
Same Station Net Broadcast Revenue
   $ 44,781    $ 43,912    $ (869 ) (1.9 )%

Three Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Net Broadcast Revenue
   $ 45,391
$
49,591

   $ 4,200    9.3 % 74.9 %

75.2
%
Same Station Net Broadcast Revenue
   $ 45,095
$
49,113

   $ 4,018    8.9 %
The following table shows the dollar amount and percentage of net broadcast revenue for each broadcast revenue source.

   Three Months Ended March 31,
   2020 2021
   (Dollars in thousands)
Block Programming:

National
   $ 12,034    26.6 % $ 11,461    26.0 %
Local
   6,808    15.1 % 5,956    13.5 %






   18,842    41.7 % 17,417    39.5 %
Broadcast Advertising:

National
   3,957    8.8 % 3,660    8.3 %
Local
   11,357    25.1 % 8,895    20.2 %






   15,314    33.9 % 12,555    28.5 %
Station Digital (local)
   4,293    9.5 % 7,069    16.0 %
Infomercials
   308    0.7 % 237    0.5 %
Network
   4,388    9.7 % 4,871    11.1 %
Other Revenue
   2,035    4.5 % 1,899    4.3 %






Net Broadcast Revenue
   $ 45,180    100.0 % $ 44,048    100.0 %







Three Months Ended September 30,

   2020
2021



(Dollars in thousands)

Block Programming:

National
   $ 11,732    25.8 %
$
12,502



25.2
%
Local
   5,771    12.7

6,299



12.7
%






   17,503    38.5

18,801



37.9
%
Broadcast Advertising:

National
   3,635    8.0

3,447



7.0
%
Local
   9,485    20.9

10,682



21.5
%






   13,120    28.9

14,129



28.5
%
Broadcast Digital (local)
   7,754    17.1

8,805



17.8
%
Infomercials
   214    0.5

220



0.4
%
Network
   4,891    10.8

4,908



9.9
%
Other Revenue
   1,909    4.2

2,728



5.5
%






Net Broadcast Revenue
   $ 45,391    100.0 %
$
49,591



100.0
%






Block programming revenue ~~declined~~increased by ~~$1.4~~$1.3 million including a $0.8 million ~~decline~~increase in ~~local~~national programming and a ~~$0.6~~$0.5 million ~~decline~~increase in ~~national~~local programming. ~~Declines reflect program cancellations beginning in the last two weeks of March 2020 when the~~ ~~COVID-19~~ ~~pandemic began to impact revenue. These declines include $0.9 million from our~~Our Christian Teaching and Talk format radio stations ~~$0.3~~generated a $0.5 million ~~from~~increase in national programming revenue and a $0.4 million increase in local programming revenue while our News Talk format radio stations ~~and~~generated a $0.2 million ~~from our Spanish Christian Teaching~~increase in national programming and ~~Talk stations. Each~~a $0.2 million increase in local programming. These increases include the impact of ~~these formats experienced cancellations as many~~the $0.2 million in early-payment discounts offered during the prior year and an increase in the number of programmers ~~primarily ministries, cancelled programming to offset lost revenues, particularly from events that generate a significant portion of their revenue.~~
on-air.
Advertising revenue, net of agency commissions, ~~declined~~increased by ~~$2.8~~$1.0 million, ~~of which~~including a ~~$2.5~~$1.2 million increase in local advertising that was offset with a $0.2 million decline ~~was local and $0.3 million decline was national.~~in national advertising. Excluding ~~the impact of~~ political advertising, ~~revenue declined by $2.5 million, of which $2.3 million was local and $0.2 million was national. The largest decline in~~ advertising revenue ~~net of political, was $0.8~~increased by $1.4 million, all in local advertising. The increase includes $0.6 million from our Contemporary Christian Music format radio stations, ~~due to lower spot rates,~~ primarily in ~~the Dallas and~~our Los Angeles, Atlanta and Nashville markets, ~~followed by a $0.8~~$0.3 million ~~decline on~~from our News Talk format radio stations, ~~a $0.5~~$0.2 million ~~decline on~~from our Christian Teaching and Talk format radio stations, ~~a $0.3~~and $0.5 million ~~decline~~ from other radio station formats, ~~and~~that were offset by a $0.1 million decline onfrom our Spanish Christian Teaching and Talk format radio stations. ~~Lower~~The increases reflect the higher demand for airtime associated with improving economic conditions as pandemic restrictions continue to ease that can in turn result in higher spot rates ~~are~~for premium airtime spots. The decline from Spanish Christian Teaching and Talk format radio stations is due to ~~increased competition from other broadcasters. Cancellations also impact rates that can be charged as premium airtime becomes more widely available.~~
~~Station~~the sale of radio station
WKAT-AM
in Miami, Florida, and the reformatting of our remaining Spanish Christian Teaching and Talk format radio stations.
Broadcast digital revenue, net of agency commissions, or ~~local~~net digital revenue generated from our ~~radio stations~~broadcast markets and networks, increased by ~~$2.8~~$1.1 million ~~including $1.8 million from~~due to growth in digital product offerings and the launch of the Salem Podcast Network in January ~~2021, a $0.3 million increase in digital marketing services through Salem Surround, a $0.3 million increase in streaming revenue and a $0.2 million increase in digital advertising.~~2021. Salem Podcast Network is a highly specialized platform for conservative, political, news, family-oriented podcasts with talk show hosts including Dinesh D’Souza, Todd Starnes and Charlie Kirk. Salem Podcast Network joins Salem Surround, our ~~national~~ multimedia digital advertising agency providing digital marketing services to our customers, and SalemNow, our transactional video
on-demand~~pay-per-view~~ ~~video steaming~~
streaming platform launched in the fourth quarter of 2020, along with our owned and operated station branded websites to ~~enhance our~~offer an expanding line of digital products and services. Increases in broadcast digital revenue ~~growth with new product offerings~~include a $1.2 million increase in digital marketing services through Salem Surround, a $1.8 million increase from Salem Podcast Network and ~~services.~~a $0.2 million increase in streaming revenue that was partially offset by a $2.1 million decline in revenue from SalemNow due to the impact of two successful titles released during the prior year. There were no significant changes in digital rates as compared to the prior year.
~~Declines in infomercial revenue~~
43
Table of Contents
There were ~~due to a reduction~~no significant changes in the number of infomercials aired ~~with~~and no significant changes in ~~rates as compared to the prior year.~~rates. 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~~exclusive of amounts reported within digital, increased by ~~$0.5 million~~$17,000 compared to the same period of the prior year due to a ~~$0.3~~$0.7 million increase in revenue from our nationally syndicated host programs ~~and~~that was partially offset by a ~~$0.2~~$0.7 million ~~increase~~decline in political ~~advertising from political campaigns in January 2021.~~
advertising.
Other revenue ~~declined~~increased by ~~$0.1~~$0.8 million due to a ~~decrease~~$0.6 million increase in event revenue due to ~~ongoing cancellation~~ the
re-opening
of live events, ~~due to the~~ ~~COVID-19~~ ~~pandemic.~~a $0.1 million increase in TBA fees associated with radio station
KBJD-AM,
Denver, Colorado and a $0.1 million increase in talent fees. Event revenue 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 began offering virtual events during 2020 that may continue as conditions warrant.~~
On a Same Station basis, net broadcast revenue ~~decreased $0.9~~increased $4.0 million, which reflects these items net of the impact of stations acquired, disposed of, or with ~~dispositions and~~ format changes.
Net Digital Media Revenue

   Three Months Ended March 31,
   2020    2021    Change $    Change % 2020 2021
   (Dollars in thousands)

% of Total Net Revenue
Net Digital Media Revenue
   $ 9,104    $ 9,619    $ 515    5.7 % 15.6 % 16.2 %

Three Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)


% of Total Net Revenue
Net Digital Media Revenue
   $ 9,808
$
10,645

   $ 837    8.5 % 16.2 %

16.1
%
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,
   2020 2021
   (Dollars in thousands)
Digital Advertising, net
   $ 4,713    51.8 % $ 4,413    45.9 %
Digital Streaming
   915    10.0 844    8.8
Digital Subscriptions
   2,135    23.5 2,773    28.8
Digital Downloads
   1,245    13.7 1,479    15.4
e-commerce
   28    0.3 31    0.3
Other Revenues
   68    0.7 79    0.8






Net Digital Media Revenue
   $ 9,104    100.0 % $ 9,619    100.0 %






~~Digital advertising~~

Three Months Ended September 30,

   2020
2021



(Dollars in thousands)

Digital Advertising, net
   $ 5,213    53.2 %
$
5,053



47.5
%
Digital Streaming
   843    8.6

873



8.2

Digital Subscriptions
   2,387    24.3

3,155



29.6

Digital Downloads
   1,244    12.7

1,464



13.8

e-commerce
   53    0.5

65



0.6

Other Revenues
   68    0.7

35



0.3







Net Digital Media Revenue
   $ 9,808    100.0 %
$
10,645



100.0
%






National digital revenue, net of agency commissions, or ~~national digital~~net revenue generated from our owned and operated Christian and conservative opinion websites, declined by ~~$0.3 million on a consolidated basis including a~~ $0.2 million ~~decrease from~~due to a lower number of advertisements on our conservative opinion websites within Townhall ~~Media and a $0.1 million decrease from Salem Web Network. The net decrease from Townhall Media from is~~Media. Our conservative opinion websites experience lower demand and lower page views during
non-election
years. ~~Declines in national digital are attributable to a loss of~~We also experience lower demand from advertisers who ~~moved~~move advertising spending to digital programmatic advertisers, such as Facebook and Google, and ~~to a loss of~~we may lose advertisers who ~~reduced~~decide to reduce or ~~eliminated~~eliminate advertising on political-content websites such as ours. We continue to acquire, develop and promote the use of mobile applications ~~particularly for our Christian mobile applications,~~ to reduce our dependency on page views from digital programmatic advertisers. ~~Mobile~~Because mobile page views carry fewer advertisements and tend to have shorter site visits as compared to ~~desktop. As a result,~~desktop, our growth in mobile page views exceeds our growth in revenue from the mobile applications.
Digital streaming revenue ~~decreased $0.1 million based on lower demand for content available from our Christian websites. There were~~was consistent with that of the same period of the prior year with no significant changes in sales volume or rates.
Digital subscription revenue increased ~~$0.6~~by $0.8 million onincluding a ~~consolidated basis reflecting~~$0.4 million increase from Christianjobs.com and Churchstaffing.com within SWN due to an increase in job postings, a $0.2 million increase from Eagle Financial Publications due to an increase in ~~revenues~~the number of subscribers from increased marketing efforts, and a $0.2 million increase from Townhall Media’s launch of Townhall VIP, a subscription ~~service, a $0.3 million increase~~service. There were no significant changes in ~~revenues from Eagle Financial Publications and a $0.1 million increase from Christianjobs.com and Churchstaffing.com within SWN. Increase in~~rates over the ~~number of subscribers to Eagle Financial Publications include an increase in the number of subscribers to newsletters written by Robert Carlson, James Woods and Bryan Perry.~~
prior period.
Digital download revenue increased by $0.2 million due to increases in the number of downloads purchased from our church product websites ~~WorshipHouseMedia.com~~ and ~~SermonSpice~~^TM~~.com which was impacted by~~form the ~~timing~~acquisitions of ~~the Easter holiday, which was on Sunday~~Centerline New Media in April 4, 2021 ~~with a majority of revenue generated on or before March 31,~~and ShiftWorship in July 2021. There were no significant changes in rates.
44
Table of Contents
E-commerce
revenue ~~was consistent with~~includes
in-app
purchases that ~~of the prior year~~increased in volume with no significant changes in ~~volume or~~ rates.
Other revenue includes revenue sharing arrangements for mobile applications and mail list rentals which ~~remained consistent as~~declined slightly in volume with no significant changes in ~~volume or~~ rates.
Net Publishing Revenue

   Three Months Ended March 31,
   2020    2021    Change $    Change % 2020 2021
   (Dollars in thousands)

% of Total Net Revenue
Net Publishing Revenue
   $ 3,966    $ 5,686    $ 1,720    43.4 % 6.8 % 9.6 %

Three Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Net Publishing Revenue
   $ 5,442
$
5,747

   $ 305    5.6 % 9.0 %

8.7
%
The following table shows the dollar amount and percentage of net publishing revenue for each publishing revenue source.

   Three Months Ended March 31,
   2020 2021
   (Dollars in thousands)
Book Sales
   $ 2,693    67.9 % $ 4,301    75.6 %
Estimated Sales Returns & Allowances
   (970 )    (24.5 ) (1,093 )    (19.2 )






Net Book Sales
   1,723    43.4 3,208    56.4
E-Book Sales
   254    6.4 339    6.0
Self-Publishing Fees
   1,402    35.3 1,624    28.6
Print Magazine Subscriptions
   177    4.5 158    2.8
Print Magazine Advertisements
   102    2.6 68    1.2
Digital Advertising
   99    2.5 62    1.1
Other Revenue
   209    5.3 227    4.0






Net Publishing Revenue
   $ 3,966    100.0 % $ 5,686    100.0 %







Three Months Ended September 30,

   2020
2021



(Dollars in thousands)

Book Sales
   $ 4,310    79.2 %
$
4,561



79.4
%
Estimated Sales Returns & Allowances
   (1,322 )    (24.3 )
(1,212
)

(21.1
)







Net Book Sales
   2,988    54.9

3,349



58.3

E-Book
Sales
   456    8.4

502



8.7

Self-Publishing Fees
   1,407    25.8

1,556



27.1

Print Magazine Subscriptions
   168    3.1 —      —
Print Magazine Advertisements
   85    1.6 —      —
Digital Advertising
   65    1.2 —      —
Other Revenue
   273    5.0

340



5.9







Net Publishing Revenue
   $ 5,442    100.0 %
$
5,747



100.0
%






Net book sales increased by ~~$1.5~~$0.3 million ~~which includes~~including a ~~$1.6~~$0.2 million increase infrom Salem Author Services and a $0.1 million increase from Regnery
®
Publishing. Book sales through Regnery
®
Publishing ~~as book sales~~ reflect a ~~4% increase~~10% decrease in volume with a 11% decrease in the average price per unit sold offset with a reduction in sales returns and ~~a 70% increase in volume offset by a slight decline in Salem Author Services. Book sales through Regnery Publishing are~~allowances resulting from lower print sales. Revenue is directly attributable to the number of titles released each period and the composite mix of titles ~~available. Revenues~~available that can vary significantly from period to period 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. The ~~increase~~decrease of $0.1 million ~~to the~~in estimated sales returns and allowances ~~reflects the higher number~~is based on a flat volume of print books sold through Regnery
®
Publishing. The ~~decline~~$0.2 million increase in ~~book sales from~~ Salem Author Services book sales was due to ~~a reduction in the number of new authors obtained and a reduction~~an increase in the number of books sold as trade shows and events resumed with no significant changes in sale prices.

Regnery

Publishing
e-book
sales increased by ~~$0.1 million~~$46,000 with a ~~35%~~6% increase in the average price per unit sold from sales incentives and a 7%19% increase in sales 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 ~~$0.2~~$0.1 million due an increase in the number of authors publishing books with no change in fees charged to authors.

Declines in print magazine subscription revenues and advertising revenues reflect ~~lower consumer demand and distribution levels. There were no significant changes~~the sale of Singing News Magazine on May 25, 2021.

Declines in ~~rates.~~
~~Digital adverting revenue was consistent with that~~digital advertising revenues reflect the sale of ~~the prior year with no changes in sales volume and rates.~~
Singing News Magazine on May 25, 2021.

Other revenue includes change fees, video trailers, and ~~website revenues.~~ subright revenue for foreign translation and audio books for original published titles from Regnery
®
Publishing. Subright revenue increased $0.1 million due to higher demand.
There were no changes in volume or rates.

Table of Contents
Broadcast Operating Expenses

   Three Months Ended March 31,
   2020    2021    Change $ Change % 2020 2021
   (Dollars in thousands)

% of Total Net Revenue
Broadcast Operating Expenses
   $ 37,327    $ 33,343    $ (3,984 ) (10.7 )% 64.1 % 56.2 %
Same Station Broadcast Operating Expenses
   $ 36,565    $ 33,059    $ (3,506 ) (9.6 )%

Three Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Broadcast Operating Expenses
   $ 34,283
$
37,463

   $ 3,180    9.3 % 56.5 %

56.8
%
Same Station Broadcast Operating Expenses
   $ 33,687
$
37,072

   $ 3,385    10.0 %
Broadcast operating expenses ~~decreased~~increased by ~~$4.0~~$3.2 million, ~~overall,~~ including ~~$4.2~~a $1.9 million increase from expenses associated with Salem Surround and Salem Podcast Network, a $1.0 million increase in payroll costs including the January 2021 reinstatement of ~~net cost savings~~company-wide pay cuts that were ~~offset by~~implemented in 2020, a $0.5 million increase in health insurance costs, a $0.3 million increase in advertising and event costs, a $0.2 million increase in ~~costs associated with Salem Surround. The cost savings include a $1.9 million decrease in payroll~~production and ~~other employee related~~programming costs, a ~~$0.8~~$0.2 million ~~decrease~~increase in ~~discretionary advertising spending,~~travel and entertainment costs, and a ~~$0.5 million decrease in facility-related expenses that were offset by a $0.8~~$0.2 million increase in professional services. ~~Bad~~These costs were partially offset with a $0.9 million decline in cost of sales from SalemNow consistent with the decline in revenue as compared to the prior year when SalemNow released two successful titles, a $0.3 million decline in bad debt expense ~~decreased by $1.9 million~~ due to the ~~increase in the allowance recognized in March 2020 due to the uncertainties~~impact of the
COVID-19
pandemic on ~~collections. The increase~~prior year reserves, and a $0.1 million decrease in ~~operating costs associated with Salem Surround, our multi-media advertising agency, reflects our commitment to grow revenue through new~~rent and ~~enhanced digital product offerings.~~
facilities related expenses.
On a same-station basis, broadcast operating expenses ~~decreased~~increased by ~~$3.5 million. The increase in broadcast operating expenses on a same station basis reflects~~$3.4 million reflecting these items net of the impact of station dispositions and format changes.
Digital Media Operating Expenses

   Three Months Ended March 31,
   2020    2021    Change $    Change % 2020 2021
   (Dollars in thousands)

% of Total Net Revenue
Digital Media Operating Expenses
   $ 8,326    $ 8,673    $ 347    4.2 % 14.3 % 14.6 %

Three Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Digital Media Operating Expenses
   $ 7,144
$
8,269

   $ 1,125    15.7 % 11.8 %

12.5
%
Digital media operating expenses increased by ~~$0.3~~$1.1 million including a $0.5 million increase payroll and employee benefits expense, a $0.4 million increase in advertising and promotional expenses, a $0.2 million increase in sales-based commissions and bonuses and a ~~$0.3~~$0.1 million increase in ~~advertising and promotional expenses and a $0.2 million increase in royalties~~professional services, offset by a ~~$0.2~~$0.1 million decrease in bad debt ~~expense, a $0.2 million decrease in employee benefit costs, a $0.1 million decrease in streaming and hosting fees, and a $0.1 million decrease in facilities related expenses. The increase~~expense. Increases in advertising and promotional expenses are driven by a new video initiative for Eagle Financial Publications that ~~has a higher cost, but~~ management believes to be beneficial for the ~~business.~~
business and overall gradual increase in adverting spending as the economy begins to return to
pre-pandemic
levels. The increase in payroll expenses reflects the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020.
Publishing Operating Expenses

   Three Months Ended March 31,
   2020    2021    Change $    Change % 2020 2021
   (Dollars in thousands)

% of Total Net Revenue
Publishing Operating Expenses
   $ 5,062    $ 5,205    $ 143    2.8 % 8.7 % 8.8 %

Three Months Ended September 30,

   2020
2021
   Change $ Change % 2020
2021



(Dollars in thousands)
% of Total Net Revenue
Publishing Operating Expenses
   $ 5,814
$
5,213

   $ (601 ) (10.3 )%   9.6 %

  7.9
%
Publishing operating expenses ~~increased~~decreased by ~~$0.1~~$0.6 million, including a $0.3 million ~~increase~~decrease in royalty expense reflecting a decrease in the reserve for royalty advances based on flat book sales for Regnery
®
Publishing, a $0.2 million decrease in professional services, a $0.1 million decrease in costs of sales and a $0.2 million increase in payroll and employee benefit cost that were partially offset by a $0.2 million decrease in facility related expenses due to the termination of a lease in Washington D.C, and a $0.1 million decrease in ~~bad debt expense. Cost of goods sold increased $0.2 million including a $0.3 million increase from print books sold by Regnery~~^® ~~Publishing,~~facility-related expenses that was offset by a $0.1 million increase in payroll expenses from the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020. Cost of goods sold decreased $0.1 million including a $0.1 million from Regnery
®
Publishing due to flat book sales and $0.1 million decline from Salem Publishing due to the sale of Singing News Magazine offset by a $0.1 million increase from Salem Author Services due to a ~~lower~~higher volume of book sales. The gross profit margin for Regnery
®
Publishing improved to ~~63%~~52% from ~~49%~~42% as sales volume ~~increased~~remained flat while material costs ~~increased only slightly.~~decreased. Regnery^{®
Publishing margins vary based on the volume ofe-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 76% from 72%remained flat at 74% due to lowerhigher book sales offset by higher paper costs for print book sales.}
Unallocated Corporate Expenses

   Three Months Ended March 31,
   2020    2021    Change $    Change % 2020 2021
   (Dollars in thousands)

% of Total Net Revenue
Unallocated Corporate Expenses
   $ 4,210    $ 4,288    $ 78    1.9 % 7.2 % 7.2 %

Three Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Unallocated Corporate Expenses
   $ 3,849
$
4,284

   $ 435    11.3 % 6.3 %

6.5
%
46
Table of Contents
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 net increase of ~~$0.1~~$0.4 million includes a ~~$0.2~~$0.6 million increase in payroll ~~related expenses and a $0.1 million increase in transaction costs~~expense due to the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020 that was offset by a $0.2 million ~~decrease~~decline in ~~travel~~professional service fees.
Debt Modification Costs







Three Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Debt Modification Costs
   $ —
$
2,347

   $ 2,347    100.0 % —   %

3.6
%
On September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of 2028 Notes. The transaction was assessed on a lender-specific level and ~~entertainment-related~~was accounted for as a debt modification in accordance with FASB ASC Topic 470 with $2.3 million of fees paid to third parties included in operating expenses ~~due to pandemic restrictions.~~
for the period.
Depreciation Expense

   Three Months Ended March 31,
   2020    2021    Change $ Change % 2020 2021
   (Dollars in thousands)

% of Total Net Revenue
Depreciation Expense
   $ 2,713    $ 2,589    $ (124 ) (4.6 )% 4.7 % 4.4 %
~~The decrease in depreciation expense reflects~~

Three Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Depreciation Expense
   $ 2,677
$
2,788

   $ 111    4.1 % 4.4 %

4.2
%
Depreciation increase was consistent with that of the ~~impact of~~ prior year capital expenditures for data processing equipment and computer software that had shorter estimated useful lives as compared to towers or other assets and were fully depreciated during the current year. 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,
   2020    2021    Change $ Change % 2020 2021
   (Dollars in thousands)

% of Total Net Revenue
Amortization Expense
   $ 987    $ 581    $ (406 ) (41.1 )% 1.7 % 1.0 %







Three Months Ended September 30,

   2020
2021
   Change $ Change % 2020
2021



(Dollars in thousands)
% of Total Net Revenue
Amortization Expense
   $ 751
$
427

   $ (324 ) (43.1 )% 1.2 %

0.6
%
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 intangible asset groups.
Net (Gain) Loss on the Disposition of Assets







Three Months Ended September 30,

   2020
2021
Change $ Change % 2020
2021



(Dollars in thousands)
% of Total Net Revenue
Net (Gain) Loss on the Disposition of assets
   $ 1,381
$
(10,607
)
$ (11,988 ) (868.1 )% 2.3 %

(16.1
)%
The net gain on the disposition of assets of $10.6 million for the three-month period ending September 30, 2021 includes a $10.5 million
pre-tax
gain on the sale of land in Lewisville, Texas, and a $0.1 million
pre-tax
gain on the sale of the Hilary Kramer Financial Newsletter and related assets as well as various other fixed asset disposals.
The net loss on the disposition of assets of $1.4 million for the three months ended September 30, 2020 reflects the estimated
pre-tax
loss associated with the exit of the Miami broadcast market with the then pending sale of radio station
WKAT-AM.
47
Table of Contents
Other Income (Expense)


Three Months Ended September 30,

   2020
2021
Change $ Change % 2020
2021



(Dollars in thousands)
% of Total Net Revenue

Interest Income
   $ 1
$
—

(1 ) (100.0 )% —

—
%
Interest Expense
   (4,024 )

(4,026
)
2 —   % (6.6 )%

(6.1
)%
Gain on the Forgiveness of PPP loans
   —

11,212

11,212 100.0 % —

17.0
%
Gain (Loss) on Early Retirement of Long-Term Debt
   —

(56
)
(56 ) (100.0 )% —   %

(0.1
)%
Net Miscellaneous Income and (Expenses)
   1

2

1 —   % —   %

—
%
Interest expense includes interest due on outstanding debt balances and
non-cash
accretion associated with deferred installments.
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. 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 loss on the early retirement of long-term debt reflects $4.7 million of repurchases of the 2024 Notes for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs.
Net miscellaneous income and expenses includes
non-operating
receipts such as usage fees and other expenses.
Provision for Income Taxes


Three Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Provision for Income Taxes
   $ 401
$
837

   $ 436    108.7 % 0.7 %

1.3
%
Our expense from income taxes increased $0.4 million to a $0.8 million provision for the three months ended September 30, 2021 compared to $0.4 million for the same period of the prior year. The provision for income taxes as a percentage of income before income taxes, or the effective tax rate was 3.7% for the three months ended September 30, 2021 compared to 54.9% for the same period of the prior year. The change in the effective tax between the comparative three-month quarters is attributable to the current year forecasted income and related operating loss utilization coupled with the PPP loan forgiveness favorable tax adjustment relative to
pre-tax
book income for the period. The effective tax rate for each period differs from the federal statutory income rate of 21.0% due to state income taxes, certain expenses that are not deductible for tax purposes, and changes in the valuation allowance. The effective tax rate of 3.7% is driven by certain expenses that are nondeductible for income tax purposes relative to
pre-tax
book loss, tax expense attributable to deductible amortization on indefinite lived assets for fully valued state jurisdictions and projected utilization of operating loss carryforwards.
Net Income (Loss)


Three Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Net Income (Loss)
   $ 329
$
22,094

   $ 21,765    6,615.5 % 0.5 %

33.5
%
Net income increased by $21.8 million to $22.1 million for the three months ended September 30, 3021 compared $0.3 million during the same period of the prior year as described above.
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
Net Broadcast Revenue


Nine Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Net Broadcast Revenue
   $ 130,041
$
140,422

   $ 10,381    8.0 % 75.7 %

74.3
%
Same Station Net Broadcast Revenue
   $ 129,022
$
139,482

   $ 10,460    8.1 %
48
Table of Contents
The following table shows the dollar amount and percentage of net broadcast revenue for each broadcast revenue source.

Nine Months Ended September 30,

   2020
2021



(Dollars in thousands)

Block Programming:

National
   $ 35,536    27.3 %
$
35,824

   25.5 %
Local
   18,211    14.0

18,072

   12.9 %






   53,747    41.3

53,896

   38.4 %
Broadcast Advertising:

National
   10,179    7.8

10,565

   7.5 %
Local
   28,630    22.0

30,123

   21.5 %






   38,809    29.8

40,688

   29.0 %
Broadcast Digital (local)
   17,702    13.6

23,602

   16.8 %
Infomercials
   750    0.6

682

   0.5 %
Network
   13,505    10.4

14,729

   10.4 %
Other Revenue
   5,528    4.3

6,825

   4.9 %






Net Broadcast Revenue
   $ 130,041    100.0 %
$
140,422



100.0
%






Block programming revenue increased by $0.1 million, including a $0.3 million increase in national programming revenue offset by a $0.1 million decline in local programming revenue. Our Christian Teaching and Talk format radio station increased $0.4 million, while our News Talk format radio stations increased $0.1 million and our Contemporary Christian Music format radio stations increased $0.1 million. These increases include the impact of the $0.3 million in early-payment discounts offered during the prior year and an increase in the number of programmers
on-air
that were offset by a decrease of $0.5 million from our Spanish Christian Teaching and Talk format radio stations primarily from the sale of radio station
WKAT-AM
in Miami, Florida.
Advertising revenue, net of agency commissions, increased by $1.9 million, $2.4 million net of political, due to a $1.8 million increase net of political in local advertising revenue and a $0.6 million increase net of political in national advertising. Net of political, the increase includes $2.4 million from our Contemporary Christian Music format radio stations, primarily in our Atlanta, Dallas and Los Angeles markets and $0.7 million from other format radio stations, that was offset with a $0.4 million decline from our Spanish Christian Teaching and Talk format radio stations, a $0.1 million decline from our News Talk format radio stations, and a $0.1 million decline from our Christian Teaching and Talk format radio stations. The increases in Atlanta, Dallas and Los Angeles reflect an increase in demand for advertising as pandemic restrictions ease that in turn creates higher spot rates for premium airtime spots. The decline from our Christian Teaching and Talk format radio stations reflects the sale of
WKAT-AM
in Miami, Florida and the reformatting of our remaining Spanish Christian Teaching and Talk format radio stations.
Broadcast digital revenue, net of agency commissions, or net digital revenue generated from our broadcast markets and networks, increased by $5.9 million due to growth in digital product offerings and the launch of the Salem Podcast Network in January 2021. Salem Podcast Network is a highly specialized platform for conservative, political, news, family-oriented podcasts with talk show hosts including Dinesh D’Souza, Todd Starnes and Charlie Kirk. Salem Podcast Network joins Salem Surround, our multimedia digital advertising agency providing digital marketing services to our customers, and SalemNow, our
on-demand
pay-per-view
video streaming platform launched in the fourth quarter of 2020, along with our owned and operated station branded websites to offer new digital products and services. Increases in digital revenue include a $4.7 million increase from Salem Podcast Network, a $2.6 million increase in digital marketing services through Salem Surround, a $0.9 million increase in streaming revenue and a $0.9 million increase in digital advertising revenue from our station websites and an increase of $0.2 million from our networks that were offset by a $3.4 million decline in revenue from SalemNow that released two successful titles during the prior year. 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, increased by $1.2 million due to a $2.0 million increase in revenue from our nationally syndicated host programs that was partially offset by a $0.8 million decline in political advertising.
49
Table of Contents
Other revenue increased by $1.3 million due to a $0.6 million increase in event revenue due to the
re-opening
of live events, a $0.2 million increase in listener purchase program revenue from higher listener participation and half price tuition tickets sold as schools and businesses started to
re-open,
a $0.2 million increase in TBA fees associated with radio station
KBJD-AM,
Denver, Colorado , a $0.1 million increase in LMA fees associated with radio station
KGU-AM,
Honolulu, Hawaii and a $0.1 million increase in talent fees. Event revenue 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.
On a Same Station basis, net broadcast revenue increased $10.5 million, which reflects the above described items net of the impact of stations with acquisitions, dispositions and format changes.
Net Digital Media Revenue

Nine Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Net Digital Media Revenue
   $ 28,355
$
30,603

   $ 2,248    7.9 % 16.5 %

16.2
%
The following table shows the dollar amount and percentage of net digital media revenue for each digital media revenue source.

Nine Months Ended September 30,

   2020
2021



(Dollars in thousands)

Digital Advertising, net
   $ 14,473    51.0 %
$
13,859



45.3
%
Digital Streaming
   2,611    9.2

2,579



8.4

Digital Subscriptions
   6,679    23.6

9,227



30.2

Digital Downloads
   4,291    15.1

4,637



15.1

e-commerce
   108    0.4

163



0.5

Other Revenues
   193    0.7

138



0.5







Net Digital Media Revenue
   $ 28,355    100.0 %
$
30,603



100.0
%






National digital revenue, net of agency commissions, or net revenue generated from our owned and operated Christian and conservative opinion websites declined by $0.9 million due to a lower volume of advertisements on our conservative opinion websites within Townhall Media. Revenues increased $0.1 million from Salem Web Network and $0.2 million from Eagle Financial Publications. Our conservative opinion websites experience lower demand and lower page views during
non-election
years. We also experience lower demand from advertisers who move advertising spending to digital programmatic advertisers, such as Facebook and Google, and we may lose advertisers who decide to reduce or eliminate advertising on political-content websites such as ours. We continue to acquire, develop and promote the use of mobile applications to reduce our dependency on page views from digital programmatic advertisers. Because mobile page views carry fewer advertisements and tend to have shorter site visits as compared to desktop, our growth in mobile page views exceeds our growth in revenue from the mobile applications.
Digital streaming revenue decreased compared to the prior year based on a slightly lower demand for content available from our Christian websites. There were no significant changes in rates as compared to the prior year.
Digital subscription revenue increased $2.5 million on a consolidated basis reflecting a $0.9 million increase in revenues from Eagle Financial Publications, a $0.9 million increase from Christianjobs.com and Churchstaffing.com within Salem Web Network due to increases in job postings as job markets start to
re-open,
and a $0.7 million increase in revenues from Townhall Media’s launch of Townhall VIP, a subscription service. Eagle Financial Publications saw an increase in the number of subscribers due to an increased investment in marketing with no significant changes in rates over the same period of the prior year.
Digital download revenue increased by $0.3 million from our church product websites, WorshipHouseMedia.com and SermonSpice
TM
.com and the acquisitions of Centerline New Media in April 2021 and ShiftWorship in July 2021. There were no significant changes in rates as compared to the prior year.
E-commerce
revenue includes
in-app
purchases through Salem Web Network that increased in volume with no significant changes in rates over the prior year.
Other revenue includes revenue sharing arrangements for mobile applications and mail list rentals which remained consistent with no changes in volume or rates.
50
Table of Contents
Net Publishing Revenue

Nine Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Net Publishing Revenue
   $ 13,366
$
18,093

   $ 4,727    35.4 % 7.8 %

9.6
%
The following table shows the dollar amount and percentage of net publishing revenue for each publishing revenue source.

Nine Months Ended September 30,

   2020
2021



(Dollars in thousands)

Book Sales
   $ 9,701    72.5 %
$
15,074



83.3
%
Estimated Sales Returns & Allowances
   (2,852 )    (21.3 )

(4,223
)


(23.3
)






Net Book Sales
   6,849    51.2

10,851



60.0

E-Book
Sales
   960    7.2

1,294



7.2

Self-Publishing Fees
   3,860    28.9

4,730



26.1

Print Magazine Subscriptions
   519    3.9

262



1.4

Print Magazine Advertisements
   278    2.1

123



0.7

Digital Advertising
   216    1.6

132



0.7

Other Revenue
   684    5.1

701



3.9







Net Publishing Revenue
   $ 13,366    100.0 %
$
18,093



100.0
%






Net book sales increased by $4.0 million which includes a $3.7 million increase in Regnery
®
Publishing as book sales reflect a 76% increase in volume largely attributable to the reopening of bookstores and retail locations, offset by a 7% decrease in the average price unit sold and a $0.3 million increase in Salem Author Services. The increase in the number of print books sold through Regnery
®
Publishing resulted in a $1.4 million increase to the estimated sales returns and allowances. The increase in book sales from Salem Author Services of $0.3 million was due to books sold at tradeshows with events resuming in limited capacity as pandemic restrictions are lifted. There were no significant changes in sale prices for Salem Author Services as compared to the prior year.
Regnery
®
Publishing
e-book
sales increased $0.3 million with a 6% increase in the average price per unit sold from sales incentives and a 27% increase in sales 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 $0.9 million due an increase in the number of authors and services provided with no change in fees charged to authors.
Declines in print magazine subscription revenues and advertising revenues reflect the sale of Singing News Magazine on May 25, 2021, and ongoing lower consumer demand and distribution levels prior to the sale.
Digital advertising revenue decreased $0.1 million due to the sale of Singing News Magazine on May 25, 2021 and Regnery
®
Publishing websites declined due to a lower demand due to the
COVID-19
pandemic and the ongoing closure of bookstores with rates comparable to the same period of the prior year.
Other revenue includes change fees, video trailers, and subright revenue for foreign translation and audio books for original published titles from Regnery
®
Publishing which remained consistent to the prior year.
Broadcast Operating Expenses

Nine Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Broadcast Operating Expenses
   $ 104,704
$
106,968

   $ 2,264    2.2 % 61.0 %

56.6
%
Same Station Broadcast Operating Expenses
   $ 102,708
$
105,970

   $ 3,262    3.2 %
51
Table of Contents
Broadcast operating expenses increased by $2.3 million, including a $4.2 million increase from expenses associated with Salem Surround and Salem Podcast Network, a $1.8 million increase in payroll costs including the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020, a $0.4 million increase in health insurance costs, a $0.4 million increase in advertising and event costs, a $0.4 million increase in production and programming costs, and a $0.4 million increase in professional services. These costs were partially offset with a $1.5 million decline in cost of sales from SalemNow consistent with the decline in revenue as compared to the prior year when they released two successful titles, a $3.2 million decline in bad debt expense due to the impact of the
COVID-19
pandemic on prior year reserves, a $0.4 million decline in employee benefits attributable to the suspension of the 401(k) match and a $0.2 million decrease in rent and facilities related expenses.
On a same-station basis, broadcast operating expenses increased by $3.3 million. The increase on a same station basis reflects these items net of the impact of
start-up
costs associated with acquisitions, station dispositions and format changes.
Digital Media Operating Expenses

Nine Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Digital Media Operating Expenses
   $ 23,123
$
25,280

   $ 2,157    9.3 % 13.5 %

13.4
%
Digital media operating expenses increased by $2.2 million, including a $1.2 million increase in advertising and promotional expenses, a $0.7 million increase in sales-based commissions and incentives, a $0.7 million increase in payroll costs and a $0.2 million increase in professional services that were offset by a $0.3 million decrease in bad debt expense, a $0.2 million decrease in costs of sales, a $0.1 million decrease in employee benefit costs due to the suspension of the 401(k) match, and $0.1 million decrease in royalties. Increases in advertising and promotional expenses are driven by a new video initiative for Eagle Financial Publications that management believes to be beneficial for the business and overall gradual increase in adverting spending as the economy begins to return to
pre-pandemic
levels. The increase in payroll related expenses reflects the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020.
Publishing Operating Expenses

Nine Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Publishing Operating Expenses
   $ 16,443
$
16,844

   $ 401    2.4 % 9.6 %

8.9
%
Publishing operating expenses increased by $0.4 million, including a $0.9 million increase in costs of sales, a $0.4 million increase in payroll costs due to the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020, a $0.2 million increase in royalty expense based on higher sales, and a $0.1 million increase in advertising and promotional costs that were offset by a $0.8 million decrease in bad debt expense, a $0.4 million decrease in facility related expenses due to the termination of a lease in Washington D.C., and a $0.1 million decrease in employee benefit costs due to the suspension of the 401(k) match. Cost of goods sold increased $0.9 million including a $0.9 million increase from print books sold by Regnery
®
Publishing and $0.2 million increase from Salem Author Services due to higher volume of book sales offset by a $0.2 million decline Salem Publishing due to the sale of Singing News Magazine. The gross profit margin for Regnery
®
Publishing improved to 54% from 41% as sales volume increased while material costs increased only slightly. 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 75% from 72% due to higher sales volume while paper costs for print book sales increased only slightly.
Unallocated Corporate Expenses


Nine Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Unallocated Corporate Expenses
   $ 11,909
$
12,764

   $ 855    7.2 % 6.9 %

6.7
%
52
Table of Contents
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 $0.9 million includes a $1.3 million increase in payroll costs due to the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020 that were offset by a $0.2 million decrease in travel and entertainment-related expenses due to the events that took place prior to the pandemic restrictions in early 2020, a $0.2 million decrease in professional services and a $0.1 million decrease in employee-related benefits associated with the cash surrender value of split dollar life insurance.
Debt Modification Costs


Nine Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Debt Modification Costs
   $ —
$
2,347

   $ 2,347    100.0 % —   %

1.2
%
On September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of 2028 Notes. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with FASB ASC Topic 470 with $2.3 million of fees paid to third parties included in operating expenses for the period.
Depreciation Expense


Nine Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Depreciation Expense
   $ 8,108
$
8,118

   $ 10    0.1 % 4.7 %

4.3
%
Depreciation expense reflects the impact of prior year capital expenditures for data processing equipment and computer software that had shorter estimated useful lives as compared to towers or other assets and were fully depreciated during the current year. There were no changes in our depreciation methods or in the estimated useful lives of our asset groups.
Amortization Expense


Nine Months Ended September 30,

   2020
2021
   Change $ Change % 2020
2021



(Dollars in thousands)
% of Total Net Revenue
Amortization Expense
   $ 2,578
$
1,553

   $ (1,025 ) (39.8 )% 1.5 %

0.8
%
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 the 2021 calendar year resulting in lower amortization expense for this year. There were no changes in our amortization methods or the estimated useful lives of our intangible asset groups.
Impairment of Indefinite-Lived Long-Term Assets Other Than Goodwill

   Three Months Ended March 31,
   2020    2021    Change $ Change % 2020 2021
   (Dollars in thousands)

% of Total Net Revenue
Impairment of Indefinite-Lived Long-Term Assets Other Than Goodwill
   $ 17,254    $
—

   $ (17,254 ) (100.0 )% 29.6 % —   %
~~There were no indications of impairment at March 31, 2021.~~


Nine Months Ended September 30,

   2020
2021
   Change $ Change % 2020
2021



(Dollars
in thousands)
% of Total Net Revenue
Impairment of Indefinite-Lived Long-Term Assets Other Than Goodwill
   $ 17,254    $ —      $ (17,254 ) (100.0 )% 10.0 % —   %
We performed an interim review of broadcast licenses for certain markets during the first quarter of 2020 due to the
COVID-19
pandemic and the resulting
stay-at-home
orders that began to adversely impact revenues. We engaged an independent third-party appraisal and valuation firm to assist us with determining the fair value of our broadcast licenses. Based on our interim review and analysis, we recorded an impairment charge of $17.0 million to the value of broadcast licenses in Chicago, Cleveland, Louisville, Philadelphia, Portland, Sacramento and Tampa. We also recorded an impairment charge of $0.3 million to the value of mastheads. These impairments were driven by decreases in projected revenues due to the current estimated impact of
COVID-19
and an increase in the WACC. We believe that these factors are indicative of trends in the industry as a whole and not unique to our company or operations.
~~Impairment of Goodwill~~

   Three Months Ended March 31,
   2020    2021    Change $ Change % 2020 20210
   (Dollars in thousands)

% of Total Net Revenue
Impairment of Goodwill
   $ 307    $ —      $ (307 ) (100.0 )% 0.5 % —   %
There were no indications of impairment ~~at March 31,~~as of our interim review during the third quarter of 2021.
53
Table of Contents
Impairment of Goodwill


Nine Months Ended September 30,

   2020
2021
   Change $ Change % 2020
2021



(Dollars
in thousands)
% of Total Net Revenue
Impairment of Goodwill
   $ 307    $ —      $ (307 ) (100.0 )% 0.2 % —   %
We performed an interim review of goodwill for impairment during the first quarter of 2020 due to the
COVID-19
pandemic and the resulting
stay-at-home
orders that began to adversely impact revenues. We engaged an independent third-party appraisal and valuation firm to assist us with determining the enterprise value for certain entities. Based on ~~this~~our interim review and analysis in the first quarter of 2020, we recorded an impairment charge of $0.3 million. These impairments were driven by decreases in projected revenues due to the current estimated impact of
COVID-19
and an increase in the WACC. We believe that these factors ~~were~~ are indicative of trends in the industry as a whole and not unique to our company or operations.
There were no indications of impairment as of our interim review during the third quarter of 2021.
Net (Gain) Loss on the Disposition of Assets

   Three Months Ended March 31,
   2020    2021    Change $    Change % 2020 2021
   (Dollars in thousands)

% of Total Net Revenue
Net (Gain) Loss on the Disposition of assets
   $ 79    $ 318    $ 239    302.5 % 0.1 % 0.5 %


Nine Months Ended September 30,

   2020
2021
Change $ Change % 2020
2021



(Dollars in thousands)
% of Total Net Revenue
Net (Gain) Loss on the Disposition of assets
   $ 1,494
$
(10,552
)
$ (12,046 ) (806.3 )% 0.9 %

(5.6
)%
The net ~~loss~~gain on the disposition of assets of ~~$0.3~~$10.6 million for the ~~three-month~~nine-month period ~~ending March 31,~~ended September 30, 2021 ~~relates to~~reflects a $10.5 million
pre-tax
gain on the sale of approximately 34 acres of land in Lewisville, Texas, a $0.5 million
pre-tax
gain on the sale of Singing News Magazine and Singing News Radio, and a $0.1 million
pre-tax
gain on the sale of the Hilary Kramer Financial Newsletter and related assets, offset by a $0.4 million additional loss recorded at closing on the sale of radio station
WKAT-AM
and FM translator in Miami, ~~Florida.~~
Florida and various other fixed asset disposals.
The net loss on the disposition of assets of ~~$0.1~~$1.5 million for the ~~three-month~~nine-month period ~~ending March 31,~~ended September 30, 2020 ~~reflects~~includes a $1.4 million estimated
pre-tax
loss for associated with the plans to exit the Miami broadcast market with the then pending sale of radio station
WKAT-AM
and various other fixed asset disposals.

Other Income (Expense)

   Three Months Ended March 31,
   2020 2021 Change $ Change % 2020 2021
   (Dollars in thousands)

% of Total Net Revenue
Interest Income
   $ — $ 1 $ 1 100.0 % —   % —   %
Interest Expense
   (4,032 ) (3,926 ) 106 (2.6 )% (6.9 )% (6.6 )%
Gain on Early Retirement of Long-Term Debt
   49 —   (49 ) (100.0 )% 0.1 % —   %
Net Miscellaneous Income and (Expenses)
   (52 ) 22 74 (142.3 )% (0.1 )% —   %

Nine Months Ended September 30,

   2020
2021
Change $ Change % 2020
2021



(Dollars in thousands)
% of Total Net Revenue
Interest Income
   $ 1
$
1

$ —   —   % —   %

—
%
Interest Expense
   (12,069 )

(11,887
)
(182 ) (1.5 )% (7.0 )%

(6.3
)%
Gain on the Forgiveness of PPP Loans
   —

11,212

11,212 100.0 % —

5.9
%
Gain (Loss) on Early Retirement of Long-Term Debt
   49

(56
)
(105 ) (214.3 )% —   %

—
%
Net Miscellaneous Income and (Expenses)
   (45 )

87

132 (2,93.3 )% —   %

—
%
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.~~installments. The decrease of ~~$0.1~~$0.2 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~~nine-months ended ~~March 31,~~September 30, 2021.
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. 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 loss on the early retirement of long-term debt reflects $4.7 million of repurchases of the 2024 Notes for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs. The gain on the early retirement of long-term debt ~~for the three months ended March 31, 2020~~ reflects $3.5 million of repurchases of the 2024 Notes at prices below face value resulting in a
pre-tax
gain of ~~$49,000.~~
$49,000 for the nine-month period ended September 30, 2020.
Net miscellaneous income and expenses includes
non-operating
receipts such as usage fees and other miscellaneous expenses.
54
Table of Contents
Provision for Income Taxes

   Three Months Ended March 31,
   2020    2021    Change $ Change % 2020 2021
   (Dollars in thousands)

% of Total Net Revenue
Provision for Income Taxes
   $ 33,159    $ 130    $ (33,029 ) (99.6 )% 56.9 % 0.2 %

Nine Months Ended September 30,

   2020
2021
   Change $ Change % 2020
2021



(Dollars in thousands)
% of Total Net Revenue
Provision for Income Taxes
   $ 31,180
$
479

   $ (30,701 ) (98.5 )% 18.2 %

0.3
%
Our provision for income taxes decreased ~~$33.0~~$30.7 million to ~~$0.1~~$0.5 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 as compared to ~~$33.2~~$31.2 million for the same period of the prior year. ~~As a result of our adjusted cumulative three-year~~ ~~pre-tax~~ ~~book loss as of March 31, 2021, we performed a review of our valuation allowance.~~ The provision for income taxes as a percentage of income before income taxes, or the effective tax rate was ~~28.7%~~1.9% for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 compared to ~~(150.4%)~~(119.0)% for the same period of the prior year. The change between the comparative nine-month quarters is attributable to the recognition of a valuation allowance against the net operating loss deferred tax assets for the period ended September 30, 2021 coupled with a change in forecasted income for 2021 impacting the utilization of operating losses along with favorable tax adjustment around the PPP forgiveness. 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 ~~28.7%~~1.9% is driven by certain expenses that are ~~non-deductible~~nondeductible for income tax purposes relative to
pre-tax
book ~~loss. The effective tax rate of (150.4)% at March 31, 2020 reflects the increase in the valuation allowance during 2020, that resulted in~~loss, tax expense ~~reflected against a~~ ~~pre-tax~~ ~~loss.~~
attributable to deductible amortization on indefinite lived assets for fully valued state jurisdictions and projected utilization of operating loss carryforwards.
Net Income (Loss)

   Three Months Ended March 31,
   2020 2021    Change $    Change % 2020 2021
   (Dollars in thousands)

% of Total Net Revenue
Net Income (Loss)
   $ (55,204 ) $ 323    $ 55,527    (100.6 )% (94.8 )% 0.5 %

Nine Months Ended September 30,

   2020
2021
   Change $    Change % 2020
2021



(Dollars in thousands)
   % of Total Net Revenue
Net Income (Loss)
   $ (57,390 )
$
24,674

   $ 82,064    (143.0 )% (33.4 )%

13.0
%
Net income increased by ~~$55.5~~$82.1 million to ~~$0.3~~$24.7 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 compared to a net loss of ~~$55.2~~$57.4 million during the same period of the prior year as described above.
CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results can be materially different from these estimates and assumptions.
~~Significant areas for which management uses estimates include:~~
~~going concern evaluations;~~
~~revenue recognition;~~
~~asset impairments, including broadcasting licenses, goodwill~~ There have been no significant and ~~other indefinite-lived intangible assets;~~
~~probabilities associated with the potential for contingent~~ ~~earn-out~~ ~~consideration;~~
~~fair value measurements;~~
~~contingency reserves;~~
~~allowance for doubtful accounts;~~

~~sales returns and allowances;~~

~~barter transactions;~~

~~inventory reserves;~~

~~reserves for royalty advances;~~

~~fair value of equity awards;~~

~~self-insurance reserves;~~

~~estimated lives for tangible and intangible assets;~~

~~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~~

~~income tax valuation allowances; and~~

~~uncertain tax positions.~~

~~The~~ ~~COVID-19~~ pandemic continues to create 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 suchmaterial changes ~~are recognized or disclosed~~ in our ~~consolidated financial statements.~~

~~We believe the following accounting policies and the related judgments and estimates are~~ critical accounting policies ~~that affect the preparation of our Condensed Consolidated Financial Statements.~~

~~Going Concern~~

Management is responsible for evaluating conditions or events as related to uncertainties that raise substantial doubt about our ability to continue as a going concern and to provide related footnote disclosures, as applicable. Management’s estimates and assumptions, used in the evaluation of our ability to meet our obligations as they become due within one year after the date our financial statements are issued, are based on the facts and circumstances at such date and are subject to a material and high level of subjectivity and uncertainty due to the matters themselves being uncertain and subject to modification. The effect of any individual or aggregate changes in the estimates and assumptions, or the facts and circumstances, could be material to the financial statements.

~~Revenue Recognition~~

Significant management judgments and estimates must be made in connection with determining the amount of revenue to be recognized in any accounting period. We must assess the promises within each sales contract to determine if they are distinct performance obligations. Once the performance obligation(s) are determined, the transaction price is allocated to the performance obligation(s) based on a relative standalone selling price basis. If a sales contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price. If the stand-alone selling price is not determinable, an estimate is used.

We make significant estimates related to variable consideration at the point of sale, including estimates for refunds and product returns. Under ASC Topic 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.

A growing source of revenue is generated from digital product offerings, which allow for enhanced audience interaction and participation, and integrated digital advertising solutions. When offering digital products, another party may be involved in providing the goods or services that make up a performance obligation to the customer. These include the use of third-party websites for social media campaigns. We must evaluate if we are the principal or agent in order to determine if revenue should be reported gross as principal or net as agent. In this evaluation, we consider if we obtain control of the specified goods or services before they are transferred to our customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price. The determination of whether we control a specified good or service immediately prior to the good or service being transferred requires us to make reasonable judgments on the nature of each agreement. We have determined that we are acting as principal when we manage all aspects of a social media campaign, including reviewing and approving target audiences, monitoring actual results and making modifications as needed and when we are responsible for delivering campaign results to our customers regardless of the use of a third-party or parties.

~~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.

~~Broadcast Licenses, Goodwill and Other Indefinite-Lived Intangible Assets~~

Approximately 64% of our total assets at March 31, 2021 consisted of indefinite-lived intangible assets including broadcast licenses, goodwill and mastheads. These indefinite-lived intangible assets originated from acquisitions in which a significant amount of the purchase price was allocated to broadcast licenses and goodwill. We do not amortize indefinite-lived intangible assets, 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.

Impairment testing requires an estimate of the fair value of our indefinite-lived intangible assets. We believe that these estimates of fair value are critical accounting estimates as the value is significant in relation to our total assets and the estimates incorporate variables and assumptions based on our experiences and judgment about our future operating performance. Fair value measurements 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 used in our estimates, we are subject to future impairment charges, the amount of which may be material. The unobservable inputs are defined in FASB ASC Topic 820, ~~Fair Value Measurements and Disclosures~~ ~~as Level 3 inputs discussed in Note 12 of our Financial Statements and Supplementary Data.~~

The first step of our impairment testing is to perform a qualitative assessment as to whether it is more likely than not that an indefinite-lived intangible asset is impaired. This qualitative assessment requires significant judgment when considering the events and circumstances that may affect the estimated fair value of our indefinite-lived intangible assets. These events and circumstances are not ~~all-inclusive~~ and are not by themselves indicators of impairment. We consider external and internal factors when reviewing the following events and circumstances, which are presented in the order of what we believe to be the strongest to weakest indicators of impairment:

~~(1)~~

~~the difference between any recent fair value calculations and the carrying value;~~

~~(2)~~

~~financial performance, such as station operating income, including performance as compared to projected results used in prior estimates of fair value;~~

~~(3)~~

~~macroeconomic economic conditions, including limitations on accessing capital that could affect the discount rates used in prior estimates of fair value;~~

~~(4)~~

~~industry and market considerations such as a decline in market-dependent multiples or metrics, a change in demand, competition, or other economic factors;~~

~~(5)~~

~~operating cost factors, such as increases in labor, that could have a negative effect on future expected earnings and cash flows;~~

~~(6)~~

~~legal, regulatory, contractual, political, business, or other factors;~~

~~(7)~~

~~other relevant entity-specific events such as changes in management or customers; and~~

~~(8)~~

~~any changes to the carrying amount of the indefinite-lived intangible asset.~~

If it is more likely than not that an impairment exists, we are required to perform a second step to preparing a quantitative analysis to estimate the fair or enterprise value of the assets. We did not find reconciliation to our current market capitalization meaningful in the determination of our enterprise value given current factors that impact our market capitalization, including but not limited to: limited trading volume, the impact of our publishing segment operating losses and the significant voting control of our Chairman and Chief Executive Officer. We engage an independent third-party appraisal and valuation firm to assist us with determining the enterprise value as part of our quantitative review.

If the results of our quantitative analysis indicate that the fair value of a reporting unit is less than its carrying value, an impairment is recorded equal to the amount by which the carrying value exceeds the estimated fair value.

We believe we have made reasonable estimates and assumptions to calculate the estimated fair value of our indefinite-lived intangible assets, however, these estimates and assumptions are highly judgmental in nature. Actual results can be materially different from estimates and assumptions. If actual market conditions are less favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the estimated fair value of our indefinite-lived intangible assets below the amounts reflected on our balance sheet, we may recognize future impairment charges, the amount of which may be material.

~~Business Acquisitions~~

~~We account for business acquisitions in accordance with the acquisition method of accounting as specified in FASB ASC Topic 805~~ ~~Business Combinations~~. The total acquisition consideration is allocated to assets acquired and liabilities assumed based on their estimated fair values as of the date of the transaction. Estimates of the fair value include discounted estimated cash flows to be generated by the assets and their expected useful lives based on historical experience, market trends and any synergies believed to be achieved from the acquisition. The excess of consideration paid over the estimated fair values of the net assets acquired is recorded as goodwill and any excess of fair value of the net assets acquired over the consideration paid is recorded as a gain on bargain purchase. Prior to recording a gain, the acquiring entity must reassess whether all acquired assets and assumed liabilities have been identified and recognized and perform ~~re-measurements~~ ~~to verify that the consideration paid, assets acquired, and liabilities assumed have been properly valued.~~

~~Acquisitions may include contingent~~ ~~earn-out~~ consideration, the fair value of which is estimated as of the acquisition date as the present value of the expected contingent payments as determined using weighted probabilities of the payment amounts.

A majority of our radio station acquisitions have consisted primarily of the FCC licenses to broadcast in a particular market. We often do not acquire the existing format, or we change the format upon acquisition when we find it beneficial. As a result, a substantial portion of the purchase price for the assets of a radio station is allocated to the broadcast license. Under ASU ~~2017-01,~~ a fewer number of our radio station acquisitions qualify as business acquisitions and instead are accounted for as asset purchases. Asset purchases are recognized based on their cost to acquire, including transaction costs. The cost to acquire an asset group is allocated to the individual assets acquired based on their relative fair value with no goodwill recognized.

We may retain a third-party appraiser to estimate the fair value of the acquired net assets as of the acquisition date. As part of the valuation and appraisal process, the third-party appraiser prepares a report assigning estimated fair values to the various asset categories in our financial statements. These fair value estimates are subjective in nature and require careful consideration and judgment. Management reviews the third-party reports for reasonableness of the assigned values. We believe that the purchase price allocations represent the appropriate estimated fair value of the assets acquired and we have not had to modify our purchase price allocations.

We estimate the economic life of each tangible and intangible asset acquired to determine the period of time in which the asset should be depreciated or amortized. A considerable amount of judgment is required in assessing the economic life of each asset. We consider our own experience with similar assets, industry trends, market conditions and the age of the property at the time of our acquisition to estimate the economic life of each asset. If the financial condition of the assets were to deteriorate, the resulting change in life or impairment of the asset could cause a material impact and volatility in our operating results. To date, we have not experienced changes in the economic life established for each major category of our assets.

~~Contingent~~ ~~Earn-Out~~ ~~Consideration~~

~~Our acquisitions may include contingent~~ ~~earn-out~~ ~~consideration as part of the purchase price. The fair value of the contingent~~ ~~earn-out~~ consideration is estimated as of the acquisition date based on the present value of the contingent payments expected to be made using a weighted probability of possible payments. The unobservable inputs used in the determination of the fair value of the contingent ~~earn-out~~ consideration include our own assumptions about the likelihood of payment based on the established benchmarks and discount rates based on our internal rate of return analysis. The fair value measurements include inputs that are Level 3 measurement as discussed in Note 12 in the notes of our Condensed Consolidated Financial Statements contained in Part 1 in this quarterly report on Form ~~10-Q.~~

~~We review the probabilities of possible future payments to the estimated 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 increase or decrease~~ as compared to ~~the assumption used~~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 ~~analysis, the fair value of the contingent~~ ~~earn-out~~ ~~consideration obligations will increase or decrease, up to the contracted limit,~~ most recent Annual Report on Form

10-K,

as ~~applicable. Changes in the fair value of the contingent~~ ~~earn-out~~ ~~consideration could cause a material impact and volatility in our operating results.~~
~~We believe that we have used reasonable estimates and assumptions to calculate the estimated fair value of any contingent~~ ~~earn-out~~ ~~consideration however, these estimates and assumptions are highly judgmental in nature. Actual results can be materially different from estimates and assumptions.~~
~~Fair Value Measurements~~
~~FASB ASC Topic 820,~~ ~~Fair Value Measurements and Disclosures~~ established a single definition of fair value in generally accepted accounting principles and requires expanded disclosure requirements about fair value measurements. The provision applies to other accounting pronouncements that require or permit fair value measurements. This includes applying the fair value concept to (i) nonfinancial assets and liabilities initially measured at fair value in business combinations; (ii) reporting units or nonfinancial assets and liabilities measured at fair value in conjunction with goodwill impairment testing; (iii) other nonfinancial assets measured at fair value in conjunction with impairment assessments; and (iv) asset retirement obligations initially measured at fair value.

The fair value provisions include guidance on how to estimate the fair value of assets and liabilities in the current economic environment and reemphasize that the objective of a fair value measurement remains an exit price. If we were to conclude that there has been a significant decrease in the volume and level of activity of the asset or liability in relation to normal market activities, quoted market values may not be representative of fair value and we may conclude that a change in valuation technique or the use of multiple valuation techniques may be appropriate.

The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market, and the characteristics specific to the transaction. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have less (or no) pricing observability and a higher degree of judgment utilized in measuring fair value.

~~FASB ASC Topic 820 established a hierarchal disclosure framework associated~~filed with the level of pricing observability utilized in measuring fair value. This framework defined 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 FASB ASC Topic 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

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 basedSEC on ~~the best information available in the circumstances (which might include the reporting entity’s own data).~~

We believe that we have used reasonable estimates and assumptions to calculate the estimated fair value of our financial assets as discussed in Note 12 in the notes to our Condensed Consolidated Financial Statements contained in Part 1 of this quarterly report on Form ~~10-Q.~~

~~Contingency Reserves~~

In the ordinary course of business, we are involved in various legal proceedings, lawsuits, arbitration and other claims that are complex in nature and have outcomes that are difficult to predict. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. Certain of these proceedings are discussed in Note 14, Commitments and Contingencies, contained in our Condensed Consolidated Financial Statements.

We record contingency reserves to the extent we conclude that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. The establishment of the reserve is based on a review of all relevant factors, the advice of legal counsel, and the subjective judgment of management. The reserves we have recorded to date have not been material to our consolidated financial position, results of operations or cash flows. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected.

While we believe that the final resolution of any known maters, individually and in the aggregate, will not have a material adverse effect upon our consolidated financial position, results of operations or cash flows, it is possible that we could incur additional losses. We maintain insurance that may provide coverage for such matters. Future claims against us, whether meritorious or not, could have a material adverse effect upon our consolidated financial position, results of operations or cash flows, including losses due to costly litigation and losses due to matters that require significant amounts of management time that can result in the diversion of significant operational resources.

~~Allowance for Doubtful Accounts~~

We evaluate the balance reserved in our allowance for doubtful accounts on a quarterly basis based on our historical collection experience, the age of the receivables, specific customer information and current economic conditions. We increased our reserve percentages based on the adverse economic conditions due to the ~~COVID-19~~ ~~pandemic and the expected impact on the ability of our customers to make payments. Past due balances are generally not~~ ~~written-off~~ until all collection efforts have been unsuccessful, including use of a collection agency. A considerable amount of judgment is required in assessing the likelihood of ultimate realization of these receivables, including the current creditworthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected.

~~Sales Returns and Allowances~~

~~We provide for estimated returns for products sold with the right of return, primarily book sales associated with Regnery~~^® Publishing. We record an estimate of these product returns as a reduction of revenue in the period of the sale. Our estimates are based upon historical sales returns, the amount of current period sales, economic trends and any changes in customer demand and acceptance of our products. We regularly monitor actual performance to estimated return rates and make adjustments as necessary. Estimated return rates utilized for establishing estimated returns reserves have approximated actual returns experience. However, actual returns may differ significantly, either favorably or unfavorably, from these estimates if factors such as the historical data we used to calculate these estimates do not properly reflect future returns or as a result of changes in economic conditions of the customer and/or the market. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected.

~~Inventory Reserves~~

~~Inventories consist of published books from Regnery~~^® ~~Publishing Inventory is recorded at the lower of cost or net realizable value as determined on a~~ ~~First-In First-Out~~ cost method. We review historical data and our own experiences to estimate the fair value of inventory on hand. Our analysis includes reviewing actual sales returns, allowance estimates, royalty reserves, overall economic conditions and demand for each title. We record a provision to expense the balance of unsold inventory that we believe to be unrecoverable. We regularly monitor actual performance to our estimates and make adjustments as necessary. Estimated inventory reserves may be adjusted, either favorably or unfavorably, if factors such as the historical data we used to calculate these estimates do not properly reflect future returns or as a result of changes in economic conditions of the customer and/or the market. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected.

~~Reserves for Royalty Advances~~

Royalties due to book authors are paid in advance and capitalized. Royalties are expensed as the related book revenues are earned or when we determine that future recovery of the royalty is not likely. We reviewed historical data associated with royalty advances, earnings and recoverability based on actual results of Regnery^® Publishing. Historically, the longer the unearned portion of an advance remains outstanding, the less likely it is that we will recover the advance through the sale of the book. We apply this historical experience to outstanding royalty advances to estimate the likelihood of recovery. A provision was established to expense the balance of any unearned advance which we believe is not recoverable. Our analysis also considers other discrete factors, such as death of an author, any decision to not pursue publication of a title, poor market demand or other relevant factors. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected.

~~Fair Value of Equity Awards~~

~~We account for stock-based compensation under the provisions of FASB ASC Topic 718,~~ ~~Compensation—Stock Compensation~~. We record equity awards with stock-based compensation measured at the fair value of the award as of the grant date. We determine the fair value of each award using the Black-Scholes valuation model that requires the input of highly subjective assumptions, including the expected stock price volatility and expected term of the award granted. The exercise price for each award is equal to or greater than the closing market price of Salem Media Group, Inc. common stock as of the date of the award. We use the straight-line attribution method to recognize share-based compensation costs over the expected service period of the award. Upon exercise, cancellation, forfeiture, or expiration of the award, deferred tax assets for awards with multiple vesting dates are eliminated for each vesting period on a ~~first-in, first-out~~ basis as if each vesting period was a separate award. We have not modified our estimates or assumptions used in our valuation model. We believe that our estimates and assumptions are reasonable and that our stock-based compensation is accurately reflected in our results of operations.

~~Partial Self-Insurance on Employee Health Plan~~

We provide health insurance benefits to eligible employees under a self-insured plan whereby we pay actual medical claims subject to certain stop loss limits. We record self-insurance liabilities based on actual claims filed and an estimate of those claims incurred but not reported. Our estimates are based on historical data and probabilities. Any projection of losses concerning our liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors such as future inflation rates, changes in severity, benefit level changes, medical costs and claim settlement patterns. Should the actual amount of claims increase or decrease beyond what was anticipated, we may adjust our future reserves. Our self-insurance liability was $0.5 million at March ~~31, 2021 and December 31, 2020. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates.~~

~~Leases~~

~~We account for leases under the provisions of FASB ASC Topic 842, “~~~~Leases”~~ (“ASC 842”). We consider all relevant facts and circumstances, to determine whether a contract is or contains a lease at inception. Our analysis includes whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This consideration involves judgment with respect to whether we have the right to obtain substantially all of the economic benefits from the use of the identified asset and whether we have the right to direct the use of the identified asset.

4, 2021.

~~Lease Term – Impact on~~ ~~Right-of-Use~~ ~~Assets and Lease Liabilities~~

~~The lease term can materially impact the value of the~~ ~~Right-of-Use~~ (“ROU”) assets and lease liabilities recorded on our balance sheet as required under ASC 842. We calculate the term for each lease agreement to include the noncancellable period specified in the agreement together with (1) the periods covered by options to extend the lease if we are reasonably certain to exercise that option, (2) periods covered by an option to terminate if we are reasonably certain not to exercise that option and (3) period covered by an option to extend (or not terminate) if controlled by the lessor. The assessment of whether we are reasonably certain to exercise an option to extend a lease requires significant judgement surrounding contract-based factors, asset-based factors, entity-based factors and market-based factors. These factors, detailed below, are evaluated based on the facts and circumstances at the time we enter a lease agreement.

~~Contract-Based Factors:~~

~~The existence of a bargain renewal option~~

~~The existence of contingent or variable payments~~

~~The nature and terms of renewal or termination options~~

~~The costs the lessee would incur to restore the asset before returning it to the lessor~~

~~Asset-Based Factors:~~

~~The existence of significant lessee-installed leasehold improvements that would still have economic value when the option becomes exercisable~~

~~The physical location of the asset~~

~~The costs that would be incurred to replace or find an alternative asset~~

~~Entity-Based Factors:~~

~~Historical practice~~

~~Management’s intent~~

~~Common industry practice~~

~~The financial impact on the entity of extending or terminating the lease~~

~~The importance of the leased asset to the entity’s operations~~

~~Market-Based Factors:~~

~~Market rental or purchase rates for comparable assets~~

~~Potential implications of local regulations and statutory requirements~~

~~We have not modified our estimate methodology since adopting ASC 842 on January 1, 2019.~~

~~Incremental Borrowing Rate~~

The ROU asset and related lease liabilities recorded under ASC 842 are calculated based on the present value of the lease payments using (1) the rate implicit in the lease or (2) the lessee’s Incremental Borrowing Rate (“IBR”). IBR is defined as the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

~~We estimate the IBR applicable to Salem using significant judgement and estimates, including the estimated value of the underlying leased asset, and the following available evidence:~~

~~The credit history of Salem Media Group~~

~~Our most recent credit facility consisted of 6.75% Senior Secured Notes and an ABL revolver. As of each month end, the weighted average interest rate on outstanding debt is calculated.~~

~~The credit worthiness of Salem Media Group~~

~~We review our credit ratings from third parties, including Standard & Poor’s and Moody’s.~~

~~Class of the underlying asset and the remaining term of the arrangement~~

We use a portfolio approach applying a single IBR to all leases with reasonably similar characteristics, including the remaining lease term, the underlying assets and the economic environment. We group leases according to the nature of leased asset and the lease term. We have six main categories of leases, (1) Buildings, (2) Equipment, (3) Land, (4) Other (Parking Facilities), (5) Towers and (6) Vehicles.

We consider vehicles to have a higher risk for collateral that is mitigated by the shorter term of the lease that would typically range from three to five years. We consider building and towers to have a higher risk based on (1) the longer lease term of up to thirty years and (2) a higher outstanding balance that is mitigated by the lower risk that the collateralized asset would lose significant value.

~~The debt incurred under the lease liability as compared to amounts that would be borrowed~~

~~We review the cost to finance comparable amounts under our ABL and based on the current market environment as derived from available economic data.~~

We referred to the Bloomberg Single B Rated Communications Yield Curve (unsecured) and considered adjustments for industry risk factors and the estimated value of the underlying leased asset to be collateral for the debt incurred.

From this analysis, we develop a matrix to estimate the IBR for each major category of leases. We review our IBR estimates on a quarterly basis and update as necessary. We have not modified our estimate methodology since adopting ASC 842 on January 1, 2019.

~~Impairment of ROU Assets~~

ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.

ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.

After a careful analysis of the guidance, we concluded that the appropriate unit of accounting for testing ROU assets for impairment is the broadcast market cluster level for radio station operations and the entity or division level for digital media entities, publishing entities and networks. Corporate ROU assets are tested on a consolidated level with consideration given to all cash flows of the company as corporate functions do not generate cash flows and are funded by revenue-producing activities at lower levels of the entity.

~~ASC 360 requires three steps to identify, recognize and measure the impairment of a long-lived asset (asset group) to be held and used:~~

~~Step 1 – Consider whether Indicators of Impairment are Present~~

~~As detailed in ASC~~ ~~360-10-35-21,~~ ~~the following are examples of impairment indicators:~~

~~A significant decrease in the market price of a long-lived asset (asset group)~~

~~A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition~~

~~A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator~~

~~An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group)~~

A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group)

A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent.

~~Other indicators should be considered if we believe that the carrying amount of an asset (asset group) may not be recoverable.~~

~~Step 2—Test for Recoverability~~

If indicators of impairment are present, we are required to perform a recoverability test comparing the sum of the estimated undiscounted cash flows attributable to the long-lived asset or asset group in question to the carrying amount of the long-lived asset or asset group.

ASC 360 does not specifically address how operating lease liabilities and future cash outflows for lease payments should be considered in the recoverability test. Under ASC 360, financial liabilities, or long-term debt, generally are excluded from an asset group while operating liabilities, such as accounts payable, generally are included. ASC 842 characterizes operating lease liabilities as operating liabilities. Because operating lease liabilities may be viewed as having attributes of finance liabilities as well as operating liabilities, it is generally acceptable for a lessee to either include or exclude operating lease liabilities from an asset group when testing whether the carrying amount of an asset group is recoverable provided the approach is applied consistently for all operating leases and when performing Steps 2 and 3 of the impairment model in ASC 360.

In cases where we have received lease incentives, including operating lease liabilities in an asset group may result in the long-lived asset or asset group having a zero or negative carrying amount because the incentives reduce our ROU assets. We elected to exclude operating lease liabilities from the carrying amount of the asset group such that we test ROU assets for operating leases in the same manner that we test ROU assets for financing leases.

~~Undiscounted Future Cash Flows~~

The undiscounted future cash flows in Step 2 are based on our own assumptions rather than a market participant. If an election is made to exclude operating lease liabilities from the asset or asset group, all future cash lease payments for the lease should also be excluded. The standard requires lessees to exclude certain variable lease payments from lease payments and, therefore, from the measurement of a lessee’s lease liabilities. Because these variable payments do not reduce the lease liability, we include the variable payments we expect to make in our estimate of the undiscounted cash flows in the recoverability test (Step 2) using a probability-weighted approach.

~~Step 3—Measurement of an Impairment Loss~~

If the undiscounted cash flows used in the recoverability test are less than the carrying amount of the long-lived asset (asset group), we are required to estimate the fair value of the long-lived asset or asset group and recognize an impairment loss when the carrying amount of the long-lived asset or asset group exceeds the estimated fair value. We elected to exclude operating lease liabilities from the estimated fair value, consistent with the recoverability test. Any impairment loss for an asset group must reduce only the carrying amounts of a long-lived asset or assets of the group, including the ROU assets. The loss must be allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets, except that the loss allocated to an individual long-lived asset of the group must not reduce the carrying amount of that asset below its fair value whenever the fair value is determinable without undue cost and effort. ASC 360 prohibits the subsequent reversal of an impairment loss for an asset held and used.

~~Fair Value Considerations~~

When determining the fair value of a ROU asset, we must estimate what market participants would pay to lease the asset or what a market participant would pay up front in one payment for the ROU asset, assuming no additional lease payments would be due. The ROU asset must be valued assuming its highest and best use, in its current form, even if that use differs from the current or intended use. If no market exists for an asset in its current form, but there is a market for a transformed asset, the costs to transform the asset are considered in the fair value estimate. Refer to Note 12, Fair Value Measurements.

~~There were no indications of impairment during the period ended March 31, 2021.~~

~~Income Tax Valuation Allowances (Deferred Taxes)~~

In preparing our condensed consolidated financial statements, we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax exposure and assessing temporary differences resulting from differing treatment of items for tax and financial statement purposes. Our judgments, assumptions and estimates relative to the current provision for income tax consider current tax laws, our interpretation of current tax laws and possible outcomes of audits conducted by tax authorities. Reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities are established if necessary. Although we believe our judgments, assumptions and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.

We calculate our current and deferred tax provisions based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the tax implications are known. Tax law and rate changes are reflected in the income tax provision in the period in which such changes are enacted.

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period in which we make such a determination. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance.

~~Income Taxes and Uncertain Tax Positions~~

We are subject to audit and review by various taxing jurisdictions. We may recognize liabilities on our financial statements for positions taken on uncertain tax positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others may be subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the balance sheet. It is inherently difficult and subjective to estimate such amounts, as this requires us to make estimates based on the various possible outcomes. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.

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. During the years ended December 31, 2019 and 2020, we recognized liabilities associated with uncertain tax positions around our subsidiary Salem Communications Holding Company’s Pennsylvania tax filing. The position taken on the tax returns follows Pennsylvania Notice ~~2016-01~~ which provides guidance for reversal of intercompany interest income and associated expense yielding a net loss for Pennsylvania. Beginning January 1, 2021, we no longer accrue intercompany interest, therefore, any liability associated with intercompany interest for future years is eliminated. The current liability recognized for the tax position is $0.3 million including interest and penalties. Our evaluation was performed for all tax years that remain subject to examination, which range from 2016 through 2020.

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 Coronavirus Aid, Relief, and Economic Security Act (the “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 ~~have~~ utilized certain benefits of the CARES Act and ~~we may be entitled to benefits under~~ the CAA, ~~based on our individual locations,~~ including:

relaxation of interest expense deduction limitation for income tax purposes; ~~and~~

we received Paycheck Protection ~~Plan~~Program (“PPP”) loans ~~available~~of $11.2 million in total through the SBA during the first quarter of 2021 based on the eligibility as determined on a
per-location ~~basis~~
basis; and

In July 2021, the SBA forgave all but $20,000 of ~~$11.2 million on a consolidated basis.~~

~~During 2020 we began to keep higher balances of cash and cash equivalents~~ ~~on-hand~~ ~~to meet operating needs due to~~these loans with the ~~adverse economic conditions of the~~ ~~COVID-19~~ ~~pandemic. Historically, we kept the balance of cash and cash equivalents~~ ~~on-hand~~ ~~low~~remaining PPP loan repaid 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 increased to $23.4 million at March 31, 2021 as compared to $1.3 million at March 31, 2020. Working capital increased $27.3 million to $8.8 million at March 31, 2021 compared to $(18.5) million at March 31, 2020 due to the $22.1 million increase in cash and cash equivalents and a $14.0 million decrease in the outstanding balance on the ABL Facility, that was partially offset by a decrease in trade accounts receivable of $3.9 million, a $2.6 million increase in net accounts payable and accrued expenses and an increase in contract liabilities of $3.0 million.

July 2021.

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. Advertising revenue continues to improve over the lowest levels that were experienced during April and May of 2020 but remains significantly below prior years. The exact timing and pace of the economic recovery has not been determinable due to varying degrees of restrictions and resurgences. A majority of our operating cash outflows consist of payments to employees, such as salaries and benefits, and vendor payments under facility and tower leases, talent agreements, inventory purchases and recurring services such as utilities and music license fees. Our operating cash flows are subject to factors such as fluctuations in preferred advertising media and changes in demand caused by shifts in population, station listenership, demographics, and audience tastes. In addition, our operating cash flows may be affected if our customers are unable to pay, delay payment of amounts owed to us, or if we experience reductions in revenue, or increases in costs and expenses.

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Net cash provided by operating activities during the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2021, ~~increased~~decreased by ~~$1.5~~$8.4 million to ~~$9.2~~$14.7 million compared to ~~$7.7~~$23.1 million during the same period of the prior year. ~~The increase in cash~~Cash provided by operating activities includes the impact of the following items:
The favorable impact of
non-cash
items on the prior year, including a $17.3 million impairment of indefinite-lived assets and a $31.0 million deferred income tax charge combined with;
Total net revenue increased by ~~$1.1~~$17.4 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,~~ decreased by ~~$3.4~~$22.6 million;
Trade accounts receivables, net of allowances, ~~decreased by $1.5 million~~did not change significantly compared to a decrease of ~~$4.0~~$6.6 million for the same period of the prior year;
Unbilled revenue ~~decreased $0.6~~increased $0.1 million;
Our Day’s Sales Outstanding, or the average number of days to collect cash from the date of sale, decreased to 5453 days at ~~March 31,~~September 30, 2021, from 59 days in the same period of the prior year;
Deferred income tax liabilities increased by $0.4 million compared to an increase of $31.0 million during the same period of the prior year; and
Net accounts payable and accrued expenses ~~decreased $0.9~~increased $1.4 million to ~~$22.4~~$24.7 million from ~~$23.3~~$21.9 million as of the prior ~~year; and~~
year.
~~Net inventories on hand decreased $0.1 million to $0.6 million at March 31, 2021 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 explore and pursue 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 2021 budget, we ~~plan~~expect to incur additional capital expenditures of approximately ~~$7.2~~$1.6 million during the remainder of 2021.
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~~provided by investing activities increased ~~$3.4~~$4.7 million to ~~$1.3~~$2.8 million during the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2021, from net cash used of ~~$2.1~~$1.9 million during the same period of the prior year. The increase in cash provided by investing activities was the result of:

Receipts from asset sales provided ~~$3.5~~$15.8 million of cash during the ~~three~~nine months ended ~~March 31, 2021; and~~
September 30, 2021, compared to $0.2 million during the same period of the prior year;

We paid $4.6 million in cash for acquisitions during the nine months ended September 30, 2021, compared to $0.4 million during the same period of the prior year;

Cash paid for capital expenditures increased ~~$0.3~~$3.4 million to ~~$1.9~~$6.9 million from ~~$1.6 million.~~
$3.5 million; and

We collected $2.4 million in cash from the surrender of split dollar life insurance policies in 2020.

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 any equity distributions and any payments ~~of amounts~~ due under deferred installments and contingency
earn-out
consideration associated with acquisition activity.

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During the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2021, the principal balances outstanding under the 2024 Notes, 2028 Notes and the ABL Facility ranged from ~~$221.3~~$216.3 million to ~~$235.4~~$218.2 million. ~~These~~Additionally, during the first quarter of 2021 we received $11.2 million in aggregate principal amount of PPP loans through the SBA available to our radio stations and networks by location under the CAA. The SBA forgave all but $20,000 of the PPP loans during July 2021 resulting in a
pre-tax
gain on the forgiveness of $11.2 million. The remaining $20,000 PPP loan was repaid in July 2021. The outstanding balances were ordinary and customary based on our operating and investing cash needs during this ~~time.~~
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 ~~provided by~~used in financing activities ~~increased $11.0~~decreased $1.8 million to ~~$6.6~~$0.1 million during the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2021, ~~from net cash used of $4.4~~compared to $1.9 million during the same period of the prior year. The ~~increase~~decrease in cash ~~provided from~~used in financing activities includes:
~~Proceeds of $11.2 million under PPP loans were received during the three-months ended March 31, 2021;~~
A $1.9 million increase in the book overdraft from the prior year;
We ~~used $3.4~~exchanged $112.8 million of ~~cash to repurchase $3.5 million in face value of the 6.75%~~our Senior Secured Notes ~~during the same period~~due 2024 (the “2024 Notes”) for $114.7 million (reflecting a call premium of ~~the prior year; and~~
~~Net repayments on our ABL Facility were $5.0 million during the three months ended March 31, 2021 compared to net borrowings~~1.688%) of ~~$1.6 million during the same period of the prior year.~~
newly issued 7.125% Senior Secured Notes due 2028 (the “2028 Notes”);
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.
~~SBA PPP Loans~~
We received $11.2 million in aggregate principal amount of PPP loans through the SBA ~~that were available to~~during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. During July 2021, the SBA forgave all but $20,000 of the PPP loans with the remaining PPP loan repaid in July 2021;
We used $4.7 million in cash to repurchase $4.7 million in face value of the 2024 Notes compared to $3.4 million in cash to repurchase $3.5 million in face value of 2024 Notes during the same period of the prior year; and
Net repayments on our ABL Facility were $5.0 million during the nine-months ended September 30, 2021, compared to net borrowings of $4.2 million during the same period of the prior year.
Long-term debt consists of the following:
   December 31, 2020
September 30, 2021



(Dollars in thousands)

7.125% Senior Secured Notes
   $ —
$
114,731

Less unamortized discount and debt issuance costs based on imputed interest rate of 7.64%
   —

(4,048
)




7.125% Senior Secured Notes net carrying value
   —

110,683





6.75% Senior Secured Notes
   216,341

98,815

Less unamortized debt issuance costs based on imputed interest rate of 7.10%
   (2,577 )

(939
)




6.75% Senior Secured Notes net carrying value
   213,764

97,876





Asset-Based Revolving Credit Facility principal outstanding (1)
   5,000

—

SBA Paycheck Protection Program loans
   —

—





Long-term debt less unamortized discount and debt issuance costs
   $ 218,764
$
208,559





Less current portion
   (5,000 )

—





Long-term debt less unamortized discount and debt issuance costs, net of current portion
   $ 213,764
$
208,559





(1)
As of September 30, 2021, the Asset-Based Revolving Credit Facility (“ABL”), had a borrowing base of $24.6 million, no outstanding borrowings and $0.3 million of outstanding letters of credit, resulting in a $24.3 million borrowing base availability.
Our weighted average interest rate was 6.65% and 6.94% at December 31, 2020 and September 30, 2021, respectively.
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In addition to the outstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of September 30, 2021:
$114.7 million aggregate principal amount of 2028 Notes with semi-annual interest payments at an annual rate of 7.125%;
$98.8 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.
7.125% Senior Secured Notes
On September 10, 2021, we exchanged $112.8 million of the 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 ~~CAA. The PPP loans~~Securities Act or the securities laws of any other jurisdiction and ~~accrued interest are forgivable provided that~~may not be offered or sold in the ~~proceeds are used for eligible purposes, including payroll, benefits, rent and utilities within~~United States or to U.S. persons absent registration or an applicable exemption from, or in a transaction not subject to, the ~~covered period of up to 24 weeks from funding~~registration requirements of the ~~loans.~~Securities Act or any state securities laws. The ~~amount of PPP loan~~transaction was assessed on a lender-specific level and accrued interest that is forgiven can be reduced if we reduce payroll or eliminate positions during the covered period. We are using, and intend to continue to use, the PPP loan proceeds according to the terms and will file timely applicationswas accounted for ~~forgiveness. The PPP loans accrue interest at 1% annually and mature in five years for any amount that is not forgiven. The PPP loans are reflected in long-term~~as a debt ~~in the accompanying condensed consolidated financial statements~~modification in accordance with FASB ASC Topic ~~470,~~ ~~Debt~~~~, until the loans are repaid or legally discharged.~~
~~6.75% Senior Secured Notes~~
~~On May 19, 2017, we issued the Notes in a private placement.~~ 470.
The 2028 Notes are guaranteed on a senior secured ~~basis by our existing subsidiaries (the “Subsidiary Guarantors”). The~~basis. We may redeem the 7.125% 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 initially accrued on the Notes from May 19, 2017 and is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year, commencing December 1, 2017.
The 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) (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 Notes were redeemable,~~ in whole or in part, at any time ~~on or before~~prior to June 1, ~~2020~~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, to, but not including, the redemption date. At any time on or after June 1, ~~2020,~~2024, we may redeem some or all of the 2028 Notes ~~are redeemable~~ 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. As of September 30, 2021, accrued interest on the 2028 Notes was $0.5 million.
The indenture to the 2028 Notes (“2028 Indenture”) 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 September 30, 2021, we were, and we remain, in compliance with all of the covenants under the 7.125% Indenture.
We incurred debt issuance costs of $4.2 million, of which $2.3 million of third-party debt modification costs are reflected in operating expenses for the current period, $0.8 million is 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.
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 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.
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6.75% Senior Secured 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 (the “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) (the “2024 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 indenture relating to the 2024 Notes (the ~~“Indenture”~~“2024 Indenture”) 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.

The Indenture provides for the following events of default (each, an “Event of Default”): (i) default in payment of principal or premium on the Notes at maturity, upon repurchase, acceleration, optional redemption or otherwise; (ii) default for At September 30, days in payment of interest on the Notes; (iii) the failure by us or certain restricted subsidiaries to comply with other agreements in the Indenture or the Notes, in certain cases subject to notice and lapse of time; (iv) the failure of any guarantee by certain significant Subsidiary Guarantors to be in full force and effect and enforceable in accordance with its terms, subject to notice and lapse of time; (v) certain accelerations (including failure to pay within any grace period) of other indebtedness of ours or any restricted subsidiary if the amount accelerated (or so unpaid) is at least $15 million; (vi) certain judgments for the payment of money in excess of $15 million; (vii) certain events of bankruptcy or insolvency with respect to us or any significant subsidiary; and (viii) certain defaults with respect to any collateral having a fair market value in excess of $15 million. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the outstanding Notes may declare the principal of the Notes and any accrued interest on the Notes to be due and payable immediately, subject to remedy or cure in certain cases. Certain events of bankruptcy or insolvency are Events of Default which will result in the Notes being due and payable immediately upon the occurrence of such Events of Default. At March 31, 2021, we were, and we remain, in compliance with all of the covenants under the Indenture.

Based on the balance of the Notes currently outstanding, we are required to pay $14.6 million per year in interest on the Notes. As of March 31, 2021, accrued interest on the Notes was $4.9 million.

~~We incurred debt issuance costs of $6.3 million that were recorded as a reduction of the debt proceeds that are being amortized to~~ ~~non-cash~~ interest expense over the life of the Notes using the effective interest method. During the three-month periods ended March 31, 2021 and 2020, $0.2 million 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. ~~Due to~~

As described above, on September 10, 2021, we exchanged $112.8 million of the ~~adverse economic conditions resulting from~~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 ~~COVID-19~~ ~~pandemic,~~$112.8 million of the 2024 Notes are being amortized as part of the effective yield on the 2028 Notes.

On September 24, 2021, we ~~are unlikely to repurchase~~repurchased $4.7 million of the 2024 Notes ~~at least through the remainder~~for $4.7 million in cash, recognizing a net loss of ~~2021, so that we conserve cash.~~
$56,000 after adjusting for bond issuance costs.

We incurred debt issuance costs of $4.2 million, of which $2.3 million of third-party debt modification costs are reflected in operating expenses for the current period, $0.8 million is 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 ~~follows:~~

Date
   Principal
Repurchased    Cash
Paid    % of
Face
Value Bond
Issue
Costs    Net
Gain
   (Dollars in thousands)
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








   $ 38,659    $ 35,586    $ 706    $ 2,367








part of the effective yield on the 2028 Notes.

Asset-Based Revolving Credit Facility

~~On October 20, 2020, we entered into a fourth amendment to our ABL Facility that provides a~~ ~~one-time~~ waiver with respect to the current covenant testing period allowing the covenant trigger event date be the first day after the availability on the ABL Facility had equaled or exceeded (1) 15% of the maximum revolver amount and (2) $4.5 million and a waiver permitting our July 2020 financial statements to be issued on or before September 30, 2020 due to delays that were caused by a ransomware attack.

On April 7, 2020, we entered into a third amendment to ABL Facility that increased the advance rate on eligible accounts receivable from 85% to 90% and extended the maturity date from May 19, 2022 to March 1, 2024. The April 7, 2020 amendment also allows for an alternative benchmark rate that may include SOFR due to LIBOR being scheduled to be discontinued at the end of calendar year 2021.

Availability under the ABL Facility is subject to a borrowing base consisting of (a) 90% of the eligible accounts receivable plus (b) a calculated amount based on the value of certain real property. As of ~~March 31,~~September 30, 2021, the amount available under the ABL Facility was ~~$26.1~~$25.0 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 (the “ABL Facility Priority Collateral”) 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,~~September 30, 2021, we were, and we remain, in compliance with all of the covenants under Credit Agreement.

Table of Contents
On September 10, 2021, we entered into the fifth amendment to the ABL Facility to designate the incurrence of the 2028 Notes, and any further refinancing of 2024 Notes through the issuance of additional 2028 Notes, as permitted indebtedness thereunder and to effect related arrangements for the interests in the ABL Priority Collateral and the Notes Priority Collateral. We incurred debt issue costs of $0.9 million that were recorded as an asset and are being amortized to
non-cash
interest expense over the term of the ABL Facility using the effective interest method. During the ~~three-month~~three and nine-month periods ended ~~March 31,~~September 30, 2021, $27,000 and ~~2020, $29,000 and $41,000,~~$0.1 million, respectively, of debt issuance costs associated with the ~~Notes~~ABL was amortized to interest expense.
During the three and nine-month periods ended September 30, 2020, $30,000 and $0.1 million, respectively, of debt issue costs associated with the ABL was amortized to interest expense.
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.

~~Summary of long-term debt obligations~~

~~Long-term debt consisted of the following:~~

   As of
December 31, 2020    As of
March 31, 2021
   (Dollars in thousands)
6.75% Senior Secured Notes
   $ 216,341    $ 216,341
Less unamortized debt issuance costs based on imputed interest rate of 7.08%
   (2,577 )    (2,393 )




6.75% Senior Secured Notes net carrying value
   213,764    213,948
Asset-Based Revolving Credit Facility principal outstanding
   5,000    —
SBA Paycheck Protection Plan loans
   —      11,195




Long-term debt less unamortized debt issuance costs
   $ 218,764    $ 225,143




Less current portion
   (5,000 )    —




Long-term debt less unamortized debt issuance costs, net of current portion
   $ 213,764    $ 225,143




~~In addition to the outstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of March 31, 2021:~~
~~$216.3 million aggregate principal amount of 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.~~
Maturities of Long-Term Debt

Principal repayment requirements under all long-term debt agreements outstanding at ~~March 31,~~September 30, 2021 for each of the next five years and thereafter are as follows:

   Amount
For the Year Ended March 31,    (Dollars in thousands)
2022
   $ —
2023
   —
2024
   216,341
2025
   —
2026
   11,195
Thereafter
   —


   $ 227,536

Amount

For the Year Ended September 30,

(Dollars in
thousands)

2022
   $ —
2023
   —
2024
   98,815
2025
   —
2026
   —
Thereafter
   114,731


   $ 213,546


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,~~September 30, 2021, 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.~~
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for smaller reporting companies
~~ITEM 4. CONTROLS~~
~~AND PROCEDURES.~~
61

Table of Contents
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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule
13a-15(d)
and
15d-15(d)
of the Exchange Act that occurred during the quarter ended ~~March 31,~~September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION
~~ITEM 1. LEGAL~~
~~PROCEEDINGS.~~

ITEM 1. LEGAL PROCEEDINGS.

We and our subsidiaries, incident to our business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance. We maintain insurance that may provide coverage for such matters. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. We believe, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect upon our annual consolidated financial position, results of operations or cash flows.
~~ITEM 1A. RISK~~
~~FACTORS.~~

ITEM 1A. RISK FACTORS.

Not required for smaller reporting companies.
~~ITEM 2. UNREGISTERED~~
~~SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.
~~ITEM 3. DEFAULT~~
~~UPON SENIOR SECURITIES.~~

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

None.
~~ITEM 4. MINE~~
~~SAFETY DISCLOSURES.~~

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.
~~ITEM 5. OTHER~~
~~INFORMATION.~~

ITEM 5. OTHER INFORMATION.

None.
~~ITEM 6. EXHIBITS.~~

ITEM 6. EXHIBITS.

See “Exhibit Index” below.

Table of Contents
EXHIBIT INDEX
Exhibit
Number

Exhibit Description

Form

File No.

Date of First Filing

Exhibit

Number

Filed

Herewith
31.1    Certification of Edward G. Atsinger III 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
32.1    Certification of Edward G. Atsinger III Pursuant to 18 U.S.C. Section 1350.    —  -    -    —  -    —   —   -    X
32.2    Certification of Evan D. Masyr Pursuant to 18 U.S.C. Section 1350.    —  -    -    —  -    —   —   -    X


101	The following financial information from the Quarterly Report on Form 10Q for the three and nine months ended ~~March 31,~~September 30, 2021, formatted in ~~XBRL (Extensible~~iXBRL (Inline Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Balance Sheets (ii) Condensed Consolidated Statements of Operations (iii) the Condensed Consolidated Statements of Cash Flows (iv) the Notes to the Condensed Consolidated Financial Statements.		— -		-		— -			—	—	-	X

104	The cover page of this Quarterly Report on Form 10-Q, formatted in inline XBRL.	-		-		-		-	X

Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Salem Media Group, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SALEM MEDIA GROUP, INC.
~~May 6,~~November 4, 2021

By: ~~/s/~~
/s/ EDWARD G. ATSINGER III
Edward G. Atsinger III
Chief Executive Officer
(Principal Executive Officer)
~~May 6,~~November 4, 2021

By: ~~/s/~~
/s/ EVAN D. MASYR
Evan D. Masyr
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
59


	December 31, 2020 (Note 1)			March 31, 2021 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	6,325		$	23,394
Trade accounts receivable (net of allowances of $14,069 in 2020 and $13,225 in 2021)		24,469			22,974
Unbilled revenue		3,192			2,548
Other receivables (net of allowances of $124 in 2020 and $424 in 2021)		1,122			1,006
Inventories (net of reserves of $1,499 in 2020 and $1,439 in 2021)		495			588
Prepaid expenses		6,847			7,597
Assets held for sale		3,346			—

Total current assets		45,796			58,107

Notes receivable (net of allowance of $461 in 2020 and $831 in 2021)		721			696
Property and equipment (net of accumulated depreciation of $180,336 in 2020 and $183,136 in 2021)		79,122			78,598
Operating lease right-of-use assets		48,203			46,508
Financing lease right-of-use assets		152			138
Broadcast licenses		319,773			319,773
Goodwill		23,757			23,757
Amortizable intangible assets (net of accumulated amortization of $58,897 in 2020 and $59,478 in 2021)		4,017			3,563
Deferred financing costs		213			187
Other assets		2,817			2,627

Total assets	$	524,571		$	533,954

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,006		$	1,312
Accrued expenses		11,002			9,932
Accrued compensation and related expenses		10,242			11,153
Accrued interest		1,225			4,875
Contract liabilities		11,652			12,600
Deferred rent income		147			149
Income taxes payable		563			584
Current portion of operating lease liabilities		8,963			8,615
Current portion of financing lease liabilities		60			60
Current portion of long-term debt		5,000			—

Total current liabilities		50,860			49,280

Long-term debt, less current portion		213,764			225,143
Operating lease liabilities, less current portion		47,740			46,058
Financing (capital) lease liabilities, less current portion		107			94
Deferred income taxes		68,883			69,071
Contract liabilities, long-term		1,869			2,159
Deferred rent income, less current portion		3,864			3,841
Other long-term liabilities		2,205			2,236

Total liabilities		389,292			397,882

Commitments and contingencies (Note 16)
Stockholders’ Equity:
Class A common stock, $0.01 par value; authorized 80,000,000 shares; 23,447,317 and 23,633,099 issued and 21,129,667 and 21,315,449 outstanding at December 31, 2020 and March 31, 2021, respectively		227			229
Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding at December 31, 2020 and March 31, 2021, respectively		56			56
Additional paid-in capital		247,025			247,493
Accumulated deficit		(78,023	)		(77,700	)
Treasury stock, at cost (2,317,650 shares at December 31, 2020 and March 31, 2021)		(34,006	)		(34,006	)

Total stockholders’ equity		135,279			136,072

Total liabilities and stockholders’ equity	$	524,571		$	533,954


	Three Months Ended
	March 31,
	2020			2021
Net broadcast revenue	$	45,180		$	44,048
Net digital media revenue		9,104			9,619
Net publishing revenue		3,966			5,686

Total net revenue		58,250			59,353

Operating expenses:
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $431 and $443 for the three months ended March 31, 2020 and 2021, respectively, paid to related parties)		37,327			33,343
Digital media operating expenses, exclusive of depreciation and amortization shown below		8,326			8,673
Publishing operating expenses, exclusive of depreciation and amortization shown below		5,062			5,205
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $180 and $3 for the three months ended March 31, 2020 and 2021, respectively, paid to related parties)		4,210			4,288
Depreciation		2,713			2,589
Amortization		987			581
Change in the estimated fair value of contingent earn-out consideration		(5	)		—
Impairment of indefinite-lived long-term assets other than goodwill		17,254			—
Impairment of goodwill		307			—
Net (gain) loss on the disposition of assets		79			318

Total operating expenses		76,260			54,997

Operating income (loss)		(18,010	)		4,356
Other income (expense):
Interest income		—			1
Interest expense		(4,032	)		(3,926	)
Gain on early retirement of long-term debt		49			—
Net miscellaneous income and expenses		(52	)		22

Net income (loss) before income taxes		(22,045	)		453
Provision for income taxes		33,159			130

Net income (loss)	$	(55,204	)	$	323

Basic earnings (loss) per share data:
Basic earnings (loss) per share Class A and Class B common stock	$	(2.07	)	$	0.01
Diluted earnings (loss) per share data:
Diluted earnings (loss) per share Class A and Class B common stock	$	(2.07	)	$	0.01
Basic weighted average Class A and Class B shares outstanding		26,683,363			26,736,639

Diluted weighted average Class A and Class B shares outstanding		26,683,363			27,138,773


	Class A				Class B
	Common Stock				Common Stock				Additional
									Paid-In		Accumulated			Treasury
	Shares		Amount		Shares		Amount		Capital		Deficit			Stock			Total
Stockholders’ equity, December 31, 2019		23,447,317	$	227		5,553,696	$	56	$	246,680	$	(23,294	)	$	(34,006	)	$	189,663
Stock-based compensation		—		—		—		—		103		—			—			103
Cash distributions		—		—		—		—		—		(667	)		—			(667	)
Net loss		—		—		—		—		—		(55,204	)		—			(55,204	)

Stockholders’ equity, March 31, 2020		23,447,317	$	227		5,553,696	$	56	$	246,783	$	(79,165	)	$	(34,006	)	$	133,895

Distributions per share	$	0.025			$	0.025


	Three Months Ended March 31,
	2020			2021
OPERATING ACTIVITIES
Net income (loss)	$	(55,204	)	$	323
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Non-cash stock-based compensation		103			78
Depreciation and amortization		3,700			3,170
Amortization of deferred financing costs		227			213
Non-cash lease expense		2,252			2,161
Provision for bad debts		1,900			(295	)
Deferred income taxes		33,084			188
Change in the estimated fair value of contingent earn-out consideration		(5	)		—
Impairment of indefinite-lived long-term assets other than goodwill		17,254			—
Impairment of goodwill		307			—
Gain on early retirement of long-term debt		(49	)		—
Net (gain) loss on the disposition of assets		79			318
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue		2,419			2,549
Inventories		70			(93	)
Prepaid expenses and other current assets		(587	)		(750	)
Accounts payable and accrued expenses		4,478			2,490
Operating lease liabilities		(2,407	)		(2,497	)
Contract liabilities		133			1,122
Deferred rent income		(84	)		170
Other liabilities		6			29
Income taxes payable		57			21

Net cash provided by operating activities		7,733			9,197

INVESTING ACTIVITIES
Cash paid for capital expenditures net of tenant improvement allowances		(1,587	)		(1,859	)
Capital expenditures reimbursable under tenant improvement allowances and trade agreements		(84	)		—
Deposit on broadcast assets and radio station acquisitions		—			(100	)
Proceeds from sale of assets		2			3,501
Other		(428	)		(238	)

Net cash provided by (used in) investing activities		(2,097	)		1,304

FINANCING ACTIVITIES
Payments to repurchase 6.75% Senior Secured Notes		(3,392	)		—
Proceeds from borrowings under ABL Facility		33,319			16
Payments on ABL Facility		(31,745	)		(5,016	)
Proceeds from borrowings under PPP Loans		—			11,195
Payments of debt issuance costs		(1	)		(3	)
Proceeds from the exercise of stock options		—			392
Payments on financing lease liabilities		(18	)		(16	)
Payment of cash distribution on common stock		(667	)		—
Book overdraft		(1,885	)		—

Net cash provided by (used in) financing activities		(4,389	)		6,568

Net increase in cash and cash equivalents		1,247			17,069
Cash and cash equivalents at beginning of year		6			6,325

Cash and cash equivalents at end of period	$	1,253		$	23,394


	Short- Term			Long- Term
	(Dollars in thousands)
Balance, beginning of period January 1, 2021	$	11,652		$	1,869
Revenue recognized during the period that was included in the beginning balance of contract liabilities		(3,814	)		—
Additional amounts recognized during the period		7,087			524
Revenue recognized during the period that was recorded during the period		(2,559	)		—
Transfers		234			(234	)

Balance, end of period March 31, 2021	$	12,600			2,159

Amount refundable at beginning of period	$	11,607			1,869
Amount refundable at end of period	$	12,588			2,159


	Amount
For the Twelve Months Ended March 31,	(Dollars in thousands)
2022	$	12,600
2023		1,365
2024		472
2025		184
2026		55
Thereafter		83

	$	14,759


	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
Spot Advertising—National		3,660		—		—		3,660
Spot Advertising—Local		8,895		—		—		8,895
Infomercials		237		—		—		237
Network		4,871		—		—		4,871
Digital Advertising		5,781		4,413		62		10,256
Digital Streaming		853		844		—		1,697
Digital Downloads and eBooks		60		1,479		339		1,878
Subscriptions		286		2,773		158		3,217
Book Sales and e-commerce, net of estimated sales returns and allowances		89		31		3,208		3,328
Self-Publishing Fees		—		—		1,624		1,624
Print Advertising		—		—		68		68
Other Revenues		1,899		79		227		2,205

	$	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


	Three Months Ended March 31, 2020
	Broadcast		Digital Media		Publishing		Consolidated
	(dollars in thousands)
By Source of Revenue:
Block Programming—National	$	12,034	$	—	$	—	$	12,034
Block Programming—Local		6,808		—		—		6,808
Spot Advertising—National		3,957		—		—		3,957
Spot Advertising—Local		11,357		—		—		11,357
Infomercials		308		—		—		308
Network		4,388		—		—		4,388
Digital Advertising		3,326		4,713		99		8,138
Digital Streaming		608		915		—		1,523
Digital Downloads and eBooks		—		1,245		254		1,499
Subscriptions		282		2,135		177		2,594
Book Sales and e-commerce, net of estimated sales returns and allowances		76		28		1,723		1,827
Self-Publishing Fees		—		—		1,402		1,402
Print Advertising		1		—		102		103
Other Revenues		2,035		68		209		2,312

	$	45,180	$	9,104	$	3,966	$	58,250

Timing of Revenue Recognition
Point in Time	$	44,563	$	9,104	$	3,966	$	57,633
Rental Income (1)		617		—		—		617

	$	45,180	$	9,104	$	3,966	$	58,250


	Short-Term			Long-Term

	(Dollars in thousands)
Balance, beginning of period January 1, 2021	$	11,652		$	1,869
Revenue recognized during the period that was included in the beginning balance of contract liabilities		(7,770	)		0—
Additional amounts recognized during the period		19,742			883
Revenue recognized during the period that was recorded during the period		(12,734	)		0—
Transfers		671			(671	)

Balance, end of period September 30, 2021	$	11,561		$	2,081

Amount refundable at beginning of period	$	11,607		$	1,869
Amount refundable at end of period	$	11,549		$	2,081

	Amount
For the Twelve Months Ended September 30,	(Dollars in thousands)
2022	$	11,561
2023		979
2024		787
2025		238
2026		77
Thereafter		0

	$	13,642


	December 31, 2020			March 31, 2021
	(Dollars in thousands)
Book inventories	$	1,994		$	2,027
Reserve for obsolescence		(1,499	)		(1,439	)

Inventory, net—	$	495		$	588


	As of December 31, 2020			As of March 31, 2021
	(Dollars in thousands)
Land	$	30,254		$	30,254
Buildings		28,922			28,993
Office furnishings and equipment		36,875			37,289
Antennae, towers and transmitting equipment		78,057			78,152
Studio, production and mobile equipment		29,023			29,389
Computer software and website development costs		33,928			34,085
Record and tape libraries		17			17
Automobiles		1,514			1,514
Leasehold improvements		18,187			18,208
Construction-in-progress		2,681			3,833

	$	259,458		$	261,734
Less accumulated depreciation		(180,336	)		(183,136	)

	$	79,122		$	78,598


	December 31, 2020			September 30, 2021

	(Dollars in thousands)
Buildings	$	28,922		$	28,567
Office furnishings and equipment		36,875			36,592
Antennae, towers and transmitting equipment		78,057			77,543
Studio, production, and mobile equipment		29,023			29,333
Computer software and website development costs		33,928			38,272
Record and tape libraries		17			—
Automobiles		1,514			1,492
Leasehold improvements		18,187			18,703

	$	226,523		$	230,502
Less accumulated depreciation		(180,336	)		(185,127	)

		46,187			45,375
Land	$	30,254		$	27,040
Construction-in-progress		2,681			6,010

	$	79,122		$	78,425


	March 31, 2021
	(Dollars in thousands)
	Related Party		Other		Total
Operating Leases
Operating leases ROU assets	$	6,642	$	39,866	$	46,508
Operating lease liabilities (current)	$	938	$	7,677	$	8,615
Operating lease liabilities (non-current)		5,860		40,198		46,058

Total operating lease liabilities	$	6,798	$	47,875	$	54,673


Weighted Average Remaining Lease Term
~~Operating leases~~	~~8.2 years~~
Operating leases	7.8 years
Finance leases	2.9 years
Weighted Average Discount Rate	~~3.0 years~~
~~Weighted Average Discount Rate~~ Operating leases	7.98	%
~~Operating~~Finance leases	~~7.95~~ 5.74	%
~~Finance leases~~	~~5.39~~	%


	Three Months Ended March 31, 2021
	(Dollars in thousands)
Amortization of finance lease ROU Assets	$	16
Interest on finance lease liabilities		2

Finance lease expense		18
Operating lease expense		3,214
Variable lease expense		190
Short-term lease expense		157

Total lease expense	$	3,579

	Nine Months Ended September 30, 2021
	(Dollars in thousands)
Amortization of finance lease ROU Assets	$	48
Interest on finance lease liabilities		6

Finance lease expense		54
Operating lease expense		9,656
Variable lease expense		430
Short-term lease expense		444

Total lease expense	$	10,584


	Three Months Ended March 31, 2021
	(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,569
Operating cash flows from finance leases		1
Financing cash flows from finance leases		16
Leased assets obtained in exchange for new operating lease liabilities	$	553
Leased assets obtained in exchange for new finance lease liabilities		2


Future minimum lease	Operating Leases
	Related Party			Other			Total			Finance Leases			Total
	(Dollars in thousands)
2021 (Apr-Dec)	$	1,466		$	11,042		$	12,508		$	65		$	12,573
2022		1,620			10,744			12,364			57			12,421
2023		1,018			9,209			10,227			31			10,258
2024		1,014			7,030			8,044			12			8,056
2025		1,043			5,928			6,971			4			6,975
Thereafter		3,797			24,763			28,560			—			28,560

Undiscounted Cash Flows	$	9,958		$	68,716		$	78,674		$	169		$	78,843

Less: imputed interest		(3,160	)		(20,841	)		(24,001	)		(15	)		(24,016	)

Total	$	6,798		$	47,875		$	54,673		$	154		$	54,827

Reconciliation to lease liabilities:
Lease liabilities—current	$	938		$	7,677		$	8,615		$	60		$	8,675
Lease liabilities—long-term		5,860			40,198			46,058			94			46,152

Total Lease Liabilities	$	6,798		$	47,875		$	54,673		$	154		$	54,827


Broadcast Licenses	Twelve Months Ended December 31, 2020			Three Months Ended March 31, 2021
	(Dollars in thousands)
Balance before cumulative loss on impairment, beginning of period	$	441,143		$	440,052
Accumulated loss on impairment, beginning of period		(103,285	)		(120,279	)

Balance after cumulative loss on impairment, beginning of period		337,858			319,773

Dispositions of radio stations		(1,091	)		—
Impairments based on the estimated fair value of broadcast licenses		(16,994	)		—

Balance, end of period after cumulative loss on impairment	$	319,773		$	319,773

Balance, end of period before cumulative loss on impairment	$	440,052		$	440,052
Accumulated loss on impairment, end of period		(120,279	)		(120,279	)

Balance, end of period after cumulative loss on impairment	$	319,773		$	319,773


Goodwill	Twelve Months Ended December 31, 2020			Three Months Ended March 31, 2021
	(Dollars in thousands)
Balance, beginning of period before cumulative loss on impairment,	$	28,454		$	28,520
Accumulated loss on impairment		(4,456	)		(4,763	)

Balance, beginning of period after cumulative loss on impairment		23,998			23,757

Acquisitions of radio stations		66			—
Impairments based on the estimated fair value goodwill		(307	)		—

Ending period balance	$	23,757		$	23,757

Balance, end of period before cumulative loss on impairment		28,520			28,520
Accumulated loss on impairment		(4,763	)		(4,763	)

Ending period balance	$	23,757		$	23,757

Goodwill	Twelve Months Ended December 31, 2020			Nine Months Ended September 30, 2021

	(Dollars in thousands)
Balance, beginning of period before cumulative loss on impairment,	$	28,454		$	28,520
Accumulated loss on impairment		(4,456	)		(4,763	)

Balance, beginning of period after cumulative loss on impairment		23,998			23,757

Acquisitions of radio stations		66			4
Acquisitions of digital media entities		—			225
Impairments based on the estimated fair value goodwill		(307	)		—

Ending period balance	$	23,757		$	23,986

Balance, end of period before cumulative loss on impairment		28,520			28,749
Accumulated loss on impairment		(4,763	)		(4,763	)

Ending period balance	$	23,757		$	23,986


	As of March 31, 2021
			Accumulated
	Cost		Amortization			Net
	(Dollars in thousands)
Customer lists and contracts	$	24,139	$	(22,690	)	$	1,449
Domain and brand names		20,350		(19,367	)		983
Favorable and assigned leases		2,188		(1,947	)		241
Subscriber base and lists		9,886		(9,087	)		799
Author relationships		2,771		(2,767	)		4
Non-compete agreements		2,041		(1,991	)		50
Other amortizable intangible assets		1,666		(1,629	)		37

	$	63,041	$	(59,478	)	$	3,563

	December 31, 2020

			Accumulated
	Cost		Amortization			Net

	(Dollars in thousands)
Customer lists and contracts	$	24,012	$	(22,533	)	$	1,479
Domain and brand names		20,350		(19,127	)		1,223
Favorable and assigned leases		2,188		(1,943	)		245
Subscriber base and lists		9,886		(8,974	)		912
Author relationships		2,771		(2,765	)		6
Non-compete agreements		2,041		(1,954	)		87
Other amortizable intangible assets		1,666		(1,601	)		65

	$	62,914	$	(58,897	)	$	4,017


Year Ended December 31,	Amortization Expense
	(Dollars in thousands)
2021 (Apr – Dec)	$	1,297
2022		1,252
2023		717
2024		92
2025		8
Thereafter		197

Total	$	3,563

Year Ended December 31,	Amortization Expense
	(Dollars in thousands)
2021 (Oct – Dec)	$	341
2022		1,219
2023		796
2024		205
2025		21
Thereafter		203

Total	$	2,785


Date	Principal Repurchased		Cash Paid		% of Face Value			Bond Issue Costs		Net Gain
	(Dollars in thousands)
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

	$	38,659	$	35,586				$	706	$	2,367


	As of December 31, 2020			As of March 31, 2021
	(Dollars in thousands)
6.75% Senior Secured Notes	$	216,341		$	216,341
Less unamortized debt issuance costs based on imputed interest rate of 7.08%		(2,577	)		(2,393	)

6.75% Senior Secured Notes net carrying value		213,764			213,948
Asset-Based Revolving Credit Facility principal outstanding		5,000			—
SBA Paycheck Protection Plan loans		—			11,195

Long-term debt less unamortized debt issuance costs	$	218,764		$	225,143

Less current portion		(5,000	)		—

Long-term debt less unamortized debt issuance costs, net of current portion	$	213,764		$	225,143

	Amount
For the Year Ended September 30,	(Dollars in thousands)
2022	$	0
2023		0
2024		98,815
2025		0
2026		0
Thereafter		114,731

	$	213,546


	March 31, 2021
	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	$	11		—		—	$	11
Long-term debt less unamortized debt issuance costs		225,143		—		213,948		—