Salem Media Group Inc (SALM) 2003 Q3 法說會逐字稿

Good afternoon.

Welcome to the Salem Communications Corporation Third Quarter Earnings Conference Call.

At this time all participants have been placed on a listen-only mode and the floor will be open for questions following the presentation.

It is my pleasure to introduce your host for today's call, Amanda Strong Larson.

You may begin.

Thank you for joining us for Salem Communications Corporation conference call regarding third quarter earnings.

As a reminds ter if you get disconnected at any time you can dial (973) 582-2741 or listen at our Web site at www.salem.cc.

We will begin in just a moment from the president& CEO Edward Atsinger III and EVP and CFO and David Evans.

Then the operator will come back to the line and instruct you on how to ask questions.

This conference call contains forward-looking statements within the meaning of the safe harbor provisions of the private securities reform litigation act of 1995.

Statements made that address results or defendants at Salem Communications Corporation expects or anticipates that may or will occur in the future are forward-looking statements.

These statements regarding the future plans, events, financial results, prospects or performance of Salem communications are predictions that involve risks and uncertainties actual results may vary materially.

We refer you to Salem's public filing made with the SEC and the company's press release issued earlier today for importance risk factors you should evaluate in considering this information.

The forward-looking statements made on this call speak only as to the date here of and the company under takes no responsibility to update those statements to reflect future events or six.

This also contains GAAP non-financial measures within the regulation G, specifically station operating income and EBITDA.

Conforming with regulation G information required to company's disclosure of non-financial measures including reconciliation of such non-GAAP financial measures may be included in the conference call.

Prepared in accordance with generally-accepted accounting principles and is available to the investor relations portion of the Web site at www.salem.cc as part of the current report on Form 8-K and the press release issued today.

I will now turn the call over to Mr. Edward Atsinger.

Good afternoon everyone.

Thank you for joining the call.

I am pleased to report that Salem reported another strong quarter industry leading growth This performance reflects the strength of our business model success of our strategy as well as the growth of our station portfolio.

Specifically, for third quarter 2003, we generated net broadcasting revenue of $42.6 million, an increase of 6.8% from the same quarter last year.

Station operating income was $15.4 million, an increase of 10.1% from last year.

On a same station basis, net broadcasting revenue for the quarter grew 5.9% to $42.2 million same station operating income grew 10.1% to $15.5 million.

As you can see, we continue to deliver some of the best growth rates in the radio industry.

These results were driven by the continued growth of our start up and developing properties, the continued progress contemporary Christian format complemented by consistent reliable nature of the block program will business.

We have consistently out performed the radio industry for the last three years, going back to the fourth quater of 2000 we achieved 14% same station revenue growth while industry revenue was up 3%.

For 2001, while the industry revenue was down 7%, Salem achieved 10% growth on a same station basis.

For 2002, the story didn't change.

The radio industry's revenue was up 6%.

Salem achieved 13% same station revenue growth.

For 2003 year-to-date, radio industry revenues have increased by approximately 2%.

For the same period, Salem achieved same station revenue growth for 7%, out performance first of the industry of approximately 500 basis points.

These results make Salem the best growth story in radio today.

Salem is positioned to out perform the radio industry with approximately 50% of the station portfolio still in strong growth phase.

We have the youngest portfolio in the radio industry and therefore substantial organic prospects going forward.

A young portfolio combined with our stable block programming revenue means we are not dependent upon economic recovery to achieve growth.

As Salem will obviously benefit from economic recovery, but our growth is not reliant on it.

For a radio station business, we continued to focus on the growth of our start up and early development stage stations and the elimination of any start up losses.

Our 92 station portfolio consists of three newly acquired stations, 12 stations in a start up stage, 32 stations in an early development stage, 29 stations in a developed but with up side potential stage, and 16 stations which we consider to be fully mature.

We believe that 50% of our portfolio has significant organic up side potential and we continue to make real progress in moving our stations along the development curve.

In the third quarter 2003, we had 400,000 of startup losses compared to 1.1 million in the third quarter of 2000.

Please refer to the chart contained in the press release that we issued earlier today, which illustrates the progress we have made in the development of our broadcasting portfolio.

We provided a similar chart in the last two quarters.

I think if you can go back and review those, you'll find that they tell a rather dramatic tale of growth and moving stations from start up into the more developed categories.

Looking specifically at our music stations, we continue to see improved ratings, revenue and profit growth.

The music stations we acquired since 2000 generated revenue of $8.8 million for the quarter, an increase of 19.6% from last year.

These stations generated operating income of $3.4 million in the third quarter of 2003, compared to 1.6 million in the third quarter of 2002.

In the just released Arbitron summer ratings book, our largest CCM stations delivered the best ratings to date.

KLTY in Dallas achieved a mile stone by capturing the number one ranking in radio's most desired demographic, the female audience 25 to 54, we achieved a 6.4 audience share making us number one in that most desirable demographic.

WFSH FM in Atlanta achieved its highest ever ratings for an overall adults 12 plus, the overall of those 12 plus with a 2.8 share and reached largest weekly audience at 317,000 cumulative listeners.

Equally impress with Atlanta strong range to its target demographics of females 25 to 54.

So overall despite an uncertain economic environment and difficult local advertising market we continued to perform on a commitment to our shareholders to achieve industry-leading growth.

We expect to continue to offer the industry leading growth for several more quarters and several more years.

Now I will turn the call over to David Evans for a more detailed discussion of our Q3 results and guidance for the remainder of 2003.

Thank you, Ed.

Good afternoon, everyone.

I will briefly review these results on an actual and same station basis and, in addition, I will provide guidance for the fourth quarter of 2003.

As Ed mentioned net broadcasting revenue for the third quarter increased 6.8% to 42.6 million and our station operating income increased 10.1% to 15.4 million.

Station operating income margin increased to 36.2% in the third quarter, from 35.1% in the comparable quarter a year ago.

In terms of delivering operating leverage, the 6.8% revenue increase was achieved with a 5.1% increase in broadcasting operating expense.

In other words, revenue increased by 2.8 million and station operating income increased by 1.4 million year-over-year, a 50% incremental operating margin.

We are focused on continuing to achieve strong operating leverage performance to the continued growth of our launch and earlier development stage stations as well as careful management of our overall cost structure.

On a same station basis, net broadcasting revenue and station operating income increased 5.9% and 10.1% respectively.

As Ed mentioned, our music stations continued to grow at an impressive rate, generating a 19.6% revenue increase over last year.

Our remaining radio station portfolio contributed a 4% same station revenue increase.

Within the same station increases our remaining portfolio.

There was a 5.6% increase in our block programming revenue, 2.3% increase in our local spot revenue and 6.3% increase in our national spot revenue for the quarter as compared to last year.

Our network revenue decreased 7.2% compared to third quarter last year.

Eighty-two of our radio stations and 99% to our net broad casting revenue are included in our same station numbers.

Turning to our balance sheets, as of September 30, the company had net debt of 319.5 million, that was in compliance and is in compliance with all of our covenants.

We currently have a last 12-month financial statement debt to leverage ratio of 7.4.

Our bank leverage ratio, which is calculated a little differently was 6.7 as of September 30.

That is a compliance covenant of 7.25.

And our bond leverage ratio also calculated differently was 6.3 as of September 30, versus an incurrence covenant of 7.0.

In the third quarter, we amended and restated our $150 million credit facility.

The new facility consists of a $75 million term loan, maturing September 2009 and a 75 million-revolver facility, maturing March 2010.

The combined facility provides for a maximum total debt leverage ratio of 7.25, which remains at this level until the close of 2004.

We believe this new facility provides capital resources to support the company's continued growth.

Turning finally to our outlook for the fourth quarter of 2003, we are projecting net broadcast revenue of between 43.8 and 44.3 million.

Net income for the fourth quarter is projected to be between 8 cents and 10 cents per share.

And we are projecting station-operating income of between 16 and 16.5 million for the fourth quarter.

This fourth debt quarter guidance reflects the following factors: Continued growth from Salem's under developed radio stations, continued softness in the radio industry advertising market, startup losses associated with newly acquired radio stations in the Jacksonville and Boston markets.

Our fourth quarter 2003 revenue guidance is based upon an assumption of high single digit same-station revenue growth for the quarter.

On an actual basis, I can already report that we expect to achieve same station revenue growth of approximately 12% for the month of October.

This is by far the best monthly growth rate accomplished so far this year.

Due to a continued lack of visibility at this point, we remain cautious about November and December.

Nevertheless, we are hopeful that our 12% revenue growth in October may serve as an indicator of an up tick in the climates of the radio advertising market and we look forward to updating you on this as the quarter progresses.

That concludes our opening comments.

At this time we will open the floor for questions.

Thank you.

The floor is now open for questions.

If you do have a question, press the numbers 1 followed by 4 on your touchtone phone at this time.

If at any point your question has been answered you may remove yourself from the queue by pressing the pounds key.

Questions will be taken in the order that they are received.

And we do ask that while posing your question you pick up your hand set to ensure proper sounds quality.

Once again, if you have a question at this time please press the numbers "1" followed by "4" on your touchtone phone.

Please hold the line while we poll for questions.

Our first question today is coming from Mr. Paul Sweeney Credit Suisse First Boston.

Sir, pose your question

Thanks very much.

Two questions.

First, Ed, if you can talk about the network, I think on the last call you suggested by the fourth quarter you would expect some positive contribution from the network.

I wonder if you can update us there.

Because all the other segments seem to be doing very solidly.

Second, if you can update us on the block programming negotiations, kind of where we are with those as you look out to next year.

Thanks very much

With regard, Paul, to your first question.

Yes, in the fourth quarter we expect positive growth for the network.

We reported still some negative growth in the third quarter, but we see firming in the fourth quarter.

That will, we expect will return to positive growth in the fourth quarter.

So the additional affiliates that we added, you'll recall that we lost some that we reflected in the fourth quarter of last year as a result of the roll out of some competition.

We pretty much recovered from that.

The economy has firmed.

We see the national business, our national business firming up.

The fourth quarter should be back to positive growth.

With regard to the block programming, it seems to be progressing well.

It is a little early.

We don't finalize the final contracts until the end of the year.

So we are a couple of months out front.

I'm optimistic we will be able to achieve the historic rate increases that we have gotten in the past and that historically has been between 5 and 8% in good times.

It's typically between 6 and 8 when there's a downturn.

We may see a slight decrease in that, 5 to 5.5.

We expect to be near to the historical range for 2004.

We remain optimistic.

But we have to be more specific in the next call we will be able to give you the results of those rate increases.

As a follow-up on the network, any comment on the Fox enterprise getting into the radio business?

Will that pose a competitive threat to you and your network?

No, I think that's a very positive development for us.

Fox will produce product that we are interested in. you know, we have, we are up to 18 talk stations and one of the big challenges is getting good product.

Not just long form talk product which we produce ourselves, but they've got the resources of Fox news and have the ability to provide a lot of other features.

The Fox brand is a very strong brand.

On balance, we think it's a positive thing.

We are not particularly concerned about it from a competitive perspective.

First, while they've got some good talent, the best talent is already rolled out.

Secondly, Fox, unlike our direct competitors in the syndication business, namely premiere and Westwood 1, Fox doesn't really have the distribution that both of those entities have.

Premiere is a subsidiary of ClearChannel and has access to the ClearChannel distribution network and Westwood 1 obviously with via com.

We see fox as a strategic partner, someone that we would have an opportunity to do a lot of creative things with because we do provide distribution channel and we think that makes for some very good synergies and possibilities for us.

Thanks very much.

Next question is from Victor Miller from Bear Stearns.

Good afternoon, thanks for taking the question.

I'm quite struck by the 19.6% growth on the music side.

If you look at the ratings, it trends over year-to-year.

Hasn't been any smashing increases in our layers Chicago, San Francisco Dallas, Atlanta, but you've seen incredible revenue increase.

Could you talk a little bit about what is driving that?

Is it the ad volume?

The number of advertisers embracing this?

Is it pricing?

Then another question would be, if you took your SOI margin chart where you do the different types of development stations, could you give us a sense, what would the music stations look like on a stand alone basis in terms of what their revenue SOI margin would look like if you stripped those out on their own?

Do you have any sense of that Thanks.

Victor, let me take a shot at the first part and let David t deal with the second part.

I would point you to Dallas in terms of, you haven't -- you say you haven't seen any dramatic growth necessarily in audience.

But the fact that KLTY is now number one in Dallas for all formats for the female 25 to 54 demographic, which I think you will agree is the most desirable demographic, that is very significant.

We've always said, I've said this many times on the call, you will really ought to look at Dallas as the benchmark.

That's because they have been in the format longer than any of these other stations We rolled most of these formats out since 2001.

Some in 2001, some in 2002.

Dallas had been in the format.

We took it over in the fall of 2000.

We were able to take what they had already laid, the foundation that was already there and take it much further.

I do think that it represents the potential that is in this audience.

We have also, we think always been pretty -- by the way, the other markets, Chicago's cue in the summer book was higher, 100,000 roughly higher than the average performance.

There was progress there.

In L.A., if you look at L.A. in terms of an Orange County facility, because L.A. is a 6-kilowatt class A. It does reach beyond Orange County, but the primary measurement is in Orange County.

Again you'll see it moved up in terms of 12 plus and 25-54 performance, particularly in Orange County.

In fact, I have that share here somewhere.

Atlanta was up strongly.

So we continue to see solid audience growth on those stations and the revenue growth is following.

We put together very good sales team in most of these cities.

We continue to get better at it.

I think that's how I would respond to your first question.

With regard to the second one, I'll let David see if he can put something together that will fit the matrix that you suggested.

Let's try to summarize the music stations.

This quarter, they generated revenue of approximately $8.8 million station operating income of approximately $3.4 million.

That is a 39% station operating income margin.

Last year, those same stations generated about $7.3 million of revenue and about 1.6 million of station operating income.

So approximately a 21% margin.

So you can see an approximate 20% increase in revenue and margin improvement from 21% up to 36% as a group.

If you examine the stations within that in a little more detail, you know, the best performing station is obviously the station in Dallas.

That station's operating margin this quarter was 51.5%.

You've got markets like Atlanta and L.A. that are developing very nicely towards that, both in excess of 40%.

Less developed, you've got markets like Portland, Sacramento, Chicago and Cleveland, that although profitable are still in that 0 to 30% margin, early development stage.

So each of the stations, each of the music stations is at a slightly different stage of its development, but as a group developing, generating some very nice growth.

David, the rest of the balance would be negative?

Other markets, Nashville, Jacksonville, Honolulu, Colorado Springs, Milwaukee?

Some of those are smaller.

Milwaukee is still in that start up loss phase.

Jacksonville, as we very recently acquired it is in the start up loss phase.

Hawaii is start up loss phase.

Nashville is profitable in the 0% to 30% margin phase, they are obviously more recent acquisitions.

Thank you very much.

The next question is coming from Lee Westerfield of Jefferies.

Please pose your question.

Lee Westerfield you r line is live, do you have a question?

Yes, can you hear me?

Gentlemen, good afternoon.

David, actually following on Victor's point in practice as regards to margin potential for the development stage music stations, what time frame would you be considering for, if you were bringing those development stage properties in the 0% category up to full effect, if I can characterize it that way? 2004 or 2005?

And I have one follow-up question regarding cash flow over the next two years.

Well, with regard, Lee, with regard to your first part of your question, if you go back to the day we rolled these formats out, we typically think that it takes three to four years to take them to a reasonably mature margin.

In some cases it takes a little longer, in some a little less.

You would have to go back and simply chart when we took it over, when we rolled it out.

As I said, we rolled out in 2000, some in 2001 and some in 2002 and some in 2003.

In the case of Jacksonville, which is a recent acquisition, because it was already in the format and had an established audience share, we expect that to be quicker.

Our challenge there was to develop a sales staff because the station had been under a sales agreement with another company.

We had to develop our own sales staff.

We had the audience.

Consequently, we have to do a little bit of promotion.

So we will have start up losses that will turn profitable very quickly there.

That margin will get to maturity in a lot shorter than three to four years because it has the head start.

On a station-to-station basis, three to five years for a little more stubborn, take a little more work.

And the second part of your question?

Would you repeat it?

The question is this.

It's two parts.

Looking - if I choose to allocate all of your free cash flow to debt reduction, where is that relative to your covenant in the year, knowing in 2005 they step down?

That's the question, what do the covenants step down to in 2005?

In terms of the covenants, the current covenant of the new facility in terms of total leverage ratio is set at 7.25.

That changes at December 31-2004 to 6.75.

At December 31, 2005, to 6.25.

And at 731 December 31, 2006, to 2 opinion 25.

We see how the cash flow is continuing to grow.

We will be well inside the 6.75 by December 31, 2004.

Gentlemen, thank you so much.

Okay.

Once again, if you do have a question, please press the numbers 1 followed by 4 on your touchtone phone at this time.

The next question is coming from James Marsh of SG Cowen.

Sir, please pose your question.

Good afternoon, gentlemen.

Two quick questions here.

One, we took a look at your growth rate for revenue and cash flow for over the last few quarters and noticed that the operating leverage was very, very strong.

I think 1.9 times on average over the last four quarters.

David, is there anything in particular driving that operating leverage so high?

Secondly, for Ed, the growth rates you have been posting over the last two years, do you get any sense that anyone else is recognizing how good a business this is and might be maybe moving in on even some of your formats or some of the other successes that you have had?

David, you want to take the first part?

Yes.

If you think about operating leverage, let me just summarize for you the same station results for the first three quarters of the year.

Q1 revenue grew 7.9%.

Operating expenses grew 6.3.

For station operating improvement at 11.5.

Q2, revenue was up 7.8.

Operating expenses, up 1.7.

Station operating income were up 20.2%.

Q3, same-station revenue up 5.9.

Operating expenses up 3.6, for improvement in station operating income of 10.1%.

I think there are probably two clear messages that come through from that.

Number one is obviously the very strong revenue growth as we continue to develop the properties, 500 basis points above industry levels for the year-to-date.

And then combined with that is a consistent focus on, you know, containing our costs and managing our cost structure in an appropriate manner.

So I guess you would call that blocking and tackling

Thanks, David.

With regard to the second part of the question, James, I'm not particularly concerned about it.

The markets that we are currently operating in, we have a very good head start.

Typically a market will support one of these formats very well.

And I just don't think that, in the markets that we are in, as we look at the opportunities and the stations without a home, we don't see a lot of threats.

Obviously, you know, they can emerge.

I'm not particularly concerned about it in most of our markets.

I can't think of one in particular in which I'm concerned about it, but obviously it could happen.

We always felt that we have an advantage in this format because there is no case, there is no instance that we are in a market with the contemporary Christian music format where we do not also have a Christian teaching talk format and in most cases also a conservative talk format.

Both of those are complementary.

We developed the other two formats typically before the music format.

We are well established, well connected with the community.

There is an important community element involved with this format.

You need to flow with that community, be able to promote and have credibility.

We have been in these markets.

We labored; we have established relationships, we have a foundation, a vehicle to cross promote.

Anybody that wants to -- you know, the format doesn't really have those assets.

So we feel we have an inherent advantage.

The barriers to entry here are higher than a case of a straight head to head competitive situation.

Thanks a lot, Ed.

The next question is Jonathan Jacoby from Banc of America.

As you look out in strategy and assess your current portfolio, is there more interest in the conservative news format from the strategic standpoint.

Theirs is a lot of interest in it, Jonathan.

It is a format that has real legs, its doing well all across the country.

One of the interesting things for us in that format and one of the reasons why the answer to your question is yes, is because we find ourselves in a very unique position.

Salem is the third largest radio company in the United States with top 25-market penetration, as you probably know.

We are in 22 of the top 25 markets with 58 properties.

Only ClearChannel and Infinity have more.

Infinity a bit more.

They are in 23 of the top 25.

ClearChannel, in all 25.

But increasingly, what is important, what is becoming important as this format continues to show growth is to have a distribution vehicle.

And to have it across a top 25 platform is very important.

And we have a lot of flexibility in that regard.

We find that in most markets we have two and three deep in some -- well, certainly we are two deep in a number of formats where we have the option to look at flexibility in the future.

It certainly is something that we will continue to keep our eye on.

As new product comes along to make it even more viable, there was discussion earlier about Fox moving into this area.

As I said, I see that's as a positive thing for us.

We do have the distribution.

And I think that's a key to success in this area of the future.

We certainly will take a look at it as opportunity presents itself.

Can you tell us how those stations have done for you guy this year on a revenue sort of growth trajectory.

The news talk stations?

: Yes.

They are probably up in terms of revenue. 4, 5%.

Something like that.

As a group.

You know, some of them we don't break out separately because they are commingled in clusters.

But we are seeing good progress from those stations speaker

And the margins there?

Because some of them are a little bit more mature.

The margins for the news talk stations are probably average 45%.

That's a touch misleading in that the dominant news talk station we own is KR L.A. in Los Angeles.

Because that station is so dominant, it sways the average when you weight it.

If you were to take KRL.A. out, the average for the remaining news talk stations is probably, averages 30% t in terms of margins at this point.

Thank you.

The next question is coming from Drew Marks (ph) of Deutsche Bank.

Sir, pose your question.

Hello, everyone.

Its James Dix stepping in for drew.

If you could focus a little bit in on ad categories, where are you getting the strength in terms of ad categories?

If you have any breakdown in terms of what are coming in on the music station in particular which is driving the growth that would be helpful to see.

Secondly, what markets are you seeing the biggest near term break out potential in terms of revenue growth?

David, do you want to take a shot at the ad categories?

In terms of the ad categories, as you know, we are a little different from the other radio companies in terms of our top five categories, in terms of our local spot business.

Number one category this year, financial services.

Number two category, medical and health.

Number three, auto.

Number four, leisure activities/entertainment.

Number five, home improvements.

On a national spot, network bases, that top five is a little different.

Our number one is charitable organizations.

Number two, medical and health.

Number three, music and books.

Number four Internet/e-Commerce and number five, network services.

Some of those categories are categories you would not see from a general market operator.

And you know, it's a slightly different mix.

With regard to the second part of your question, I'm shooting from the hip a little bit here.

We think Atlanta is poised to show substantial up size growth and come close her to the Dallas model.

Everything is coming together there.

You may not be aware of the fact that the F.C.C. gave us a construction permit to add 700 feet to the tower in Atlanta.

That is significant.

That expands our coverage, increases our coverage in the greater Atlanta market and helps us to pick up additional audience.

And it makes you more intense within the area that you already cover.

That always helps home and in office listen when you have a good signal strength.

We have a good signal strength now The improvement will make this even better.

The improvement is underway as we speak.

I expect it to become a reality sometime in the late spring next year.

We think LA. has great up side potential.

The last Arbitron, they achieved overall twelve plus a one share.

As you drill down into the demographic, the target there, they are beginning to get I am impressive numbers.

We found with the talk format particularly, you have to achieve something north of a one share on a 12 plus basis consistently to start getting the word of mouth.

The stations tend to move forward much more quickly then once you have been at the level for a while.

LA. now achieved that.

We strengthened the program line-up and we are comfortable with the line-up.

We added Laura in the morning.

That was one area we needed to show up.

That was done in September we feel very good now about the current lineup.

We take it's as strong as anything in LA.

And that station is positioned to move up in LA.

Dallas is number one in the female 25 to 54, which we have been moving deliberately and very, very incrementally.

Each book is encouraging.

We expect to continue be very competitive there.

Whether we hold the number one position every quarter or not, I don't know.

But we expect to see continued growth in revenue.

Whether we call it a break through or not, I don't know.

We believe it will be substantial.

Those are the ones I would keep an eye on.

We have smaller markets that we feel good about.

The Colorado Springs market is one that we like.

We just added a talk, a conservative news talk station, a third station to a cluster.

We have 2 100,000-watt FMs.

One doing teaching talk one doing music and now we just added a AM station that does conservative talk.

That one will be profitable almost immediately.

It's taken off very, very quickly.

We are pleased about that.

I would zero in on those.

Others, we are making real substantial progress.

I don't know if I would be willing to call them break out, James.

But good progress.

David, one follow-up.

If you could give some estimate as to what the percentage was that those top five categories made of the total local spot and national spot?

Yes, the top five categories of local spot, 50% to 55% of total local spot revenue.

The national and network top five categories, about 55% of total national and network.

Okay, thank you.

The next question is coming from ((Ross Haberman of Haberman Funds)).

My questions have been answered.

Thank you.

Thank you.

The next question comes from Jim Goss of Barrington Research.

Given the growth and the growth potential you are starting to develop with the music format, are you thinking of experimenting more aggressively with other religious music format?

And given that music is more profitable format than the conservative news talk and the Christian teaching and talk but is supporting them.

And with the success you are achieving, are you seeing any pressures on the cost side of the equation with some of the talent you started to develop in those stations on the music side?

Well, we have always been experimenting a little bit with other forms of Christian music.

For some years we have syndicated or provided a turnkey 24 hour a day service out of Nashville on which we offer not only contemporary Christian music for smaller market stations or stations that want to supplement their program day, but we also offer what we call solid gospel, which is southern gospel and also a format called praise and workmanship in which the product is really developing and increasingly there's more and more that product and we are fining that one of the areas that we utilized, that product is with a blend, blending it into our contemporary Christian music.

That's an ongoing process, Jim.

That continues to yield results and is one of the reasons why we think we continue to make progress with our audience ratings.

You made the comment that the music is more profitable than the talk.

I don't think that's the case.

I think it's a relative thing.

I think the conservative talk under the right circumstances can be enormously profitable.

I say that only because -- I mean, the industry experience suggests that.

If you look at the top 20 markets and look at what stations are rated and which stations produce the highest revenue and you'll find there are talkers among all of them.

We think that we have the potential to move into that category, not only with our music stations but also with the conservative talk stations.

As we have time to focus and continue to develop them and make progress with them and we are doing that -- that is another thing that will happen as we develop our station portfolio.

Our focus has been deliberately more at tuned to the music stations, but we are now spending considerably more time on our talk product.

We hired a national talk programming director who is headquartered in Dallas, a very experienced guy who brought another dimension to the company.

We have other resources that we are mobilizing to take this to the next level.

I am optimistic that they will do women and will grow and maybe grow as fast as the music stations, once all of the elements are in place.

As far as the talent goes, your question on talent, yes, talent, the cost of talent is an issue.

One of the nice things about the syndicated talent is that we are able to spread them across a much bigger platform.

Not just our own platform, because each time we acquire stations our own talent is almost always accommodated.

It doesn't cost us anything more to put our own talent on additional stations.

Dennis Prager who does named a new West coast time, each time we add a Colorado Springs or a Boston or a Jacksonville, that product, that three hour talk show we control will go on those stations.

Doesn't cost us any more to put them on the stations.

So we are able, we think, to amortize or leverage that talent investment quite cost effectively.

Some of the markets where you have to go with local talent, as we continue to roll those out, yes, it's an issue.

But frankly we are sort of convinced that much of it, most of it can be done with syndicated talent.

When we look at markets where there's local talent and there are reasons to have local talent, you'll find that in many, many case us the syndicated talent still leads the day.

There's no reason why if you get a good syndicated product and build around it a lot of local information, news, travel, weather, that you can't do quite as well, the syndicated talent will be more cost effective across the platform than local talent.

But yes, it is certainly an issue that we continue to deal with.

And we have our eye on it.

We think we have it under control.

Okay.

One other thing, I think I saw a comment where you indicated you weren't interested in sort of taking blatant advantage of the rush Limbaugh situation.

But just as you are on the shortened of the stick earlier this year, do you think this is going to be an opportunity, especially since early indications are that his replacements are not being as accepted as his own programming might be?

Well, I think clearly with him absent for a month, that his audience will begin sampling.

That is an opportunity for everybody that is in competition with that day part.

Dennis Prager is in direct competition, and he's our product.

Dennis had the best numbers he has ever had in LA in the last book, the summer book.

He was achieving north of two shares in our target demographic and so you're going to get some benefit.

The point of our comment is, we are certainly don't expect to exploit that or to in some way try to take advantage of what is a rather unfortunate situation.

I think Rush will come back and come back strong.

I think his audience will continue to be there.

There certainly will be an opportunity to pick up other listeners, however, as people ample while they wait for him to come back.

Thanks a lot.

The next question is coming from Grant Jordan from Wachovia.

Can you give us the amount of availability on the new evolving credit facility at the end of the quarter and also the amount of cash interest paid in the quarter?

Thank you.

Yes, in terms of the bank debt as of September 30, we had $75 million drawn on the bank facility, which I term life B component and the revolver component was un drawn.

In terms of capacity available within covenants, I would estimate between $15 and $20 million was available within the covenants for, you know, acquisitions and other corporate purposes.

In terms of cash interest expense, the total interest charge for the quarter was $5.5 million.

I believe approximately 5.3 million of that was cash interest and approximately 200,000 was amortization of up front fees.

Great, thanks.

The next question is coming from David Bank of RBC Capital.

Please pose your question, sir.

Thanks, guys.

I have two questions.

The first one is, I was wondering if you can provide us for what is in the same station -- what was in the same station bucket in 4Q 02?

And then also what wasn't in the same station bucket?

Are we going to see those stations provide any revenues in the fourth quarter of '03?

And any earnings or sort of loss impact?

That's the first question.

The second question is, given that October was up 12%, think October given the political comps shall is probably the most challenging month for radio in terms of the comps, sort of guiding down to -- guiding to high single digits which is really respectable, but the best case scenario dowm 300 basis points, worse case down 600 from the - are things getting worse or are you just getting conservative?

We have the numbers in October.

We are going with actual performance.

We continue to be optimistic about the remaining two months.

But visibility, David, continues to be a little murky.

We've got a holiday season that begins a little early.

Christmas, I think, thanks giving is on the 27th.

Christmas is on a Thursday.

We looked at the calendar.

While we are cautious, I think our best judgment is to, you know, there's a lot of work then to be done in November and December.

It didn't seem to -- I think the guidance that we've given represents a prudent, reasonable estimate.

I wouldn't expect, I wouldn't expect when we say high double-digit -- I mean high single digits, we mean high single digits.

But I just think that at this point until visibility is a little clearer, and given the murkiness over the last several quarters, that it's our best judgment.

Right.

I think we are obviously very encouraged by what we see as an up tick in October.

But I just think at this point, you know, given that we've got, you know, a chunk of business still to be booked, it eye a little too early to call, you know, exactly when notch and December will end up.

And you know, we'll update you on that as the quarter progresses.

But obviously, you know, the fact is very strong numbers in October and those strong numbers are delivered on the back of some pretty tough comps from a year ago.

October for us a year ago was up double-digits on a same station basis from the year before that.

So October is very encouraging and you know, we hope that that's a sign of things to come.

But that will play out over the next few weeks.

We did mention, David, the question was asked about network, is the network firming up?

My answer is, we expect it to return to positive growth.

That certainly has happened.

That was reflected, at least it has been reflected in the operator numbers.

You know, we'll have to see what happens in November and December.

But as David said, we will provide additional updates as the additional months come in on the quarter.

In terms of your second question about same station comparisons, let me just lay out for you what is not in the same station right now.

The first is Nashville.

We acquired two stations in Nashville last year.

We began laving them August 1 last year.

They will move into same station for the first time in Q4 this year.

The same applies to the station we acquired in Honolulu that is doing country music.

That was acquired August last year and also will come into same station for the first time in Q4 and then Jacksonville.

We acquired Jacksonville this quarter.

So it will be Q4 next year.

So 2004 when that comes into same station.

Okay.

Do you know the actual base for Q 02, the revenue we are comparing to in terms of same station?

No, I don't.

Sorry.

Okay.

Thank you.

We may have referred to it in the call, obviously last March.

We'll go back and see if we've got that data.

Okay?

Okay.

Thanks a lot, guys.

The next question is coming from Bobby Millnick of Terrier Partners.

Please pose your question.

Can you give a grieve discussion of what the MNA environment is these days?

A smart buyer in conjunction with your overall strategy and what I would call and opportunistic seller when you had ancillary assets -- and you met good prices.

I'm wondering what you view today's market to be like, as to whether it's a buyers' market, sellers' market, whether it's liquid or continues to just sort of be a relationship/opportunistic market.

Thank you.

Well, we probably, Bobby, we can speculate on it about the same as you would.

I know you follow the industry.

There are certain marriages that look like they make more sense than others.

There are certain companies that expressed their desire to continue to grow.

I don't think that the consolidation phase is over.

During the economic downturn, I suppose one might have expected to see an acceleration of that kind of actively and we haven't.

I think maybe the economy had provided some disincentives to do it.

I think as the economy improves; perhaps that environment will improve as well.

You know, there are certain companies that are out there where you could sit down and you can put them together.

And on paper it looks like it would be a pretty good merger.

What about -- Sorry to preempt, but rather than going company, company, big picture on an asset and station basis, sort of where is Salem seeing opportunity now?

Or are you more inclined at this stage with your balance sheet to sort of shy away unless, you know, as you characterize last conference call, that Colorado Springs you said is a kind of once in lifetime deal?

Are you continuing to progress with your overall strategy or are you in fact waiting back for the once in lifetime deals?

Well, I think we continue as we said repeatedly, our interest lies in building clusters in all the markets that we are in.

So on those rare occasions where we are offered a ready-made cluster, which was the case in Jacks Ville.

They had a contemporary Christian station that was well established with the audience.

They had a conservative talk station and a black gospel station.

That was ready made cluster for us.

That's why we moved.

As you mentioned Colorado Springs was Slam dung.

We purchased that for a million and a half and that will be accretive in short order.

In fact, it probably will be profitable the first month, and it will be in an accretive multiple within two to three quarters.

So the focus continues to be on, the focus continues to be as it has been.

We have an eye on our balance sheet.

At the same time we have some dry powder.

Where circumstances dictate it, we will take a look at further acquisitions.

They will be in the markets we are already in, where we need to build out a cluster, round out a cluster.

If an opportunity presents itself that is attractive and it's in a market we are already in and we have two stations and we would love to have a third one and it's priced right and we can sit down and do the analysis and see where we can make it an accretive acquisition, we'll move on it.

We certainly have an eye on the balance sheet.

We feel good about growing revenue growing EBITDA and reducing debt, and we want tocontinue to do that as quickly as we can.

I think the operative word is balance.

If I look back a year ago, our focus was almost entirely on reducing debt.

We've got debt down from a 9-leverage ratio to an 8-leverage ratio, what is currently a 7.4 leverage ratio.

That was, you know, a thought-through decision and we intend to continue that.

But, you know, having taken that leverage ratio down at this point, just over one and a half turns and that will continue.

You know, we intend to balance that with appropriate acquisitions.

And when we say appropriate, you know, there are some criteria that we work through and a station needs to satisfy those criteria for it to be of interest to us.

It needs to be in a big market.

It needs to be in a situation where we can reformat it or operate it in a strategic format.

It needs to assist in the building of a cluster.

It must have a good signal day and night.

And, you know, the challenge, you know, if there's a challenge, that's one of the big ones.

There is just very little property around in the top 25 markets that one would call a good signal.

So when you identify one, you know, it's important to try to take advantage of that.

You know, if the return on investment works and that's, you know, I say that's the kind of final key criteria that pulled these acquisition criteria together.

It must be a good investment.

Appreciate it.

Thank you.

Okay?

The final question of the evening is coming from Victor Miller of Bear Stearns.

Pose your question.

Just a follow-up.

When you gave the music numbers, it looked like the revenues increased by a million and a half, but station operating income actually grew more than that, implying about a 5% expense decrease, decrease at the music side.

And when you do the math on the other side, it looks like the AM stations maybe had an increase of about 5% on the expense side.

Could you characterize what would allow you to actually have the expense decreases on that kind of growing business?

Is it promotion related that you don't have to do as much of that?

And same on the AM side, I believe, which is a stable business

I think you are comparing Q2 to Q3.

If that's the case, we will typically spend money on marketing, advertising and promotion for the spring and fall books.

So spring is March 22 through June 22.

So that spending is predominantly in Q2.

Fall book, September 22 to December 22.

So predominantly Q4.

You are always going to see higher marketing and promotion in those two quarters.

So I think that explains the Q2 to Q3 decrease on the music stations.

Actually, David, You gave me those numbers earlier, third quarter this year versus third quarter last year revenues going from 73 to 88, SOI going from 16 to 34 margin going from 21 to 29.

That means expenses were down $300,000 or about 5%.

I'm just wondering why -

That's because of changes we made in Chicago.

We cut back our structure there form last year appeared that's the predominant reason.

Okay

In terms of the rest of the portfolio, that 5% increase sounds a touch high.

There's something throwing it up a little higher.

But you know, it's, you know, the regular kind of cost increases that you would expect.

Plus to the extent that revenue may be growing, you know, incrementally, you'll have some incremental sales commissions and musical licensing fees to b drive that revenue growth.

Thanks a lot.

There are no further questions at this time.

I would like to turn the floor back over to the speakers for any closing comments.

Well, thank you, operator.

I thank all of you for joining us.

With that we will conclude the call and join us at the next earnings call in about three months.

Thank you for your participation.

That does conclude this afternoon's teleconference.

You may disconnect at this time and have a great night.

Thank you.