Salem Media Group Inc (SALM) 2003 Q4 法說會逐字稿

Good afternoon ladies and gentlemen, and welcome to the Salem Communications fourth-quarter and full-year 2003 earnings conference call. (OPERATOR INSTRUCTIONS).

It is now my pleasure to introduce our host, Mr. Evan Masyr.

Sir, the floor is yours.

Thank you.

Good afternoon, and thank you for joining us today for Salem Communications conference call regarding fourth-quarter 2003 earnings.

As a reminder, if you get disconnected at any time, you can dial in to 973-582-2700 or listen from our web site at www.Salem.cc.

We'll begin in just a moment with opening comments from our President and CEO, Edward Atsinger, III, and Executive Vice President and CFO, David Evans.

After their opening comments, our conference call operator will come back on the line to instruct you on how have to questions.

Please be advised that statements made on this call that relate to future plans, events, financial results, prospects or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those anticipated as a result of certain risks and uncertainties, including, but not limited to, market acceptance of recently-launched music formats; competition in the radio broadcast Internet and publishing industries and from new technologies; adverse economic conditions; and other risks and uncertainties detailed from time to time in Salem's reports on Forms 10-K, 10-Q, 8-K and other filings made with the Securities and Exchange Commission.

Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as to that date hereof.

Salem undertakes no obligation to update or revise any forward-looking statements to reflect new information, changed circumstances or unanticipated events.

This conference call also contains non-GAAP financial measures within the meaning of Regulation G, specifically station operating income and EBITDA.

In conforming with Regulation G, information required to accompany the disclosure of non-GAAP financial measures, including a reconciliation of such non-GAAP financial measures included in this conference call, to the most directly-comparable financial measure prepared in accordance with generally accepted accounting principles, is available on the investor relations portion of the company's web site at www.Salem.cc., as part of the current report on form 8-K and earnings release issued by Salem earlier today.

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

Edward Atsinger, III: Thank you, Evan, and good afternoon everyone.

I am pleased to announce that Salem reported another very strong quarter of revenue and station operating income growth, which substantially exceeded the performance of the radio industry, as a whole.

This reflects the continued accelerated growth of our startup and developing clusters, as well as the steady growth at our more-mature clusters undergirded, of course, by the stability of our block programming business.

For the fourth quarter of 2003, we generated net broadcasting revenue of $45.8 million, an increase of 12.8 percent from the same quarter last year.

Station operating income was $17.8 million, an increase of 24.9 percent from last year.

On a same-station basis, net broadcasting revenue for the quarter grew 11.7 percent to $45.3 million, and same-station operating income grew 26.1 percent to $17.9 million.

This growth in station operating income, on a same-station basis, equals the best in our history as a public company, despite a generally soft radio market.

These strong results mean that, for the third year in succession, Salem's same-station results will lead the radio industry.

As measured by the Radio Advertising Board, Salem outperformed the industry for 2003, as a whole, by approximately 700 basis points.

To be more specific, Salem has delivered same-station growth of 10 percent in 2001, 13 percent in 2002, and now 8 percent in 2003.

If we look at Q4, 2003's same-station revenue growth of almost 12 percent, we have outperformed RAB's estimates for the radio industry -- for (indiscernible) radio industry revenue for the quarter by approximately 1300 basis points.

So, Q4 was very good for us.

No one else in radio is currently achieving this kind of growth.

Looking ahead, this trend is continued in our first quarter guidance, which we released earlier today, and we are optimistic about the rest of 2004.

Let's take a look at why we expect to deliver strong growth in 2004.

First, let me emphasize again that we believe we have the youngest portfolio in the radio industry, with approximately 40 percent of our station portfolio still in a strong growth stage.

Therefore, we have substantial organic growth prospects, going forward.

Secondly, our stable block programmers revenues provide us with both steady growth and predictability.

We have already announced that we expect block programming revenues to grow 5 percent for 2004.

Because substantially all of this revenue increase drops to the bottom line, unlike advertising sales, where a sales commission, at the very least, has to be paid, we think, when you consider that fact, this compares quite favorably with analysts' forecasts of mid-single digits revenue growth for the radio industry.

Further, our block programming rate increases are negotiated annually in advance, so we can count on these revenues as a foundation for growth for the entire year.

This is something no other radio broadcaster can claim -- a business model that will benefit from economic recovery, clearly, but it is not dependent on it.

We continue our focus on the growth of our startup and early development stage stations and the elimination of any remaining startup losses.

Our 92-station portfolio consists of five stations in the startup stage, 33 stations in an early development stage, 36 stations in a developed with upside stage, and 18 stations which we consider to be fully mature.

We believe that approximately 40 percent of our portfolio has significant upside potential, and we continue to make real progress in moving our stations up the development curve.

In fourth quarter 2003, we had $200,000 of startup losses, which was almost entirely, by the way, related to our newly-acquired 4-station cluster in Jacksonville.

Compare that with 1.3 million of losses in the fourth quarter of 2002.

I would encourage you to refer to the chart contained in the press release we issued earlier today, which illustrates the progress we continue to make in the development of our broadcasting portfolio.

In fact, we have included that same chart in several -- at least the last three, I think -- earnings reports.

And you can take a look back over the last two or three quarters, and you can see the progress in startups to development with upside and so on -- a real increase in growth of the Salem stations.

Looking at our music stations, we continue to see improving ratings, increasing revenue, and substantial profit growth.

The music stations acquired since 2000 generated revenue of $10.1 million for the quarter, an increase of 30 percent over last year.

These stations generated operating income of $3.9 million in the fourth quarter of 2003, compared to $1.3 million in the fourth quarter of 2002, an increase of 197.1 percent.

In the just-released Arbitron fall ratings book, our two largest CCM stations delivered their best ratings to date.

KLTY in Dallas ranked number two in radio's most desired demographic, the 25 to 54-year-old female; had a 6.7 audience share, up from a 6.4 share in the summer book.

For all listeners, Arbitron's 12-plus designation, KLTY's ratings grew from a 3.2 share to a 4.8 share, making it the third most listened to station in all of Dallas.

This is a remarkable achievement in a city with two (ph) major radio signals.

WFSH-FM in Atlanta matched its highest ever audience rating for overall adults 12-plus, with a 2.8 audience share.

But more significantly, it it's target demographic -- again, females 25 to 54 -- the station's ratings grew from a 3.5 share to a 4.9 share.

We also saw encouraging ratings growth on Cleveland and newly-acquired Jacksonville.

Before turning the call over to our CFO, David Evans, let me finish by discussing some press analysis which we made yesterday and earlier today.

Yesterday, we announced the rollout of our news/talk format on WNTP-AM, formerly our WZZD-AM in Philadelphia.

And, on KSKY-AM, or K-Sky, in Dallas.

As we have launched the development of our news/talk formatted radio stations in other markets, such as Los Angeles, Denver, Minneapolis, Sacramento, it has become clear that there is a significant opportunity for expansion of our news/talk business.

Following careful analysis and evaluation of the Dallas and Philadelphia markets, we believe there is an attractive opportunity for news/talk in both of these cities.

Although we will see a modest temporary drop in cash flow due to the changing format, the upside opportunity represents a very compelling investment.

We are particularly excited about launching in Philadelphia and Dallas.

First, they're both top-10 markets.

Secondly, while these markets will have at least a couple of viable news/talk competitors, there is a gap that can be filled with Salem's specific brand of news/talk.

In addition, as another component of our overall news/talk strategy, we announced earlier today in Washington D.C. at the talk radio seminar -- the radio industry's foremost talk conference -- the launch of a new syndicated talk program designed to fill a particular syndication void in the East Coast morning drive daypart.

This represents the last significant programming gap that virtually every major syndicator has been working to satisfy.

We're confident that Bill Bennett's "Morning in America", which will launch April 2004, finally provides the ideal solution.

Bill Bennett is the former Secretary of Education under Ronald Reagan, the former Drug Tsar under George Bush Sr.

He is much in demand as a public sneaker, a frequent national TV talkshow commentator, and is the author of 17 best-selling books, including his latest book "Why We Fight."

He is a compelling, articulate entertaining speaker, with an intriguing sense of humor, characteristics that we believe are among the key ingredients necessary for a radio talk show host to be successful.

As an integral part of our news/talk strategy, we have recognized the need for the development of a dynamic East Coast morning drive syndicated program.

Bill Bennett's "Morning in America" will fill this key morning drive slot in our network syndicated offerings to non-Salem stations as well as for our owned and operated Salem news/talk stations.

It provides an ideal solution for the large number of radio stations in the Eastern and Central time zones that are dissatisfied with and frustrated by the lack of a quality syndicated longform talk programming option during this important daypart.

Bill Bennett's "Morning in America" will broadcast from Washington D.C.

That is the right location for a program that will feature political discourse, public policy discussion, and cultural critique.

With Bill Bennett's inside knowledge and connections within the Beltway, he has already lined up a Who's Who of political entertainments, sports, media, and public policy leaders as guests on the program.

We think the full significance of these announcements is the two-plus-two-equals-five impact that the vertical integration of Salem's owned and operated news/talk stations with Salem's network syndication business.

I'm extremely bullish about the growth prospects of our news/talk stations in Philadelphia and Dallas, as well as our news syndicated program -- Bill Bennett's "Morning in America".

I look forward to updating you on these new initiatives in the coming quarters and years.

These new news/talk initiatives, combined with our roster of startup and developing stations, or Christian music station growth, underpinned by our predictable block programming business, positions Salem very favorably to continue to perform for our shareholders.

Let me now turn the call over to David Evans, our CFO, for a more detailed discussion of our Q4, 2003 results, and to give guidance for Q1, 2004.

Thank you, Ed.

Our results for the fourth quarter of 2003 were issued in the press release earlier today and are available on the investor relations portion of our web site.

I will briefly review these results on an actual and same-station basis.

In addition, I will provide guidance for the first quarter of 2004.

Net broadcasting revenue for the fourth quarter increased 12.8 percent to 45.8 million, and our station operating income increased 24.9 percent to 17.8 million.

Station operating income margin increased to 38.8 percent in the fourth quarter from 35 percent in the comparable quarter a year ago.

In terms of operating leverage, this 12.8 percent revenue increase was achieved with a 6.2 percent increase in broadcasting operating expense.

In other words, revenue increased by 5.2 million, and station operating income increased by 3.6 million, year-over-year -- a 69 percent incremental operating margin.

On a same-station basis, net broadcasting revenue and station operating income increased 11.7 percent, and 26.1 percent, respectively.

As Ed stated, our music stations continue to grow at a very impressive rate, generating a 30 percent revenue increase over last year.

The rest of our radio station portfolio -- the talk stations -- contributed a 7 percent same-station revenue increase.

Within the same-station increases in our remaining portfolio, there was a 5 percent increase in our block programming revenue, a 1 percent increase in our local spot revenue, a 38 percent increase in our national spot revenue, and a 15 percent increase in our network revenue for the quarter, as compared to the fourth quarter of 2002. 85 of our 92 radio stations, and 99 percent of our net broadcasting revenue are included in our same-station numbers.

Regarding our balance sheet, at December 31st, 2003, we had net debt of 324.4 million, and were in compliance with all covenants.

We currently have a last twelve-month financial statement leverage ratio of 7.3.

Our bank leverage ratio was 6.8 as of December 31st, versus a compliance covenant of 7.25.

Our bond leverage ratio was 6.1 as of December 31st, versus an incurrence covenants of 7.0.

Turning to our outlook for 2004.

With the launch of Bill Bennett's "Morning in America" beginning in the second quarter of 2004, we expect to incur startup losses associated with the Bennett launch of approximately $300,000 over the first 12 months before turning profitable.

The introduction of the news/talk format in Dallas and in Philadelphia will result in a temporary decrease in cash flow compared to the previous format, totaling approximately 1.4 million in 2004.

We anticipate that it will take between 12 and 24 months for these station's cash flows to match, and then exceed, those generated previously.

We also expect, based upon our projections, that it will take a relatively-modest 0.7 rating and revenue share to match the current profitability of these stations.

We are confident that this will prove to be a valuable investment for the company, with very significant upside.

Finally, for the first quarter of 2004, Salem is projecting net broadcasting revenue of between 41.7 and 42.2 million.

Net income for the first quarter of 2004 is projected to be between 1 cent and 3 cents per share.

Salem is projecting station operating income of between 13.9 and 14.4 million for the first quarter of 2004.

This first-quarter 2004 guidance reflects the following factors.

Continued growth from the Salem's underdeveloped radio stations; startup losses associated with newly-acquired radio stations in the Jacksonville, Florida market; and actual same-station revenue growth for January 2004 of 9 percent.

Our first-quarter 2004 revenue guidance is based upon an assumption of high single digit same-station revenue growth for the quarter, and we expect to see station operating income growth in the low- to mid-teens.

That concludes our opening comments.

At this time, we would like to open the floor for questions.

Operator?

(OPERATOR INSTRUCTIONS).

Paul Sweeney, Credit Suisse First Boston.

Thank you very much.

Good evening, everyone.

Two questions.

First, Ed, on the ratings success -- the numbers out of Dallas were just huge, and I know you had suggested in the past that you always look to KLTY as kind of the, I guess, the benchmark of where you would like to get a lot of these Fish stations.

You talked about kind of a 3, 3.5 kind of rating, and now with the 12-plus of almost five.

Are you rethinking what this format can do for you?

Or, is there something specific about Dallas that makes that unusual?

And then second, on the CapEx, David, if you could give us some detail on that $10 million of what we would call, I guess, non-maintenance CapEx that raises the four-year CapEx number above where we were?

Give us a sense of where that money is going, and perhaps what kind of returns you think about that?

And then, again on the CapEx, how should we think about '05?

A little bit more of a return to the more normalized rate, or will we see another larger CapEx year in '05?

Thank you.

Edward Atsinger, III: With regard -- thanks for the questions Paul.

With regard to the format and the performance in Dallas, we have said, as you mentioned, that if we could do North of a 3 share in a major market, we can -- that is very consistent with our business model and with our objectives.

They are just executing very well in Dallas.

They have been in the format a dozen years longer than in the other markets.

So, the execution and the learning curve there is further along.

We are not really rethinking; we have always believed that this format has real legs.

It is for real.

The music continues to get better.

There continues to more of it produced.

Frankly, one of the positioning statements for this format that we have a trademark on -- a copyright on -- is "safe for the whole family."

That's been the kind of way we positioned this format, and frankly, in the current environment, I guess, beginning with the halftime show at the Super Bowl, you can understand that this is resonating with audiences all across America.

It's not just Dallas; it works everywhere.

And, we are confident that we will take this format in these other markets to the same kinds of success that we are achieving in Dallas, as their execution improves, and we're certainly seeing that pattern.

I mean, it is a pretty straightforward growth curve, of course, with Arbitron.

You will have a book or two where you'll step back a little bit, but the curve, over a four-book average has been very good for us, very satisfying, and we think we will be there with it.

In terms of the capital expenditure, Paul, there are a couple of quite specific projects that are included in our 2004 guidance.

The first is our major upgrade to our Chicago AM station -- WYLL.

We have been successful in obtaining a construction permit from the FCC to significantly upgrade the nighttime patent on that radio station.

Ed can probably add a little bit of color on that.

The second project that you also see in 2004, is we were able to obtain a height increase on our FM tower in Atlanta that will give us a very nice coverage improvement over the Atlanta market.

Ed, do you want to add some color on the impact of those improvements?

Edward Atsinger, III: Yeah, the Chicago upgrade is very significant for us.

The station currently operates with 50,000 watts day, and 5,000 night, at a nighttime transmitter site that also has some other issues with it.

The former owner -- and we know several owners tried to upgrade this property for a long time.

It was very complicated.

We had to get Canadian concurrence, we had to get cooperation from some other stations.

It was a long, arduous process, but we were successful.

The FCC has issued the construction permit, and as soon as the ground falls, we will begin the construction.

This allows us to increase the nighttime power to 50,000, and it makes the signal both day and night to be one of the very best on the AM band in that market.

We think that, in terms of the increased value of the property -- and it is very significant -- and the capital investment will be one of those that you feel very good about making.

As far as Atlanta goes, we're taking that tower height up over 700 feet.

That is very significant.

It gives us an opportunity to optimize our performance there and to just basically better serve the community we already serve.

We will extend the coverage to some extent, but the other significance is that we will be louder and have a better presence within the market.

And, it just gives you the competitive advantage that probably is worth, you know, .3, .4, .5 shares in Arbitron, which in this market, can be very significant.

Thank you.

Victor Miller, Bear Stearns.

Thank you for taking the call.

A couple of things -- your expense growth second quarter was up 4.4; third was up 5.1; and fourth quarter up 6.2.

The first quarter looks more like 5 percent.

Could you give us a sense -- do you expect your level of expense growth to be around that area for the year?

Secondly, could you just, Dave, on a couple of things -- cash taxes?

Where you are on NOLs?

When you would expect to be a taxpayer?

And I think on the last call you mentioned that you were trying to amend your covenants on your bank agreement?

Could you talk to us a little bit about that?

And then Ed, on this "Passion of the Christ," has this -- first of all, how many stars would you give it out of five?

And secondly, has it increased listenership on the news talk with all the promotion it has been getting?

Thanks.

In terms of expense growth, Victor, I think our underlying expense growth at mature stations is probably around about a 3 percent level.

So, a 3 percent increase in kind of fixed overhead-related costs.

You know, one of the challenges, of course, is medical and healthcare costs are increasing quite significantly.

But I think, overall, in terms of fixed cost increase, you would be looking at around 3 percent.

The balance that gets you to the five, six numbers that you were quoting is the variable costs associated with increases in sales revenue.

And, with sales revenue increases in the high single digits into Q4 of 12 percent, our variable costs probably run 25 percent, perhaps 30 percent, of revenue.

So, I think that would account for the balance of the expense increase.

As I look ahead to 2004, you know, as I said, fixed overhead increased probably around 3 percent.

The variable, you know, take whatever is in your model for revenue increase and assume that the incremental margin is in the 70, 75 percent area.

And I think that would explain the expense number.

In terms of cash taxes, we have significant federal NOLs.

We will not be paying taxes on a federal basis for at least the foreseeable future.

So, at least three to four years.

With respect to state taxes, there are a few states that have either net worth taxes or minimum taxes.

There are a couple of states that do stand-alone returns where we are taxpayers.

That is probably between half a million and $750,000 per year of state taxes that we have to deal with.

In terms of the bank agreements, we did a brand-new bank facility towards the end of the third quarter of last year.

That agreement will stand us in very good state for some time to come.

And, we are very happy with it.

The "Passion of Christ," Ed?

Edward Atsinger, III: Victor, I did have the opportunity to view the film at the Icon headquarters in Santa Monica some months ago with a number of other folks in the evangelical community.

And it is a very powerful statement.

Yes, I would give it a five-star rating.

It is a powerful depictation "it" (sic) of the last 12 hours of Christ's life.

I think you come away from it very much impacted by it.

But, our (indiscernible) stations certainly are getting a lot of activity associated with the film.

But, it's really resonating throughout the culture.

I mean, you cannot turn on television anywhere.

One of the things we are seeing as we get some feedback from our stations, is that the impact it seems to have on those that identify with the Christian community is perhaps the most significant thing.

It seems to be a film that is very meaningful.

It tends to increase their commitment and strength in their faith.

And we think that is all very good and applaud it.

Thank you.

Drew Marcus, Deutsche Bank.

Good afternoon, gentleman.

A couple of questions.

First, with regard to how we would model the transition costs in Philadelphia and Dallas.

I'm assuming, David, the 1.4 million of opportunity cost is more a decrease in revenue as opposed to an increase in expenses.

And then, obviously, the Bill Bennett thing, I assumed it would be more increase in expenses.

And the other question is, as you mention in your breakdown of growth for the fourth quarter, national was very strong.

As you look into the first quarter, are you seeing national still strong in local or not?

And then, just a point of clarification -- the 9 percent number you gave for January -- that blends in the block revenue -- correct?

Yeah, let me just answer those questions.

With Philadelphia and Dallas, you are quite correct with the reformatting of those stations.

We're obviously turning off our old revenue source, and it will take time to ramp those revenues back up and beyond where they were before.

Getting most of that 1.4 falls in '04?

Yeah, the $1.4 million number is entirely '04.

It is more loaded into Q2, a smaller amount in Q3, a smaller amount in Q4 as we kind of work our way towards matching the previous cash flows.

So, you could front-load that into Q2.

In terms of the Bill Bennett costs, again, you are quite correct.

Those costs are the costs of hiring the talents for the program and putting it on the satellite and distributing it and marketing it and promoting it.

So, that is largely cost increases.

And the revenues will gradually grow as we develop the program, sign up affiliates, etc., etc.

In terms of national and network, what we are seeing in Q1 is very similar to Q4, very, very strong performance from our national spot business and our network business with significant percentage increases over last year.

In terms of the 9 percent growth in January, I would certainly estimate that there is 5 percent growth on the block programming front, which means that the growth in advertising revenues is well into the teens.

Great.

Thank you very much.

Okay.

Thank you.

Jim Marsh, SG Cowen.

Two quick questions, one for you Ed.

You are usually pretty helpful in remembering what some of the stations went for, but what was the last time you recall seeing a big FM or big AM in Chicago with 50,000 K-night (ph) signal go to the market?

What kind of price are you thinking about there?

Just ballpark would be helpful.

Edward Atsinger, III: Well, there has not been one like that in the market for as long as I can remember.

I mean, it's just been so long that I cannot remember.

We paid about $30 million for this property from Infiniti a few years ago with the lower power at night.

We paid $30 million in January, 2001.

Edward Atsinger, III: And, it was sold because it was part of a force divestiture that was, I think, part of the Viacom -- part of the Viacom acquisition that they have gave them a period of time to divest a few stations.

So, I don't think they would have sold it.

So, to answer the question, of course, if you look at it on a supply/demand basis, there is no supply.

That is difficult to know.

I would estimate that it adds -- it takes it, or really makes it probably the third or fourth best radio station and very competitive with all of the others in that market.

I mean, it does a very nice job during the day.

It will do an equal job when we make this improvement at night.

So, the 24 hours a day you've got the same radio station, and that is very important.

It improves the coverage at night; it doubles it.

It takes if from north of 4 million people in a usable signal to well over 8 million people.

If I were going to guess, I would say that it boosts its value from the 30 we paid to certainly, I would estimate, north of 50.

But, I think you might even get more than that.

Excellent.

And then secondly, as you talk about Bill Bennett launching with his syndicated programming, where do you see that audience coming from?

I mean, what shows are they currently listening to?

Who is the competition there?

Edward Atsinger, III: Well, first of all, this daypart -- 6 AM to 9, East Coast time -- is the only daypart that really, where there is a vacuum of syndicated product.

I mean, you've got Imus, who is not syndicated very widely and is kind of an acquired taste that does not really play very well out of New York.

And, you don't really have much else that is comparable to what you have all day long.

Now, there is a conventional wisdom that you go with the local personality in morning drive.

The only problem I have with that is if you take a look at most of the strong talk stations around the country -- take Cap-I (ph) in Los Angeles, or Limbaugh, which is a syndicated product -- still leads the day in terms of audience share.

So, I don't necessarily buy the conventional wisdom.

I think that if we can provide a quality national personality, quality syndicated program that can play very well against local talent, there will be a market for that.

Furthermore, there's a frustration out there.

There are any number of affiliates, potential affiliates -- East Coast, Eastern time zone and Central time zone -- that are looking for a cost-effective talent solution for their morning drive.

And, we think Bill Bennett will provide that; he certainly will provide it for us.

In our case, he becomes a usable product for Boston, Baltimore, Philadelphia, Dallas, Atlanta, Jacksonville and Louisville, plus all of our other time zones.

And we clear him in Los Angeles, San Diego, San Francisco, Seattle, Portland because of 3 AM to 6 AM.

We will get at least one hour of drive time.

So it provides a marvelous solution for us, not just for the East Coast and Central time zone stations, but for all across the entire Salem platform, we would be able to clear it.

So in terms of cost-effectiveness to get a major talent like Bill Bennett -- within our own group, we have an immediate market, and we believe that there is a high level of interest and demand out there.

We expect to roll up affiliates very quickly.

Every other major syndicator that I'm aware of has been trying to come up with an answer for East Coast morning drive.

I have met with them;

I know it.

I have had wide discussions.

We would work with them if they had come up with something first.

We have Laura Ingraham on across most of our platform.

We like her.

We don't syndicate her, but we think it's a great syndicated program.

We carried Michael Savage in certain markets in afternoon.

By the way, we expect those two products to be with us in both Dallas -- those two products will be with us in both Dallas and Philadelphia, plus all of our own syndicated talent.

So, from our point of view, we've got 15, 18 hours a day of longform syndicated product that we syndicate, and even more of this available for us.

And, that is your first market, James, and we think there's a lot more out there that will be happy to hear this announcement.

Great.

Thanks, guys.

Jonathan Jacoby, Banc of America Securities.

Good afternoon.

Can you give us a little bit of color, sort of, your expectations on the contemporary Christian music format for you in terms of growth for '04?

Obviously, you are coming off a very strong year, but my assumption would be, sort of, that there is a maturation process that is going on.

So, if we could just get some expectations of how you see the progress, maybe '04, '05, '06?

The second thing -- as you start to flip these stations, are you going to -- and to roll out more conservative news/talk stations, are you going to look for your portfolio, is this where you think you will start trying to add some stations similar to what you did in Boston?

My last question, on Bill Bennett, how many affiliates to you need to sign up outside of your own group to sort of, you know, have a breakeven profitability?

Edward Atsinger, III: You want to respond to the last question, David, first.

You talked to Greg Anderson -- I'm trying to remember.

We have had those discussions (multiple speakers) --

I think we would be looking -- if we get somewhere between 50 and 100 affiliates.

Obviously, it depends upon the size of the market, but somewhere between 50 and 100 affiliates, and we will have a breakeven proposition on the network side of things.

Of course, on our radio station side of things, we are in effect, getting a morning drive program for free from our network business.

You know, if I just think of it within the context of those radio stations, if we didn't have the Bennett program, we would have to spend either quite a lot of money finding local talk show hosts instead, or we would have to give up a significant amount of inventory to a third-party syndicator.

So, you know, in some respects, when you put the two sides of the house together, you could argue that Bennett is an attractive profitable proposition day one.

In terms of expansion and expectations for our CCM stations, there certainly is a maturation process going on there.

But, we have certainly not reached our maturity levels.

I would expect to see the percentage growth numbers begin to ease back towards what you would expect to see from more mature stations.

They've probably got two to three years more to go of strong growth ahead of a mature station.

But, in terms of dollars, I would expect to see similar dollar growth in 2004 as compared to 2003, although, when you've got a larger base, naturally the percentage will begin to fall away a little bit.

Ed, do you want to talk about acquisition thoughts?

Edward Atsinger, III: Let me just add a little bit more on the CCM side.

I have said, and I stand by the statement, that if we are north of a 3 share 12 plus, we are quite happy.

With Arbitron, you're going to get a good book and you're going to get a bad book to stay above the 3 share.

So, we jumped all away from a 3.2 to a 4.8.

That is probably a wonderful experience.

It may not last at that level.

It really doesn't have to.

The more significant demographic is the adults -- the female 25 to 54 target audience, which went from a 6.4 in the summer book, to a 6.7.

So there was not a dramatic increase there; what we saw is an increase in additional listeners in other demographics.

We will to quite well with our business model if we do well with our target.

All of the rest of it is just gravy, and we're happy to get it.

I would like to -- we will see the same kind of progress in 2004 in these newer startups that have come into the format since 2000, or even later -- 2000, 2001, and 2002.

I am talking about Atlanta;

I am talking about Cleveland;

I'm talking about Portland, Sacramento, Chicago's -- some of these other cities.

They will come along.

To execute this format well and to growth those numbers is a process.

And, we are well within the process.

We have the template in Dallas.

We have been there.

We know what we have to do.

You cannot necessarily short-circuit it a whole lot, but we are short-circuiting it as much as we can.

And, we are expecting solid, steady growth towards that consistent north-of-a-three-share-12-plus with a top five position in female 25 to 54 target demographic.

With regard to acquisitions on the news/talk side, yes, you did see some recent acquisitions.

We added a Boston station primarily to do our news/talk format.

We have added Colorado Springs to do our news/talk format.

In Colorado Springs, we had two FMs, one was doing Christian teaching talk, the other was doing contemporary Christian music, our Fish format.

By adding a very good AM, which we have been looking for, for quite a while, by finding one fortunately, we have added the news/talk format and it becomes accretive and profitable almost from day one, because we're able to roll it onto that existing platform.

In those markets where we lack the ability to add -- to roll out the format because we don't have the property, yes, those will continue to be target markets.

We will look at them carefully and prudently.

And the good news is, we're looking primarily for AMs, which are less expensive and more readily available.

In some cases, we will be open to swaps, and there are other opportunities.

But, we do expect to continue to see this format grow as it has over the last year.

Thank you.

Leland Westerfield, Jefferies & Company.

Thank you, gentlemen.

Good afternoon.

I have hopefully some interesting and specific questions regarding how your properties interrelate.

I want to focus on the magazine business for a moment.

If I recall, CCM was being tested as a marketing tool for promoting ratings in Dallas.

And I wonder if you could update us as to how well, or not well, that occurred?

If memory serves me, you're now moving that deal into Louisville.

And then the second question relates to the ministries in the block programming, what the renewal rates were for the block programming?

And secondly, whether the national religious broadcasters convention in Charlotte drummed up important new business?

And the final question is -- the FCC held a rare modification filing week a few weeks back, if I recall?

And, I wonder if you could update us with the efforts you made in modifications filings a few weeks back?

Edward Atsinger, III: Let's see -- where do we begin here?

The magazine, yes, has worked very well as a promotional vehicle.

We began it in Dallas.

I think we have probably done about, I am going to say maybe six issues.

We roll it out, I think, four times a year.

We distribute it to target zip codes.

Understand that we use our CCM publications in Nashville, which publishes CCM magazine.

We use it to private-label a specific magazine for any market that we want to.

In this case, it is a magazine that we call "KLTY and CCM presents" and it is done with some local content that features the station and the personalities, combined with the national content that we have.

We also then provide a certain number of pages of advertising for the local market and the national retains a few.

It has worked out very well.

It is a classic case of leveraging the resources that you have, and we have used it as a tool to drive Arbitron.

It is just one of many things that you do.

I will let the numbers speak for themselves.

We think they're working very well.

We are rolling it out in a number of other markets.

We've done it in Louisville, it has worked well for us there.

The goals there are a little bit different because we sell Louisville as a cluster, but, yes, it is working for us, and it is a very cost-effective way to promote the station and generate a little additional revenue and have some value added for local sales.

We expect the renewal rate on the block to be fairly consistent -- it will be north of 90 percent.

The point is that when we get cancellations because the rates are too high, we normally are able to fill those avails (ph) very quickly, and I don't see anything out-of-sync with that this year.

In fact, at the NRB convention, which you mentioned, one of the interesting things is the rollout of a number of new syndicated programs that have come to us that are seeking avails that we are fairly interested in.

Some of them are quite, quite interesting.

There are at least three brand-new programs that have been put together.

There is some very substantial backing by very serious communicators, and we expect to accommodate all of them.

We've had extensive discussions.

So, frankly, a few avails actually serves us quite well at this time.

As far as the FCC filing window, yes, we did take advantage of it.

We reviewed -- it pertained, of course, only to AM stations.

We reviewed our entire portfolio, and wherever we thought there was an opportunity to take advantage of that filing window, we have.

In several situations, we think that we will be able to achieve some very substantial improvements.

Our second station, for example, in Houston, KTEK, we have made an application there that will allow us to dramatically improve the nighttime coverage.

The station now has limited nighttime.

This'll make it a full market player and should add substantially to its value.

And there are a number of others as well.

I did not really think about this question.

I would have to give it a little bit more thought, and it is all a matter of public record, so if you want to call us, we would be happy to -- (multiple speakers)

I think we filed nine major mod applications across our platform, all AM stations, all big markets.

I'm going to ask one quick final one -- in Atlanta, you had improved your ratings in the Fish format.

If memory serves, you were also upgrading your tower there, and there's some CapEx that aims to increase the audience reach.

What is the timing on that CapEx?

And, if you could quantify the extended audience reach and return at that Atlanta station?

Yeah, that project -- we are in the construction process.

It is probably -- it'll probably be fourth quarter before we are able to turn the power on that new tower.

So, I would expect to see the benefit begin, perhaps, in the fall ratings book, more likely in the winter book.

If we can, you know, through that upgrade, increase our ratings by 10 percent, that would be a current 2.8 share growing to a 3.1 share.

Atlanta is a very big market.

If you do the math on that at a 70, 75 percent incremental profit margin, that's a pretty attractive proposition.

Edward Atsinger, III: Yeah, in terms of the actual number of listeners that it gains, my recollection is that it shoves your signal out to the West and the South, because we're coming into the market from the Northeast.

It is somewhere between 10 and 15 percent more listeners, just in terms of the map of the listeners.

But, what they will also get is a stronger, more penetrating signal for those people who do currently get the signal.

So, there are two positive impacts.

Edward Atsinger, III: Your in-office listening has improved, and so it has a lot of positive features to it.

Gentlemen, thanks for filling so many questions.

I appreciate it.

Thank you.

(OPERATOR INSTRUCTIONS).

David Bank, RBC Capital Markets.

Thank you.

Good afternoon, guys.

First question, David and Ed, I think that you pretty handily outperformed on your SOI versus your previous guidance.

And, I was wondering if you could, sort of, comment on what you think the upside was there?

And is that sort of factored into Q1, '04?

And, a related question, David you had said that 3 percent fixed expense growth was a pretty reasonable assumption, but I think, if I heard it right, you said for mature stations.

And so I just want to clarify that, and given that only about half of the portfolio is mature, would you clarify what fixed expense growth is, probably, for the company overall?

And then last question, I am not sure if we've got a normalized 2005 kind of CapEx.

I know you don't want to give guidance, but normalized without the upgrades, we did not get an actual number, I don't think.

Okay, in terms of the outperformance on station operating income, obviously, the largest driver was our music stations -- 30 percent revenue growth; 197 percent station operating income growth.

So clearly, that is where the biggest lift came from.

We also saw a very strong quarter from our network business with a mid-teen percentage revenue increase.

So, those were really the key revenue drivers.

Q4 is obviously a very -- from a seasonality standpoint -- a very strong quarter.

So, you cannot necessarily compare it to what you might do in Q1, which seasonally, of course, is the weakest quarter.

So, I think with January at a 9 percent revenue growth, that compares to 11/12 in Q4.

So, you know, I think some of that has just to do with the seasonality -- the factor that is in there, not anything more significant than that.

In terms of the expense growth, I think, for Q1, our guidance -- we have guided to approximately 5.5 percent expense growth for the business as a whole.

I would characterizes about 3 percent of that as being the fixed overhead-related growth, maybe a touch more.

And, I would characterize the balance, the remaining 2.5, as being the variable incremental costs associated with a company that has, you know, accelerated revenue growth.

In terms of normalized CapEx, our maintenance CapEx this year was about $3.7 million.

So, I think, in terms of maintenance CapEx, we would project $4 million as a normalized number.

It is very hard to provide a normalized number for investment acquisition, upgrade-related CapEx.

It really comes down to what acquisitions we make, and the state of their facilities.

It comes down to what upgrades we are able to get approved by the FCC.

You know, this quarter, we happened to have two of those get green-lit (ph), and construction began or about to began.

We have a number of other projects in the works at the FCC that could result in upgrades.

But, at this point, nothing is certain on those.

I almost think about it in a manner similar to acquisitions -- if we're able to get a significant nighttime upgrade, you are kind of acquiring half a radio station.

If you have a great daytime and no nighttime, adding the nighttime is a very nice enhancement.

So, just difficult to predict those.

If I could just follow-up, though, it would seem to me that the order of magnitude of outperformance on expense was much greater than the order of magnitude on revenue.

So, I want to come back -- you know, when we talked about the seasonality and things, it seems to be more on the revenue side.

And again, you were a little bit more consistent with your guidance on the revenue side.

So, I'm still not exactly sure why you did so much better on the expense side.

I'm trying to extrapolate, going forward.

Is there anything that stands out on the expense side?

Well, expenses are largely -- they are largely fixed in nature.

You know, I think for Q4 our expenses grew -- what did our expenses grow by?

Our expenses grew by 6.2 percent in Q4.

Our expenses in Q1 will grow by a projected 5.5.

Okay.

Thank you very much.

At this time, there appear to be no further questions.

I would like to turn the floor back over to management for any closing remarks.

Thank you, operator.

And thank all of you for joining us.

We look forward to meeting with you again in a few months to report on our first-quarter performance, 2004.

Thank you.

And thank you, callers.

This does conclude today's conference.

You may disconnect your lines at this time, and have a wonderful day.