Salem Media Group Inc (SALM) 2004 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Salem Communications Fourth Quarter and Full Year-End 2004 Conference Call. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session later on in the conference. At that time, if you have a question, you will need to press the "star" key followed by the "one" key on your pushbutton telephone. The conference is being recorded today.

At this time, I would like to turn the conference over to your host, Mr. Eric Jones, Manager of Investor Relations and Corporate Finance. Please go ahead.

Good afternoon. Thank you for joining us today for Salem Communications conference call regarding our fourth quarter and full year 2004 earnings. As a reminder, if you get disconnected at any time, you can dial 973-582-2734 or listen from our website at www.salem.cc.

We'll begin in just a moment with opening comments from our President and CEO, Edward Atsinger 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 to submit questions.

Please be advised that statements made on this call that relate to future plans, events, financial results, prospects or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those anticipated as a result of certain risks and uncertainties, including but not limited to market acceptance of Salem radio's formats, competition in the radio broadcast, Internet and publishing industries and 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 & Exchange Commission.

Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date here of. 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 conformity 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 measures prepared in accordance with generally accepted accounting principles is available on the investor relations portion of the Company's website at www.salem.cc, as part of the current report on Form 8-K and an earnings release issued by Salem earlier today.

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

Good afternoon, everyone. Thank you for joining us for today's conference call. I'm pleased to report that Salem finished a successful 2004 with another strong quarter of net broadcasting revenue and station operating income growth. This performance is the result of continued growth of our startup and development stations, particularly in our News Talk stations, which grew their revenues by 27.4% in the quarter.

During the quarter, we also experienced strong growth in our national spot and network advertising business. Revenues were up 20.9%. At Salem Web Network, our Internet business, revenues there grew with 52.2% and at our FISH stations, which we've acquired since 2000, the revenues were up 7.5%. We also continued to be very active on the acquisition front.

Let me start today by updating you on acquisition activity. Our most significant M&A activity in the quarter was our station exchange with Univision which was announced on October 4, 2004, and which we previously discussed in our Q3 2004 earnings call. Through this transaction we will exchange 2 radio stations, one in the Chicago market and one in the San Francisco market, for 4 radio stations, one located in each of the Chicago, Houston, Sacramento and Dallas markets. We have received all of the requisite FCC approvals for this transaction and we anticipate its closing in the next few weeks.

We're very bullish about the impact of this transaction on our long-term growth. This exchange represents a unique opportunity to expand our presence in 4 attractive major markets, offers the opportunity to significantly increase the investment returns from 2 under performing stations, and enhances our News Talk network business by adding strong anchor affiliates in Chicago, the number 3 market, and Houston, the number 7 market.

The 2 stations we are giving up generated approximately $400,000 of station operating income in 2004. In exchange, we are obtaining 4 stations that we value at approximately $115 million. We expect this change to significantly enhance our long-term revenue and profit growth prospects, as we build these 2 start-up stations to maturity over the next couple of years.

Also in January 2005, we completed a radio station exchange in Hawaii, Honolulu market with Cox Radio where we acquired an FM station KGMZ in exchange for 2 AM stations. This transaction gives Salem a 7-station cluster in Honolulu of which 4 are on the FM band. Since the end of the fourth quarter, we have also completed acquisition in Miami market number 12, Portland market number 23, and Omaha market number 72, and then announced further acquisitions in Omaha and Tampa. We will now have a 2-station cluster in Omaha and 4-station cluster in Tampa market number 20. As is clear from this activity, we continue to find acquisition opportunities that enhance our station group and our growth profile. Our station count, which includes pending transactions, is now at 106.

Finally, on the M&A front, we've made progress with our Internet strategy through our recent acquisition of Christianity.com, an online provider of compelling Christian content and a wide range of ministry resources. This acquisition provides Salem with a premiere web address or a Christian content website and further expands our Christian content offering. This acquisition complements our existing Internet businesses of Oneplace.com, Crosswalk.com and Christianjobs.com. We believe that Christianity.com will contribute to cash flow almost immediately and be accretive to earnings in the first year of operations as a result of leveraging our existing Internet infrastructure.

Salem Web Network or Internet business grew 18.9% for full year 2004 from $4.5 million in net revenue in 2003 to $5.4 million in net revenue in 2004. We continue to believe that there's a significant opportunity for growth on the Internet for sale. We expect to continue to expand our Internet business both organically and through acquisitions as they arise. I look forward to providing you with further updates on the growth of our Internet businesses in coming months.

Let me now talk about our fourth quarter 2004 financial performance. For the fourth quarter 2004, we generated net broadcasting revenue of $49.3 million, an increase of 7.8% from the same quarter last year. Station operating income was $18.8 million for the quarter, an increase of 6%. On the same station basis, net broadcasting revenue grew for the quarter 9.2% to $43.3 million and same station operating income grew 15% to $17.9 million. These results are once again among the best in the radio industry.

As measured by the Radio Advertising Bureau, the RAB, industry revenues grew 1% in the fourth quarter of 2004 compared to the same period in 2003, therefore, Salem's station net revenue growth outperformed the industries growth by approximately 800 basis points for the quarter. For the full year of 2004, industry revenues grew approximately 2% compared to the same period 2003, again as measured by the radio advertising bureau, while Salem's same station revenue grew 9.8%. Salem's strong results named it for the fourth year in succession -- Salem's same station net revenue growth will be among the best in the radio industry. Salem delivered same station revenue growth of 10% in 2001, 13% in 2002, 8% in 2003, and now 10% in 2004. Key growth drivers in the quarter were our News Talk and FISH radio stations, our national advertising business, and our Internet business.

Let me talk about each of these business segments, briefly. Our FISH radio stations achieved a 7.5% revenue growth in the fourth quarter 2004. This growth demonstrates our continued successful development of our FISH stations from startup towards maturity. In fact, of our 15 FISH stations, we now consider our Dallas and Colorado spring stations to be near mature. The profitability of our FISH stations declined to $3.5 million in Q4 2004 from 3.9 million in Q4 2003. This is due to our decisions to increase marketing and promotional expenditures in Dallas, Atlanta, Portland and Cleveland, spending an incremental $700,000 in this area during the quarter.

Going forward, we expect profitability to resume, as these investments in marketing and promotion begin to bear fruit. We are already seeing good ratings growth in Atlanta and Cleveland, which bodes well for 2005. In the case of Dallas, 2 new formats were launched in the market, accompanied by high promotional spending and initially low commercial lows. We increased our marketing spending in order to protect our audience share and our market position. Although these new format launches impacted the market in our ratings somewhat, we continue to believe that we will see profit growth from our Dallas music operation in 2005.

Let's turn to our News Talk business. In just over a year, we've developed and executed a very specific plan to take this business segment to the next level, establishing it as a key growth vehicle for our company. I'm pleased to report that in the fourth quarter, we saw significant acceleration in the growth rate of our News Talk business. During the fourth quarter, our News Talk net revenue grew 27.4% to $6.1 million from $4.8 million in the same period last year. On a same station basis, our News Talk stations' net broadcasting revenues grew for the fourth quarter 16.8% from the corresponding quarter last year. This increased revenue growth is a result of several investments, we made, in our News Talk businesses in 2004.

First, on the programming front, we added Bill Bennett's "Morning in America" to our existing nationally Syndicated morning lineup. We've mentioned this on previous calls. This addition combined with our existing Syndicated lineup of Dennis Prager, Michael Medved, Hugh Hewitt and Mike Gallagher, and complimented by programs, such as Laura Ingraham and other syndicators has provided us with a consistently outstanding programming product throughout the broadcast day.

Equally important from a programming standpoint, we have also invested in an increased quantity of local news, traffic and weather. Having made these programming investments in the first half of 2004, in the second half of 2004, we launched a more aggressive marketing and promotional effort on certain of these News Talk stations. As a result of these programming and marketing investments, we're beginning to see some significant growth in listenership in our News Talk stations.

For the broad Arbitron category of 12 adults 12+, the average share of our 14 News Talk stations that have been in the format for at least 2 years improved by approximately 34% from a 0.7 to 0.9 share, when compared to the 2004 4-book average to the same average for 2003. We are particularly encouraged by our News Talk rating performance in markets such as Denver, Louisville, and Minneapolis, with our ratings, adults 12+ are also beginning to approach and exceed a consistent to share.

In addition to strong and robust in revenue growth existing News Talk stations, we have also been active on the M&A front expanding our News Talk platforms, so it has a true national coverage. Over the last year or so, we have expanded from 15 to 31 News Talk stations and now have a presence in 8 of the top 10 markets and 19 of the top 25 markets.

This growth through acquisitions and reformatting, combined with 34% average rating share growth of the News Talk station that we have owned for more than 2 years, has laid an excellent foundation for future growth in 2005 and beyond. We couldn't be more bullish about these growth prospects.

Before turning the call over to David Evans, let me also briefly mention our National Advertising business and our Internet business. During the quarter, we achieved a 20.9% increase in our national spot advertising and network revenue at a 52.2% increase in revenue from our Internet business. Our national advertising business has been consistently strong all year, achieving 23.5% revenue growth for the year, as a whole.

We believe this is due to a growing recognition among advertising agents and their clients of significant size and buying power of the Christian audience in America. And the fact that Salem's radio publishing Internet platform offers the best way to reach this audience on a national basis. The 52.2% growth achieved in our Internet business is a confirmation of our Internet strategy. As I mentioned earlier, we have the ability to grow our Internet business both organically and through acquisitions and this is an important focus for 2005.

In conclusion, we believe Salem is favorably positioned to continue to deliver robust growth for 2005 and beyond. We currently have 26 stations in the startup phase and further 24, but although profitable are at an early stage in their development. This roster of startup and development stations combined with our initiatives to grow our FISH and News Talk businesses, complimented by the accelerated growth in our Internet business and under pinned by our predictable block programming business, positions us favorably for the future. I will now turn the call over to David Evans, our CFO for more detailed discussion for our fourth quarter 2004 results and guidance for first quarter 2005. David?

Thank you Ed. Good afternoon, everyone. Our results for the fourth quarter 2004 were issued in a press release earlier today and are available on the Investor Relations portion of our website. I will briefly review these results on an actual and same station basis. In addition, I will provide guidance for the first quarter of 2005.

Net broadcasting revenue for the fourth quarter, increased 7.8% to 49.3 million, and our station operating income increased 6% to 18.8 million. Net income for the quarter totaled 3.7 million, or 14 cents per diluted share compared with net income of 2.1 million or 9 cents per diluted share for the same period last year. Station operating income margin declined slightly to 38.2% in the fourth quarter from 38.8% in the comparable period a year ago. This decline is due to staff up costs in association with recently acquired radio stations.

On a same station basis, SOI margin improved to 41.3% from 39.3% in Q4 2003. The same station margin improvement is due to the growth in our startups and development stage stations, particularly on News Talk stations. The startup and developmental radio stations were originally purchased for total of approximately $175 million. For the last 12 months they have contributed approximately 2.3 million of station operating income. Well, less than they will contribute at maturity. And we believe we will see substantial growth from these stations as we drive them to maturity.

In terms of operating leverage, our 9.2% same station net broadcasting revenue increase was achieved with a 5.5% increase in same station broadcasting operating expenses. In dollar terms, same station SOI increased by 2.3 million and same station net broadcasting revenue increased by 3.7 million year-over-year, a 66% incremental profit margin. On a same-station basis, net broadcasting revenue and SOI increased 9.2% and 15.0% respectively for the fourth quarter of 2004, compared to the same period last year. As Ed mentioned over this period our News Talk stations grew same station net broadcasting revenue 16.8% and our FISH stations achieved to 7.5% increase in same station net broadcasting revenue.

The remaining radio broadcasting businesses that contributed to our same station numbers, most importantly, our Christian teaching talk radio stations and our network business, increased same station revenue by 8.7%. This 8.7% same station net broadcasting revenue increase is the result of a 9.2% same station increase in our block programming revenue, a 12.7% same station increase in spot advertising revenue, mostly from our Christian teaching talk stations, and a 5.9% same station increase in our network revenue. Net broadcasting revenue, from 69 of our 102 stations and our network representing 87.8% of our net broadcasting revenue are including our same station numbers.

Turning to our balance sheet, as of December 31, 2004, we have net debt of 267.4 million and we're in compliance with all of our bank and bond covenants. Our bank leverage ratio was 4.5 as of December 31, 2004, versus a compliance covenant of 6.75. Our bond leverage ratio was 5.0 versus an incurrence covenant of 7.0. As of December 31, 2004, we had a financial statement debt to EBITDA leverage ratio of 4.9 compared to 7.2 at the end of 2003.

Finally, for the first quarter of 2005, we are projecting net broadcasting revenue of between 46.7 million and 47.2 million. Net income for the first quarter is projected to be between 6 cents and 8 cents per diluted share. We are predicting SOI between 16 million and 16.5 million for the first quarter of 2005. This first quarter 2005 guidance reflects the following. Startup costs associated with recently acquired stations in the Atlanta, Chicago, Cleveland, Dallas, Detroit, Honolulu, Houston, Sacramento, Miami, and Omaha market, as well as the launch of Bill Bennett's "Morning in America". Costs associated with introduction of new/talk programming on our stations in Baltimore, Dallas, Philadelphia, San Antonio, and San Francisco.

The Univision exchange that Ed mentioned earlier; continued growth from our under developed radio stations, particularly our News Talk/radio stations; and our FISH music stations. Additional audit fees associated with the implementation of the requirements of section 404 of the Sarbanes-Oxley act of 2002, first quarter 2005 net broadcasting revenue growth and same station net broadcasting revenue growth in the high-single digits. First quarter 2005, overall SOI growth in the low to mid-single digits due to the impact of startup costs associated with recently acquired stations and same station SOI growth in the low double digit. This concludes our opening comments. We would now like to open the floor for questions. Thank you, operator.

Thank you. The floor is now open for questions. If you do have a question, please press '"star" then "one" on your touchtone phones at this time. Once again, to ask a question, it is "star, one" on your touchtone telephones.

We have our first question coming from Lee Westerfield.

Gentlemen, good afternoon. I have three hopefully quick questions, if I may. The first related to Christianity.com if you can add some color for how you sourced that transaction. Also the URL itself is an unusual -- it's a rare name, so I'm intrigued by how that URL may itself be of value going forward, independently of heading your membership, excuse me, your audience base. The second is, and make sure I have the dates right, when did you say you anticipate the Univision deal closing and could you reiterate, I think, you've said a value for Chicago and Houston north, of a hundred million dollarsl. But could you explain your methodology behind that? And then the final question relates to News Talk rating, I know you touched on that but if you could delve into that in a little more specific terms whether that's coming from Bill Bennett, Michael Savage, Laura Ingram, where the News Talk ratings came from or books 2004 came from? Sorry, and I will repeat any of those if you need to have them repeated.

With regard to Christianity.com, how did we source it, it's an interesting question that we got into this Internet business like a lot of other people in the late 90s. We poured resources in it and we had high hops. There were half dozen entities that targeted this particular space that arose in the late 90s. One of the Christianity.com. It's interesting that of all of those that arose, of the half dozen that spent north of $25 million or more building out their website and none of them are left, we continue to stand with our company. We continue to be profitable. The profit continues to grow. I'm referring to Crosswalk.com, Oneplace.com, Christianjobs.com. And Christianity.com began as a Silicone Valley venture capitalist teamed up with Pat Robertson and some other investors.

They had a business model that they started with that morphed into several different phases and they ended up selling it to another company that focused primarily on serving -- providing tools and serving the Christian community, both large organizations and small, and also providing some good content and also providing streaming of Christian programs. In fact, they did represent one of the other significant companies out there, probably the only one besides our Oneplace.com that was streaming content, audio content to some of the religious programs that we carry. With this acquisition, we take -- we bought assets, we rolled the assets on to our infrastructure. It is very accretive as we mentioned in the call -- in our prepared comments. Yes, the UAL is very valuable because -- the URL is very valuable because it will continue to help us expand this business. We think it can be used in a lot of ways as we continue to make investment in our Internet business and grow that Internet business.

So we feel very good about that acquisition. This is one of the last of the half dozen or so that were out there that exist in the late 90s that are not now either gone, defunct, or that haven't been acquired by us. And the URL itself does represent very significant value. It is just terrific. And we sort of had our eye on it for a long time. The price and terms were not right. We talked with these folks for years and you just wait until it comes around to a deal that makes sense for us. On the Univision close, it is in the next few weeks. All of the FCC promos have been received and I think we're just preparing for an orderly closing and I think David might have a more specific date, but I think it's probably within the next few weeks as I said.

Yes. We're targeting a March, April close date. We just got the final FCC approval, just a matter of a week or 2 ago. So the legal folks are working on all of the final closing documents, so a few weeks time.

As you know, we have been operating the stations and they have been operating the 2 that we own under LMA agreements. I will let David comment on the rationale between the 150 million valuation and then I will comment on your third question, Lee.

Just in terms of how we get to that $115 million number, we acquired from Univision 4 stations an AM in Chicago. We put a value on that property of, $50 million to $55 million or so, an FM in the Houston market. We put a value on that property and have $30 million to $35 million range. Sacramento, we are getting an FM there. I believe Univision purchased that station a couple of years ago for around $25 million that just shy of $25 million. And then the Dallas property, which is a small AM facility, we put a value of about $5 million on that property. That's pretty much how you get to the $115 million number we just mentioned.

And when you look at the valuations, I can just comment that the last station that has sold in Chicago, the last significant AM station that sold in Chicago was WYLL-AM that we bought from Viacom, was a forced divestiture on their part because of the merger of Infinity with Viacom. Nothing is that significant in that market has sold for a long time in either the AM or the FM band, but I think, there's something more recently has sold in the FM band than it has in the AM band. So no one wants to turn lose of the good AM facilities. And WIND is radio station with a magnificence signal both day and night and this is a terrific facility and so we're very pleased. So they're very much in demand.

No one really wants to turn or lose them and normally they want to get one if -- with unusual circumstances, like the one end when we acquired from Viacom and I might point out that station primarily acquired it was 50,000 watts day and only 5 at night. Now fortunately we have just completed construction of a 50-kilowatt construction permit at night that took us 3 years to implement and so now we have corrected that. So that station, had it been at the current power that it is now with our improvement, would have been worth far more money than the $30 million that we've acquired it for some years ago. With regarding your last question about News Talk, you asked pretty more specifics.

We're seeing growth pretty much across the board. In certain markets, certain programs are a little stronger. But the pattern varies market-to-mark. There's good growth across the day parts. Some of the market highlights were very pleased. . With this format, Lee, we have said in the past that this format give us a 2-share 12 plus, which will give us a bigger share in our target demographic, which tends to be adults-35 plus. It gives us a 2 share or 12 plus and we have arrived. We are very pleased and we can do very well with it and so that's going to our goal. We find it is much more difficult to get these stations from a 0 to a 1 share than it is to get it from a 1 to a 2 and we see significant movement now on just some of those that have been in the format a little longer in the fall book.

And Denver actually achieved a 2.7 share. Minneapolis, I think, it was a 1.7 or 1.6. Louisville, I think, was a 2-share. Cleveland was a 1.5; LA has been hovering around a 1 share. I think the most recent was above 0.9 but we're beginning to approach a consistent 1 share in that market. Those stations have been in the format and we're all beginning to expand and we think that formula works. We have -- we perfect our -- as we move forward and perfect our model for execution and get better over the old time. We are confident that we will get to those consistent 2 shares that represent the victory that we're looking for.

Gentlemen, thank you very much.

Thank you. We have our next question coming from Jonathan Jacoby of Banc of America Securities.

Yes. Good afternoon. Just a -- first a housekeeping question. If you can just give us the correct same station numbers for the first quarter from last year, so we can try to make some apples-to-apples growth estimate? And also, I may have missed it but did you give the music stations, what their growth rate was just in terms of how music grew for the quarter, in the fourth quarter. And then the last question, as we go through '05, how should we model these expenses related to the startups and the new stations that you're bringing on? Is this -- is this a sort of an appropriate runner rate fret throughout '05, or tail down a bit just again so we get a good handle on properly modeling these investments?

I'm going to take those questions slightly out of order, just depending on what information I find first, so bear with me a little bit, Jonathan. The music stations achieved 7.5% revenue growth in Q4 from approximately 9.3 million up to just over 10 million in revenue. In terms of the Q1, same station base from a year ago, I think the same station base from a year ago was 39.4 million of net broadcasting revenue, 25.0 million of net broadcasting expense.

So station operating income of 14.4 million are the relevant base numbers for you to project from for Q1, 2005. In terms of the startup expenses, as I think about those newly acquired stations, it's typically a 6 to 12-month road to reach breakeven on those radio stations, depending upon the market, depending upon the format. It can sometimes be faster. Sometimes it's slower. But for the -- these particular acquisitions, the bulk of which have been News Talk, we see a 6 to 12-month road to breakeven and then profitability thereafter. Most of those launches took place in the second half of 2004.

So as I look at 2005, I would expect to see those stations, as a group of lose a little money in the first half of 2005 but would be profitable in second half of 2005, and I would look for them to have a strong fourth quarter, and then growing profitability 2006 and beyond. You know, those recently acquired stations, if they could generate for 2005, as a whole somewhere between 2 and 3 million in revenue, that's probably a reasonable estimates. They could well have, between them, those News Talk stations, $1 million in startup losses almost entirely in the first half; I think those would be reasonable projections. So, that constitutes about 1% of our business. I think those would be reasonable numbers to think about. Okay?

Thank you.

Next question?

Thank you. Our next question is coming from Victor Miller of Bear Stearns.

Good morning -- afternoon, sorry. With Dallas, the FISH format there went from 0.9 to 0.5, a 40% drop in adults 20-54 in that market. You talked about spending more money in promotion. How much of the cost increase in 2005 were associated with just promoting the brand and are you concerned there maybe more format attacks in some of your other FISH markets? Secondly, David, can you remind us, what is the cost of the 26 stations that generated negative cash flow, that generate that negative $700,000 in cash flow with the cost basis there? And thirdly, you mentioned in regarding for an extension on Sarbanes. Could you just give us an update on the progress there and when we should expect that and if it's just a routine extension? Thanks.

Hi. On the FISH station in Dallas, I don't think your 0.9 and 0.5 shares are accurate. Adults 12

Edward Atsinger He was - he may have been at adult 25-54.

Adults 25-54.

Adults 25-54 would have been 5-share dropping, perhaps 20% to a 4.2...

Per ratings, sorry -- 0.9 rating to a 0.5 rating.

Yes. Victor, I think that what's -- I think that the phenomena there is that you had a couple of -- I think clear channel in Infiniti or Viacom both rolled out new formats that are at least in our space, they are not our niche but they basically are targeting a similar demographic or at least on the fringe of the demographic. They rolled both of those out in that corner with a lots of promotion dollars and with very, very low, non-sustainable low traffic loads. That will change and we took a little bump there. But frankly, the first trend is already very positive. And I just think that what happens as you've got a lot of people with these new formats that will experience and it will take a little bit of audience for a while.

I don't see it as a long-term trend and the low spot loads obviously have to change or they can't go anywhere. So I mean, these are exceptionally low. This is not less is more; this is very, very little. I mean, just a few units per hour. So I -- the first trend is already out in that market. I think that it's a stabilizing trend that indicates the patterns are returning to the more -- the previous pattern. And we will see, you know see, I don't anticipate -- there aren't that many top 20 market operators that are flipping what we're seeing. And in fact the most common flip that we're seeing is taking place right now, is some of these bands are going to Spanish language formats, that certainly happened in a number of markets, with both Clear Channel and Infinity.

Is there are some escalation in cost though to protect --you mentioned that you're spending more in promotion in the first quarter and as you see it through the year to, for those -- to protect that kind of format? Or promote that kind of format?

Yes, we increased spending in Dallas in Q3 and Q4, having seen those competitors begin some pretty aggressive marketing expense. So that was more -- that spending was more focused on Q4 than on 2005. We do have a little bit more marketing expense budgeted for 2005, but not at the level of the second half of '04. So, I think, you have probably seen most of that.

And the cost of the 26 stations that had negative cash flow?

Yes, if you look at the stations that we have either startup or 0 to 30% profit margin, so I think there are 50 stations or so, all of those 50 stations combined is about $175 million for a purchase price. The startup ones that are currently not making they cost about $90 million, the ones in the 0 to 30% profit margin era as balance of 85 million for the total of 175.

And on Sarbanes?

Sarbanes, we are very close to completing all of our Sarbanes-Oxley work. When I discussed it late last week with our external auditors, we felt like we had a slim chance of meeting the large company deadline of March 15. But we felt that, rather than rush, it was better to complete the work properly and, therefore, take advantage of the 45-day extra period that is allowed to small cap companies. We just want to make sure we do it right. There's nothing at this time that I'm aware of or the auditors have made me aware of that is an issue or a problem. As far as I'm aware at this point, there are no material weaknesses that require disclosure. We just need to finish the work that at this point is probably 90% to 95% complete. But we need to finish that final 5 or 10% and make sure everybody is happy. So nothing unusual, we're just trying to do the job properly.

Thank you.

Thank you. Our next question is coming from Shawn Feely of CSFB.

Hi. This is Joyce Clark stepping on for Shawn Feely. My question is on the M&A front, have you seen a contraction in the Bradley Company? Thanks.

Joyce, could you repeat the question?

On the M&A front have you seen the contraction in the public and private market motor polls?

You know it's difficult to say. We certainly -- in terms of -- in terms of -- we haven't seen an erosion in station prices. Let me put it like that. They're still even, even in situations where you would expect maybe some softness -- we really haven't seen much. It continues to be a seller's market for the most part. Now, maybe with some of the changes in formats with some of the major groups flipping and moving into Spanish and certain markets, you may see some Spanish station, second-tier stations begin to be valued in the private market that -- at softer multiples. But I'm really not an expert. I can't speak with great authority in this area. I just would say that we continue to see, strangely enough, in spite of what appears to be a lot of negative news and a lot of negative comments over the last 5 or 6 months, we continue to see very strong station values.

Okay. Thanks.

Thank you. Your next question is coming from David Banks of RBC Capital.

Thank you. Good afternoon. Guys, one quick question. It seems as though your guidance is largely inline with a lot of us were expecting on the street with the exception of the EPS line, which I think, David, is between 6 and 8 cents of guidance and I think, consensus is closer to 11-cents. So is there anything going on below the line, interest costs or anything like that, that you think the street is missing?

No, I think the one thing that is -- that may be missing is, whenever we do a startup, so a new radio station acquisition, they're always startup costs associated with the new launches. And we have done a lot of new launches, a lot of new startups over the last 6 months, and I'm not necessarily sure that they've been appropriately reflected in Wall Street models. So that's one item to look closely at is to make sure that all acquisitions have been totally modeled.

The other thing that we have done is, on interest expense, as of 6 months ago, we had swapped $90 million of 9% fixed-rate subordinated debt, we had swapped it to libel. We unwound those 2 swaps. The first one we unwound Q4 2004 and the second swap, which was the larger one, was a $66 million swap, from 9% to libel plus 309, we unwound that swap literally a couple of weeks ago. The reason for unwinding most swaps is, when we entered into them, we were in low interest rate -- or we were going into a low interest rate environment. We are now in a rising rate environment. And we felt it important that we take some of that rising rate risk off of us by locking in our rates.

On that $66 million swap that I mentioned, we actually got a check to settle that, we received $3.7 million to -- as part of unwinding that swap. We will amortize $3.7 million as they credit to interest expense over the remaining life of the bond, so the remaining 6 years. So we have effectively monitorized the current low interest rate environment and given ourselves nice insurance policy on that. In fact, if you look over the life of that $66 million swap, we saved about $11.3 million of interest compared to if we had just stayed at 9%. So I think those are the 2 items that you should just make sure are correctly modeled.

Okay. That would be a reduction to interest. So if I'm -- can you -- I guess can I just ask you to humor or sort of a little mini interest rate guidance for the first quarter interest cost guidance or maybe can you comment on is the run rate for the...?

The interest expense for the quarter for Q1 2005, to be in the range of $5.1 million.

Thank you.

Okay.

Thank you. Our next question is coming from James Dix of Deutsche Bank.

Hi. Good afternoon, gentlemen. Two questions. Just where do you stand in terms of your power ratios on kind of the portfolios of new initiative stations, specifically, the music stations where the growth seems to be kind of getting more mature. And then also on the News Talk stations specifically? And then I guess, if you could speak more broadly to where does your advertiser base stand now versus like a year ago? What are your top categories and have you seen any significant changes there as, the portfolio of your formats has changed? Thanks.

In terms of power ratios, the Christian teaching talk format continues to achieve a power ratio in the 2 to 1 area, reflecting the fact that we have 2 revenue sources, block programming and advertising. Our music stations, our power ratios is probably averaged around about a 0.8. I think the highest is a 1.2. That's in Colorado Springs. So we think it maturity. We can grow the overall power ratio from music stations to at least a 1 to 1 but currently we're about a 0.8. News Talk our power ratios there are probably somewhat between a 0.5 and 0.6. And we think there's very good outside in terms of improving power ratios on News Talk. In terms of advertiser base, I don't have the specific category information in front of me.

I don't think the top 5 categories have changed too much. In terms of what has changed over the last year, we've had very strong growth in our national advertising business, national spots are up probably in excess of 30% between national spot and our networks combined up over 20%. So you're definitely seeing a little bit more revenue growth on the national side than the local sides. That's a point of difference. With the fact that our fastest growing formats are News Talk and Contemporary Christian Music, we're probably getting a little bit more in terms of general market advertising dollars, as opposed to Christian affinity advertising dollars. So I think at a big picture level, those are probably the 2 key changes that you'll see or you are seeing in terms of what the advertiser base looks like.

Just one follow-up, David. On the national and the network side, I mean, is that growth, that 20 or 30% growth; that coming largely from your existing advertisers or are there new categories which are coming in now as they recognize the value of the niche?

I think that James, I think what's happening is that the value of that inventory is being perceived as greater than it has in the past, as we continue to build critical mass. You know, our affiliate base on the network business has grown quite a bit. We're up over 1900 affiliates now. And so there's just more demand. Part of it is, yes, it's valued as broadly -- there's a broad perception it's more valuable, therefore there have been other players that have come in. I don't think the mix is dramatically different but we are seeing at the national level, an infusion of different advertisers.

We're seeing more media advertising, more film promotion, particularly that appeals to the Christian and conservative audience. But among those that have always been there, they're playing a higher unit rate because they seem to be more valuable because we're able to get it and selling now earlier with that product. I expect to see, frankly, a continued change, particularly at the national that will be perceptible and maybe by the next call we can be a little more specific. I will make a note to try to track that for you and have some information on our next call.

Great. Thank you.

Thank you. Our next question is coming from Bishop Cheen of Wachovia.

Good afternoon, David and Edward. A question and a clarification. Let me do the clarification first. David, when you gave the comparable for Q1 '04 against the guidance, and I think it was 39.4 topline and down to 14.4 for the SOI. Was that for all of your stations or were you addressing strictly the music stations?

Those are station that will form the base for our same station numbers in Q1.

Okay. So this is the base of same station, because as reported, of course, the numbers were higher for the Q1 2004?

Yes. They were higher. We sold a couple of stations as part of the Univision exchange.

Right.

In Chicago and San Francisco. We reformatted 6 stations from a couple of different formats into News Talk. And we exclude those reformatted stations from our same station numbers. And if those stations were in a cluster such that the numbers of a couple of stations are commingled, we'll just exclude the whole cluster, from same station numbers so that everything that you see in the same station, you can do an accurate apples-to-apples comparison of '04 to '05.

All right. So you're saying that the numbers you gave us would be more of the apples-to-apples to your guidance?

Yes.

Okay. All right, question -- thank you, David. That was helpful. Question, because you have been very active on the exposition front, I'm just trying to figure out your capital outlay as we approach March 30th for this current Q1, with all of the stations that you are waiting to close on, and I understand that the Univision closing could flat over into Q2. But can you just give us an idea of total dollars, how many dollars of outlay are you currently incurred that you haven't outlay yet on closings?

Yes. Univision is, in fact, a zero capital outlay because it's just a swap.

Okay.

There's no cash going back and forth. In terms of pending acquisitions or acquisitions that have already closed in Q1, Cleveland is just over $10 million. Pending we have a couple of acquisitions in Omaha, for a total of $13 million, Cleveland is 10, Miami is 10, Tampa is 9.5 and Christianity.com is 3.4 so, $30-$40 million or so.

Okay. Which could be spread out over Q1, Q2, and maybe somewhat even lapse over Q3 into pending?

Most of it in Q1 a little bit in Q2

Okay. That is also very helpful. And also in your description, I think you said you had 19 of the top 30 markets. Did I get that right? 8 of the top 10?

The News Talk, we have 19 of the top 25.

Of the top 25 in News Talk.

Maybe 18. 18 or 19.

Okay.

It's 19 of the top 25.

Very good. I think ...

Now 24 of the top 25 markets with some format.

Either FISH or News Talk or what after, you're in 24 of the top 25 markets?

Yes.

Yes. But with the News Talk format, we expanded from 15 years ago to 31. 8 of those are in the top 10 markets. In one of the top 10 markets, and 19 are in one of the top 25 markets.

And, which might also explain why your national has grown like top seed.

Well, I think it's been a factor, but I don't think it is -- there are number of other factor as well.

Okay. Gentlemen, I won't keep you. Thank you.

Thank you.

Thank you. As a reminder if you do have a question, please press 'star' then 'one' on your touch-tone phone at this time. We do have our next question coming from Lee Westerfield of Harris Nesbitt.

Sorry, one very quick follow-up, I hope, on the Internet side if I may. The fourth quarter -- David, if I'm doing my arithmetic right here -- there was -- we were looking at about $700,000 worth of Internet and other media, cash flow in the fourth quarter. I guess, the question is really -- there are two questions. First, with magazines of a significant part of that incrementally higher profit in the fourth quarter or was there something else in the core Internet businesses taking place? And second question is, with Christianity.com folding in the first periods here of 2005, should we expect the web media businesses and other businesses, non-radio businesses to be negative cash flows in the short run or continue to be profitable in the short run?

In some of our Internet or other media business in Q4 2004, we had other media revenue of 2.64 million, other media operating expense of 2.38 million, so about $260,000 of profit. That compares to a loss a year ago of $179,000. So very nice improvement in our other media business, both in terms of revenue growth and in terms of turning to profit. The lion's share of that improvement was on the Internet side as opposed to the publishing side. Looking ahead to 2005, you know, with the integration of Christianity.com, you know, there will be some modest integration costs from that, mainly in the first half of '05. You know, there is some seasonality to all other media businesses so that Q1 is seasonally the weakest quarter. So I think in terms of the guidance we've given, we've given guidance for the other media business for Q1 of, I think, approximately break EBITDA -- break-even.

David, thank you. That's very helpful.

Okay.

Thank you. We have our next question coming from Jim Goss of Barrington Research.

Hi, just a couple of questions. One, regarding the option expense issue that's supposed to be put into place later this year, will there be any impact of note for your company? And how will that be implemented? And secondly, since some of your formats, with music and news talking is certainly to get more into a little more mainstream at demand are you seeing any type of impact from the less-is-more issue in your markets?

Let me take the first of those questions. Ed will take the second. In terms of option expensing, I believe we implement that Q3. You know, the impact is, I think, already summarized as a disclosure in our 10-Q and 10-K, so the information is already there for those people who consider it important, and I think, in fact, by virtue of the fact that all of your models are done in a diluted basis, you know, the impact of that from an economic standpoint should in theory already be factored in. We have a relatively low number of options outstanding as a percentage of shares issued. I think you'll find that we have one of the lowest percentage of options of any of the public radio broadcasters. So on a relative bases, the impact on Salem should be less than anybody else.

Jim, with regard to your second question, I do think the less-is-more concept is having an impact. It certainly is on the music side, less much less so on the News Talk side, but I think it's -- I think clear channel's leadership in the area has been good and I think it will be good for the industry, and the advantage that we have is that, having a number of stations in an early development stage. We have a little more flexibility with inventory and pricing so that we can with less pain comply in our competitive markets with that concept and we are implementing that in a way that we think is prudent for each situation. There's no question though that it is a factor that we're looking at that we want to implement and we do think that it's good for the whole industry.

Again, on a News Talk side, because there are some structural things that make it a little more resistant, namely, when you use syndicated product, there are set clocks, what we have done to enhance content is to increase the amount of news, traffic, weather and local information as opposed to increasing the unit load per hour, and we're doing that in a number of markets and we will continue to do that. And again, because we have a relatively large number of start-ups here, we commented that we went from 15 to 31, again we have the flexibility. It's not as painful for us, as it would be for others who have mature stations and have to talk about cutting back unit load as opposed to those that were developing. So there is a bit of a silver lining in having a significant little -- a significantly large number of start-up and early developments stations relative to our competitors.

Are you trying to launch with the higher percentage of 30's to see if that might work, since you do have this clean slate, as you say?

Well, we are -- again we're approaching each hour's traffic load in terms of units. And if we get 30's at the unit and we don't increase the number of units. So obviously, there is a - there's are a couple of benefits in 30's. One, relative to the unit of time you sell you get a higher rate, although relative to the number of units, you don't. You get a little bit lower. So, it's -- but you certainly get - you certainly have less time being taken for the commercial.

We are being quite cautious about embracing 30-second commercials. Principally, because, as we have looked at it, many listeners comment, well, 30 just sound the same as a 60. So, although it may sound like OG, there's much less commercials by running 30's instead of 60's, we're pretty cautious about that. Also in our Christian teaching talk stations, we think it's important that we correctly get over the advertiser's message. And if it takes 60 seconds to convey that message properly, we're going to take 60 seconds to do it. So, I describe opposition on that is right now, as we're kind of cautiously watching the work that Clear Channel is doing and still in the process of evaluating what we might do.

Yes. Thank you very much.

Thank you. There are no further questions at this time. I now turn the call back over to management for any closing comments.

Well, if there are no other calls, we thank you all for joining us and look forward to visiting with you again at our next earnings call. Good afternoon.

Thank you. This concludes today's teleconference. Please disconnect your lines and have a great day.