Salem Media Group Inc (SALM) 2005 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Salem Communications first-quarter 2005 earnings conference call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions following the presentation. It is now my pleasure to turn the floor over to your host, Eric Jones, Manager of Investor Relations and Corporate Finance. Sir, the floor is yours.

Good afternoon and thank you for joining us today for the Salem Communications first-quarter conference call. As a reminder, if you get disconnected at any time, you can dial into 973-582-2734 or listen from our website at www.salem.cc. We will 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 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's radio format, competition in the radio broadcast, Internet and publishing industries and new technologies, adverse economic conditions and other risks and uncertainties as 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 of the date hereof. Salem undertakes no obligation to update these 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, EBITDA and adjusted EBITDA. In conformity with Regulation G, information required to accompany a 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 Web site at salem.cc and as part of the current report on Form 8-K and earnings release issued by Salem earlier today.

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

Thank you, Eric. Good afternoon, everyone and again, thank you for joining us for today's conference call. Salem has begun 2005 with another strong quarter. With substantial growth across all of our business divisions, we continue to fulfill our business of super-serving the large and growing audience interested in Christian and family-themed content through not only our radio platform, but also our Internet, publishing and network platforms. On a same-station basis, we achieved net broadcasting revenue growth of 11% and station operating income growth of 17.5%. These results are once again among the leading in the radio industry.

As measured by the Radio Advertising Bureau, industry revenues grew 2% in the first quarter of 2005 compared to the same period in 2004. So once again, Salem's same-station net broadcasting revenue growth outperformed the industry's growth, in this instance, by approximately 900 basis points for the quarter.

Each of our strategic formats contributed to the growth. Our Contemporary Christian music stations contribute approximately 22% of our total net broadcasting revenue for this quarter, continue to achieve impressive results. These stations, known as The Fish, are branded safe for the whole family because of our commitment to providing radio programming that is appealing, entertaining, while consistent with the core values of our target audience. Our Fish radio stations achieved a 15.7% same-station revenue growth in Q1. Fish station profitability increased to $3.9 million in Q1 2005 from $3 million in Q1 2004.

On our last call, we mentioned that the launch by other broadcasters of two additional stations in the Dallas market, which with the launch were accompanied by high promotional spending and initially very low commercial loads, negatively -- at least seemed to negatively impact the ratings of KLTY, our Contemporary Christian music station in Dallas. We responded to this challenge by reducing our commercial load and playing more music, a part of that recourse an overall strategy to implement the less-is-more concept, which we think, as a long-term strategy, is good for the radio industry. And so those changes provided the stimulus for us to implement a somewhat reduced inventory load.

In any event, the strategy appears to be working. KLTY increased its Arbitron persons 12-plus rating from a 2.9 share in the fall book and a rank in this demo -- the 12-plus demo of number 13 in the market to a 3.5 share and a rank of number 8 in the winter 2005 book. And of course, the numbers were better in the target demographic. Although the reduction in commercial load is costing us some revenue in the short term, we're optimistic that KLTY will continue to achieve profit growth for 2005 as a whole.

At our Christian Teaching & Talk stations, we enjoyed solid same-station revenue growth of 6.5% for Q1 2005. Stations in this format contributed 52% of our total net broadcasting revenue. An important and unique feature of our Christian Teaching & Talk stations is our stable, consistent block programming business, which contributed 28% of our total net broadcasting revenue.

During the first quarter, we completed our annual rate negotiations for the 2005 year with our block programmers. More than 90% of our block programming contracts were successfully renewed, with an overall increase in rates of 5%, reflecting the value block programmers place on reaching our unique audience.

Our News Talk stations continue to develop as an additional growth vehicle for Salem. From our News Talk stations, we achieved a 17% increase in same-station net broadcasting revenue and a 41.2% increase in total net broadcasting revenue. Stations in this format contributed 14% of our total net broadcasting revenue for the quarter. The number of stations in this format has more than doubled since the beginning of 2004, reaching now 32 stations as of March 2005. Even though this growth has been rapid, it has been focused, strategic and consistent with our historic emphasis on major market penetration and completing existing station clusters. By adding 17 stations to this format, our News Talk platform has reached a critical mass with a presence in eight of the top 10 markets and 19 of the top 25 markets. We've not only added stations, we've also enhanced our programming with last year's launch of Bill Bennett's Morning in America.

We now offer 21 hours of long formatted syndicated product daily, including programs featuring Dennis Prager, Michael Medved, Hugh Hewitt and Mike Gallagher. We've increased the quantity and quality of our local news, traffic and weather, providing the local community with more local information throughout the broadcast day. These programming improvements, coupled with a more aggressive marketing and promotional effort, led to a listenership increase of approximately 34% on a same-station basis from 2003 to 2004.

The progress at each of our three strategic formats contributed to a 25.5% increase in our national advertising revenue for the quarter. Two further important factors played a role in this increase. First, there is a growing recognition among advertising agencies of the importance for their clients of the size and buying power of the Christian audience. Second, our national platform has now become the most efficient way for advertisers to target this audience interested in Christian and family-themed programming on a national basis. Up until now, it's really been impossible to reach them with one platform.

Our mission to satisfy the content needs of our target audience extends beyond radio. With more than 350 million page views and 1.2 million unique visitors each year to our websites, we're already the leading Christian content provider on the Internet. During this quarter, Salem Web Network, our Internet business, further strengthened its position through the acquisition of christianity.com. Financially, Salem Web Network grew its revenue by 25% to $1.5 million during the quarter and generated a $200,000 profit for Q1 '05 versus a small Q1 '04 loss.

With a solid and profitable foundation established for our Internet business, we see great opportunities for what we can accomplish with this business in the future.

On the radio station acquisition front, during the quarter we completed acquisitions of radio stations serving the Chicago, Dallas, Houston, Miami, Portland, Cleveland and Omaha markets, and we entered into agreements to acquire radio stations serving the Omaha, Tampa and Sarasota markets. We've also completed signal improvements, major improvements in Chicago and Atlanta that will further improve our operations in these two cities.

We believe that Salem's portfolio of stations, when compared with the other publicly traded radio broadcasters, continues to have the highest proportion of startup and early development-stage radio stations. Driving our startup and early development-stage radio stations to maturity continues to be our most significant growth opportunity. Consistent with our performance in Q1, we intend to fully exploit this opportunity with the continued development of our Contemporary Christian music and News Talk formats in particular.

On a final note, in March, we promoted Joe Davis to the position of Chief Operating Officer. In order to fulfill this role, we were in the process of relocating him from New York to our corporate headquarters here in Camarillo, California. Joe has been a critical contributor to our success in the past few years. His responsibilities have expanded to include operational oversight of our radio network, our national rep firm and our nonbroadcast media businesses, in addition to his current responsibilities for operational oversight of our radio stations.

This expanded role is in recognition of the need for close cooperation between our complementary business divisions and more synergy and complementary interaction with the rest of the management team, which we will enjoy by having Joe here with us in Southern California. Joe will bring great value to Salem in this role.

Let me now turn the call over to David Evans, our CFO, for a more detailed discussion of our first-quarter 2005 results and our guidance for second-quarter 2005.

Thank you, Ed. Our results for the first quarter of 2005 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.

Net broadcasting revenue for the first quarter increased 10.8% to 47.8 million and SOI also increased by 10.8% to 17.3 million. On a same-station basis, net broadcasting revenue grew 11% and SOI grew 17.5%. In terms of operating leverage, our 11% same-station revenue increase was achieved with a 7.2% increase in same-station broadcasting operating expense. In other words, same-station revenue increased by 4.1 million and SOI increased by 1.7 million year-over-year, a 41.5% incremental operating margin.

As Ed has provided same-station growth rates by format, I will provide some same-station growth rates by type of revenue. We achieved an increase in same-station programming revenue, which is generated primarily by our Christian Teaching & Talk stations, of 6.2% for the quarter. Our local advertising revenue increased by 13.3% on a same-station basis and our national advertising revenue, including spot and network, increased by 19.9% on a same-station basis.

Net broadcasting revenue, 72 of our 103 radio stations in our network, representing 86% of our net broadcasting revenue, are included in our same-station numbers.

Turning to our balance sheet, as of March 31, 2005, we had net debt of 295.7 million and were in compliance with all covenants. We currently have a last 12 months financial statement leverage ratio of 5.3. Our bank leverage ratio was 4.7 as of March 31 versus a compliance covenant of 6.75. And our bond leverage ratio is 5.4 as of March 31 versus the compliance covenants of 7.

Turning to our outlook for second quarter 2005, we're projecting net broadcasting revenue of between 50.9 and 51.4 million. We're projecting net income from second quarter of 2005 of between $0.11 and $0.13 per diluted share. And we're projecting SOI between 18.5 and 19 million for the second quarter of 2005.

The second-quarter 2005 guidance reflects the following -- startup costs associated with recently acquired stations; costs associated with the introduction of News Talk programming on our stations in Baltimore, Dallas, Philadelphia, San Antonio and San Francisco; a radio station exchange with Univision; continued growth from our underdeveloped radio stations, particularly our News Talk and CCM stations; reduced inventory loads at KLTY, our CCM station in Dallas; second-quarter 2005 net broadcasting revenue growth in the mid to high single digits; and same-station net broadcasting revenue growth in the mid single digits; second-quarter 2005 SOI approximately even with second-quarter 2004 SOI due to the impacts of startup costs associated with recently acquired stations; and same-station SOI growth in the mid to high single digits.

On our final note, let me briefly comment on our stock repurchase program. In November 2004, we reported that our Board of Directors authorized a stock repurchase program for up to 25 million of Company stock, which could occur through open market or privately negotiated transactions. This authority was given subject to the Company remaining in compliance with its credit facilities and bond indentures, which contain limitations on the Company's ability to enter into such transactions. Currently, these limitations may prevent us from repurchasing more than 5 million of Company stock.

To date, no stock repurchases have been made. In making any repurchases, the Company intends to be opportunistic as we evaluate potential repurchases based upon the market valuation of our stock, available acquisition opportunities, indebtedness status and other factors.

That concludes our prepared remarks, and we will open the floor for some question-and-answer. Operator?

(Operator Instructions). Victor Miller, Bear Stearns.

First question is the same-station for first quarter was 11%. The same-station guidance for second quarter is mid single digits. Could you tell us to what extent -- how much the composition of same-station cost your radio stations that would be in that same station number has changed from first quarter to second quarter?

Secondly, you put in the second page, you put your breakdown of your margins. Now you've gone from 43 stations with zero to -- less than zero to 29% margins, and now you've got 60 of them, and you saw seven stations drop from the 30 to 49 down to somewhere below that in the '05 time frame. So it looks like your -- the new stations you bought had basically a 40% decline in EBITDA, if those numbers are right. So the question really is how do we look at the changes you've made here and kind of cut through it all and see this Company return to where it talks about same-station numbers again in the typical high single digit to low double digit range, which you've given now for several years? Thanks.

There's been relatively little if any change in the same-station composition between Q4 '04 and Q1 2005. The principal reason for the difference between our Q1 same-station growth of 11% and our Q2 mid single digit guidance is the less-is-more strategy that we were employing at KLTY in Dallas. And I'll let Ed talk about that strategic change. But that is the principal item that has changed.

In terms of the composition of our radio stations, as you compare what stations were in which margin markets between Q1 2004 and Q1 2005, two significant changes. First, we've been very active throughout 2004, adding stations to our News Talk format. We've gone from 15 to 32 News Talk radio stations. And that accounts for the number of startup loss-making stations growing from 11 to 23.

The second change of note is in the 30 to 49% margin bucket, you've seen us go from 34 stations to 27. The principal reasons for that is during 2004, we reformatted five stations, four of them from a Christian Teaching & Talk format and one of them from an adult nostalgia format. We reformatted those five stations to a News Talk format, which we concluded represented a better growth and profit opportunity for us moving forward. And that is the principal reason accounting for that change. Ed, would you like to add something in terms of what we've done in terms of less is more at KLTY?

Yes, let me first, Victor, just comment on his last observation that we reformatted five existing stations. Four of those were from Christian Teaching & Talk to News Talk, and in those markets, without exception, we had second stations. So these actually did represent the second stations in the format. So we remained in each of those four markets with our strategic format in Christian Teaching & Talk and actually strengthened it because, to some extent, you tend to compete against yourself a little bit when you have two stations in the format. Sometimes the customer demand is such that you can justify it, and so we made those changes.

The other one was in a non-strategic format. It was an adult nostalgia format that really it was right to make that change. And when we acquired that property, that had been in the back of our mind, that for some time we simply waited for a strategic time. So that's really what's driving the change -- a lot of the change there in that one category.

Now, with regard to the less is more, all of our research indicates that there is listener fatigue with excessive commercial clutter, and it's not just the amount, but it's also the nature of the commercial content. I think that what our research indicates is that listeners want somewhat less of it, but they do have an appetite for some of it. And when we give it to them they want high-quality, well-produced commercials that really are in the sweet spot for the target demographic. If commercials are done well, we find that they actually add a programming element, to some extent. Obviously, it's a matter of quantity two.

So we have bought into that concept. This station in Dallas has been among the higher inventory stations, and we felt that the little nudge that we got in fourth quarter from the competition was a good time for us to begin to implement that strategy. And it only -- we actually implemented it March 1, so it had a minor impact on first quarter, a little bit more of an impact on second quarter. The question will be, when can we get rates higher, because there will be increased listenership, so that it neutralizes the negative.

And we're being a little cautious with our guidance because, you know, you don't know how long that will take. I'm very confident that particularly with this station, which is our biggest contributor, that we will get there in a reasonably quick time frame. We bounced back, as you saw, from the fall book to the winter book -- smartly back to kind of the range that we'd like to be. And I think we ended up fourth overall with female 25-54, which is target demographic. And our goal is to be in the top five. And so that little bounce-back probably gave us a little bit of a bump from the March reduction in inventory.

Hopefully, we'll see some more progress on that in second quarter. And that may mean that the rest of the year we will see good profitability growth on KLTY. I think that's basically the approach, and we will implement it a little bit in some of our other stations, but the inventory pressure has not been quite as great. So the impact will not be really very dramatic in most of these other markets.

Clarify from 11 to mid single -- is literally that one station. Would you assume that that station is going to be negative, then, in second quarter in terms of its revenue growth? And then again, the question I asked earlier, when do we -- how long does it take to get back, do you think, to the typical kind of Salem high single digit, low double digit revenue growth we've seen for some time?

We are certainly projecting that KLTY will have negative growth in the second quarter because of that letter's (ph) more implementation. In terms of how long will it take to work our way through that, it's probably going to take a couple of quarters.

Lee Westerfield, Harris Nesbitt Gerard.

Actually, I have questions in two areas, if I may. The first revolves around the startup costs and the level of the startup costs that may mask your underlying profitability growth. In the second quarter, we recognize it. How much would you at this stage be guesstimating, estimating would be the case for startup initiatives in station expenses for the third and perhaps the fourth quarter so that we could assess the level of underlying margin expansion?

Second question relates to your Internet initiatives and other revenue streams, if you can offer us some specific indication of what level of revenue growth as we move into the second quarter and in both separately for the Internet and for the magazine elements in that portfolio?

In terms of the startup losses, as you can see from the press release, in the first quarter of 2005, we had $800,000 of startup losses from 23 startup stations. If you now look at that annualized for that pool of stations over the last 12 months, those stations on a last 12 months basis had losses of about $2 million. And those stations were acquired at a cost of approximately $90 million.

As we look ahead, in the second quarter, I would expect that loss level to be similar to about $800,000. The reason for that is the spring book is a very important marketing period and we will be investing some money on marketing on those stations during the second quarter. I would then expect to see improvement through the balance of the year, such that those losses would be substantially eliminated by the end of the year.

In terms of our Internet initiatives, we grew our Internet revenues from Q1 '04 to Q1 '05 by about 25%. I would expect second-quarter growth to be probably on or around that 20% revenue growth kind of number. So it continues to be quite significant.

Sorry, if I may, quickly on the front as well. From christianity.com, there were initiatives you were going to undertake to look at ways to reposition it that might absorb new costs or pull back the revenue. That was statements made in the last quarterly conference call. Where are you in evaluating those choices at this point? When should we expect any strategic announcements or modifications to that site?

In terms of christianity.com, our development team have been moving christianity.com from the previous owner's Web platform over to our own platform. We've done some rebuilding and reformatting and improvement of that website. And we are about to launch that. Those costs have been incurred. They were incurred during Q1. We will -- once we have launched that new christianity.com platform and allowed it to settle, I would expect to see us engage in some modest marketing and promotional efforts to draw additional traffic to that site. But our strategy is get the product right first and then begin to market it, not the other way around.

And I might add, Lee, that I think we've actually have launched the new look at christianity.com, so if you want to go on the website -- if you looked at it last -- the time we had our last call and took a look at it then and look at it now, I think you will see the significant improvements that we've made. We have never, just as a point of information, we have never really used our own radio platform to aggressively promote particularly the national sites. What we have done is the local stations will, of course, promote on air their local portals. We haven't done that, because, as David said, it's important to get it right. And I think that we've been working on this. When we go to our stations and when we look for some marginal inventory, and what we really tend to do when we promote the site is we tend to use just very brief positioning statements -- five-second mentions, the kind of billboard type of promotion that doesn't really take any inventory.

But it is an effort. If it's done right, it can be very effective. And we won't go and burden all of our stations until we feel very good about it. And yet in spite of the fact that there's been very little promotion in that regard, that business continues to do very well for us. The profitability continues to grow. We expect to have a very good year in 2005 with it in terms of profitability. And when we begin to roll out a little bit of our own marketing platform, I think that, well, as we said in my statement, I'm very bullish about where we're going to go, where we're going to go with this particular web business.

If you review what happened -- you go back to '99 and 2000, when we launched it, there were seven, eight, nine companies that were vying for this space and they all had visions of being the first mover in this space and being the dominant player. Virtually all of them are gone, and we're the only one that's left. And we are profitable, and in most cases we bought a lot of the best assets, like christianity.com, for pennies on the dollar. So we've had the staying power. We feel very good about it. When we roll out the promotional effort on our own platform, we think there's some great opportunities for growth there.

Our principal marketing activities on our Internet sites will be through our own radio stations, which therefore has no financial cost. We will be launching that in the second quarter through marketing and promotion of our christianjobs.com website.

James Dix, Deutsche Bank.

I had a couple of questions. First, I guess, David, if you could break down the components of the same-station operating expense growth of 7% this quarter. It seemed like the incremental margins were a little lower than typical, so I just wanted to get a little more detail on that.

Second, I guess how do you handicap the likelihood of other format competition like what you've seen with KLTY in Dallas? And how do you assess the benefits of having your Fish stations be within a cluster of other stations targeting your demographic niche as opposed to format challengers who probably are not coming from such a cluster?

And then I guess finally, just if you could indicate which Fish stations have the most ratings and revenue upside at this point in their development?

I'll take the first question and then hand over to Ed. In terms of the same-station expense growth, I think the key reason why it's 7% is that we spent a little bit more in terms of marketing and promotion money than in the year-earlier period. Ed, on the Fishes?

Let's see. You asked two questions. I remember the last one, but not the first one. You asked about which markets present the best upside. I would say clearly we think Atlanta, Cleveland, Portland are three that represent -- we're putting the most effort in and we do expect to see some good progress there. To a lesser extent, some of the other markets -- the signal, we don't have necessarily a full market signal or it has some competitive disadvantage. But those three we see a lot of potential and we expect to move those forward -- continue to move them forward. James, what was the first question you asked?

Yes, it also related to the Fish format. Just how you assess the likelihood of other format competition and how are you assessing the benefits of having a cluster around your Fishes as opposed to a challenger?

Yes, let me answer it this way. First of all, we cited the fact that when I think Infinity and Clear Channel rolled out these new formats in Dallas in the fall with their heavy promotional budget and light commercial load, the target demographic was not right necessarily on top of ours, but it was certainly overlapped a good bit. There seems to always be when you do that type of thing some sampling where you're going to lose a little bit of audience to something new. We view that as competition, sort of secondary competition in the sense that our product is unique and they are not really going to duplicate our product. Our product is distinctly -- it's got the distinct sort of values type of message and the Contemporary Christian music, which is rather unique, and you're going to have AC competitors that target the same demographic, but not with a product that is unique.

So we have that advantage. We have, of course, the advantage of our own cluster, where we can cross-promote and also continue to sustain audience levels. But I think it's important when you have new formats that come out and they overlap to some extent with your demographic, and there are new -- something new, that it likely is going to be a bit of a competitive factor, but not a directly competitive factor.

The other thing that we really think probably happened even more than the rollout of those two stations, frankly, is that the biggest impact on our audience for the fall book was in December, actually, November, December, and it seems to be more related to the fact that a lot of stations in the market went to Christmas music earlier and our listeners are particularly attuned to that. And I suppose we can take a lesson from that and say maybe we ought to consider going a little earlier ourselves. But it is a natural thing that the audience to our Fish stations would be attracted to early Christmas music programming. And frankly, I think that was more of a factor than the rollout of these two stations.

But we took the rollout of these two stations as an opportunity to re-evaluate and say, you know, it's time to for us to implement our less-is-more strategy, because it's really going forward a long-term strategy where we think we will end up with more running less content. Our strategy of -- if you're talking about our -- you mentioned our business of our clusters. Rolling this Fish format out in the context of other stations with audience that at least is somewhat compatible, certainly on values, continue to think that gives us a good advantage. I think the biggest advantage is that our programming remains unique even when other companies roll out formats that overlap with the demographic. They can't really duplicate the uniqueness of our format. And so we still feel pretty good. Now, if somebody comes into the market direct head-on, with a Contemporary Christian music format, I would be much more concerned about that.

David Bank, RBC Capital Markets.

A couple of questions. Dave, first, you guys noted in the press release some additional corporate expenses. I think they are additional. You are about 1.5 million higher in your corporate guidance than you were last conference call for the full year. So should we assume that 700,000 of litigation and 800,000 of Sarb-Ox, those are incremental for the last guidance and will they fall equally across the year? Did any of them happen in first quarter? And can you talk about what they are?

And then I'm sorry, just one other question, I guess, for Ed, maybe. You guys said in your -- you're kind of implementing less is more at KLTY. Are you implementing less is more in that you are starting to run more 30s or is this just a basic kind of spot load reduction where you are primarily running 60s but the inventory load is lighter? And just lastly, can you remind us what percent of revenue is attributable to KLTY on an annual basis?

In terms of the corporate expense, you are correct. The two items that -- two principal items that are changed are our Sarbanes-Oxley costs and legal litigation costs. So those are the incremental items. In terms of the legal costs, that will principally be in Q2 and Q3; in terms of the Sarbanes-Oxley costs, that will principally be in Q1 and Q4.

Okay, and what are the legal costs associated with?

We've been hit with some additional litigation, if you refer back 10-K that we filed, we were sued by the Pipe Fitters Locals 522, 633 pension fund rising out of our stock offering that we did in April 2004. And if you refer back to that 10-K disclosure, that will, I think, provide you with all the details that you need of that.

With regard to your question about the less is more at KLTY, is it 60s, 30s or just lighter inventory? Initially, basically it's a limitation on units, whether they be 60s or 30s, so that we've done a unit reduction there. But over time, we do think that moving to 30s as the standard as opposed to 60s is a sensible thing to do. That gives us a little bit more flexibility. Right now, initially, it's just a total unit reduction with an emphasis on trying to develop 30s as a standard, but recognizing that that is a process that will take a little bit more time. And industry acceptance is the factor that I think has to mature and progress.

So Ed, I'm sorry, it's units or minutes?

KLTY operates a units-based traffic system. We determine the number of units that we will play every hour, not the number of minutes.

Okay, and can you talk about sort of what you were running and what the target is in terms of where you're going in units?

First, entirely, we run almost entirely 60s. The number of units is moving from -- we were probably running about 15 units an hour and we're currently running between 11 and 12.

Okay, and the percentage attributable to KLTY of total revs?

Revenue is just shy of 10%, SOI is round about 12%.

Sean Feeley, Credit Suisse First Boston.

One question on the national revenue, particularly strong in the fourth quarter again. Wondering if that is a function of, one, just better selling, or two, new clients coming into the fold, and if that's correlated with some of the new format rollouts that you guys are doing?

I think that it's probably the two that you mentioned, but it's also, I think, the critical mass that we've really begun to gather with all of those assets. As we mentioned in our prepared statements, in terms of the Christian audience, if an advertiser particularly wants to target that audience, nationally, it has been virtually impossible in the past. You could buy, before Salem developed this platform, you could buy a half dozen or a dozen magazines and reach the 4 or 5% of it at best, maybe even less than that, probably more like 2 or 3%. Direct mail was a major way that advertisers targeted that audience. And then they would have to try to put together -- cobble together a lot of radio.

With our 1900 affiliates to our network -- 105 owned and operated stations, most of which target directly this audience, with the rep firm that -- not only do we have our own affiliates, but then we also rep non-Salem stations that are in this format. And we put together packages for national advertisers where they can reach a large region of the country or reach the whole country. And the critical mass has just arrived. And we've been watching this develop, and we -- I frankly expect the momentum to continue to move in that direction, even if we don't add an additional -- a large number of additional stations. Because with the number that we have added in the past years, we are growing audience in all of those.

So you get additional critical mass as your audience increases. With these startups, for example, that we mentioned, we are spending marketing money and some of them are loss-making and we probably have a couple hundred million dollars of assets that are not contributing to cash flow. Well, as you build listenership, you obviously build also revenue. But the listenership provides the critical mass, increasing critical mass that makes the selling at the national level increasingly successful. And I think that we in some instances, in some of the products that we offer, frankly, we've virtually sold out some of it for the year, which would suggest that we have more rate upside in that sector, and we're looking at that.

Bishop Cheen, Wachovia Securities.

A question for each of you. David, first, just remind me again, the availability that you have and how much is drawn on the revolver?

We have a $75 million revolving credit facility, of which we have currently drawn about $40 million (multiple speakers) about 35 million of available capacity. We have 13 million of pending acquisitions that we expect to close in the second quarter.

Right, and that's very helpful acquisition divestiture and swap table that you took time to put together. Is that -- that is year-to-date through just the past few days or is that only through Q1?

Only.

I'm sorry, say again please?

First quarter only.

Okay. And I know that on a number of calls, certainly at the last call, you were very articulate talking about how you were trying to improve the power ratio for the News Talk stations. And I think you said it, or have said it on occasion, it's the worst power ratio of your basket. Can you tell us if you have made progress on that?

If you analyze our three formats, the most mature format is our Christian Teaching & Talk format. Substantially all of those radio stations we've owned for a number of years. They are as a group mature. The power ratios on that format probably average around about a two power ratio because we have two sources of revenue, advertising revenue and block revenue, and I wouldn't expect to see that change very much. Our next most mature format is our Contemporary Christian music format -- probably about 15 stations of which two are mature; the other 13 are at various stages in their development to maturity. Our average power ratio on that format right now is around about a 0.8. The two that are mature have power ratios in the 1.1 area.

In terms of News Talk, of the News Talk stations that we've owned for more than a year, their average power ratio is around about a 0.6. We see great upside in that. We think when our News Talk portfolio reaches maturity, we should certainly be looking for a one-to-one power ratio. Getting there is going to be a process that will probably take three to four years. The vast majority of our News Talk stations are less than 18 months old. And to get them to maturity is a five- to six-year process. So you will see that happening gradually over a period of time. So, in terms of how that's changed from Q4 to Q1, my answer would be a little.

That's a great summary. Last question. On the corporate overhead, and I know your guidance talks about something like 20 a year, but for the current Q2 that we're in, is there a range we should be looking at?

No, I think we have given guidance for corporate expenses of 4.9 million for Q1.

Okay. I missed that if you did. I'm sorry.

(Operator Instructions). Bobby Melnick, Terrier Partners.

David, can you help me, please? In your March 7 conference call discussing the fourth quarter, you specifically said that the cost of your 30 -- what you called then your 30 nonproducing or sticks (ph) was 185 million. It sounded like in this call you've suggested that the news stations losing money had a cost of around 90 million although, Ed, you've also acknowledged that we've probably got, quote, a couple hundred million dollars of nonproducing assets. I'm just -- could you -- to the extent that you have a comparable figure for the number you gave in the last conference call, which again was 30 nonproducing stations with a cost of 185 million, could you update that, please?

I tracked two pools. The first pool is our startup loss-making radio stations. As of Q1, those stations had last 12 months negative cash flow, so startup losses of approximately $2 million and a purchase price of approximately $90 million.

And how many stations would that be?

That would be 25 radio stations. Second pool is early development stage stations. Those stations have reached profitability, but have still got a way to go to reach maturity. Those stations had a cost of $145 million, 20 of them, and last 12 months cash flow of $4 million.

Okay, so just summing, you'd come up with 45 stations and 235 million versus the 30 and 185 at year-end. Is that right?

Correct.

Okay, question. Is it correct that this is the first share repurchase authorization since the Company's IPO six years ago?

This is the first share repurchase authorization. We received that authorization in September, at the September Board meeting, and we disclosed it in November.

And the Company authorized the share buyback when the Company's stock was trading some 25 or 30% higher than it was today or it was last week, I should say, when you were taking out your 52-week lows. Was the Company in a quiet period last week that precluded you from buying back stock?

Have been in a blackout period almost continuously since that authorization happened, and so up until this point, we haven't had an opportunity to look at that.

Okay, but could we talk about the stock repurchase then? Because this Company is always buying or selling an asset or always a month until or a month after an announcement of something that's material. Share repurchases to value-oriented investors are not something to be taken lightly. We look rather aslant on companies that announce share repurchases and then never actually implement them. Can you give some indication about why this was authorized -- why it was announced and what the Company's intentions are, please?

I believe that share repurchases are a strategic tool that companies can and should employ to improve returns for existing shareholders. They should be employed carefully, with great consideration, and the important evaluation you have to make is, is buying back shares a better investment than any other investment that you could appropriately make? And if your best investment is buying back shares, and that's obviously dependent upon a number of factors including what other opportunities are out there, including what your current market price is, and what your level debt is and what debt restrictions you face -- you have to determine what's the best investment.

Victor Miller, Bear Stearns.

David, could you give us the second-quarter same-station revenue (technical difficulty) station operating income and expense-based that we're growing that mid single digit guidance off of and the actual dollar value of those three metrics?

Same-station revenue, Q2 '04 base to grow from -- 40.75 million.

That's revenue?

Revenue. Net broadcasting expense base to grow from, 23.96. Station operating income base to grow from, 16.8.

Thank you. And do you have third quarter and fourth quarter available for those metrics as well at this point?

I'm afraid I do not.

Okay, but they (technical difficulty).

Sorry?

Victor, we seem to have lost you. Hello?

It's all right.

Yes, you're not there.

Okay.

Now we hear you.

Your line is live, sir.

But in terms of the same station for the rest of the year, David, that's still basically the same station -- the same cluster of stations we've been talking about for some time?

Vision will change as the year proceeds. Once we have owned a station or in some cases divested a station, once that has been -- once a year has passed, those stations come back cut into same station. So we did a number of acquisitions, Q2, Q3, Q4 of last year and they will (multiple speakers) next year, as the year proceeds, such that by Q1 next year, if there are no further acquisitions, everything will be back in same station.

Thank you. There do appear to be no further questions at this time. So I would like to turn the floor back over to Ed Atsinger for any closing remarks.

Well, we thank you again for joining us for the call and look forward to visiting with you again when we're able to report our actual results for second quarter. Thank you, goodbye.

Thank you very much.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.