Salem Media Group Inc (SALM) 2005 Q2 法說會逐字稿

Good afternoon and welcome to the Salem Communications second quarter 2005 earnings 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 Eric Jones.

Sir, you may begin.

Good afternoon and thank you for joining us today for Salem Communications' second quarter conference call.

As a reminder, if you get disconnected at anytime, you can dial into 973-582-2734 or listen from our Web site at www.Salem.cc.

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

After their opening comments, our conference call operator will come back on the line to instruct you on how 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 detailed from time to time in Salem's reports on Forms 10-K, 10-Q, 8K, 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 or revise any forward-looking statements to reflect new information, changed circumstances or unanticipated events.

The conference call also contains non-GAAP defined non-GAAP financial measures within the meeting meaning of Regulation G, specifically station operating income, EBITDA and adjusted 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 Web site at Salem.cc as part of the current report on Form 8-K and earnings release issued by Salem earlier today.

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

Good afternoon everyone.

Thank you for joining us for today's conference call.

During the second quarter, we continued to fulfill our business purpose of super-serving the large and growing audience interested in Christian and family-themed content through our radio, Internet and publishing platforms.

Despite a challenging quarter of flat revenue growth for the radio industry overall, Salem achieved a 6% same station revenue growth and 11% same station operating income growth.

According to the radio advertising bureau, industry revenues were flat in the second quarter 2005 compared to the same period in 2004.

Therefore, Salem's same station net broadcasting revenue growth outperformed that of the industry by approximately 600 basis points.

Let me update you on the second quarter performance of each of our three strategic radio formats, and then also of our Internet business.

Then I want to discuss five initiatives which we believe represent the highest potential for Salem's continued growth.

Specifically, these initiatives are first to develop to maturity our CCM stations.

Second, to steadily and consistently grow our Christian Teaching & Talk stations.

Third, to develop to maturity our News Talk stations.

Fourth, to grow our national business.

And lastly, fifth, to further expand our Internet business.

Let's talk first about those three strategic formats.

Our contemporary Christian music stations contributed 23% of our total net broadcasting revenue for the quarter.

These stations, promoted in most markets as The Fish, are branded safe for the whole family.

This positioning statement reflects our commitment to providing radio programming that is appealing, entertaining and consistent with the core values of our target audience.

Our Fish stations achieved 4% same station revenue growth in Q2.

Excluding KLTY in Dallas which had decreased revenue for the quarter due to our inventory reduction strategy, which we discussed on our last call, our Fish stations achieved 10% station revenue growth in Q2.

Our Fish stations in Atlanta, Portland and Los Angeles in particular all achieved strong growth in the quarter.

Fish station profitability, this time including KLTY, decreased to $4.5 million in Q2 2005 from $4.9 million in Q2 2004.

This was due to our inventory reduction strategy at KLTY, as well as some increased marketing spending in Atlanta and Los Angeles.

The reason for the 5% decrease in revenue at KLTY in Dallas is, as we mentioned again on the last call, that we have reduced our commercial load and increased the amount of music played at KLTY.

This strategy is costing us some revenue in the short-term, yet we're confident that KLTY will achieve profit growth for 2005 as a whole.

This strategy has had an immediate positive impact on listenership.

In fact, in its target demographic, females 25 to 54, in Arbitron's Spring 2005 book just released on July 26th, KLTY was tied for the number one position in the Dallas market in that demographic.

This is a significant accomplishment, since it is the first time a contemporary Christian music station has been ranked number one in any demographic in any major market.

In addition, our Atlanta, Portland, Cleveland and Honolulu Fish stations also performed very well in the female 25/54 demographic in Arbitron's Spring 2005 book, each achieving the highest average quarter hour share they have ever achieved.

If I drill down just a little deeper in that demographic, if you consider the Arbitron Winter 2005 book and compare it with the Spring 2005 book, the one that just came out, in this demographic, Atlanta improved from a 4.5 share to a 5.3 share.

Portland improved from a 3.5 share to a 5.4 share.

And Cleveland improved from a 4.2 to a 5.6 share.

Unlike the Dallas ratings improvement that was due to our inventory reduction strategy on a mature station, these improvements were due to better programming execution as well as some increased marketing and the seasoning of a format that comes with a little more time in the market.

All of these are relatively new in the format.

These record ratings favorably position us for continued revenue and profit growth at our CCM stations.

We have great momentum on this initiative.

Our Christian Teaching & Talk stations continued their history of steady and consistent performance, growing same station revenue by 6% in the quarter.

Stations in this format contributed 51% of our total net broadcasting revenue.

An important and unique feature of our Christian Teaching & Talk stations is their stable and consistent block programming business, which contributed 27% of our total net broadcasting revenue.

This business remains rock solid with low volatility, as it has since the inception of Salem in the 1970s.

Our News Talk stations, which contributed 14% of our total net broadcasting revenue for the quarter, continued to develop as an additional growth vehicle for Salem and achieved a 49% increase in net broadcasting revenue.

Contributing to this growth is the increase in the number of stations we have in our News Talk format.

Since the beginning of 2004 the number of our stations in this format has more than doubled, and we now have 31 stations serving eight of the top 10 and 19 of the top 25 cities in this format.

Organic growth also contributed to the 49% increase.

On a same station basis, our News Talk stations achieved a 24% increase in net broadcasting revenue.

Of the 16 News Talk stations included in the same station numbers, 14 of them had revenue growth and 10 of them had double-digit revenue growth.

The growth was almost without exception across the entire News Talk platform.

As for listeners to our News Talk format, we continue to see ratings improvement which bodes well for continued revenue and profit growth.

Our targets are more modest with this format.

We've said that initially a two share is the goal, with some degree of maturity.

Two share, 12 plus.

But looking at Phoenix, Minneapolis and Denver, the News Talk stations have seen significant improvement in persons 12 plus.

Compared to the four book average of persons 12 plus, average per hour share achieved for 2004 to that of 2005, Phoenix has improved from a 0.6 to a 1.0.

Minneapolis has improved from a 1.2 to 1.5, and Denver has improved from a 1.5 to a 2.1.

Programming improvements, coupled with a more aggressive marketing and promotional effort, have led to an overall listenership increase of approximately 20% on a same station basis.

This audience growth is encouraging.

As it was for the radio industry as a whole, national advertising was a challenging area for Salem during the quarter.

Our same station national advertising revenue was flat for the quarter.

We attribute this decrease to two main factors.

First, the national advertising market was soft generally.

Second, we had approximately $200,000 of national political revenue in Q2 '04 which was absent in Q2 '05.

Excluding political, our core national advertising business was up 4%.

This continues our national advertising growth trends of 17% for Q1 '05 and 23% for 2004 as a whole.

We're confident in our ability to continue to grow our national business for two reasons.

First, there is a growing recognition among advertising agencies of the importance for their clients the size and buying power of the Christian audience.

Second, our national platform has now become the most efficient way for advertisers to target the audience interested in Christian and family-themed programming on a national basis.

Our mission to satisfy the content needs of our target audience extends beyond ratings.

With more than 40 million page views and 3 million unique visitors each month to our Web sites, we are already the leading Christian content provider on the Internet.

During the quarter, Salem Web network, our Internet business, further strengthened this position.

We did this firstly by completing the integration of Christianity.com which we acquired in the first quarter of 2005.

Secondly, we launched a radio campaign solely using unsold station inventory to promote Christianjobs.com, our national job search site.

This is the first time that we had done that.

This campaign doubled page views at no cost.

Overall, as a result, we achieved a 28% increase in page views in Q2 2005 compared to Q2 2004.

Financially, Salem Web network grew its revenue by 30% to 1.6 million during the quarter and generated a $300,000 profit.

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

So in conclusion, when we examine our radio station portfolio I think we should focus on the fact that approximately half of our stations, including all of our News Talk and many of our CCM stations, are in a startup or early development stage.

We are focused on taking each of these underdeveloped stations to maturity, specifically focusing on our CCM and News Talk stations where we believe opportunity for growth is the greatest.

Our block programming business continues its stable and consistent growth, and we expect our national advertising business to increasingly benefit from the recognition by advertisers of the value of our audience.

We have high hopes for our Internet business.

I will now turn the call over to David Evans for a more detailed discussion of our second quarter 2005 results and guidance for third quarter 2005.

Thank you Ed.

Good afternoon, everyone.

Our results for the second quarter of 2005 were issued in a press release earlier today, and are available on the Investor Relations portion of our Web site.

I will briefly review these results.

Net broadcasting revenue for the second quarter increased 8% to 51.5 million and SOI increased 6% to 20 million.

On a same station basis, net broadcasting revenue grew 6% and SOI grew 11%.

In terms of operating leverage, our 6% same station revenue increase was achieved with a 3% increase in same station broadcast operating expense.

In other words, same station revenue increased by 2.5 million and same station SOI increased by 1.8 million year-over-year, a 72% incremental operating margin.

Let me also provide some detail on the same station growth rates by revenue type.

Our same station block programming revenue grew 8% for the quarter.

Our local advertising revenue increased by 7% on a same station basis.

And our national advertising revenue was even on a same station basis.

Net broadcasting revenue through (ph) 67 or 103 radio stations and our network, representing 84% of our net broadcasting revenue, are included in our same station numbers.

Regarding our balance sheet, as of June 30th 2005, we had net debt of 299 million and were in compliance with all covenants.

Our bank leverage ratio was 4.98 as of June 30th versus a compliance covenant 6.75.

And our bond leverage ratio was 5.43 as of June 30th, versus a compliance covenant of 7.

Related to the balance sheet, in early July we amended our senior credit facility.

This bank amendment accomplished three key goals for Salem.

Financially, it reduced the interest rate on our bank debt by between 25 and 50 basis points and reduces our revolver commitment fees by 15 basis points, which we expect to save us approximately $400,000 per year in interest expense.

Strategically, it provides additional flexibility to opportunistically repurchase Company stock and to take advantage of selective and attractive acquisitions should they become available.

I will now discuss our outlook for the third quarter of 2005.

For the third quarter we're projecting net broadcasting revenue to be between 50 million to 50.5 million, reflecting mid single digit revenue growth.

We project SOI to be between 18 and 18.5 million, approximately even with 2004 due to the impact of startup costs associated with recently acquired stations.

And we expect net income per diluted share to be between $0.09 and $0.11.

This outlook reflects the following factors.

Same station net broadcasting revenue growth in the mid single digits; same station SOI growth in the mid to high single digits.

Reduced inventory loads at KLTY, our CCM radio station in Dallas.

The absence of approximately 600,000 of political revenue that we had in the third quarter 2004 that we will not have in third quarter 2005.

Continued growth from our underdeveloped radio stations, particularly in the News Talk and CCM formats.

Startup costs associated with recently acquired stations in Chicago, Cleveland, Dallas, Detroit, Honolulu, Houston, Sacramento Miami, Omaha, and Tampa.

Finally, this guidance reflects the exchange of radio stations with Univision and Bustos Media.

That includes our prepared remarks.

And we will now open the floor for some question and answer.

Operator?

(Operator Instructions).

Lee Westerfield, Harris Nesbitt.

I have two questions.

And they both relate to the mix of stations in the third quarter guidance.

When I'm taking a look at the costs that are involved in the third quarter, getting from net broadcast revenue down to the 18 or so million dollars of SOI, there seems to be about an additional, say, 1.5 million of costs.

Are those all attributable to startup stations?

Or are there any promotional expenses going through Atlanta, Dallas, or otherwise?

And then I have one follow-up relating to the mix of stations in your News Talk at this stage.

Answering your first question, our same station guidance is for mid single digit revenue growth and for mid to high single digit SOI growth on a same station basis.

So, we see a little bit of operating leverage on the same station front.

So, I would estimate the operating cost increase on a same station basis to be between 3 and 4%.

So I would say that the bulk of the increase in operating costs from Q3 '04 to Q3 '05 is due to the new stations we've launched over the last year, particularly our News Talk stations.

And some of that would be marketing and promotion expense on those News Talk sections.

I do not see any major difference in spending or marketing spend on our Fish stations.

I'm going to ask a different question on the second and that part.

Thank you, David.

The KLTY Dallas property, by my calculations from some available data, you have reduced time by 9.2% in the most recent period.

And then of course today you mentioned this in some detail; you've increased -- or tied for number one in females 25 to 54.

When -- what kind of timeline should we be looking to see that kind of revenue translation coming through Dallas?

And I'm assuming at this stage that we would be thinking about revenue growth in Dallas only when we get around to the anniversary next spring of the downtime, or is it possible we could translate revenue into growth -- sorry -- ratings into growth sooner in Dallas?

This is Ed.

Let me correct your -- you mentioned a 9% reduction in inventory.

Actually it approached more like 20%.

And we did see a positive response in Arbitron in this most recent book, but also in the prior book.

It was a bit of a dip at Christmas, the fall 2004 book, and there was an immediate recovery.

We did implement this inventory reduction strategy in the middle of this first quarter, actually March -- to be exact, March 1st.

We would expect to see some -- we've already seen improvement in ratings.

Our target has always been top five, we want to be in the top five.

If we're in the top five, that's our comfort zone.

To be tied for number one of course is frosting on the cake.

And we're very happy to be there, but if we are in the top five we've achieved our goal.

We think that we can translate that into increased the revenues -- probably reflecting in the fourth quarter we'll begin to see that reflection.

As we -- as I said my comments, we do expect to have increased profitability for all of 2005 when compared with 2004.

Jonathan Jacoby, Banc of America Securities.

Also on this -- following up on Lee's question on expenses.

As you look out, when you think on a year-over-year delta basis, almost, that the bulk of this expense investment is going to end so we can try to get to a normalized model state?

And then in your guidance, when you say station operating income, is that for broadcast or does that include total media as well?

Thanks.

Answering your second question first, the SOI guidance is for broadcast only.

So you can add the non-broadcast media component to that.

And I believe there's a reconciliation of those numbers on the back page of the press release.

In respect to your first question, the stations that we've acquired or swapped or divested over the last year or so, about one-third of them move into same station in the fourth quarter.

The other two-thirds move into same station Q1 next year.

So I believe it will be next year before you begin to see normalized numbers in the same station arena that will facilitate you analyzing our numbers in greater detail.

And then a follow-up on the national business.

Everybody has had it weak for 2Q.

Are you seeing any signs of life as you head into the third quarter?

Yes, I think that it looks as though our pacing indicates that the second quarter would've been the low point.

Third quarter and fourth quarter are pacing nicely, and we think that they will resume more of a first quarter type of curve.

But (multiple speakers)

We're looking much as stronger in Q4 then we are in Q3.

I think there is some softness in our national numbers in July and August.

But we are pacing very well for September/October/November.

So, fourth quarter looks quite encouraging in comparison to Q3.

Things are booking out quite well.

Victor Miller, Bear Stearns.

First one just another expense (technical difficulty) generation (ph).

The second quarter, you gave -- you had 5.6%, mid single digit SOI of 10.6%.

Next quarter you are still say saying mid single digit, but slightly higher translation to the SOI line.

Seems like you did a little bit better than you maybe expected in the second quarter on expenses.

Maybe you could just go through that.

And then secondly, it looks like if you take your total revenue and subtract your same station, it looks like the ones that aren't in your same station bucket did about $1.1 million of operating income on $8.4 million of revenue.

So that's only 13% margin there.

Could you give us a sense of what the metrics for that group of stations looked like maybe a year ago, so we can figure out whether you're actually breaking them down to rebuild them?

And how many stations are represented in that bucket?

Thanks.

What was your first question again Victor?

In the second quarter, you reported 5.6% same station and 10.8% SOI.

I've got it.

In terms of the expenses coming in a little bit better than we projected, bad debt expense was below budget.

We saw a small improvement in our receivable aging, and therefore needed a slightly lower bad debt expense number.

We were also slightly under budget on marketing.

Not particularly large numbers, but enough to give us some solid operating leverage.

And at this point, I'm not counting on a recurrence of that in Q3.

It would be nice, but we still need to do some work to see if we can achieve that.

In terms of the non-same-station bucket in the second quarter, those stations in the second quarter did 8.4 million of revenue and 1.1 million of station operating income.

Right.

I was wondering what -- if you had it for the previous year.

In the year earlier period, those stations did 7.2 million of revenue and 1.8 million of SOI, so a 16% revenue growth from stations in that bucket; about an $800,000 decline in SOI.

If you look at the SOI margin composition analysis in our press release on the second page, you'll note that we had startup losses of approximately $800,000.

And all of those are in the non-same-station category.

How many of those -- how many stations are represented in that non-same-station bucket right now?

There are 67 stations in same station, leaving 36 in non-same-station.

That's saying (ph) (technical difficulty) political and fourth quarter?

Sorry?

Political dollars in fourth quarter.

Political dollars in fourth quarter --

Of '04 I think.

Of '04 -- $1.2 million in the fourth quarter.

James Dix, Deutsche Bank.

One thing -- I don't know, David, whether you said you provided the same station base for third quarter last year in revenue and (indiscernible) or whether that was on your Web site.

But if you could just remind us if you had not.

And I guess secondly, in terms of the mix of revenue coming from the block programming, it was around 27%.

I assume over time that's obviously going to go down.

Where do you see that steadying out at as your other initiatives develop over time?

Thanks.

In terms of the same station base for Q3, same station numbers Q3 2004, 42 million of revenue, 24.76 million of net broadcast expenses, for an SOI of 17.25.

Those are the base numbers that we are working against to compare for 2005.

In terms of your second question, just remind me what your second question was?

The share of revenue on the broadcast side coming from the block programming was I believe around 27%.

Obviously, that is trending down over time as your other initiatives develop.

Where do you see that percentage going on a longer-term basis?

Where does that kind of hit a steady-state?

It's more evolution than revolution.

Certainly our News Talk stations, which are predominantly advertising revenue driven, they are fastest-growing segment, predominantly advertising.

Contemporary Christian music also continues to grow faster than Christian Teaching & Talk, also advertising revenue driven.

So I could see that 27% coming down somewhere in the 20 to 25% range, still growing very nicely.

I think we can continue to achieve 5 to 6% block programming growth year in, year out.

But because the other segments that are advertising driven will grow a little faster, the mix will change a little bit.

But I don't think it will change too much.

Now in the quarter the block grew 8%?

Is that correct?

Yes, the block grew 8%.

A couple of components to that.

On the Christian Teaching & Talk side, I think we achieved just over 5% growth in block programming revenue.

We also carry a number of block programs on our News Talk stations, primarily at the weekend.

And because we've doubled the size of our News Talk roster, we were able to sell a bunch of additional programs over the weekend.

So that accounts for the remainder of the increase.

David Bank, RBC Capital Markets.

Ed, since you highlighted the online business as one of the key five elements to your strategy going forward, do you think you could give us maybe a little bit of guidance both near-term and intermediate-term in terms of the revenue and EBITDA levels that we could expect out of that business, maybe an update on that?

Thanks.

I'm going to -- I will let David comment on that.

We could probably give you a little guidance for this year and compare it with last year.

If I look at the first six months of 2005, our other media business that you see reported in our financial statements consists of two business units -- our Web business and our published business publishing business.

And I'm just going to zero in on the Web side.

Salem Web network, year-to-date 2005 through June, did 3.1 million of revenue.

That was up 28% from the first six months of 2004.

In terms of the expenses of that business, the expenses were about 2.6, 2.7 million, which were 22% on the year earlier period, for a profit of just shy of $500,000.

And that profit number is up 73% from the year earlier period.

The revenue growth mirrors quite closely our page view growth.

Our page view growth for the first six months is also up about 28%.

So, there is a very clear correlation between page view growth and revenue growth.

And then there is also some operating leverage that allows us to grow the profit from that business.

So right now, that business is operating at about a 15% profit margin.

But we believe that there are operating leverages, leverage synergies there as we continue to grow that business.

In terms of the growth to expect from that business, the target we set ourselves is to continue to grow that business by at least the pace of the overall Internet business and preferably a little more.

But we want to at least match what the overall Internet advertising industry is doing.

I know this is kind of pushing it, but kind of -- can you think help us to think about maybe like an EBITDA target for '05 and kind of a longer-term growth rate?

In that business we're at 0.5 million for the first six months.

So looking at it simplistically, I would want that to at least double and see $1 million of profit out of that business this year, which would be a record.

That would be a good number.

I would like that.

In terms of growth thereafter, it really depends on how we can grow page views and grow revenue.

And I'm not sure I would like to comment more on that, other than to say we expect to grow by at least the same rates as the overall Internet advertising industry.

Jim Goss, Barrington Research.

A couple of questions, one relating to the CCM stations.

I was wondering what the spot loads were like in the other stations -- Atlanta, Portland, Cleveland, Honolulu, that you're focused on relative to Dallas and what the competitive situations are in those markets.

And has the Dallas experience prompted a different approach, perhaps, in those and some of the earlier state stations going forward so that you have the good experience but don't have the competitive challenge issue?

And then separately, I noticed that one -- your new Chicago station in the News Talk format had developed a relationship in the sports area, which seemed a little out of the focus of the station.

I was just wondering how that would tie in and whether that's a strategy in that and other stations going forward.

In regard to the CCM and other markets, remember Dallas has been in this format now for nearly 15, 16 years.

We acquired it in the fall of 2000, and most of these other stations were acquired subsequent to that.

So they haven't been in existence in the format that long.

And therefore, we have the luxury of coming in with a smaller inventory load to start with.

And since they were startup in the format, they were not going to be sold out.

They were not sold out.

We had the ability therefore to set the overall limits lower initially, and they are beginning to knock on the door and we have raised rates a number of times in those markets.

Dallas, when we acquired it, had a very high spot load.

We frankly brought it down initially when we acquired it, and we've subsequently made these further reductions.

When we acquired it from Sunburst in 2000, their inventory load was even higher.

So it was sort of taking a mature station or a station that was more nearly mature and ratcheting down some of that inventory.

We didn't have that disadvantage with the others.

We had the luxury of structuring those from the get go.

So we haven't had that situation.

In terms of a competitive environment, the competitive environments are really fairly similar.

There is a distant station in Atlanta, I say distanced well out of the market, that typically gets less than one share in Arbitron -- 0.5, 0.6, 0.7 share, that does a similar kind of music.

There are a few minor players.

So in terms of direct competition with the format, there isn't much.

To some extent, any format that appeals to the female 25/54 that has a safe environment, which is the way we position that format, is potentially a bit of a competitor.

But the competitive situations are not that different in those markets.

I was thinking, though, that your competitive -- the competitive challenge and context is not just Christian music but that broader one.

That's what you faced in Dallas, isn't that correct?

Well, we face it in all the markets to some extent.

Not with our P1s (ph) or our core audience.

Our core audience are very loyal.

They come to the format because they affirmatively like this music.

There are a lot of folks that we would call seekers or soccer moms that may or may not be as devout in their faith and their church attendance, let's say, but who want a safe environment, like the music.

And those would be the listeners that we would tend to share with other AC formats that are in a safe environment.

I think the good thing, the impressive thing is that we've been saying all along that we believe the format has legs and that we can translate the Dallas success to these other markets.

And we are beginning to do that.

Our goal has always been to be in the top five, break into the top five in the female 25/54 demographic.

We are beginning to achieve that.

We just achieved it in this most recent book in Portland for the first time.

We're knocking on the door in Cleveland.

Atlanta is knocking on the door.

So we are very close to breaking into that top five.

In some cases, we've been in that format for three or four years, beginning the fifth year.

So I am -- we're very encouraged by the progress in these other markets and that competitive situation.

To grow the cum, yes to some extent you'll share audience with other safe AC type formats.

As far as WIND goes, sports is quite compatible with the talk format, particularly weekend sports.

And it's a good way to attract new cum, when you want to try to introduce the station to new people in a very inexpensive way.

If you can appeal to those partisans for particular teams, it helps us.

And the weekends are particularly innocuous.

During the week, if you break format a little bit, it can be a little bit problematic.

For the most part that's done in the evening and we think it's quite compatible.

We have weekend sports on a number of our News Talk stations.

(Operator Instructions).

Bishop Cheen, Wachovia Securities.

Looking on your press release you always break out into baskets and that's very helpful.

So this is kind of a two-part question.

When I look at the basket, I don't ever remember seeing (technical difficulty) a percentage of your station platform.

So many deep (ph) turnaround stations, those with less than a 0% margin as I see now.

But that is coupled with -- it appears going forward you have -- I think I count 1, 2, 3, 4 stations -- $13.5 million of pending acquisitions since March 31st, and maybe a couple, three divestitures, about 2.7 million.

So my question is, give us a little color on how fast that -- the deepest development (ph) basket churns and moves up the ranks.

And second, do I have the numbers right on what is pending and what is waiting to go out the door?

You do have the numbers right on what is pending, both in terms of pending acquisitions and pending divestitures and pending exchanges.

In terms of the startup stations, yes we have gone from 16 startups to 28 startups from Q2 '04 to Q2 '05.

That's a result of our acquisition activity over the last year, particularly in the News Talk area.

That's where we've been most active on the acquisition front.

And because we buy and change formats, we never start with any cash flows.

In fact, we start off with startup losses.

We don't acquire mature, cash flowing radio stations like some of the other radio operators.

So, right now we're carrying 28 startup stations at about $900,000 of losses.

If I look at Q3 '05 I expect that loss number to go from 900,000 down to about 4 or 500,000.

So, I see that being cut in half.

And I see that reducing still further in Q4.

By the end of Q4, there will probably half a dozen, maybe 10 stations still in that startup loss category.

That includes the new one that will come on board in the third quarter.

But I think you will see some good improvement in that area over the next couple of quarters as these startups move to breakeven and then to profitability.

With the pending acquisition -- the acquisition activity seems to have slowed down recently.

Correct.

So it sounds like you will not be adding startups to the startup basket at the same feverish rate that it went in -- wait, feverish is too strong a word.

But it certainly was more pushed into the startup basket I than I ever remember seeing it in recent memory.

Yes, that's correct.

We about 18 months ago identified an opportunity to grow and expand our News Talk platform and make it the real third leg of our business next to our Christian Teaching & Talk format and our contemporary Christian music formats.

We've rapidly gone in that format from 15 stations to 31.

As a result, we are now in eight of the top 10 markets and 18 of the top 25.

So we've largely achieved the goal that we set out to achieve with the growth of News Talk.

We've now got a very solid national platform for that business.

But we now have lots of startups in that format, and as a result we're going to focus on the operation of the stations and getting them to breakeven, and getting them to profitability and growing their audience and getting them mature.

David, new topic, last question.

Your revolver again -- tell me, if you would, the availability and the capacity on your revolver.

Yes.

We have a $75 million revolver, or 74,250,000.

None of that is drawn at the present moment.

We're currently at a (indiscernible) -- five leverage ratio versus a covenant of 6.75.

So we've got one and three-quarter turns available to us on our operating cash-flow number for bank purposes of probably approximately 55 million.

So, I guess that gives us about 90 million of capacity below the covenant.

But since the revolver is set at 75 million, we have 75 million of available acquisition capacity.

Simple math.

All right, thank you David.

Victor Miller, Bear Stearns.

Thanks.

Could you comment -- you talked about national being flat, talk a little bit about what categories are disappointing and whether you are seeing national pickup a bit in the third quarter?

And you did talk about the drag that Dallas had on the music with and without.

What was the impact of Dallas overall in terms of the impact for the whole revenue and SOI for the Company in the quarter?

Or if you want to give us exactly how Dallas did on revenue and SOI, that would be the other alternative.

Thanks.

In terms of the national advertising, I don't have available in front of me an analysis of which categories performed well or which categories performed badly.

One thing I would comment is most of our national advertising business we develop internally through our Salem Radio national rep firm business.

A small portion is developed through outside rep firms, Cats and Interep, who represent some of our CCM music stations as well as our sports station in Cleveland.

The general market was certainly softer, so the outside national business that we got from the third party rep firms was certainly softer than our internal business generated by our own rep firm.

And a large chunk of our internal business is affinity in nature.

It's from advertisers who specifically sell a product that is geared or targeted towards Christians.

So that certainly held up better than more generic general market business.

But there seems to be a little bit of a pause across the all advertising categories really in second quarter.

We had a sizzling first quarter in that national business, and it just sort of slowed down.

It was very hot first quarter and then it slowed down in the second quarter.

Third quarter looks better and fourth quarter is pacing very nicely.

So it appears to be more of a little kind of adjustment.

After a lot of busyness in first quarter a little sort of pause and catch the breath and then move forward.

We don't really see any wholesale erosion there, and I can't identify specific categories.

It seemed to be pretty much across the platform.

In terms of KLTY, KLTY's revenues were down 5% from Q2 '04 to Q2 '05.

Similar number, in terms of station operating income KLTY represented 4.2 million of revenue in the second quarter and SOI of 2.5 million.

So I think that will allow you to back into what our same station numbers were excluding KLTY.

There are no further questions.

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

We appreciate all of you that joined us for the call, and we will look forward to visiting with you again next quarter when we report on our next quarter earnings.

So thank you all for being with us.

Thank you.

This does conclude today's teleconference.

Please disconnect your lines at this time and have a wonderful day.