Salem Media Group Inc (SALM) 2005 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

At this time I would like to welcome everyone to your Salem Communications fourth quarter and full-year 2005 earnings release conference call. [OPERATOR INSTRUCTIONS] Thank you.

It is now my pleasure to turn the floor over to your host, Mr. Eric Jones.

Sir, you may begin your conference.

Good afternoon.

And thank you for joining us today for Salem Communications fourth quarter conference call.

As a reminder, if you get disconnected at any time you can dial 973-582-2734 or listen from our website www.salem.cc.

We will begin in just a moment with opening comments from our President and CEO, Edward Atsinger; and Vice President of Accounting and Finance, Evan Masyr.

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

David Evans, Executive Vice President Business Development and CFO will participate in the question and answer portion of our call.

As David is calling from his home as he has a pinched nerve in his back.

Please be advised that statements made on this call that relate to future plans, events, financial results, prospects of 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, 8-K, and other filings filed with or furnished to 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.

Please undertake -- 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, 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 is accordance with generally accepted accounting principals is available on the Investor Relations portion of the Company's website as part of the current report on Form 8-K and the earnings release issued by Salem earlier today.

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

Thank you, Eric.

And thank you all of you who have joined us for today's conference call.

During the challenging fourth 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.

Our radio stations achieved a 1% same station revenue growth and a 3% same station operating income growth.

Although obviously not as strong as in several recent quarters, our growth of same station net broadcasting revenues still compares favorably in Q4 of '05 by, in fact, about 400 basis points to the industry's 3% decline as reported by the radio advertising bureau.

Our financial results for Q4 of 2005 reflect also the absence of $1 million political advertising revenue, which we had in Q4 of '04 and the results are in line with the guidance we provided in our third quarter '05 earnings release.

I want to detail our fourth quarter activity in the context of our ongoing initiatives to grow our businesses, focusing on our three strategic radio formats, our national advertising business, and our Internet businesses.

Let's talk first of all about the news talk stations of our most recently focused and growing format.

We have 34 news talk stations serving eight of the top ten cities in America and 20 of the top 25.

Stations in this format contributed 15% of our total net broadcasting revenue for the quarter.

And achieved a 24% increase in net broadcasting revenue compared to the same quarter last year.

On a same station basis, our news talk stations grew net broadcasting revenue by 16%.

Since 2003 we have more than doubled the number of stations we operate in this format, adding stations in such markets as Chicago, Philadelphia, San Francisco, Detroit, Miami, and I believe we have a significant revenue and profit upside as we develop these stations to maturity.

One way to quantify the upside is by comparing our actual average audience share and actual average power ratio for these stations with our goals.

Currently our 34 news talk stations have an average 12-plus ratings share of 0.7 and an average power ratio of 0.6 and they generated $28 million of revenue in 2005.

Our first goal is to achieve a four-book average rating share of 1.0 and an average power ratio of 0.8.

Achieving this audience share and power ratio would result in an additional $20 million of revenue from these stations assuming that the radio dollars going into these markets remain constant in 2005 terms.

Once we've achieved this initial goal, the next goal will be to drive the ratings for these stations to a four-book average of 1.5 and an average power ratio of 0.9 which would equate, again on the assumptions the radio dollars remain essentially the same for these markets, would equate to an additional $33 million in incremental revenue.

So achieving these goals represents one of Salem's more significant opportunities for growth, and we're concentrating our resources on doing just that.

A second initiative to grow our company is to bring to maturity our contemporary Christian music stations, we have 14 stations in this format which as a group contributed 22% of our total net broadcasting revenue for the quarter.

In most markets we promote this format as the Fish.

These stations are also branded as safe for the whole family because of our commitment to provide radio programming that is appealing, entertaining while remaining consistent with the core values of our target audience.

Same station CCM profitability decreased slightly to $3.6 million in Q4 of 2005 from 3.7 million in Q4 of 2004.

Same station revenue at our CCM stations was flat for the quarter compared to Q4 of '04 but if we exclude KLTY in Dallas which had a 5% decrease in revenue for the quarter due to the inventory reduction program that we started in March of 2005, our CCM stations would have achieved same station revenue growth of 3% in Q4 of 2005.

March 1, marks by the way the one year anniversary of the inventory reduction program that we initiated at KLTY.

This program was -- this decision to reduce this inventory was the right decision, the stations ratings have increased 15% based on a four book average ending in the fall of 2005 for KLTY's target demographic of females 25-54 and we now expect KLTY to return to positive revenue growth.

Now, as you know KLTY in Dallas continues to be a market leading highly profitable franchise.

Replicating KLTY's performance at our other CCM stations is a key focus.

The station's best position to achieve performance similar to KLTY's measured by ratings and power ratios are those stations that enjoy full market signals -- Atlanta, Portland, Cleveland, Sacramento, Jacksonville, and Honolulu.

The 2005 four book average for all people 12 years old and older on the basis of average quarter hours share for these stations was approximately 2.4, with a power ratio of approximately 0.8.

On the other hand KLTY, the franchise we are working to replicate achieved a 3.2 share for the same period and a power ratio of 1.4.

This combination of a 32% ratings increase and a 67% power ration increase represents another significant growth opportunity for Salem.

A third initiative is to continue to grow revenues at our 44 Christian teaching and talk stations, these stations achieved same station revenue growth for the quarter of 2%.

However, if we exclude a political advertising as a factor, revenue for the quarter would have grown by 4%.

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

An important and unique feature of the Christian Teaching Talk format is their stable national and local block programming business, which contributed 54% of the revenue on the Christian Teaching Talk stations or 28% of our total net broadcasting revenue for the quarter.

At the end of each year, we negotiate renewal rates with block -- national block programmers that purchase time on these Christian Teaching Talk stations, the new rates are effective for the entire upcoming year.

We announced earlier today the average increase in rates for 2006 is 5%.

This block programming business remains rock solid and is an important underlying factor in the stability of our overall business.

The fourth initiative is to grow our national advertising business.

The lack of political advertising in Q4 of '05 compared to Q4 of '04 made a growth difficult for the quarter, and same station national advertising revenue excluding -- excuse me, including spot and network revenue declined by 3% to $800 million, if you again want to exclude political same-station national advertising revenue increased by 7%, which represents good underlying expansion.

While Salem has historically sold less national advertising than the average general market radio company, advertisers are beginning to recognize the exceptional value of our platform.

Not only do we provide the most efficient way to reach listeners interested in Christian and family-themed programming nationally, but we can also readily demonstrate through results the size and buying power of the audience.

We're confident in our ability to continue to expand this business.

The fifth initiative that I want to discuss is the opportunities that afford us to develop the Internet business further.

During the quarter, our Internet business revenue grew by 15% to $1.7 million and generated a $300,000 profit.

Monthly page views increased by 28% to 47 million.

And our network of sites averaged more than 4 million monthly unique visitors.

Since December we strengthened our position as the leading Christian content provider on the Internet by acquiring churchstaffing.com and crossdaily.com.

Church staffing is the preeminent source for online job search information targeted to church professionals.

And it is a natural compliment to our existing Christianjobs.com website.

We acquired churchstaffing.com for $3.1 million, a purchase provides that represents a multiple of expected first year EBITDA of ten times.

Crossdaily is an online provider of Christian content, graphics and online community resources.

We acquired crossdaily.com in February of 2006 for $2.3 million.

A purchase price that represents a multiple of expected first year EBITDA of nine times.

Each of these acquisitions was, you could say, in format, when acquired, and was generating positive cash flow.

Let me conclude my prepared remarks by mentioning the recent action taken by our Board of Directors authorizing the repurchase of up to an additional $25 million of Salem class A common stock.

Given the growth potential of these five initiatives that I just outlined, the upside in our -- at our developing news talk and music stations, recognition by national advertisers of the reach of our platform and the importance of the audience, our consistent block programming business, and our rapidly developing Internet platform, we consider Salem's recent stock price weakness to provide a good opportunity to create value for our shareholders by investing in our own stock.

I'll now the turn call over to Evan Masyr for a more detailed discussion of our fourth quarter 2005 results and our first quarter of 2006 guidance.

Evan?

Thank you, Ed.

Our results for the fourth 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 fourth quarter increased 5% to $51.5 million and SOI increased 5% to $19.8 million.

On a same station basis net broadcasting revenue grew 1% and station operating income grew 3%.

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

For those growth rates that are significantly affected by the absence of our $1 million of political advertising in the fourth quarter of '05 numbers, but present in the fourth quarter of '04 numbers, I will also provide same station growth rates that exclude political.

Beginning with block programming, same station revenue grew 8% to $15.6 million.

Same station local advertising revenue declined by 1% to $21. 5 million.

However, excluding political it increased by 1%.

Same station national advertising revenue including spot and network revenue declined by 3% to $8 million.

Excluding political, it increased by 7%.

Finally, other revenue, which includes infomercials declined by 3% to $2.7 million.

Included in our same station numbers is broadcasting revenue from 84 of our 104 radio stations in our network, representing 93% of our net broadcasting revenue.

Regarding our balance sheet, as of December 31, 2005, we had net debt of $321 million and were in compliance with all covenants.

Our bank leverage ratio was 4.94 as of December 31, versus a compliance covenant of 6.25.

Our bond leverage ratio was 5.35 versus a compliance covenant of 7.0.

During the quarter ended December 31, 2005, Salem repurchased 274,542 shares of its class A common stock for $5 million.

As of March 6, 2006 we had repurchased 1,000,475,362 shares of class A common stock for approximately $24.8 million.

For the first quarter of 2006 we are projecting net broadcasting revenue to be between 49 million and $49.5 million, reflecting low single-digit growth compared to first quarter of 2005 net broadcasting revenue of $47.5 million.

SOI is projected to be between 16.8 million and 17.3 million reflecting flat to slightly negative growth compared to first quarter 2005 SOI of $17.3 million.

And net income per diluted share is projected to be between $0.01 and $0.02 per share.

Our first quarter 2006 outlook includes 0.8 million of non-cash compensation expense related to the adoption of FAS 123R based on stock options currently outstanding.

First quarter 2006 outlook reflects the following.

Same station net broadcasting revenue growth in the low single digits compared to the first quarter of 2005, same station SOI growth in the low single digits compared to first quarter of 2005, reduced inventory loads at KLTY, 94.9 FM our contemporary Christian music station in Dallas, continued growth from Salem's underdeveloped radio stations, particularly our news talk and CCM stations, fixed costs associated with recently acquired stations in Detroit, Honolulu, Miami, Omaha, Sacramento, and Tampa markets and the impact of recent acquisition exchange and divestiture transactions.

This concludes our prepared remarks and we will now open the floor for some questions.

Operator.

[OPERATOR INSTRUCTIONS] Your first question is coming from Jonathan Jacoby from Banc of America Securities.

Hi.

Just two questions here.

Firstly, if block programming is roughly about 35%, it's growing at 5%, should we then assume sort of negative growth for the rest of your business on the broadcasting side in the first quarter?

Second question, leverage is roughly about five-and-a-half times.

How much wiggle room do you really think you have to buy stock here?

Thanks.

David, if you picked up the question, you might want to take a shot particularly at the second part of it.

But Evan -- Evan can--.

I can certainly on the second one, the buyback capacity, at this point we think we can buy back a total of approximately $39 million of stock, so an additional 14 million given our current leverage ratios.

And that would take you to what, about six times?

That would take us to, I think about six.

Okay.

And then on the first question.

Yes, on your first question, Jonathan, can you hear me okay?

I'm calling from a different line so there might be a little interference.

We had a particularly challenging January.

And we were in negative territory for the month.

We are seeing sequential improvement into February and into March, but for the first quarter as a whole, the balance of our business outside of block programming will be flat to down slightly.

Okay.

Thank you.

Thank you.

Your next question is coming from James Dix of Deutsche Bank.

Good morning.

I guess your time, gentlemen.

I had a couple of questions.

Just first for modeling purposes, I mean, if you could lay out what the same station base is for, I guess, your first quarter guidance in terms of revenue and station operating income, and I guess if you had a kind of a comparable number for the full year 2005, just so we had some sense as to what you're considering same station going into the year.

I guess also, Evan, I think you mentioned that same station in the fourth quarter counted for 93% of revenue.

Do you have what the -- what -- how much of station operating income, those same stations -- those stations accounted for?

And then I guess in terms of your guidance, any way to quantify some of the impact of the items you list in the release on first quarter and then how they should change in the second quarter through fourth quarter specifically?

I'm thinking of the costs for your news talk stations, some of the fixed costs on some of your recently acquired stations and any impact of swaps?

Okay.

And that's it.

Okay.

Let's start with your first question, your same station base in Q1 of '06.

Revenue, the same station base for -- it would be 46.6 million.

And SOI, 17.5 million.

Your second question was you wanted to know what percentage of SOI was in our same station in Q4, correct?

Yes.

Let's see.

It was, hold on.

Virtually all of it, 98%.

Okay.

And what was your third question?

Just -- well, actually on the first one I actually wanted to know whether you had a same-station base number for the full-year '05?

We do not have one for the full year.

Okay.

And they I guess my final question was just if -- you list a couple items in the last press release as affecting your first quarter results specifically investment, I guess, in the news talk and CCM stations, some fixed costs associated with recently acquired stations, and then the impact of, I guess, divestitures or exchange transactions, any way for us to think about at least in aggregate what the revenue and BCF impact is there.

Dave, do you want to take a crack at that one.

Let me try and do a couple of pieces of that.

Okay, thanks.

Probably most prominent is KLTY in Dallas.

I think we're projecting that for the first quarter KLTY's revenues are down about 4%, 5% compared to last year.

Having said that, KLTY will revert to positive revenue and profit growth beginning March 1, with the anniversary dates of the inventory reduction program.

In terms of costs associated with recently acquired stations, I'm imagining that you're going to see 700 to $800,000 worth of quarterly start-up losses from those stations, and those start-up losses will gradually be eliminated during the course of 2006.

I think those would be the two largest contributors.

Okay.

Great.

Okay?

Thank you.

Thank you.

Your next question is coming from Lee Westerfield of Nesbitt.

Thank you very much gentlemen, good afternoon.

Two questions, first on Dallas and the second on your Internet investing this year.

Just based upon our own tracking of commercial air time we had seen in January the Dallas station cut 20% of its time and again, in February 20% of its time, so if you're down in revenue only 4% I guess that would imply that your effective pricing is actually up in the 15 to 16% range?

Does that furthermore imply that, come March, we can -- and then in the second quarter we might expect double digit revenue growth out of that station?

And then secondly how much did Dallas represent in revenue overall in the fourth quarter, and then I'll ask the question on the Internet.

David Evans, you better take a shot at that.

Yes.

In terms of your first statement, yes, indeed, rates -- our average rates in Dallas are up significantly with the inventory reduction program.

The fact is that the spots that we got rid of when we initiated the inventory reduction program were the spots that had the lowest rates so that pushed up our rate structure overall in the station vis-a-vis what the station will look like post March 1, I expect to see it deliver low to mid single digit revenue growth.

I don't think we're anticipating at this time anything more than that.

And so I think that's what I would model for KLTY for the balance of the year.

Evan, do you happen to have the Q4 KLTY numbers handy so we can give people a snapshot of it's percentage revenue and SOI contribution?

I do.

On a percentage of revenue it's in the 7 to 8% range of our total net broadcasting revenue.

And, sorry, for what period was that, Evan?

That's for the fourth quarter.

That's perfect, thank you.

And then on the Internet side, you've been doing significant bolt-on acquisitions, different, interesting URL's and so forth.

The question I have is really in the first quarter you're signaling a negative cash flow from the Internet and other divisions.

You were up a year ago admittedly in the few hundred thousand dollar range.

So the question I have is really, is it your plan this year to be investing for the full year 2006, to be investing, say, negative EBITDA in that area as you build out the various more recent acquisitions, church staffing, crossdaily, et cetera?

Yes.

You examine Q1, Lee, there are a couple of factors that impact Q1 that won't impact the rest of the year.

There's one factor that will impact the rest of the year.

Q1 we always have a seasonal Macavene publishing loss that's reflected in our Q1 numbers.

Its profitable Q2, Q3, Q4, but the first quarter is always the weakest quarter because of lack of record company releases.

On the Internet side, in Q1 we are incorporating church staffing and crossdaily for the first time so there are some one time costs related to integrating those new websites into our infrastructure.

But once we hit Q2, Q3, Q4, those will be profitable accretive acquisitions.

The final answer I mentioned that will have an impact for close to the whole year, we are going to be launching our own national news talk website that will mirror what our news talk radio stations do on the Internet, and that new venture will have some start-up losses during 2006, probably amounting to about, probably somewhere between 800,000 and $1 million of start-up losses related to that new website.

Net-net David does that signal that Q2, Q3, Q4 would be break even to positive in that Internet other line?

I think they would be positive for three quarters.

Thank you, that's what I was getting to.

Thank you.

Your next question is coming from Chris Ensley of Bear Stearns.

Good morning, thanks.

Just wondering in the first quarter guidance, if on a local and national basis you're seeing sort of the same dynamic, local maybe excluding political, comparing it to fourth quarter, sort of low single and national up mid to high or if any of that dynamic has changed at all.

In the second quarter, I was wondering if you -- if the tone of business has changed at all.

I would guess that KLTY alone would cause that to improve fairly nicely.

And then finally you mentioned 9 million of revenue producing CapEx.

And I was wondering if you could just discuss one or two of the bigger projects and what kind of -- would we see the return on that in '07?

And what, perhaps, kind of return we might see.

I can -- I can take a shot at the last question.

The biggest income producing CapEx expenditure is a building which we have purchased and which we are actually building in Honolulu that will allow us to house all of our stations at one location and free up the obligation of paying rent.

We're -- we'll also have a little bit of additional square footage that can be made available to third party lessees.

We have -- will have some build out expenses associated with the acquisition of Detroit.

That's more of an acquisition related expenditure rather than an income producing -- the biggest one is the building in Honolulu and there is a significant dollar amount associated with that.

And when might that be complete?

We expect to occupy the space at least in part around the 1st of May, April or May.

And it should be finished shortly thereafter, another 30 or 60 days thereafter.

What were the other questions you asked?

The local national mix -- are you still seeing sort of the same contribution local up low single, but national maybe even up mid-to high when you -- like it was in the fourth quarter ex-political and then are you seeing any change in the tone of business in the second quarter or are you seeing it kind of more of the same.

I think comparing local to national we are seeing greater strength on the national front.

Than local, if you exclude political.

If you examine first quarter we see things progressively getting stronger, January, February, March.

January was a weak month.

We're seeing much stronger trends at this point in terms of pacing us for March.

But don't want to get too ahead of ourselves in terms of thinking what that may mean for second quarter and beyond.

All right.

Thank you very much.

Thank you.

Your next question is coming from Jim Goss of Barrington Research.

Thank you.

The -- a couple of questions, one relating to the Christian teaching and talk stations, you mentioned a 2% revenue gain that -- but 4% without political.

And that varied somewhat from the 5% block programming revenues I guess because of the ad dollars.

I'm wondering looking into this year how you see that working out, how much of an impact political can have on the positive side, in either a percent or dollar terms.

And then looking at the news talk stations and the music stations, as they grow, as a share of your business, is it somewhat of a mixed blessing in a way, in that similar to the Dallas situation they become more competitive with other more commonplace formats and therefore that that is a little bit of an inhibitor to the growth in power ratio and revenue that you're talking about?

And then finally related to business mix, as the Internet grows, do you have aspirations for Internet and magazines and other non-radio revenues to be a fairly significant share of revenues and what might you eventually aspire to?

Let me -- let me comment on the first question about the news talk -- I mean the Christian Teaching Talk format.

It's very difficult to know what the impact of political will be particularly in an off year political season. 2004 was the most hotly contested national political contest in many, many years.

And there was a ton of money spent in a number of markets where we are -- where we have clusters of stations.

So it's difficult to know from year-to-year.

It looks like there will be some pretty good political activity.

And we'll just have to wait to see.

In terms of -- I don't have the exact figure, Evan may be able to give us a little more specific figure but on the Christian Teaching Talk side the block program revenue still represents, I think we gave a percentage, still represents the bigger piece of that revenue.

In past years the spot component of it was growing.

It's leveled a little bit.

And is not -- is not growing to the same extent that it did.

The block programming continues to be pretty robust.

We have gotten a 5% increase as we mentioned in a press release earlier today and as we mentioned earlier in the call.

We probably will do better than that overall.

I'm not quite sure how much better.

But I suspect that we'll do a little better on the block side because we still have inventory that we can sell and when we finish the year we normally will do better than what we begin in terms of an average rate increase.

So I continue -- I think that probably for '06 I think that the block component will probably remain at least where it has been, if there is a lot of political advertising we could see an uptick in the spot part of that.

To add a little specificity to what Ed was talking about, our block programming in the fourth quarter of '05 on our Christian teaching and talk, both on the national and local basis accounted for just over 50%, actually around 53% of revenue from those stations, total revenue.

As far as your question about the mixed blessing with the news talk and music stations, yes, to some extent.

But, again, they do tend to be focused sort of niche plays, and we roll them out on an existing platform so they have the benefit of some consolidation, which gives us a little bit of a cost advantage vis-a-vis competition.

As far as the contemporary Christian music stations go, yes it is true they will compete in many markets with other AC program stations, they still have their unique place and they still have some competitive advantages in that a good bit of the advertising base is seeking that specific audience, even though in general the demographics on a broader basis look like a typical AC formatted station.

So they -- there -- there is more of a -- you do have a competitive issue.

We've mentioned that in some of our calls where other AC-type stations have gone with light inventory and heavy promotion.

It does tend to have a bit of an impact on us.

But I don't think as much as it has on straight general market formatted stations.

As far as the news talk goes, yes, there is competition there.

Our goals, the goals that I articulated are pretty modest.

And the good news is that we roll those out very inexpensively using for the most part our own nationally syndicated talent.

So there's kind of a double whammy for us there.

We know we can always get the talent.

We have enough syndicated product that we can go into any market that we think we should and know that we will have credible talent that we can go with.

It may not be -- it may not be the most highly rated talent, but it is credible, it is effective and it doesn't cost us a whole lot.

So your observation is probably accurate but again because of the leverage that we have in controlling our own content we sort of get benefit, more than just at the local station level.

We also get a little side benefit with our national businesses through the syndication of that national talent.

As far as the Internet and publishing components go, yes, I personally believe they will continue to grow, perhaps more rapidly than our other businesses.

We really see, as I have articulated in past calls, the strategic direction for the future is to develop a consistent program to integrate your old media platform with new.

And to take advantage of the old media platform to drive -- and expand -- drive traffic and expand listenership to the new media and as a niche player we're uniquely qualified to do that, because online -- successful online sites tend to be much more narrow cast rather that broadcast.

As a niche broadcaster we tend to be by definition a bit more narrow cast so online -- successful online sites tend to be unique communities and that is the focus that we have as a company that focuses on Christian and family-themed content.

That common denominator does allow us to build those sites.

So I am very bullish by the opportunity.

I think for our company it is a better opportunity than for most because of the nature of the Internet.

We got into the publishing business, held it for -- maintained it for a number of years without a lot of profitability, just to keep the platform -- to have the platform and to have the infrastructure so that we can quickly and cost effectively bring out new publications that would be complementary to some of these Internet initiatives, and we intend to do that.

Now, the acquisition of The Singing News that we announced last call, or maybe two calls ago that we have -- in a press release, we noted that we had closed on that, that is a real franchise.

And by including that business in with our publishing business, it now makes that publishing solidly profitable or it will be solidly profitable going forward into 2006.

That is a -- that was a great acquisition for us.

And it really broadens that publishing platform and allows us to have now a very effective infrastructure that will allow us to move very quickly and roll out new publications as the opportunity affords itself.

So to summarize it.

Yes, I see a significant expansion of our Internet and publishing business really working together in a dynamic interaction with our old media platform to increasingly contribute to the revenues and profitability of the Company in the future.

Thanks, Ed.

Thank you.

Your next question is coming from David Bank of ARC Capital Markets.

Good morning.

I don't think we -- we didn't change our name.

We're still RBC.

Guys, can you just talk about how the Fish station growth has been outside of KLTY, in the fourth quarter, the first quarter that you see and kind of how it is developing in the second quarter?

When you say developing?

You wanted -- you want to know in revenues or do you want to know in--?

Yes, how does growth look from the revenue side?

We know that KLTY is sort of skewing things because of the spot load reductions, but if you look at fourth quarter and first quarter and as you see it in second quarter how are the Fish stations doing outside of KLTY?

I'll let -- I'll let Evan speak to it in a minute.

Let me just say, David, that, remember, the challenge with this format, it kind of goes to some extent to the last question that Jim Goss asked is you really have to build the audience share first and then the power ratio comes and then the revenue comes.

And so you do have that sort of sequence.

It's very difficult to build revenue without the audience share in that format.

You can build audience share and sometimes not get the revenue, hence a lower power ratio.

So I think when you look at those you need to ask how are they coming audience sharewise and how are they coming revenue sharewise?

Having said that, I'll let Evan address the latter part of it because we do have that data readily available.

Okay.

And then I just have one quick follow-up.

Okay, sure.

Let me just give you a fourth quarter idea of where we were overall on our Fish station.

We grew it about 1% and on a same station basis, we were pretty much flat for the quarter.

There was some political revenue but not a whole lot in this format.

And these numbers include KLTY?

That's correct.

That's correct.

Okay.

And if you pull out KLTY, the same station growth rate for the other Fish stations was plus 3%.

Correct.

Okay.

And I think if you were to back out political, it would probably be plus 4%.

So continuing to grow faster than the overall radio industry, there continues to be some upside to reach maturity and we expect to see some continued outperformance in 2006 and 2007 as we continue to grow those stations.

Then in -- and in 1Q are you seeing the same kind of growth, again, outside of KLTY in terms of the Fish stations?

I don't have that number specifically in front of me.

January I mentioned was a little challenging.

The January number was probably a little lower.

I think if you were to look at February and March, I would expect to see a similar trend to Q4.

Okay.

And then I guess the follow-up is, in terms of KLTY, what kind of ratings increases did you -- did you see post the spot loads and the improvement?

I guess part of what I'm trying to get at is I know we're going to see an improvement because the comps are so tough and you are comping to reduce spot load, but is that just a comp issue or do the reduced spot loads drive longer term revenue growth, beyond just an easy comp?

David, you want to continue with that?

Yes.

I think when we look at KLTY, excluding the inventory reduction program, so once we're beyond that March 1, KLTY is very much a mature radio station.

Yes, with the inventory reduction campaign -- there was some short term revenue loss, there was some ratings improvement.

We feel good about that ratings improvement.

But overall looking ahead '06, '07, KLTY is a mature radio station.

We expect to see positive revenues, positive profit growth but it's not going to be anything out of the ordinary.

Okay.

Thank you very much.

Thank you.

Your next question is coming from Bishop Cheen of Wachovia.

Hi, good afternoon.

Thanks for taking the call.

As usual, very helpful on your color for both insight and modeling.

Two questions.

Let me billboard them for you.

One, I want to go back and revisit political.

Two, I want to talk about the pending acquisitions.

Let me go with the last one first.

I think there's roughly 23 million of pending acquisitions listed on your press release.

How much escrow is there already of that amount listed?

How much has already been laid out in deposits?

We probably have about $1 million with it.

Okay.

So it's de minimus.

Yes, it's de minimus.

If you recall all of those acquisitions have been closed during the first quarter.

Right.

I mean, your press release does lay out which -- what has been closed.

I was going to -- I mean, it is the same format as you always do?

Yes.

The ones that are pending as of December 31.

So are you saying -- did I misunderstand that all of these have been closed since December 31?

No, no, they closed during the first quarter.

Okay.

All of these have closed in Q1?

Yes.

Okay.

So it's already done and already on your balance sheet.

By March 31, it will be.

Okay.

Great.

And then how much revenue or cash flow do these represent?

Bottom line is -- well, I'm not sure we have those numbers handy.

Okay.

Yes.

I can circle back with you.

Okay.

Let me go to the political.

I -- you know, I -- you are famous for not overguiding, and we appreciate that.

But by all accounts this is going to be a record political year in media.

And you guys certainly have skin in that game, especially if all these local elections are going to be nationalized as such on one side and heavy local on the other.

So I sense this real reluctance to even talk about what you expect in political this year.

Can I get you talking a little more?

Well, the problem with political is that you -- it's so difficult to predict.

You may well be right.

It may turn out to be a big year.

But I have seen this happen before where it turns out to be not such a big year or, if it's a big year, it turns out that radio doesn't seem to get as much of the advertising budget.

So it's a difficult thing to predict.

And it -- and I don't know that we have drilled down.

And perhaps we could do this, and you could do it yourself, drill down and see where the really contested races are going to be for the House and for the Senate on a national level, and of course for the House, Senate, to some extent those are local elections.

Yes.

We are all getting -- week by week we're getting more clarity on it, and I have done it and you guys have done it.

Yes.

I think that that's probably -- I haven't -- we haven't really done that much of it, and if we do we can probably get a little better idea of where it would be.

It's not that we're being coy and that we really kind of have a gut feeling of what it's going to be.

It's been so volatile that you really are on dangerous -- treading on thin ice if you try to be too predictive of political advertising.

Fair enough.

Could you just refresh my memory -- in '04 what was your political, either give it to me in gross or apples to apples net if you have that handy.

In the entire '04, not just fourth quarter.

No.

Entire '04, and then, yes, fourth quarter would be great too if you have it handy.

Let's see -- Evan is looking here, let's see if we have that.

We probably for the entire year we were probably about 1.5 million of political.

1.5 gross?

1.5 net.

1.5 net, okay.

And we were -- about 1 million of that was in the fourth quarter.

Okay.

That is very helpful.

Thank you, guys.

Yes.

You are welcome.

Thank you. [OPERATOR INSTRUCTIONS] Your next question is coming from Bobby Melnick of Terrier Partners.

Thank you.

A simple one and a complex one.

The simple one -- what's the historic cost of your 23 money losing stations at the end of the year, please?

Let me -- let's -- let's find the number here.

Give us a minute here.

It's about $100 million.

100 million?

Yes.

Okay.

And the more complicated one, which requires some color, if you play with some of these numbers which again you divulge a lot of information and we can sort of jimmy some of these numbers and play with and fill them in to our liking, but they're not fully disclosed in terms of what stations are jumping up and around from what components within the sort of money losing to, 0-29, to 39 to 49, et cetera, et cetera, et cetera.

But if you kind of play with some of these numbers and you make certain assumptions that the -- KLTY is in the very profitable component and then some of your block program ones are profitable stations, then you can reach a conclusion which I think is right, but I'm -- I'm making a question as a statement, that, yes, that there's not a lot of growth in the undeveloped stations, either year-over-year or sequentially from the third quarter of 2005.

Let me flush that out a little bit.

If you look at the third quarter of '05 versus the fourth quarter of '05 what you see is approximately the same station count and approximately the same cash flow count, again, adjusting for the fact that by your own admission the block programming stations are showing revenue growth and one can reasonably presume, given the cost structure of those, cash flow growth.

Similarly, if you did the same numbers '04, 4Q the '05, 4Q i.e. not sequentially but year-over-year you'd see some of the same things.

And again if you backed out the 50% or greater ones to try and calculate the lesser performing or underperforming stations you'd come up with similar ratios.

In fact, in the fourth quarter of '05 with a comparable station count we produced 7.8 million of cash flow in the 49% and under versus 8.4% -- 8.4 million of comparable.

So the question with that data, and I hope you followed me, is -- is there something that's changed in the industry, or something that's changed in our model or something that's changed in our ability to execute the model that is causing our lesser developed and underdeveloped and money-losing stations longer to turn into profitable, valuable entities than they once were?

And if that's so, how does Salem Communications as a publicly traded company adjust its going forward strategy, please?

Thank you.

David, do you want to comment on that or do you want me to?

Do you want to start and I'll chime in?

I think the thing that -- the wildcard in there, Bobby, that's a little hard to follow is that you can, with the number of stations that we have, the number of clusters, you are going to have from time to time some markets where you run into a bump in the road, sometimes a big bump.

And if there are five stations in that cluster, four stations, it can -- they can be -- have been moving nicely, and then suddenly they fall out.

And it -- and they move from one category to another.

But you don't just move one, you move four, five stations.

So it plays with your numbers.

And we -- with a company our size, you have some management challenges that you look at and you determine that there are management issues that can be solved and that you are still bullish and you can move forward.

Or you might come to the conclusion that you are beating a dead horse and that you can't ever get there and of course if you can't with some of those markets, speaking to the last part of your question, you are going to -- you are going to consider all alternatives, including divestitures.

We've made decisions when we acquired properties that we thought were pretty good, that are based upon an approach that's been pretty successful for us for a number of years.

I'm not seeing a lot of changes in the industry yet that would suggest some kind of paradigm shift or some kind of major change that we're groping with that we didn't have in the past.

I think there is -- to the extent that there may be, I think it is a perceived issue, rather than a real issue in that with all of the hype and publicity about satellite radio and iPod and the wireless Internet and -- with all of that, that there's been a perception that the old platform somehow is not as effective as it used to be, but there's no empirical evidence yet to suggest that.

So I don't see any new factor other than maybe a perceived one that may be impacting advertising budgets to some extent less so for us as a niche broadcaster.

Now, as I said, having said that, there are a few markets where we had, you can have a management implosion or for a variety of reasons you lose two or three key sellers all at once through a variety of circumstances, and it can plunge a market or two into a negative column.

And that has happened to us in '05 and I think that's what's jumbled some of your numbers a little bit.

That's kind of the macro picture.

David, you want to take a shot at anything else?

Yes.

I think I see it more as a micro issue as opposed to the macro issue, in terms of your analysis, Bobby, there are some stations that have been in this start-up development category too long.

Too long for your liking.

Too long for our liking.

We're very focused on those markets.

And we are absolutely examining the question of can we get them to appropriate levels of profitability or do we need to monetize them through some other means, for example, fail.

Now, in your analysis, compounding that a little bit is in Q3 '04 and Q4 '04 we had pretty strong political dollars that hit most of our market.

So there has been less improvement from '04 to '05 than we would have liked but that's partially because of the lack of -- because of the absence of political costs.

But there are a couple of markets we're a little disappointed with.

We're focused on fixing that.

And if we conclude that we can't fix it, through operations, then we may have to look at selling a couple of markets.

But I think that's the only comment that I would add.

Yes.

And the -- the good news is I don't think that the asset value for any of the markets we're in, in spite of their -- in spite of their perhaps less than stellar growth, the asset value has not declined over our basis.

I mean, we feel very good about where we are in terms of the asset value, just even on a stick basis.

Yes.

A good example of that, albeit a very small one is we recently announced the sale of an AM station in Richmond.

Here's a very small example.

That station never got to the level of profitability that we desired.

We decided to sell it.

We will generate a pretty decent profit on that sale and we'll definitely recover the asset value, plus some.

I think we paid 700,000 for the station and we sold it for 1.5 million.

Yes.

And so even if you aggregate the losses associated with the start-up period, we still come out ahead of the game and I think that's been pretty typical of the assets that we hold.

Thank you.

Your final question is coming from James Marsh of Hanover Square Capital.

Just two quick questions.

One, I was hoping you could comment a little bit on the block, appears to be deceleration from that 8% level on the fourth quarter to the renewal rates of 5%.

I wondered if there is a way that will catch up.

Or if you could just reconcile a bit, that would be helpful.

And then secondly, on the Internet businesses, I think you mentioned that they were growing 15%, growing revenues 15% in the fourth quarter.

Is that an apples-to-apples number, number one?

And then, two, are you happy with that growth rate?

It seems like the rest of the Internet, certainly, Internet ad spend seems to be up in that 25% plus range, a lot of numbers flying around but it is definitely higher than 15.

Thanks.

Well, I think in terms of your first question on the block, the -- the rate increase that we negotiate and implement with our block program users at the end of the -- each year for the upcoming year represents an overall increase that we can expect based upon historic experience in terms of there -- we get about a 90% renewal rate, typically higher than that, and so there is a little bit of a challenge of filling unsold inventory, that the remaining new inventory.

When you factor all of that in, it could well end up higher than that percentage but the percentage that we've given is a conservative figure based upon a formula that we use.

Let me -- let me just reconcile the 8% that you heard for Q4 and the 5%.

The 5% increase for '06 relates solely to block programming on your Christian Teaching Talk stations, the 8% number for Q4 it also includes some block programming, mainly local that we've placed on our News Talk stations.

Okay.

And because we added more News Talk stations from '04 to '05, that gave us some new weekend inventory that drove our overall block programming number.

But when you isolate the Christian Teaching Talk components of it, pretty much every quarter is 5, 5.5%, quarter in, quarter out, with very little variance.

Okay.

Okay.

That's helpful.

Thanks for that, David.

Vis-a-vis your question about the Internet, we really don't compare ourselves to overall Internet trends.

We tend to look at our growth in page views and our growth in unique visitors and how well we're translating page view and unique visitor growth to revenue growth, and then to profit growth.

And we've seen -- if you look at '05 as a whole, we've seen great consistency in terms of whatever our page view growth has been, we've translated a very similar number into revenue growth.

Okay.

We use more of an internal micro metric as opposed to what's going on in the general market.

Okay.

Fair enough.

All right.

Thank you.

Okay?

Thank you.

At this time there appear to be no further questions.

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

Well, I think that concludes our comments.

We thank all of you for joining the call.

And we'll look forward to visiting with you in another quarter.

Thank you.

This does conclude today's teleconference.

You may now disconnect your lines and have a wonderful day.