Salem Media Group Inc (SALM) 2007 Q2 法說會逐字稿

Good evening.

My name is Marcus, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Salem Communications second quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question and answer period.

If you would like to ask a question during this time, please press star, then the number one on your telephone keypad.

If you would like to withdraw your question, press the pound key.

Thank you.

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

Evan Masyr, Senior Vice President and Chief Financial Officer.

Sir, you may begin your conference.

Thank you, and welcome for joining us today for Salem Communications' second quarter 2007 earnings call.

As a reminder, if you get disconnected at any time, you can dial in to 973-935-8511 or listen from our website at www.Salem.cc.

I am joined today by our Chief Executive Officer, Edward Atsinger III, and our President and Chief Operating Officer, Eric Halvorson.

We will begin in just a moment with opening comments from Edward Atsinger, and I will then provide a brief financial overview.

After our prepared remarks, 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 formats, competition the radio broadcast, Internet, and publishing industries, and new technologies, adverse economic conditions, and other risks and uncertainties detailed from time to 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.

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 contain 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 in accordance with generally accepted accounting principles is available on the investor relations portion of the Company's website at www.Salem.cc as part of the current report on form 8K and earnings release issued by Salem earlier today.

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

Thank you, Evan.

Good afternoon or evening, wherever you may be.

Thank you for joining us for our second quarter 2007 earnings call.

I would like to begin my comments by discussing recent developments at Salem Communications.

On June 25th, we issued a press release outlining changes in our management team effective July 1st.

I'm pleased to have Eric Halvorson back in a management position with Salem, now serving as our President and Chief Operating Officer.

While Eric will remain on our board of directors, his duties as Chairman and as a member both of the audit committee and then nominating and governance committees did terminate with his taking on this role.

Additionally, Joe Davis was named Division President Radio, and David Evans is now Division President New Business Development Interactive and Publishing.

Finally, Evan Masyr has been promoted to Senior Vice President and has also been named Chief Financial Officer.

These changes will allow us to more effectively focus on the opportunities and challenges in both our core broadcasting business and our developing new media businesses.

Eric, who is with us today, and it was mentioned on the call he's with us today, on future calls will become more involved with -- as he becomes more involved with operations on future calls, Eric will take a lead role in these earnings reports and calls.

I would like to now discuss our results for the quarter.

We achieved an overall revenue increase of 7%, comprised of a 6% increase in net broadcasting revenue and a 13% increase in non-broadcast revenue.

Let me provide some additional details, starting with our radio business.

We have 45 stations programmed in our foundational Christian teaching and talk format, and these stations contributed 45% of our total revenue.

While net broadcasting revenue for these stations was flat compared to the prior year, block programming revenue increased by 6%.

The reformat and relaunch of our Miami station as a Christian teaching and talk station in January contributed to some of the growth in block programming.

Offsetting the programming growth was a 13% decline in advertising revenue.

This decline was due to challenges we have and are experiencing in a few of our key markets -- most notably in New York, Washington, D.C., and San Francisco.

Block programming contributed 61% of the revenue on our Christian teaching and talk stations and continues to be a significant contributor to our performance.

We have 13 stations programmed in our contemporary Christian music format, The Fish, which grew revenue 11% for the quarter, and contributed 22% of our total revenue.

Our flagship CCM station, KLTY in Dallas, continue to show impressive gains by increasing its revenue for the quarter by 23%.

Contributing to this growth was revenue earned from KLTY's annual concert, Celebrate Freedom, which was held in late June this year as compared to July in 2006.

Advertising revenue for KLTY increased 12% for the quarter.

As we stated in the past, our goal is to replicate the success of KLTY in our other Fish markets, particularly where we have a full FM signal.

Particularly encouraged by our progress at WFSH in Atlanta, which posted a 14% growth in revenue.

Our 30 news talk stations had a 1% decrease in net broadcasting revenue on a same-station basis, and contributed 13% of our total revenue.

The performance of these stations was negatively impacted by the performance of KRLA in Los Angeles, which experienced an 18% decline due to a weak radio advertising market in the Los Angeles area.

Excluding KRLA, our news talk stations grew revenue by more than 5% for the quarter.

We continue to make investments in this format, both in marketing and in programming.

During the quarter, we increased our marketing expenditures over 2006 in Chicago, Denver, Los Angeles, Louisville, and Phoenix, and we are likely to spend additional money marketing during the second half of 2007.

It will be necessary to continue our investment in programming and marketing to drive our news talk stations to the next level of maturity.

Finally, with regard to our radio assets during the quarter, we closed on our sale of WVRY-FM to Grace Broadcasting Services, Inc., in Waverly, Tennessee, for $900,000.

We continue to review our under-performing stations, particularly those in non-strategic formats, to determine if a sale might be a better way to monetize these assets.

We will keep you update on any future developments in that area.

Our non-broadcast business delivered another strong quarter, driven by both organic growth from our Internet business and from our publishing acquisitions.

For the quarter, non-broadcast revenue increased 36% to $6.3 million, or 11% of total revenue, and non-broadcast operating income decreased to $700,000 from $900,000 in the prior year.

This slight decline in profitability is due to an increased investment in the development of our magazine, websites, and revenue softness in our magazine division.

Our Internet business increased revenue 34% to $3.1 million and increased profit to $600,000 from $400,000.

The monthly page views associated with our Internet businesses also continue to grow at an impressive rate, increasing by 84% to 109 million monthly page views across our entire network.

Our Christian content websites averaged 68 million monthly page views in the second quarter, an increase of 16% over the prior year.

TownHall.com, our conservative opinion website, which we acquired in May of 2006, grew monthly page views to an average of 39 million page views for the quarter, from a base of 12 million at the time of its acquisition last year, making it the number one conservative opinion website in terms of page views.

With that, let me now turn the call over to Evan Masyr for additional discussion of our second quarter 2007 results, and to provide also third quarter 2007 guidance.

Evan?

Thank you, Ed.

Our results for the second quarter of 2007 were issued in a press release earlier today and are available on the investor relations portion of our website.

I will now briefly comment on these results.

Total revenue for the second quarter increased 3% to $60 million, and adjusted EBITDA increased 4% to $16.4 million.

Net broadcasting revenue grew 1% to $53.7 million, and station operating income increased 1% to $20 million.

Non-broadcast revenue increased 36% to $6.4 million.

On a same-station basis, net broadcasting revenue grew 2% and SOI increased 1%.

Let me provide some detail by revenue type, comparing second quarter 2007 to the prior year.

Same station block programming revenue grew 4% to $18.7 million; same station local advertising revenue was down 5% at $22.2 million.

Same station national advertising revenue, including spot and network revenue, grew 2% to $7.7 million.

Other revenue, which includes infomercials, increased by 34% on a same station basis to $4.3 million.

This increase is principally due to the timing of KLTY's Celebrate Freedom concert which, as Ed indicated, occurred in the second quarter this year as compared to the third quarter in 2006.

Our same station results include broadcasting revenue from 92 of our radio stations in our network.

This represents 99% of our net broadcasting revenue.

Let me now comment on our balance sheet.

As of June 30th, 2007, we had net debt outstanding of $347.9 million, including $8.5 million outstanding on our revolver.

We were in compliance with the covenance of our credit facilities and bond indentures.

Our leverage ratio was 5.6 versus a compliance covenant of 6.75, and our bond leverage ratio was 4.9 versus a compliance covenant of 7.

For the third quarter of 2007, Salem is projecting total revenue to be between $58 and $58.5 million compared to third quarter 2006 total revenue of $57.9 million.

Adjusted EBITDA to be between $13.8 and $14.3 million, compared to third quarter 2006 adjusted EBITDA of $15.9 million.

And net income per diluted share to be between $0.08 and $0.09.

Our third quarter outlook reflects the following: same station net broadcasting revenue to be between $51.3 and $51.8 million, compared to $51.3 million in the third quarter of last year.

Non-broadcast revenue increasing to approximately $5.9 million from $5.4 million in the third quarter of 2006.

Same station SOI declining to between $18.7 and $19.2 million from $20.7 million in the third quarter of 2006.

Non-cash compensation expense of $600,000 compared to third quarter 2006 non-cash compensation expense of $900,000.

Increased marketing and programming costs of approximately $900,000, primarily on news talk stations in Chicago, Denver, Louisville and Phoenix, and on our contemporary Christian music stations in Dallas, Atlanta, and Sacramento.

Continued growth from our core block programming business and our underdeveloped radio stations, particularly our news talk stations.

Ongoing softness in the radio advertising market and the impact of recent acquisition and divestures transactions.

This concludes our prepared remarks.

We would now like to open the call for questions.

Operator?

Thank you.

(Operator Instructions.)

Our first question comes from James Dix from Deutsche Bank.

Good afternoon, gentlemen.

Couple questions.

I guess first it looks like your same station revenue guidance is somewhat similar for the third quarter as for the second -- kind of flat to up 1%.

Correct.

Are you expecting much change in growth for the rest of the year, and if so, kind of what would be driving that?

I guess secondly, just if you could outline what categories you think are somewhat more exposed to the real estate market, whether that's financing or home furnishings, or however you'd define that and what trends you're seeing there.

And then I guess on the news talks, how are you proceeding versus plan in terms of ratings and cash flow.

It sounded like KRLA may have held you back a little bit, but I don't know whether that was something you were anticipating somewhat in your plan.

And then I guess the last one, and then I'll let someone else go -- I think in the past you have discussed a little bit how your corporate expense includes some expenses for your online activities.

Is there a way you could kind of give us some general sense as to how much corporate is for online as opposed to broadcasting, just so we can get a better sense as to how corporate is comparing to your overall cost structure versus other broadcasters?

And that's it.

Okay.

Well, I was trying to write your questions down, James, and I only got two of them.

But as far as the categories that are more vulnerable to the softness and the whole financial sector, we do do a good bit of mortgage business on all of our stations, but particularly our news talk stations and our Christian teaching talk stations, and we have experienced some difficulty.

I think some of the markets that I mentioned in my report, both on the Christian teaching talk side with the decline in advertising revenue, and on the news talk side, that has been a significant factor.

We still have mortgage business; we haven't lost it all.

But there has been a decline in it that's significant.

I can't quantify it with more specificity.

As far as your second question goes, I didn't get it all written down.

Evan, maybe you got that.

The question was -- it was the first question about same station revenue growth for the rest of the year and how we see that?

Yes, it just looked like third quarter looks somewhat like a copy of the second quarter.

I mean, is that something we should assume or is there drivers that might change that?

It looks pretty similar.

I mean, when you ask growth, I assume -- do you mean revenue, do you mean SOI, or both?

And if you're asking the question in terms of how it compares with second quarter, the guidance we're giving is pretty similar to what we gave before.

It's a little more difficult in this environment.

We've been pretty good on the revenue side.

We have been a bit conservative on the expense side, which has produced a better EBITDA.

Part of the reason for that is that it's a little more challenging to get the number right on the expense side, because we've got some significant creative components in the budgets.

We talk about marketing and promotion, and you budget a certain amount -- you're not really always certain you can spend it all.

If the (inaudible) doesn't come out the way you want it or if conditions change, sometimes you pull back on some of that budget.

And our managers, with 100 units out there and basically the reports we get, they want to deliver what they're promising.

So there is no conscious attempt to be overly conservative here.

We're trying to give you the best guess that we've got.

The last two quarters, we've been able to do better on the expense side.

Whether or not that'll be true in the third quarter, we can't say.

The guidance we're giving today is guidance that we think is our best call.

As far as corporate expenses for online go, well, David Evans' new executive position is almost entirely devoted to new media.

I mean, his new title is Interactive Publishing and the title that I mentioned is entirely devoted to new business development.

Now, most of that relates to online; there's a good piece of it that relates to publishing.

But I'd say maybe two-thirds online, one-third publishing, and so that portion of his compensation and benefits basically could be looked at as entirely devote to the online business.

I don't know, Evan, what else?

Yes, the only other thought I have as far as corporate expenses devoted to online is we have some internal resources on the accounting side that devote time to the online business, but that's really not that significant.

Also, we have some graphic artists that do some creative things for the entire Company in all divisions, and they probably make some contribution online, as well.

But it's not a significantly large figure.

Okay, and I guess the last one that I had was just where do you stand (inaudible) on your news talk ratings and cash flow, especially in light of what's going on at KRLA?

Well, we feel good about where we are with the news talk stations.

I mean, the whole goal here is to try to develop franchises, and if you establish a franchise and it's really successful, it's very difficult, it's very challenging, and it takes a lot of time and a lot of right decisions.

And so we're comfortable with the progress we're making.

KRLA's audience share is good.

Their challenges seem to be primarily weakness in the LA market the last quarter, and then that's coupled with some internal sales challenges that they have.

But they're on top of the ladder, and they feel they've got momentum.

Their product has never been better.

They feel very good about it.

We've committed some significant dollars to research in that market, and we think we have a pretty good handle on the direction that we need to go with it.

So we still remain optimistic that these underdeveloped news talk stations can continue to make progress.

And we feel that Chicago's one that will continue to move along, we've seen good progress there.

We have to measure them primarily in terms of Arbitron, and that data's accessible to you.

I mean, it's all a matter of public record, and we see progress there.

Okay, great.

Thank you.

Thank you.

Our next question comes from Victor Miller from Bear, Stearns.

Good afternoon, it's [Chris Ensley], and I have a question on -- I think you answered it, on the expense side.

We were expecting, and I think you got it [to four to five], and it came in kind of flat, and you talked about marketing in promotion, and perhaps you didn't spend what you had intended to.

So I guess the question is, does that mean you did not spend it, or does that just mean it shifted out of second into third -- it just wasn't spent when you thought you'd spend it.

And then the second question is on the national and network side of the business seemed healthier than the local side.

For some of the companies we follow, it's just the opposite.

I was wondering if you have pulled it apart and figured out why the disparity there.

I'll take the first question with respect to the expenses and the marketing.

I think we have a little bit of both.

I think there are some markets where we've looked at some of our historical spend and we're not necessarily seeing, with the (inaudible) that we currently have, that it's really driving ratings.

So there are some markets where we sort of pull back and said, okay, we're not going to spend right now.

You know, sort of pull it for the foreseeable future.

But then there are other markets that spilled over from Q2 to Q3.

As you saw in our guidance, we're going to spend almost a $1 million or $900,000 more in advertising in Q3 '07 versus Q3 '06, so some of that is movement from the prior quarter.

And with regard to national and network revenue versus local being a little bit of an anomaly with regard to the rest of the industry, remember that most of our national business and all of our network business -- virtually all of our network business is produced by our own division, Salem Radio Reps is the sales arm and Salem Radio Networks is the network arm.

And again, it's the nature of the product, it's more of a targeted audience, and we kind of control that space.

And we've been able to grow that business pretty consistently -- much like our block programming.

It's targeted to a very specific audience, it does not seem to be as volatile as general market business.

And we've gotten an awful lot of business that's sort of driven it a bit from Hollywood.

There's an awful lot of family-friendly films that Hollywood, I think, began a year or two ago to get the message that there's a big audience out there, a big market out there that would like stuff that's -- you know, you can describe it as stuff that's safe for the whole family; family-friendly, and Hollywood has been turning out a lot of product, and they've been relying on our network and our national spot buys to drive the audiences.

And that's increased for us, so that's been another thing that's been driving it for us.

But essentially because it's targeted it's a little bit inconsistent with general market national and network business.

Thank you very much.

Thank you.

Our next question comes from Bishop Cheen from Wachovia.

Hey, everybody, thank you for taking my call.

Couple of quick questions here.

Let me billboard them for you.

The timing of the $4.5 million Portland pending acquisition, I think that's LMA at this point, just got to make sure that's the only other thing pending that you've announced on divestitures and acquisitions.

I just want to double check in on the availability via the Swingline credit facility and the revolver, and last kind of look at what fate awaits the 7 3/4 in this looming December call.

Because you've certainly brought your leverage down on an actual basis under six times and definitional, it's lower than that.

So I'm wondering about your appetite to recap those.

I'll take the latter two questions, Ed, and you can take the first one.

With respect to availability, we have probably just under $16 million available on our credit facility as of June 30th.

And then with respect to the 7 3/4 notes, I mean, yes, there is a call date in mid-December of this year.

We've been looking at ways that might make sense in a net present value positive value manner to call those.

Right now, we're still evaluating that and looking for ways to do that in an effective manner.

And if we do come up with something, we'll obviously announce that and call those.

Good, me too.

We can compare notes.

Excellent.

Okay, thank you.

With regard to but a little different aspect, you mentioned the pending $4.5 million acquisition in Portland for the AM.

That's on an LMA and we expect the (inaudible) will continue for some time.

It could continue for over a year or more and well into next year and even beyond.

It's dependent to some extent on some technical improvements and site changes that are involved.

And by the way, Bishop, we did that.

We are doing our news talk format on that facility, and it's a very good facility -- we're very pleased with it.

We were doing our news talk format on an FM -- we had a third FM in the market, and we felt that there was a better use of that facility for news talk.

We can do that quite well on AM.

And that would free that up to develop it in another area, and on March 28th of this year we flipped the format to a regional Mexican format.

It's not necessarily a strategic format for us, but there was an opportunity there, and there was no FM doing Spanish-language programming in that market with a very large Hispanic population -- almost 11% of the population is Hispanic in Portland.

We're very pleased that in the first book that just completed that station came out number two in its target demographic adults 18 to 34.

We're very pleased with that.

It pulled a 2.7 share, 12 plus, and that -- and I think that when you [extrap] the last month of the first book that was in, it was a 4.2 for the month of June.

So we're very, very pleased with the way that that has developed.

That 2.7, which we think will continue to grow, is aggregated -- if you aggregate all of the other AM stations in the market doing Spanish language, the 2.7 exceeds all of them aggregated together.

So it's a great success right out of the chute.

That was the strategy for picking up the LMA on the AM in Portland, and so we're optimistic that that will be a very good move for us.

Is that a nighttime signal, as well?

Well, it's an FM.

Which one are you talking about?

Well, I know I've been moving around.

KKSN, which is 910AM.

Yes, no, that's a full-time station with an outstanding signal day and night.

It is a full-market signal day and night.

It is better than our 800 signal that we have that is also a full-time signal in the market, and we were very pleased to be able to get it.

Great.

I think that that was the end of it.

You gave me all three answers, I appreciate it.

Excellent, thanks, Bishop.

Thank you.

Our next question comes from Lee Westerfield from BMO Capital.

Thanks, gentlemen, good evening.

Just two questions, if I may.

First, David, if you can tell me about any advances that you guys have made in your Internet sites with regard to what providers you're using, if any, to help you monetize traffic at those sites, and what your plans may be over the next six months in that regard.

And then secondly, back at the, of course, core broadcasting business -- and you may have touched on this already; I apologize if I'm asking a redundant question.

But on Dallas, how did the Dallas station fare during the last quarter, and what you see going on there.

Well, I can handle the last one real fast.

Dallas book just came out.

It is for the third straight book in a row number one in its target demographic, number one in female 25 - 54.

I think number three in adults 25 - 54.

We're quite pleased with the progress of that station.

Spot revenue is up 12%, so it just continues to chug along.

It's just a very nice franchise for us.

David Evans is online here and he can answer your first question.

Lee, just remind me of your question again?

Advertising or other monetization of your websites.

Yes, you mentioned other providers.

For all of our websites, we use our own sales force to generate advertising revenue, principally because we try and target sweet spot advertisers who will get better results on our website than if they were on a general market website.

So most of our revenues is generated internally through our own sales force, as opposed to using a Google or Advertising.com.

We just focus on doing it ourselves because we think we can get higher rates.

Good enough.

Gentlemen, thank you.

Thank you.

Our next question comes from John Klim from Credit Suisse.

Hi, good afternoon.

Could you tell us (inaudible) top priorities in terms of the uses of free cash flow and specifically as it relates to potential share repurchase program.

And then when should we begin seeing margin expansion, the other media segment, and where do you anticipate margins in that segment going over the next few years?

Thanks.

Well, we have announced and discussed in past calls the fact that as we see this business becoming more of a mature business, that we think that trying to get to a place in the future where regular dividends are a standard part of our operation is still something that we have as a target.

We have not taken that action yet, but our board certainly has discussed it.

We have had a share repurchase program in place off and on for the last couple of years, I think, probably going back seven, eight quarters, and we will continue to look at that and continue to be involved in doing that as an option, depending upon the availability of capital and our margin leverage ratio and how comfortable our board is with that particular place we are with leverage.

So we will look at paying down debt, we'll look at share repurchases, we certainly have been active in that and I suspect that we will continue to have an interest in that area, and we will continue to look at dividends as we think they're appropriate.

All three will be areas that we will look at.

Additional acquisitions as a use of capital are a possibility, but right now we are holding back and want to try to absorb what we have.

We still have a good number of underdeveloped stations that we're focusing on operations, and until the credit markets stabilize a little bit, I don't think that we're going to be real aggressive in terms of acquisitions.

As far as margin expanses for the online business, for the Internet business and publishing -- you know, it's hard to say.

We're very bullish on these businesses; they continue to do very well.

The folks that run these divisions for us always deliver on what they tell us they're going to do, and we think it's a time to really try to grow those businesses.

And if it means investment both in marketing and in expansion, we think this is the time to do it -- particularly since it's a relatively small piece of our total use of capital, and so we'll probably continue to do that.

I think that the margin expansions would be better if there wasn't softness in the publishing side, and part of our strategy with the publishing side has been to create an infrastructure so that as new opportunities arise to move into specialty particularly magazine areas, we have the infrastructure in place.

So we'd like to make more money with it, but we've been investing for several years to establish an infrastructure that would allow us to move very quickly to take advantage of opportunities, particularly a spin-off to save some of our online businesses.

And we see those as very real possibilities.

If you just look at the online business, the margins have actually been expanding.

But the thing that's been holding that down a little bit is we always couple those results with the publishing business, and that softness, as we try to develop the appropriate infrastructure, has masked that growth.

That's a big of a vague, ambiguous answer, but it's probably the best I can do right now.

Yes, thanks.

Thanks, John.

Thank you.

As a reminder, if you would like to ask a question, press star, then the number one on your telephone keypad.

Our next question comes from Jim Goss from Barrington Research.

A couple of questions.

One, and to the extent that you are displacing some of your own Salem Radio Network programming as you try to establish a franchise in some of your news talk stations, can you use that content elsewhere, either on a different day part or on a different station you own, or conceivably even another competing station, if they would have it and you think it wouldn't do anything except broaden your franchise in that market?

And then why don't you take that and I'll come back to a couple of others.

Well, yes, in almost all cases, if we displace some of our own network talent, there's nothing that prevents us from affiliating with other stations, for example, in markets and we do that.

We do that in a number of markets.

Mike Gallagher has probably got one of the highest affiliation numbers of any of the talent that we syndicate, and yet he's probably -- his penetration on our owned and operated stations is probably the lowest.

There are a number of markets that we're in -- for example, I think Seattle -- I can, I'm not sure but I'm a little dangerous here, doing this from memory -- but there are a number of markets that we're in where Mike is on a competing station.

So yes we can, and we're open to that.

Bill Bennett, for example, is on -- we've got a deal with Sirius where we syndicate him with Sirius Satellite Radio, and we're compensated for that.

It's a good arrangement for us, and so that makes him available from another medium.

And we're very open to doing that with any of our talent.

Okay.

And you're doing that right now on some of those stations where you did take them off in favor of original, local programming?

Yes, well, we're doing it, we're willing to do it.

If we're not doing it and we can find an affiliate, we're quite prepared to do it.

Okay.

Also, I know you've talked in the past how your ad categories for your traditional Christian teaching and talk stations tend to be unique, relative -- or at least different from that in the normal fare among radio groups, and you were off 13%, I think you said, in that area this quarter.

I was wondering if you might talk about what was soft, in particular, there -- if there's anything you can draw attention to.

Well, I can comment on that in part, and then either Eric or Evan might expand on it.

We do do very well with the mortgage business on those stations, so most of that audience that listens to Christian teaching talk programming are adult, 35-plus, high percentage of homeowners or want to be homeowners.

So we do fairly well in home improvement categories and in mortgage categories, and I think we've been hurt a little bit on the mortgage category across the board.

I can't really quantify specifically where else, it's just general weakness.

I think that it's probably been impacted disproportionately by declines in New York, San Francisco, and Washington, D.C.

Those three markets, which are very large markets, have had the big declines.

If you remove those, there probably wouldn't be much of a decline in the advertising revenue.

So that distorts it a little bit, but I do know that certainly in the mortgage business, which is a big category for that format, we have seen some decline and contraction due to the current situation.

And lastly, does it seem that the block programming revenues are increasing their relative share?

That 61% number seemed a little higher than it had been, and perhaps it's trending up because you're still getting pretty good percentages there in the face of ad weakness elsewhere?

I think you've got two things going on -- you've got our block programmings increasing.

You know, we went to our national program renewal rates early in the year and we got a 5% increase; yet we're having some challenges on the advertising market so that mix is shifting to make the stations a little bit more prevalent on the block than it was previously.

And the 61% block revenue is -- for the Christian teaching talk stations, the mix has been maybe closer to 50-50.

But one of the factors that has distorted that a little bit is the fact that we reformatted the Miami station in January from a news talk station to a Christian teaching talk station.

And when you do that in the reformat process, your block programming revenue comes right away.

Your advertising revenue will take several years to develop.

I mean, you pre-sell, you go in with your block programming, so that tends to kick it up a little bit.

And when we acquired Detroit, which we've had a couple years now, we also did a lot of reformatting there and we added some block program revenue.

And I think that may be part of the reason why that is kicked up a little bit.

I don't think that going forward that the historical relationship between block program revenue on those stations and advertising revenue will change a whole lot.

I mean, I think it will go back where the advertising would come back a little bit more, and you get closer to the historical pattern.

All right, thank you.

That's very helpful.

Thank you.

Our next question comes from Tim Hartch from Brown Brothers.

Hi.

I wanted to ask about the full year cash flow from operations and CapEx and free cash flow for 2007, if you could comment on that.

And then separately, I want to just ask who you're buying the Portland station from, and how much EBITDA you think it will produce on a run rate basis in a one-year period.

Well, with regard to your last question, I can take a shot.

I mean, we're buying the station from Intercom.

In terms of its cash flow, I don't have that in front of me.

We certainly, when we do our due diligence, intend that we can get a cash flow that's consistent with what we've invested, and it's $4.5 million is the investment.

However, that investment only takes place when we end the LMA, and the LMA may not end for a couple of years.

And the LMA rate that we're currently paying is something below the cost of money, so it's an attractive arrangement for us.

So probably, if you did an analysis of the actual time analysis -- money factored in -- you probably are closer to $4.2 million.

We certainly want a cash flow enough so that on the current multiple of our stock price, we are generating enough cash flow that it's not dilutive and that it's accretive.

With respect to your question about free cash flow and CapEx, obviously we don't give full-year guidance on CapEx, but if you look at through the six months, we were about $8.8 million of capital expenditures.

We've been trying to keep a focus on CapEx.

We do look for opportunities to upgrade some of our stations, and that's why in the past you've seen some rather large CapEx dollars.

But we felt that they're in the best long-term interests and a lot of times they can produce additional income because we can reach more people if they're a technical upgrade, things of that nature.

So like I said we spent about $8.8 million year to date.

Free cash flow, I would probably show through the year, year-to-date, if you take into account acquisitions and dispositions and all of our CapEx, probably about $14 million of free cash flow; probably $10 million if you take out -- or south of $10 million if you take out some of the acquisitions we've had.

And that's been the run rate for the first half of the year, and I don't anticipate it being drastically different for the second half.

But again, that's not something we give guidance on for the year.

And when you're talking about the free cash flow there, how are you defining that?

I'm taking sort of adjusted EBITDA, backing out interest, cash taxes, CapEx, and then adding back asset sales.

Okay.

Thanks.

Okay, thank you.

There seems to be no further questions at this time.

I will turn the floor back over to your hosts for any closing remarks.

Well, thank you again for joining us for the second quarter call.

We hope that you'll join us again when we report on third quarter earnings, and good afternoon and good evening.

This concludes today's Salem Communications conference call.

You may now disconnect.