Salem Media Group Inc (SALM) 2008 Q4 法說會逐字稿

Welcome to the Salem Communications fourth quarter 2008 earnings conference call.

(Operator Instructions).

Thank you.

I will turn the conference over to Evan Masyr.

Please go ahead.

Welcome, and thank you for joining us today for our earnings call.

As a reminder, if you get disconnected at any time, you can dial to 973-582-2717 or listen from our website from www.salem.cc.

I'm joined today by our Chief Executive Officer, Edward Atsinger, and our Division President of Non-Broadcast Media, David Evans.

We will begin in just a moment with our prepared remarks.

Once we are done, the conference operator will come back on the line to instruct you on how to submit questions.

Ed and David are on the east coast today and I am in our headquarters in Cambria, California.

We'll do our best with respect to answering your questions given those logistical challenges.

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 Form 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 here of.

Salem undertakes no obligation to update or revise any forward-looking statements to reflect new information, change 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 reconciliation of such non-GAAP financial measures included in this conference call to the most directly comparable financial measures prepared in accordance with GAAP, is available on the Investor Relations portion of the Company's website at salem.cc as part of the current report on Form 8-K and earnings release issued earlier today.

I will turn the call over to Edward Atsinger.

Thank you, Evan, and thank all of you for joining us for the fourth quarter 2008 earnings call.

Before I get into the details of the fourth quarter performance, I would like to give you a report on the details of our recently completed bank amendment.

In order to remain in compliance with all of our bank covenants, it was necessary to make a minor technical amendment to our pro forma debt service covenant.

No changes were necessary in any of the other significant covenants.

Total leverage ratio remains the same, senior leverage ratio remains the same and interest coverage ratios remain the same.

In return for this relief, we did agree to terminate our revolver which was set to expire on March 31, 2009, in any event.

We eliminated our ability to pay dividends and buy back stock, although if our total ratio is less than four to one we can proceed to do those things.

We paid a 50 basis point amendment fee for this relief.

The amendment does not, by the way, include any repricing, so we will continue to pay 175 basis points spread over LIBOR.

This is an extraordinary challenge bank environment.

Needless to say, we are very pleased with this amendment and it's a testament to the great partnership that we have with our lender group and our bank group.

It is times like this when you come to truly appreciate a great partnership and where you find out what your lenders are made of and we do appreciate the unanimous support that we received for this amendment.

The impact of this amendment is that we remain in compliance with our bank and bond covenants.

I would qualify that, as I suppose everyone would in these times, assuming that the economy doesn't collapse further we can weather some continued softening but these times are unpredictable, but assuming that things don't employ greatly, we will remain in compliance with we think reasonable cushions.

Let me now turn to our fourth quarter results.

The fourth quarter was another challenging quarter for the radio industry.

According to RAB, total industry advertising revenue declined 13% for the fourth quarter 2008.

To put that in perspective with our performance, Salem's broadcast revenues decreased 9%.

Additionally, our non-broadcast business grew 11% and now represents about 14% of our total revenue.

While our total revenue declined 6%, when you blend our radio with the non-broadcast business, our adjusted EBITDA was up more than 16%, I think 16.2% to be specific, for the quarter.

This positive EBITDA growth was a direct result of our aggressive and extensive cost cutting measures that we put in place and we got a bit ahead of the curve, we think, of most of our peers.

Among the more significant measures that we took early on were, first of all, reducing headcount through layoffs.

We temporarily suspended our Company's 401(k) match, that was initiated on July -- in July 2008.

We encouraged all employees to use all accrued vacation balances, use them up by March 31, 2009.

There's been great cooperation with that initiative.

We suspended the management bonus program.

We reduced our advertising expenses, and we significantly controlled and eliminated capital expenditures.

Our pacings for the first quarter are showing signs of further erosion and we have heard that widely among our peer companies as well.

Total revenue for January was down approximately 10%, February was down about 12%.

In response to this environment, we have instituted additional cost cutting measures.

Among them were a 5% pay cut in base salary for everyone in the Company across the board effective February 1 and for most members of our senior management team it was 10%, and again on base salary.

And we are going to focus for the foreseeable future on keeping our EBITDA declines to a minimum by continuing to aggressively manage costs and to preserve revenue and develop new sources of revenue wherever we can.

During the fourth quarter we did close on the sale of WRVI-FM in Louisville for $3 million.

We are still waiting to finalize the sale of WRFB-AM in Columbus, Ohio, for $4 million.

Our communication with the buyer indicates that we should be able to close that transaction some time in the second quarter.

Of course we will continue to pursue other opportunities for asset sales given this challenging environment, particularly with the turbulence in the capital markets.

Financing remains a problem for potential buyers so the opportunities are not what they have been obviously in the past, but we will continue to pursue those that appear to be accretive for our shareholders and in the best interest of our company.

With that, I'll turn the call back to Evan Masyr for a discussion of our fourth quarter results and for some comments about first quarter guidance.

Evan.

Thanks, Ed.

For the fourth quarter our total revenue decreased 6% to $54.8 million.

Recurring operating expenses decreased 15% to $38.9 million and, as Ed said, adjusted EBITDA increased 16% to $15.8 million.

Net broadcast revenue decreased 9% to $47.1 million while broadcast operating expenses decreased 14% to $28.9 million and station operating income increased 1% to $18.2 million.

Forty of our radio stations are programmed in our foundational Christian teaching and talk format and these stations contributed 42% of our total revenue.

Same station revenue on this format was down 8% for the quarter.

Revenue from our 11 contemporary music stations decreased 18% and contributed 17% of our total revenue.

Our 24 news talk stations had a 6% decrease in revenue for the quarter on a same-station basis and overall these stations contributed 14% of our total revenue.

We now operate seven radio stations in our Spanish language Christian teaching.

Our latest addition to this format was Miami in October of last year.

The performance of this format continues to grow with more than $800,000 in revenue during the fourth quarter.

Overall, on a same-station basis net broadcast revenue decreased 9% and SOI increased 3%.

Our same station results include broadcast revenue from 82 of our radio stations in our network representing approximately 95% of our net broadcast revenue.

Our non-broadcast business showed another quarter of growth with revenue increasing 11% to $7.7 million or 14% of total revenue.

Our Internet business grew revenue by 22% while the publishing business grew 7%.

Our non-broadcast business generated operating income of $1.3 million for the quarter as compared to operating income of $0.4 million in the prior year.

These results were negatively impacted by the start-up losses with the launch our Townhall Magazine in January of 2008.

We conducted our annual test for impairment of our nonamortizable asset and in connection with this review, we recorded an impairment of $52.7 million associated with the SEC licenses and goodwill in Boston, Detroit, Cleveland, Louisville, Tampa, Miami, Orlando, Sacramento, Omaha and Nashville markets.

As of December 31, 2008, we had net debt outstanding of $323.5 million.

We were in compliance with the covenants of our credit if facilities and bond indenture.

Our credit facility leverage ratio was 5.56 versus a compliance covenant of 6.75 and our bond leverage ratio was 5.63 versus a compliance covenant of 7.

For the first quarter of 2009 we were projecting total revenue to decrease 11% to 14% over quarter 2008 total revenue of $54 million.

We are also projecting operating expenses to decline 10% to 12% as compared to the first quarter of 2008 operating expenses of $47.2 million.

This concludes our prepared remarks and we would like to open the call for questions.

Operator.

(Operator Instructions).

Your first question comes from Bishop Cheen from Wachovia.

Okay.

So you did the amended facility.

You left everything in place.

It looks to me now like there's seems to be a lot of alignment between actual math when we try and do the leverage and your covenant math.

There doesn't seem to be much difference.

Should we expect it that way going forward?

It doesn't look like there's a lot of add backs going forward.

Would that be correct?

Correct.

Usually the biggest difference when we calculate the actual bank leverage ratio versus financial statement leverage ratio, one of the biggest differences is the term excluded properties, properties that we get to exclude from debt and cash flow for an 18-month period that we operate in one of our formats but that we acquire in a different format.

As that acquisition has slowed down, that disparity has slowed.

Right.

Okay.

Which brings me to the acquisition word.

We see what you have in the pipeline and it's not that much.

Where are you in pinpointing strategic asset sales?

Are you still talking those?

Has the market just become such still life that it's impossible to even consider putting something up for bid?

Bishop, let me answer that.

It's a very difficult environment.

There are still buyers.

One of the issues is whether or not they can get financing and each situation is different.

There are fewer than they were.

The prices, the bids are much lower than they were because the pool of buyers is contracted.

What we are finding is that there are just unique situations that pop up where you have people that have a particular desire for a particular situation where the situation fits their unique circumstances and you begin those dialogues and go down the road and see where they'll lead and see if at the end of that trail there's an adequate capital available to make the deal, and we've done a lot of smaller ones.

We have got one that we just put into contract in Tyler, Texas.

Actually, it's the Tyler market.

It's a different station.

It's a small amount of money.

So there's still a few of them out there.

They are harder to come by.

They come up usually due to unique circumstances, but it's certainly not the go-go days of a few years ago.

I think we all know that.

Yes.

Well said.

Last point.

Thank you, Edward.

That's helpful.

Last point.

What is so refreshing in your press release, if I am reading the numbers right, is when you look at your progress your fourth quarter seems to be better than your year which is just the opposite of what we've been seeing with the other broadcasters.

As you look out into '09, do we think that that is just a momentary peak and are we back to kind of the early part of your year?

Just color around the unusual trend that you have demonstrated here.

Well, I would point out that, as I've said in my comments we have done some aggressive and comprehensive cost cutting.

We have some advantages I think in that regard over other broadcasters particularly in the advertising side for some of the specialty formats.

Our cost of sales are much higher than other companies and we can cut there and save more money without giving out much revenue.

So we've been able to take advantage of that.

But the key for 2009, Bishop, is the revenue side and as we pointed out while revenue declined in the fourth quarter, overall for us 6% overall, and I don't know 8% or 9% on the broadcast side, the pacing for first quarter and all of the reports we get from our peers in the business is that first quarter erosion has been more aggressive.

So the key to 2009 is that a unique -- is that a one-time event or could we expect it?

If the revenues stabilize, I think we would see some good progress in that regard.

Honestly, we don't know how much, but we certainly would be closer and EBITDA would maintain closer to a level, but the revenue is the wild card and we'll have to see how that develops.

First quarter clearly has eroded more than fourth quarter did year-over-year comparison.

Right.

But this was again helpful in the news you may have more cushion to effectively cut expenses than other broadcasters because of your unique economic structure.

Is that a fair statement?

Well, certainly to some extent.

I wouldn't say across the board, but I would say with regard to some of the formats that are especially formats that rely not just on advertising revenue but also on block revenue, the cost of generating the advertising revenue is a more challenging proposition, therefore your costs are higher.

So when you cut there, if you can consolidate the sellers and hold the revenue that is going to be there, you save a lot more with some of the layoffs in that area than say a mainstream music format, for example.

Right.

Thank you, Edward.

Thank you, Evan.

Your next question comes from Jim Goss with Barrington Research.

A couple of questions.

First, I was noticing that Christian teaching and talk stations are down revenue-wise, too, is that a mix issue in terms of block programming versus other or are you taking pricing hits on the block programming as well?

That would be number one.

Well, I would, the bigger piece is the advertising.

There's been some weakness in the block, too.

It's been much less.

It's minor for the most part.

More that is coming from the advertising area, but I would say probably estimating 2% to 3% down probably quarter-over-quarter.

Okay.

And the other thing is when you used to show charge grouping your stations, there were usually a number of stations that were showing negative contributions.

I assume those would form the basis for the most likely sales candidates.

I wonder in this type of climate and to the extent that those would be candidates for sale and that anybody buying those would probably have a different format, is there any thought of maintaining the license but going dark on some of those stations as you consider selling them and that a buyer would be looking more for the license than the station itself?

It's an interesting question.

I don't think that we've actually focused on that.

I don't think we have many that would be in that category.

And actually as we sit here today, unlike what we used to do those charts a few years ago, we really have very few stations that are losing money.

Almost all of them are contributing something with insignificant exceptions, but clearly if I had some that were big losers that might be in this environment something that one would look at, but that isn't the case with our current mix of stations.

Okay.

I wasn't sure since I haven't seen a table of that nature in recent quarters.

But that's all I have for now.

Thanks a lot, Ed.

You're welcome

(Operator Instructions).

Your next question comes from Aaron Watts with Deutsche Bank.

Hi guys.

I think you started to talk about this but if you can touch a little bit more on what you are seeing from your ministry on the block programming side.

I assume maybe there's more people going to church these days, but maybe fewer money is being poured into those pots than what we've been seeing in the past.

Can you maybe talk about what you are hearing from that side of the business right now since we are now in mid March?

Well, I think that all of the organizations are faced with this challenging economic environment.

It's probably true that troublesome times bring people to more basic values and when their jobs and livelihood and family are at risk there's often a time of sober reflection and people often would get a little more in touch with faith and family in those particular times.

I can't comment a whole lot on it.

I think there's good resilience in terms of the ministry.

We still see some good resilience.

We know many of them are going to see probably a trading off to some extent in support.

That's pretty consistent through economic downturns.

But I really can't -- I don't know any, any specifics that I can give you.

We get a variety of reports.

We stay in touch with our block programmers.

We try to work very closely with them, and I think they are all going to be stretched a bit but I think most of them continue to do reasonably well.

Well enough that they would want to do continue business with you.

That's what appears to be the case and that's our hope, that they all want to continue.

The question is whether or not financially they can and our hope is that they will be able to continue.

Okay.

And then this might be more a big picture but I'm just curious as to your thoughts on obviously a lot of potential advertisers are putting money into their pocket and that's that.

But have you heard of any other trends that worry you at least on a continuing basis or on a regular basis where people are pulling money from you and putting it towards online streaming radio or other ways to reach the local consumers?

Well, Evan might want to comment.

I haven't seen any of that, for example, on the block program side and we do maintain the largest presence online for online streaming with our sites like One Place.

I think we saw the contractions in financial services, some of the mortgage money is starting to filter back a little bit.

We saw that trend.

Autos have been depressed and a lot of the business that was there has cut back drastically, but we were never that depended upon on autos in most of our stations.

Some of them were more dependent.

I can't identify any specific trend.

I think it's general across the board.

You are seeing a general across the board contraction in advertising dollars spent and I don't think those dollars are being diverted to other media.

I think they are being contracted, period.

Okay.

I appreciate the color.

(Operator Instructions).

At this time, there are no further questions.

Well, operator, we appreciate those that have called in and we look forward to talking again or at least reporting again some time in the near future when we have something to report.

So thank you all for joining us and good afternoon.

Thank you.

This concludes today's conference call.

You may now disconnect.