Salem Media Group Inc (SALM) 2010 Q1 法說會逐字稿

Hello and welcome to the Salem Communications first quarter earnings conference call. I would now like to call over to Mr. Evan Masyr, Senior Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you for joining us for today's conference call to discuss our first quarter 2010 earnings. As a reminder, if you get disconnected at any time, you can dial into 719-325-2234 or listen from the Investor Relations portion of our website at www.Salem.cc. I am joined today by our Chief Executive Officer, Edward Atsinger, our Division President of Radio, Dave Santrella, and our Division President Non-Broadcast Media, David Evans. We will begin in just a moment with our prepared remarks. Once we are done, the 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 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 our 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 contains non-GAAP financial measures within the meaning of Regulation G, specifically station operating income, EBITDA and adjusted EBITDA. In conformity with Reg 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 GAAP, is available on the Investor Relations portion of the Company's website at www.Salem.cc. As part of the current report on Form 8-K and the earnings release issued by Salem earlier today. I would now like to turn the call over to Edward Atsinger.

Thanks Evan and thank all of you for joining us for our first quarter 2010 earnings call. It's only been a short two months since our last call. Nevertheless, there's some interesting developments that I'd like to bring you up to date on and give you a sense of progress that's taken place since that call. First of all, we continue to see signs of economic recovery in all of our business segments. While our Broadcast revenue was down 2% for the first quarter, our results improved during each month within the quarter. Our pacings for the second quarter are showing signs of continued improvement, for example, our Broadcast revenues were up 3% in April and we are increasingly optimistic about 2010 as we move further into the second quarter.

Some of this recovery is undoubtedly related to the recent ratings improvement in two of our larger markets; Dallas and Atlanta. At KLTY-FM in Dallas, the average ranking of our station among all stations with regard to our target demographic, which is women 25 to 54, had been 11 from March through October of 2009. Since then it is ranked 6th and in the most recent monthly it broke the top-5 which is really the target where we like it to be. We've been able to convert those increased rankings into revenue. Likewise, WFSH-FM in Atlanta averaged 9th from March through October 2009 in that same target demographic, female 25 to 54. It too has ranked 6th since then and also broken the top-5 in the most recent book. In both of these markets, those improved rankings have resulted in increased revenue. April's revenue KLTY for example, was up 26% while WFSH's was up 33%. This growth is driven in large part because of an increase in transactional business and those two markets are fairly dependent upon transactional business.

We haven't seen quite the same recovery when it comes to our local direct business. Those stations depending upon local direct business are recovering more slowly, but recovering. And we still face challenges there, because most of our stations are not highly dependent on transactional business. For the first quarter our local spot revenue was down almost 8% but again, it had been strengthening and has been strengthening each month, so for example in April it was up almost 1% and we expect this trend to continue.

Our national network syndication business and our national spot business showed impressive results for the quarter. Revenue was up nearly 15% on our networks while national spot was up more than 20% as a result of national advertising improving more rapidly than local. Our block program revenue for the quarter was down 4%. Most of the decline was due to some unusual dislocations from a few large organizations that we've done business with for many years that have been discussed on previous calls. Most of the time that has become available as a result of that has been resold in the last few weeks, some at higher rates, and as a result we're seeing month by month improvement in our revenue trends. I'm confident that we've reversed this trend and we'll expect to see a return to growth very soon.

We've also seen improvement at our Non-Broadcast business unit as well, with Non-Broadcast revenue up 10% for the quarter. Due to the acquisition of HotAir.com in February, the number of monthly page views has more than doubled on our conservative opinion website. Additionally, the monthly page views on our Christian websites has increased more than 30%. These additional page views provide the foundation for robust growth in our internet revenues which we expect to see continue to materialize over the coming quarters.

We recently announced two relatively small acquisitions involving radio stations. In both of these situations the opportunities were compelling relative to the purchase price. In March for example, we signed an agreement to reacquire KTEK-AM in Houston, Texas. We sold that station about two years ago for $6.25 million in cash and an additional $1.5 million in a promissory note for a total consideration of $7.75 million. We will provide $800,000 in cash as a cash payment, we will forgive the remaining balance on that note of $1.2 million and we will provide the rest of the purchase price to the seller in the form of a $1.7 million airtime credit for a total purchase price of $3.7 million. So it's an attractive price we think relative to where the market is and in terms of our ability to accommodate it with the creative approach of airtime credit makes it additionally compelling for us.

The sellers of that station run a business news format on that station and on others. We intend to keep that format and are keeping that format on KTEK. It will become our seventh radio station in the business format. The sellers can use the airtime credit on the Houston station post our acquisition and also on our other business formatted stations as inventory is able to accommodate their requests. We found that this format, just as an aside, to be a quite complimentary format with our kind of news talk programming in that it targets that almost identical demographic audience.

Additionally, we announced the acquisition of WWRC-AM in Washington, D.C. for $3.1 million. We will begin operating this station under an LMA agreement next week. This acquisition gives us an opportunity to bring our news talk format for the first time to the nation's capital and that has lots of additional benefits, not the least of which is our ability to create a greater synergy between our conservative opinion online platform and our conservative opinion broadcast platform.

Finally, we have launched a $17.5 million redemption of our 300 million senior secured second lien notes. The redemption is scheduled to close on June 1st. Under our agreements with regard to those notes, we're allowed to redeem up to $30 million in any two redemptions over a 12-month period at a price of $1.03 and that provision pertains to the entire no-call period. That is the first four years. So each 12-month segment of that first four-year period we have that opportunity. While there continues to be some unique acquisition opportunities in today's marketplace, we remain focused on delevering.

I will now turn the call over to Evan Masyr for a discussion of our first quarter results and for some guidance with regard to the second quarter. Evan?

Thank you Ed. For the first quarter our total revenue decreased 1% to $48.3 million; recurring operating expenses increased 1% to $40.2 million; and adjusted EBITDA decreased 8% to $12.0 million. Net Broadcast revenue decreased 2% to $41.4 million and Broadcast operating expenses decreased 2% to $26 million, resulting in a decrease in station operating income of 2% to $15.4 million. On a same station basis, net Broadcast revenue decreased 2% and station operating income decreased 2%. These same station results include Broadcast revenue from 91 of our radio stations and our network operations, representing 99% of our net Broadcast revenue.

I will now briefly update our same station performance by format. We have 39 of our radio stations programmed in our foundational Christian teaching and talk format. These stations contributed 47% of our broadcast revenue. Same station revenue in this format was down 7% for the quarter, and block programming revenue was down 5% as previously discussed by Ed. Revenue from our 11 contemporary Christian music stations remained consistent at $7.6 million for the quarter on a same station basis and contributed 18% of our Broadcast revenue. Our 22 news talk stations had a 2% decrease in revenue for the quarter on a same station basis and these stations contributed 16% of our Broadcast revenue.

Revenue from our Non-Broadcast business increased 10% to $6.9 million and represents 14% of our total revenue. Our internet businesses' revenue increased 22% to $4.4 million, while publishing business revenue declined 5% to $2.5 million. Our Non-Broadcast business operating income increased 13% to $0.5 million.

As of March 31, 2010 we had net debt outstanding of $293.9 million and we were in compliance with the covenants of our credit facility and our bond indenture. The credit facility leverage ratio was 5.7 versus a compliance covenant of 7.

For the second quarter of 2010, we are projecting total revenue to increase 3 to 5% over the second quarter of 2009 total revenue of $50.5 million. We are also projecting operating expenses to increase 3 to 6% as compared to the second quarter of 2009 operating expenses of $40.6 million. This concludes our prepared remarks and we would now like to open the call for questions. Operator?

(Operator instructions) Our first question is from Stephen Weiss with Bank of America/Merrill Lynch.

Two questions. First, I just wanted to ask you on the expenses, I know you had some special projects going on. I think you spoke last quarter of a new program at one of your stations, it might have been New York. And the return of some of the cost cuts you made last year that you thought were unsustainable. But I guess the question is, when do you think you'll see the return of operating leverage going your way? And I guess you were close to even, down slightly ex the overhead line. I guess the corporate overhead line was really what took EBITDA down this quarter. If you could just speak to that and what to expect going forward?

Well, with respect to expenses, we did certainly in our last call talk about some new initiatives that we had. We did talk about the launch of the Curtis Sliwa program in New York and some marketing associated with that and some other marketing costs associated with our Non-Broadcast, particularly internet assets. So that's part of why you see some of the expense growth. Really, we haven't seen - you mentioned a return of some of the cost cuts. We really looked at this as a permanent reset to our expense structure. We don't see a point in time where we're going to bring back a lot of these expenses. Obviously at some point things like 401K match will return. We haven't done those yet and so expenses have grown pretty modestly.

Looking towards Q2 when we think of that 3 to 6% expense growth, part of what's in there is a few of our stations are going to spend more marketing money than they have in the past compared to second quarter of last year. That's part of it. The increased cost still associated with the Curtis Sliwa program, that wasn't around in 2009, and a few other things. Hopefully we will see soon a return to EBITDA growing rather than being in the negative.

And then on the corporate line is there anything? How do we think about that going forward versus the prior year?

The reason why you see corporate expenses increase in the first quarter when you look at the numbers compared to prior year, there's really three main reasons. First of all we had a fairly large increase in the stock-based compensation based on options that were granted. That's a non-cash item, not a cash expense. The other thing that we had in 2009 is an incentive program for all employees to use up accrued vacation at the end of the first quarter so you have a negative variance in Q1 of 2010 versus first quarter of 2009 when you look at accrued vacation or vacation expense. And finally, we have started to accrue for senior management bonuses which haven't been paid in some time and we had nothing accrued in the first quarter of 2009.

Okay. So going forward, a good corporate number should be closer to 4-plus?

If you were to back out that vacation number you'd be somewhere right around 4 and that's probably a reasonable number to use for now.

Fair enough on that. Then I think I heard you say that the same station core kitchen talk was down 5; was that right?

We said the block was down 5.

On a same station basis. I think it was down 4% overall, so that's just on the block. The format itself, Christian teaching and talk was down 7% for the quarter on a same station basis. And as Ed described, some of the issues we've had on the block programming we feel we've been able to fill some of the available slots that had been created and are pretty confident we're going to see growth on the block programming in the near-term.

Okay. In terms of any broader trends on renewal or pricing to speak to with the crux of your--?

The broader trend is that we've been able to replace a lot of the time. We did not raise rates on block, deliberately for 2010, given the two or three years of really a soft economy, was welcomed. But no, the 7% down for that format represents the fact that most of their revenue is local direct and the local direct is recovering, but it's not recovering as rapidly as national transactional business. It's definitely coming and as I commented in April that segment of our business is actually positive and that seems to be the trend. So there's no fundamentally difficult trend.

I think you will see some significant improvement in the remaining quarters of the year. We remain optimistic. We'll see exactly the extent of that but certainly they're moving in the right direction both block with the sale of a good bit of the time that was created, the inventory that was created and with the improvement in local direct spot.

But the fact that you didn't take price increases this year, which we remember you saying, may auger that line item. I don't want to put words in your mouth, but are we thinking about turning positive more in 2011 versus later this year?

Well, I don't think so. My hope is that it will be quarters this year where we'll see it in positive territory. While there was no rate increase, when you have inventory available, you're free to reprice it more aggressively if you want to, if there's demand for the inventory and there's been reasonably good demand for the inventory. So we can realize some rate increases on the resale of inventory. It may not reflect itself in the entire year; it may kick in second quarter or third quarter but then it augers well for the future in that you start at a higher base rate and future increases which will be applied across the board you apply that rate increase on a higher base, so it has a bit of a silver lining. It's just there's a bit of a delayed effect.

I understand. My last question is on some of the acquisitions you mentioned. The first one certainly sounded creative. I'm just trying to keep tabs on the dollars in/out. So the 3.1 and the 800,000 has that been funded yet?

The 800,000 is the cash component; the 1.2 is the remaining balance on the note, which by the way by its own terms would not have been paid for a number of years. I think it was a 10-year note with about seven years left to go. So in any event we would not have received that cash for some time unless the property were sold to somebody else and it were liquidated.

So we're applying that balance, 800,000 in cash and then the balance is all airtime credit, which is a real win win situation for the seller, because they're very much into that business format with a lot of content that they're anxious to get exposed in the markets that we're in. And we're in a number of very large markets. I think that we commented that this would be our seventh major market station in the business format. So it's a very positive thing for both sides. It's good for us, it's good for the seller and so we think that's a very prudent acquisition, particularly at that price.

With regard to the other one, well you didn't ask about the other one, but I'm happy to answer any questions you have about WWRC.

I was asking about the cash for that, the 800,000 plus I was adding the 3.1 you mentioned.

No, that hasn't transferred yet because we haven't closed. We won't close until there's a number of issues that have to be sorted out that are still pending and I don't expect that to happen for several months.

I think both of those are late Q2 or Q3 type of payment terms. We haven't paid them yet.

We are operating the station under an LMA agreement at this point, so we have the operational - well, we're LMAing the station so we have the benefit of it in our format with some of our content on it and it's contributing. It's a positive cash flow for us so we feel very good, including the LMA fees that we have to pay.

And then on the bond repurchase are you just going to use your revolver for timing arbitrage?

Ultimately we'll wind up carrying more on our revolver than we have in the past.

Your next question is from Andrew Finkelstein with Barclays Capital.

First, just looking at the guidance for the second quarter, you're guiding to a bit of a pick up in revenues but it does sound like the biggest portion of the revenue CTT may still be down. Just thinking about where that growth is coming from and does it include any - you said the acquisitions may start to close in May; are those included in the guidance as well, is there a same station number?

Thinking about Q2 guidance, you're asking where is some of that growth coming from. I do think some of it is still coming from the block as it seems to be getting better but as Ed talked about earlier on the local spot business and kind of this direct selling that we do, for the first quarter it was down about 8% but each month it got sequentially better and April actually it was up in local spot. So I think you're seeing a return in revenue really in a lot of areas, but local spot is certainly turning from negative to positive at this point.

And along those lines, how do you see pricing and competition? I know it's certainly been tough in the radio business for a while, is there any break in that yet or is it still tough, in your general formats, news talk and stuff like that?

I think maybe we have Dave Santrella with us who's President of the Radio Division and Dave is most involved in that. Dave, why don't you give him your take on that?

First off, a lot of our competition in late fourth quarter when things were still questionable were aggressively pricing and what we're seeing now across the board is a real tightening of inventory and so most of our competition has less inventory available. They go into second quarter and the demand is up, so that's raising prices all across the board and of course it's raising prices for us in our transactional radio stations. KLTY and WAFS station in Atlanta for instance are able to get prices more reflective of the prices we were seeing 2.5-3 years ago than we were seeing as recently as two or three months ago.

Okay thanks. And then just on the Non-Broadcast business, not sure if there's some acquisitions in there. I don't know if you mentioned what organic growth is in that side of the business and what you're seeing going forward in the first quarter and then going forward for the Non-Broadcast side?

The internet revenue in the first quarter grew by 22%. That was largely organic. The only acquisition that impacted that number was the acquisition of HotAir.com. Then that transaction closed towards the end of February, however, we assumed an ad sales representation agreement that HotAir had entered into that didn't expire until April the 30th, so our salespeople were not able to start selling HotAir until May 1st, so the revenues that that third-party rep firm brought in for the last week of February and for the month of March were only $25,000, so an absolutely immaterial impact.

So almost that entire 22% internet revenue growth was organic and that was driven by strong page view growth on our Christian websites. I think our Christian website page views were up about 30% and on our conservative websites there was a lot of advertising revenue related to the entire healthcare debate that was taking place in the first quarter, a lot of organizations wanting to communicate their concerns about that bill to our audience. So we had good political advertising revenues on the conservative side and good revenues on the Christian side because of page view growth.

Looking ahead, we will have two months of three selling HotAir in the second quarter, so I would expect trends on the conservative side to continue with the arrival of all of those HotAir page views and on the Christian side page views continues to trend well ahead of last year, so we certainly feel like robust growth on the internet side can continue.

Given that was up 22% but I guess the Division was up only 10% is there an offset from the book side?

The publishing side, books and magazines revenues were down 5%. That's a combination of advertising revenue continuing to be softer in the magazine area, as well as at Xulon Press, where we sell services to a whole variety of authors. These authors are consumers, they're typically consumers 50-plus in age who live on fixed incomes and we've seen some improvement in that business but the consumer is definitely still challenged by the state of the economy and you see that in Xulon's Q1 revenues. It's improving but still quite challenging.

Your next question is from Barry Lucas with Gabelli & Company.

Two quick ones. You highlighted the new programming here in New York with Curtis Sliwa and the marketing costs. Maybe you could touch base on how the program is performing initially, are you satisfied, unsatisfied, what are the audience characteristics, etc?

Right now our greatest measurement of success on that program is really in the call volume that we're getting to it as well as the results that we're starting to get for advertisers and both of those are favorable. We have not seen a significant up-tick in our PPMs yet for that market, but we also didn't start our significant marketing for the Curtis Sliwa show until mid-March, so we would anticipate greater accuracy around what PPM is saying about that show in the coming months. So, kind of the leading indicators of success there are really around the kind of calls we're getting to the show and the kind of results we're seeing for advertisers, which both are significantly marked improvements from prior.

Maybe you could just run through the economics of the redemption just a bit, the premium versus your coupon and how you think that's going to play out.

The redemption requires a cost of 103 so a 3% premium upon redemption. Currently the notes are at 9.625% interest rate, so we think the difference between the 3% upfront fee and the 9.625% interest basically 6.625% is well worth it, given what we're currently borrowing on our credit facility is LIBOR plus 3.50 so just about 4%, so the economics certainly make sense for us. It also gives us the ability to prepay smaller amounts as we bring in more free cash flow over the coming months, pay down our credit facility whereas we can only do two redemptions a year on the bonds.

(Operator instructions) Your next question is from Bishop Cheen with Wells Fargo.

So as usual, I've heard a lot of stuff that is interesting. Let me back up here a second, a couple of things. One, so the it's a positive arbitrage; you're using revolver at LIBOR plus 3.50 so today it's kind of like a 3.75% revolver to take out 9.625 debt, is that one say to look at it?

That certainly is a way to look at it. If you do the math on that, it certainly shows a pretty good positive arbitrage.

Right. So you can do two times a year for an aggregate of 30 million so you're doing five times this year and is there any cap on a time that you do it? Is it up to 20 per time or if you wanted to do it - I don't think you would, but could you do 25 million on the next slug in calendar 2010?

We would be precluded from doing that because it's 30 million max in a 12-month period, so we're doing 17.5 that would only leave us 12.5 of capacity.

I lost you. You're doing 5 million--.

We're doing 17.5 million.

I'm sorry. That's what I missed.

But your question is there is no limit on any one particular time. If we had the capacity we could do $30 million once and then not do anything for (inaudible).

So your revolver is 30 and at year-end you had 14 drawn on the revolver, so how much do you have drawn on the revolver at March 31st?

We had 2 drawn on the revolver at March 31st.

So your revolver is just going to go up to - I'm rounding; $20 million?

Well, we have cash from cash flow from operations but clearly the revolver is going to go up.

Okay. So you mentioned cash flow from operations. If you're more of a back half of 2010 company, because Q1 was slow, Q2 is better, let's hope the momentum keeps going, then do you foresee generating free cash flow to - where would your priority be; do more tuck-in acquisitions or to take that revolver right back down again and give yourself more flexibility?

Well, we'll have to see how the year develops. I made the comment that one of our objectives will be to continue to de-lever on a prudent basis. If there are acquisitions like the KTEK acquisition, for example, it's compelling. It is accretive, it doesn't diminish anything; it only enhances. So if you have some, let's use the term tuck-in acquisitions like that, I think you want to take them. The acquisition in D.C. $3.1 million for a decent facility in DC was a very good acquisition for us. We believe that we can improve that facility without much investment at all, improve it technically and improve it a number of other ways. It's an ideal acquisition for us in that we're in the news talk business, we're in New York, we're in LA, we're in Chicago.

We weren't in Washington D.C. and when you're in the news talk business it's one of the most important markets to be in. There's great synergy because we have TownHall.com and HotAir.com and Town Hall magazine and SRN News, WAVA-AM and FM all headquartered in Roslyn in the nation's capital right there, so it makes lots of sense for us for lots of reasons. And it was modest and to get a station in a top-10 market for that price, a full market signal was a very good deal for us.

So if we have those kinds of things going forward, we will take advantage of them, but we'll look at them, evaluate each one on its own merits. Consistent with that will be our strategy to continue to deliberately de-lever in a prudent manner, taking advantage of free cash flow, taking advantage of what other cash may be available through the sale of assets or our credit facilities as they're available.

Okay. I just wanted to get your body language and color and you delivered. Let me ask just two or three other questions. I know it's getting late and everyone wants to move on. So, I know about the acquisitions and they are strategic and yes in my professional life, I don't care if it's a radio station, TV station, cable system or a peanut stand, everybody tends to value inside the Beltway assets at a premium, so hopefully buying a talk radio station in Washington D.C. at a single digit price would seem to make sense, just knowing nothing else.

Let me ask you about divestitures. You had to let the transaction unwind on Columbus, Ohio. That was what, WFRD-AM in Columbus?

WRFD-AM in Columbus for $4 million.

Because it was the credit crunch and the buyer couldn't come through. You had targeted a year or so ago a bunch of stations that were not absolutely strategic to own. Do you see any movement on the possibility to monetize those assets or any of the assets?

Well, there are always things percolating sort of on the margin. You always have some things that are working that could materialize and we have some assets that at the right price we would consider turning loose. Some of the assets in the past that we would have turned loose when we were under a little more pressure have actually begun to perform very well and we feel very good about the progress and the growth. And as far as WRFD in Columbus goes, that was always a profitable station.

Our motivation for selling was one, we wanted to raise capital when everybody needed to raise capital over the last 15-18 months, but it's always been a good solid cash flower for us. It's very stable. We've owned it since 1982. It's been in the Christian Teaching Talk format since then. It's got an enormous signal; covers a good bit of the State of Ohio, well established, but as a standalone it always seemed to us that it made more sense to the other - there's another company in the market that runs a Christian music station and we thought well look, you can run that station, combining the two for far less, maybe 10%, 20% of the overhead that it cost us to run and they wanted to do it. It made sense to them.

They sold a piece of land to a major national retailer and it was a female attire retailer that simply imploded along with a lot of other commercial real estate and they defaulted apparently on their agreement to buy their land and that was the sole reason they backed away. Now we're quite happy with the asset and if we could talk about a tuck-in acquisition, we would still consider if their fortunes improved, we would still consider that one as one that we would reexamine, but it's cash flowing nicely for us. We don't mind holding it.

To answer your question, yes, there are some nonstrategic assets that could very well be disposed of at the right price. We will certainly keep our antennas up looking for those opportunities as they arise.

I understand. Times change, motivations change and the priority of motivations change. Okay, just two or three others real quickly. I think you went over block programming. Block programming has always been roughly 35% of your Broadcast revenue mix?

Correct.

Okay. And anecdotally, I know you didn't raise rates and I thought I heard you say at one point it was down 4 or 5% in Q1 or was that just one particular situation?

I think it was down 5% on a same station basis Q1 and 4% overall.

Okay. And does it feel like as you're deep into Q2 and maybe looking over at Q3 that there has been a change in block? I know that block behaves differently than spot.

It not only feels - we can be a little more positive than that. There's no question that Q2 will be a better quarter and going forward for the rest of the year we're optimistic. We've made real progress. We had a lot of inventory that we needed to deal with fourth quarter, first quarter and we've made lots of progress in dealing with that. It certainly will be better Q2. We're not prepared to quantify it today but it will be substantially better.

Okay. Corporate overhead; I know you talked about it should be more 4ish than 4.3ish. Normally once you back out the accruals on bonuses, vacations, etc. but a year ago it was 3.3ish and I'm just wondering why does it have to be 4 million on a sustainable basis going forward? I understand you incurred a lot of expense in Q4 getting the bond deal done and your balance sheet recap, but what has changed in the world that makes corporate overhead have to go up in a big chunk like that?

Bishop, we really have two things that are driving it in addition. We did mention that we are accruing for senior management bonuses, but the two bigger impacts are stock-based comp. Last year, stock-based comp was much smaller than this year, so you're talking about a $300,000 increase on corporate expenses just related to stock-based compensation.

I saw that and that is all in the modeling. That's all pretty much in the corporate overhead line?

Correct. Most of that is in the corporate overhead. That's where the large quantity of our option grants are in. So that's part of it and that was just much smaller in Q1 of 2009, based on the number of options that were granted and the whole Black-Scholes methodology and all that, so that's issue number one. Then like I said, in the first quarter of 2009, we offered incentive for people to use all their vacation which had a negative or a reduction on vacation pay in first quarter of 2009 that was not there in the first quarter of 2010. When we start comparing in the second quarter, you're not going to have that same negative comparison on vacation comparing Q2 of 2010 to second quarter of 2009. So there's really a couple of the large drivers on your corporate expenses.

Okay, so then the 4ish quarter is a pretty good run-rate to use as we go through the rest of 2010?

Again, keeping in mind that that has a much higher stock-based comp number in there.

And realistically in terms of your stable number going forward, last year we had the major challenge of restructuring our debt. It was essential from our point of view to maximize free cash flow to put ourselves in a position so that we had options and we literally accrued nothing for senior management bonuses. Now, senior management performed very well last year. We're very pleased and we're very pleased with the way things are going this year. We certainly have to accrue something in those categories. Nothing is not acceptable; we have to accrue something and that is reflected - I don't know that it will be a huge number, but it will be a factor along with these other two factors that Evan mentioned.

And the reason why stock-based comp is also higher is because we weren't paying cash bonuses, given our situation, we did give more options which led to a higher intrinsic value with respect to the number of options that were granted.

I understand and I don't mean to do so much over analysis on stock-based comp because actually we're just talking about decimals. But in terms of the big number, it just feels like corporate overhead is larger for the economics of this company than for other comparable media companies. It's just a question of scale. So we could continue to have the debate offline.

I'll only make one brief comment and we've mentioned this before. We tend to centralize a lot of functions in corporate. All of our national block program sales are handled out of corporate along with screening local block program sales so there's a corporate function there that's unusual for our company. We also handle all payables and do all of the financial reporting out of corporate so there's a much bigger accounting component at corporate and that's part of why you see the corporate overhead a little bit bigger.

And then finally we centralize engineering. We try to have a strong corporate engineering staff as opposed to having lots of resources at the station level. Again, the nature of our formats accommodates this. So, those three distortions have existed from the beginning.

Well that makes sense and that is a very good clarification, very helpful. I do appreciate it. That's the end of my grand inquisition.

There appear to be no further questions at this time. Mr. Atsinger, I'll turn the call back over to you, sir, for any additional or closing remarks.

Thank you operator and we appreciate again those of you that participated in this call. It was just two months, given the fact that when we report year-end it takes a little longer. We report later in the year and then first quarter report comes sooner. It will be about three months before we report again and we hope that you'll join us then. So thank you again and we look forward to visiting with you in three months.

Ladies and gentlemen, that does conclude today's presentation. We thank you for your participation.