Salem Media Group Inc (SALM) 2010 Q3 法說會逐字稿

Hello, and welcome to the Salem Communications Third Quarter 2010 Earnings Conference Call. Today's call is being recorded. I would now like to turn the call over to Mr. Evan Masyr, Senior Vice President and Chief Financial Officer. Please go ahead, sir.

Thanks. Thank you for joining us today for Salem Communications Third Quarter 2010 Earnings Call. As a reminder, if you get disconnected at any time, you can dial in to 913-312-1405 or listen from our website, www.salem.cc. I'm joined today by our Chief Executive Officer, Edward Atsinger, our Division President of Radio, David Santrella, and our Division President of Nonbroadcast Media, David Evans. We'll begin in just a moment with our prepared remarks. Once we're done, the conference call operator will come back on the line and instruct you on how to submit questions.

Please be advised that statements made on this call that relate to future plans, events, financial results, prospects, or performance, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those anticipated as a result of certain risks and uncertainties, including, but not limited, to market acceptance of Salem's radio format, competition in the radio broadcast internet and publishing industries and new technologies, adverse economic conditions, and other risks and uncertainties detailed from time to time in Salem's reports on Form 10-K, 10-Q, 8-K, and other filings filed with or furnished to the Securities Exchange Commission.

Listeners are cautioned not to place undo 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, changed circumstances, or unanticipated events. This conference call also contains non-GAAP financial measures within the meaning of Regulation G, specifically station operating income, EBITDA and adjusted EBITDA.

In conformity with Regulation G, information required to accompany the disclosure of non-GAAP financial measures, including a reconciliation of such non-GAAP financial measures included in this conference call to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles is available on the Investors Relations portion of the Company's website at www.salem.cc as part of the current report on Form 8-K and earnings release issued earlier today.

I will now turn will call over to Edward Atsinger.

Thank you, Evan. As is our normal procedure, I want to touch on some highlights that took place in the quarter and other significant developments, and then I'll turn it back to Evan, who will give you a more detailed summary of the results of our fourth quarter -- results of our third quarter performance and guidance for fourth quarter.

For the third quarter, our total revenue was up 4%, while adjusted EBITDA was down 2%. Included in the revenue growth was approximately $1.1 million in political advertising. Comparatively, we received approximately $700,000 in political revenue in 2009 related to a good bit of money that came in surrounding the healthcare debate that was raging last year in the third quarter.

Adjusted EBITDA was down primarily due to the increased investment that we're making in our businesses this year. That was discussed throughout the year. We've also devoted some time in recent calls, discussing some of the challenges that we face with our Block programming. I commented on the last call that while we've been down slightly in second quarter, we expected to see improvement, we have experienced that improvement.

We are now going to show about a 4% growth in this quarter for Block programming, and that business continues to improve. And we expect to see continued growth throughout the fourth quarter. In early October, we announced our new arrangement with Sirius XM satellite radio. We were one of the original partners with XM radio, back in the late '90s actually, and with the launch of their satellite in early 2000s, we've been programming family talk on Channel 170. This is a Christian teaching talk channel.

Pursuant to this new agreement that we've reached with now Sirius XM, we will also now program on the Sirius side of their business channel 161 beginning November 30th. We're very happy to be able to expand this platform for our Block program customers. This allows us to provide a complete service for them and to provide Block programming and opportunities on the web -- or on the satellite -- on the satellite service, and we're essentially the exclusive provider of Block programming services for the type of programming that we do.

Let me discuss recent acquisitions and dispositions. I mentioned in our last call that selling radio station KXMX in Los Angeles for $12 million. We still expect that transaction to close in the fourth quarter. We've since entered into an agreement to sell KKMO AM in Seattle for $2.7 million. KKMO is currently programmed in a regional Mexican format and is not considered to be one of our core formats.

The proceeds from these sales will help us in our goal of continuing to delever our balance sheet. On September 1st, we acquired a Christian fundraising business called Samaritan Fundraising for $600,000 with a $200,000 contingent consideration payable depending on management's performance in coming years. Samaritan Fundraising markets and offers an online discount program, specifically designed for churches, schools, and other not-for-profit tax exempt organizations.

Our rationale for acquiring Samaritan fundraising is similar to why we acquired our now very successful Xulon Press in 2006. We believe our marketing platform is ideally suited to promote the growth of this business in a manner similar to what we did with Xulon after acquiring that company. Another positive development in the third quarter is the growth of our internet business. Revenue increased 21% from $4.1 million to $4.9 million.

Contributing to its growth in part related to our acquisitions of Hotair.com and GodTubeTangle.com, but also there was significant organic growth from existing web properties. Both Hotair and GodTube/Tangle are proceeding well, with page views ahead of our projections.

With that comment, let me turn it over to Evan for a more specific discussion of our third quarter results and guidance for fourth quarter.

Thank you, Ed. For the third quarter, our total revenue increased 4% to $51.4 million. Operating expenses on a recurring basis increased 7% to $43.2 million. Adjusted EBITDA decreased 2% to $12.3 million.

Net broadcast revenue increased 3% to $43.5 million. And broadcast operating expenses increased 3% to $27.9 million, resulting in an increase in station operating income of 3% to $15.6 million. On a same station basis, net broadcast revenue increased 2%, and SOI increased 2%. The same station results include broadcast revenue from 90 of our radio stations and our network operations, representing 99% of our net broadcast revenue.

Let's now take a look at our same station performance by format. We have 39 of our radio stations programmed in our foundational Christian teaching and talk format, and these stations contributed 46% of our total broadcast revenue. Same station revenue on this format was down 2% for the quarter. Revenue from our 11 contemporary Christian music stations increased 14% for the quarter on the same station basis, and contributed 20% of our broadcast revenue. Our 23 news talk stations had a 5% increase in revenue for the quarter on a same station basis. Overall these stations contributed 16% of our broadcast revenue.

Revenue from our nonbroadcast business increased 15% to $7.9 million, and also represents 15% of the Company's total revenue. Revenue from our internet businesses increased 21% to $4.9 million, while our publishing business increased 6% to $2.9 million. Our nonbroadcast business operating income decreased 29% to $500,000. This decrease was mainly due to the anticipated startup losses associated with the GodTube/Tangle acquisition and the planned investment in asset development and marketing.

As of June 30th, we had $282.5 million of our nine and five-eighths senior secured second lien notes outstanding, and had $17.5 million drawn on our bank revolver. We were in compliance with the covenants of our credit facility and bond indenture. The credit facility leverage ratio was 5.69 versus a compliance convenant of 7.

On November 1st, we amended our credit agreement to give us added flexibility to use our revolver for buying back some of our senior secured second lien notes. This increased flexibility will allow us to essentially trade more expensive debt for less expensive debt, thereby producing more cash flow that will facilitate continued deleveraging.

In addition, we increased the size of our revolver by $10 million giving us a total capacity of $40 million. We would like to acknowledge our supportive bank we would publicly state that we appreciate their support.

Finally, we have launched a $12.5 million redemption of our bonds. The redemption is scheduled to close on December 1st. Our indenture agreement allows us to redeem up to $30 million in two redemptions over any 12-month period at a stated price of $103.

This redemption, plus the $17.5 million that we redeemed on June 1st will put us at $30 million redeemed in the first year. Our goal was to take full advantage of the $30 million maximum pay-down and are pleased to have done this in the first year. We look forward to redeeming more in the next 12 months.

For the fourth quarter of 2010, we are projecting total revenue to increase 3% to 5% over the fourth quarter of 2009 total revenue of $50.8 million. We are also projecting operating expenses to increase 5% to 8% as compared to the fourth quarter of 2009 operating expenses of $40.1 million.

This concludes our prepared remarks and we would like to answer any questions. Operator?

Thank you, gentlemen. The question and answer session will be conducted electronically. (Operator Instructions). We will pause for just a moment to give everyone an opportunity to signal. (Operator Instructions). And we will take our first question from Conrad Chen with Trust Company of the West. Please go ahead.

Good afternoon, guys. Just looking at your guidance, I think the expense guidance is a little higher than I would have thought. I'm curious as to when we should expect you guys to start lapping some of these investments you've made in the business?

Conrad, I would say most of that will be lapped in the beginning of 2011. If you'll recall, what we've talked about, most of this year on these earnings calls is the investments that started the early part of this year. That would be the investment of the new talk show in New York and the associated marketing there. Some of our increased investments in nonbroadcast. Those things starting early next year, you'll see us anniversary those increases.

Okay. And then I know, Ed, you did give us some color on the Block programming. Could you give us some on how the ad trends are, national versus local in the business, what you're seeing so far in Q4?

One of the interesting data points that we reported, that may have slipped kind of through the cracks, while Block was up 4% for the quarter, our Christian teaching talk stations that feature the Block were actually down about 2%. Most of that was related, almost entirely to local spot. Our experience has been not unlike that of some of our radio peers. Just the local is still very dormant, and that's the part of the business that still has to recover. Local direct, and those formatted stations do a lot of local direct, and so until that business gets better, it's probably going to lag a little bit in that category. Hopefully it will pick up.

Now, is there any spots of local, like auto or something that might be giving you some -- showing some signs of growth?

I think it's across the board in most of the local direct business. I don't see any major segments. Mortgage has come back to some extent. Auto is certainly much better than it was. Dave Santrella is with us, the Radio Division President. Dave, you have any thoughts on that?

Conrad, specifically to the talk and teach format, is that what your question is directed at?

Yes.

There's not really been a category other than, and it's a rather large category, direct response business. Direct response business continues to be a major portion of what we do on our talk and teach radio stations. But in terms of other categories of business, we've really not seen anything outstanding. Our stations, in general, are not -- our talk and teach stations are not big automotive stations. We don't get a lot of automotive business. So, of course, we didn't see the dip from that, but we're also not seeing the uptick as that's come back.

But the softness in direct response is directly related to consumers not spending. That's a pure consumer business. When they're not spending, then that business will lag.

Got it. And then just one last question. Political, you mentioned was $1.1 million this year. I know it's typically not a huge portion, but what was in 2008, the last major cycle?

In 2008, it was about $300,000. So 2010 was definitely a better year for us on the political front.

And most of that will come into the fourth quarter. I mean, the big month is always October, a little bit in November.

Okay. So the $1.1 millionyou quoted is already for the full year?

No, that's just third quarter.

Oh, okay.

The $1.1 million was the third quarter revenue, as was the $300,000.

The $300,000 was third quarter. So if you -- I mean, we haven't talked year-to-date, but the bulk of it comes in --

Will come in September/October, and October being the big month.

Got it. So maybe could you give me what 2008 was for the full year?

The full year in 2008 was probably about a $1.25 million. I don't have the full year. I can tell you through nine months, and it was just shy of $1 million.

Okay. So October will be out, and October is the big month. So again it's a bit of a deficiency. There's one big month missing. And typically that month represents as much as the prior quarter in total, or close to it. So if it was a [inaudible] quarter, I would assume there's another $1 million in there, maybe.

Right, okay. Great. Thanks, guys.

There are currently no additional questions in the participant queue. Again, we would like to offer everyone the opportunity to ask their questions. (Operator Instructions). (Operator Instructions).

Well, operator, if there are really no other questions, we will assume that our report was very clear and comprehensive. And we'll thank everyone for joining us, and look forward to your participation in our next earnings call.

Thank you, gentlemen.

Thank you. Bye.

Ladies and gentlemen, this will conclude today's conference call. We do thank you for your participation.