Salem Media Group Inc (SALM) 2011 Q3 法說會逐字稿

Good day, everyone, and welcome to the Salem Communications Third Quarter 2011 Results 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.

Thank you, and thank all of you for joining us today for Salem Communications' third quarter earnings call. As a reminder, if you get disconnected at any time, you can dial into 913-312-0718 or listen from our website at Salem.cc.

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

We will begin in just a moment with our prepared remarks. And once we're 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 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 results -- 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 including -- 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 our website at www.salem.cc as part of the current report on Form 8-K and earnings release issued today.

I will now turn the call over to Ed Atsinger.

Thank you, Evan. Thank all of you for joining us for this conference call. We'll follow our normal format. I'm going to try to hit the highlights of the quarter and add a little bit of color, and then I'll throw it back to Evan, who will provide some more detailed summary of our results and then also provide guidance for fourth quarter.

We had a good quarter. Our total revenue increased 7% compared to last year. Broadcast revenue was up 3% and our non-broadcast revenue increased 28%. Just this one little point of comparison on the broadcast side, according to Miller, Kaplan, the radio industry grew less than 1% for the quarter as a whole.

Our non-broadcast revenue is comprised of publishing, which grew at 7%, and our internet division, which grew at 40%. Included in our internet revenue is revenue generated from our radio station websites. That revenue was up 42%. And when you put it all together, our adjusted EBITDA grew 6% for the quarter and we're now at about a 1% growth for the whole year on EBITDA.

I think that we've actually made more progress than these numbers even indicate. And if you do an analysis that factors out a couple of -- a couple of issues, I think it does illustrate that. That, for example, if we -- if we consider the political advertising, last year we had $1.1 million of political revenue in the quarter, $900,000 of which was in our radio division, our broadcast division. This year, because it's not a political year, we only had $100,000 in political revenue. If you exclude political revenue from both periods, our broadcast revenue would have been up 5%.

Additionally, there was -- our results were negatively impacted by a startup that we acquired last year called Samaritan Fundraising. Samaritan, which we acquired in September of 2010, is a startup company that's highly cyclical in nature and in the rollout, because of the cyclicality of the business, we've made a few missteps that have now been corrected. But accordingly, it cost us about $400,000 -- about a $400,000 loss for the quarter.

If you factor out both political revenue and the loss at Samaritan, our total revenue would have increased 9?%, And adjusted EBITDA would have grown by 16%. So I think it does indicate some underlying strength in our business model.

One of our key objectives has been to diversify our media platform and to become more of a multimedia company. But focusing on the same audience as we do with our radio platform, the audience interested in Christian and family themed content and conservative opinion content. We continue to make progress on that front. Last year our non-broadcast businesses comprised 15% of our total revenue. This year it's up to 18%.

This diversification is -- along with our continued deleveraging of our balance sheet should lead to increased shareholder value. At this point, however, it hasn't seemed to and we believe that our equity is probably undervalued. According to a recent report by an investment bank, Salem is trading at a 6.9 multiple of EBITDA, the lowest multiple in the industry. If we were trading at the industry average of 8.9 times, and, frankly, we believe given some of the inherent differences with Salem that we should be trading higher than that, our stock price would be almost $7 a share.

And one can speculate as to why we are trading at a discount. My personal view is that we've devoted virtually no time to telling our story and getting in front of the investor community. We've been totally focused on deleveraging, diversifying and working our core business so that we can outperform our radio peers. And it's now time for us to probably spend a little more time giving a report on that progress to the investor community. Our intention is to devote more time in 2012 to do just that.

With respect to acquisitions, we continue to look for opportunities to expand our platform, both in our broadcast and non-broadcast operations. Recently, much of our acquisition activity has been focused on the internet. But we entered into a new agreement to extend our reach on radio. On October 17th we agreed to acquire KTNO AM and FM in Dallas, Texas for $2.2 million.

We began operating the station pursuant to a time brokerage agreement earlier this week. The station is being programmed with Spanish language Christian teaching and talk. This is the sixth station in that format that we operate and Dallas, we believe, is vital to our success as we further develop that format.

KTNO AM is a 50 kilowatt station on 1440. Its FM is a 250 watt translator, but at a very good height above average terrain that gives us a very nice footprint in Dallas. So combining those two properties we believe we will do quite well.

With those comments, I'll now turn the call over to Evan Masyr for a more detailed discussion of our third quarter results and for fourth quarter guidance. Evan?

Thank you, Ed. And I'll now give a little bit more of that detailed information for the third quarter.

Our total revenue, as Ed mentioned, increased 7% to $54.9 million. Operating expenses on a recurring basis increased 6% to $45.9 million. And adjusted EBITDA increased to $12.5 million. Net broadcast revenue increased 3% to $44.8 million, and broadcast operating expenses increased 5% to $29.2 million, resulting in a $15.6 million operating income, which is consistent with the prior year.

On a same station basis, net broadcast revenue increased 4% and SOI increased 2%. These same station results (inaudible) from 89 of our radio stations and our network operations, representing 98% of our net broadcast revenue. I'll now take a look at that performance by format.

Thirty-nine of our radio stations are programmed in our foundational Christian teaching and talk format, and these stations contributed 46% of our broadcast revenue. Same station revenue on this format increased 2% for the quarter. Revenue from our 11 contemporary Christian music stations increased 21% for the quarter on a same station basis, and contributed 24% of our broadcast revenue.

We have 24 news talk stations, and they had a 6% decrease in revenue for the quarter on a same station basis. And as Ed mentioned, the decline in political revenue, and that's seen pretty notably on our news talk stations. Overall, these stations contributed 15% of our broadcast revenue.

Revenue from our internet business increased 40% to $7.1 million, and our internet operating income increased 119% to $1.4 million. Our publishing revenue increased 7% to $3 million and our publishing operating income increased to $100.000.

In September we repurchased $5 million of our 9 5/8 senior secured second lien notes on the open market at a price of 102.875, bringing our total to $52.5 million of debt retired since issuing the bonds on December 1st of 2009. This demonstrates our continued commitment to deleverage our balance sheet.

As of June 30th we now -- we had $247.5 million of our 9 5/8% senior secured second lien notes outstanding, and $30.5 million was drawn on our bank revolver. We were in compliance with all of the covenants of our credit facility and our bond indenture. The leverage ratio on our credit facility was 5.25 versus a compliance covenant of (inaudible).

For the fourth quarter of 2011 we are projecting total revenue to increase 2% to 4% over the fourth quarter of 2010 total revenue of $54.1 million. And we're also projecting operating expenses to increase 3% to 6% as compared to the fourth quarter of 2010 operating expenses of $43.6 million.

And this concludes our prepared remarks and we'd like to turn the call over the operator to answer any questions anyone may have.

Thank you. (Operator Instructions). And first we'll go to Anil Gupta with Imperial Capital.

Hi, guys. Thanks for taking the question. So, real quick, just wanted to see if you could give us an update on any of the pricing trends you're seeing with your block programming partners. I think typically you'll go out to them in the fourth quarter to look for pricing for next year, so wondering if, one, you can give us an update on that. And then, two, do you have a cash interest number for the quarter?

Let me address the pricing issue on block programming. We anticipate price increases to average somewhere around 2%.

Okay.

And I'm working on getting you that cash interest number for the quarter. I'll enter that in just a moment. We can take another question and I'll get that to you in just a moment.

Okay. That's all for me. Thanks.

And next we'll go to Conrad Chen with Crescent Capital.

Hey, good afternoon, guys. Just a question on the guidance that you'd given. And I don't know, does that (inaudible) if I were to take the midpoint of both those ranges it would imply sort of a slight decline year-over-year. Just trying to figure out, does that include sort of some political impact? Is that what I'm hitting, or is there some weakness in the business that you're seeing?

Conrad, that's absolutely right on. We had $1.1 million in political in the fourth quarter of 1010. Obviously most of that, almost all of it in October. And that's why you see a little bit more softness in that guidance.

Okay. And then just curious, and margins this quarter were on the broadcast side down a little bit. Is there anything there or is it just some sort of timing issue?

I'm not sure if there's anything necessarily there. Obviously margins are going to be down a little bit with the lack of political as well.

Okay, that makes sense. And then my last question, so this bond repurchase that you guys did, that doesn't count towards the annual carve-out that you guys have to redeem bonds? I don't know what --

Correct.

-- legal language of that is.

Yes, that's the-- at least what we refer to as the 103 redemption, which allows us to take out $30 million a year on any two calls within a 12-month period. Any open market repurchases do not count against that. That's correct.

Okay. And there's no restriction in the bank facility in terms of how much you can buy in the open market?

There are some (inaudible) calculation amounts of how much we can redeem at any point in time. As long as we're able to clear those hurdles, there's no specific basket limit precluding us from buying back bonds in the open market.

Okay, great. Thanks, guys.

Sure.

And I want to get Anil his answer on cash interest for the quarter. $13.9 million.

We'll now go to [Bishop Sheen] with Wells Fargo Securities.

Good (inaudible) filling in for Bishop. Just a few questions. Just relating to the --

Can you speak up just a little louder? We can't hear you.

I'm sorry. Is that better? Okay. Just a few questions on your guidance. Can you walk us through, like, how much block programming is factoring into that, what sort of visibility you have on that, and just sort of the difference in performance versus advertising that you saw in Q3?

You talking about for fourth quarter?

Right.

Block programming is really not a significant factor in Q4. Most of those -- most of those contracts, David, are annual agreements. In fact, most of them are TFN agreements, Till Further Notice agreements, and most of those will be renewed at the end of Q4 for rate renewals starting in Q1. Sometime some of them -- most of them are January. Some of them lag into February. So, really, you're not seeing a pricing factorization there for Q4 at all.

Okay. And how's block programming felt this year for the most part? I mean, has it been fairly consistent?

We continue to have very solid demand for our block program time, not only as they come from our existing base of partners doing more business with us, but from our continued development of new ministry partners, which is creating an even greater demand for the limited amount of block program time that we have.

Okay. That's helpful. And lastly, on the 103 redemption, you guys have been pretty consistent about doing that every other quarter. Is that something that you're contemplating for Q4 or is it sort of market driven at this point?

Well, we've got some time on our calendar to make our mind up on that. We probably will do something. We haven't decided exactly what yet. We've got a few more days to look at that. And -- but we do anticipate doing something. We'll just have to decide how much. We do have -- our focus had been on the early years particularly trying to take advantage of it in the early years where we could get the benefit of that lower interest rate and delivering impact for the balance of the life of the bonds. So going forward we will do -- continue to do something. We just have to take -- make a judgment when we get there.

Okay. I appreciate the commentary. Thank you.

And this does conclude our Q&A session. I would now like to turn the call back over to Edward Atsinger for any additional or closing remarks.

Thank you, Operator, and thanks to all of you for joining us for this third quarter earnings call. We look forward to visiting with you when we have fourth quarter results.

And once again, this does conclude today's conference. We do than you all for joining us.