Salem Media Group Inc (SALM) 2013 Q3 法說會逐字稿

Hello, and welcome to the Salem Communications third-quarter 2013 earnings conference call. Today's call is being recorded.

I would now like to turn things over to Mr. Evan Masyr, SVP and CFO. Please go ahead, sir.

Thank you. And thank you all for joining us today for Salem's third-quarter 2013 earnings call. As a reminder, if you get disconnected at any time, you can dial into area code (719) 325-4923 or listen from our website at www.salem.cc.

As usual, I'm joined today by Edward Atsinger, our Chief Executive Officer, David Santrella, the President of our Radio Division, and David Evans, the President of Interactive and Publishing. We'll begin in just a moment with our prepared remarks, and once we are done, the conference call operator will come back on the line to instruct you on how to submit any 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. These forward-looking statements are based on currently available information. Actual results may differ materially from those anticipated, and reported results should not be considered an indication of future performance. We do not intend and undertake no obligation to update our forward-looking statements, including forecasts of future performance, the potential for growth of existing markets, the opening of new markets, or the potential growth from future acquisitions.

More information on risks and uncertainties that may affect our business and financial results are included in our annual report on form 10K for the year ended December 31st, 2012, and other public filings we have made with the Securities and Exchange Commission.

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 is available on the Investor Relations portion of the company's website at salem.cc.

I'd now like to turn the call over to Edward Atsinger.

Thanks, Evan. And let me just, as usual, begin my comments by taking a quick overview of Q3 financial performance. And then we've had a little bit of acquisition activity I'll comment on. We've done a little work on our balance sheet, and I want to make a few comments about our dividend policy.

So with that, let's begin with Q3 results. Total revenue for the quarter grew 3.1%, while our recurring expenses increased 3.8%, the result of which is an increase in adjusted EBITDA of 0.7%. We're actually quite pleased with that performance when you consider the impact of political revenue of Q3 last year with Q3 this year. Last year we had $1.5 million in political revenue in the third quarter. This year, we only booked $300,000. So if you exclude the impact of political revenue for both years, our total revenue would have been up 5.5%, and our adjusted EBITDA would have increased an 11.8% figure. So I think all things considered, we're quite satisfied with that performance.

Next quarter, fourth quarter, we're going to have even a bigger hill to climb as far as the political costs go. I think we had about $2.5 million of political revenue in Q4 last year and very, very little this year. But Evan will comment about that in a little more detail.

Before I dig a little deeper into the results, I think it might be worth mentioning that we're quite pleased with the trend in our recurring operating expenses. For a period of time, our expense growth rate has outpaced our revenue growth rate as we've continued to make some, what we consider to be important investments in our businesses for long-term growth.

We launched several new local radio shows that required hiring talent, required some top-notch behind-the-scenes talent as well, and we spent additional money on marketing. We've discussed these things with you on past calls. If you look back to 2010, our expenses were up 8.7% - in 2011, they were 6.7% -2012, they were 7.6%. So as I just mentioned, our recurring operating expenses for Q3, increasing 3.8% is a nice number. And that compares also favorably not only to 2010 through 2012, but it's also better than the first and second quarters of this year. Q1 this year was up 4.4%, Q2 was up 4.3%. So we're pleased with the trend - we hope it continues.

I think it's also worth looking at our results by segment, as we usually do. Our broadcast revenue was up 0.3%, while our broadcast expenses were up 0.7%, which resulted in a slight decline in station operating income of 0.6%.

Our Internet revenue was up 20.4%, while Internet expenses increased 14.1%, leading to a 39% increase in Internet operating income. The impact of the acquisitions, of course, of SermonSpice last August and GodVine last October certainly impacted the revenue growth. But I think it's also very significant to note that more than half of the growth was a result of just organic forces.

Organically, our Christian web stations were up 20%, while our conservative websites were flat. And again, with regard to the conservative sites, because politics plays a big role in that, certainly that would be the impact, and we're quite pleased that it was flat. Excluding last year's political lift, our conservative opinion websites were up 22%. So as I say, a flat performance this year against a real tough political comp last year is positive.

And we continue to be bullish about the future growth prospects of our Internet businesses, and we'll look for additional investment opportunities in this space as they arise.

I know you're all aware of the fact that we completed our refinancing in March of this year and that it's had a very positive impact on our free cash flow. And there's been an ongoing discussion, strategic discussion among management and among our board as to how to maintain the proper balance in terms of the allocation of capital, particularly free cash flow.

And our goals, as we've stated in the past, have been to continue to strengthen our balance sheet, to reduce debt. And we want to get to -- our goals during this current -- the term of this current financing would be to navigate to a lower overall leverage ratio. We also want to make smart strategic acquisitions, and we want to be able to allocate a certain amount of capital for that, and we want to continue with our policy of returning value to shareholders via dividend.

So each quarter, those demands for capital have to be looked at and balanced. And during this last quarter, Q3, we made some progress, we think some positive progress on all 3 of those fronts. We've strengthened our balance sheet by paying down $4 million of term loan B debt for the quarter, and, thereby reducing the overall balance from $300 million to actually $292 million because of using some of the revolver to reduce that as well.

We also made some strategic investments during the quarter. We recently made an announcement of the purchase of KRDY-AM in San Antonio, Texas, and KDIS-FM in Little Rock, Arkansas from the Disney Corporation. We expect these transactions to close in early 2014.

Additionally, we spent just under $1 million during the quarter on various Internet sites, including the Facebook community God Updates, and various other websites, such ChristianNotes.org and ChristianHeadlines.com. And while these were not big acquisitions, they are helpful. They aggregate more content for us and they attract more audience that help us to build page use and grow revenue. And they basically fit right in with the niche targeting of those websites.

Finally, in September, our Board of Directors decided to look at our dividend payment each quarter as opposed to doing it on an annual basis. If you recall, that we voted to increase our quarterly dividend from $0.05 a quarter to $0.0525 per quarter. This represents a 5% increase and is a 50% increase over what we were paying in dividends last year. The increase, of course, is in proportion to be increase in our free cash flow, stemming primarily from the refinancing. But the Board intends to look at our dividend policy on a quarterly basis as opposed to reviewing it annually and then making any changes that they think are appropriate, based upon our free cash flow situation.

So you can see we've been quite busy in all 3 areas, balancing the use of our free cash flow. We look forward to providing future updates after the end of the year.

And with that, I will turn the call back to Evan to give you a little more detailed look at third-quarter fulfillments and to provide some guidance on Q4.

Thanks, Ed. For the third quarter, our total revenue increased 3.1%, to $58.5 million. Operating expenses on a recurring basis increased 3.8%, to $49.2 million. And adjusted EBITDA increased 0.7%, to $13.1 million. Net broadcast revenue increased 0.3%, to $46 million. And broadcast operating expenses increased 0.7%, to $30.8 million, which resulted in station operating income of $15.2 million, or a 0.6% decline.

On a same-station basis, our net broadcast revenue decreased 0.7%, and SOI decreased 0.4%. These same station results include broadcast revenue from 96 of our radio stations in our network operations and represents 99% of our net broadcast revenue.

I'll now take a quick look and break down our broadcast revenue by format. 39 of our radio stations are programmed in what we call our foundational format, Christian Teaching and Talk. These stations contributed 45% of total broadcast revenue and increased 1% for the quarter. Block programming increased 2.3%, while infomercials were down 29.7%, as we continue to reduce the infomercials on our radio stations to improve the overall programming on these stations.

Our 26 News Talk stations had a decrease of 6% in revenue for the quarter. Overall these stations contributed 14% of total broadcast revenue.

Revenue from the 12 Contemporary Christian Music stations contributed 24% of total broadcast revenue and had an increase of 5% for the quarter. Again, we continue to see strong results from many of our music stations, most notably in this quarter, Los Angeles and Dallas.

The 7 stations that we have programmed in Spanish language, Christian Teaching and Talk grew by 26%, and these stations comprise 2% of our broadcast revenue.

Finally, with respect to the formats that we focus on, we have 10 stations in a Business Talk format. And that format contributed 3% of our broadcast revenue and had a decrease of 2% in revenue.

Our network revenue decreased 8% for the quarter and represents 8% of total broadcast revenue. As Ed mentioned, this decrease is due to the lack of political revenue in 2013, compared to 2012.

Publishing revenue increased 2%, and represents 5% of our total revenue. And finally, revenue from our Internet businesses increased 20%, to $9.4 million, and Internet businesses now represent 16% of total revenue.

During the quarter, as Ed mentioned, we repaid $4 million of our term loan B. And at September 30th, we had $292 million outstanding on our term loan B and $2.5 million drawn on our revolver.

Our leverage ratio was 5.45, compared to a compliance covenant of 6.75.

Interest expense for the quarter declined 39%, to $3.8 million, from $6.1 million.

And looking to the fourth quarter, we're projecting total revenue to be flat to down 2% over fourth quarter 2012 revenue of $60.6 million. This growth is certainly impacted by the strong political revenue in the fourth quarter of 2012, which was $2.4 million. Excluding that revenue, we would be projecting revenue to increase between 2% and 4% for the quarter.

We're also projecting operating expenses before gains and losses on disposal of assets, impairment losses, and stock-based comp, basically our recurring expenses, to be flat to a 3% increase, as compared to fourth quarter 2012 operating expenses of $49.2 million.

And with that, this concludes our prepared remarks, and we certainly would like to answer any questions that anyone may have. And with that, I'll turn the call back over to the operator to help us with that. Jessica?

Thank you. (Operator Instructions) It appears there are no questions. So I'll turn the conference over to you, Mr. Atsinger, for any additional or closing remarks.

Thank you, Operator. And thanks to all of you for joining us. We'll look forward to visiting with you at the end of the year as we report on Q4.

Thank you.

This concludes today's presentation. Thank you for your participation.