Evan D. Masyr - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Corporate Controller Edward G. Atsinger - Founder, Chief Executive Officer, Director and Director of Salem Communications Holding Corporation

Barry L. Lucas - Gabelli & Company, Inc. Michael A. Kupinski - Noble Financial Group, Inc., Research Division

Hello, and welcome to the Salem Communications Fourth Quarter 2012 Earnings Conference. Today's conference is being recorded. And I would now like to turn things over to Mr. Evan Masyr, Senior Vice President and Chief Financial Officer. Please go ahead, sir. Evan D. Masyr: Great. Thank you, and thank you for joining us today for Salem Communications' fourth quarter 2012 earnings call. As a reminder, if you get disconnected at any time, you can dial into (719) 325-4804 or listen from our website at www.salem.cc. I'm joined today by Edward Atsinger, our Chief Executive Officer; David Santrella, President of Radio; and David Evans, President of Interactive and Publishing. We will 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 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 or 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 10-K for the year-ended December 31, 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 any non-GAAP financial measures is available on the Investor Relations portion of the company's website at salem.cc. I would now like to turn the call over to Edward Atsinger. Edward G. Atsinger: Thanks, Evan, and thanks to all of you for joining us for our fourth quarter 2012 earnings conference call. Let me begin with a review of our financial performance for the quarter and discuss some of our strategic initiatives. Also, about an hour ago, we issued a press release announcing a plan to refinance our capital structure. I'll discuss that in a little more detail before I turn the call back over to Evan, who can review then with you in more detail the fourth quarter and discuss guidance for the first quarter. Let's begin with a brief review of the fourth quarter. Total revenue was up 6%, this growth was a result of a 25% increase in Internet revenue, a 9% increase in publishing revenue and 3% increase in broadcast revenue. Currently, as we continue to diversify our revenue streams, 23% of our income comes from Internet and -- revenue comes from Internet and publishing, and we continue to see that diversification. Our results during the quarter were aided by strong political revenue. We recorded $2.4 million in political for the quarter compared to $700,000 in the fourth quarter of 2011. This represents the biggest political year in Salem's history, with political revenue in 2012 totaling $5.5 million. Our previous high watermark for political was $3.7 million in 2010. I think that this trend, this positive trend in political, is being driven in part by a stronger group of assets that target political opinion. And while we're pleased with the fact that these -- those in the political arena recognize the value of our listeners and our focused audience, it will pose a particularly tough comp for us in 2013. So while we're projecting top line growth in our Q1 2013 guidance, which Evan will discuss in a minute, the impact of the Republican primaries in Q1 2012 will be noticed in the first year-over-year comparison. If we turn our attention to our Internet division, revenue increased by 25%, as I mentioned a minute ago, in the fourth quarter, compared to Q4 in the prior year. This was a result of both the impact of acquisitions and organic growth. The recent acquisitions of SermonSpice and Godvine are progressing right at, or a bit better than we projected. If we exclude the impact of these 2 acquisitions, however, the organic growth produced a 13% increase on its own. Our national Conservative News Talk website saw the biggest growth, posting a 23% increase in revenue. Clearly, political played a role here. The election cycle also produced a significant increase in monthly page views to these sites. While we have seen some falling off of traffic since the election, visits are still up nicely compared to preelection levels. I mentioned earlier our publishing revenue was up 9% for the quarter, that we achieved a significant growth in revenue of 21% from our digital on-demand book publisher Xulon Press. We've learned over time that Xulon Press is a business that can grow cost effectively with increased marketing. Accordingly, beginning in late 2011 and continuing into 2012, and through 2012 we increased our marketing budget. We're now starting to see, in our fourth quarter numbers, the positive impact of this increased marketing. Our expenses for the fourth quarter were up 8%, slightly outpacing revenue growth. There are 2 primary reasons for this. First, our medical costs for the quarter increased by approximately $0.5 million over the prior year, this is due in -- to the fact that we're self-insured for medical and there was an increased claims activity, principally driven by the flu epidemic. But we believe that this should be a onetime increase and not a trend, and the first quarter early pacing would confirm that. Second, as to -- as we reported in prior quarters, we have invested in several new local talk shows, as well as key management personnel for our digital Business Talk and News Talk formats. These investments are proceeding well. For example, Q4 -- in Q4, KSKY, our Dallas news talk station, had local spot revenue excluding political, up by 36%, as a result of our hiring of Mark Davis earlier in 2012. Finally, on my comment that we closed on the acquisition of WTOH-FM in Columbus, Ohio and WGTK-FM in Greenville, South Carolina. We've discussed those earlier and have been operating them under an LMA. They both closed a few weeks ago. Before I turn the call back to Evan, I would like to comment on our press release issued about an hour ago, regarding the tender offer on our existing bonds and our proposed new financing. We've been closely monitoring the capital markets for some time and have been trying to determine an appropriate course of action, based upon the movements in that market. While our current bond issue is not callable until December 2013, we feel it is in Salem's best interest to take advantage of historically low interest rates and risk premium spreads. So our plan is to issue $300 million in new institutional Term Loan B debt, in addition to a new $25 million revolver. Given the low rates, this transaction is net present value positive and secures Salem a substantially lower interest rate, which will allow us to more rapidly pay down debt. We will keep everybody informed as appropriate. With that, let me turn the call over to Evan Masyr, for a more detailed discussion of the quarterly results and to provide some guidance for the first quarter of 2013. Evan? Evan D. Masyr: Thank you, Ed. For the fourth quarter, our total revenue increased 6% to $60.6 million, operating expenses on a recurring basis increased 8% to $49.6 million and adjusted EBITDA increased 1% to $15.2 million. If we were to exclude the growth from political revenue, our overall revenue increased 3%. Net broadcast revenue increased 3% to $47 million and broadcast operating expenses increased 4% to $30.5 million, resulting in $16.5 million or a 1% increase in station operating income. On a same-station basis, net broadcast revenue increased 2% and SOI increased 0.3%. These same-station results include broadcast revenue from 94 of our radio stations in our network operations, representing 99% of our net broadcast revenue. I'll now briefly review our revenue by format. 39 of our radio stations are programmed in our foundational Christian Teaching and Talk format. These stations contributed 35% of total revenue. Total revenue on this format was flat, while block programming increased 1%. Revenue from our 11 contemporary Christian music stations contributed 17% of total revenue and increased 1% for the quarter. Our 27 News Talk stations had an increase of 5% in revenue for the quarter, and these stations contributed 11% of our total revenue. The 7 stations we have programmed in Spanish-language Christian Teaching and Talk grew revenue by 17%, and this format now comprises 2% of total revenue. Finally, we have 11 stations in a Business Talk format, and revenue from these stations was down 7%. This format contributed 2% of total revenue. Our network revenue increased 10% for the quarter and now represents 7% of total revenue. Our publishing revenue increased 9% to $3.4 million and represents 6% of our total revenue. Revenue from our Internet business increased 25% to $10.2 million, our Internet revenue was 17% of total revenue. As of December 31, our total bond debt was $213.5 million. In addition, we had $33 million drawn on our bank revolver and $15 million due in loans from 2 of our directors. We also had $7.5 million in subordinated debt. This brings our total debt to $269.0 million. As of December 31, our leverage ratio was 4.87 compared to a compliance covenant of 6.25, which is our lowest level since June of 2000. This is further evidence that our strategy of selective acquisitions, along with a commitment to reducing our debt, is working. We will continue to work on getting our leverage down, as we would ultimately like to have our leverage ratio under 4x. The increased free cash flow to be generated under the proposed new capital structure will assist us in reaching that goal even sooner. For the first quarter of 2013, we are projecting total revenue to increase 1% to 3% over the first quarter of 2012 total revenue of $54.3 million, which as Ed touched on earlier, includes a tough comparison due to the Republican primary political revenue that we received. We are also projecting operating expenses to increase 2% to 5% as compared to the first quarter of 2012 operating expenses of $46.5 million. This concludes our prepared remarks and we'd now like to answer any questions. Operator?

[Operator Instructions] And we'll take our first question today from Barry Lucas of Gabelli & Company. Barry L. Lucas - Gabelli & Company, Inc.: Evan, maybe you could just -- I know since it's -- the tender has just gone out and -- but maybe you could roughly guesstimate what the overall interest cost reduction might be if everything were concluded today? Evan D. Masyr: Pretty difficult to guess exactly what that's going to be. Obviously, it depends on what the market gives us in the term of a new institutional term loan market. I can tell you that it will be significant compared to the 9 5/8% interest that we're paying now, such that this really makes it a net present value positive for us, and we are very optimistic about what this will do for the company's free cash flow. Barry L. Lucas - Gabelli & Company, Inc.: Okay. And just second area of -- maybe just refresh my memory in terms of anything else that's in the acquisition or divestiture pipeline? And if there's nothing else in there, what do you think is on the horizon? Edward G. Atsinger: Well there's nothing in the pipeline that we would discuss today. There's nothing significant that we would want to discuss today or that we have to discuss today. We'll continue to look for tuck-in acquisitions, that is acquisitions that we can roll into an established cluster where we already have a presence. Most of the acquisitions we did last year conformed to that pattern, whether it be in the Internet or be it on the broadcast side. But our priorities are to continue to de-lever, to make acquisitions that make sense strategically. And in terms of the bottom line, we're looking for acquisitions with a multiple -- with what we can do with it, is attractive to us, and as I say, where it's a tuck-in acquisition. So I -- based upon what has happened in each of the last several years, I suspect some things will come along that will make sense for us. But we don't have any in the pipeline at this time. Barry L. Lucas - Gabelli & Company, Inc.: Okay. Last item for me. I just -- if you think about how we're starting off the first quarter and your capital needs. Any further color or thoughts you'd care to share on dividend or other forms of returning cash to shareholders? Edward G. Atsinger: We have a board meeting in a week or so. The board, typically at the end of the year, will review it. I think the dividend level that we've declared last time was somewhere between 15% and 17% of free cash flow. If the board elects to keep it at that level, there should be some increase. The board may elect to leave it where it is. If they elect to just to keep the percentage at the same level, there would be an increase, and they may modestly agree to go beyond that. It's really a board decision at this point, and I -- we'll have to wait and see what the board does. Evan D. Masyr: The one thing to consider if the board does keep it at this 15% to 17% of free cash flow, post-transaction, that free cash flow number is going to be significantly different and higher, such that if the board keeps it at that same level, the dividend would increase as well.

Next up, we'll take a question from Michael Kupinski of Noble Financial. Michael A. Kupinski - Noble Financial Group, Inc., Research Division: I just need to -- just some clarification on how -- you mentioned about the, obviously, the first half of the year is going to be tough given the Republican primary. Could you remind me what the political was in the first quarter of last year? And then I'm sorry if you've mentioned this, but what -- I know that the quarter is like 2/3 of the way over. What are we pacing in terms of core advertising x political at this point? Evan D. Masyr: I can give you the Q1 political number, was about $940,000 in the first quarter of last year, first quarter of 2012. Michael A. Kupinski - Noble Financial Group, Inc., Research Division: Okay. And did you guys give any color in terms of the revenues on the -- x political for the first quarter? Evan D. Masyr: X political? Edward G. Atsinger: Yes, without political, broadcast side... Evan D. Masyr: We're seeing -- I mean, pacing is up slightly. We're seeing more transactional business and we're seeing more business on the national transactional front than we've seen in a while. National transaction business is up pretty significantly. On the local side, it's been a little more sluggish, Michael. But we're still in positive territory. And if you think about the $900,000 or $940,000 of political, that's 1%, 1.5% of -- compared to the total revenue for the quarter. So while we gave guidance of up 1% to up 3%, it would have been probably 1.5% higher if you took out political. Michael A. Kupinski - Noble Financial Group, Inc., Research Division: And you mentioned that, now that you have some new venues and opportunities to capture more political, and some companies, some radio companies have suggested that they think that political advertising is actually going to be a core advertising category for them, even in the off-election years. You've mentioned that you did $700,000 in political in 2011, I think. Do you have any thoughts whether or not that is going to build for -- in 2013? Obviously an off-election year but still a politically charged year, if you want to look at it in terms of [indiscernible] races and a whole host of the advocacy type of advertising, that sort of thing, any thoughts on that? Edward G. Atsinger: Well, I think that the -- I mentioned that the asset mix we have now is a little more accommodating to political. For example our Conservative Opinion website saw significant growth in this election cycle, but I mentioned particularly the Townhall, HotAir websites. But we've expanded our News Talk footprint as well, and those stations will likely be able to accommodate more political and their -- political seems to gravitate toward them. We're doing more political at the network level, we've -- we're at a record number of affiliates now. I think we're something like over 2,000 affiliates that take content from us. And we're finding on issue advocacy, particularly, that more political dollars are going to network buys, national buys. You get some -- you don't get a lot of -- obviously, you're not going to get local, you're not going to get much local political advertising on the network level. You do get national, but you do get advocacy, and we saw quite a bit with -- part of what drove I think the 2010 cycle was Obamacare and the debate that was going on while it was being -- while the legislation was being passed, and then the conversations that followed it. So I just think, generally, our asset mix is better situated today to accommodate political advertising. And on the network level, we're seeing new opportunities, for example, there's quite a bit of controversy now around the Second Amendment and gun control. That kind of political advertising will take place at the network level, the national level. So I think, yes. We'll see -- I think the trend is positive, it just keep -- seems to keep building in that direction, and I think it does reflect the stronger asset base that we have to accommodate it.

Gentlemen, there are no further questions. I'll turn the conference back to you. Edward G. Atsinger: Thank you, operator. And thanks to all of you for joining us. We look forward to visiting with you again on our next earnings call.

And, ladies and gentlemen, that does conclude today's conference. Again thank you all for joining us.