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

Hello, everyone, and welcome to the Salem Communications Second Quarter 2013 Earnings Conference Call. Today's call is being recorded. I would now like to turn things over to Mr. Evan Masyr, Senior Vice President and CFO. Please go ahead, sir. Evan D. Masyr: Thank you all for joining us today for Salem Communication's second quarter 2013 earnings call. As a reminder, if you get disconnected at any time, you can dial into area code (913) 312-1278 or listen from our website at www.salem.cc. Today I'm joined today by our Chief Executive Officer, Edward Atsinger; President of our Radio Division, that would be David Santrella; and President of Interactive and Publishing, David Evans. We'll 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. 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 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 non-GAAP financial measures is available on the Investor Relations portion of our website at salem.cc. Now, I'd like to turn the call over to Edward Atsinger. Edward G. Atsinger: Thanks, Evan. My report will be fairly brief today. We really haven't had any extraordinary developments during the quarter or unusual transactions. So let me begin by hitting the highlights of our second quarter financial performance. And then I'll provide some additional comments on our improved capital structure and its favorable impact on our free cash flow. Evan will then take the call back and give you more specific information on Q2 financial performance and provide guidance for Q3. So let's begin with Q2 financial performance. Our revenues for the quarter increased 4.4%, while expenses grew 3.4% resulting in an increase in adjusted EBITDA of 4.8%. While this shows a slight increase in operating leverage, the impact of political revenue quarter-over-quarter should really be considered to fully appreciate the performance for second quarter of 2013. In second quarter 2012, we had almost $700,000 in political revenue but less than $400,000 in Q2 this year. If you exclude the impact of political advertising quarter-over-quarter, our overall revenue growth would've been almost 5% and adjusted EBITDA would have grown 7.4%. So all in all, we're quite pleased with what I would call steady progress toward our financial goals in Q2. Almost all of the political revenue this year was related to Second Amendment rights and not political candidates. And the majority of that revenue was generated at the Salem Radio Network division of our business. As you recall, last year was the biggest political year in our history with $5.5 million in revenue. Consequently, we're going to have some fairly tough comparisons for the back half of this year, based upon the large political revenue received last year. Of the $5.5 million in political revenue last year, $1.5 million showed up in Q3 and $2.4 million was spent in Q4. Evan will elaborate a little bit further on the impact of political when discussing guidance for the third quarter. Let me provide little more detail on revenue growth in Q2 by division. Our broadcast revenue was up 1.4%, and broadcast expenses were up 1.1%, resulting in a 2.1% growth in SOI. Again, political revenue had a meaningful impact on these numbers. If we break it down by radio format, block program in our Christian Teaching Talk stations grew 3.8% during the quarter, and our contemporary Christian music stations were up 5%. Our News Talk stations were down 2.4% and again you've got to factor in the lack of political revenue this year compared to last. The Internet division increased its revenue by 23% for the quarter, while its operating income was up almost 57% -- 58%. This top line increase was due to a combination of both organic growth and in some, driven by acquisition growth. The impact of the acquisitions, primarily Godvine and SermonSpice, provided about half the growth, but the other half came from solid organic performance, which is very encouraging. Organically, our Christian websites were up 16%, while our conservative websites grew 10%, and the latter, I might point out again, in spite of a lack of political advertising this quarter compared to last year's Q2. Our ability to continue to expand this business at the current pace is right on target with our long-term strategic goal, which is to make sure that the growth of our new media platform meets or exceeds any negative impact of new technology on our more mature platforms, so that Salem as a whole performs as a platform agnostic multimedia business, and we're comfortable with the progress we continue to make for that goal. Let me conclude my prepared remarks by bringing you up-to-date on further progress that has been made on reducing our long-term debt and strengthening our balance sheet. During Q2, we were able to reduce our debt by approximately $8.5 million as compared to where we were at the end of Q1. This reduction in debt during the quarter is the direct result, and I might add, benefit of our new capital structure, which was completed on March 14 of this year. So Q2 represents the first full quarter with the new structure in place. Our weighted average effective interest rate declined 53% from 9.2% before the refi to 4.9% currently. Obviously, this reduced cost of capital has a material impact on our free cash flow, thereby allowing us to pay down debt as we did while increasing our dividend. You will recall our board approved an increase in Salem's dividend of 43% on an annual basis as compared to last year. So Salem remains committed to continue with meaningful deleveraging while we continue to improve our free cash flow. So with that, let me turn the call back to Evan, who can provide a little more detail on second quarter financial performance and provide guidance for Q3. Evan D. Masyr: Thanks, Ed. For the second quarter, total revenue increased 4.4% to $60.1 million. Operating expenses on a recurring basis increased 4.3% to $49.7 million, and adjusted EBITDA increased 4.8% to $14.2 million. Net broadcast revenue increased 1.4% to $47 million, and broadcast operating expenses increased 1.1% to $30.8 million, resulting in station operating income of $16.2 million or a 2.1% increase. On a same station basis, net broadcast revenue increased 0.2% and same station SOI increased 1.9%. The same station results include broadcast revenue from 94 of our radio stations and our network operations, representing 99% of our broadcast business. Let's take a look now at performance by format. 39 of our radio stations are programmed in our foundational Christian Teaching and Talk format, and these stations contributed 44% of total broadcast revenue and increased in total 1% for the quarter. We have 26 News Talk stations and they had a decrease of 2% in revenue for the quarter. Overall, these stations make up 14% of total broadcast revenue, and as Ed has talked about before, the lack of political is really the reason for the decline in this format. Revenue from our 12 contemporary Christian music stations contributed 25% of total broadcast revenue and increased 5% for the quarter. During the quarter, we did see positive results from actually many of our many music stations but most notably in Los Angeles, Dallas and Atlanta. The 7 stations that we have programmed in Spanish language Christian Teaching and Talk grew revenue by 18%, and this format is 2% of our total broadcast revenue. And finally, rounding up the radio stations, we have 10 stations in a Business Talk format. This format also contributed 2% of total broadcast revenue and was flat compared to the same period last year. Network revenue decreased 1% for the quarter and represents 8% of total broadcast revenue, again, decrease being due to the lack of political revenue this year. Publishing revenue was flat and represents 5% of our total revenue. And lastly, revenue from our Internet businesses increased 23% to $9.9 million, and this Internet business now represents 16% of our total revenue. On June 3, we paid the remaining $900,000 that was outstanding on our 9 5/8% bond, so those are completely gone and extinguished. During the quarter, we also repaid $4 million of our Term Loan B and $3.6 million on the revolver. So at June 30, we had $296 million outstanding on our Term Loan B and $400,000 drawn on the revolver. Our leverage ratio was 5.46 compared to the compliance covenant of 6.75. Interest expense declined 41% from $6.3 million to $3.7 million. Looking forward to next quarter, for the third quarter of 2013, we're projecting total revenue to increase between 0% and 2% over the third quarter of 2012, revenue of $56.7 million. This growth is impacted by the strong political revenue of $1.5 million in the third quarter of 2012. Excluding that revenue, we would project our growth to be 3% to 5%. We're also projecting operating expenses before gains or losses on disposal of assets, impairment losses and stock-based compensation, basically recurring expenses, to increase 1% to 4% as compared to the third quarter of 2012 operating expenses of $47.4 million. And with that, that concludes our prepared remarks. And we'd love to any questions that anyone has, and I'll turn it back over to the operator.

[Operator Instructions] And we have no questions in queue at this time. [Operator Instructions] Edward G. Atsinger: Well, operator, I think that we were very -- I guess we had an unusual amount of clarity today. And I think it was a pretty straightforward report. So the lack of questions is a first for us, but we're glad that, apparently, folks are satisfied with the information we provided. So thanks for joining us for the call. I think it was a pretty good quarter. We look forward to visiting with you when we meet after the third quarter performance. Thank you, operator.

Thank you. And ladies and gentlemen, again, thank you all for joining us. That does conclude today's conference.