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, and welcome to the Salem Communications Third Quarter 2013 Earnings Conference Call. Today's call is being recorded. I would now like to turn the call over to Evan Masyr, SVP and CFO. Please go ahead, sir. Evan D. Masyr: 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 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 the company's website at salem.cc. I'd now like to turn the call over to Edward Atsinger. Edward G. Atsinger: Thanks, Evan. And let me just as usual begin my comments by taking a quick look at -- quick overview of Q3 financial performance. And then we've had a little bit of acquisition activity, I will comment on, then we will 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 are actually quite pleased with our performance and we've considered the impact of political revenue of Q3 last year with Q3 of this year. Last year we had $1.5 million of 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 been increased at 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 comps go. I think we had about $2.5 million of political revenue in Q4 last year and a 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 are 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 continue to make some -- what we considered to be important investments in our businesses for long-term growth. We launched several new radio -- local radio shows that required hiring talent, required some top notch behind the scenes talent as well and we spent additional money on marketing. And we've discussed these things with you in 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 to 2012, but it's also better than the first and second quarters of this year. Q1 this year was up 4.4% and 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, 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 the broadly conservative sites because politics plays a big role in that, certainly that would be the impact and we're quite pleased it was flat. Excluding last year's political lift, our conservative and 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 will look for additional investment opportunities in this space as they arise. I know you all aware of the fact that we completed our refinancing in March of this year and had a very positive impact on our free cash flow. And there is been on going discussions, strategic discussions 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 what we was 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 through a 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 in all 3 of those fronts, and we 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 a $1 million during the quarter on various Internet sites, including the Facebook Community God updates and various other websites such as Christiannotes.org and christianheadlines.com, and while these are not big acquisitions, they are helpful, they aggregate more content for us and they attract more audiences, and help us to [indiscernible] and grow revenue. And they basically fit right in with the targeting -- the niche targeting of those websites. And 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've already increased our quarterly dividend from $0.05 a quarter to $0.0525 per quarter. And this represents a 5% increase -- and it's a 50% increase over what we were paying in dividends last year. The increase of course is in proportion to the increase in our free cash flows, so that means 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 and 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 performance and to provide some values on Q4. Evan D. Masyr: Thank, 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%. The same station results include broadcast revenue from 96 of our radio stations in our network operations and represent 99% of our net broadcast revenue. I will 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 [ph] 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 the 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. The 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 comprised 2% of our broadcast revenue Finally, with respect to the formats that we focus on the 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 30, 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 are 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 disposable assets, impairment losses and stock-based comps, 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 will turn the call back over to the operator to help us with that. Jessica?

[Operator Instructions] And it appears -- I apologize, it appears there are no questions, so I'll turn the conference over to you Mr. Atsinger for any additional or closing remarks. Edward G. Atsinger: All right. Thank you, operator, and thanks to all of you for joining us. We look forward to visiting with at the end of the year as we report on Q4. Evan D. Masyr: Thank you.

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