Salem Communications Corp. Q1 2006 Earnings Conference Call Transcript (SALM)

May. 9.06 | About: Salem Media (SALM)

Salem Communications Corp. (NASDAQ:SALM)

Q1 2006 Earnings Conference Call

May 8th 2006, 12:00 PM.

Executives:

Eric Jones, Director of Communications and Investor Relations

Edward Atsinger, President and Chief Executive Officer

Evan Masyr, Vice President of Accounting and Finance

David Evans, Executive Vice President of Business Development and CFO

Analysts:

Victor Miller, Bear Stearns

James Dix, Deutsche Banc Securities, Inc.

Bishop Cheen, Wachovia Securities

Lee Westerfield, Harris Nesbitt

Bobby Melnick, Terrier Partners

Operator

Good afternoon, ladies and gentlemen, my name is Carolyn, I will be your conference facilitator today. At this time, I would like to welcome everyone to the Salem Communications First Quarter 2006 Earnings Release Conference Call. Operator Instructions. It is now my pleasure to turn the floor over to your host to Mr. Eric Jones. Sir, the floor is yours.

Eric Jones, Director of Communications and Investor Relations

Welcome, and thank you for joining us today for Salem Communications First Quarter 2006 Earnings Call. As a reminder, if you get disconnected at any time you can dial 973-582-2734 or listen from our website at http://www.salem.cc/ We will begin in just a moment with opening comments from our President and CEO, Edward Atsinger, and Vice President of Accounting and Finance, Evan Masyr. After their opening comments, our conference call operator will come back on the line to instruct you on how to submit questions. David Evans, Executive Vice President of Business Development and CFO, will participate in the question and answer portion of our call.

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 industry 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 with 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 circumstance 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 included in this conference call to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles, is available on the Investor Relations portion of the Company's website at http://www.salem.cc/ as part of the current report on Form K, an earnings release issued by Salem earlier today. I will now turn the conference call over to Edward Atsinger.

Edward Atsinger, President and Chief Executive Officer

Thank you, Eric. And thanks everyone for joining us for today's conference call. As you would expect that during the quarter we continued to focus on ways to serve our growing audience interested in Christian and family-themes content and conservative values through radio, internet and our publishing platforms. However, the overall performance -- our overall performance was muted by the difficult advertising environment confronting the radio broadcast industry. This environment contributed to a lack of radio industry revenue growth for the quarter, as reported by radio advertising bureau and other sources, and we ourselves only grew same station revenue by 1%, a rate much slower than in previous quarters. This slowing, to some extent, was due to some very tough January comps as well as inventory -- our inventory reduction program at KLTY in Dallas.

Turning to the positives. Our News Talk stations and national advertising businesses performed well. Our block programming growth remained consistent, and our internet business demonstrated strong growth.

I want to provide detail on our first quarter performance in the context of our ongoing initiatives to grow our three strategic radio formats, our national advertising business and our internet businesses. For the first quarter, net broadcasting revenue increased by 4%. The fastest growing stations contributing to this growth were our News Talk stations. As we've commented before, we have 34 News Talk stations serving 8 of the top 10, and 20 of the top 25 markets. Stations in this format contributed 15% of our total net broadcasting revenue for the quarter, and achieved a 15% increase in net broadcasting revenue compared to the same quarter last year. On a same station basis, our News Talk stations grew net broadcasting revenue by 7%. As we've said, we have more than doubled the number of stations we operate in this format, adding stations in such markets as Chicago, Philadelphia, San Francisco and Dallas. I am convinced there is substantial revenue and profit upside opportunities as we develop these stations to maturity. One way to quantify the upside potential is to compare our actual average audience share and actual average power ratio with our goals, a good way to measure of how much progress we make on this front.

Our 34 News Talk Stations currently have an average 12 plus ratings share of 0.7, and an average power ratio of 0.6. And on that basis, they generated $29 million of revenue during the last 12 months. The first goal we set for ourselves is to achieve a four-book average rating share of a 1.0 and an average power ratio of 0.8. Achieving this audience share and power ratio would result in an additional $20 million of revenue from these stations. Once we've gotten there with our four-book average and reached this initial goal, the next goal will be to drive our four-book average ratings share to 1.5 and an average power ratio to 0.9. This would equate to an additional $33 million in incremental revenue. These goals represent Salem's largest opportunity for growth, and our resources are very focused on achieving them.

Our second initiative is to grow to maturity our contemporary Christian music stations. We have 14 stations in this format. They contributed 22% of our total net broadcasting revenue for the quarter. Same station CCM revenue, however, declined by 1% in Q1 '06 compared to Q1 '05 and same station profitability increased by 1% to $3.7 million.

Revenue at KLTY in Dallas, our largest CCM station was flat for the quarter. As you know, just over a year ago at the beginning of March, we launched an inventory reduction program at KLTY. Although this created some short-term challenges for us in terms of reduced revenue, we reached the anniversary date of this program on March 1 and the station has returned to positive revenue growth, achieving a 10% increase in revenue in March 2006 compared to March 2005. Now that that anniversary is behind us, we expect to see a return to positive revenue and SOI growth at the station has happened in March of this year. We only considered two of our CCM stations, KLTY in Dallas and our station in Colorado Springs, to be mature.

Replicating the KLTY performance at our other CCM stations is an important growth initiative. The stations that are best positioned to achieve performance similar to KLTY's are those large market stations that enjoy full market signals: Atlanta, Portland, Cleveland and Sacramento. The 2005 four-book average for all people 12-years-old and older, on the basis of average quarter, our share for these stations was a 2.4 share with a power ratio of approximately 0.8. KLTY on the other hand, a franchise we are working to replicate, achieved a comparable 3.2 share and a power ratio of 1.4. This combination of the 32% ratings upside and a 67% power ratio upside represents a significant growth opportunity for us. We think that we can achieve progress in that direction. Our third initiative is to continue to grow at our 44 Christian Teaching and Talk Stations -- continued to grow, I should say, at our Christian Teaching Talk Stations. They contributed 51% of our total net broadcasting revenue during the quarter, so they still remain a very important focus for us. These stations achieved same station revenue growth in the quarter of 1%. This low growth is attributable to a 7% same station decline in advertising revenue, most notably from a large advertising campaign that we did last January of 2005 that we didn't duplicate in 2006, offset by the total block programming revenue growing 7% on a same station basis.

An important and unique feature of our Christian Teaching Talk Stations is their stable, national and local block programming business. Those businesses with block program component contributed 57% of the revenue on the Christian Teaching Talk Stations, or 29% of our total net broadcasting revenue. Our fourth initiative is to grow our national advertising business. In Q1 '06, we grew national advertising revenues by 3% to $7.2 million on a same station basis. While Salem has historically sold less national advertising than the average general market radio company, we are expanding this business by building on the growing awareness among general market advertisers and their agencies of the size and buying power of the Christian audience. We're confident in our ability to continue to do so. Finally, as the growth initiatives that -- our fifth initiative is to further develop our new media strategy that embraces technology as a growth opportunity for Salem, and we've probably invested more energy in the last quarter or so in this area than any other.

Our recent acquisition of http://www.townhall.com/ is a good example of how we're implementing this strategy. This acquisition is an important development in the integration of our traditional radio platform with our new media assets that serve the same target audience. We mentioned on our last earnings call that we were planning to launch our own conservative News Talk opinion website. Shortly after that call took place, we learned of an opportunity to acquire Townhall, and we were able to acquire it on terms that were satisfactory to us. Townhall.com is an established conservative opinion website, generating approximately 12 million page views per month, with more than 1 million unique listeners or visitors. Instead of incurring startup losses in 2006 and 2007, which would have been the case had we launched our own website, we will integrate the content and functions we had planned for our own site with the comprehensive content and rich heritage of Townhall.com. Townhall is a leading conservative opinion website that complements and expands what we are doing with our News Talk Radio Stations and nationally syndicated talk show network. With this acquisition, we see significant opportunities for content sharing between radio and internet as well as cross-promotional opportunities across our multi-media platform.

From a financial standpoint, we expect the Townhall acquisition to be profitable within three months and to be accretive to earnings in the first 12 months of operation. We are already benefiting in many ways from our involvement with the internet across our platform and we expect to see some new interesting dynamic interactions to emerge as we go forward. During the quarter, our internet revenue grew by 30% to $2 million, and generated a $100,000 profit. Excluding start up costs associated with our News Talk internet initiative, profit was $300,000. Average monthly page views increased 48% to 58 million for the quarter compared to Q1 '05.

As a targeted niche broadcaster, we are in a particularly good position to take advantage of cross-promotional opportunities across this multi-media platform since they all target -- all platforms target essentially the same audience in terms at least of values. The integration of our proven traditional media platform with new media offers substantial growth opportunities, providing us the ability to become the leading multi-media creator, aggregator and distributor of faith, family and values content. With that, I will turn the call over to Evan Masyr for a more detail discussion of our first quarter 2006 results and our second quarter 2006 guidance.

Evan Masyr, Vice President of Accounting and Finance

Thank you, Ed. Our results for the first quarter of 2006 were issued in a press release earlier today and are available on the Investor Relations portion of our website. I will briefly review these results.

Net broadcasting revenue for the first quarter increased 4% to $49.3 million, and SOI decreased 2% to $17 million. On a same station basis, net broadcasting revenue grew 1% and SOI was flat. Let me also provide some detail on same station growth rates by revenue type, comparing Q1 '06 to the first quarter of '05.

Beginning with block programming, same station revenue grew 8% to $16.5 million. Same station local advertising revenue declined by 5% to $20.4 million. This decline is principally due to the inventory reduction program at KLTY in Dallas, initiated on March 1, 2005, and a one-time advertising campaign in January of 2005. Same station national advertising revenue, including spot and network revenue, increased by 3% to $7.2 million.

Finally, other revenue, which includes infomercials, declined by 5% to $2.7 million. This decline was offset by our 8% increase in program revenue as we shifted programming time from infomercials to block programming. Included in our same station numbers is broadcasting revenue from 90 of our 104 radio stations in our network, representing 95% of our net broadcasting revenue. Within our portfolio of 104 stations, our startup and early development stage stations, which were originally purchased for a total of approximately $260 million, generated as a group a loss of $200,000 for the 12-month period ended March 31, 2006. There is substantial upside if we can successfully take these stations to maturity.

Regarding our balance sheet. As of March 31, 2006, we had net debt of $357 million, and we're in compliance with all covenants. Our bank leverage ratio was 5.78 at March 31st, versus a compliance of 6.25, and our bond leverage ratio was 5.98 versus a compliance covenant of 7. During the quarter ended March 31, 2006, the company repurchased 979,375 shares of its Class A common stock for $15.1 million.

As of May 5, 2006, Salem had repurchased 1,619,168 shares of its Class A common stock for approximately $26.7 million, an average price of $16.48, and had 24,357,520 shares of its Class A and B common stock outstanding. For the second quarter of 2006, Salem is projecting net broadcasting revenue to be between $54.2 and $54.7 million, reflecting mid single-digit growth compared to second quarter 2005 net broadcasting revenue of $51.2 million. SOI to be between 19.8 and 20.3 million compared to second quarter 2005 SOI of 19.9 million. Net income per diluted share is projected to be between $0.10 and $0.12. Second quarter 2006 outlook includes non-cash compensation expense related to the adoption of FAS 123R, which is the expensing of stock options, of $1.2 million in corporate expenses and $200,000 in broadcast operating expenses.

Second quarter 2006 outlook reflects the following: Same station net broadcasting revenue growth in the low single digits compared to second quarter 2005; same station SOI growth in the low to mid-single digits compared to second quarter of 2005; continued growth from Salem's underdeveloped radio stations, particularly our News Talk Stations; fixed costs associated with recently acquired stations in Detroit, Honolulu, Miami, Omaha, Sacramento and Tampa markets; and finally, the impact of recent acquisition, exchange and divestiture transactions. This concludes our prepared remarks, and we will now open the floor for some questions. Operator?

Question-and-Answer Session

Operator

Thank you. Operator Instructions Your first question is coming from Victor Miller from Bear Stearns.

Q - Victor Miller

Good morning. Thanks for taking the call. I am interested -- You had 7% same station growth on the News Talk, 7% on the block programming. That implies mathematically, it sounds like the ad business itself, the other part of the business was probably down 3 to 5%, something like that? Maybe you could talk about that business, whether it was competition, whether it was ratings, whether it was just bad markets in general. And then secondly, can you talk about some of the elements that will drive -- maybe account for some of that expense growth in second quarter so that you will not see much translation, even on a same station basis into SOI? And then on any other development, maybe put a little bit more meat on the bones in terms of the numbers so we can get a sense of the magnitude of what's driving the expenses. Thanks.

A - David Evans

In terms of the Q1 local advertising revenue, the two factors that held back our local advertising revenues, first was our inventory reduction program at KLTY on the CCM station front. That was entirely in the January and February period, prior to the anniversary dates of the inventory reduction program. So we saw growth in March, but decline in January and February. The second factor, in terms of our advertising revenue, is we had several major advertisers do a pretty significant campaign in January of '05, and that did not recur this year. What that relates to is -- as you know, charitable organizations for us are a pretty important advertising category, and we have several of those advertisers who only advertise immediately following disaster, the disaster relief agencies. And if you recall, the tsunami took place in very late December '04, so those several advertisers did a pretty big campaign January '05, and obviously that's a nonrecurring type event. Those were the two principle factors that held us back. There were several markets where we saw local spot revenue weakness. You know I've mentioned New York was weak, Cleveland was weak, Portland was weak. And those are the factors I'd highlight on the advertising revenue front. So, your second question about Q2 operating leverage, I think we'll see modest operating leverage in terms of our same station numbers in Q2. I think our revenue growth will be modestly ahead of our expense growth. So, a small amount of leverage. On the non-same station front, we're still -- at this point because they are new stations, we're focused on building audience for those stations. So, various investments taking place in programming and marketing and promotion on those stations. So, in terms of seeing operating leverage from those stations, I think that you're going to see that later in the year or next year as those stations move up a development curve.

Q - Victor Miller

Thank you very much.

A - David Evans

Okay.

Operator

Thank you. Your next question is coming from James Dix from Deutsche Bank.

Q - James Dix

Thanks very much. Good morning, gentlemen. I have couple of questions. I guess, first, if you could talk about the performance you saw at KLTY in March, up 10%, and do you think that's a decent estimate for where that station should go for the balance of the year? Then also, if you could provide an update on the Atlanta FISH station, I know you had a signal upgrade there last year. I just wanted to see what the ratings and revenue impact you were seeing this year for that were. And then one other thing, you talked about the 260 million or so in investment in stations, which generated a loss in the last 12 months. Can you give some outlook for how that loss is going to go into a profit overtime? Because, obviously, that's a fairly large investment in stations and I just want to see how you see that developing into some type of EBITDA multiple overtime. And then, Evan, I had one follow-up. I want to make sure that your same station BCF, station operating income guidance, that's for the low single digits or low to mid-single digits? Thanks.

A - Evan Masyr

I will just answer that last question first. That's the easiest. That should just be low-single digit growth for same station SOI.

Q - James Dix

Okay.

A - Evan Masyr

And, James, I will throw to David your first two questions and I will take the third one.

A - David Evans

Do you want to start out with the third one?

A - Evan Masyr

Yeah. You asked about the 260 million. I think if you go back to my comments that I just made -- you asked what our prospects? It’s just as I spelled it out. If you take those stations and look at the average audience share on a 12-plus basis, they're at a 0.7 average. Their power ratio is at a 0.6. Now, our goal all along has been build the audience in incrementally, take the 0.7 to 1.0, then move the 1.0 to 1.5. Most of these stations are programmed with syndicated product, and a two-share 12-plus is a very, very positive place for us. And that's sort of the first stage in gain. So, it's really build the audience share. Then if you take the power ratios and power ratios tend to accelerate as you get your audience share a little higher. And I gave you the example that if we can take the 0.7 audience share to 1.0 and the power ratio from a 0.6 to a 1 -- to a 0.8, that represents a $20 million revenue growth -- incremental revenue growth. Now if we go to the next stage, which I outlined, take the 1.0 share to 1.5, take the power ratio from a 0.8 to 0.9 that represents another $33 million of incremental revenue. Those are exactly the ways we're focusing on those. And most of those startup stations, with a few exceptions, are in the category of News Talk. So, that analogy would apply. We have acquired a couple of Christian Teaching Talk Stations with the block-programming component, and those are coming along very nicely.

We were very pleased with what we did. As soon as we took them over, we reconfigured the program structure just a little bit to conform a little bit more with our traditional pattern in most of the other markets, and we were able to get very substantial revenue increases right out of the chute. So they're coming along very nicely, and they will begin -- they're already beginning to perform like the other Christian Teaching Talk Stations. But the bulk of the activity that's associated with the $260 million are News Talk Stations, and the analysis I gave you is really where we're going with it. Now, as to KLTY in Atlanta. In Atlanta, the power increase, yes, has helped and we're working very hard to take Atlanta and bring it up to the same audience share and the power ratio performance as Dallas. We see steady progress. We're very encouraged there. I think that we will achieve that. I don't know what the timetable will be. I mean, these things are a real challenge. If it were easy, as we often say, everybody would do it. But we're confident that we will get it there. It is a great market for this product. And the signal increase was really an increase in tower height. It is a factor that is working for us, but it is a factor that usually takes time to -- to be able to exploit that opportunity. Usually takes a year or so before you see a lot of improvement. People have to develop new listening habits. David, why don't you comment on the KLTY performance in March and the implications for the balance of the year?

A - David Evans

Yeah, basically, KLTY -- as we mentioned earlier in the call, KLTY achieved 10% revenue growth in March. I think in terms of what we're projecting internally for KLTY for the balance of the year, we're projecting somewhere between GDP and mid-single digit revenue growth. So, we're very pleased with that increase in March, but I don't see it continuing at that 10% level for the rest of the year. I think it will be in the -- probably in the 3% to 5% revenue range at this point, and one month is a pretty small sample size, so I think that's how we see KLTY for the balance of the year. Typically Atlanta, if you look at our ratings on a four-book average basis, they are down a touch '05 compared to '04. What we've found with the CCM stations is it really isn't a straight line of growth to maturity. It’s a series of building blocks where you build and then you establish a foundation of that new level, and you build again. So, there is another level that we think we can move to in Atlanta. We're not seeing it in the numbers yet, but we're working hard on it. In terms of the revenue growth, I think we saw about a 2.5% increase in revenue in the first quarter. Some of that was due to the January factor that we mentioned earlier. So, I think we'd look to see a slightly higher number than that for the balance of the year. And we feel pretty good about the direction we're heading in Atlanta.

Q - James Dix

Okay great. Thank you.

A - Evan Masyr

Okay.

Operator

Thank you. Your next question is coming from Bishop Cheen from Wachovia Securities.

Q - Bishop Cheen

Good afternoon, Edward, David. Couple of questions. One, you've -- It looks like, for the first time in a long time, it is pretty modest overhang going forward of what you need to close and lay out cash for pending transactions, unless I am missing something. Is that a fair statement?

A - David Evans

You are absolutely correct.

Q - Bishop Cheen

Okay. And then secondly, you have filled in strategically with new media and certainly Townhall and publishing. I am wondering what your thinking is going forward, as to other media and open up the full pallet of outdoor, print, video streaming, audio streaming, television, you name it. And is there anything out there that tends to excite you?

A - Edward Atsinger

As I mentioned in my prepared comments, as a niche broadcaster, any platform that focuses on our audience is of interest to us. Now, we see most opportunity in a variety of internet possibilities, not just for our overtly Christian content type of site, but also the News Talk hence the Townhall.com acquisition. If there are -- just as a general rule, if there are sites that exist that target this audience, that we think would integrate nicely into our operation and that we think our existing traditional platform could significantly grow, we would look at them with interest. We are less likely to do much in the print area. You know we announced the acquisition of Singing News, we were thrilled with that one, that's a real franchise, a really dominant franchise in its particular niche. There aren't a lot of those around. If we encountered some that were dominant and they were priced properly, we'd certainly take a look at them. I would say, in terms of print, we're more likely to take advantage of the infrastructure we now have well established with the existing publications that we have.

And with the recent acquisition of Singing News we have a very good infrastructure in terms of technical, ability to produce quickly, and turn out new titles if we want to, the creative part as well as the marketing and sales arm. So part of our strategy in adding a few more additional publications to what we're doing was to have this strong infrastructure, because I do think there will be opportunities that present themselves related to the internet where there is a possibility to repurpose much of that content, add a little bit more. And if you can do it on a very cost effective basis, come out with a publication that will be further complementary to that platform and then open up new platforms. Those are the -- that's the thinking that really kind of, I think, guides us right now. If there is something out there that targets our niche, if there is an opportunity to repurpose some of what we have with the infrastructure that would allow us to roll out new platforms, we would look at those favorably. When you mention video --

Q - Bishop Cheen

And I should have mentioned audio, as well of music.

A - David Evans

Yeah. In terms of how we think about that -- as you know, we have three strategic radio formats. We have our foundational Christian Teaching Talk format, we have our News Talk format, we have a contemporary Christian music format. Step one is to take those three traditional radio formats and replicate those onto the internet. We have done that with our Christian Teaching Talk format. We have Crosswalk.com, we have Oneplace.com, we have Christianity.com, we recently acquired CrossDaily.com. We have some job sites, ChurchStaffing.com and ChristianJobs.com. So, we feel we've established a market leading presence on the internet with the internet equivalents of our Christian Teaching Talk Radio Stations. The next step, and that's the one that the Townhall links into, is to replicate our News Talk radio formats onto the internet. And Townhall significantly accelerates that move, and that will allow us to achieve that traditional radio internet combination vis-à-vis News Talk. The third component that is at an early stage and least developed is to create the music equivalent on the internet of our first Contemporary Christian music stations. So that's the third component you'll see. Now in terms of the content. With the Christian Teaching Talk piece, we have significant text-based content, particularly on Crosswalk.com.

We also have significant audio content, particularly on Oneplace.com, where we stream all of our block programming clients over the internet. On the News Talk front you will see that text-based content, and you will see that audio content. And, in time, you will see the same thing on the music front. At this point, we have no video components. As video grows on the internet, if we see an opportunity there where we can make money and add video as a profitable component we will do that. But we do not have that at this time.

Q - Bishop Cheen

That's very helpful.

A - David Evans

Okay.

Q - Bishop Cheen

Thank you, David. Thank you, Ed.

Operator

Thank you. Operator Instructions Your next question is from Lee Westerfield from Harris Nesbitt.

Q - Lee Westerfield

Thank you, gentlemen. I have two questions. First on KLTY. One of the data points we track is commercial time, as you know. And in March our findings were, from radio airtime data that your commercial spotlights were down 3%, and you generated 10% revenue increases. The yield per minute, therefore, up 13%. In April, my calculations show 1% down in terms of commercial loads and if you're on the same kind of pace in terms of yield per minute increases, again, you would be up in the near 10% range. The reason I ask this question is because if you are able to look backwards over your last year, your commercial loads were generally down approximately 20% there, and you would still therefore this year be looking, I would think, in the neighborhood of 10% or more growth in KLTY. So, I wonder if there is something about the mix of commercial spot reduction that you did over the last year in terms of its pricing quality that leads you to think more in the neighborhood of mid-singles. And the second question is related to Honolulu, and may seem like an interesting swap. But, anyway, you swapped out properties there and paid an incremental million dollars. I wonder if you could help us understand the virtues of that transaction economically.

A - David Evans

I will start with KLTY, and I think Ed will take Honolulu. Your numbers for March and April vis-à-vis KLTY are pretty accurate. I guess the important question is what do we see for the balance of the year. From an inventory standpoint in terms of commercial load, we're anticipating flat inventory for the balance of '06 compared to the balance of '05. So, it's really -- in terms of projecting revenue growth, it’s all about rates and cost per thousands. We are obviously very pleased with March, but at this point, it’s obviously very early in terms of what to anticipate for the rest of the year. And I am going to rely more on our internal budget that are in the, as I mentioned, 3% to 5% range than the results of one month in isolation. And it would be terrific if we can continue mark through the balance of the year. That would be terrific. That would be excellent. We would be very pleased, but it is premature to assume that. And we're not assuming that.

Q - Lee Westerfield

Fair enough. Thank you for the clarification. And as to the Honolulu swap and transaction, the economics?

A - Edward Atsinger

With regard to Honolulu, there are a lot of complex things going on there. Let me try to simplify it as much as possible. We currently have three AM stations and four FM stations in Honolulu, which is the maximum that we can have. We're at our full contingent there. Only one of the three AM's is a true full market service. Two of the AM's that we currently have are crippled because of transmitter site location and/or other technical limitations. It's a little esoteric, and I don't think I need to get into. In Honolulu, one of the great challenges is to find transmitter sites, particularly for AM stations, because of the lack of land that's available -- the cost of that which is available. Most of the land, or the majority of the land is controlled by the government and/or is in private trusts that have been set up many years before. So it's always a challenge to find places that are environmentally acceptable and available at a price that makes sense. So, two of the AMs that we have have been limited for technical reasons and for lack of the right transmitter site.

One of the stations, KGU, that we have, however, is a magnificent signal. It is one of the best, if not the best signal in the island. It is the first station that ever went on the air in Honolulu, or in Hawaii anyplace for that matter. That is magnificent and it has a tremendous transmitter site. By buying the station that we announced through a swap of one of the stations that was technically limited, plus some cash, we not only get a station that is on this transmitter site with our KGU, which makes it one -- it's as good as KGU. It is a first rate signal that covers the whole market in a magnificent way. So we get that, but we also get control of the transmitter site, which will allow us to move one of our limited stations onto the site and make it a full market facility. So the end result is, by buying this station we end up with two stations that are now full market facilities. So, it's like getting two for one, if you might look at it that way. The other main twists and turns, Lee and these are some of the things that go on with when we make these decisions -- the station that we are spinning off was on 1170, and we moved it to 1180.

The reason we moved it to 1180 was to improve our San Diego facility, KCBQ, dramatically in its night coverage. This station was on the same frequency and inhibited it. So, we bought the station. One of the primary purposes for which we bought it was to facilitate the improvement of our San Diego station. We accomplish that by moving the frequency to 1180 when we controlled it, and now we're spinning it off. Again, it’s signal is limited but it's fulfilled its purpose. So that's pretty much what's going on there. It's complicated. It's hard to answer, Lee. There's some other twists and turns to it. But the bottom line is we end up -- with that transaction, we end up with two magnificent full market FMs. So, we will be in the market with seven stations, the maximum that you can have, four FM and three AM.

Q - Lee Westerfield

Ed, that's creative. Thank you very much.

Operator

Thank you. There are no other questions at this time. I do apologize, we do have a follow-up question that just came in coming from Bobby Melnick of Terrier Partners.

Q - Bobby Melnick

Hi. Thank you for taking the call. You recently sent your proxy statement and annual report to shareholders, and I wanted to touch base. Obviously, the plight of the industry is widely publicized and there is nothing I can add. But you don't operate in a vacuum, and there have been a series of transactions and a series of behaviors by some of your publicly traded peers ranging from very aggressive share repurchase which you guys have commenced, albeit at a slightly slower pace than some of your peers, to aggressive dividend and return of capital to shareholders to, obviously a transaction everybody on this call is familiar with in terms of this morning, where one of your industry peers decided he'd had enough and essentially has announced that his company is for sale albeit with a toe in the water type of bid. Last year was an okay year for your company. You guys were up 7% -- 6% comps and sort of 8%, 9% SOI, which is terrific given the climate, but given a) your historical pattern; and b) the lack of development or maturity as you call it in your stations wasn't particularly distinguishable frankly. The fourth quarter was pretty bad. This quarter that you've announced was also pretty bad. The second quarter you're highlighting sort of looks like the first quarter because after all prior to this morning's disclosure you had said that you were forecasting revenue and SOI comps in the low single digits for the quarter that you just announced, when in fact it was 1% and 0%. So assuming since you're targeting similar or guiding towards similar patterns for the second quarter, it looks like the second quarter is going to be somewhat of a repeat of the first, although arithmetically given particularly some of the discussion you've had about KLTY, it's kind of hard to get there. But I will trust your judgment and assume that you guys are conservative.

The question is the following really for Ed. You took a half million-dollar bonus last year, you have very little share ownership in the remainder of your Board of Directors, apart from you and your brother-in-law. The industry's behavior by your publicly traded peers acknowledges that there is a tremendous gap between the private market value of these assets and the public market value of these assets. I would submit that, in our company's case, there is an even greater disparity because we as owners have indulged your desire to further a strategy which, by definition, will result in lower revenues and lower BCF out of our assets, albeit a strategy that is viable and one that we tolerate. So, with that long-winded preamble and apology, what is the company planning to do henceforth to mitigate and narrow the ever-growing gap between the private market value of our assets and the public market value of our assets as our stock like many in the industry but arguably even less so, has performed poorly since this company has been public. And since the last several years particularly when the radio industry has worsened its plight. Ed, I specifically address this to you because the buck stops with you.

A - Edward Atsinger

Well, Bobby, I would like to take issue with just a couple of your facts in the preamble, but essentially I think --

Q - Bobby Melnick

I am all ears, correct me. I would like to be educated.

A - Edward Atsinger

I would just simply say -- we've commented recently that in the last couple of years I think our performance in the industry, yes, has not been very stellar since 2001. I think we have had a pretty good growth run. We hit a little bump here the last couple of quarters, and there has been a lot of energy invested in trying to respond to these dramatic changes in the industry, namely recognizing that a multi-media platform, if we lose audience in the traditional media to new media, well with as a niche broadcaster, let's stake out our position in the new media so that we pick up the audience that we lose, and even more, have an interactive dynamic to maybe drive audience in both places, both traditional and new media. I think that’s a very sound strategy for the long haul for our shareholders. And so, some of our energy yes, has gone there, and some of our energy will continue to go there the next quarter or so. But look, I am a shareholder just like you, and as you've commented, I'm a very –

Q - Bobby Melnick

Actually, you're not a shareholder just like me. You take out a million three every year, and you issue yourself 90,000 shares of options every year. So you're not like me at all.

A - Edward Atsinger

I have never exercised a single option, for what that's worth.

A - Bobby Melnick

You sold stock on the secondary.

A - Edward Atsinger

Well, yes. We had –

A - Bobby Melnick

So you're not fair to issue with me, so let's not pretend. I don't get paid a million dollars a year.

A - Edward Atsinger

I am, Bobby, in so far as we're both shareholders. All right? Now I am in a different position, and I certainly would acknowledge that. But look, we're looking at all -- we're considering all options. We've got our antennas up. We will turn over every stone evaluate every opportunity to maximize value. And there is nothing that is off the table, as far as that goes. As we see our company right now, we're content with our strategy to buy back shares. You said that we haven't been as aggressive as others. I think I would suggest to you that on a percentage basis that we have been. In terms of our -- we have -- our flow is not as aggressive as others, so that while the number of shares may appear in combination to be a little lower, you look at it on a pro rata basis, a percentage basis and I think it has been a pretty aggressive plan. And we feel pretty good about that. But all of the other options are on the table. And we constantly evaluate the capital structure of the company, and we'll do what we think is in the best interests of shareholders as we go forward.

A - David Evans

I had a couple of comments on Ed's behalf.

Q - Bobby Melnick

I would love to hear from you. Sure.

A - David Evans

Number one. If you were to examine Ed's net worth, I think you would discover that a very substantial portion of it is tied up in Salem, and he has more to gain and lose from the ups and downs of our stock price than anybody. So, he is certainly financially committed to this company in a very significant way. Number two. You talk about the discrepancy between our private market value and the publicly traded value of our shares. We're extremely focused on that, and we agree that there is a significant discrepancy. Now what are we doing about that? That discrepancy is -- it's essentially -- it's covered in our startup and developmental properties, the properties that we've acquired over the last two or three years that are yet to reach maturity. Now what we have to do is we have to drive them to maturity and through, for our operating procedures, processes, what we do in terms of operations, we have to drive those properties to an appropriate return in invested capital, and we are focused on doing that. Now, obviously, when you buy radio stations and you're investing, although you would like every single acquisition to deliver appropriate results, there are certain properties that unfortunately do not get that.

And we are also focused on that. If we identify that a property isn't going to get where we need to in terms of an appropriate return, we're going to investigate other alternatives. Should we change formats? Should we exchange? Should we sell? And we're focused on examining that. You've seen a couple of minor sales recently. But we are focused on that as an alternative. It is not something we ignore. It is very much on our minds. And number three. The third thing we're doing to narrow and eliminate this gap between private value and public value is, we've repurchased a million shares in the first quarter. That's about 4% of public stock, or our total stock -- not our public stock -- our total stock in terms of -- with our insider ownership, that's probably 8% of our publicly traded stock. I don't know this for sure, but if you were to compare that to every other publicly traded radio company, I would say we were more active in terms of stock buyback than any of the other radio companies in the first quarter. So, we are focused on narrowing this gap, and we'll keep working at it.

A - Edward Atsinger

Bobby, I appreciate your concern. And you've raised questions that are always constructive and helpful. And I would just say to you, I think one of the overhangs here that is, that maybe can be frustrating at times, if you look at it in the short-term is that we did invest a lot of money particularly into News Talk Stations. But we needed to get to that critical mass, and the good news is that we got there, the pressure is off to have to buy many more. We really don't have to do that. We are in a strong position with the three strategic formats. And what is good about that for shareholders, from my perspective as a shareholder is in fact as the single largest shareholder in this company, is that we're in a good position now, with the critical mass in traditional media to now take advantage of these opportunities in new media that seem to be eroding the values of the old media platform. And frankly, I think that I am optimistic that I can take this company and exploit these new platforms that use the old platform to develop and drive them. And it's an advantage that we have that no other radio company as I see it has in exactly the same way. So, it's frustrating to -- so you bought some of these stations that are underdeveloped. Where is the cash flow? Well we had to get them. We had to get out there and get them while we could, to get the critical mass, we've got it now, we're going to develop those, take them to maturity, and as we do we then can begin to exploit in a fuller way these new media assets, which I think at the end of the day will grow our stock price forward, will take it forward and will be very good for shareholders.

Q - Bobby Melnick

I don't disagree, by the way and others, including Bishop, on this call have observed which anyone who reads the press release can observe, which is that in the last 9, 10, 11 months this company has clamped down significantly on the acquisition of new sticks, okay? And we all recognize that there is a maturation process or maturity process, I should say, in your sticks. But the truth of the matter is that over the next 6 to 12 months, the non-performing or the underperforming stations that Salem has acquired in '03, '04, '05 really should start to kick-in. And the types of growth rate that we should be seeing and we should be witnessing significantly surpass the types of growth rates that you're at least suggesting or we're going to witness in the second quarter, now that may be your nascent conservatism. That’s terrific. Or you may be expecting a monster second half as everybody in this -- in the broadcasting industry is always looking for six months, it's going to be much better. But the truth of the matter is that in any absence of those types of numbers, okay -- and also remember that you bought a lot of these properties in an environment in which it was still reasonable or plausible to expect that the comp station growth of all assets in this marketplace should grow 3 to 5%. So, the under-matured stations of Salem could grow a couple points higher than that as you have historically done. That climate may no longer exist. I don't have a crystal ball. But the last year, year and a half have suggested -- at least that the pending quarter suggests that's not the case. So, the suggestion I would make, respectfully, what shareholders -- outside shareholders would like to see is, and you have highlighted on this call, that there are different performance rates for all of your three strategies. And it may come to the point, Ed, that given the disparity between some of your stations, the FMs not the AMs so much. It may come down to it that if some of your CCM stations can't produce the way you expect, can't drive the shares and the power ratios you expect, those stations are a lot more valuable. Okay, they're lot more valuable to another operator than they are to us.

A - Edward Atsinger

Those fundamental calculations are certain things that any broadcaster is going to make. And as David said, everything is on the table. We'll look at it all.

Q - Bobby Melnick

It is not selling a million and a half dollar station in Richmond, Virginia or one in Parma, Ohio.

A - Edward Atsinger

Well, we're going to look at all options, and we're going to pursue things that are in the best interests of the company in that area. But if they don't perform -- if the newly acquired stations don't perform to the same level that the market expected, why is that? And that is largely because they're losing an audience, perhaps to new media. We still need to have those properties because we're going to develop the new media. I still feel okay with the strategy. But I hear you Bobby, we're sensitive to your concerns, and we're going to look at every option and we're going to do what's in the best interests of the company. I think if you look at where we've come from, I think our pattern is pretty clear, we've done that. So, I appreciate your concerns, and the questions are always stimulating and always help management to consider other options that we ought to look at. Any other questions?

Operator

Thank you. There are no other questions at this time.

Edward Atsinger, President and Chief Executive Officer

All right. Thank you, operator and thank all of you for participating.

Operator

Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.

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