Salem Communications (SALM) beats expectations but delivers dissapointing guidance

Radio broadcaster Salem Communications (ticker: SALM) reported results  on March 7, 2005 for
the fourth quarter and year end 2004.  Below are some highlights.

Results 4Q04 vs. 4Q03:

• EPS: $0.14 vs. $0.09 (+56%)
• Adjusted EPS: $0.16 vs. $0.10 (+60%)
• Consensus EPS was $0.15
• Revenue: $52M vs. $47.6M (+9%)
• Consensus revenue was $51M
• Broadcast revenue: $49.3M vs. $45.8M (+8%)
• Operating income: $10.7M vs. $10M (+7%)
• Operating margin: 20.6% vs. 21% (-40bps)
• EBITDA: $13.6M vs. $13M (+5%)
• EBITDA margin: 26.2% vs. 27.3% (-110bps)
• Adjusted EBITDA: $14.3M vs. $13.4M (+7%)
• Adj. EBITDA margin: 27.5% vs. 28.2% (-70bps)
• Net Income: $3.7M vs. $2.1M (+76%)
• Net margin: 7.1% vs. 4.4% (+270bps)
• Cash: $11M vs. $5.6M (+96%)
• Debt: $277M vs. $330M (-16%)
• Station Operating Income: $18.8 vs. $17.8 (+6%)
• Station Operating margin: 38.2% vs. 38.8% (-60bps)

Q4 revenue growth, by segment:

• National spot and network advertising revenues: +20.9%
• Internet revenues: +52.2%
• FISH station revenues: +7.5%

1Q05 Guidance:

• Revenue: $46.7M - $47.2M
• EPS: $0.06 - $0.08
• Station operating income: $16.0M - $16.5M

2005 Guidance:

• Corporate expenses: $18.5M
• Capex: $13M ($7.5M from acquisitions; $5.5M from maintenance)

Q4 Station acquisitions:

• KCRO-AM (Omaha, NE): $3.1M - announced
• WGUL-AM (Dunedin, FL): $9.5M - announced
• WKAT-AM (Miami, FL): $10.0M
• KAST-FM (Astoria, OR): $8.0M
• KIIS-AM (Thousand Oaks, CA): $0.8M
• KGBI-FM (Omaha, NE): $10.0M
• Christianity.com: $3.4M
• WIND-AM (Chicago, IL): to be acquired via exchange with Univision
• KKHT-FM (Winnie, TX): to be acquired via exchange with Univision
• KOSL-FM (Jackson, CA): to be acquired via exchange with Univision
• KHCK-AM (Dallas, TX): to be acquired via exchange with Univision

Q4 Station divestitures:

• WZFS-FM (Des Plains, IL): to be divested via exchange with Univision
• KSFB-FM (San Raphael, CA): to be divested via exchange with Univision

Quick comments:

• Before the call, the consensus EPS estimate for 1Q05 was $0.11
• Current station count (including announced transactions): 106
• SALM has already received FCC approval for announced station exchanges; 2 stations being divested contributed $400k in operating income in 2004; SALM valued 4 stations being acquired at $115M
• Christianity.com acquisition: complement internet portfolio of Oneplace.com, Crosswalk.com and Christianjobs.com acquisition will contribute cash flow immediately and will be accretive to EPS in the first year
• Salem Web Network revenues: $5.4M in 2004 vs. $4.5M in 2003 (+19%)
• News Talk format: Revenues of $6.1M in 4Q04 vs. $4.8M in 4Q03; expanded from 15 to 31 stations during past year; presence in 8 of top 10 markets and 19 of top 25 markets