Evan Masyr - EVP & CFO Edward Atsinger - CEO & Director David Evans - President, Interactive & Publishing.

Michael Kupinski - Noble Financial Lisa Springer - Singular Research.

Good afternoon and welcome to the Salem Media Group Second Quarter 2015 Earnings Call. All participants will be in listen only mode. [Operator Instructions]. After today's presentation there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Evan Masyr. Please sir, go ahead..

Thank you. And thank you for joining us today for Salem Media Group's second quarter 2015 earnings call. As a reminder, if you get disconnected at any time, you can dial back in or listen from our website at www.salemmedia.com.

As usual I'm joined today by Edward Atsinger, our Chief Executive Officer; David Santrella, President of our Broadcast Media division; and David Evans, President of Interactive and Publishing.

We will 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 and other public filings we have made with the Securities and Exchange Commission.

This call also contains non-GAAP financial measures within the meaning of Regulation G, specifically station operating income, EBITDA, adjusted EBITDA and free cash flow.

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 www.salemmedia.com. I will now turn the call over to Edward Atsinger.

Ed?.

Thank you, Evan and thank you all for being part of the today's call. I will follow the format we are going to follow and I will provide a little more review of second quarter financial performance, I might make a few comments about acquisition activity and then I will conclude with some brief comments about our dividend.

I will turn it back to Evan who will get more specific on performance details for Q2 and provide some guidance for the third quarter 2015. Well, with that for the quarter our total revenue declined 2%, recurring operating expenses however, declined 3.2% resulting in a increase in adjusted EBITDA of 3%.

Additionally we had strong growth in free cash flow which was, growth was 14.9% for the quarter. Let me comment briefly on results by division. Broadcast revenue was essentially that reflects 0.1% for the quarter and given though this is not an election year, we consider this a good performance and was within our expectations.

And put a little more perspective with regards to the political issue, this Q2 we had 244,000 in political revenue, last Q2 which was a political year we had doubled that amount in political revenue. So if you adjust out the impact of political revenue on broadcast revenue we were up a modest 0.4%.

And one other I think fact that we at least note, when we look at our broadcast performance against the radio broadcast industry as a whole in the markets in which we operate and lower capital is showing the entire industry was down 0.9%, so 0.1 not bad.

I want to make one additional observation on potential political revenue for the remainder of the year that this field is accountable with [indiscernible] candidates fine for the 2016 republican.

Nomination is now with 17, I wouldn’t surprise that I went high this type of candidate is certainly unprecedented and consequently with that may candidate is trying to gain traction with others it's very likely that we will see a higher amount of political spending in the back-half of this year than would normally be the case and we hopefully would get a piece of that if that's the case.

In fact we are already starting to see money come in as candidates are posturing to gain traction and support from all listeners so as to qualify drive poll numbers and qualify for the upcoming debates.

Just a few other comments about broadcast revenue, our block program business was up and solid 3.1% for the quarter again demonstrating this steady reliable, nature of that revenue stream.

One for the note about broadcast revenue, on the network side of our broadcast business, which is a smaller piece of the division the radio, we did experienced a sizeable decline in network revenue, which was up 10.9% from the prior year. Most of the decline is related to the two factors.

Last year, Hollywood produced a significant number of facing the service and we were the beneficiary of the significant amount of advertising promoting those films. This was certainly true for Q2 last year, but the category was really strong for all of 2014. This advertising category however is almost completely lacking in Q2 this year.

And there is another factor that impact in Q2 revenue for the network side of our business. Michael Medved one of the syndicated radio host without or much of the quarter undergoing and recovering from throat cancer treatment.

We’ll happy to report he is now cancer free and fully recovered in this back on area with most of the advertising, I mean associated with the show stabilizing and returning. Nevertheless, he absence for over six weeks had a material impact on Q2 network revenue.

On our call last quarter, we devoted a fair amount of time discussing or focus on cost containment, this after began to show substantial improvement last quarter, which is continue to positively impact Q2. Expenses could be quite a bit more unpredictable so we tend to be cautious about guidance with regard to expenses.

That said, we can’t report for Q2, we were able to reduce our broadcast expenses by 1.8%, which was a major factor in driving SOI up by 4.2%. We do believe that these reductions or the results of improved efficiencies but for the most part can be sustained without negatively impacting revenue.

While we certainly would welcome strong revenue numbers for the broadcast division given that this is an non-election year, the flat performance is within budget and we certainly can take some satisfaction the fact that we continue to outperform the radio broadcast industry as a whole on a comparing total capital done.

So all-in-all, it was within expectations with we are fairly well satisfied. After 16th consecutive quarters of solid growth in the digital division, however we hit a few bumps in the early part of this year.

First, as we mentioned in our last call, we continue to struggle with the transition from internet usage from desktop to mobile devices and this transition puts pressure on top-line as mobile business is harder to monetize and desktop business.

We currently estimate that the mobile visitors is half is valuable is a desktop visit, it has also been impacted by changes of the Facebook, news feed algorithm, which is making and harder to use Facebook as a web traffic driver to websites. These two issues drove our digital revenue down 6.7% for the quarter.

Since these challenges a lot new and we have been doing with them for several quarters now, we initiate steps to improved operating efficiencies and I’ve been able to make some reductions in staffing and cut some other costs, which is resulted in the 5.4% decline in operating expenses in the digital division.

Publishing revenue was down 6.3% in second quarter compared with prior year. Due to the fact, we had two titles released into June 2014, the hits of New York Times Bestseller and remained on the list for an extended period of time. This creates a tough comparison not only for this quarter, but we’ll also have an impact on Q3 as well.

That’s not to suggest that the Q2 was not productive for publishing, it’s just makes for a tough comparison.

In June this year, we released and culture audios America or less plan and turn our country into a third world [indiscernible] proactive title has doing well and it’s selling well and there is going to near time best sellers was now for eight weeks. But the book republish this quarter Q2 did not compared with blockbusters we had last year Q2.

We got some additional works, the titles in the works that have potential for strong sales, the top lists of book by well-known author and client about Hillary Clinton of title Unlikeable and we think we’ll get good traction.

And what we don’t have an exact time table we will publish at least three books this year which should have exceptional sales potential, one is offer by Sarah Paylnd another by David Lumba and the third by Phil Robertson of Duck Dynasty.

Because of the political and public policy focus of publishing this business typically does much better in election years. Although with the upcoming titles, we think this year may have potential rise [indiscernible] sales of the typical election here we’ll see.

Probably expenses were down 5% for the quarter was compared to second quarter of last year, again cost associated with book sales, I just print cost royalties were down due to the comparative decline in book sales given the block blaster release in Q2.

We continue to look at potential acquisition targets in all three division with respect to publishing, we have nothing new to reports since our last call, we’ve been fairly acquisitive in the radio division recently, and last year Disney decides to liquidate its radio Disney, radio format and divest its 23 radio properties, this presented a rare opportunity to get a some good properties in big markets at the reasonable prices.

On recent calls I mentioned our acquisition in Orlando, Pittsburg in Atlanta all of which were acquired from Disney, but now agreed to buy KMKI-AM in Dallas and WMKI-AM in Boston for $3.5 billion from Disney.

In addition we did acquire two digital businesses on May 6, we bought one of the leading daily devotional bible passes we paid 1.1 million for daily bible devotion and campaign additional 300,000 based on its performance. In addition we complemented our investment news letter business with the purchase of dividend investor.com for million dollars.

We believe that dividend investor.com adds a new tool to already strong mix of investing products. Let me conclude my comments with an update on where we are evidence. I mentioned earlier that Q2 free cash flow increased 14.9% or $7.5 million for the last 12 months our free cash flow was $28.2 million.

At our current share price of $6.35 this represents a $17.2% free cash flow yield, we believe this is one of the higher free cash flow yields in the media sector and compares I think pretty favorably with the market as a whole. Remember that we return approximately 20% of our free cash flow to shareholders in the form of cash distribution.

On June 3, we’ve paid $1.7 million or $0.06 per share this represents a 4.1% solid dividend yield. Salem Board records reviews and approves the dividend quarterly and we will announce those decisions at the earliest opportunities following that review.

With that I’ll turn the call back to Evan for additional detail on the quarter and to give you some guidance for Q3 2015..

Thank you, Ed. For the second quarter, our total revenue decreased 2% to $67.3 million, operating expenses on a recurring basis decreased 3.2% to $53.8 million and adjusted EBITDA increased 3.0% to $13.5 million.

Net broadcast revenue decreased 1.10% to $49.1 million and broadcast operating expenses decreased 1.8% to $35.2 million resulting in station operating income of $30.9 million or 4.3% increase. On the same station basis, net broadcast revenue declined 1.2% and SLI increased 3.9%.

The same station results include broadcast revenue from 100 in one of our radio stations and our network operations representing 99% of net broadcast revenue.

And obviously quick look at our broadcast revenue by format, 42 of our stations are programmed in our foundation in Christian teaching in talk format, these stations contributed 44% of total broadcast revenue and decreased 1% for the quarter.

We have 29 new talk stations and they increased 2% revenue for the quarter and overall these stations contributed 16% of total broadcast revenue. Revenue from our 13 contemporary Christian music stations contributed 24% of total broadcast revenue and had an increase of 2% revenue for the quarter.

The nine stations we have programs in Spanish language Christian teaching were top decreased 2% and the format comprises 2% of total broadcast revenue. Finally with respect to our major [indiscernible] stations in a business talk format and this format contributed 2% of total broadcast revenue and decreased 7% for the quarter.

As I mentioned earlier our network revenue decreased 10.9% for the quarter and represents 7% of total broadcast revenue. Publishing revenue went down 6.3% to $6.7 million and represents 10% of our total revenue. And revenue from our digital media businesses increased 6.7% to $11.5 million, represents 17% of our total revenue.

At June 30th, we had $274 million due on our term loan and we also have $4.5 million outstanding on our revolver. Our leverage ratio increased from 5.35 as of last quarter to 5.39 compared to the compliance covenant of 6.25.

Looking ahead for the third quarter of 2015, we are projecting total revenue to decline between 3% and 5% over the third quarter of 2014 total revenue of $59.6 million. The third quarter of 2014 was benefitted by both political revenue and the sales of two -- that I have alluded to earlier.

We are also projecting operating expenses before gains or losses on the disposal of assets and impairment losses, depreciation and amortization and stock-based compensation expense to decline between 1% and 4% compared to the third quarter of 2014 operating expenses of $55.2 million.

And with that that concludes our prepared remarks and we will turn the call back over to the operator to answer questions.

Operator?.

Thank you. [Operator Instructions]. Our first question is from Michael Kupinski at Noble Financial..

Thanks for taking the questions. First of all I know that you had some difficult comparisons in publishing from the year earlier, can you just tell me how many titles there were in the year earlier third quarter versus what we are expecting interest this quarter..

Number of titles, we have typically published about 10 titles every quarter, it's mainly driven by the best balance. And so last year we had two best sellers, head client title and the -- title, this year we only have one seller the - title, it's really difference between two best sellers in one..

I get it.

And in terms of SG&A expenses were well below my expectations, was that all driven from management changes in the year earlier or could you just add some color on what happened in the quarter?.

Certainly. Definitely part of it is what you talked about some of the management changes and if you recall last quarter we mentioned we had some layoffs just as we are about to do our earnings call just before that time period.

You take those two into consideration, that drove a large portion of the decline, but I would say also sent a message across our general managers of all of our businesses.

I think we have alluded to manage not only their top-line but really hit their bottom-line but were looking at other ways that they can cut discretionary spending and it really just helped, actually nearly changed a little bit of a mindset across the company..

With the outlook that we are seeing from many radio broadcasters is actually improving revenue trends as we go into the third quarter.

I was wondering maybe if you can just differentiate your expectation when a slight acceleration in the rate of decline in revenues from this year into the third quarter, is that virtually all driven by the publishing site, I guess because of the tough comp there or can you just give us a little bit more color on what's going on between the mix of the businesses that you have?.

Yes. The biggest cause of the decline when you look at what our revenue was in Q2 versus the overall revenue guidance in Q3 is absolutely publishing. That is the cause for the deterioration..

And in terms of just the general trends and broadcast then we look forward improving trend in radio side of the business..

Yes, Michael on the broadcast side. On the broadcast side, yes it's not gain busters, but it certainly is better. July finished pretty decent, August is pacing right now to see a slight increase. So there is some improvement on the broadcast side, and by the way that's competing against a lot of movie business in 2014 that we just don't have in 2015..

So the underlying trends look really positive outside of that one particular category?.

Yes, it does..

Yes, and then why is the internet side showing some weakness here because of the fact that, I know that you guys talked about advertising moving towards more the mobile applications versus the desktop things like that is that still the trend that we’re seeing, in terms of the weakness on the internet side or is it other things?.

That are really two things going on, mobile and Facebook, if you look at our total internet traffic a number of sessions, quarter-over-quarter so Q2 2015 compared to Q2 2014, a number of visits was down about 3% and a number of page views was down about 9%, the decline in both of those numbers is principally driven by Facebook, Facebook is making it harder for organic post to get in the news feed, they are trying to keep people on the Facebook, they still be running more ads, so harder to get our posts into everybody’s news feeds.

So that's issue number one, issue number two is this is on mobile devices tend to visit less pages per visit than desktop visitors hence the larger decline in page views than in visits.

So the switch from desktop to mobile is a challenge both in terms of the number of impression that you get for your advertisers, but also our advertisers are typically paying a slightly lower rates, so the combination of those things is a currently a little over drag on revenue..

And so would you anticipate this a larger inputs of unique visitors coming in possibly as we get closer to the elections and the interest in the elections with, could we assume that any sorts of visitors would be able to be monetize to where we actually could see at least some stabilization in the revenues in the near term or do you think that we should just look for our continued declines to give these two what could be secular challenges?.

Political will certainly help, but if you look back, if you look at the traffic patterns from 2012 to our conservative websites, the traffic lift begin on or around the end of August with the pretty good beginning of the presidential final campaign, so traffic begin to lift end of August, early September and the traffic lift lasted through the first week of November.

So there is a give or take 2.5 month window when page views go up and revenue follows that, so it’s look for that in Q3 and Q4 next year.

In terms of these current drags on revenue mobile and Facebook, we do expect the Facebook challenge to continue and we do expect from the mobile situation to improve advertisers see that they have to advertise on mobile and more and more advertisers are embracing mobile and figuring it out all the time.

So I think we will see improvement and progress in that area. In the courses to come..

Our next question is from [indiscernible] Company..

You always do a good job breakdown the format and in a performance therein could you talk a little bit Dave about the geographic breakdown and are there any material differences even when you get down into the oil patch at Dallas station, are you seeing any affect from what were accrued prices?.

Yes, actually Dallas did quite well for us in Q2, and just in general Dallas, Atlanta, Los Angeles, markets where we do more transactional business were of radio stations that have higher ratings and they are competing for that transactional agency based business. They tend to do well for us in general.

And so Dallas is having a great year and it did well whether that has, how much of that has to do with the regional economy, I don’t know a lot of it just seems to be that we have consistent ratings in that market, the station is a consistent high ranking within 25, 54 radio station, a lot of buys go down in that demographic and we’re good at countering a lot of that business..

The nature of our revenue streams block programming and other say not really regionally impacted very much or very stable and regionally stable and year-over-year stable, just because the nature of this how it’s put together many of those programmers have been on those stations for decades.

And they build up a following and if they moved off a bit but they will lose years, years, and years of work. So that’s kind of revenue for our business doesn’t really, see those kinds of fluctuations and volatility from a regional perspective.

Thought business as Dave says a little bit more, but I don’t think that we talk about them in those terms that we can, I think on any take region to soft..

And just want to come back to David Evans any weakness associated with both Facebook in mobile.

So what’s under your control David, that you can due to change that trajectory?.

Working with our advertisers to ingress mobile, helping come up with add the clicks and landing pages that get them leads and prospects. One they see appropriate success on mobile, we think they will move more advertising dollars in that direction.

So it’s really just working very closely with our advertisers to help them with the transition from desktop to mobile that’s the piece that very much in our control..

Our next question is from Lisa Springer at Singular Research..

I wanted to ask you about the dividend investor side acquisition.

And in general what’s piece of the pie is the investment newsletter business and in a certain area where you see more acquisitions and opportunity?.

The investment newsletter business on an annual basis is about between $5 million and $6 million of our revenue.

So 2% to 3% of the company, so pretty small component, it was a business so that we acquired about 18 months ago when we acquired Eagle Publishing which also included directly book operation business and human events and red-stake conservative opinion website.

So this partner and overall deal, we record that revenue within our digital business, because all of the sales ecommerce in nature and the publications are digital in nature, each all of the newsletters are sent out by e-mail.

This was a tuck-in acquisition for us, we are to tuck into an existing operation very little increase in expenses as a results and very interesting cost marketing, cost promotional opportunity, we’re able to go to our existing subscriber base, our existing partner prospect and tell them about this new investment newsletter product, we’re also able to go to the dividend investment subscribers and tell them about our existing newsletters.

So a very nice tuck-in acquisition and yes if other starts shop, opportunities came along, we would certainly look at them..

[Operator Instructions] No further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Edward Atsinger for any closing remarks..

Thank you, operator and thanks again to all of you for joining the call. We look forward to visiting with on report Q3 results in about three months.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..